California Punitives by Horvitz & Levy

  • Kelemen v. John Crane, Inc.: new trial ordered in case where jury awarded $18.3 million in punitive damages

    There’s a lot of interesting stuff in this unpublished opinion.

    Its a personal injury action for asbestos exposure, with a fairly typical fact pattern: Plaintiff is massively exposed to asbestos-containing insulation in the Navy and develops mesothelioma years later, but the manufacturers of the insulation aren’t around anymore, so the case goes to trial against a company that made asbestos-containing gaskets and packing, which were used inside some of the ship-board equipment.  The jury finds for the plaintiff, assigns 70 percent fault to the defendant, and awards $900,000 in economic damages, $2 million in past noneconomic damages, $14 million in future noneconomic damages, and $18.3 million in punitive damages.  After posttrial motions, the trial court orders a reduction of the punitive damages to $4.5 million.  Both sides appeal.

    The California Court of Appeal (Second Appellate District, Division Two), addresses several punitive damages issues in its opinion:

    • First, the opinion holds that substantial evidence supports the jury’s determination that the defendant acted with malice, fraud or oppression within the meaning of Civil Code section 3294.  The court follows the Shade Foods line of authority which holds that the reviewing court must review the evidence through the prism of the “clear and convincing evidence” burden of proof.  The court does not discuss the conflicting line of authority which holds that the clear and convincing evidence standard has no impact on appellate review.   (As readers of this blog may recall, that conflict was taken up by California Supreme Court in 2008, but the case was later dismissed after the parties settled).  In the end, however, the court concludes that the evidence is sufficient to support a finding even under the heightened burden of proof.
    • Next, the opinion holds that a new trial is required due to irregularities in the presentation of evidence of the defendant’s financial condition.  This analysis is pretty interesting.  As we have discussed many times on this blog (e.g., here), when a California appellate court concludes that a plaintiff has failed to meet its burden of presenting meaningful evidence of the defendant’s financial condition, the court will send the case back to the trial court with directions to enter judgment in favor the defendant on the issue of punitive damages.  On the other hand, if the court concludes that the defendant failed to comply with a court order to produce financial condition evidence, the court will find a waiver by the defendant and affirm the award.  (As we reported here.) In this case, the court finds that the defendant failed to comply with a court order, but also concludes that the order itself was defective.  So instead of ordering judgment for the defendant or finding a waiver, the court orders a new trial on the issue of punitive damages. That’s an approach I haven’t seen before.

    The opinion also holds that the jury’s award of $14 million in non-economic damages is excessive in relation to the plaintiff’s life expectancy.  That issue is beyond the scope of this blog, but those with a general interest in California tort damages might want to check it out.

  • Gunderson v. Wall: Inconsistencies in Defendant’sTestimony Are Not Alone Sufficient to Support Punitive Damages

    This unpublished opinion shoots down an argument that arises fairly often in punitive damages appeals. When the issue on appeal is whether the plaintiff failed to prove malice by clear and convincing evidence, plaintiffs sometimes argue that the defendant’s testimony contained inconsistencies, which shows the defendant was lying, which in turn proves that the defendant was acting with an evil motive, i.e., malice.

    The Second Appellate District, Division Seven, rejected that sort of argument here. It ruled that inconsistencies in the defendant’s testimony were not a substitute for clear and convincing proof of malice:

    In this case, the issue is whether there was substantial evidence to support a finding by clear and convincing evidence that Wall knew or should have known that Welded was receiving stolen funds. As previously discussed, the inconsistencies in Wall’s trial testimony reasonably could support a finding by the jury that Wall was not a credible witness and that he thus had failed to prove his affirmative defense of good faith. But none of the inconsistencies supported the inference that, at the time Welded received the two transfers from Gruys, Wall knew or had reason to know that Gruys had stolen those funds from someone else. Unlike the good faith defense for which Wall and Welded had the burden of proof, the burden rested on Gunderson to establish by clear and convincing evidence that Wall and Welded (as opposed to Gruys) were guilty of malice, oppression, or fraud. However, absent any evidence that Wall and Welded had actual or constructive knowledge that the transferred funds did not belong to Gruys, Gunderson could not satisfy his burden of proving that Wall and Welded acted with an intent to cause Gunderson injury or engaged in despicable conduct in a conscious disregard of his rights.

    Accordingly, the court reversed an $800,000 punitive damages award. (The court also reversed a $2.4 million punitive damages award against another defendant, after concluding that the award resulted from an improper discovery sanction.)

    There may be some situations in which inconsistencies in the defendant’s testimony do in fact support an inference of malice, because the inconsistencies rule out any possible explanation for the defendant’s conduct other than malice. But that will not always be the case, as this opinion illustrates.

  • Scott v. Phoenix Schools: Wrongful Termination Alone is Not Enough to Support Punitive Damages

    The California Court of Appeal (Third Appellate District) reversed a $750,000 punitive damages award in this published opinion, holding that the defendant was liable for wrongful termination, but had not acted with malice or oppression and was therefore not liable for punitive damages.

    The plaintiff, the director of a preschool, refused to enroll a student because doing so would have put the school in violation of minimum teacher-student ratios for child care centers in California. When the parents complained to the school that the plaintiff was rude and dismissive, the school fired her. She sued, claiming she had been fired in violation of public policy, for refusing to violate the minimum teacher-student ratio. A jury awarded $1.1 million in compensatory damages and $750,000 in punitive damages. The Court of Appeal affirmed the jury’s liability finding and compensatory damages award, but reversed the punitive damages award:

    [W]e conclude that wrongful termination, without more, will not sustain a
    finding of malice or oppression. There was no evidence Phoenix attempted to hide
    the reason it terminated Scott. It admitted to terminating her because she would
    not enroll the McMaster child. Likewise, there was no evidence Phoenix engaged
    in a program of unwarranted criticism to justify her termination. Because there
    was nothing more than a wrongful termination here, punitive damages were not
    warranted, and the trial court should have granted defendant’s motion for
    judgment notwithstanding the verdict on the issue of punitive damages

    Interestingly, the court’s analysis seems to apply the “clear and convincing” evidence standard when reviewing the record for evidence to support the punitive damages award. (See, e.g., typed opn. p. 20 [“in order to sustain the punitive damages award, the evidence must leave no substantial doubt that Phoenix engaged in despicable conduct, or conduct intended to cause injury to Scott”].) As we have noted in prior posts, there is a split of authority in California as to whether appellate courts should consider the “clear and convincing” standard when reviewing punitive damages for substantial evidence, or whether that standard is for the exclusive use of the trial court. The California Supreme Court granted review to resolve that split last year in Harvey v. Sybase, but dismissed review when the parties settled. The Supreme Court is being asked to take that issue up again in Leeper-Johnson v. Prudential. (See the Supreme Court’s on-line docket.)

  • Lopez v. Bimbo Bakeries: Court of Appeal Affirms $2 Milllion Punitive Damages Award

    The California Court of Appeal (First District, Division Four) issued this unpublished opinion last week, affirming a $2 million punitive damages award in an employment case involving compensatory damages of $340,700 (a ratio of 5.87 to 1).

    This punitive damages discussion goes into more detail than the typical unpublished opinion. From my perspective, these are the two most interesting aspects of the court’s analysis:

    1. The court stated that the clear and convincing evidence standard, which applies to punitive damages determinations, “does not alter our standard of review.” That holding is directly contrary to published opinions (See, e.g., Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847 [“since the jury’s findings were subject to a heightened burden of proof, [this court] must review the record . . . in light of that burden’”].) Admittedly, there are cases going both ways on this issue. But I’m a little disappointed to see the Court of Appeal deciding this issue in an unpublished opinion without even acknowledging the split of authority. The California Supreme Court granted review last year in Harvey v. Sybase to resolve the split on this issue, but the court later dismissed review after the parties settled. Presumably the Supreme Court still views this as a review-worthy issue and will take up another case on this subject, perhaps even this one.

    2. The court concluded that the amount of the punitive damages award, and the ratio of nearly six-to-one, was not excessive under the Due Process Clause. In reaching that holding, the court did not mention the U.S. Supreme Court’s statement in State Farm v. Campbell that the ratio should be low, perhaps only one-to-one, in cases involving substantial compensatory damages. Other California appellate panels (and courts in other jurisdictions) have followed the Supreme Court’s direction on that point and have reduced punitive damages awards down to a single-digit level. (See my Washington Legal Foundation paper discussing a possible nationwide trend on this issue.) The $340,700 compensatory damages award in this case is well in excess of the amount that other courts have found to be “substantial” within the meaning of Campbell. Perhaps the Court of Appeal in this case thought the defendant’s conduct was so reprehensible that it justified an award well above the 1-to-1 ratio, notwithstanding the Supreme Court’s reasoning in Campbell. If so, it would have been nice for the court to acknowledge this aspect of Campbell and explain why it decided not to follow the Supreme Court’s reasoning.

    The opinion also addresses other issues, such as the sufficiency of the evidence to satisfy California’s “managing agent” requirement, and the relevance of the defendant’s $826 million net worth. I’m not going to make this blog post any longer by summarizing the court’s holdings on those points, but the opinion is definitely worth a read, especially for anyone handling a punitive damages appeal before the First District, Division Four.

  • Stevens v. Vons: Unpublished Opinion Addresses Controversial Issue Regarding Punitive Damages Standard of Review

    In our previous post we discussed this unpublished opinion from the California Court of Appeal, which affirmed the trial court’s adoption of a 1-to-1 ratio of punitive-to-compensatory damages. The same opinion is notable for another reason: it addresses a standard of review issue that has divided California’s intermediate appellate courts.

    As we mentioned in our prior post, the Court of Appeal rejected the defendant’s argument that the plaintiff failed to present sufficient evidence to support the imposition of punitive damages. In the process, the court ruled that the “clear and convincing evidence” standard, which governs punitive damages issues at the trial court, also applies on appeal, when a reviewing court examines the record to determine whether substantial evidence supports the imposition of punitive damages.

    As we have noted in prior posts, California appellate courts have been all over the map on this issue, with some courts taking the position that the clear and convincing evidence standard applies only in the trial court and has no relevance on appeal. Last year the California Supreme Court granted review to resolve the split among the lower courts on this precise issue, but the Supreme Court later dismissed review after the parties settled. This case presents another vehicle for the Supreme Court to address that issue, although the chances of review are diminished somewhat by the fact that this is an unpublished opinion.

  • Review Dismissed in Harvey v. Sybase

    The California Supreme Court today dismissed review in Harvey v. Sybase, a case presenting a significant unresolved issue affecting California punitive damages litigation. As the Supreme Court’s online docket indicates, the parties settled the case and stipulated to a dismissal.

    The issue presented in Harvey was whether the clear and convincing evidence standard, which governs punitive damages determinations in California, applies only in the trial court, or does it also apply on appeal? In other words, should the Court of Appeal take that standard into account when it reviews the record to determine whether substantial evidence supports a jury’s determination that the defendant acted with malice, oppression, or fraud (the California prerequisites for imposing punitive damages)?

    This issue arises whenever a defendant argues on appeal that the facts of a particular case don’t warrant punitive damages. Unfortunately, California courts are all over the map on this issue, including the California Supreme Court, as we observed in a prior post about Harvey. Fortunately, because the issues arises so often, the Supreme Court should not have to wait very long to find another vehicle for deciding this issue.

  • Predicting the Outcome in Harvey v. Sybase Based on California Supreme Court Precedent

    We have previously blogged about Harvey v. Sybase, a case in which the California Supreme Court recently granted review to address the following question:

    On review of an order granting a motion for judgment notwithstanding the verdict with respect to an award of punitive damages, must the appellate court determine whether the record contains substantial evidence to support the award by clear and convincing evidence, or is the clear and convincing standard only applicable at the trial court level?

    That answer to that question will have a broad impact. It will affect not only every punitive damages appeal, but it will affect every type of case to which the clear and convincing evidence standard applies. One would think the issue would have reached the California Supreme Court long before now. In fact, it has. But the results of those cases are in conflict, and therefore offer limited insight into how the Supreme Court might decide the issue this time around.

    Several 19th century decisions by the California Supreme Court suggested, without expressly deciding, that appellate courts should consider heightened standards of proof when deciding whether a trial court decision is supported by substantial evidence. (See, e.g., Sheehan v. Sullivan (1899) 126 Cal. 189, 193 [“the testimony must be clear, convincing, and conclusive – – something more than that modicum of evidence which appellate courts sometimes hold sufficient to warrant a finding”]; Jarnatt v. Cooper (1881) 59 Cal. 703, 706 (plur. opn.), 709 (conc. opn.) [“In our opinion the evidence was sufficiently clear to warrant the findings and judgment of the Court below”].)

    But the Supreme Court departed from that approach in Stromerson v. Averill (1943) 22 Cal.2d 808, 815, taking the position that the clear and convincing evidence standard applies only in the trial court. Justice Roger J. Traynor dissented, arguing that that reviewing courts have a duty to take the clear and convincing evidence standard into account when deciding whether substantial evidence supports a finding of fact:

    [I]it is the duty of the appellate court in reviewing the evidence to determine, not simply whether the trier of facts could reasonably conclude that it is more probable that the fact to be proven exists than that it does not, as in the ordinary civil case where only a preponderance of the evidence is required, but to determine whether the trier of facts could reasonably conclude that it is highly probable that the fact exists.

    (22 Cal.2d at pp. 817-818.)

    Justice Traynor repeated his dissent in Beeler v. American Trust Co. (1944) 24 Cal.2d 1, 33. Despite Traynor’s protestations, The majority of the Supreme Court adhered to the approach of the majority in Stromerson in subsequent decisions. (See Crail v. Blakely (1973) 8.Cal.3d 744, 750 and Nat. Auto & Cas. Co. v. Ind. Acc. Com.(1949) 34 Cal.2d 20, 25.)

    The issue lay dormant until 2001, when the Supreme Court decided Conservatorship of Wendland (2001) 26 Cal.4th 519 (Wendland). In that case, the Court did not expressly overrule Stromerson, but it took an approach inconsistent with the Stromerson majority and consistent with Justice Traynor’s dissent. The Wendland court noted that the clear and convincing evidence standard applied to the trial court’s decision, and then held, “[a]pplying that standard here, we ask whether the evidence . . . has that degree of clarity.”

    In 2004, the Supreme Court again seemed to take the position, without deciding the issue, that the clear and convincing evidence standard is relevant to appellate review:

    Mrs. Ford’s single statement to Barbara Carter was not clear and convincing evidence that Mr. Ford intended Bean to be, or be treated as, his adopted son.

    (Estate of Ford (2004) 32 Cal.4th 160, 173.)

    Thus, the Supreme Court’s shifting positions on this issue make it difficult to predict the outcome in Harvey, but the Court’s most recent opinions suggest that the modern court leans towards the views expressed by Justice Traynor in Stromerson.

  • Harvey v. Sybase: California Supreme Court Grants Review In Case With Punitive Damages Issue

    A few months ago, we blogged about the Court of Appeal’s decision in Harvey v. Sybase. We noted at the time that the unpublished portion of the opinion seemed to take the position that the clear and convincing evidence standard (which governs punitive damages determinations in California) applies only in the trial court, and not in the Court of Appeal. We noted that the court’s approach to that issue was directly in conflict with other published authority.

    Attorney Bruce Nye, who represented the plaintiff in that case (and also maintains the excellent Cal Biz Lit blog), commented on our post, acknowledging the split in appellate authority on this issue. To which we responded: “Eventually the Supreme Court should resolve this issue once and for all.”

    It looks like that resolution will come a little sooner than we expected. The California Supreme Court has granted review in Harvey. According to the Supreme Court’s news release, the second issue presented is the same issue we flagged in our blog post:

    This case presents the following issues: (1) Must the plaintiff in a discriminatory termination
    case under the Fair Employment and Housing Act (Gov. Code, § 12900 et seq.) present stronger evidence of bias if the person responsible for the termination had previously treated the plaintiff favorably? (2) On review of an order granting a motion for judgment notwithstanding the verdict with respect to an award of punitive damages, must the appellate court determine whether the record contains substantial evidence to support the award by clear and convincing evidence, or is the clear and convincing standard only applicable at the trial court level?

    This is an issue we’ve briefed in quite a few cases. California case law has been all over the map. There are conflicts not only between the districts of the Court of Appeal, but in some instances the same district has issued conflicting decisions. I’m out of the office right now so I don’t have access to our research from those cases, but I’ll follow up with some further posts on this when I’m back in the office.

  • Harvey v. Sybase: California Court of Appeal Reinstates Punitive Damages Award

    Last Friday, the California Court of Appeal (First District, Division Five) issued this partially published opinion reinstating a plaintiff’s claim for punitive damages in an employment discrimination case.

    The jury awarded $1.3 million in compensatory damages and $500,000 in punitive damages. The trial court granted JNOV in favor of the defendant on punitive damages, finding that no evidence supported a jury’s award. The Court of Appeal, in the unpublished part of its opinion, reversed the JNOV. For the most part, the court’s analysis is not particularly noteworthy. The court simply disagrees with the trial court’s conclusion that the plaintiff presented no substantial evidence that the defendant acted with “malice, oppression, or fraud,” the prerequisites for punitive damages under California law.

    But one small aspect of the court’s opinion caught my eye. The court acknowledges that plaintiffs must prove malice, oppression, or fraud by clear and convincing evidence, but the court then states, “Despite this more stringent burden of proof at the trial level, we nevertheless confine our review to determining whether the record contains evidence of circumstances warranting the imposition of punitive damages.” Maybe I’m misreading this, but it sounds as if the court believes that the clear and convincing evidence standard applies only at the trial court level and not on appeal. But a published California case expressly states that the clear and convincing evidence standard applies on appeal as well as in the trial court. (See Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847 [“since the jury’s findings were subject to a heightened burden of proof, [this court] must review the record . . . in light of that burden. In other words, [this court] must inquire whether the record contains ‘substantial evidence to support a determination by clear and convincing evidence’”].) Of course, Division Five is free to disagree with this opinion by their colleagues in Division One, but if they were going to disagree with a published opinion, they probably should have published that part of their analysis.

    As an interesting side note, the plaintiff in this case was represented by our fellow blogger Bruce Nye at Cal Biz Lit. Congratulations Bruce, for getting that punitive damages award reinstated.

  • Interesting North Carolina Punitive Damages Decision on the Standard of Review

    Yesterday, in Scarborough v. Dillard’s Inc., the North Carolina Court of Appeals reinstated a $77,000 punitive damages award in a malicious prosecution case, addressing a procedural issue that has split California courts.

    The trial court had found insufficient evidence supported the award. The majority opinion disagreed, taking the position that the punitive damages should be reinstated if a scintilla of evidence existed to support the award. A dissenting opinion argued that the majority failed to take into account the requirement, under North Carolina law, that punitive damages are available only if the plaintiff proves the prerequisites for punitive damages by clear and convincing evidence. Given that higher burden of proof, the dissent would have affirmed the trial court’s order granting JNOV.

    From a California lawyer’s perspective, this opinion is interesting because California’s appellate courts have split on the same issue. California law also requires proof by clear and convincing evidence for punitive damages issues. Some appellate courts have held that the clear and convincing evidence standard must be taken into account on appeal, but others have disagreed. The California Supreme Court has issued conflicting opinions on this issue. Eventually the Supreme Court will need to revisit the issue and sort out this mess.

    Hat tip to Sean Andrussier at North Carolina Appellate Blog.

    UPDATE (By Jeremy Rosen on 2/6/2008 at 11:37 am): North Carolina is one of the many states which by statute have set limits on punitive damages. North Carolina law limits punitive damages to three times compensatory damages or $250,000, whichever is greater. (Exception is for harm caused by driving while impaired.)