Last April we blogged about a $3.5 million punitive damages award against USAA in an insurance bad faith case in San Diego. The case generated a fair amount of publicity because the plaintiff was a Marine captain serving in Iraq. USAA appealed from the judgment, but the online docket reveals that a notice of settlement was filed on February 20.
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Blanks v. Seyfarth Shaw: $15 Million Punitive Damages Award Reversed
The California Court of Appeal (Second District, Division Three) issued this published opinion last week, reversing a $15 million punitive damages award in a legal malpractice action brought by Tae Bo creator Bill Blanks against the law firm Seyfarth Shaw and one if its partners, William Lancaster.
The opinion doesn’t contain any analysis of punitive damages issues per se, because the court found that the entire judgment had to be reversed due to instructional errors committed by the trial court during the liability phase of the trial. Nevertheless, we thought the opinion merited a brief mention here because the $15 million punitive damages award was one of the largest punitive awards generated by the California courts in 2005, and the total verdict was the 7th largest that year.
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La Baw v. Campbell: Court of Appeal Vacates $100,000 Punitive Damages Award Against Defendant With Negative Net Worth
In this unpublished opinion, the California Court of Appeal (Fourth District, Division Two) vacated a punitive damages award of $100,000 because the defendant could not afford to pay.
We have previously blogged about California’s rather unique rule that plaintiffs seeking punitive damages must present evidence of the defendant’s financial condition. As we observed, California plaintiffs routinely overlook this rule and end up losing their punitive damages awards on appeal.
Even when plaintiffs do meet their burden, California courts will reduce punitive damages awards that are disproportionate to the defendant’s ability to pay. For individual defendants, the courts have adopted a rule of thumb that any award that exceeds 10 percent of the defendant’s net worth is excessive. (See Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1596.)
This case is a little unusual because the evidence showed that the defendant had a negative net worth. He testified that his debts exceeded his assets, and the plaintiff presented no evidence to the contrary. The court therefore concluded that the defendant is unable to pay any punitive damages award. It vacated the award in its entirety and did not afford the plaintiff a new trial on this issue, because she had a full and fair opportunity to present her evidence in the first trial. (See Kelly v. Haag (2006) 145 Cal.App.4th 910, 914.) That aspect of the opinion conflicts with this recent unpublished decision, in which the Court of Appeal inexplicably gave the plaintiff a second chance to present evidence of the defendant’s financial condition after failing to do so the first time around.
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Duffy v. Technicolor: Plaintiff Forfeited Punitive Damages By Not Seeking Them During First Phase of Trial
The California Court of Appeal (Second District, Division Three) issued this unpublished opinion last week, affirming a trial court’s decision that prohibited a plaintiff from seeking punitive damages. In a nutshell, the plaintiff was barred from seeking punitive damages because he failed to make a timely request for punitive damages on any of the liability theories he presented to the jury.
The plaintiff’s complaint asserted multiple theories of liability, but requested punitive damages only for intentional infliction of emotional distress. The trial court, however, granted a nonsuit on that claim prior to trial. The case went to trial, bifurcated into a liability phase and a damages phase. During the liability phase, the plaintiff did not ask to amend his complaint to seek punitive damages on the other claims, nor did he ask the jury to make a finding that the defendant acted with malice, oppression, or fraud. The jury found for the plaintiff on liability.
During the damages phase, when the plaintiff began to assert a claim for punitive damages, the trial court asked the plaintiff how he could obtain punitive damages when the complaint did not seek punitive damages on any of the theories the jury had addressed in the liability phase. The plaintiff then sought leave to amend his complaint to request punitive damages on one of the claims the jury had addressed. The trial court denied the request as untimely.
The Court of Appeal affirmed, finding that the trial court did not abuse its discretion. The court noted that a belated amendment of the complaint would have prejudiced the defendant, who might have adopted a different strategy during the liability phase, and might have presented different evidence, if the defendant had known the plaintiff was seeking punitive damages.
The court’s reasoning makes sense, but it seems like the court could have affirmed on another more straightforward ground, without even going into a prejudice analysis. The plaintiff, by failing to obtain a finding of malice, oppression, or fraud during the liability phase, forfeited its claim to punitive damages as a matter of law. See Westrec Marina Management Inc. v. Jardine Ins. Brokers Orange County, Inc. (2000) 85 Cal.App.4th 1042, 1050. Under Westrec, it really wouldn’t matter whether the plaintiff had been allowed to amend his complaint or not. Without a finding of malice, oppression, or fraud, no punitive damages could be awarded.
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Stevens v. Vons: Unpublished Opinion Addresses Controversial Issue Regarding Punitive Damages Standard of Review
In our previous post we discussed this unpublished opinion from the California Court of Appeal, which affirmed the trial court’s adoption of a 1-to-1 ratio of punitive-to-compensatory damages. The same opinion is notable for another reason: it addresses a standard of review issue that has divided California’s intermediate appellate courts.
As we mentioned in our prior post, the Court of Appeal rejected the defendant’s argument that the plaintiff failed to present sufficient evidence to support the imposition of punitive damages. In the process, the court ruled that the “clear and convincing evidence” standard, which governs punitive damages issues at the trial court, also applies on appeal, when a reviewing court examines the record to determine whether substantial evidence supports the imposition of punitive damages.
As we have noted in prior posts, California appellate courts have been all over the map on this issue, with some courts taking the position that the clear and convincing evidence standard applies only in the trial court and has no relevance on appeal. Last year the California Supreme Court granted review to resolve the split among the lower courts on this precise issue, but the Supreme Court later dismissed review after the parties settled. This case presents another vehicle for the Supreme Court to address that issue, although the chances of review are diminished somewhat by the fact that this is an unpublished opinion.
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Stevens v. Vons: $16.7M in Punitive Damages Reduced to $1.2M, Ratio of 1-to-1
The California Court of Appeal (Second District, Division Six) issued this unpublished opinion yesterday, affirming a trial court’s decision to reduce a large punitive damages award.
The plaintiff, a grocery store employee, sued for sexual harassment and retaliation. A jury ruled for the plaintiff and awarded $1,672,988 in compensatory damages and ten times that amount in punitive damages ($16,729,880). The trial court ordered a conditional new trial on excessive damages grounds, but offered the plaintiff a choice of accepting a remittutur, reducing the damages to $1.2 million in compensatory damages and an equal amount in punitive damages. The plaintiff accepted the remittitur. The defendant appealed from the judgment and the plaintiff cross-appealed from the reduction of the punitive damages.
The defendant argued on appeal that the plaintiff failed to prove that a managing agent of the store had ratified the conduct of the employee who harassed the plaintiff. The Court of Appeal rejected that argument, finding that there was sufficient evidence to support the award of punitive damages.
On the plaintiff’s cross-appeal, however, the Court of Appeal affirmed the trial court’s determination that the the 10-to-1 ratio of punitive damages to compensatory damages awarded by the jury was excessive, and that the proper ratio is 1-to-1. In affirming the reduced the award, the Court of Appeal noted that the reprehensibility of the defendant’s conduct was “low to moderate,” that the maximum statutory penalty for the defendant’s conduct is only $150,000, and that the compensatory damages were “substantial.” As we noted recently in another post, a small but growing number of appellate courts have finally begun to implement the Supreme Court’s statement in State Farm v. Campbell that the ratio of punitive damages should be low, perhaps only 1-to-1, when compensatory damages are substantial.
This opinion also draws on the U.S. Supreme Court’s recent decision in Exxon Shipping as support for the 1-to-1 ratio:
The reasonableness of the trial court’s selection of a 1:1 ratio is supported by Exxon Shipping Co. v. Baker (2008) __U.S. __ [128 S.Ct. 2605, 171 L.Ed.2d 570]. In that case the United States Supreme Court observed that there are “several studies . . . showing the median ratio of punitive to compensatory verdicts, reflecting what juries and judges have considered reasonable across many hundreds of punitive awards.” (Id., 128 S.Ct. at p. 2632.) The “studies cover cases of the most as well as the least blameworthy conduct triggering punitive liability, from malice and avarice, down to recklessness, and even gross negligence in some jurisdictions. The data put the median ratio for the entire gamut of circumstances at less than 1:1, . . . meaning that the compensatory award exceeds the punitive award in most cases. In a well functioning system, we would expect that awards at the median or lower would roughly express jurors’ sense of reasonable penalties in cases with no earmarks of exceptional blameworthiness within the punishable spectrum . . . .” (Id., at p. 2633.)
The Supreme Court noted that it “has long held that ‘[p]unitive damages by definition are not intended to compensate the injured party, but rather to punish the tortfeasor . . . and to deter him and others from similar extreme conduct.’ [Citation.]” (Exxon Shipping Co. v. Baker, supra, 128 S.Ct. at p. 2633.) The trial court here could have reasonably concluded that punitive damages of $1.2 million, together with compensatory damages in the same amount, were sufficient to punish appellant and “‘deter [it] and others from similar extreme conduct.’ ” (Ibid.)
This is exactly the sort of thing we had in mind when we predicted that the Exxon Shipping case, although not binding on state courts, will nonetheless be persuasive to some lower courts because the reasoning of Exxon Shipping applies to all types of punitive damages cases, not just maritime cases.
The plaintiff in this case was represented on appeal by appellate specialist and blogger Donna Bader, who operates An Appeal to Reason.Hat tip: California Attorney’s Fees.
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Rojas v. Akopyan: Plaintiffs Get Another Bite at the Apple After Failing to Prove Case for Punitive Damages
The California Court of Appeal (Second District, Division Eight) issued this unpublished opinion yesterday, affirming a trial court order granting a new trial on the issue of punitive damages.
The plaintiffs obtained a jury verdict for $225,000 in punitive damages, but the trial court granted a new trial because the plaintiffs failed to present sufficient evidence of the defendant’s financial condition. As we have mentioned before, it is surprising how often plaintiffs overlook this requirement of California law, and forfeit punitive damages as a result. In this case, the plaintiffs presented evidence of the defendant’s income, but not expenses or liabilities. The Court of Appeal noted that, under California law, evidence of expenses and liabilities are necessary to create a complete picture of the defendant’s financial condition.
One thing strikes me as odd about this opinion. Under California law, when a plaintiff fails to present evidence of the defendant’s financial condition, the proper remedy is to enter judgment in favor of the defendant on the punitive damages claim. (See Kelly v. Haag (2006) 145 Cal.App.4th 910, 919-920; see also these four unpublished opinions from 2007.)
In other words, the plaintiff only gets one chance to prove its claim for punitive damages, and if the plaintiff fails to present sufficient evidence to support the claim, the plaintiff does not get to try again. Game over. That rule applies not only to punitive damages claims, but to any situation in which the Court of Appeal reverses a judgment based on a failure of proof. (See McCoy v. Hearst Corp. (1991) 227 Cal.App.3d 1657, 1661.)
So why did the plaintiffs in this case get a new trial after failing to present sufficient evidence the first time around? I’m not quite sure. The opinion doesn’t say. Perhaps the defendant never argued for judgment as a matter of law, or perhaps the defendant raised the argument but the Court of Appeal neglected to address the issue. If it’s the latter, a petition for rehearing may be in order.
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Major v. Western Home: California Court of Appeal Affirms $646,000 Punitive Damages Award
The California Court of Appeal issued this published opinion today, affirming a punitive damages award of $646,471.53, roughly equal to the compensatory damages.
The case required the court to interpret a provision of California’s punitive damages statute, Civil Code section 3294. That statute provides that punitive damages cannot be awarded against a corporation based on the wrongful acts of a corporate employee unless an officer, director, or managing agent of the corporation either participated in, authorized, or ratified those acts.
The defendant was an insurance company that hired a third-party claims administrator to process the plaintiffs’ claim for the destruction of their home by fire. The insurer paid benefits representing the full limits of the policy at the time of the fire, but a jury nevertheless found that the company acted in bad faith by delaying the payment of benefits to the plaintiffs, and by withholding about $30,000 in additional benefits above the policy limits (which the plaintiffs claimed they were entitled to because the insurer raised the policy limits after the loss).
On appeal, the primary punitive damages issue was whether the person who committed the wrongful conduct, an employee of a third-party claims administrator, qualified as an “managing agent” of the insurer, such that her conduct could subject the company to punitive damages. The Court of Appeal relied heavily on the California Supreme Court’s 1979 decision in Egan v. Mutual of Omaha, which concluded that punitive damages can be awarded against an insurance company based on the acts of a claims representative if the claims rep has the effective authority to set corporate policy. The Court of Appeal extended Egan a step further. It held that the employee of the third-party administrator had the effective authority to set policy for the insurer, and therefore subject the insurer to punitive damages. The court did not explain how the conduct as issue could effectively set corporate policy when the actual corporate policies of the insurer prohibited that conduct.
After concluding that the plaintiff had satisfied the managing agent requirement of section 3294, the court went on to discuss the amount of the punitive damages award. The court concluded that a relatively low punitive damages award was appropriate because the harm to the plaintiff was purely economic, the case did not involve a disregard of health or safety, and there was no evidence that the defendant had ever engaged in similar misconduct towards other insureds. The court also concluded that the analogous civil penalty for insurer misconduct, a fine of $10,000, also weighed in favor of a relatively low punitive damages award. Accordingly, the court concluded that a one-to-one ratio of punitive damages to compensatory damages was appropriate and did not raise due process concerns.
Finally, the court examined whether the jury’s verdict was inconsistent because the jury found the defendant acted with “oppression” (one of the grounds for imposing punitive damages under section 3294), but also found the defendant did not act with “malice.” The court found no inconsistency, because the statutory definition of malice requires that the defendant acted with a “willful and conscious disregard” of the rights and safety of others, whereas oppression requires only a finding of “conscious disregard.” The court did not explain exactly how the defendant’s conduct could have exhibited a conscious disregard for the plaintiffs’ rights without also being willful.
Full disclosure: Horvitz & Levy represents the defendant, Western Home Insurance Company.
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Food Pro v. Farmers: California Court of Appeal Affirms Denial of Punitive Damages
The California Court of Appeal (Sixth District) issued this published opinion yesterday affirming a summary adjudication order that rejected the plaintiff’s claim for punitive damages in an insurance bad faith case.
The Court of Appeal reversed the trial court’s ruling that the insurer had no duty to defend its insured from a third party lawsuit, but the Court of Appeal agreed with the insurer that the plaintiff failed to create a triable issue of fact on its entitlement to seek punitive damages.
The court emphasized that, under California law, punitive damages are not available unless the plaintiff demonstrates, by clear and convincing evidence, that the defendant engaged in despicable conduct demonstrating an extreme level of indifference to the plaintiff’s rights. The court also noted that punitive damages are not available if the defendant’s conduct is merely consistent with the hypothesis that the defendant acted despicably – – the evidence must be inconsistent with the hypothesis that the defendant simply made a mistake or an honest error in judgment.
The plaintiff in this case presented an expert declaration cataloging all of the insurer’s bad acts. The Court of Appeal held, however, that all of those alleged acts were consistent with the theory that the insurer was negligent or overzealous, but none of them demonstrated conclusively that the insurer acted with an evil motive or an extreme indifference:
The asserted bad acts could be found to be negligent (an incomplete investigation and reliance on erroneous facts), factually and legally erroneous (an incorrect assumption regarding breadth of exclusion and failure to give proper weight to relevant facts), and even overzealous. However, Food Pro presented no evidence that “could be described as evil, criminal, recklessly indifferent to the rights of the insured, or with a vexatious intention to injure.” [Citation omitted.] Although we disagree with Farmers’ position regarding its duty to defend, Farmers relied upon two separate coverage opinions by two different law firms that arrived at the same conclusion regarding the lack of coverage. Moreover, the trial court agreed with Farmers, and the position cannot be deemed so unreasonable as to evidence malice, fraud, or gross negligence.
This opinion doesn’t really add much to the body of California law regarding the standards for imposition of punitive damages. Nevertheless, my sense is that trial courts sometimes lose sight of how stringent those standards are, so it’s nice to see the Court of Appeal issue this published opinion as a reminder.
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Further Thoughts on Brewer and Punitive Damages in Wage and Hour Cases
Our colleague Felix Shafir has additional thoughts on the recent Brewer opinion. Take it away, Felix:
Wage Law, run by Michael and Mark Walsh of Walsh & Walsh, P.C, has a thoughtful post about the Brewer case we blogged about two days ago, in which the Court of Appeal recently held that punitive damages were unavailable for violations of the California laws governing meal and rest breaks, minimum wages, and pay stubs.
Wage Law describes the arguments some employers and employees advanced prior to Brewer over whether the new right-exclusive remedy rule applied to preclude punitive damages in certain wage and hour cases. Interestingly, in setting out the arguments that employees would occasionally make on this issue, Wage Law mentions Bender v. Darden Restaurants, Inc. (9th Cir. 2002) 26 Fed.Appx. 726, where a jury previously awarded punitive damages in a wage and hour case involving meal and rest break violations.
If the California Supreme Court were to take up the issue of whether the new-right, exclusive remedy rule barred the recovery of punitive damages in certain wage and hour cases (for example, by granting review in Brewer or Savaglio v. Wal-Mart, a case we blogged about several months ago that is currently pending before the Court of Appeal and in which the parties are arguing over a similar punitive damages issue), we suspect Bender would offer little guidance. In Bender, the Ninth Circuit’s opinion (which the court did not even select for publication) never once mentioned the new right-exclusive remedy rule, much less offered any substantive analysis addressing whether that rule bars punitive damages sought for violations of California’s Labor Code. As the Supreme Court has explained, a court’s “‘opinion is not authority for a proposition not therein considered.’” (Elisa B. v. Superior Court (2005) 37 Cal.4th 108, 118.)
For the same reason, another case mentioned by Wage Law, Bureerong v. Uvawas (C.D. Cal. 1996) 922 F.Supp. 1450, is equally unlikely to provide the Supreme Court with any legal guidance about the new right-exclusive remedy rule. In Bureerong, a district court declined to strike a claim for punitive damages in a lawsuit alleging many causes of action, including several for violations of the Labor Code. Id. at pp. 1461, 1480-1481. Like the Ninth Circuit in Bender, the district court in Bureerong never examined whether the new right-exclusive remedy rule barred punitive damages in the case. In fact, the plaintiffs in Bureerong “did not tie their punitive damages claim . . . to any particular cause of action” (id. at p. 1480) and, given that those plaintiffs also asserted negligence causes of action for which punitive damages would ordinarily be available (see id. at p. 1461), there is no way to determine whether the plaintiffs were attempting to recover punitive damages solely on their tort causes of action or whether they were also pursuing punitive damages for alleged violations of the Labor Code.
Interestingly, although the new right-exclusive remedy rule has been a staple of California jurisprudence for over 150 years (see, e.g., Russell v. Pacific Railway Co. (1896) 113 Cal. 258, 261; Ward v. Severance (1857) 7 Cal. 126, 129), our research indicates that California federal or state courts primarily began examining how this rule applies in wage and hour cases relatively recently (i.e., within the past 20 years). Perhaps this is because the marked increased in the number of wage and hour lawsuits, especially wage and hour class actions, is an almost equally recent phenomenon. (See, e.g., Time is Big Bucks, Class-Action Wage Lawsuits Show [noting recent growth in wage and hour class actions filed in federal court].) Simply put, the issue of whether punitive damages are barred by the new right-exclusive remedy rule may be arising far more often than it ever did in the past because many more employees are pursuing wage and hour claims today.