California Punitives by Horvitz & Levy

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    This unpublished opinion is the latest in the long line of California decisions reversing a punitive damages award because the plaintiff failed to present meaningful evidence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

  • Court of Appeal conditionally affirms $500,000 punitive damages award despite vacating all compensatory damages (Jensen v. Charon Solutions)

    This unpublished opinion continues an unfortunate trend in the California Court of Appeal.

    Readers of this blog have heard me complain before that an appellate court should not affirm a punitive damages award after ordering a significant reduction in compensatory damages.  Punitive damages are supposed to bear a reasonable relationship to the plaintiff’s actual harm. Juries are instructed to make that determination in every case, and the defendant is entitled to have the jury decide that issue in the first instance.

    In this malicious prosecution case, a jury awarded $1 million in compensatory damages and $500,000 in punitive damages.  On appeal, the Court of Appeal (Second Appellate District, Division Two) concluded that the trial court erred by allowing the plaintiff’s counsel to seek over $400,000 in damages in the form of attorneys fees, based on bills which were so heavily redacted that almost no content was left.  Accordingly, the court sent the case back for a new trial on compensatory damages.

    The court should have ordered a new trial on the punitive damages as well.  That’s what some other  Courts of Appeal have done in this situation.  (See e.g., SEIU v. Colcord (2008) 160 Cal.App.4th362.)

    Instead, the Court of Appeal here affirms the punitive damages award, on the theory that, as long as the compensatory damages on remand total at least $50,000, the jury’s award of $500,000 in punitive damages will be below the “10-to-1 cap” for punitive damages.

    That’s wrong for at least two reasons.  First, as noted, the defendant has a right to have a jury decide what amount of punitive damages is appropriate based on the harm caused.  Second, our Supreme Court has explained that punitive damages are not presumptively valid whenever they are less than ten times the amount of compensatory damages.   (See Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159, 1182 [“Multipliers less than nine or 10 to one are not, however, presumptively valid“].)  A lesser ratio may still be excessive, depending on the other circumstances of the case.

    The Supreme Court will have to sort this out someday, but this case may not be the right vehicle.  The opinion is not only unpublished, but the Court of Appeal observes that “both parties’ briefs on appeal mispresent the facts and the law.”  That isn’t going to encourage the Supreme Court to solicit further briefing in this case.

  • Court of Appeal vacates $5 million punitive damages award, with an invisible dissent (Leggins v. Rite Aid)

    In this unpublished opinion issued today, the California Court of Appeal reversed a $5 million punitive damages award in an employment discrimination case.  Or at least two of the justices did.  A third justice indicated that she plans to dissent.  More about that later.  First, the facts of the case.

    The plaintiff, a former a Rite Aid store manager, sued Rite Aid for harassment and discrimination based on race and disability.  A jury awarded him $3.7 million in compensatory damages and $5 million in punitive damages.

    Rite Aid appealed, challenging both the compensatory and punitive damages.  The Court of Appeal (Second Appellate District, Division One) affirmed the compensatory damages award but vacated the punitive damages award in its entirety, on the ground that the plaintiff failed to satisfy the “managing agent” requirement of Civil Code section 3294.

    Section 3294 provides that punitive damages cannot be awarded against a corporation based on the misconduct of a low-level employee.  The plaintiff must show that an officer, director, or managing agent of the corporation was involved.  Here, the plaintiff claimed he was harassed and discriminated against by two district managers, whom he argued were managing agents within the meaning of section 3294 because they oversaw 10 to 15 stores.  But merely managing a large number of stores does not make someone a managing agent.  The Supreme Court has explained that corporate employees do not qualify as managing agents unless they exercise substantial discretionary authority over vital aspects of the company’s business, and therefore have the power to create company policies that will govern the business in the future.

    In this case, the plaintiff presented no evidence that the Rite Aid district managers had that sort of discretionary authority to set company policy.  To the contrary, the record showed that the managers had no discretion to deviate from Rite Aid policies and were obligated to follow them strictly.

    A couple of low-level Rite Aid employees testified that they thought the managers had authority to set policies, but the Court of Appeal concluded that testimony did not satisfy plaintiff’s burden of proof.  The court observed that their testimony lacked any indication that they knew anything about how Rite Aid formed its corporate policies.

    The end of the opinion indicates that Justice Chaney wrote the opinion, Justice Johnson concurred, and Justice Rothschild dissented.  But no actual dissenting opinion appears.  Instead, there is a statement by Justice Rothschild that “I will be filing a dissent.”  I’ve read a lot of California Court of Appeal opinions and I’ve never seen that before.

    Even more odd, the opinion contains footnotes that refer to the content of the non-existent dissent.  See for example footnote 3 on page 39 (“The dissent suggests . . . “).  I’m not sure exactly what happened here, but there are sure to be further developments.  Stay tuned.

    UPDATE (11/15):  The Court of Appeal reposted the opinion, this time with Justice Rothschild’s concurring and dissenting opinion attached.  Justice Rothschild agreed with the majority’s analysis on punitive damages, but in her view Rite Aid is entitled to a complete new trial on all issues because the trial court wrongly excluded evidence that supported the reasonableness of Rite Aid’s employment decisions.

  • Court of Appeal affirms $371,250 punitive damages award against San Diego Zoo (Diamond One Construction v. Zoological Society of San Diego)

    There isn’t much to say about this unpublished decision, but we try to report all California appellate decisions involving significant amounts of punitive damages.

    A construction contractor sued the San Diego Zoo for fraud and recovered $222,741 in compensatory damages and $371,250 in punitive damages.  The zoo appealed, arguing that the punitive damages should be reversed because it was based on the conduct of a zoo employee who was not a managing agent within the meaning of Civil Code section 3294.

    The Court of Appeal (Fourth Appellate District, Division One) disagreed, finding that the employee originated the idea for the construction project and made a number of discretionary decisions that influenced the scope and tenor of the project: “There can be no serious dispute he ‘exercise[d] substantial discretionary authority over decisions that ultimately determine[d] corporate policy.’ ”

    The court also rejected the zoo’s argument that the ratio of 1.667-to-1 between the punitive damages and compensatory damages was constitutionally excessive.

  • Court of Appeal reduces compensatory damages and orders matching reduction in punitives (Pulte Home v. American Safety Indemnity)

    This published opinion issued today addresses a recurring issue in California punitive damages litigation: when an appellate court significantly reduces a compensatory damages award, what should the court do with a punitive damages award?

    The best way to handle this situation is to order a re-evaluation of the punitive damages in the trial court. That means a new trial is necessary if the punitive damages were awarded by a jury.  If the punitive damages were awarded by the trial court, the Court of Appeal should send the case back to the trial judge for reconsideration.  That approach preserves the defendant’s right to have the trier-of-fact assess punitive damages based on actual harm caused to the plaintiff.  Some California appellate decisions, like this one, have followed that approach.

    The second-best approach is to direct the trial court to reduce the punitive damages to match the original ratio of compensatory to punitive damages.  That’s the approach taken by the Court of Appeal (Fourth Appellate District, Division One) in today’s Pulte Home case.  It determined that the trial court erred in calculating the compensatory damages, so it sent the case back to the trial court to recalculate the compensatory damages and then reduce the punitive damages to preserve the 1-to-1 ratio of the original award.  Although that approach maintains the original ratio, it deprives the defendant of the right to have the jury (or judge) determine whether a lesser ratio is more appropriate, in light of the fact that the harm was not as severe as originally thought.

    By far the worst approach is for the Court of Appeal to simply affirm the punitive damages, without respecting the original ratio or giving the trier of fact the opportunity to determine whether a different punishment is appropriate. Unfortunately, our courts have sometimes adopted that approach, both in published and unpublished opinions.

    Some day the California Supreme Court will sort this out.  We hope.