California Punitives by Horvitz & Levy

  • 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    This unpublished opinion continues an unfortunate trend in the California Court of Appeal.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  The opinion is not only unpublished, but the Court of Appeal observes that “both parties’ briefs on appeal mispresent the facts and the law.”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.

  • Trial court improperly weighed evidence when granting JNOV on punitive damages (Swendrak v. Urode)

    The case involves an odd set of facts.  The plaintiff claimed that his landlords invaded his privacy by posting a notice in his apartment complex informing all the tenants that the police had placed him under a psychiatric hold.  A jury awarded him $200,000 in compensatory damages and $650,000 in punitive damages.

    The defendants moved for judgment notwithstanding the verdict (JNOV), arguing that the evidence did not support the jury’s finding that they acted with malice. The trial court agreed, finding that “the weight of the evidence did not support a finding of malice by clear and convincing evidence.”

    The Court of Appeal (Second Appellate District, Division Three) reversed in an unpublished opinion, finding that the trial court applied the wrong standard when reviewing the evidence.  When a trial court rules on a JNOV motion, the court is not permitted to re-weigh the evidence.  The court must draw every reasonable inference in favor of the party who won at trial, and can grant JNOV only if there is no substantial evidence to support the verdict.

    Here, because the trial court’s JNOV order referred to the “weight” of the evidence, the Court of Appeal concluded that the trial court must have impermissibly re-weighed the evidence.  That alone might not have been enough to justify reversal, if there were no substantial evidence of malice.  But the Court of Appeal, reviewing the entire record, concluded that a jury could infer that the defendants acted with malice, and that they posted the notice about the plaintiff with intent to force him out so  they could rent his unit at a higher price.  Accordingly, the court reversed the trial court’s JNOV ruling and reinstated the jury’s award of punitive damages.

  • Anti-SLAPP motion cannot be used to strike punitive damages claim (Bhandari v. Washington Hospital)

    We haven’t had many occasions to blog about the intersection between punitive damages and California’s anti-SLAPP statute (Code of Civil Procedure section 425.16).  That statute authorizes a special motion to strike a complaint that arises form activity exercising the rights of free speech.

    In this unpublished opinion, the Court of Appeal (First Appellate District, Division Five) holds that an anti-SLAPP motion cannot be used to strike a punitive damages allegation.  The court explains that anti-SLAPP motions must be directed at an entire cause of action, not a prayer for a specific type of relief.

    Disclosure: Horvitz & Levy LLP represents Washington Hospital in this case.

  • California Court of Appeal rejects punitive damages claim against trucking company, finding no evidence of misconduct by a managing agent (CRST, Inc. v. Superior Court)

    This published opinion addresses two recurring issues in California punitive damages law. Both issues involve the assessment of punitive damages against an employer for the misconduct of an employee.

    Before getting into the issues, here’s a little background on the case: The defendant CRST, Inc. is a trucking company. One of its employees, Hector Contreras, was driving a CRST truck when he collided with plaintiffs Matthew and Michael Lennig. They sued Contreras and CRST, seeking compensatory and punitive damages. They based their punitive damages claim against CRST on the theory that CRST knew Contreras was an unfit employee and employed him anyway. California Civil Code section 3294 authorizes punitive damages against an employer who has advance knowledge of the unfitness of an employee and employs him with a conscious disregard of the rights or safety of others. CRST moved for summary adjudication on the punitive damages claim. When the trial court denied that motion, CRST petitioned the Court of Appeal (Second Appellate District, Division Four) for writ relief, raising the following two issues.

    Issue #1: Can an employer defeat a punitive damages claim by stipulating that it is responsible for an employee’s negligence?
    The California Supreme Court held in Diaz v. Carcamo that evidence of an employer’s alleged failure to train/supervise is not relevant in an action arising out of an employee’s conduct, where the employer admits the employee was in course and scope of employment. The Diaz court reasoned that once an employer has admitted responsibility for any negligence by its employee, there would be no point in allowing introduction of evidence about negligent supervision or training, because even without that evidence the employer will be fully responsible for whatever fault the jury may assign to the employee.

    But what about the situation presented here, where the plaintiff is seeking punitive damages based on a failure to supervise? If the defendant admits that the employee was acting in the scope of the employment, does Diaz require the trial court to exclude all evidence of the employer’s training and supervision of the employee, thereby prohibiting the plaintiff from making its case for punitive damages? The Court of Appeal answered that question “no.” Thus, CRST could not defeat the punitive damages claim by agreeing that Contreras was acting in the course and scope of his employment at the time of the accident.

    That holding effectively creates a punitive damages exception to Diaz. Evidence normally excluded under Diaz can be admitted to prove punitive damages. In such cases, the trial should probably be divided into three phases. In the first phase, the jury would decide the issues of liability and compensatory damages, without considering the evidence that is normally excluded under Diaz. In the second phase, the jury could hear that evidence and decide whether the employer acted with the requisite knowledge and conscious disregard of safety to support a punitive damages claim. In the third phase the jury would decide the amount of punitive damages, if any.

    Issue #2: Does a supervisor who implements corporate policy, but does not create corporate policy, qualify as a managing agent?
    We have blogged many times about California’s managing agent rule: Civil Code section 3294 provides that an employer cannot be liable for punitive damages based on the acts of a rogue employee; there must be evidence that an officer, director, or managing agent of the employer authorized or ratified the misconduct.

    In this case, the court concluded that plaintiffs had created a triable issue of fact as to whether a supervisor at CRST had advance knowledge that Contreras was an unsafe driver. But the court concluded there was not a triable issue of fact as to whether that supervisor was a managing agent. The Court of Appeal emphasized that the title of “supervisor” does not make someone a managing agent. Nor does the fact that the supervisor manages a large number of employees and implements company policy. To qualify as a managing agent, a corporate employee has to have discretionary authority to create company policy.  Those principles are all consistent with prior case law, but this opinion nicely synthesizes the rule.

    Looking at the evidence in this case, the court concluded that the plaintiffs failed to present evidence that Contreras’ supervisor had any authority to create a company policy that contributed to the accident. Accordingly, the Court of Appeal concluded that the trial court should have granted CRST’s motion for summary adjudication on the issue of punitive damages.

  • Court of Appeal rejects challenge to $5.65 million punitive damages award, citing inadequate appellate record (Raskin v. Petrosyan)

    We have reported on many cases in which the California Court of Appeal reversed a punitive damages award because the plaintiff failed to present meaningful evidence of the defendant’s ability to pay.  In this case, however, the court rejected that type of challenge to a sizable punitive damages award.

    The plaintiff claimed that an art dealer misrepresented the value of works he sold to the plaintiff.  The jury awarded the plaintiff over $6 million in compensatory damages and another $5.65 million in punitive damages. The defendant argued on appeal that the punitive damages award should be reversed in its entirety because the plaintiff presented insufficient evidence of the defendant’s financial condition, but the Court of Appeal (Second Appellate District, Division Three) concluded in a five-page unpublished opinion that it could not evaluate that issue because the appellate record was inadequate.  The court said that the defendant failed to provide a reporter’s transcript of the trial proceedings, thereby preventing the court from determining whether the testimony provided by the plaintiff, if any, was sufficient.

  • A mixed bag of unpublished opinions (Haworth, Saller, Frederick)

    The California Court of Appeal issued a trio of unpublished opinions on punitive damages last month, with mixed results for plaintiffs and defendants.  Here’s a quick recap:

    1.  In Haworth v. Adams the Second Appellate District, Division Two, affirmed a punitive damages award of $13.3 million in a case involving claims of fraud and elder abuse.

    The opinion is unclear about what punitive damages issues the defendant raised on appeal.  At one point the opinion states that the defendant argued the punitive damages award was unsupported by the evidence and motivated by passion and prejudice. Those are classic state-law arguments governed by a well developed body of California cases.  But the opinion does not discuss any of those cases, and instead launches into a discussion of federal constitutional standards for excessiveness, without ever actually addressing the sufficiency of the evidence or the passion and prejudice issue.

    Aside from that confusion about what issues the defendant raised, the opinion’s excessiveness analysis is itself problematic.  According to the opinion, the California Supreme Court has held that a ratio of “9 or 10 to 1 is the appropriate benchmark for determining whether a reasonable relationship exists between an exemplary and compensatory damages award.” The opinion then concludes that the award in this case is not excessive because the ratio of 10 to 1 falls within the Supreme Court’s “benchmark.”

    That analysis suggests that any ratio of 10 to 1 or less is necessarily constitutional. But the California Supreme Court has expressly stated otherwise: “multipliers less than nine or 10 are not, however, presumptively valid.”  (See Simon v. San Paolo U.S. Holding Co..)  And both the U.S. Supreme Court and the California Supreme Court have indicated that a ratio of 1 to 1 may be the maximum in cases involving substantial compensatory damages awards.  (See Roby v. McKesson.) The $1.3 million compensatory damages award in this case certainly qualifies as substantial, but the Court of Appeal did not address whether the size of that award required a smaller ratio.  Perhaps the defendant did not raise those issues (if the defendant even raised a constitutional excessivness argument at all).

    2.  In Saller v. Crown Cork & Seal the Second Appellate District, Division One, reversed a $3.6 million punitive damages award because the plaintiff failed to present evidence of the defendant’s financial condition.  Horvitz & Levy represented the defendant in that case so I won’t provide any commentary about it.

    3.  In Frederick v. Pacwest Security Services the Second Appellate District, Division Seven, affirmed a $63,000 punitive damages award, rejecting the defendant’s argument that the plaintiff failed to present sufficient evidence of the defendant’s financial condition.  The court observed that the record contained evidence of the defendant’s gross receipts, net income, loan amounts, and line of credit. The court found that such evidence was enough to satisfy the plaintiff’s burden of proving the defendant’s ability to pay the award.  Moreover, the court found the award was not excessive in relation to the defendant’s finances, because although the award was equal to the defendant’s entire annual net income, it represented less than one percent of the company’s annual gross receipts.

  • Court of Appeal reverses $7.5 million in punitive damages (Bigler-Engler v. Breg)

    The $7.5 million punitive damages verdict in this case was #10 on our list of the biggest punitive damages verdicts in California in 2012.  Four years later, only $150,000 of that award survived appeal.

    The plaintiff brought a personal injury action against a medical device manufacturer (Breg) and the doctor (Chao) who recommended and sold the device.  The jury awarded roughly $5.8 million in compensatory damages, plus $7 million in punitive damages against Breg and $500,000 against Chao. Both defendants appealed.

    In a partially published opinion, the California Court of Appeal (Fourth Appellate District, Division One) reversed.

    It tossed the entire punitive damages award against Breg, because the plaintiff’s intentional concealment against Breg was not supported by substantial evidence. The jury’s malice finding against Breg was based solely on that claim, so without it there could be no punitive damages as to Breg.

    As for Chao, the court found that both the compensatory damages and the punitive damages were excessive.  California courts rarely reverse non-economic damages as excessive, but the court concluded that $5.1 million awarded by the jury for plaintiff’s pain and suffering was simply too much.  Although plaintiff sustained an injury that required multiple surgeries, by the time of trial she was suffering only “minimal physical discomfort, intermittent curtailment of daily activities, and some anxiety over the condition of her scar.”  The court ordered a new trial, subject to the plaintiff’s agreement to accept a reduction of the compensatory damages to $1.3 million.

    We have previously observed that California courts are divided on whether an appellate court should automatically reverse a punitive damages award after making a substantial reduction to the compensatory damages award.  In our view, the better reasoned answer is “yes.”  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.

    This court, however, took the alternative approach, and held that the Chao was not entitled to have a jury decide the reasonable relationship question in the first instance.  In other words, no automatic reversal of the punitive damages.  Instead, the court held Chao would be entitled to a reversal only if the court determined that the punitive damages were excessive, taking into account the reduced compensatory award.  Fortunately for him, the court answered that question in the affirmative.  The court held that the $500,000 punitive damages award against Chao was excessive as a matter of state law.  The court noted that the award exceeded 14% of Chao’s net worth, and that California courts have held that anything over 10% is presumptively excessive.  The court ordered a new trial, subject to plaintiff’s acceptance of a reduction of the punitive damages to $150,000, which is roughly 5 percent of Chao’s net worth.

    Having found the punitive damages excessive under state law, the court did not consider Chao’s alternative argument that the award was also excessive as a matter of federal due process.