California Punitives by Horvitz & Levy

  • Some Stats On Punitive Damages in the California Court of Appeal

    Since we began this blog in January 2008, we’ve tracked every California Court of Appeal opinion on the topic of punitive damages, published and unpublished. As a result, we’ve collected a fair amount of data. I’m starting to sift through some of that data to see what it might tell us about how our appellate courts deal with punitive damages. I’ve started by looking just at the 2009 California punitive damages decisions. When I have time, I’ll update these figures with the cases from 2008.

    Total decisions, published and unpublished

    There have been 26 California Court of Appeal decisions in 2009 addressing punitive damages, not counting cases where punitive damages were awarded but the court of appeal’s opinion did not address punitive damages issues (e.g., not including Blanks v. Seyfarth Shaw, in which the Court of Appeal ordered a new trial on all issues, resulting in the reversal of a $15 million punitive damages award). Only 2 of the punitive damages opinions in 2009 have been published. (Scott and Major).

    Defendants’ success rates in challenging punitive damages

    To date, there have been 18 appeals in 2009 involving a defendant’s challenge to an award of punitive damages. (As explained below, the other cases involve defense verdicts or punitive damages claims that were dismissed before trial.)

    In 13 of those 18 cases, the defendant was successful in getting a punitive damages award vacated or reduced, either by the trial court or the court of appeal. That’s an overall success rate of 72 percent for defendants.

    In 6 of those 18 cases (33 percent), the punitive damages were vacated entirely.

    Looking exclusively at cases in which the trial court rejected the defendants’ posttrial challenges, the defendants succeeded in getting some relief from the Court of Appeal (either a reduction or a completely reversal) in 8 out of 13 cases (62 percent).

    Plaintiffs’ success rates in appealing from trial court rulings for the defense

    There have been 4 cases so far in 2009 in which a plaintiff appealed from a trial court decision dismissing a punitive damages claim (by nonsuit, directed verdict, or a motion to strike). Only one of those plaintiffs were successful (25 percent).

    There have been 3 cases in which plaintiffs appealed from a decision not to award punitive damages (two jury trials and one bench trial). All 3 of those appeals were unsuccessful.

    Conclusions

    These sample sizes are too small to support any conclusions. And even when we have more data, it is important to keep in mind that these stats are based exclusively on appellate decisions, and do not include cases in which a trial court made a posttrial ruling that was never appealed. So you have to take all these numbers with a grain of salt.

    Nevertheless, the one thing that jumps out at me from these stats is the high success rates for defendants. It will be interesting to see whether that is just a 2009 anomaly, or whether those percentages hold true when we add in the stats from the 2008 cases.

  • Essex Ins. v. Professional Building Contractors: Punitive Damages Reduced to 1-to-1 Ratio in Insurance Bad Faith Case

    The California Court of Appeal (Second Appellate District, Division Two) has issued an opinion which, although unpublished, is a must read for anyone handling an insurance bad faith case involving punitive damages.

    The jury awarded $682,000 in compensatory damages and $2.5 million in punitive damages (a ratio of 3.7-to-1) against an insurance company for unreasonably denying coverage. The trial court granted a conditional new trial unless the plaintiff agreed to accept a remittitur of the punitive damages to $682,000. The plaintiff refused to accept the remittitur and appealed from the order granting a new trial.

    The Court of Appeal affirmed. First, it noted the “abuse of discretion” standard of review governs appellate review of a trial court order granting a conditional new trial based on excessive punitive damages, not the “de novo” standard of review that applies to a defendant’s appeal from a judgment awarding punitive damages.

    Next, the court evaluated the defendant’s conduct and determined that it was relatively low on the reprehensibility scale because the plaintiff’s losses were purely economic, there was no indifference to public health or safety, the plaintiff was not financially vulnerable, and the defendant was not a repeat offender.

    Turning to the ratio between punitive and compensatory damages, the court cited several recent California opinions that have imposed a 1-to-1 limit in cases with relatively low levels of reprehensibility. The court rejected the plaintiff’s argument that the ratio calculation should include prejudgment interest or speculative “potential harm” claimed by the plaintiff. The court also cited Justice Souter’s majority opinion in Exxon Shipping, which noted that the median ratio is less than 1-to-1 across the entire gamut of circumstances that can support punitive damages.

    Finally, when considering the third guidepost for evaluating punitive damages – – legislative or regulatory penalties for comparable misconduct – – the court rejected the plaintiff’s argument that the defendant insurer could have been fined $10,000 under Insurance Code section 790.035 for each “will, unfair or deceptive act” in its dealing with the plaintiff. The court said that even assuming the insurer’s acts were punishable under that statute, the insurer’s liability in this case was based on its handling of a single claim for a single insured, and therefore was not comparable to conduct that would trigger multiple penalties under the statute.

    By our count, this is the sixth California appellate decision in the past 3 years in which a punitive damages award was reduced from a single digit ratio down to a 1-to-1 ratio, either by the trial court or by the court of appeal. The others are:

    Stevens v. Vons (2009) [unpublished] [ratio reduced from 10-to-1 down to 1-to-1]

    Walker v. Farmers Ins. Group (2007) 153 Cal.App.4th 965 [ratio reduced from 5.6-to-1 down to 1-to-1]

    Jet Source Charter, Inc. v. Doherty (2007) 148 Cal.App.4th 1 [ratio reduced from 4-to-1 down to 1-to-1]

    Grassilli v. Barr (2006) 142 Cal.App.4th 1260 [ratios reduced from 8.4-to-1 and 7.5-to-1 down well below 1-to-1]

    Roby v. McKesson HBOC (2006) 146 Cal.App.4th 63, review granted [ratio reduced from 10.7-to-1 down to 1.4-to-1]

  • Pagarigan v. Libby Care: Conclusory Allegations of Corporate Ratification Cannot Support Punitive Damages Claim

    The California Court of Appeal (Second Appellate District, Division Seven) issued this unpublished opinion yesterday, affirming a trial court’s order striking a claim for punitive damages.

    The plaintiffs were seeking punitive damages against a corporation that operates a nursing home. The plaintiffs alleged that the nursing home was understaffed and underfunded, which ultimately led to the death of their mother, a resident at the facility.

    Under California law, punitive damages cannot be awarded against a corporation unless an officer, director, or managing agent of the corporation committed, authorized, or ratified the punishable conduct. (Civil Code section 3294.) To satisfy this requirement, the plaintiffs alleged in their complaint that the decision to underfund and understaff the facility was “committed by, or authorized and ratified by officers, directors and/or managing agents.” In other words, the complaint alleged a legal conclusion but did not allege any specific facts to support that conclusion.

    The Court of Appeal affirmed the trial court’s order striking the punitive damages claim, holding that:

    absent any allegations that employees at [the nursing home] have any responsibility for or authority over . . . corporate-wide policies and procedures, rather than day-to-day management duties at one facility, or allegations that individuals . . . within [the corporation’s] leadership group were aware of and ratified the corporate funding and staffing policies that allegedly led to the abuse suffered by [plaintiffs’ mother], the trial court properly granted the motion to strike the claims for punitive damages

    In the year and half since we launched this blog and began tracking all California appellate opinions on punitive damages, this is only the second case involving a punitive damages claim that was rejected because the allegations of the complaint were insufficiently specific. (Here’s our post about the other case.)

  • Clark v. Clark: $2.5 Million Net Worth Sufficient to Support $100,000 Punitive Damages Award

    We’ve been blogging recently about the slew of cases reversing punitive damages awards because the plaintiff failed to present meaningful evidence of the defendant’s financial condition.

    Here’s a change: in an unpublished opinion, the California Court of Appeal (First Appellate District, Division Three), reverses a trial court’s determination that the plaintiff’s evidence of the defendant’s financial condition was insufficient. The Court of Appeal concluded the evidence established a net worth of $2.5 million, more than enough to support a $100,000 award. The Court of Appeal faulted the trial court improperly weighing evidence and considering evidence not before the jury.

  • 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?