California Punitives by Horvitz & Levy

  • Court of Appeal reduces $13.8 million punitive damages award to $5.7 million in discrimination case (Moland v. McWane)

    In this employment case involving claims of racial discrimination and wrongful termination, a jury awarded $13.8 million in punitive damages and $2.87 million in compensatory damages, a ratio of 4.8 to 1.  On appeal, the defendant argued that the punitive damages should be vacated entirely or at least reduced as excessive.

    The California Court of Appeal (Second District, Division Seven) held in an unpublished opinion that an award of punitive damages was justified because the evidence, viewed in the light most favorable to the plaintiff, could support an inference that the defendant acted with extreme indifference to the plaintiff’s right to be free of racial discrimination in the workplace.

    Turning to the question of excessiveness, the court analyzed the three BMW/State Farm guideposts: (1) the reprehensibility of the conduct, (2) the ratio of punitive to compensatory damages, and (3) the difference between the punitive damages award and civil penalties authorized by the Legislature for similar misconduct.

    1.  The court found several indicators of a higher level of reprehensibility: the defendant’s acts affected the plaintiff’s emotional and mental health (i.e., did not inflict purely economic harm), the defendant should have known the plaintiff would suffer emotional harm, and the plaintiff was financially vulnerable.  But the court rejected the plaintiff’s argument that the level of reprehensibility was enhanced by the fact that the defendant made multiple decisions that harmed the plaintiff.  The court explained that discrimination against the plaintiff was a single instance of wrongdoing, and in the absence of further instances against the plaintiff or others, the defendant could not be treated as a repeat offender.

    2.  When analyzing the ratio of punitive damages to compensatory damages, the court rejected the defendant’s argument that a 1 to 1 ratio should be the constitutional maximum in light of the substantial noneconomic damages (about $2.5 million of the total compensatory damages award).  The court held that the ratio can exceed 1 to 1 when the noneconomic damages and the reprehensibility of the defendant’s conduct are both high.  Relying heavily on a Second Circuit decision, the court concluded that a limit of 2 to 1 is the constitutional maximum in a case of this nature.

    3.  Finally, the court compared the punitive damages award to a now-repealed $150,000 cap on administrative fines for claims before the California Fair Employment and Housing Commission.  The court found that the cap weighed in favor of an award less that the jury’s verdict, but did not mandate an award below a 2 to 1 ratio.

    Accordingly, the court ordered the trial court to modify the judgment to reduce the punitive damages award to $5.8 million, roughly double the amount of compensatory damages.  Appropriately, the court did not give the plaintiff the option of rejecting the lower amount in favor of a new trial.

  • Court of Appeal reverses $2 million punitive damages award due to lack of financial condition evidence (Chen v. Bam Brokerage)

    In this unpublished opinion, the California Court of Appeal (Second District, Division Seven) once again reversed a punitive damages award because the plaintiff failed to present evidence of the defendant’s financial condition.

    The plaintiff presented evidence that the defendant owned four pieces of real property, but presented no evidence of the defendant’s liabilities, including the encumbrances on those properties.  That was insufficient to support a punitive damages award, under the well-established rule that “evidence of liabilities should accompany evidence of assets.”  Accordingly, the court directed the trial court to enter judgment for the defendant on the issue of punitive damages.

  • Court of Appeal vacates punitive damages in default judgment due to lack of evidence of defendant’s finances (Dong v. Ryu)

    This case is a reminder that California law requires plaintiffs to present evidence of the defendant’s financial condition as a prerequisite to obtaining punitive damages, even in default judgments.

    In this case, the plaintiffs argued on appeal that their default judgment should be affirmed, including $57,000 in punitive damages, even though they presented no evidence of the defendant’s finances.  They argued that the defendant’s failure to respond to their complaint deprived them of the opportunity to obtain information about the defendant’s finances. 

    The Court of Appeal (Second District, Division Two) rejected that argument in an unpublished opinion.  The court noted that plaintiffs failed to show that they even tried to meet their burden: “our review of the record reveals no showing of what efforts, if any, were undertaken by plaintiffs to obtain information regarding defendant’s financial condition.”  The Court of Appeal reversed the punitive damages portion of the judgment and directed the trial court to enter judgment for the defendant on that issue.

  • Anti-whistleblower retaliation act for school employees does not authorize punitive damages against school districts (Visalia Unified School District v. Superior Court)

    This published opinion addresses an issue of first impression: whether the Reporting by School Employees of Improper Activities Act (the Act) authorizes recovery of punitive damages against school districts.

    The plaintiff, a former employee of the Visalia Unified School District, sued the District for retaliation in violation of the Act, seeking compensatory and punitive damages.  The Act authorizes recovery of punitive damages against a “person” who intentionally and maliciously engages in an act of retaliation.  For purposes of the Act, a “person” includes any state or local government.

    The District moved to strike the punitive damages claim under Government Code section 818, which prohibits punitive damages against public entities.  The superior court denied the motion, finding that the Act impliedly supersedes section 818 because the Legislature adopted the Act in 2000, long after it adopted section 818 (in 1983). 

    The Fifth Appellate District granted the District’s petition for writ relief and reversed the trial court’s ruling.  The Court of Appeal concluded that the trial court had overlooked key language in section 818, which bars punitive damages against public entities “notwithstanding any other provision of law.”  The Court of Appeal also held that section 818 is a fundamental part of California public entity law, supported by strong public policy.  The court concluded that, if the Legislature had intended to overturn such an important rule, it would have done so expressly.

  • Labor Code whistleblower provision authorizes punitive damages (Mathews v. Happy Valley Conference Center)

    This published opinion from the Sixth Appellate District holds that Labor Code section 1102.5, which prohibits retaliation against whistleblowers, impliedly authorizes punitive damages as a remedy.

    Disclosure: Horvitz & Levy represents the defendant in this action.  Litigation is ongoing, so we will not comment on the court’s analysis.

  • Court of Appeal sets forth appropriate post-trial remedies for excessive punitive damages (ENA North Beach v. 524 Union Street)

    This published opinion provides an overview of the proper remedies that a trial court can use to correct an an excessive award of punitive damages.  The opinion doesn’t contain anything new or surprising, but it provides a good overview of existing law:

    1.  If a trial court finds that a punitive damages award is constitutionally excessive (i.e., the award exceeds the maximum amount permitted by due process), the trial court should grant judgment notwithstanding the verdict and reduce the award to the constitutional maximum. 

    2.  If a trial court finds that a punitive damages award is excessive under state law (i.e., the award appears to be the product of passion and prejudice, or is disproportionate to the defendant’s financial condition), the trial court should grant a new trial.  The new trial can be conditional, subject to the plaintiff’s acceptance of a remittitur of the award to a lesser amount.

    The trial court in this case used the wrong procedure.  The court found the award was excessive under state law, but instead of granting a new trial, the court granted judgment notwithstanding the verdict.  The Court of Appeal (First District, Division Two) agreed that the award was excessive, but faulted the trial court for employing the wrong remedy.  The Court of Appeal nevertheless affirmed the judgment, because the plaintiff’s counsel stipulated at oral argument that he would prefer to accept the reduced amount rather than undergoing a new trial.  Thus, if the trial court had ordered a conditional new trial subject to a remittitur, the plaintiff would have accepted the remittitur.  So in the end, the trial court’s procedural error was harmless.

  • Court of Appeal affirms $640,000 punitive damages award (Callahan v. Ami Adini & Associates)

    In this unpublished opinion, the California Court of Appeal (Fourth District, Division One) affirms a punitive damages award that is roughly equal to the amount of compensatory damages. In theory, even a one-to-one ratio can be constitutionally excessive, if for example the reprehensibility of the defendant’s conduct is extremely low (which is what the defendant argued here).  In practice, however, we rarely ever see a California appellate court reducing an award as excessive when the ratio is already one to one.

  • Court of Appeal affirms $855,000 punitive damages award where defendant forfeited right to object to lack of financial condition evidence (Garcia v. Myllyla)

    Often you can tell how a case is going to turn out when you read the  summary of the facts.  That’s certainly true in this case involving claims against a landlord for negligent failure to provide habitable premises.  Here’s how the court describes the condition of the defendant’s apartment building in this published opinion:

         Only two units in the [12-unit] Building had kitchens, and there were only two community rest rooms. There was evidence that human waste had been thrown out of the Building and had collected on the back. There were openings that permitted rodents and vermin to enter. Steps to the Building were infected with dry rot and were close to collapsing. The Building contained illegal electrical work. An inspection by Plaintiffs’ expert revealed dead and live cockroaches throughout the Building and dirty bathrooms.

            As discussed further below, each of the Plaintiffs testified about his or her experiences in the building, which included cockroaches, bed bugs and other vermin; mold; and filthy conditions in common areas. Tenants were forced to wash their dishes outside the Building. There were several months when the Building had no power or water and residents had to purchase buckets of water from Myllyla’s daughter. One tenant had a cockroach removed from her ear.

    After reading that summary, you’re probably not surprised to learn that the court affirmed the award of punitive damages against the landlord (the jury awarded $95,000 in punitive damages to each of the nine plaintiffs).

    The defendant’s main argument on appeal was that the plaintiff failed to present any evidence of the defendant’s financial condition.  As our readers know, that argument often succeeds because many California plaintiffs apparently don’t realize it is their burden to present such evidence.  In this case, however, the plaintiffs attempted to obtain financial information from the defendant, who stonewalled their efforts.

    The plaintiffs served two notices on the defendant pursuant to Code of Civil Procedure section 1987, which provides a procedure to compel a party to attend trial and produce documents at trial.  Notices under section 1987 have the same effect as service of a subpoena. The notices in this case asked the defendant to appear at trial to testify about his financial condition, and to produce documents relating to his financial condition.

    The defendant could have objected to the notices because they did not provide sufficient time to respond.  If the defendant had objected, he would have been excused from complying with the notices unless the plaintiffs moved to compel his compliance.  But instead of objecting, the defendant simply ignored the notices, refused to testify at trial, and refused to produce any financial documents.  As a result, the Court of Appeal (Second District, Division Two) holds that the defendant forfeited the right to complain about the lack of evidence of his finances.

  • Court of Appeal affirms order that vacated $340 million punitive damages award against Johnston & Johnson (Echeverria v. Johnson & Johnson)

    Two years ago a Los Angeles jury awarded $417 million, including $347 million in punitive damages, to a woman who claimed she developed ovarian cancer from talc in Johnson & Johnson’s Baby Powder.  The trial court tossed out the punitive damages award, finding that the plaintiffs presented no clear and convincing evidence of malice, fraud, or oppression.

    A few days ago, the Court of Appeal (Second District, Division Three) issued this published opinion affirming the trial court’s ruling on punitive damages.  It’s an important decision because it deals with a factual scenario that arises frequently in California punitive damages litigation.  The basic facts go something like this:

    A manufacturer sells a product at a time when someone has posited that an ingredient in the product may increase the risk of cancer, but the issue is a question of scientific debate.  The plaintiff uses the product and develops cancer, and seeks punitive damages from the manufacturer on theory that it consciously disregarded a possible risk to human health.

    The Court of Appeal explains that such evidence cannot support punitive damages, which must be based on a showing that the defendant was aware of probable dangerous consequences of its conduct.  For punitive damages purposes, it is not enough that someone somewhere identified a possible risk from the defendant’s product.  If the scientific community had not reached agreement on whether there was an actual risk, then the defendant did not act with malice by selling the product.

    So in this case, where the connection between talc and ovarian cancer remains under scientific investigation, the Court of Appeal said the jury could have reasonably concluded the defendant was negligent, but no reasonable jury could find by clear and convincing evidence that the defendant committed the sort of “despicable” conduct that warrants punitive damages.

    Significantly, the court explained that scientific studies issued after the plaintiff’s injury could not be used to prove the defendant’s state of mind before the product was sold.  “Scientific evidence developed post-injury did not create a reasonable inference that [the defendant] was acting with malice, pre-injury, in failing to warn of probable dangerous consequences of the product.”

    While it may seem obvious that studies released in 2013 cannot shed light on a defendant’s state of mind in the 1960s, California case law on this issue has been somewhat unclear.  This decision may help dispel some of that confusion.

  • Court of Appeal affirms order that vacated $340 million punitive damages award against Johnston & Johnson (Echeverria v. Johnson & Johnson)

    Two years ago a Los Angeles jury awarded $417 million, including $347 million in punitive damages, to a woman who claimed she developed ovarian cancer from talc in Johnson & Johnson’s Baby Powder.  The trial court tossed out the punitive damages award, finding that the plaintiffs presented no clear and convincing evidence of malice, fraud, or oppression.

    A few days ago, the Court of Appeal (Second District, Division Three) issued this published opinion affirming the trial court’s ruling on punitive damages.  It’s an important decision because it deals with a factual scenario that arises frequently in California punitive damages litigation.  The basic facts go something like this:

    A manufacturer sells a product at a time when someone has posited that an ingredient in the product may increase the risk of cancer, but the issue is a question of scientific debate.  The plaintiff uses the product and develops cancer, and seeks punitive damages from the manufacturer on theory that it consciously disregarded a possible risk to human health.

    The Court of Appeal explains that such evidence cannot support punitive damages, which must be based on a showing that the defendant was aware of probable dangerous consequences of its conduct.  For punitive damages purposes, it is not enough that someone somewhere identified a possible risk from the defendant’s product.  If the scientific community had not reached agreement on whether there was an actual risk, then the defendant did not act with malice by selling the product.

    So in this case, where the connection between talc and ovarian cancer remains under scientific investigation, the Court of Appeal said the jury could have reasonably concluded the defendant was negligent, but no reasonable jury could find by clear and convincing evidence that the defendant committed the sort of “despicable” conduct that warrants punitive damages.

    Significantly, the court explained that scientific studies issued after the plaintiff’s injury could not be used to prove the defendant’s state of mind before the product was sold.  “Scientific evidence developed post-injury did not create a reasonable inference that [the defendant] was acting with malice, pre-injury, in failing to warn of probable dangerous consequences of the product.”

    While it may seem obvious that studies released in 2013 cannot shed light on a defendant’s state of mind in the 1960s, California case law on this issue has been somewhat unclear.  This decision may help dispel some of that confusion.