California Punitives by Horvitz & Levy

  • 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    This unpublished opinion addresses an issue we haven’t seen in a while.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    Here’s yet another unpublished opinion reversing a punitive damages award because the plaintiff failed to present meaningful evidence of the defendants’ financial condition.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.

  • 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.

  • 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.