California Punitives by Horvitz & Levy

  • Court of Appeal confirms that trier of fact can decline to award punitive damages even if malice is proven (Lei v. Yan)

    The plaintiffs in this malicious prosecution won a judgment in their favor after a bench trial, but they were disappointed that the trial judge did not award punitive damages.  They appealed, arguing they were entitled to punitive damages as a matter of law.

    The Court of Appeal (First District, Division Three) agreed that the plaintiffs presented “abundant evidence” to support a finding that the defendant acted with malice.  The unpublished opinion went on to explain, however, that even when the evidence could support a finding of malice, a jury (or a court in a bench trial) is never required to award punitive damages.  As prior courts have explained, a plaintiff is never entitled to punitive damages as a matter of right.  Accordingly, the court here found no basis for overturning the trial court’s decision not to award punitive damages.

  • Court of Appeal vacates $15 million punitive damages award in asbestos-injury case (Morgan v. J-M Manufacturing, Inc.)

    This unpublished opinion addresses a significant recurring issue in California punitive damages litigation, and should be published. 

    A jury awarded $15 million in compensatory damages and $15 million in punitive damages against J-M Manufacturing, a company that sold asbestos-containing pipes in the early 1980s.  The jury found that the plaintiff was exposed to dust from the pipes while he was overseeing construction sites and watching other workers cut those pipes.  

    The plaintiffs’ claim for punitive damages was not based on the conduct of any particular corporate officer, director, or managing agent.  Instead, they treated the defendant as a monolithic entity.  They argued that  “they” engaged in despicable conduct, without specifying exactly who “they” were.

    On appeal, when the defendant pointed out the absence of evidence of wrongdoing by an officer, director, or managing agent, as required by Civil Code section 3294, the plaintiffs argued that they did not need to present such evidence under the circumstances of this case.  Citing Romo v. Ford Motor, they argued they could obtain punitive damages by proving that the entire organization acted with malice, without identifying any particular individual who did so.  

    We have seen this argument repeatedly from plaintiffs in California products liability cases. The Court of Appeal here (Second District Division One) rejected it, correctly recognized that what Romo actually held is that a plaintiff can satisfy the managing agent requirement “through evidence showing the information in possession of the corporation and the structure of management decisionmaking that permits an inference that the information in fact moved upward to a point where corporate policy was formulated.  These inferences cannot be based merely on speculation, but they may be established by circumstantial evidence, in accordance with ordinary standards of proof.”

    Because the plaintiffs here had presented no evidence about the “structure of management decisionmaking” they could not take advantage of this aspect of Romo.  Accordingly, due to a total lack of evidence to satisfy the managing agent requirement, the Court of Appeal vacated the punitive damages award.

    UPDATE (2/19/21):  This opinion has now been certified for publication.  

  • Court of Appeal affirms trial court order that vacated $7.5 million punitive damages award due to insufficient managing agent evidence (Verotel Merchant Services v. Rizal Commercial Bank)

    This unpublished opinion is worth a read for anyone litigating a California punitive damages case involving a “managing agent” issue under Civil Code section 3294.

    The facts are complicated but here’s a simplified recap:  Plaintiff was an online merchant who accepted credit card payments. Plaintiff sent its credit card transactions to the defendant, a bank.  The transactions were processed by an intermediary, who was secretly pocketing a percentage of the transactions.  The plaintiff caught on and sued the bank for fraud, claiming the intermediary was the bank’s agent.  The bank argued that the intermediary was actually the plaintiff‘s agent.  A jury sided with the plaintiff, awarding $1.5 million in compensatory damages and $7.5 million in punitive damages.

    The trial judge, Michael J. Raphael (who is now a Court of Appeal justice), granted the defendant’s JNOV motion and vacated the punitive damages.  He ruled that the bank could not be liable for punitive damages because the intermediary was not a managing agent of the bank. In so doing, he correctly anticipated the Supreme Court’s holding in Conservatorship of O.B., and took the clear-and-convincing evidence standard into account when evaluating the sufficiency of the evidence.

    The plaintiff appealed, arguing that the trial court applied the wrong standard in its JNOV order because it focused too much on the small number of accounts that the intermediary handled, in comparison to the bank’s overall business.  The Court of Appeal (Second District, Division Four) rejected that argument because the trial court’s analysis was squarely in line with the Supreme Court’s decision in White v. Ultramar, which held that a managing agent must have the ability to affect a “substantial portion” of the defendant’s business.    

    The plaintiff also argued that the trial court, when it ruled on the JNOV, should not have applied the holding in Roby v. McKesson that a managing agent must be in a position to create “formal policies that affect a substantial portion of the company.”  The plaintiff argued that standard was inapplicable because the jury was not instructed on it.  That argument was actually adopted by a different Court of Appeal last year in a published opinion. (See Colucci v. T-Mobile [refusing to follow the Roby standard because it was not set forth in jury instructions].)  In this case, however, the Court of Appeal didn’t buy it.  The court held that nothing about the holding of Roby is inconsistent with the standard CACI jury instruction that tells jurors to consider whether a managing agent has the power to determine corporate policy.  Therefore, the court was correct to consider Roby‘s guidance when evaluating the sufficiency of the evidence under that standard.

  • Court of Appeal affirms $8 million punitive damages award against owner of mobile home park (Belanger v. Biggs)

    Here’s a belated post about a decision issued last month.  I’ve been meaning to write about it for a while  but I’ve been unable to get to it until now.

    The case involves a protracted dispute between the owners of a mobile home park and two individual mobile home owners.  The dispute began in 2005, when heavy rains caused a landslide on the hillside above the two mobile homes owned by the plaintiffs, rendering the homes uninhabitable.  Litigation ensued, and the parties reached a settlement in 2011.  The settlement permitted the plaintiffs to keep their homes in the park and did not permit the park owners to remove them unless specifically ordered to do so by a governmental agency, or if their removal was necessary to stabilize the hillside.
    The park owners decided to remove the plaintiffs’ mobile homes and sell them to third parties, even though the neither of the two conditions had been satisfied.  To complete the sale, the owners forged signatures on bills of sale and title applications.
    The plaintiffs sued for fraud and breach of contract.  A jury awarded them each about $470,000 in compensatory damages and $4 million in punitive damages (a ratio in excess of eight to one).
    The defendants appealed, challenging the punitive damages as excessive. The Court of Appeal (Second District, Division Three) rejected that argument in an unpublished opinion.
    First, the court found that the defendants’ conduct implicated nearly all of the factors that indicate a high level of reprehensibility.  Typically, conduct that causes purely economic injury is viewed as less reprehensible than conduct that involves intentional physical injuries (as in the O.J. Simpson civil case), but the court here was so outraged by the defendants’ deliberate deceit that it placed the conduct at the top of the reprehensibility scale.
    Next, the court rejected the defendants’ reliance on the principle that the ratio of punitive damages to compensatory damages should be low, perhaps no more than one-to-one, where the compensatory damages are substantial.  The Supreme Court first announced this principle in State Farm v. Campbell, where it explained that the principle applies with even more force when the compensatory damages include an award for emotional distress.  The Court of Appeal declined to follow that aspect of State Farm, on the ground that the plaintiffs presented evidence of emotional and mental harm.  That aspect of the opinion is a bit puzzling, because every plaintiff who recovers emotional distress damages must present some evidence of emotional distress.  Otherwise the award would be vacated.  So it is difficult to see how this case differs from the other cases in which courts have applied the State Farm rationale.  Fortunately, the opinion is not published, so lower courts will not need to figure out how to harmonize this opinion with the reasoning of State Farm.

  • Court of Appeal reverses $6 million punitive damages award in products liability case (Soulliere v. Suzuki)

    This unpublished Court of Appeal opinion doesn’t directly address any punitive damages issues, but is noteworthy because it wipes out a substantial punitive damages award.

    The plaintiff was involved in an accident while riding a Suzuki motorcycle.  He sued Suzuki, claiming the motorcycle’s brakes were defective, and persuaded a jury to award $1.7 million in compensatory damages and $6 million in punitive damages.

    The Court of Appeal (Fourth District, Division Three) reversed.  The court concluded that the plaintiff failed to introduce sufficient evidence that the accident resulted from a defect in the motorcycle, and that the trial court made multiple evidentiary and instructional errors. Accordingly, the court vacated the entire judgment including the punitive damages.

  • Court of Appeal allows rec league hockey player to seek punitive damages for on-ice collision (Szarowicz v. Birenbaum)

    In this published opinion, the Court of Appeal allows a plaintiff to seek punitive damages for injuries he sustained in a recreational hockey game when he was violently checked by another player.

    Ordinarily, under the primary assumption of risk doctrine, a participant in a sporting event cannot sue another participant for an injury that results from the inherent risks of the sport.  The trial court applied that doctrine here and granted the defendant’s motion for summary judgment.  The trial court noted that, although the plaintiff was participating in a “no check” hockey league, the parties’ witnesses agreed that “no check” does not mean “no contact,” and that being checked is still an inherent risk of playing “no-check” hockey. 

    The Court of Appeal (First District, Division Two) reversed the judgment and reinstated all of the plaintiff’s claims, including his claim for punitive damages.  The court held that the primary assumption of risk doctrine does not apply when the defendant intentionally injures the plaintiff.  The court pointed to testimony from plaintiff’s teammates, who said it appeared that the defendant in this case was intentionally trying to injure the plaintiff, rather than trying to make any legitimate hockey play.  According to the court, a jury could rely on that testimony and find that the defendant intended to harm the plaintiff, which would not only permit the plaintiff to recover compensatory damages, but would potentially support an award of punitive damages as well.

    Presumably, plaintiffs’ counsel will use this opinion as a template to pursue punitive damages for in-game collisions in other contact sports, and will oppose summary judgment motions with declarations by eyewitnesses who testify that the defendant appeared to have an intent to injure.

  • Court of Appeal affirms $6 million punitive damages award in asbestos case (Barr v. Parker-Hannifin)

    This unpublished opinion affirms a punitive damages award against Parker-Hannifin, a company that sold asbestos-containing replacement brakes in the late 1970s and 1980s.

    Parker-Hannifin argued on appeal that the punitive damages should be reversed because the plaintiff presented no evidence that anyone at the company knew during the relevant time that its products were harmful.  The Court of Appeal (First District, Division Three) rejected that argument, citing evidence that the company complied with OSHA regulations at its own factory, to protect its workers from asbestos exposure.  From that evidence, the court concludes that the company knew asbestos was dangerous, and therefore should have protected consumers of brakes.

    The court’s analysis does not confront the fact that asbestos exposures in the factory would have been orders of magnitude higher than any exposures experienced by users of the finished product, or the fact that the factory workers were potentially exposed to raw asbestos, whereas the end users could only have been exposed to heavily processed fibers with different potential for causing disease. Given those differences between the two types of exposures, many manufacturers in the 1970s took precautions in their factories without believing that any risks existed for end users.  But the Court of Appeal’s opinion does not grapple with that issue, and instead concludes that substantial evidence supports the conclusion that the manufacturer acted despicably and in conscious disregard of a known risk to consumers.

    Disclosure: Horvitz & Levy participated in this case, representing Parker-Hannifin’s co-defendant, Standard Motor Products, which was not found liable for punitive damages. 

  • Court of Appeal re-issues opinion vacating $16 million punitive damages award and orders reduction to $2.5 million (Tilkey v. Allstate)

    In May of this year we reported on a decision affirming a $1.7 million compensatory damages award for the tort of “self-published defamation” but vacating the jury’s $16 million punitive damages award as excessive.

    The Court of Appeal (Fourth District, Division One) granted defendant Allstate’s petition for rehearing, which identified some facts omitted from the opinion.  After accepting supplemental briefing and considering the additional facts, the Court of Appeal reached the same conclusion in its new opinion: compensatory damages affirmed, punitive damages vacated as excessive.  

    The new opinion, however, adopted a different remedy with respect to the excessive punitive damages.  The first opinion simply vacated the award and sent the case back to the trial court for further proceedings, rather than reducing the punitive damages to a fixed amount.  That’s because the Court of Appeal had also eliminated one element of the jury’s damages award (a $1 million award for wrongful termination), and the court said it was impossible to know to what extent the jury based its punitive damages award on that claim.

    In the new opinion, the court decides to reduce the punitive damages rather than ordering a new trial.  The court says “[t]here is some authority that doing so is appropriate,” but no authority is cited.  The opinion reduces the punitive damages award to the amount of $2.5 million, which is about 1.5 times the amount of compensatory damages. 

    That remedy seems to deprive Allstate of its right to have a jury decide in the first instance the proper  punishment for the defamation alone.  Perhaps a jury would award less than $2.5 million.  But given the relatively low ratio that the court adopted, Allstate may actually prefer to simply pay that amount rather than undergoing a new trial and risking a larger award that would generate another appeal.

  • Court of Appeal vacates $725k punitive damages award due to improper expert testimony (Margeson v. Ford)

    In this Lemon Law case, a jury awarded the plaintiff roughly $72,500 in compensatory damages, $142,000 in civil penalties, and $1.4 million in punitive damages (20 times the amount of compensatory damages). The trial court reduced the punitive damages to $725,000 (10 times the compensatory damages) and Ford appealed.

    In an unpublished opinion, the Court of Appeal (Second District, Division Five) vacated the punitive damages award and ordered a new trial on the amount of punitive damages. The court found that the trial court had improperly allowed expert testimony from the plaintiff’s forensic accountant, who purported to advise the jury on how to properly calculate punitive damages. The Court of Appeal ruled that the expert’s testimony usurped the role of the jury in determining the amount of punitive damages and usurped the role of the trial court in instructing the jury on the law of punitive damages.
    I won’t comment on the court’s analysis, because Horvitz & Levy represents Ford in this case.

     

  • Court of Appeal reverses $1 million punitive damages award against Chrysler (Santana v. FCA)

     I’m catching up on the unpublished opinions that came out the past few weeks.  

    In this one, the plaintiff brought lemon law and fraud claims against FCA (Chrysler) in connection with alleged electrical problems in a 2012 Dodge Durango.  A jury awarded $32,000 in economic damages on the lemon law claim, $134,000 in economic damages on the fraud claim, and punitive damages of $1 million. Chrysler appealed, arguing among other things that the plaintiff failed to present any substantial evidence of fraud.

    The Court of Appeal (Fourth District, Division Three) agreed and reversed all the fraud damages, including the punitive damages, in an unpublished opinion. The court said the plaintiff failed to present any evidence that Chrysler fraudulently concealed material information. The evidence showed at most that Chrysler was aware of electrical issues that had occurred different vehicles and was working on fixing the problem.  Because that evidence could not support a finding of fraudulent concealment, and that tort was the sole support for the punitive damages award, the court vacated the punitive damages.

    Horvitz & Levy represents FCA in other matters, so I won’t comment on the court’s analysis.

    Update (10/28/20): the Court of Appeal has now changed the status of the opinion from unpublished to published