California Punitives by Horvitz & Levy

  • Scott v. Phoenix Schools: Wrongful Termination Alone is Not Enough to Support Punitive Damages

    The California Court of Appeal (Third Appellate District) reversed a $750,000 punitive damages award in this published opinion, holding that the defendant was liable for wrongful termination, but had not acted with malice or oppression and was therefore not liable for punitive damages.

    The plaintiff, the director of a preschool, refused to enroll a student because doing so would have put the school in violation of minimum teacher-student ratios for child care centers in California. When the parents complained to the school that the plaintiff was rude and dismissive, the school fired her. She sued, claiming she had been fired in violation of public policy, for refusing to violate the minimum teacher-student ratio. A jury awarded $1.1 million in compensatory damages and $750,000 in punitive damages. The Court of Appeal affirmed the jury’s liability finding and compensatory damages award, but reversed the punitive damages award:

    [W]e conclude that wrongful termination, without more, will not sustain a
    finding of malice or oppression. There was no evidence Phoenix attempted to hide
    the reason it terminated Scott. It admitted to terminating her because she would
    not enroll the McMaster child. Likewise, there was no evidence Phoenix engaged
    in a program of unwarranted criticism to justify her termination. Because there
    was nothing more than a wrongful termination here, punitive damages were not
    warranted, and the trial court should have granted defendant’s motion for
    judgment notwithstanding the verdict on the issue of punitive damages

    Interestingly, the court’s analysis seems to apply the “clear and convincing” evidence standard when reviewing the record for evidence to support the punitive damages award. (See, e.g., typed opn. p. 20 [“in order to sustain the punitive damages award, the evidence must leave no substantial doubt that Phoenix engaged in despicable conduct, or conduct intended to cause injury to Scott”].) As we have noted in prior posts, there is a split of authority in California as to whether appellate courts should consider the “clear and convincing” standard when reviewing punitive damages for substantial evidence, or whether that standard is for the exclusive use of the trial court. The California Supreme Court granted review to resolve that split last year in Harvey v. Sybase, but dismissed review when the parties settled. The Supreme Court is being asked to take that issue up again in Leeper-Johnson v. Prudential. (See the Supreme Court’s on-line docket.)

  • Monier-Kilgore v. Flores: Yet Another Reversal Based on a Plaintiff’s Failure to Prove the Defendant’s Financial Condition

    The California Court of Appeal (Third Appellate District) issued this unpublished opinion reversing $1.1 million in punitive damages because the plaintiff failed to introduce meaningful evidence of the defendant’s financial condition. The plaintiff put on evidence regarding the plaintiff’s income and bank deposits, but no evidence of the defendant’s liabilities and expenses. The court found that without such evidence, the jury had no basis for determining the defendant’s net worth or ability to punitive damages, especially since many of the defendant’s assets would be needed to satisfy the compensatory damages award.

    This is the third case in the past week in which a punitive damages award was reversed on this basis. (See our posts about the other two cases here and here.) It would have been four cases if the defense counsel in this case had not bailed out the plaintiff by presenting evidence of net worth after the plaintiff failed to do so.

    I have lost count of how many unpublished cases we have seen on this issue since we launched this blog in January 2008. Perhaps its time for the courts to publish a few of these decisions, to remind trial lawyers of the importance of presenting meaningful evidence of the defendant’s financial condition.

  • Punitive Damages and Default Judgments

    In California, a plaintiff cannot obtain punitive damages as part of a default judgment in a personal injury or wrongful death case unless the plaintiff first serves a statement of damages, specifying the amount of punitive damages requested. (See California Code of Civil Procedure 425.11, subd. (c).)

    This rule came in to play in two unpublished decisions issued this week by the California Court of Appeal. In Anson v. St. Michael’s Episcopal Church, the plaintiff failed to serve a statement of damages, and the Fourth Appellate District, Division Three, held that he was not entitled to recover punitive damages by default. By contrast, in Cantu v. Thomas, the plaintiff did serve a statement of damages requesting a specific amount of punitive damages, and the Fourth Appellate District, Division Two, affirmed the $20,000 in punitive damages he obtained by default.

    UPDATE: On June 30, the Second Appellate District, Division Eight, issued another unpublished opinion on this issue. In Daniel v. Lathen, the court upheld the portion of a trial court’s order that vacated a $320,000 punitive damages award obtained by default. The plaintiff was not entitled to punitive damages because he failed to serve a statement of damages before obtaining the default.

  • Magana v. Charlie’s Foods: $500,000 Punitive Damages Award is Excessive Compared to Defendant’s $600,000 Net Worth

    The California Court of Appeal (4th District, Division 3) issued an unpublished opinion today, reversing a $500,000 punitive damages award as excessive.

    In this sexual harassment case, the defendant asked the Court of Appeal to reverse the punitive damages award in its entirety because the plaintiff failed to meet her burden of introducing meaningful evidence of the defendant’s financial condition. As readers of this blog are well aware, this unique feature of California law is a trap for many an unwary plaintiff’s attorney. (See, for example, these two decisions last week reversing punitive damages awards on this basis.)

    The Court of Appeal here agreed that plaintiff’s counsel failed to present adequate evidence of the defendant’s financial condition. (Typed opn., at p. 13 [“If all we had in this record was the evidence that Magana proffered as to Charlie’s financial condition, we would have to reverse and there would be no possibility of punitive damages on retrial . . . “].) Ordinarily, the plaintiff’s failure to present such evidence would have doomed the punitive damages award. But in this case, the court concluded that defense counsel had elicited evidence that the defendant’s net worth was at least $600,000. Based on that testimony, the court concluded that the record could support an award of some punitive damages, but not an award of $500,000 (83 percent of the defendant’s net worth).

    Having concluded that the award was excessive, the court was then faced with the question of the proper remedy. The court acknowledged that California law allows appellate courts in this situation to simply reduce the amount of punitive damages without ordering a new trial. Following this approach, the court could have used the “rule of thumb” that punitive damages cannot exceed 10 percent of the defendant’s net worth, and reduced the punitive damages to $60,000. (See Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1596.)

    Instead, the court chose to send the case back to the trial court to allow the jury to decide the proper amount of punitive damages in the first instance. But the court made clear that, for purposes of the retrial, the defendant’s net worth is established at $600,000.

    A retrial of this nature seems to offer little upside for the plaintiff. She must incur the expense of a retrial, during which the jury will have to hear much of the evidence from the first trial in order to assess the proper amount of punitive damages. The plaintiff runs the risk that the jury will not award any punitive damages, and even if she wins, any award larger than $60,000 can be challenged as excessive.

    I happened to be present in the courtroom when this case was argued. (I was arguing a different punitive damages case that has not yet been decided.) The plaintiff was represented on appeal by Norm Pine, a well-respected appellate specialist. Mr. Pine was asked by the court during argument what remedy the court should order if the court concluded that the defendant’s net worth was $600,000, based on the evidence in the record. My recollection is that Mr. Pine requested a new trial, to allow the plaintiff to present further evidence regarding the defendant’s finances. I don’t think Mr. Pine contemplated a retrial in which the defendant’s net worth would be fixed at $600,000.

  • Asfour v. Nix: Yet Another Reversal For Lack of Financial Condition Evidence

    We are a bit behind on the blog this week as our main blogger, Curt Cutting, is on a well deserved vacation. I just posted a few minutes ago about a decision last week reversing a punitive damage award for lack of financial condition evidence. In going through the stack of punitive damage cases, I just came across this one which is yet another reversal for the same defect in plaintiff’s case. Here, the California Court of Appeal (Second District, Division One) issued an unpublished opinion reversing a $500,000 punitive damage award because “at trial, [plaintiff] presented no meaningful evidence of [defendant’s] financial condition.” It seems like a reversal on these ground happens at least once a month.

  • Electronic Funds Solutions, LLC v. Murphy: Court of Appeal Reverses Punitive Damage Award That Is Six Times Defendant’s Annual Income

    The California Court of Appeal (Fourth District, Division Three), in an unpublished opinion, reversed a $50 million punitive damages award on the ground that plaintiff failed to put forward evidence of defendant’s net worth. This is a common mistake plaintiff’s lawyers make, as seen in our prior post here. The court went on to point out that a plaintiff may be able to get around this failure of proof in situations where “net worth may be subject to manipulation, requiring the court to consider other financial indicators of a defendant’s ability to pay.” As an example, the court cited Zaxis Wireless Communications, Inc. (2001) 89 Cal.App.4th 577, 582-583 for the proposition that a “$300,000 punitive damage award [can be] upheld despite large negative net worth where defendant had annual gross revenues in excess of $100 million and cash on hand of $19 million.” By contrast, the punitive damage award in this case had to be reversed because: “Here, plaintiffs point to the income calculations for [defendant] used in supporting their compensatory damages claim, in which they determined [defendant] earned $8,128,800 per year in net income. Viewed in this light, the $50 million punitive damage award represented approximately six times [defendant’s] annual income. Such an award would be ruinous to any company, not to mention its owners.”

    Will plaintiff’s lawyers learn their lessons?

  • Rehearing Denied in Leeper-Johnson

    The California Court of Appeal (Fourth District, Division One) has issued an order denying the defendant’s petition for rehearing in Leeper-Johnson v. Prudential, a case we previously blogged about.

    Although the court denied rehearing, it modified its opinion. The modification makes clear that, when calculating the ratio of punitive damages to compensatory damages in an insurance bad faith case, the court should consider only the tort damages (not contract damages, such as unpaid policy benefits). This modification follows the approach of other California opinions such as Textron Financial v. National Union and Major v. Western Home.

  • Ittella v. Pacific American Fish Co.: Court of Appeal Reverses $1.15 Million Punitive Damages Award

    The California Court of Appeal (Second District, Division Seven) issued this unpublished opinion today, reversing a $1.15 million punitive damages award and a $230,000 compensatory damages award.

    In the interests of full disclosure, our firm represented the defendant. We raised a few interesting punitive damages questions (e.g., whether a $230,000 compensatory damages award is “substantial” within the meaning of State Farm v. Campbell, such that the ratio of ratio of punitive to compensatory damages should not exceed 1-to-1). The court did not reach those issues; it reversed the entire judgment because the plaintiff failed to prove causation.

  • Leeper-Johnson v. Prudential: Court of Appeal Affirms $4 Million Punitive Damages Award

    The California Court of Appeal (Fourth District, Division One) issued this unpublished opinion last week, affirming a trial court’s grant of a new trial on punitive damages.

    The jury awarded compensatory damages of nearly $2 million, plus $14 million in punitive damages. The trial court ruled that the punitive damages award was excessive, and granted a new trial on punitive damages unless the plaintiff agreed to accept a remittitur of the punitive award to $4 million. The plaintiff refused the remittitur so the trial court ordered a new trial on punitive damages. The defendant appealed.

    The Court of Appeal eliminated some elements of the compensatory damages award, reducing the total compensatory award to $1.7 million.

    The court then addressed the defendant’s argument that, on the facts of this case, 1-to-1 is the constitutional maximum ratio of punitive damages to compensatory damages. Presumably, the defendant cited the U.S. Supreme Court’s statement in Campbell that 1-to-1 may be the maximum ratio in cases involving “substantial” compensatory damages. The Court of Appeal opinion doesn’t discuss that aspect of Campbell, but it does indicate that the defendant relied on Gober v. Ralph’s Grocery, which held that trial and appellate courts both have the power to reduce a punitive damages award to the constitutional maximum without affording the plaintiff a new trial.

    Gober reasoned that it would be pointless to award a plaintiff a new trial when the defendant is willing to pay the constitutional maximum. The plaintiff could not possibly do any better on retrial.

    Curiously, the court in this case rejected the defendant’s reliance on Gober because the defendant had not agreed to forgo its right to a new trial. I don’t quite understand how the defendant could cite Gober and ask the Court of Appeal to reduce the punitive damages award to the constitutional maximum without forgoing its right to a new trial. Was the defendant asking the court to affirm the new trial order, while at the same time rendering an advisory opinion about the maximum amount of punitive damages that could be permitted upon retrial? If so, I can understand why the court would be unwilling to do that. But if the defendant didn’t expressly insist on its right to a new trial, and was urging the Court of Appeal to simply reduce the award to a 1-to-1 ratio, I think some courts might have interpreted the defendant’s reliance on Gober as an implied agreement to waive a new trial (assuming the punitive damages were capped at a 1-to-1 ratio).

  • Plaintiff Files Cert. Petition in Stevens v. Vons

    Back in January we had two posts about the California Court of Appeal’s unpublished opinion in Stevens v. Vons, in which the court affirmed a trial court ruling that reduced a $16.7 million punitive damages award down to $1.2 million. The plaintiff, after an unsuccessful petition for review to the California Supreme Court, has now filed a cert. petition with the U.S. Supreme Court.

    The petition contends that the Court of Appeal applied the wrong standard of review. The petition says the Court of Appeal mistakenly followed the California Supreme Court’s 1978 opinion in Neal v. Farmers, which held that a trial court’s decision to reduce a punitive damages award under California law is reviewed for abuse of discretion. The petition contends that the Court of Appeal should have followed the California Supreme Court’s more recent opinion in Simon v. San Paolo, which held that a trial court’s decision to reduce a punitive damages award on due process grounds is reviewed de novo. (Simon was merely restating the U.S. Supreme Court’s holding in Cooper v. Leatherman.) The petition contends that the Court of Appeal would have permitted a larger punitive damages award if it had analyzed the punitive damages award solely on due process grounds, and not under state law.

    I would be shocked if the Supreme Court grants this petition. The plaintiff is essentially arguing that state courts are no longer free to reduce punitive damages awards under state law if the awards are not excessive under the Due Process Clause. Nothing in the Supreme Court’s punitive damages jurisprudence suggests that the Court intended to prevent state courts from reducing punitive damages awards under state law.