California Punitives by Horvitz & Levy

  • Court of Appeal affirms nonsuit on punitive damages in survival action where decedent’s estate suffered no economic harm (Melton v. CHA)

    This unpublished opinion illustrates a rule of California punitive damages law that sometimes gets overlooked.

    In a survival action, where the plaintiff is asserting claims for injuries to a decedent, the plaintiff cannot recover punitive damages unless the defendant caused some actual economic loss to the decedent or the decedent’s estate.  This rule derives from two other rules: (1) actual damages are a prerequisite for punitive damages (see Kizer v. County of San Mateo), and (2) noneconomic damages are not recoverable in survival actions (see Civil Code section 377.34).  Thus, because economic damages are the only recoverable form of compensatory damages in a survival action, the plaintiff must prove economic damages in order to recover punitive damages.

    Here, the trial granted a motion for nonsuit on the plaintiff’s punitive damages claim after the plaintiff conceded that the decedent and his estate suffered no economic loss. On appeal, the plaintiff argued that punitive damages could be based on statutory remedies available on the plaintiff’s claim for elder abuse.  That argument, however, has already been rejected in a published opinion.  See Berkley v. Dowds.  The Court of Appeal in this case (the Second Appellate District, Division One), followed Berkley and affirmed the nonsuit.

     

  • Court of Appeal affirms $10 million punitive damages award against Sriracha maker (Huy Fong Foods v. Underwood Ranches)

    This case arises out of a dispute between a Ventura County jalapeno farmer (Underwood) and a hot sauce maker (Huy Fong Foods).  The parties started doing business together in 1988 and enjoyed a mutually beneficial relationship for several decades.  For the first decade, they operated using written agreements that specified the volume of peppers that that the farmer would supply and the price that the hot sauce maker would pay.  But eventually, as the relationship evolved, the parties operated under informal oral arguments.

    That relationship seemed to be working fine until 2017, when the hot sauce company determined that it had been overcharged, and that it could obtain peppers at a lower price from other farmers.  The company terminated the relationship and sued the farmer to recover a refund of $1.4 million that the farmer had allegedly overcharged.  The farmer cross-complained for breach of contract and fraud, alleging that that the sudden decision to end the relationship had devastated the farmer, who was dependent upon its sales to the company, and had acquired leases of additional land in order to meet the company’s production demands.

    A Ventura County jury ruled in favor of the farmer and awarded $13.3 million in compensatory damages and $10 million in punitive damages. On appeal, the company argued that the punitive damages should be vacated because “punitive damages cannot be awarded for breach of contract in the absence of an independent tort.”  The Court of Appeal rejected that argument in a published opinion, citing cases that permit punitive damages for fraud even when the parties have a contractual relationship.  The court did not address Civil Code section 3294, which authorizes punitive damages only for “breach of an obligation not arising from contact.”  Under the statutory language, a party ought not to be able to recover punitive damages for fraud or any other tort that involves the breach of an obligation that wouldn’t exist but for the contract.  That seems like a tricky question here, where the parties had no written contract and arguably all the representations they made were part of the terms of an oral contract.  But the court doesn’t grapple with that issue, perhaps because it wasn’t framed that way in the briefing.

    The company also argued on appeal that the punitive damages are excessive, but the Court of Appeal rejected that argument too, finding that the company’s conduct was reprehensible enough to support a .75 to one ratio of punitive to compensatory damages.

  • Court of Appeal affirms $500,000 in punitive damages where plaintiff recovered only $15,000 in compensatory damages but defendant caused over $100,000 in actual harm (Rubio v. CIA Wheel Group)

    At first glance, this published opinion appears to affirm a punitive damages award that is 33 times greater than the plaintiff’s actual harm.

    The appeal arose from a bench trial on a claim for wrongful termination.  The trial judge awarded the plaintiffs $15,000 in economic damages and $500,000 in punitive damages.  In the process, the trial court made a finding that the wrongfully terminated employee, who died while the litigation was pending, suffered non-economic damages between $100,000 and $150,000.  That amount was not included in the judgment because Code of Civil Procedure section 377.34 precludes recovery for a decedent’s pain and suffering.

    The defendant appealed, arguing that the 33-to-1 ratio of punitive damages was excessive.  The Court of Appeal (Second District, Division Eight) disagreed.  Citing the California Supreme Court’s opinion in Simon v. San Paolo U.S. Holding Co., the court held that the decedent’s nonrecoverable emotional distress damages should be treated as part of the actual harm caused by the defendant, when calculating the ratio between the punitive damages and the actual harm.  With those damages included, the ratio was only 3.5 to 1.

    The court went on to conclude that the 3.5-to-1 ratio was not excessive because the defendant acted with a “medium high” degree of reprehensibility when it fired an employee who was seriously ill with cancer, under the false pretense of poor job performance.  The court also found that the defendant had forfeited various other challenges to the punitive damages award by failing to procure an adequate record on appeal.

  • Court of Appeal orders new trial on punitive damages in conjunction with reallocation of fault (Putt v. Ford Motor Co.)

    In this asbestos-injury case, a jury awarded approximately $8.5 million in compensatory damages and $25.5 million in punitive damages against Ford Motor Co. The trial court ruled the punitive damages were excessive and reduced the amount to $8.7 million.

    Ford appealed and the Court of Appeal (Second District, Division Two) reversed in an unpublished opinion, finding that the jury’s allocation of fault could not be squared with the evidence. The jury allocated 100% of the fault to the one defendant remaining at trial (Ford), even though the evidence showed that the plaintiff used identical asbestos-containing products made by others. Accordingly, the Court of Appeal ordered a new trial on the allocation of fault.

    The Court of Appeal then concluded it should also order a new trial on the amount of punitive damages. The court reasoned that the jury in the first trial based its award of punitive damages on the assumption that Ford was 100 percent responsible for the plaintiff’s injury, but if the jury had apportioned fault based on the plaintiff’s proportional exposure to Ford products as compared to other defendants’ products, the jury would have assigned only 8 percent fault to Ford, possibly less. The court concluded that the possibility of a much smaller allocation to Ford weighed in favor of retrying the amount of punitive damages: “the potential for a jury to find that Ford’s violation is of a substantially smaller magnitude counsels in favor of letting the jury on retrial evaluate the opprobrium of Ford’s conduct in light of Ford’s proportionate fault for plaintiff’s injury rather than simply using the constitutional maximum as a back-end safety valve.”

    Disclosure: Horvitz & Levy represents Ford in this case

  • 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.