California Punitives by Horvitz & Levy

  • Published opinion exacerbates split over application of clear-and-convincing evidence standard on appeal (Morgan v. Davidson)

    This published opinion may cause the California Supreme Court to finally settle a long-simmering split of authority.

    The issue in question is whether appellate courts should consider the clear-and-convincing evidence standard of proof when reviewing the sufficiency of the evidence to support a punitive damages award.

    By statute, California plaintiffs must prove all the prerequisites for a punitive damages award by clear and convincing evidence.  When a defendant challenges a punitive damages award on appeal, arguing that the plaintiff failed to meet the burden of proof, appellate courts often take the heightened standard of proof into account, and ask whether a reasonable factfinder could have found that plaintiff’s evidence amounted to clear and convincing proof of malice, oppression, or fraud. (See, e.g. Shade Foods v. Innovative Products [“since the jury’s findings were subject to a heightened burden of proof, we must review the record in support of these findings in light of that burden . . . . we must inquire whether the record contains substantial evidence to support a determination by clear and convincing evidence’ “]; Pfeifer v. John Crane [“we review the evidence in the light most favorable to the Pfeifers, give them the benefit of every reasonable inference, and resolve all conflicts in their favor, with due attention to the heightened standard of proof”].)

    Some courts have concluded, however, that the clear-and-convincing standard applies only in the trial court and “disappears” in the Court of Appeal.  As we have observed, that view is supported by some older opinions and continues to pop up in unpublished decisions.

    Earlier this year, Division Four of the First Appellate District attempted to put and end to the notion that the clear-and-convincing evidence standard disappears on appeal.  T.J. v. Superior Court explained why it is important for appellate courts to take the heightened standard of proof into account:

    If the clear and convincing evidence standard “disappears” on appellate review, that means the distinction between the preponderance standard and the clear and convincing standard imposed by statute is utterly lost on appeal, an outcome we believe undermines the legislative intent as well as the integrity of the review process. . . . If that standard is ignored on appeal, the heightened standard of proof . . . loses much of its force, or at least the ability of the appellate court to correct error is unacceptably weakened.

    We hoped that would put an end to the debate, but yesterday Division Two of the Fourth Appellate District reached the opposite conclusion and embraced the older cases holding that the higher standard of proof disappears.  The court did not cite the T.J. v. Superior Court opinion, but did acknowledge some of the other recent decisions that applied the clear-and-convincing standard on appeal.  The court rejected these cases as inconsistent with Supreme Court precedent, citing Crail v. Blakely, a 1973 decision in which the Supreme Court indicated outside the punitive damages context that the clear and convincing standard was adopted only “for the edification and guidance of the trial court.” 

    The court failed to recognize, however, that the Supreme Court has held otherwise, more recently, in the punitive damages context.  The Supreme Court’s decision in In re Angelia P. adopted the view that the clear and convincing evidence standard is incorporated into the substantial evidence standard on appeal.  And the Supreme Court has continued to follow that approach in more recent decisions in other contexts.  (See Conservatorship of Wendland (2001) [“The ‘clear and convincing evidence’ test requires a finding of high probability . . . we ask whether the evidence [on the issue before the court] has that degree of clarity”]; Estate of Ford (2004) [finding that certain testimony “was not clear and convincing evidence” on the issue of equitable adoption].)

    We can only hope that the Supreme Court will grant review to sort this out.  The Supreme Court actually attempted to do that a decade ago.  In an unpublished decision, Harvey v. Sybase, the Court of Appeal took the same position as the Court of Appeal here (i.e., that the clear-and-convincing standard disappears on appeal), and the Supreme Court granted review to address that issue.  But the parties settled that case and the issue became moot.  Perhaps the defendant in this case will seek review, providing the Supreme Court with another opportunity to take up the issue.

  • Court of Appeal affirms trial court’s decision not to award punitive damages in bench trial (Williams v. Pep Boys)

    The First Appellate District, Division Four, certified this opinion for partial publication, but the punitive damages discussion is unpublished.  That discussion is an interesting read anyway, especially for anyone involved in asbestos litigation.

    J.D. Williams died of mesothelioma.  His children brought this lawsuit claiming their father’s disease was caused by exposure to asbestos in a number of ways, including through his occasional use of asbestos-containing replacement brakes he purchased from The Pep Boys.  After a bench trial, the trial court found the Pep Boys liable and awarded compensatory damages, but rejected the plaintiffs’ claim for punitive damages.  The plaintiffs appealed, challenging that ruling (and a few other rulings not relevant for our purposes).

    On appeal, the plaintiffs cited other recent opinions that have affirmed punitive damages awards in asbestos cases, and argued that they had presented a “classic case” for punitive damages.  I.e., they offered evidence that the defendant sold asbestos-containing products, and that there was scientific information available at the time showing that asbestos could cause disease.  The Court of Appeal found those cases distinguishable for two primary reasons: (1) the plaintiffs failed to show that Pep Boys was actually aware of any dangers posed by its products at the time of Mr. Williams’ alleged exposures, and (2) the trial court could reasonably conclude the defendant did not act with malice “because of the how the state of scientific knowledge regarding the risks of asbestos exposure evolved over time.”

    That second point is particularly interesting.  In the early days of California asbestos litigation, punitive damages claims were rare, because it was understood that scientific and medical information about asbestos-related diseases had evolved considerably between the time of exposures and the time of trial. But hindsight bias powerfully suggests that something that has in fact come to pass was foreseeable all along. For that reason, it has become all too easy in recent years for judges and jurors, especially those who are too young to remember a time when asbestos did not have the stigma it has today, to conclude that any company that used asbestos, at any time, had necessarily ignored a known health risk.  This opinion shows there’s still at least a little resistance to that way of thinking in some corners of the California judicial system.

  • Court of Appeal affirms trial court’s decision not to award punitive damages in bench trial (Williams v. Pep Boys)

    The First Appellate District, Division Four, certified this opinion for partial publication, but the punitive damages discussion is unpublished.  That discussion is an interesting read anyway, especially for anyone involved in asbestos litigation.

    J.D. Williams died of mesothelioma.  His children brought this lawsuit claiming their father’s disease was caused by exposure to asbestos in a number of ways, including through his occasional use of asbestos-containing replacement brakes he purchased from The Pep Boys.  After a bench trial, the trial court found the Pep Boys liable and awarded compensatory damages, but rejected the plaintiffs’ claim for punitive damages.  The plaintiffs appealed, challenging that ruling (and a few other rulings not relevant for our purposes).

    On appeal, the plaintiffs cited other recent opinions that have affirmed punitive damages awards in asbestos cases, and argued that they had presented a “classic case” for punitive damages.  I.e., they offered evidence that the defendant sold asbestos-containing products, and that there was scientific information available at the time showing that asbestos could cause disease.  The Court of Appeal found those cases distinguishable for two primary reasons: (1) the plaintiffs failed to show that Pep Boys was actually aware of any dangers posed by its products at the time of Mr. Williams’ alleged exposures, and (2) the trial court could reasonably conclude the defendant did not act with malice “because of the how the state of scientific knowledge regarding the risks of asbestos exposure evolved over time.”

    That second point is particularly interesting.  In the early days of California asbestos litigation, punitive damages claims were rare, because it was understood that scientific and medical information about asbestos-related diseases had evolved considerably between the time of exposures and the time of trial. But hindsight bias powerfully suggests that something that has in fact come to pass was foreseeable all along. For that reason, it has become all too easy in recent years for judges and jurors, especially those who are too young to remember a time when asbestos did not have the stigma it has today, to conclude that any company that used asbestos, at any time, had necessarily ignored a known health risk.  This opinion shows there’s still at least a little resistance to that way of thinking in some corners of the California judicial system.

  • Court of Appeal affirms $1 million punitive damages award in fraud case (Melvin v. Harkey)

    In this unpublished opinion the Fourth Appellate District, Division Three, rejects a defendant’s argument that a jury award of $1 million in punitive damages should be reversed because the plaintiffs failed to prove malice, oppression, or fraud.  The court finds sufficient evidence in the record that the defendant, the owner of an investment firm, engaged in a Ponzi scheme and maliciously disregarded the rights of his investors.

    In the process, the Court of Appeal makes some unfortunate comments about the role of the clear and convincing evidence standard of proof in punitive damages cases, and how it impacts appellate review.

    As we have noted in the past, published opinions have repeatedly held that the clear and convincing evidence standard applies both on appeal and in the trial court, and requires appellate courts to decide whether a reasonable jury could find that the plaintiff’s evidence met the clear and convincing standard.  (See, for example, this recent opinion and this one.)  This opinion, however, perpetuates the contrary (and outdated) view that the clear and convincing standard applies solely to the trier of fact, and does not play any role on appeal.

  • The mystery of the shrinking punitive damages (Jet Source v. Doherty)

    This unpublished opinion has a footnote that struck me as funny. 

    The appeal involves the renewal of a judgment that includes punitive damages.  (Under California law, a judgment expires after 10 years unless it is renewed.)  The original judgment included $26 million in punitive damages against multiple defendants, but three years later the superior court reduced the punitive damages to a total of $6.5 million.  According to the Court of Appeal (Fourth District, Division One): “There is no explanation in the record why the amounts of the punitive damages were modified.”

    The explanation may not be in the record, but it is in the California Appellate Reports.  The trial court reduced the punitive damages because the Court of Appeal ordered it to do so.  In 2007, the Court of Appeal issued a published opinion holding that the original punitive damages award in this case was excessive and should be reduced to a total of $6.5 million.  Mystery solved.

  • Court of Appeal tosses punitive damages claim against PG&E in Butte fire litigation (PG&E v. Superior Court)

    The Third Appellate District issued this published opinion on July 2.  I’ve been delayed in writing about it, but it is one of the more interesting California punitive damages decisions in recent memory.

    The Court of Appeal granted writ relief, reversing the denial of the defendant’s motion for summary adjudication on punitive damages.  That alone is pretty rare in California.  In the ten years of this blog’s existence, we have seen only a handful of writs granted on that basis.

    The case arose out of the 2015 wildfire known as the Butte Fire, which caused widespread damage in Northern California.  Contractors working for PG&E removed two trees that were too close to a power line.  Removal of those trees left a third tree exposed and unsupported, causing it to lean towards the path of the sun until it eventually toppled and hit the power lines, sparking the fire.

    The plaintiffs, who suffered personal injuries and property loss in the fire, sued PG&E for negligence, trespass, nuisance, and various other claims.  They sought punitive damages on the theory that PG&E acted in conscious disregard of the risks of wildfires.  The plaintiffs acknowledged that PG&E had a wildfire management program that involved inspecting and removing trees, but the plaintiffs argued that PG&E failed to ensure that the contractors’ employees were properly trained.

    PG&E moved for summary adjudication on the issue of punitive damages, presenting evidence of its extensive wildfire management efforts.  The trial court denied the motion, ruling that a reasonable jury could conclude that PG&E’s program was inadequate and that PG&E deliberately failed to adopt a more robust program.  PG&E petitioned the Court of Appeal for writ relief.

    The Third District granted PG&E’s petition and directed the trial court to dismiss the punitive damages claim.  The court said PG&E met its initial burden by presenting evidence of its extensive efforts to mitigate the risk of wildfires, at a cost of more than $190 million per year.

    The burden then shifted to the plaintiffs to present sufficient evidence to demonstrate a triable issue of fact on whether PG&E acted with malice.  The court concluded that, even viewing the evidence in the light most favorable to the plaintiffs, no reasonable factfinder could find that the plaintiffs had presented clear and convincing evidence of malice.

    First, the court found that many of plaintiffs’ criticisms of PG&E’s fire management efforts could not support an award of punitive damages because many of the asserted defects in PG&E’s programs had no connection to the fire in this case.  That’s an important holding.  Although California law already provides that punitive damages must be based on the same conduct that gave rise to liability in the case, this requirement is often overlooked.

    Second, the court rejected plaintiffs’ reliance on a case known as Romo I.  (Romo v. Ford Motor Co. (2002) 99 Cal.App.4th 1115.)  California plaintiffs often argue that, under Romo I, they need not show that any particular managing agent of a defendant corporation acted with malice, if they can show that the company as a whole acted with malice by adopting a flawed policy.  The Court of Appeal in this case agreed that a finding of malice can be based on the existence of a company policy that willfully, consciously, and despicably disregards the rights of others.  But the court refused to extrapolate the reasoning of Romo I into a rule that malice can be inferred from the existence of any company policy that fails to protect against a known risk:

    Plaintiffs would have us conclude that an unsuccessful risk management policy necessarily reflects a conscious and and will decision to ignore or disregard the risk.  This we decline to do.

    (The court did not address whether Romo I is even citeable precedent.  Another court recently held, in an unpublished discussion, that Romo I cannot be cited in California courts because it was vacated by the United States Supreme Court.  See footnote 16 of this opinion.)

    Third, the court rejected the plaintiffs’ argument that PG&E acted with malice by outsourcing its wildfire prevention program to contractors and then failing to ensure they properly trained their employees. The court noted that PG&E required contractors to hire qualified employees and train them in accordance with industry standards.  “No reasonable jury could find by clear and convincing evidence that PG&E acted with malice in failing to ensure that contractors complied with these requirements.”

    Finally, the court determined that PG&E’s nondelegable duty to maintain its power lines in a safe condition had no bearing on the punitive damages analysis.  The court explained that the nondelegable duty rule means that PG&E may be vicariously liable for compensatory  damages arising from the contractors’ negligence.  But the nondelegable duty rule does not alter the rules for imposing punitive damages.  Plaintiffs must still prove that an officer, director, or managing agent acted with malice, which they failed to do.

  • The mystery of the shrinking punitive damages (Jet Source v. Doherty)

    This unpublished opinion has a footnote that struck me as funny.

    The appeal involves the renewal of a judgment that includes punitive damages.  (Under California law, a judgment expires after 10 years unless it is renewed.)  The original judgment included $26 million in punitive damages against multiple defendants, but three years later the superior court reduced the punitive damages to a total of $6.5 million.  According to the Court of Appeal (Fourth District, Division One): “There is no explanation in the record why the amounts of the punitive damages were modified.”

    The explanation may not be in the record, but it is in the California Appellate Reports.  The trial court reduced the punitive damages because the Court of Appeal ordered it to do so.  In 2007, the Court of Appeal issued a published opinion holding that the original punitive damages award in this case was excessive and should be reduced to a total of $6.5 million.  Mystery solved.

  • Court of Appeal tosses punitive damages claim against PG&E in Butte fire litigation (PG&E v. Superior Court)

    The Third Appellate District issued this published opinion on July 2.  I’ve been delayed in writing about it, but it is one of the more interesting California punitive damages decisions in recent memory.

    The Court of Appeal granted writ relief, reversing the denial of the defendant’s motion for summary adjudication on punitive damages.  That alone is pretty rare in California.  In the ten years of this blog’s existence, we have seen only a handful of writs granted on that basis.

    The case arose out of the 2015 wildfire known as the Butte Fire, which caused widespread damage in Northern California.  Contractors working for PG&E removed two trees that were too close to a power line.  Removal of those trees left a third tree exposed and unsupported, causing it to lean towards the path of the sun until it eventually toppled and hit the power lines, sparking the fire.

    The plaintiffs, who suffered personal injuries and property loss in the fire, sued PG&E for negligence, trespass, nuisance, and various other claims.  They sought punitive damages on the theory that PG&E acted in conscious disregard of the risks of wildfires.  The plaintiffs acknowledged that PG&E had a wildfire management program that involved inspecting and removing trees, but the plaintiffs argued that PG&E failed to ensure that the contractors’ employees were properly trained.

    PG&E moved for summary adjudication on the issue of punitive damages, presenting evidence of its extensive wildfire management efforts.  The trial court denied the motion, ruling that a reasonable jury could conclude that PG&E’s program was inadequate and that PG&E deliberately failed to adopt a more robust program.  PG&E petitioned the Court of Appeal for writ relief.

    The Third District granted PG&E’s petition and directed the trial court to dismiss the punitive damages claim.  The court said PG&E met its initial burden by presenting evidence of its extensive efforts to mitigate the risk of wildfires, at a cost of more than $190 million per year.

    The burden then shifted to the plaintiffs to present sufficient evidence to demonstrate a triable issue of fact on whether PG&E acted with malice.  The court concluded that, even viewing the evidence in the light most favorable to the plaintiffs, no reasonable factfinder could find that the plaintiffs had presented clear and convincing evidence of malice.

    First, the court found that many of plaintiffs’ criticisms of PG&E’s fire management efforts could not support an award of punitive damages because many of the asserted defects in PG&E’s programs had no connection to the fire in this case.  That’s an important holding.  Although California law already provides that punitive damages must be based on the same conduct that gave rise to liability in the case, this requirement is often overlooked.

    Second, the court rejected plaintiffs’ reliance on a case known as Romo I.  (Romo v. Ford Motor Co. (2002) 99 Cal.App.4th 1115.)  California plaintiffs often argue that, under Romo I, they need not show that any particular managing agent of a defendant corporation acted with malice, if they can show that the company as a whole acted with malice by adopting a flawed policy.  The Court of Appeal in this case agreed that a finding of malice can be based on the existence of a company policy that willfully, consciously, and despicably disregards the rights of others.  But the court refused to extrapolate the reasoning of Romo I into a rule that malice can be inferred from the existence of any company policy that fails to protect against a known risk:

    Plaintiffs would have us conclude that an unsuccessful risk management policy necessarily reflects a conscious and and will decision to ignore or disregard the risk.  This we decline to do.

    (The court did not address whether Romo I is even citeable precedent.  Another court recently held, in an unpublished discussion, that Romo I cannot be cited in California courts because it was vacated by the United States Supreme Court.  See footnote 16 of this opinion.)

    Third, the court rejected the plaintiffs’ argument that PG&E acted with malice by outsourcing its wildfire prevention program to contractors and then failing to ensure they properly trained their employees. The court noted that PG&E required contractors to hire qualified employees and train them in accordance with industry standards.  “No reasonable jury could find by clear and convincing evidence that PG&E acted with malice in failing to ensure that contractors complied with these requirements.”

    Finally, the court determined that PG&E’s nondelegable duty to maintain its power lines in a safe condition had no bearing on the punitive damages analysis.  The court explained that the nondelegable duty rule means that PG&E may be vicariously liable for compensatory  damages arising from the contractors’ negligence.  But the nondelegable duty rule does not alter the rules for imposing punitive damages.  Plaintiffs must still prove that an officer, director, or managing agent acted with malice, which they failed to do.

  • Court of Appeal reduces $70 million punitive damages award to $19.6 million (Kuhlman v. Ethicon Endo-Surgery)

    Back in 2015 we reported on an Oakland jury’s award of $70 million in punitive damages in this products liability case involving an allegedly defective hemorrhoid stapler.  We noted that given the substantial compensatory damages award ($9.8 million), an excessiveness challenge was likely.

    This week the California Court of Appeal (First District, Division Five) issued this unpublished opinion reversing the punitive damages award as excessive.

    The court found that the evidence, when viewed in the light most favorable to the plaintiff, could support a punitive damages award in some amount, because there was evidence that the defendant failed to take adequate precautions against a known risk to patient safety.

    But when addressing the issue of excessiveness, the court the defendant’s conduct was only moderately reprehensible when compared to other punishable conduct.  The defendant did not intend to cause harm, and acted responsibly after receiving reports of injuries caused by its product.

    The ratio of punitive damages to compensatory damages awarded by the jury was roughly seven to one. The court observed that, while double-digit ratios are presumptively unconstitutional, that does not mean that single-digit ratios are presumptively valid.  Both the U.S. and California Supreme Courts have emphasized that the maximum permissible ratio is much lower in cases involving substantial compensatory damages.  The court concluded that in this case, any ratio in excess of two to one would violate due process.  Accordingly, the court ordered a reduction of the award to $19.6 million. 

  • Court of Appeal reduces $70 million punitive damages award to $19.6 million (Kuhlman v. Ethicon Endo-Surgery)

    Back in 2015 we reported on an Oakland jury’s award of $70 million in punitive damages in this products liability case involving an allegedly defective hemorrhoid stapler.  We noted that given the substantial compensatory damages award ($9.8 million), an excessiveness challenge was likely.

    This week the California Court of Appeal (First District, Division Five) issued this unpublished opinion reversing the punitive damages award as excessive.

    The court found that the evidence, when viewed in the light most favorable to the plaintiff, could support a punitive damages award in some amount, because there was evidence that the defendant failed to take adequate precautions against a known risk to patient safety.

    But when addressing the issue of excessiveness, the court the defendant’s conduct was only moderately reprehensible when compared to other punishable conduct.  The defendant did not intend to cause harm, and acted responsibly after receiving reports of injuries caused by its product.

    The ratio of punitive damages to compensatory damages awarded by the jury was roughly seven to one. The court observed that, while double-digit ratios are presumptively unconstitutional, that does not mean that single-digit ratios are presumptively valid.  Both the U.S. and California Supreme Courts have emphasized that the maximum permissible ratio is much lower in cases involving substantial compensatory damages.  The court concluded that in this case, any ratio in excess of two to one would violate due process.  Accordingly, the court ordered a reduction of the award to $19.6 million.