California Punitives by Horvitz & Levy

  • Price v. Gingrich: Unpublished CA Court of Appeal Opinion Reinstates $500,000 Punitive Damages Award

    In this unpublished opinion, the California Court of Appeal (Fourth District, Division Two) reinstated a $500,000 punitive damages award that had been declared void by the trial court.

    This is a fraud case in which the defendant was accused of running a Ponzi scheme and defrauding the plaintiff of $500,000. The jury awarded $500,000 in compensatory damages and $500,000 in punitive damages. Over a year later, the defendant moved to vacate the judgment, arguing that the plaintiff had failed to meet his burden of presenting evidence of the defendant’s financial condition. The trial court agreed and vacated the award on the ground that the trial court did not have jurisdiction to award punitive damages in the absence of evidence of the defendant’s financial condition.

    The Court of Appeal reversed. While acknowledging that a party can move to vacate a void judgment at any time, the court concluded that this particular judgment was not void. A plaintiff’s failure to present evidence of the defendant’s financial condition is not a jurisdictional issue – – it is a collateral attack on the judgment that must be raised either by a timely posttrial motion or on a direct appeal. Accordingly, the court erred in granting the motion to vacate. The Court of Appeal went on to say that, aside from the procedural problem, the trial court’s ruling was substantively erroneous because the plaintiff did in fact present sufficient evidence of the defendant’s financial condition to demonstrate that the award was not excessive.

    The Court of Appeal’s procedural analysis seems correct, but the analysis of the substantive issue is a little troubling. The court focuses on evidence that the defendant had sufficient unencumbered assets to pay a $500,000 punitive damages award. The court’s analysis suggests that a $500,000 is not excessive so long as the defendant has $500,000 in liquid assets. But California courts have traditionally applied a different standard. The California Supreme Court has said that courts should consider whether the award is disproportionate to the defendant’s ability to pay, not merely whether the award exceeds the defendant’s ability to pay. (See Adams v. Murakami (1991) 54 Cal.3d 105, 112.) Applying that standard, the lower courts have adopted a 10 percent “rule of thumb” – – an award is disproportionate to the defendant’s ability to pay if the award exceeds 10 percent of the defendant’s net worth. (See Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1596 [“Punitive damages constitute a windfall. [Citation.] Such awards generally are not allowed to exceed 10 percent of the net worth of the defendant”].)

    Under the 10 percent rule, the award in this case appears to be excessive, since the opinion indicates that the defendant had a net worth of $1.8 million. That wouldn’t make any difference to the ultimate outcome of this appeal because the defendant failed to raise the issue in a timely fashion. Nevertheless, it is a little troubling to see the Court of Appeal departing from traditional principles of California punitive damages law, even if the entire discussion is dictum in an unpublished opinion.

  • Marcisz v. Movie Theatre Entertainment Group: CA Court of Appeal Upholds New Trial on Punitive Damages Because Jury’s Award Was Excessive

    In this unpublished opinion, the Fourth Appellate District, Division One, upheld an order granting a new trial on the issue of punitive damages. The plaintiffs, movie theater employees, claimed they were subjected to a hostile work environment and discrimination because of their gender. The jury agreed and awarded a total of $1.4 million in compensatory damages to the four plaintiffs, plus a total of $6 million in punitive damages.

    The trial court granted a new trial on the punitive damages, on the ground that the award was excessive in light of the defendant’s financial condition. The Court of Appeal agreed. Although the plaintiffs pointed to the defendant’s annual revenues of over $20 million, the Court of Appeal said that was only “half the equation,” because it ignored the defendant’s expenses and liabilities. Taking everything into account, the defendant had a negative net worth (-$300,000) and a negative annual income. Thus, the Court of Appeal concluded that “the $6 million punitive damages total far exceeded UltraStar’s ability to pay and the jury clearly should have reached a different verdict.”

    Incidentally, the plaintiffs made an unsuccesful argument that illustrates a pattern in cases like this. The plaintiffs, citing Mike Davidov Co. v. Issod (2000) 78 Cal.App.4th 597, argued that the defendant forfeited its right to challenge the award as excessive in relation to its net worth. In the Mike Davidov case, the court found a waiver because the defendant refused to comply with a court order directing it to turn over evidence of its financial condition. Plaintiffs who fail to present sufficient evidence of the defendant’s financial condition (as required by a unique rule of California procedure that plaintiffs frequently overlook), often attempt to save their punitive damages claim by citing the Mike Davidov case and arguing forfeiture, even where, as here, they never obtained any court order requiring the defendant to turn over financial condition information. In keeping with the pattern, the Court of Appeal rejected the plaintiffs’ argument because of there was no evidence the defendant violated any court order: “this contention is not supported by any references to the record showing that UltraStar failed to respond to a valid court order to produce financial records.”

  • Stahl v. Acuna: CA Court of Appeal Vacates Another Punitive Damages Award Because Plaintiff Failed to Present Evidence of the Defendant’s Net Worth

    In this unpublished decision, the California Court of Appeal (Second Appellate District, Division Four) reversed two $40,000 punitive damages awards because the plaintiffs failed to present evidence of the defendants’ financial condition. As we observed in a previous post, California has a unique requirement that a plaintiff must introduce evidence of the defendant’s financial condition in order to recover punitive damages. The California Supreme Court announced this rule in 1991, but as we said in our prior post, “every year there are a few appellate decisions reversing a punitive damages award on this basis.” Perhaps we underestimated, since this is already the second such decision this year.

    The Stahl opinion also illustrates the operation of procedural forfeiture rules that may be surprising to those who are unfamiliar with this area of litigation. The plaintiffs argued that the defendants forfeited their objection to the lack of financial condition evidence by not raising that point in the trial court. The court rejected the plaintiff’s forfeiture argument because this particular issue need not be raised in the trial court to preserve it for appeal. On the other hand, the court agreed with the defendants’ argument that the plaintiffs had forfeited their counter-argument that their failure to present financial condition evidence was due to the defendant’s noncompliance with subpoenas for the information. In other words, the defendants did not need to raise their argument in the trial court, but the plaintiffs needed to anticipate the argument and make their counter-arguments in the trial court.

    While these forfeiture rules may seem counterintuitive at first, they flow logically from the rule that the plaintiff has the burden of introducing financial condition evidence, and the rule that a defendant can always challenge a plaintiff’s failure to present substantial evidence, even if that issue wasn’t raised below. On appeal, the plaintiff is not in a position to complain about the belated challenge to the sufficiency of the evidence, since the plaintiff was on notice all along that it had to prove the elements of its claim. Nevertheless, this is an area of the law where the forfeiture rules can present a trap for the unwary plaintiff.

  • California Courts Number One?

    We previously blogged here about the Chamber of Commerce rankings which placed the California courts in 44th place nationwide for having a reasonable and balanced tort liability system for U.S. business. A new article by Stephen J. Choi, G. Mitu Gulati, and Eric A. Posner, “Which States Have the Best (and Worst) High Courts?” concludes, contrary to the Chamber of Commerce rankings, that the top five state court systems in the nation are California, Arkansas, North Dakota, Montana, and Ohio.

    Hat Tip: How Appealing.

    UPDATE: (by Curt Cutting): The two studies aren’t quite as inconsistent as they might seem at first glance. The Choi, Gulati & Posner article ranks only the highest courts of each state, not the state’s court system as a whole. Also, the Choi, Gulati & Posner rankings are based on three objective criteria: influence, independence, and productivity. By contrast, the study sponsored by the U.S. Chamber surveyed corporate counsel about their perceptions of the fairness of each state’s judicial system. It’s not hard to imagine how a state could excel under the Choi et al. criteria but still fare poorly in the Chamber survey.

  • Guardado v. Superior Court: Court of Appeal Holds That a Determination of Plaintiff’s Ability to Seek Punitive Damages Is Not a Ruling on the Merits

    This published opinion involves the intersection of two California procedural rules in the context of punitive damages litigation.

    The first rule is Code of Civil Procedure (section 170.6), which allows parties to assert one peremptory challenge to a trial judge without a showing of cause, but requires parties to assert the challenge before the judge makes a “determination of contested fact issues relating to the merits.”

    The second rule is Civil Code (section 3295(c)), which provides that a plaintiff cannot conduct discovery of the defendant’s financial condition for the purposes of seeking punitive damages unless the plaintiff first demonstrates a substantial probability that he or she will prevail on a claim for punitive damages.

    The question presented in this case was whether a finding by the trial court that a plaintiff has a substantial probability of prevailing on a claim for punitive damages is a “determination of contested fact issues relating to the merits” under section 170.6. The trial court concluded that it was not such a determination, and the Court of Appeal (Second District, Division Eight) agreed. The Court of Appeal relied on the statutory language of Sec. 3295(c), which expressly states that a pretrial punitive damage discovery determination “shall not be considered to be a determination on the merits of the claim.” The court concluded that a decision that is not on the “merits” for the purpose of section 3295(c) is also not on the “merits” for the purpose of section 170.6.

  • Daily Journal Focus Column on Holdgrafer v. Unocal Opinion

    Rex Heeseman had a column in the Daily Journal last Friday called “Price Fixing” (subscription required) which discusses the Holdgrafer v. Unocal opinion. His primary contention is that the Court of Appeal’s opinion is a departure from the approach taken by other courts in the wake of the U.S. Supreme Court’s recent decision in Philip Morris v. Williams. This is similar to the argument raised by plaintiffs in their petition for review. However, as we set forth in our answer to the petition for review, we believe the opinion simply applies the principles set by the United States Supreme Court in Campbell v. State Farm in precluding plaintiffs from seeking to punish a defendant for its dissimilar conduct toward non-parties.

  • The Complex Litigator Weighs in on the Likely Impact of Savaglio v. Wal-Mart

    H. Scott Leviant at The Complex Litigator has a thoughtful and detailed post referring to our post last week on the pending Savaglio v. Wal-Mart appeal. He argues that the “new right-exclusive remedy” rule that Wal-Mart urges as a bar to the punitive damages award is inapplicable to claims based on a right to wages, since he contends that the right to wages was a common law “right[] in existence prior to California’s Labor Code . . . .” But even if that were so, as Scott correctly acknowledges the Savaglio class action is primarily a case about meal periods. One could certainly characterize the right at issue in Savaglio (for purposes of the “new right-exclusive remedy” rule) as a right to meal periods rather than a right to wages. Several courts appear to have recognized that the right to such meal periods did not exist at common law but are instead the product of wage orders and statutory law. (E.g., Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1105 [explaining that the Industrial Welfare Commission “issued wage orders mandating the provision of meal and rest periods in 1916 and 1932”].)

    Moreover, even if courts were to accept the argument that the right to wages was a common law right, perhaps courts may distinguish between a right to wages generally and an entitlement to certain premium payments created by statute. For example, the California Supreme Court has indicated that both overtime pay and Labor Code section 226.7 payments for missed or late meal periods are “premium” payments. (Murphy, supra, 40 Cal.4th at pp. 1109, 1120.) At least one federal district court, applying the “new right-exclusive remedy” rule, has held that a plaintiff could not maintain a conversion claim based on the right to overtime pay on the ground that this was a right created by statute rather than by common law for which the detailed remedial scheme in the Labor Code provided exclusive remedies. (See, e.g., Green v. Party City Corp. (C.D.Cal. Apr. 9, 2002), Case No. CV-01-09681 CAS (EX), 2002 WL 553219, at pp. *4-*5.) If other courts arrive at the same conclusion, the “new right-exclusive remedy” rule may bar punitive damages claims based on the right to premium wage payments.

  • Pending Appeal Will Affect Punitive Damages Claims in Wage & Hour Class Actions

    The California Court of Appeal may soon resolve a punitive damages issue of critical importance to California employers: whether employees may seek punitive damages when they sue their employers for wage and hour violations.

    In 2003, a California trial court certified a class in Savaglio v. Wal-Mart, reportedly consisting of more than 115,000 hourly Wal-Mart employees, which sought to recover premium payments from Wal-Mart under Labor Code section 226.7 for missed or late meal periods. Subsequently, the class amended their allegations to seek punitive damages in addition to premium payments. In December 2005, following a rare class action trial, an Alameda jury awarded the class more than $66 million in premium payments and $115 million in punitive damages. Wal-Mart appealed and the case is currently pending before the First Appellate District, Division Four. (See the court’s online docket.)

    Among the issues that Wal-Mart has raised on appeal is whether California’s “new right-exclusive remedy” rule bars the punitive damages award in this wage and hour case. Under this rule, “where a statute creates a right that did not exist at common law and provides a comprehensive and detailed remedial scheme for its enforcement, the statutory remedy is exclusive.” (Rojo v. Kliger (1990) 52 Cal.3d 65, 79.) According to Wal-Mart’s opening appellate brief, no California appellate cases have upheld an award of punitive damages for any statutory wage and hour claims, and at least three federal district courts have applied the “new right-exclusive remedy” rule to dismiss claims seeking punitive damages predicated on alleged wage and hour violations.

    California has seen a boom in wage and hour class actions in the last decade and, according to some reports, claims seeking relief for meal period violations have been among the fastest growing areas of employment law over the past few years. Indeed, a recent report issued by Littler Mendelson (which specializes in labor and employment law) indicates that at least 311 wage and hour related class actions were filed in California state courts alone in the nearly six-month period between October 1, 2007, and March 28, 2008. (Hat tip to Wage Law Blog.) Given the dramatic rise in wage and hour class actions, the issue of whether punitive damages are available in wage and hour cases will likely have a significant impact on the potential liability California employers could face in the future.

  • Tual v. Blake: California Court of Appeal Reduces Civil Judgment Against Actor Robert Blake From $30 Million to $15 Million

    Once again we’re reporting on a celebrity punitive damages case. This time, the celebrity is Robert Blake, and the case involves his appeal from a $30 million wrongful death judgment against him in a suit brought by the estate of his deceased wife, Bonny Lee Bakley.

    In this unpublished opinion, the Second Appellate District, Division Three, rejects most of his arguments, including his argument that the trial court improperly refused to instruct the jury not to award punitive damages. The jury did not actually award punitive damages per se, but apparently Blake was arguing that the jury’s $30 million compensatory damages award must have included a punitive damages component, and that the jurors would have awarded a lesser amount if they had been told that punitive damages were off the table. The court rejected that argument because the record did not indicate why the trial court failed to give Blake’s proposed instruction. The record showed that Blake requested the instruction and that the court did not give the instruction, but the Court of Appeal said it was Blake’s burden on appeal to provide a record showing why the court did not give the instruction. Because he failed to meet that burden he did not preserve the issue for appeal.

    Nevertheless, the court did afford Blake some relief. It concluded that the $30 million compensatory damages award was excessive and it gave the plaintiff the option to either accept a reduced sum of $15 million or go back to the trial court for a new trial on damages.

  • Little Company of Mary Hospital v. Superior Court: Court of Appeal Limits Punitive Damages Claims In Elder Abuse Actions Against Religious Org.’s

    The Second Appellate District, Division Seven, has issued a published opinion dealing with punitive damages in Elder Abuse cases against religious organizations.

    The case involves Code of Civil Procedure section 425.14, which provides that no claim for punitive damages may be made against a religious corporation unless the trial court first concludes that the plaintiff will be able to present clear and convincing evidence of malice, oppression, or fraud as required by California’s punitive damages statute.

    That seems pretty straightforward. This case involves a punitive damages claim against a religious corporation, so section 425.14 applies. End of story, right? Not quite. There’s a wrinkle. A similar statute applies to punitive damages claims against health care providers against in any action “arising out of [their] professional negligence.” (See Code of Civ. Proc., section 425.13.) But the California Supreme Court has held that this statute does not apply to professional negligence claims against health care providers if those claims involve elder abuse. (Covenant Care, Inc. v. Superior Court (2004) 32 Cal.4th 771, 777.) The Supreme Court concluded that, since elder abuse claims are are rooted in conduct far more egregious than ordinary professional medical negligence, the special pleading requirements for punitive damages in medical negligence cases don’t apply to elder abuse claims.

    So this case raised the question whether the reasoning of Covenant Care applies to elder abuse claims against religious corporations. In other words, does the egregious nature of elder abuse override the statutory restrictions on claims against religious corporations? The Court of Appeal said “no”:

    The plain language of section 425.14, coupled with its legislative history, reflects an unmistakable intent to afford religious organizations protection against unsubstantiated punitive damage claims without regard to the conduct giving rise to the claim. In this way, section 425.14’s protections are broader than those afforded secular health care providers by section 425.13. Because the trial court erred in concluding the pretrial mechanism provided in section 425.14 does not apply in elder abuse cases seeking exemplary damages against religious organizations, we grant the petition for writ of mandate and direct respondent Los Angeles Superior Court to vacate its order denying Little Company of Mary’s motion to strike the punitive damage claim in the underlying action.

    Kudos to Justice Perluss for resolving this issue in a clear and concise 11 page opinion.