California Punitives by Horvitz & Levy

  • Nelson v. Exxon Mobil: Punitive Damages Claims Can Be Assigned

    This published opinion could be headed for the California Supreme Court.

    The opinion addresses whether the right to recover punitive damages is assignable under California law. The Court of Appeal (Third Appellate District) held that the right to recover punitive damages is assignable if that right arises from a cause of action that is assignable. The court observed that causes of action arising from an injury of a personal nature (e.g., slander, assault, malicious prosecution) are not assignable. But the injury in this case was groundwater contamination, an injury to real property. The court observed that claims for injury to real property are transferred with the property when title passes from one owner to another. Accordingly, the court concluded that a property owner could assign its right to seek punitive damages in connection with injury to the property.

    The court acknowledged that several other cases, including California Supreme Court cases, contain language suggesting that the right to seek punitive damages is never assignable. But the Court of Appeal said the results in those cases could be harmonized with the new rule announced in this opinion. Nevertheless, the result in this case is inconsistent with the plain language of other published opinions, which makes a strong case for Supreme Court review.

  • Gunderson v. Wall: Inconsistencies in Defendant’sTestimony Are Not Alone Sufficient to Support Punitive Damages

    This unpublished opinion shoots down an argument that arises fairly often in punitive damages appeals. When the issue on appeal is whether the plaintiff failed to prove malice by clear and convincing evidence, plaintiffs sometimes argue that the defendant’s testimony contained inconsistencies, which shows the defendant was lying, which in turn proves that the defendant was acting with an evil motive, i.e., malice.

    The Second Appellate District, Division Seven, rejected that sort of argument here. It ruled that inconsistencies in the defendant’s testimony were not a substitute for clear and convincing proof of malice:

    In this case, the issue is whether there was substantial evidence to support a finding by clear and convincing evidence that Wall knew or should have known that Welded was receiving stolen funds. As previously discussed, the inconsistencies in Wall’s trial testimony reasonably could support a finding by the jury that Wall was not a credible witness and that he thus had failed to prove his affirmative defense of good faith. But none of the inconsistencies supported the inference that, at the time Welded received the two transfers from Gruys, Wall knew or had reason to know that Gruys had stolen those funds from someone else. Unlike the good faith defense for which Wall and Welded had the burden of proof, the burden rested on Gunderson to establish by clear and convincing evidence that Wall and Welded (as opposed to Gruys) were guilty of malice, oppression, or fraud. However, absent any evidence that Wall and Welded had actual or constructive knowledge that the transferred funds did not belong to Gruys, Gunderson could not satisfy his burden of proving that Wall and Welded acted with an intent to cause Gunderson injury or engaged in despicable conduct in a conscious disregard of his rights.

    Accordingly, the court reversed an $800,000 punitive damages award. (The court also reversed a $2.4 million punitive damages award against another defendant, after concluding that the award resulted from an improper discovery sanction.)

    There may be some situations in which inconsistencies in the defendant’s testimony do in fact support an inference of malice, because the inconsistencies rule out any possible explanation for the defendant’s conduct other than malice. But that will not always be the case, as this opinion illustrates.

  • Jackson v. Yarbray: Defendants Can Be Jointly and Severally Liable for Punitive Damages

    To my knowledge, this opinion is the first published opinion in California to uphold joint and several liability for punitive damages. If anyone knows about another one, I would love to hear about it.

    The trial court entered a judgment holding five different defendants jointly liable for $700,000 in compensatory damages and $2.41 million punitive damages. Only one of the defendants challenged the punitive damages award on appeal. He argued, among other things, that the trial court lacked authority to impose joint and several liability against all defendants for the total punitive damages award, and should have assessed punitive damages separately against each defendant.

    The Court of Appeal (Second Appellate District, Division Seven) rejected that argument: “[W]hen the theory of liability is that the defendants acted jointly in tortiously pursuing a course of conduct, imposing joint and several liability for punitive damages is not prohibitied.” The court acknowledged that in most cases, punitive damages are assessed separately, even against joint tortfeasors. Indeed, the California Supreme Court expressly stated in Thomson v. Catalina (1928) 205 Cal. 402 that it was proper for a trial court to instruct a jury to award punitive damages in different amounts against different defendants.

    The Court of Appeal here did not cite a single case in California (or anywhere else) allowing punitive damages to be assessed jointly and severally. Nevertheless, the court concluded that “punitive damages do not have to be apportioned when the finder of fact determines that the defendants acted jointly to commit a single wrong and each acted with essentially the same degree of culpability.”

    This case appears to be inconsistent not only with California practice, but with the approach taken by other jurisdictions nationwide. (See McFadden v. Sanchez (2d Cir. 1983) 710 F.2d 907, 913 [“In modern times American jurisdictions have come to the conclusion that punitive damages should be assessed on an individual basis’”].) That practice makes sense to me; a defendant should be required to pay punitive damages only for its own acts of malice, and should not be jointly liable for the malice of others.

    UPDATE: Although this opinion is certified for publication, the punitive damages analysis appears in an unpublished portion of the opinion. Thanks to Kevin Underhill for pointing that out. (For those who don’t know, Kevin writes Lowering the Bar. I used to think legal humor was an oxymoron, until I started reading Kevin’s blog. This post is one of my all-time favorites.)

    FURTHER UPDATE: This post at Cal Biz Lit discuses this case and the concept of joint and several liability for punitive damages.

  • Kausch v. Wimsatt: Attorney Not Liable for Punitive Damages in Dispute with Client

    Things have been quiet lately in the California punitive damages arena. The California Court of Appeal (Second Appellate District, Division Three), issued this unpublished opinion yesterday, but it’s not particularly noteworthy. The plaintiff was involved in a personal injury lawsuit and he sued his lawyer, claiming (among other things) the lawyer improperly deducted certain expenses from a settlement check. The trial court granted summary adjudication on punitive damages, finding no triable issue of fact on the question of malice. The Court of Appeal affirmed.

  • Fariba v. Dealer Services: No Punitive Damages Where Liability Depends on Issue of First Impression

    Here’s a case defendants can cite whenever a plaintiff seeks punitive damages in a case involving a novel legal theory.

    In this published opinion, the California Court of Appeal (Fourth Appellate District, Division One) affirmed a judgment that raised a liability issue of first impression in California.

    (It has nothing to do with the topic of this blog, but in case you’re curious, the issue of first impression was: Where a secured creditor of a business has actual knowledge that the business is substantially engaged in consignment sales, are the rights of the consignor superior to the secured creditor? Answer: yes.)

    Although the Court of Appeal affirmed the award of compensatory damages based on this previously unresolved issue, the court also affirmed an order granting a directed verdict on the plaintiff’s claim for punitive damages. Among other things, the court concluded that the plaintiff could not prove by clear and convincing evidence that the defendant acted with conscious disregard of the plaintiff’s rights when the scope of the plaintiff’s rights turned on an unsettled legal issue.

  • Hodge v. Guarantee Real Estate: Defendant Entitled to Fees for Defending Meritless Punitive Damages Claim

    Can a plaintiff who pursues a meritless punitive damages claim be forced to pay the defendant’s attorney fees for defending that claim? Yes, according to this unpublished opinion from the California Court of Appeal (Fifth Appellate District).

    Under California Code of Civil Procedure section 2033.420, if a party serves a proper request for admission (RFA) and the opposing party fails to admit the truth of a matter contained in the RFA, the party that served the request can recover its attorney fees for proving the truth of that matter at trial.

    In this case, the plaintiffs’ complaint included a claim for punitive damages. The defendants served RFAs on the plaintiffs, asking them to admit that the defendants did not act with malice, oppression, or fraud (the prerequisites for recovering punitive damages under Civil Code section 3294). The plaintiffs denied the RFAs. At trial, the plaintiffs were unable to present any evidence of malice, oppression, or fraud, so the trial court granted a nonsuit on punitive damages.

    The defendants then moved for attorney fees under section 2033.420. The trial court agreed that the conditions for awarding fees under section 2033.420 were met, but the court denied the defendants’ motion on the ground that the plaintiffs’ punitive damages allegations did not increase the overall fees incurred by the defense.

    The Court of Appeal reversed. It held that the trial court erred by refusing to award any attorneys’ fees. At the least, the defendants should have been awarded the fees they incurred in bringing their nonsuit motion on punitive damages.

    UPDATE: The California Attorney’s Fees blog has a post about this opinion here.

  • Gullwing Int’l v. Ostermeier: $1 Million in Punitive Damages Affirmed

    I have some doubts about the analysis in this unpublished opinion issued yesterday by the California Court of Appeal (Second Appellate District, Division Two).

    The jury in this fraud case awarded $17.1 million in punitive compensatory damages and $1 million in punitive damages. Obviously that’s not the sort of ratio that raises eyebrows. Nevertheless, the defendant argued that the Court of Appeal should reverse the punitive damages award because the plaintiff failed to present evidence of the defendant’s net worth. As readers of this blog are aware, California punitive damages awards are commonly reversed on that basis.

    The Court of Appeal’s opinion here acknowledges that “‘[n]et worth’ has become the guidepost of punitive damages” in California. The opinion then goes on to say that the plaintiff sufficiently proved the defendant’s net worth by presenting evidence that the defendant received several million dollars in cash from the plaintiff, owned several airplanes, and sold a piece of commercial property for $2.1 million.

    The opinion makes no mention of any evidence regarding the defendant’s liabilities or expenses. It is well established under California law that evidence of income and assets alone, without evidence of liabilities and expenses, is not sufficient to prove net worth. (See Kelly v. Haag (2006) 145 Cal.App.4th 910, 917 [reversing punitive damage award with directions when plaintiff introduced evidence of the defendant’s assets, but “there was no evidence of any encumbrances on the [defendant’s] properties at the time of trial, or of other liabilities [defendant] may have had”].)

    Since we launched this blog in 2008, three other opinions have reversed punitive damages awards because the plaintiff’s evidentiary presentation did not include evidence of the defendant’s liabilities and expenses. This opinion stands alone in affirming an award without such evidence. Perhaps the plaintiff presented such evidence and the court simply didn’t mention it in the opinion. But if the plaintiff presented no such evidence, the opinion’s analysis is inconsistent with existing law.

    Also, the opinion seems to overlook the effect of the $17.1 million compensatory damages award on the defendant’s financial condition. Other California courts have said that the effect of the jury’s verdict should be considered when evaluating the defendant’s ability to pay punitive damages. (See Washington v. Farlice (1991) 1 Cal.App.4th 766, 776.) The size of the compensatory verdict in this case dwarfs all the other evidence of the defendant’s assets discussed by the Court of Appeal, but the opinion does not seem to take that into account.

    Fortunately, this opinion is unpublished, so the aspects of the opinion that seem to depart from existing law will not have any precedential effect.

  • Hur v. Lee: Employer Not Vicariously Liable for Punitive Damages

    Many of the cases we blog about raise unresolved issues on the margins of the law. Not this one. Here, the trial court seems to have overlooked one of the most basic principles of punitive damages law.

    California law has long provided that employers are not vicariously liable for punitive damages based on the acts of their employees. Punitive damages can be imposed against an employer only upon a finding that (1) an officer, director, or managing agent authorized or ratified the misconduct, or (2) the employer knowingly retained an unfit employee. (See Civil Code section 3294.)

    The trial court in this case found that a corporation failed to supervise one of its agents, who committed fraud. The trial court made no findings that any officer or managing agent personally participated in, authorized, or ratified the fraud, or that the corporation employed the agent with knowledge of his unfitness. Nevertheless, the court awarded $100,000 in punitive damages against the corporation.

    The Court of Appeal (Second Appellate District, Division Four) reversed the punitive damages in an unpublished opinion. The court correctly held that the trial court’s findings were sufficient to find the corporation liable for compensatory damages (under a theory of respondeat superior) but not punitive damages. This seems like such a straightforward and obvious result, I’m amazed the issue didn’t get resolved earlier in the litigation process.

  • Fisher v. Wells Fargo: $750k Punitive Damages Award is Excessive

    The California Court of Appeal (Fourth District, Division Two) issued this unpublished opinion last week, reducing a punitive damages award from $750,000 to $150,000 in a case involving $15,000 in compensatory damages.

    The opinion is not particularly noteworthy, although it does illustrate that in cases involving small compensatory damages, California appellate courts will often allow a higher than normal ratio of punitive damages to compensatory damages, but not as high as 50 to 1.

    This case involves the Fair Credit Reporting Act, which authorizes punitive damages for willful violations of the act. The jury found that the defendant, Wells Fargo, willfully violated the act by providing false information to TransUnion about plaintiff’s credit and failing to conduct a complete investigation when plaintiff complained.

    Wells Fargo appealed and the Court of Appeal rejected its argument that the record contained no evidence of a willful violation. But the court agreed with Wells Fargo that punitive damages award was excessive. The court said the defendant’s conduct was low on the “hierarchy of reprehensibleness” because it involved purely economic harm, did not reflect an indifference to health or safety, did not involve repeat offenses, and did not involve intentional malice, trickery, or deceit. The court also noted that the plaintiff failed to present evidence that it was financially vulnerable. I can’t think of any other opinions off the top of my head which have squarely held that plaintiffs have the burden of establishing their financial vulnerability for purposes of analyzing the reprehensibility of the defendant’s conduct.

    Discussing the issue of ratio, the court held that the 50-to-1 ratio in this case, like any ratio in excess of single digits, is presumptively suspect. The court stated that ratios in excess of single digits are sometimes permissible when the compensatory damages are unusually small, but the court did not view the $15,000 award in this case as small enough to warrant a larger ratio. The court nevertheless concluded that a 10-to-1 ratio would be permissible. Ordinarily such a high ratio would be reserved for only the most extremely reprehensible conduct, but the court allowed the high ratio presumably because of the relatively small amount of punitive damages.

  • Walmach v. Foster Wheeler: California May Punish for Out-of-State Conduct

    The California Court of Appeal (Second District, Division Three) issued this unpublished opinion today, affirming a $2 million punitive damages award. The court ruled that the trial court did not violate the Due Process Clause by imposing punitive damages for conduct that occurred outside of California.

    The defendant’s alleged misconduct in this case occurred in Washington, a state which does not allow punitive damages. On appeal, the defendant argued that California cannot impose punitive damages for conduct that occurred in another state. The defendant cited the statement in BMW v. Gore that “a State may not impose economic sanctions on violators of its laws with the intent of changing the tortfeasors’ lawful conduct in other States.” The defendant also cited these statements in State Farm v. Campbell:

    A State may not punish a defendant for conduct that may have been lawful where it occurred . . . Nor, as a general rule, does a State have a legitimate interest in imposing punitive damages to punish a defendant for unlawful acts committed outside of the State’s jurisdiction.

    The Court of Appeal rejected these arguments for multiple reasons.

    First, the court observed that the defendant’s conduct (manufacturing a defective product) was not in fact lawful in Washington. In Washington, as in California, selling a defectively designed product is a tort. In my view, that analysis is insufficient to resolve the issue, because it fails to address Campbell’scomment that a state generally has no legitimate interest in punishing lawful or unlawful out-of-state conduct.

    Second, the court held that California may legitimately punish a defendant for out-of-state conduct that causes injury in California. In this case, the plaintiff was a resident of California when he was injured by the defendant’s product. This seems like a more legitimate response to the BMW/Campbell extraterritoriality problem. In essence, the court is saying the conduct was not truly out-of-state conduct, because the plaintiff’s exposure and injury occurred in California.

    Third, the court observed that the defendant had not challenged the trial court’s jurisdiction, and had not argued that Washington law should govern this case. According to the court, because defendant did not challenge the application of California law, the comity and due process considerations discussed in BMW and Campbell did not prohibit the trial court from awarding punitive damages under California law. I am not quite sure about the validity of this argument. BMW and Campbell are based upon the principle of fair notice; a defendant cannot be punished unless it had fair notice that its conduct would be punishable. I don’t know how a court can say that a defendant operating in a state that does not allow punitive damages has fair notice that it might be subjected to punitive damages in another state decades later. If the defendant knowingly sold its product in California, that might provide a basis for concluding that the defendant had fair notice of potential liability for punitive damages under California law. But on a different set of facts, where the defendant does not intend or expect that its product will be used in another state, the imposition of punitive damages would seem to be a Due Process problem, even if that state may have personal jurisdiction over the dispute.

    In any event, this opinion is not likely to be the last word on these issues. Given the growing number of lawsuits being filed in California for conduct that occurred in other states, or even other countries, these issues are bound to recur.