California Punitives by Horvitz & Levy

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    This unpublished opinion has a footnote that struck me as funny.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

  • Court of Appeal reverses $300,000 punitive damages award for lack of financial condition evidence (B.C. v. Cottone)

    This unpublished opinion is the latest in the long line of California decisions reversing a punitive damages award because the plaintiff failed to present meaningful evidence of the defendant’s financial condition.

    The plaintiff here presented evidence of the defendant’s assets, but no evidence of debts or liabilities. Although the assets included real estate with a value exceeding $3.4 million, the jury could not determine the defendant’s financial condition (and ability to pay punitive damages) without knowing the other side of the balance sheet.  Accordingly, the Court of Appeal (Fourth District, Division Three) reversed the jury’s award of $300,000 in punitive damages.

    The plaintiff argued that once she presented evidence of the defendant’s assets, the burden shifted to the defendant to prove his inability to pay.  The Court of Appeal disagreed, explaining that when a plaintiff presents a complete picture of the defendant’s financial condition, only then does the burden shifts to the defendant to show an inability to pay.  But when a plaintiff presents only information about assets, the burden does not shift to the defendant or present evidence of liabilities.

    The plaintiff also tried to blame the defendant for the lack of evidence.  She said he was evasive and nonresponsive when answering questions about his financial condition during trial. The Court of Appeal, however, blamed the plaintiff for not introducing into evidence the financial documents she received from the defendant.  The court also noted that the plaintiff failed to call other available witnesses (like the defendant’s wife), and did not object in the trial court that the defendant failed to produce information that was requested. 

    Ordinarily, when a plaintiff fails to meet his or her burden of proof on this issue, the appropriate remedy is to enter judgment for the defendant on the issue of punitive damages.  The plaintiff does not get a second bite at the apple.  But in this case, the Court of Appeal took the unusual step of ordering a new trial on punitive damages, based on the following considerations: (1) the defendant “bears some responsibility for the evidentiary shortcomings” due to his evasive and nonresponsive answers, (2) the evidence in the record shows that the defendant possessed substantial assets, and (3) the conduct that led to the punitive damages award was extremely reprehensible.

  • Court of Appeal reverses $300,000 punitive damages award for lack of financial condition evidence (B.C. v. Cottone)

    This unpublished opinion is the latest in the long line of California decisions reversing a punitive damages award because the plaintiff failed to present meaningful evidence of the defendant’s financial condition.

    The plaintiff here presented evidence of the defendant’s assets, but no evidence of debts or liabilities. Although the assets included real estate with a value exceeding $3.4 million, the jury could not determine the defendant’s financial condition (and ability to pay punitive damages) without knowing the other side of the balance sheet.  Accordingly, the Court of Appeal (Fourth District, Division Three) reversed the jury’s award of $300,000 in punitive damages.

    The plaintiff argued that once she presented evidence of the defendant’s assets, the burden shifted to the defendant to prove his inability to pay.  The Court of Appeal disagreed, explaining that when a plaintiff presents a complete picture of the defendant’s financial condition, only then does the burden shifts to the defendant to show an inability to pay.  But when a plaintiff presents only information about assets, the burden does not shift to the defendant or present evidence of liabilities.

    The plaintiff also tried to blame the defendant for the lack of evidence.  She said he was evasive and nonresponsive when answering questions about his financial condition during trial. The Court of Appeal, however, blamed the plaintiff for not introducing into evidence the financial documents she received from the defendant.  The court also noted that the plaintiff failed to call other available witnesses (like the defendant’s wife), and did not object in the trial court that the defendant failed to produce information that was requested.

    Ordinarily, when a plaintiff fails to meet his or her burden of proof on this issue, the appropriate remedy is to enter judgment for the defendant on the issue of punitive damages.  The plaintiff does not get a second bite at the apple.  But in this case, the Court of Appeal took the unusual step of ordering a new trial on punitive damages, based on the following considerations: (1) the defendant “bears some responsibility for the evidentiary shortcomings” due to his evasive and nonresponsive answers, (2) the evidence in the record shows that the defendant possessed substantial assets, and (3) the conduct that led to the punitive damages award was extremely reprehensible.

  • California Court of Appeal affirms $784,000 punitive damages award (Burlingame Investments)

    This unpublished opinion involves a complicated set of facts, but the upshot is that a jury awarded roughly $784,000 in compensatory damages and $784,000 in punitive damages against an attorney who allegedly participated in an illegal scheme to take over a group of closely-held businesses.

    The defendant attorney argued on appeal that the Court of Appeal should reverse the punitive damages award entirely because the plaintiffs presented no evidence that he acted with malice, oppression, or fraud as required for a punitive damages award under Civil Code section 3294.  The Court of Appeal (First District, Division One), however, had no trouble concluding that the record supported the jury’s finding that the defendant knew what he was doing was illegal.

    The Court of Appeal also rejected the defendant’s challenge to the amount of the punitive damages. The court agreed with the defendant that his conduct did not implicate most of the reprehensibility factors that the Supreme Court set forth in BMW v. Gore as indicators of highly reprehensible conduct.  But the court found that the reprehensibility of the conduct was “severe” because it implicated one of those factors—the harm was the result of intentional malice, not mere accident.

    That analysis is interesting.  In California, punitive damages can never be awarded for “mere accident.”  If that factor alone were enough for a court to deem conduct severely reprehensible, then the vast majority of punitive damages case in California would qualify.  Compare that approach to the Supreme Court of California’s analysis in Roby v. McKesson, which held that the reprehensibility of the defendant’s conduct implicated four of the five BMW reprehensibility factors but was nevertheless “at the low end of the range of wrongdoing that can support an award of punitive damages.”

    In any event, it probably wouldn’t have made any difference whether the court characterized the defendant’s conduct as severe or mild in this case, given the one-to-one ratio of punitive damages to compensatory damages.  California courts would rarely find such a ratio excessive, especially where the punitive damages are less than $1 million.

  • California Court of Appeal affirms $784,000 punitive damages award (Burlingame Investments)

    This unpublished opinion involves a complicated set of facts, but the upshot is that a jury awarded roughly $784,000 in compensatory damages and $784,000 in punitive damages against an attorney who allegedly participated in an illegal scheme to take over a group of closely-held businesses.

    The defendant attorney argued on appeal that the Court of Appeal should reverse the punitive damages award entirely because the plaintiffs presented no evidence that he acted with malice, oppression, or fraud as required for a punitive damages award under Civil Code section 3294.  The Court of Appeal (First District, Division One), however, had no trouble concluding that the record supported the jury’s finding that the defendant knew what he was doing was illegal.

    The Court of Appeal also rejected the defendant’s challenge to the amount of the punitive damages. The court agreed with the defendant that his conduct did not implicate most of the reprehensibility factors that the Supreme Court set forth in BMW v. Gore as indicators of highly reprehensible conduct.  But the court found that the reprehensibility of the conduct was “severe” because it implicated one of those factors—the harm was the result of intentional malice, not mere accident.

    That analysis is interesting.  In California, punitive damages can never be awarded for “mere accident.”  If that factor alone were enough for a court to deem conduct severely reprehensible, then the vast majority of punitive damages case in California would qualify.  Compare that approach to the Supreme Court of California’s analysis in Roby v. McKesson, which held that the reprehensibility of the defendant’s conduct implicated four of the five BMW reprehensibility factors but was nevertheless “at the low end of the range of wrongdoing that can support an award of punitive damages.”

    In any event, it probably wouldn’t have made any difference whether the court characterized the defendant’s conduct as severe or mild in this case, given the one-to-one ratio of punitive damages to compensatory damages.  California courts would rarely find such a ratio excessive, especially where the punitive damages are less than $1 million.

  • Court of Appeal reverses $46 million punitive damages award (Victaulic v. American Home Assurance)

    In 2015 we reported on the verdict against AIG in this case, which included over $9 million in compensatory damages and $46 million in punitive damages.  We noted that, if the Court of Appeal affirmed the punitive damages award, it would likely be the largest punitive damages award ever upheld in an insurance bad faith case in California.  It would have been the third largest punitive damages award ever upheld in California, in any kind of case.

    Yesterday, the Court of Appeal (First Appellate District, Division Two) reversed the judgment due to prejudicial misconduct by the trial court.  The Court of Appeal found, among other things, that the trial court acted improperly by aggressively questioning a witness and then arranging to have the witness invoke the Fifth Amendment in front of the jury, before any cross-examination by the defense.

    Horvitz & Levy represented AIG on appeal.  (Congratulations to my colleagues Peter Abrahams, Mitch Tilner, and Emily Cuatto.)  Our practice is not to provide commentary on our own cases, so I won’t dig into the merits of this decision. But the case is worth a read for anyone handling a bad faith case with a punitive damages claim.

  • Court of Appeal vacates punitive damages in case where jury awarded $75 million (City of Modesto v. Dow)

    This partially published opinion issued yesterday contains an interesting discussion of California’s “managing agent” requirement.  As we have discussed in prior posts, California law does not permit punishment of corporations for the acts of non-managerial employees.  Civil Code section 3294 requires plaintiffs seeking punitive damages to prove that the misconduct at issue was committed (or authorized or ratified) by an officer, director, or managing agent of the corporation.

    The California Supreme Court has set a fairly high bar for proving that a corporate employee qualifies as a managing agent within the meaning of section 3294.  The employee must have authority to create “formal policies that affect a substantial portion of the company and that are the type likely to come to the attention of corporate leadership.”  (See Roby v. McKesson.)

    Recent cases have applied this standard inconsistently.  One decision last summer found that an employee who merely applied company policy qualified as a managing agent. Another decision a few months ago ruled that employees who applied corporate policy were not managing agents because they did not have the discretion to create company policy.

    Yesterday’s decision arises from a long and complex procedural history, most of which is not relevant to the subject of this blog.  What’s important for our purposes is that a jury in a groundwater contamination case, the City of Modesto won a jury award of $3.1 million in compensatory damages against various defendants, and $75 million in punitive damages against one defendant (Dow).

    The City’s punitive damages claim against Dow rested on the premise that Dow sold dry cleaning chemicals and knowingly provided inadequate instructions regarding the proper use and disposal of the chemicals, which ultimately led to the contamination of groundwater supplies in Modesto.

    The trial court reduced the punitive damages awards during the posttrial proceedings, ruling that any amount in excess of $5,444, 221 (four times compensatory damages) would violate due process.

    The City and Dow both appealed.  The City sought reinstatement of the jury’s $75 million punitive damages award, and Dow argued that it was entitled to judgment in its favor on the issue of punitive damages because the City failed to satisfy the managing agent requirement.

    The Court of Appeal (First Appellate District, Division Four) agreed with Dow and vacated the punitive damages award in its entirety.  The court rejected the City’s argument that Dow’s “product stewards” qualified as managing agents. Product stewards were responsible for knowing and understanding the health, safety, and environmental effects of Dow’s chemical products. They were involved in the preparation of Dow’s communications with its customers, including instructions on how users could properly dispose of chemicals.  But the Court of Appeal found no evidence that the product stewards had “broad discretion” or “ultimate authority” regarding Dow’s communications, as the City contended.

    Having concluded that the product stewards did not qualify as managing agents, and finding no other evidence of any culpable officer, director, or managing agent, the Court of Appeal vacated the jury’s award of punitive damages against Dow.

    Notably, the Court of Appeal took the clear and convincing standard of proof into account when evaluating the sufficiency of the evidence on the managing agent issue.  That approach is well grounded in California case law, but not every Court of Appeal has adhered to it, as we have noted.

    Unfortunately, the entire punitive damages discussion in this opinion has been designated “not for publication.”

    Disclosure: Horvitz & Levy LLP represented Dow as consulting counsel on appeal.