California Punitives by Horvitz & Levy

  • Lopez v. Bimbo Bakeries: Court of Appeal Affirms $2 Milllion Punitive Damages Award

    The California Court of Appeal (First District, Division Four) issued this unpublished opinion last week, affirming a $2 million punitive damages award in an employment case involving compensatory damages of $340,700 (a ratio of 5.87 to 1).

    This punitive damages discussion goes into more detail than the typical unpublished opinion. From my perspective, these are the two most interesting aspects of the court’s analysis:

    1. The court stated that the clear and convincing evidence standard, which applies to punitive damages determinations, “does not alter our standard of review.” That holding is directly contrary to published opinions (See, e.g., Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847 [“since the jury’s findings were subject to a heightened burden of proof, [this court] must review the record . . . in light of that burden’”].) Admittedly, there are cases going both ways on this issue. But I’m a little disappointed to see the Court of Appeal deciding this issue in an unpublished opinion without even acknowledging the split of authority. The California Supreme Court granted review last year in Harvey v. Sybase to resolve the split on this issue, but the court later dismissed review after the parties settled. Presumably the Supreme Court still views this as a review-worthy issue and will take up another case on this subject, perhaps even this one.

    2. The court concluded that the amount of the punitive damages award, and the ratio of nearly six-to-one, was not excessive under the Due Process Clause. In reaching that holding, the court did not mention the U.S. Supreme Court’s statement in State Farm v. Campbell that the ratio should be low, perhaps only one-to-one, in cases involving substantial compensatory damages. Other California appellate panels (and courts in other jurisdictions) have followed the Supreme Court’s direction on that point and have reduced punitive damages awards down to a single-digit level. (See my Washington Legal Foundation paper discussing a possible nationwide trend on this issue.) The $340,700 compensatory damages award in this case is well in excess of the amount that other courts have found to be “substantial” within the meaning of Campbell. Perhaps the Court of Appeal in this case thought the defendant’s conduct was so reprehensible that it justified an award well above the 1-to-1 ratio, notwithstanding the Supreme Court’s reasoning in Campbell. If so, it would have been nice for the court to acknowledge this aspect of Campbell and explain why it decided not to follow the Supreme Court’s reasoning.

    The opinion also addresses other issues, such as the sufficiency of the evidence to satisfy California’s “managing agent” requirement, and the relevance of the defendant’s $826 million net worth. I’m not going to make this blog post any longer by summarizing the court’s holdings on those points, but the opinion is definitely worth a read, especially for anyone handling a punitive damages appeal before the First District, Division Four.

  • Sukumar v. Sukumar: Court of Appeal Reaffirms Rule that Punitive Damages Cannot Exceed 10 Percent of Defendant’s Net Worth

    The Fourth Appellate District, Division One, issued this unpublished opinion last week affirming a trial court order that reduced a $5 million punitive damages award to $1.4 million.

    The trial court reduced the punitive damages based on California’s longstanding rule that punitive damages generally cannot exceed 10 percent of the defendant’s net worth. (See Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1593.) On appeal, the plaintiff challenged that ruling on several grounds.

    First, the plaintiff argued that trial court failed to consider whether factors other than the defendant’s net worth, such as future dividend income, made it possible for the defendant to pay the judgment. The Court of Appeal ruled that, although the Supreme Court has declined to adopt a rigid rule that net worth is the only appropriate measure of a defendant’s ability to pay punitive damages, net worth is the appropriate measure in the vast majority of cases. The few cases where courts looked to other measures involved exceptional circumstances. (See Zaxis Wireless Communications, Inc. v. Motor Sound Corp. (2001) 89 Cal.App.4th 577, 582-583 [defendant’s negative net worth was due primarily to accumulated depreciation and a note to its sole shareholder, while it had annual sales exceeding $250,000,000, cash of $19,000,000, and a $50,000,000 line of credit, evidencing its ability to pay punitive damages award of $300,000]; Rufo v. Simpson (2001) 86 Cal.App.4th 573, 579, 621, 623-624 [reprehensibility of defendant’s conduct (i.e., two deliberate, vicious murders) provided exceptional circumstances].)

    Second, the plaintiff argued that the trial court should have viewed the defendant’s testimony about his own net worth with suspicion. The Court of Appeal rejected that argument on the ground that the plaintiff bore the burden of proving that the defendant had a greater net worth, and she failed to carry that burden. For example, while defendant owned an apartment, plaintiff failed to rebut defendant’s evidence that defendant owed more money on the apartment than it was worth.

    Third, the plaintiff argued that the 10 percent rule should not apply when the defendant’s conduct is especially reprehensible. The Court of Appeal rejected that argument as a matter of law:

    [Plaintiff] does not cite any apposite case showing, or otherwise persuade us,
    such conduct is so reprehensible that the general rule limiting punitive
    damages to 10 percent of a defendant’s net worth should not apply. In any
    event, as the California Supreme Court stated, a punitive damages “award can
    be so disproportionate to the defendant’s ability to pay that the award is
    excessive for that reason alone” regardless of the reprehensibility
    of the defendant’s conduct. (Adams v. Murakami [(1991)] 54 Cal.3d [105,] 111.)

    Full disclosure: Horvitz & Levy participated in this case, representing one of the defendants on appeal (the defendant who was subject to the punitive damages award).

  • Rich v. Koi Restaurant: Plaintiff Not Entitled to Retrial on Punitive Damages When Jury Ignores Defendant’s Admission

    Last Friday, the California Court of Appeal (Second District, Division Four) issued this unpublished opinion affirming the trial court’s denial of the plaintiff’s motion for new trial after a jury declined to award punitive damages.

    In this sexual harassment case, the corporate defendant admitted before trial (in response to a request for admissions) that the alleged harasser was a managing agent of the corporation within the meaning of Civil Code section 3294. The jury was informed of this admission and told to accept it. Defense counsel also conceded the point in closing argument.

    When the case was submitted to the jury, the jury found in favor of the plaintiff and awarded compensatory and punitive damages against the alleged harasser. But when the jury was asked to decide whether the alleged harasser was a managing agent, the jury answered “no,” and therefore awarded no punitive damages against the corporation.

    The plaintiff moved for a new trial, arguing that the jury’s answer to the managing agent question was improper. The trial court denied the motion, finding that the jury’s answer was “a technical error at most,” and that the denial of punitive damages against the corporation represented “a measured and calculating or calculated decision to punish the truly culpable and to treat the less culpable with a lighter touch.”

    The Court of Appeal affirmed, finding that the trial court did not abuse its discretion in denying the new trial motion. The Court of Appeal cited the California Supreme Court’s decision in Brewer v. Second Baptist Church (1948) 32 Cal.2d 791 and Sumpter v. Matteson (2008) 158 Cal.App.4th 928 (which we blogged about here in one of our earliest posts), both of which held that a plaintiff has no right to punitive damages even when the statutory prerequisites for awarding punitive damages are established.

    For what it’s worth, I think the Court of Appeal correctly deferred to the trial court’s discretion, but I’m not sure I would have decided this issue the same way the trial court did. It seems possible that the jury’s response on the verdict form was just a mistake, and not a measured or calculated decision. At the same time, I have to wonder why plaintiffs’ counsel did not object to the inclusion of the managing agent question on the verdict form, given that the defense had already conceded the issue.

  • Red Hill Enterprises v. Gould: Defendant Who Refuses To Turn Over Requested Documents Cannot Challenge Plaintiffs’ Failure to Prove Net Worth

    Yesterday, the California Court of Appeal (Second District, Division Seven) issued this unpublished opinion reversing a nonsuit order and allowing the plaintiff to proceed with a claim for punitive damages.

    This fraud trial was bifurcated into two phases. Before the trial began, the plaintiff asked the defendant to produce certain documents regarding its financial condition, so that the plaintiff could meet its burden of proving the defendant’s net worth in the punitive damages phase of the trial. (See our prior posts about other recent opinions apply this unique rule of California appellate procedure.) After the jury ruled for the plaintiff in the first phase, the defendant said it would promptly produce the requested documents for the plaintiff’s review. A few days passed and the defendant failed to turn over the documents as promised. Instead, the defendant waited until the morning of the second phase of the trial and then turned over only some of the documents.

    The plaintiff tried to establish the defendant’s financial condition through other means, such as asking the trial court to take judicial notice of public records. The trial court shot down all of the plaintiff’s requests, and then granted nonsuit on the ground that the plaintiff had failed to present sufficient evidence of the defendant’s financial condition.

    The Court of Appeal reversed, ruling that the defendant, by failing to turn over the requested documents, forfeited its right to complain about the plaintiff’s failure of proof. In so doing, the court extended the holding of Mike Davidov Co. v. Issod (2000) 78 Cal.App.4th 597. That opinion found a forfeiture where the defendant refused to comply with a court order to turn over financial condition documents. The court here extended that ruling to situations where the is no court order, only a request by the plaintiff.

    The Court’s reasoning makes sense to me, so long as the record established that the defendant actually had additional documents that it failed to turn over. When a defendant turns over all the information in its possession, there should be no forfeiture, even if the defendant’s documents are inadequate to establish the defendant’s net worth. The defendant should not be required to create documents to satisfy the plaintiff’s burden. If the defendant does not have an adequate statement of its net worth, the plaintiff bears the burden of gathering the necessary information, by eliciting testimony from the defendant or through other means. In this case, however, it seems that trial court blocked the plaintiff from pursuing any other means, leaving the plaintiff with no way to meet its burden.

  • California Supreme Court Denies Review in Brewer v. Premier Golf

    According to the California Supreme Court’s Conference Results posted today, the court has denied review in Brewer v. Premier Golf Properties, a case we previously blogged about here and here.

    Among other things, the Court of Appeal’s opinion in Brewer held that punitive damages are unavailable in an action for violations of statutes and regulations governing pay stubs, minimum wages, and meal and rest breaks. The court concluded that, because those statutes and regulations created new rights that did not exist at common law, the statutory remedies for violations of meal/rest break, minimum wage, and pay stub laws are the exclusive remedies. Also, the court held that punitive damages are unavailable for these sorts of claims because they ultimately arise from a contractual obligation, whereas Civil Code section 3294 provides that punitive damages are only available for the breach of an obligation not arising from contract.

  • Enriquez v. Amerifirst: Court of Appeal Affirms Nonsuit on Punitive Damages

    The California Court of Appeal (Fourth District, Division Three) issued this unpublished opinion affirming a trial court order granting nonsuit on a claim for punitive damages.

    Plaintiff, a homeowner who lost her home through foreclosure, sued the lender (Amerifirst) that had refinanced her initial mortgage. She presented evidence that Amerifirst had overstated her income on a mortgage application and forged her signature. The trial court ruled, however, that the plaintiff failed to present sufficient evidence of intentional misconduct by Amerifirst.

    The Court of Appeal affirmed, but on a different ground. It relied on Civil Code section 3294, subdivision (b), which provides that a corporation cannot be liable for punitive damages unless an officer, director, or managing agent of the corporation authorized or ratified the misconduct at issue. In this case, the evidence suggested that the person who prepared the loan application was an employee in the processing department. She was not an officer or a director of Amerifirst, and she did not qualify as a managing agent because she did not have authority to set corporate policy. Accordingly, the plaintiff’s evidence was insufficient to support the findings required by Civil Code section 3294, subdivision (b)

  • McCoy v. Progressive West: Court of Appeal Affirms $100,000 Punitive Damages Award for Insurance Bad Faith

    The California Court of Appeal (Second Appellate District, Division One) issued this published opinion affirming a $100,000 punitive damages award. The opinion was originally unpublished, but the court ordered publication yesterday, in reponse to a publication request submitted by the Consumer Attorneys of California.

    The defendant’s only challenge to the punitive damages award was that punitive damages are unavailable in breach of contract actions. The Court of Appeal rejecting that argument, citing previous cases that have allowed punitive damages for bad faith breach of an insurance contract.

    The court did not address Civil Code section 3294, which provides that punitive damages are available only for “the breach of an obligation not arising from contract.” That language suggests that punitive damages should not be available for tort claims (like insurance bad faith) that are based entirely on the breach of a contractual obligation. Although several Court of Appeal opinions have affirmed punitive damages awards in insurance bad faith actions, none of those opinions have reconciled that result with the language of the statute.

    UPDATE: I didn’t notice this the first time around, but the publication order only applies to certain portions of the opinion. The punitive damages discussion remains unpublished.

  • Pakravan v. Halajian: Unpublished Opinion Affirms Order Vacating $205,000 Punitive Damages Award

    The California Court of Appeal (Second District, Division Seven) issued this unpublished opinion affirming a trial court order that wiped out a $205,000 punitive damages award.

    The jury awarded no compensatory damages to the plaintiff, and then awarded $205,000 in punitive damages. The trial court granted judgment notwithstanding the verdict on the ground that a punitive damages award cannot stand without some award of compensatory damages.

    The Court of Appeal affirmed, relying on the California Supreme Court’s decision in Mother Cobb’s Chicken v. Fox (1937) 10 Cal.2d 203, which held that “actual damages must be found as a predicate for exemplary damages.” The court rejected the plaintiffs’ argument that Mother Cobb’s Chicken has been undermined by subsequent Court of Appeal decisions. The court noted that most of the plaintiffs’ authorities predate two recent Supreme Court decisions – – Kizer v. County of San Mateo and Potter v. Firestone Tire & Rubber Co. – – which reaffirmed the rule of Mother Cobb’s Chicken. The court also rejected the plaintiffs’ attempt to justify the punitive damages award based on “presumed” compensatory damages.

    The plaintiffs in this case are certainly not the first to attack the continuing validity of the rule in Mother Cobb’s Chicken. Because this is a recurring issue, the court probably should have published this opinion.

  • Bregante v. Steinberg: Unpublished Opinion Affirms Trial Court’s Decision Not to Award Punitive Damages

    The California Court of Appeal (Sixth District) issued this unpublished opinion affirming a trial court’s decision not to award punitive damages after a bench trial.

    In affirming the trial court’s decision, the Court of Appeal noted that, under California law, “even where the plaintiff prevails in a case where punitive damages are permissible, the plaintiff ‘is never entitled to them. The granting or withholding of the award of punitive damages is wholly within the control of the [the trier of fact]….’” (Citing Brewer v. Second Baptist Church of Los Angeles (1948) 32 Cal.2d 791, 801.)

  • Kozicki v. Craig: Unpublished Opinion Reduces $100,000 Punitive Damages Award to $3,600

    The California Court of Appeal (Fourth District, Division One) issued this unpublished opinion reducing a punitive damages award in an appeal from a default judgment. The court concluded that the record would not support a punitive damages award more than $3,600 – – six times the compensatory damages of $600. The court did not invoke the U. S. Supreme Court’s statement in State Farm v. Campbell that the ratio of punitive damages to compensatory damages can exceed single digits in cases involving “unusually small” compensatory damages.