California Punitives by Horvitz & Levy

  • Vohra v. Cadigan Arbor Park: Trial Court Properly Granted Motion to Strike Punitive Damages

    We don’t see many California appeals involving motions to strike punitive damages allegations on the ground that a complaint fails to allege clear and convincing evidence of malice, oppression or fraud. There have only been two such opinions since we started this blog over two years ago: one that affirmed a trial court order denying a motion to strike, and one that affirmed a trial court order granting a motion to strike.

    Here’s number three. In this unpublished opinion, the California Court of Appeal (Fourth Appellate District, Division Three) concludes that a trial court properly granted a motion to strike.

  • Neman v. Elyaszadeh: $1.3 Million in Punitive Damages Affirmed

    In this unpublished opinion, the California Court of Appeal (Second Appellate District, Division Five) affirms a punitive damages award of $1.3 million in an action for breach of contract and fraud arising out of a dispute between the co-owners of a real estate development corporation. The compensatory damages were nearly $13 million.

    The defendant argued on appeal that the punitive damages award was procedurally improper because the trial court conducted a bifurcated trial even though the defendant had not requested bifurcation. The Court of Appeal concluded that the defendant had waived the argument because at one point he had filed a trial brief requesting bifurcation.

  • Amerigraphics v. Mercury: $1.7 Million Punitive Damages Award Reduced to $500,000

    In this published opinion, the California Court of Appeal (Second Appellate District, Division Two) holds that a punitive damages award of $1.7 million is excessive and must be reduced to $500,000.

    The jury in this insurance bad faith case originally awarded $170,000 in compensatory damages, plus $3 million in punitive damages, for a 17.6-to-1 ratio. After the verdict, the trial court awarded $346,541.25 in attorney’s fees as additional damages under Brandt v. Superior Court (1985) 37 Cal.3d 813. The trial court also concluded, however, that the jury’s punitive damages award was excessive and should be reduced to $1.7 million, ten times the jury’s compensatory damages award.

    The Court of Appeal concluded that the trial court’s reduced award was still excessive. First, the court noted that the defendant’s conduct, which involved no physical harm or disregard for health and safety, implicated only one of the five “reprehensibility factors” identified by the U.S. Supreme Court in State Farm v. Campbell. The court held that the defendant could not be treated as a repeat offender merely because its conduct in this case involved a course of dealing with the plaintiff, rather than a single isolated incident; the court observed that the case involved only one insured and one claim, without any evidence that the defendant had engaged in similar conduct towards other insureds in the past.

    Next, the court addressed the ratio of the punitive damages award to the compensatory damages award, and concluded that the defendant’s conduct could not support a 10-to-1 ratio. The court rejected the plaintiff’s invitation to add the trial court’s Brandt fee award to the jury’s compensatory damages award, which would yield a 3.2-to-1 ratio. The court said that the Brandt fees could not be considered for ratio purposes because they were awarded after the jury’s verdict.

    Having concluded that a 10-to-1 ratio was too high, the court then turned to the question of what the maximum ratio should be. Although the court discussed the U.S. Supreme Court’s Exxon Shipping opinion and other recent decisions imposing a 1-to-1 ratio (including the California Supreme Court’s recent decision in Roby v. McKesson), the court ultimately decided upon a 3.8-to-1 ratio, which results in an award of $500,000. The court picked that figure not just because it’s a nice round number, but because defense counsel had suggested during closing argument that the jury could award as much as $500,000. The court didn’t assign any evidentiary value to counsel’s argument, and did not find estoppel based on that argument, but the court said it independently agreed that $500,000 was the appropriate ceiling.

    Full disclosure: Horvitz & Levy LLP represented the defendant on appeal.

  • Gellerman v. Aldrich: Another Reversal for Failure to Present Financial Condition Evidence

    Regular readers of this blog are well aware that California appellate courts frequently reverse punitive damages awards if the plaintiff failed to introduce meaningful evidence of the defendant’s financial condition. In this unpublished opinion, the Sixth Appellate District reverses another judgment on that basis, with a bit of a twist.

    The trial court made a highly unorthodox damages award after a bench trial; the court awarded a lump sum amount of damages, without differentiating between compensatory damages and punitive damages. The Court of Appeal criticizes that practice, and then goes on to point out flaws in both the compensatory and punitive elements of the undifferentiated award.

    First, the court concludes that the trial court used the wrong measure of compensatory damages. Then the court concludes that the trial court should have decided whether the plaintiff presented sufficient evidence of the defendant’s financial condition to permit an award of punitive damages. The trial court had expressed doubt about the sufficiency of the plaintiff’s evidence, but never actually decided the issue. The plaintiff tried to argue on appeal that California law does not require plaintiffs to introduce financial condition evidence, but the Court of Appeal summarily rejected that contention as a misreading of the law. So the case goes back to the trial court to make evaluate the sufficiency of the plaintiff’s evidence. (And consistent with California law, the plaintiff should not be permitted to introduce new financial condidtion evidence on remand – – see Kelly v. Haag (2006) 145 Cal.App.4th 910, 914.)

  • California Jury Awards $50 Million in Punitive Damages Against Shell Subsidiary

    This case has already gone up on appeal once, and is likely headed that way again.

    In 2008 we blogged about this case, which involves a plaintiff who purchased a gas station from Shell subsidiary Equilon Enterprises and claims Equilon defrauded him by withholding material information. He claims that Equilon failed to tell him that the site of the gas station was about to become the target of state regulatory agencies, a fact that ultimately prevented him from being able to operate a gas station on the site.

    When the case went to trial in 2006, the jury awarded the plaintiff $1.65 million in compensatory damages and found that Equilon acted with malice, oppression, or fraud. But the trial court dismissed the plaintiff’s punitive damages claim because he failed to present meaningful evidence of the defendant’s financial condition. The California Court of Appeal (Second Appellate District, Division Eight) reversed, concluding that the trial court should have given the plaintiff more time to marshal his financial condition evidence.

    According to the plaintiff’s attorney’s press release, a new jury has awarded $50 million in punitive damages. That makes for a ratio in excess of 30 to 1, a ratio that should not withstand posttrial and appellate scrutiny. Even assuming the defendant’s conduct was extremely egregious, the defendant seems to have a strong argument that the maximum ratio cannot exceed one to one, given the size of the compensatory damages award and the purely economic nature of the plaintiff’s injuries.

    The appeal may also raise some interesting issues about the proper procedures for a trial like this, in which one jury decided the issues of liability and malice, and another jury awarded punitive damages. In such situations, it is difficult if not impossible to ensure that the second jury bases its punitive damages award solely on the same conduct that the first jury found to be tortious and malicious. If the plaintiff made multiple arguments in the first trial, the first jury may have accepted some of those arguments and rejected others. Unless the jury made very specific findings, however, there would be no way for anyone to know the precise basis for the first jury’s findings, and therefore no way to comply with the requirement of California law that punitive damages must be based on malice, oppression or fraud in the conduct that gave rise to liability.

  • Boothby v. Parker: $350,000 in Punitive Damages Affirmed, Despite Reduction of Compensatory Damages

    There seems to be a growing split in the California Court of Appeals on the question of what should happen to a punitive damages award when a court slashes the compensatory damages award. In SEIU v. Colcord, the First Appellate District, Division One, ordered a reduction in the compensatory damages and then sent the case back to the trial court to reconsider the amount of the punitive damages in light of the reduction. But in McGee v. Tucoemas, both the trial court and the Court of Appeal refused to reevaluate the amount of punitive damages after a reduction of the punitive damages award.

    In this unpublished opinion, the Second Appellate District, Division Two, affirms a $350,000 punitive damages award, even though the court reduced the compensatory damages from $725,000 to $325,000. The court relies on McGee but does not discuss SEIU or any other similar authority. (E.g., Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1254 [reducing compensatory damages and reducing punitive damages to preserve the ratio awarded by the jury].)

    This is an issue that could eventually end up before the California Supreme Court.

  • Brunskill Associates v. Rapid Payroll: $11 Million in Punitive Damages Affirmed

    I mention this unpublished opinion only because we report on all California appellate decisions on punitive damages. There doesn’t appear to be anything particularly interesting here.

    The California Court of Appeal (Second District, Division Two) concludes that the defendants’ conduct warranted punitive damages because they made intentional misrepresentations with the goal of destroying the plaintiff’s business. And the court affirms the amount of the award (in excess of $11 million), which was less than the amount of compensatory damages ($15 million). If there’s an interesting legal angle in there somewhere, I’m not seeing it, even though it’s a pretty big award.

  • Montoya v. Shaw: Another Punitive Damages Award Reversed Because the Plaintiff Failed to Prove the Defendant’s Financial Condition

    This unpublished opinion illustrates yet again the consequences of failing to comply with California’s unique rule that a plaintiff cannot obtain punitive damages unless the plaintiff presents meaningful evidence of the defendant’s ability to pay.

    The plaintiff here won a $20,000 punitive damages award at trial. But the only evidence he presented regarding the defendant’s financial condition was the fact that the defendant owned several businesses. The plaintiff did not establish the value of those businesses, the income the defendant derived from them, or the liabilities associated with them. Accordingly, the California Court of Appeal (Fourth Appellate District, Division One) vacated the punitive damages award. And because the plaintiff had a full an fair opportunity to present his evidence the first time around, he doesn’t get to go back to the trial court and try again.

  • Barnes v. Morales: Punitive Damages Can Be Awarded for Purely Economic Harm

    This unpublished opinion isn’t exactly earth-shattering, but we mention it as part of our ongoing effort to catalog all of the California appellate opinions on punitive damages.

    The defendant in this fraud case challenged a $56,000 punitive damages award, arguing that punitive damages could not be awarded in this case because the plaintiff’s $295,000 compensatory damages award was purely economic. The Court of Appeal easily disposed of that argument, noting that Civil Code section 3294 expressly authorizes punitive damages for fraud and does not require an award of non-economic damages.

  • Suh v. Superior Court: Arbitration Agreement that Precludes Punitive Damages is Unenforceable

    In this published opinion, the Second Appellate District, Division Five, invalidates an arbitration agreement which, among other things, eliminated the right to recover punitive damages:

    To the extent the damage limitation clause applies to statutorily imposed remedies, such as punitive damages, it is “contrary to public policy and unlawful.” (Amendariz [v. Foundation Health Pscyhcare Services, Inc. (2000) 24 Cal.4th 83,] 104.)

    So California plaintiffs have a right to seek punitive damages through arbitration, but questions remain about the application of federal due process standards to any such awards.