California Punitives by Horvitz & Levy

  • Court of Appeal affirms $1M in punitive damages and furthers split of authority on clear-and-convincing standard of proof (Mazik v. Geico)

    This published opinion is a likely candidate for California Supreme Court review.

    This is an insurance bad faith case in which a jury awarded compensatory damages of $313,508 and punitive damages of $4 million against GEICO for unreasonably failing to pay its policyholder the policy limits of $50,000 under an underinsured motorist policy.  The trial court reduced the punitive damages to $1 million.  GEICO appealed only the punitive damages award.

    GEICO argued that evidence was insufficient to to show that any managing agent of GEICO participated in or authorized an act of malice, fraud, or oppression, as required by Civil Code section 3294.

    The Court of Appeal (Second District, Division Two) began its analysis by considering whether the clear-and-convincing standard of proof affects appellate review of the sufficiency of the evidence.  As we have noted, California’s appellate courts have split on this issue and the California Supreme Court recently granted review to resolve the split.

    The Court of Appeal here decided to disregard the clear-and-convincing standard for purposes of  appellate review.  In so doing, the court cited a 1973 Supreme Court opinion (Crail v. Blakely), but did not discuss some of the more recent cases or acknowledge that the issue is currently pending before the Supreme Court.

    The court’s decision on the standard of review issue appears to be pivotal to its analysis of the merits.  The court concluded that the plaintiff’s evidence was sufficient, based in large part on inferences that the jury might have drawn from equivocal evidence.  For example, the court discussed evidence that claims adjusters at GEICO, who were not managing agents, cherry-picked evidence from the plaintiff’s medical files to justify their decision not to pay his claim.  They prepared evaluations that minimized the plaintiff’s injuries, while ignoring evidence to the contrary.  There was no direct evidence, however, that GEICO’s managing agent (a regional liability administrator) knew about the information that the adjusters omitted from their reports.  The Court of Appeal concluded, however, that the jury could have inferred the managing agent’s knowledge of that information based on evidence that he had “more than a passing familiarity” with the claim.

    Had the Court of Appeal taken the clear-and-convincing evidence requirement into account, it might have reached a different conclusion.  Cases applying that standard have held that equivocal evidence is not sufficient to qualify as clear and convincing—when the evidence is equally consistent with ordinary negligence as with malice, the plaintiff has failed to show malice by clear and convincing evidence.

    There’s a good chance that if GEICO petitions the California Supreme Court for review, the court will grant review and decide it along with the currently pending case on this issue (or hold this case pending the resolution of the other case).

  • Court of Appeal reduces compensatory damages by $1.7M but affirms punitive damages (Cardoza v. Reed)

    This unpublished opinion addresses an unsettled question of California punitive damages law that we have written about a few times.  The question is what a reviewing court should do with a punitive damages award when the court significantly reduces the compensatory damages on appeal.  Should the reviewing court automatically order a retrial on the issue of punitive damages, so that a jury can determine what punishment is appropriate for the actual harm caused?

    In our view, the answer to that question should be yes.  Jurors are routinely instructed to award an amount of punitive damages that bears a reasonable relationship to the plaintiff’s actual harm.  And courts routinely presume that jurors follow their instructions.  So if a jury imposes punitive damages based on the understanding that the plaintiff suffered $5 million in compensatory damages, but that understanding turns out to be false, and the Court of Appeal determines that the plaintiff really suffered only $2 million in compensatory damages, then the defendant is entitled to have a jury decide what punishment is appropriate for causing that harm. 

    California courts used to follow that approach, but it recent years California appellate courts are increasingly reluctant to order a new trial under these circumstances.  Instead, they will order a new trial only if they determine that the jury’s punitive damages award is unconstitutionally excessive when compared to the now-reduced compensatory damages award. 

    That’s the approach that the Court of Appeal (First District, Division Four) took in this case.  It shaved $1.7 million off the jury’s compensatory damages award, but did not order a new trial on punitive damages.  Instead, the Court of Appeal affirmed the punitive damages award after concluding that the ratio between the punitive damages and the compensatory damages (as reduced) did not violate due process.  In the process, the Court of Appeal deprived the defendant of its right to have a jury decide the appropriate amount of punishment for the harm actually caused. 

    Perhaps someday the California Supreme Court will sort this out.  Until then, we will probably continued to see more unpublished opinions like this one.

  • Court of Appeal reduces compensatory damages by $1.7M but affirms punitive damages (Cardoza v. Reed)

    This unpublished opinion addresses an unsettled question of California punitive damages law that we have written about a few times.  The question is what a reviewing court should do with a punitive damages award when the court significantly reduces the compensatory damages on appeal.  Should the reviewing court automatically order a retrial on the issue of punitive damages, so that a jury can determine what punishment is appropriate for the actual harm caused?

    In our view, the answer to that question should be yes.  Jurors are routinely instructed to award an amount of punitive damages that bears a reasonable relationship to the plaintiff’s actual harm.  And courts routinely presume that jurors follow their instructions.  So if a jury imposes punitive damages based on the understanding that the plaintiff suffered $5 million in compensatory damages, but that understanding turns out to be false, and the Court of Appeal determines that the plaintiff really suffered only $2 million in compensatory damages, then the defendant is entitled to have a jury decide what punishment is appropriate for causing that harm.

    California courts used to follow that approach, but it recent years California appellate courts are increasingly reluctant to order a new trial under these circumstances.  Instead, they will order a new trial only if they determine that the jury’s punitive damages award is unconstitutionally excessive when compared to the now-reduced compensatory damages award.

    That’s the approach that the Court of Appeal (First District, Division Four) took in this case.  It shaved $1.7 million off the jury’s compensatory damages award, but did not order a new trial on punitive damages.  Instead, the Court of Appeal affirmed the punitive damages award after concluding that the ratio between the punitive damages and the compensatory damages (as reduced) did not violate due process.  In the process, the Court of Appeal deprived the defendant of its right to have a jury decide the appropriate amount of punishment for the harm actually caused.

    Perhaps someday the California Supreme Court will sort this out.  Until then, we will probably continued to see more unpublished opinions like this one.

  • Court of Appeal publishes opinion that vacated punitive damages due to lack of financial evidence (F&M Trust v. Vanetik)

    Back in February we reported on an unpublished decision that vacated $3.25 million in punitive damages because the plaintiff failed to present meaningful evidence of the defendants’ financial condition.

    The Court of Appeal has now ordered that discussion published in the official reports.  See the order at the bottom of the court’s online docket. Other parts of the opinion remain unpublished.

  • Court of Appeal publishes opinion that vacated punitive damages due to lack of financial evidence (F&M Trust v. Vanetik)

    Back in February we reported on an unpublished decision that vacated $3.25 million in punitive damages because the plaintiff failed to present meaningful evidence of the defendants’ financial condition.

    The Court of Appeal has now ordered that discussion published in the official reports.  See the order at the bottom of the court’s online docket. Other parts of the opinion remain unpublished.

  • Court of Appeal affirms punitive damages award, rejects defendant’s complaint about alternate juror participating in punitive damages phase (Nolasco v. Scantibodies)

    This unpublished opinion addresses an issue we haven’t seen in a while.

    A jury awarded a total of $932,000 in compensatory damages and $750,000 in punitive damages to two plaintiffs who claimed their employer retailed against them after they disclosed information to the FDA about the company’s practices.  (The defendant produces medical diagnostic tests and components.)

    The trial was bifurcated under Civil Code section 3295: in phase one the jury decided the issue of liability and whether the defendant acted with malice, oppression, or fraud; in phase two the jury decided the amount of punitive damages.

    On appeal, the defendant argued it was entitled to a new trial on punitive damages because the trial court seated an alternate juror during the second phase of trial.  The defendant argued that the use of the alternate juror violated section 3295’s requirement that both phases of trial be decided by the “same trier of fact.”

    The Court of Appeal (Fourth District, Division One) rejected that argument, citing an earlier decision in Rivera v. Sassoon.  Rivera held that the use of an alternative juror in phase two does not violate the “same trier of fact” rule because alternate jurors hear the same evidence and are subject to the same admonitions as the regular jurors.

    That reasoning is a little unsatisfying, because whatever instructions and evidence the alternate jurors may hear, they do not actually get to vote in phase one.  So when an alternative juror is seated for phase two, the two phases of trial are not literally being decided by the same trier of fact.  No other cases have followed Rivera‘s reasoning on this issue, but as the Court of Appeal pointed out, no cases have challenged that reasoning either.  So Rivera remains good law, at least for now.

  • Court of Appeal affirms punitive damages award, rejects defendant’s complaint about alternate juror participating in punitive damages phase (Nolasco v. Scantibodies)

    This unpublished opinion addresses an issue we haven’t seen in a while.

    A jury awarded a total of $932,000 in compensatory damages and $750,000 in punitive damages to two plaintiffs who claimed their employer retailed against them after they disclosed information to the FDA about the company’s practices.  (The defendant produces medical diagnostic tests and components.)

    The trial was bifurcated under Civil Code section 3295: in phase one the jury decided the issue of liability and whether the defendant acted with malice, oppression, or fraud; in phase two the jury decided the amount of punitive damages.

    On appeal, the defendant argued it was entitled to a new trial on punitive damages because the trial court seated an alternate juror during the second phase of trial.  The defendant argued that the use of the alternate juror violated section 3295’s requirement that both phases of trial be decided by the “same trier of fact.”

    The Court of Appeal (Fourth District, Division One) rejected that argument, citing an earlier decision in Rivera v. Sassoon.  Rivera held that the use of an alternative juror in phase two does not violate the “same trier of fact” rule because alternate jurors hear the same evidence and are subject to the same admonitions as the regular jurors.

    That reasoning is a little unsatisfying, because whatever instructions and evidence the alternate jurors may hear, they do not actually get to vote in phase one.  So when an alternative juror is seated for phase two, the two phases of trial are not literally being decided by the same trier of fact.  No other cases have followed Rivera‘s reasoning on this issue, but as the Court of Appeal pointed out, no cases have challenged that reasoning either.  So Rivera remains good law, at least for now.

  • Court of Appeal reverses $3.25 million punitive damages award (F&M Trust v. Vanetik)

    Here’s yet another unpublished opinion reversing a punitive damages award because the plaintiff failed to present meaningful evidence of the defendants’ financial condition.

    This case involves breach of contract and fraud claims against two individuals who own companies involved in oil exploration in Russia.  The plaintiff entered into an agreement to invest in those companies, but later found out the defendants used the investment to pay off their debts.  The plaintiff won a jury verdict for $750,000 in compensatory damages, plus $2 million in punitive damages  against one defendant and $1.25 million in punitive damages against another defendant.

    The Court of Appeal (Fourth District, Division Three) reversed both punitive damages awards because the plaintiff failed to present evidence of the defendants’ net worth.  The plaintiff had an expert witness who testified to the net worth of the defendants, but the Court of Appeal concluded that the expert’s opinions were not based on reliable information.  Although the expert purported to consider the defendants’ net worth, in reality he considered only their assets, without taking into account their liabilities.  The expert also relied on information from four years before trial, which failed to satisfy the plaintiff’s burden of proving the defendants’ net worth at the time of trial.

    The court rejected the plaintiff’s attempt to blame the defendants for the lack of financial evidence.  The plaintiff never filed a motion under Code of Civil Procedure section 3295(c) for pretrial discovery of the defendant’s financial condition.  Nor did the plaintiff file any discovery requests in the second phase of trial, after the jury found that the defendants acted with malice, oppression, or fraud.  Thus, the plaintiff had only himself to blame for the lack of evidence on this issue.

    The Court of Appeal reversed the punitive damages award without giving the plaintiffs a new trial on that issue.  That’s the correct result under California law, because a plaintiff who fails to present evidence is not entitled to a do-over.  But as we have seen, California courts sometimes overlook that rule (this court did a few years ago.)

  • Court of Appeal reverses $3.25 million punitive damages award (F&M Trust v. Vanetik)

    Here’s yet another unpublished opinion reversing a punitive damages award because the plaintiff failed to present meaningful evidence of the defendants’ financial condition.

    This case involves breach of contract and fraud claims against two individuals who own companies involved in oil exploration in Russia.  The plaintiff entered into an agreement to invest in those companies, but later found out the defendants used the investment to pay off their debts.  The plaintiff won a jury verdict for $750,000 in compensatory damages, plus $2 million in punitive damages  against one defendant and $1.25 million in punitive damages against another defendant.

    The Court of Appeal (Fourth District, Division Three) reversed both punitive damages awards because the plaintiff failed to present evidence of the defendants’ net worth.  The plaintiff had an expert witness who testified to the net worth of the defendants, but the Court of Appeal concluded that the expert’s opinions were not based on reliable information.  Although the expert purported to consider the defendants’ net worth, in reality he considered only their assets, without taking into account their liabilities.  The expert also relied on information from four years before trial, which failed to satisfy the plaintiff’s burden of proving the defendants’ net worth at the time of trial.

    The court rejected the plaintiff’s attempt to blame the defendants for the lack of financial evidence.  The plaintiff never filed a motion under Code of Civil Procedure section 3295(c) for pretrial discovery of the defendant’s financial condition.  Nor did the plaintiff file any discovery requests in the second phase of trial, after the jury found that the defendants acted with malice, oppression, or fraud.  Thus, the plaintiff had only himself to blame for the lack of evidence on this issue.

    The Court of Appeal reversed the punitive damages award without giving the plaintiffs a new trial on that issue.  That’s the correct result under California law, because a plaintiff who fails to present evidence is not entitled to a do-over.  But as we have seen, California courts sometimes overlook that rule (this court did a few years ago.)

  • Court of Appeal reduces punitive damages award from $1 million to $11,800 (Rinehart v. Bank Card Consultants)

    This unpublished opinion holds that a $1 million punitive damages award is excessive in light of the defendant’s financial condition.

    A jury found the defendant liable for wrongful termination and awarded $500,000 in compensatory damages and $1 million in punitive damages.  The defendant appealed, arguing that the punitive damages award was excessive because it was disproportionate to the defendant’s ability to pay.

    The Court of Appeal (Fourth District, Division Three) agreed.  The only evidence of the defendant’s financial condition showed an annual net income of $180,000 and a net worth of $86,000.  The Court of Appeal said the punitive damages award was “clearly excessive” because it represented five times the defendant’s annual net income and more then 10 times its net worth. The court explained that an award of one month of net income, or 10 percent of net worth, “would approximate the maximum award that would pass muster.”  Ten percent of net worth would be $8,600, and one month of net income would be $15,000, so the court averaged those two amounts and concluded that the maximum permissible award would be $11,800.

    The Court of Appeal should have ended the proceedings by ordering the trial court to reduce the punitive damages to the maximum amount.  (See Simon v. San Paolo U.S. Holding Co.)  As some courts put it, the plaintiff should not get a “second bite at the apple” after having failed to present sufficient financial condition evidence to support the punitive damages award the first time around.  (See Kelly v. Haag.)  Here, however, the Court of Appeal did exactly that.  It let the plaintiff choose between a new trial or a reduction of the punitive damages to $11,800.