California Punitives by Horvitz & Levy

  • Another punitive damages award reversed due to insufficient financial condition evidence (Wilson v. Autler)

    This unpublished opinion is the latest example of the California Court of Appeal vacating a punitive damages award because the plaintiff failed to present meaningful evidence of the defendant’s financial condition.

    The defendant testified that she owned a home and paid cash for it.  But the Court of Appeal (Fourth District, Division Two) said that evidence was not nearly sufficient to support a punitive damages award; the plaintiff presented no evidence of the value of the house, the defendant’s other assets or liabilities, or her income and expenses.  As a result, the court vacated $50,000 in punitive damages.

     

  • “To Bifurcate or Not to Bifurcate”

    The folks over at Mayer Brown’s Guideposts have a new post entitled “To Bifurcate or Not to Bifurcate,” discussing whether it is strategically wise for defendants to take advantage of the bifurcation procedure that exists for punitive damages trials in many states, including California.  (See Civil Code section 3295(d).)

    The post observes that many defense lawyers prefer not to bifurcate the issue of punitive damages into a separate phase of trial.  Many defense trial lawyers prefer to avoid a second round of closing arguments before a jury that has already rejected the defendant’s arguments on liability and found that the defendant acted with malice. 

    As Guideposts points out, however, the second phase of trial presents an opportunity for a defense to present evidence that cuts against the need for punitive damages.  Such evidence may not have been relevant to the issues of liability, but may become relevant during the second phase.  For example, evidence of subsequent remedial measures, changes in corporate culture, or penalties already imposed for the same conduct may persuade the jury that punishment is unnecessary, or that only a small punishment is warranted.

    When we touched on this issue in one of our early posts back in 2008, we noted that some California lawyers take the position that when a trial is bifurcated pursuant to section 3295(d), the only relevant evidence for the second phase of trial is evidence of the defendant’s financial condition.  That argument doesn’t make much sense, given that the jury’s task in the second phase is to evaluate the reprehensibility of the defendant’s conduct.  The jury should be able to consider any evidence relevant to the issue of reprehensibility, even if such evidence was not relevant to any issue during the first phase of trial. 

    Unfortunately, California cases have never squarely addressed that issue.  The unpublished opinion we discussed back in 2008 discussed the fact that the defendant presented mitigating evidence during the second phase of a bifurcated trial.  But we’re still waiting for a published California opinion to address this issue and put to rest the notion that the second phase should focus entirely on the defendant’s financial condition.

  • Court of Appeal vacates punitive damages portion of default judgment for lack of financial condition evidence (Stutz Artiano v. Larkins)

    This unpublished opinion is yet another reminder that in California, plaintiffs cannot obtain punitive damages without presenting meaningful evidence of the defendant’s financial condition, even in the case of a default judgment.   

    In this case, the plaintiff obtained a default judgment and, at a prove up hearing, presented evidence of its damages.  But it presented no evidence of the defendant’s financial condition.  Accordingly, the California Court of Appeal (Fourth Appellate District, Division One) ordered the trial court to strike the award of punitive damages from the judgment. 

  • Court of Appeal vacates another punitive damages award due to insufficient financial condition evidence (Mobasser v.Yermian)

    This unpublished opinion from the California Court of Appeal (Second Appellate District, Division Seven) vacates a $481,000 punitive damages award because the plaintiff failed to present meaningful evidence of the defendant’s financial condition.  I won’t comment any further on this one because I represented the defendant on appeal.

  • Defendant forfeited challenge to $1.2 million punitive damages award by refusing to produce witness on financial condition (Smally v. Nationwide)

    In this insurance bad faith case, a jury awarded $686,000 in compensatory damages and $1.2 million in punitive damages to one of the plaintiffs.  (A second plaintiff also recovered compensatory damages, but no punitive damages).

    On appeal, the insurer argued that the punitive damages should be vacated because the plaintiff failed to meet its burden of presenting meaningful evidence of the defendant’s financial condition.  California courts frequently strike down punitive damages awards on that basis, but not this time.

    The Court of Appeal (First Appellate District, Division Four) held in an unpublished opinion that the defendant forfeited its right to complain about the absence of financial condition because the defendant refused to produce a witness on that issue.  The court noted that the plaintiff asked the defendant to produce a witness knowledgeable about the defendant’s financial condition, and the defendant did not object to that request.  By neither objecting to nor complying with the request, the defendant forfeited its right to complain about the lack of evidence of its financial condition.

  • Court of Appeal affirms order vacating $200,000 in punitive damages against defendants with negative net worth (Gelhar v. Baldwin)

    This unpublished opinion addresses a scenario that seems to be arising more frequently in California punitive damages litigation: the award of punitive damages against defendants with a negative net worth.

    The jury in this fraud and elder abuse case ordered two defendants to pay a total of $200,000 in punitive damages.  The trial court, however, granted the defendants’ motion for a new trial and vacated the punitive damages award as excessive in relation to the defendants’ financial condition.  The court noted that at the time of trial the defendants had a combined net worth of negative $350,000 to $400,000.  The court concluded that the jury’s $200,000 punitive damages award was so disproportionate to the defendant’s wealth “that it [wa]s presumptively based on passion and prejudice.”

    The California Court of Appeal (Fourth Appellate District, Division Three) affirmed.  It held that “[e]vidence of a negative net worth was a valid reason for the court to hold the punitive damages award was excessive.”  That is not exactly a novel holding, but it is notable in light of several recent decisions that have affirmed punitive damages awards notwithstanding the defendant’s claimed negative net worth.  (For example, Pfeifer v. John Crane, Miracle v. Mehrban, and Bankhead v. ArvinMeritor.)

  • Court of Appeal reverses $500,000 punitive damages award because plaintiff failed to provide evidence of the defendant’s financial condition at the time of trial (Oggi’s Pizza v. Durrant)

    This unpublished opinion from the California Court of Appeal (Fourth Appellate District, Division One) reminds us that plaintiffs seeking punitive damages must not only introduce meaningful evidence of the defendant’s financial condition, but they must present evidence of the defendant’s finances at the time of trial.

    The trial in this case took place in December 2011.  The plaintiff presented evidence that the defendant had a net worth of $2.2 million as of June 2009.  Plaintiff’s counsel did not ask the defendant (who testified during the punitive damages phase of trial) about his current assets or liabilities.  The plaintiff introduced a copy of the defendant’s most recent tax return, but that showed only his income, not his assets or liabilities.

    That evidence was not enough to sustain the jury’s punitive damages award, according to the Court of Appeal.  The court reversed the $500,000 punitive award and directed the trial court to enter judgment in favor of the defendant on that issue.

  • Court of Appeal affirms $14.5M punitive damages award in asbestos case (Pfeifer v. John Crane)

    The California Court of Appeal issued this 68-page published opinion today, affirming a $14.5 million punitive damages award.

    The opinion might not remain on the books for long, for reasons having nothing to do with the court’s punitive damages analysis.  The opinion addresses an issue that’s already before the California Supreme Court in another matter, Webb v. Special Electric.  Both cases raise the following question: when a supplier sells a product to a purchaser who is already aware of dangers of the product, can the supplier still be liable for failure to warn?  Because that issue is already before the court in Webb, there is a strong chance the court will grant John Crane’s petition for review (assuming it files one) and hold this case pending the disposition in Webb.

    Aside from that “sophisticated purchaser” issue, there is a lot of interesting stuff in this opinion. I won’t attempt to summarize all 68 pages, but here are some highlights of the punitive damages analysis:

    1.  The opinion states that reviewing courts should take the “clear and convincing” evidence standard into account when deciding whether a plaintiff presented substantial evidence of malice, oppression, or fraud.  As we have noted in prior posts, other recent published cases have said the same thing, but some recent unpublished opinions have disagreed.

    2.   The opinion concludes that the record in this case supports the jury’s finding of malice, because the plaintiffs presented evidence that John Crane knew its customers used its products in ways capable of generating dangerous levels of asbestos dust. 

    3.  The opinion rejects John Crane’s argument that the trial court erred by ordering John Crane to disclose information about its financial condition during trial, after the jury found that John Crane acted with malice.  John Crane argued that the plaintiffs were not entitled to that information because they failed to follow the procedure spelled out in Civil Code section 3295(c) for requesting pretrial discovery of financial condition information.  The opinion follows the holding of Mike Davidov Co. v. Issod, which said that a court can order the defendant to produce its financial condition evidence during trial, after a finding of malice, so long as the trial court allows the defendant sufficient time to gather its records.

    4.  The opinion rejects John Crane’s argument that its financial condition was insufficient to support the punitive damages award.  According to the plaintiffs’ expert, John Crane had $403 million in assets and nearly $16 million in cash on hand, but had a negative net worth of $125 million.  The opinion observes, however, that John Crane’s net worth would be a positive $98 million if not for its  asbestos-litigation liabilities.  And the opinion observes that the jury’s award of $14.5 million is only six percent of the funds John Crane set aside for payment of asbestos litigation.  Based on these observations, the opinion concludes that John Crane could afford to pay the award without being destroyed.  

    5.  The opinion rejects John Crane’s argument that California’s punitive damages statute, Civil Code section 3294, is unconstitutionally vague as applied to this case.

    6.  The opinion holds that the jury’s $14.5 million award was not excessive.  The opinion compares that amount to the $6.2 million compensatory damages owed by John Crane (after reduction to reflect the jury’s allocation of fault), and concludes that the resulting ratio of 2.3 to one is not excessive, considering the highly reprehensible nature of John Crane’s conduct.

    We will keep tabs on this one to see if the Supreme Court grants review.

  • Court of Appeal reverses $225,000 punitive damages award due to insufficient evidence of the defendant’s financial condition (Kennedy v. Sadafi)

    Here is yet another unpublished opinion vacating a punitive damages award because the plaintiff failed to meet her burden of presenting meaningful evidence of the defendant’s financial condition. 

    The plaintiff here introduced evidence of the defendant’s income, and partial evidence of her assets, but no evidence of her liabilities.  Thus, the jury had no way to determine her net worth.  Accordingly, the Court of Appeal (Second District, Division Four) reverses the award with directions to enter judgment for the defendant on the issue of punitive damages.

  • Unpublished opinion vacates $700,000 punitive damages award due to insufficient evidence of defendant’s financial condition (Hackbart v. Uppal)

    In this unpublished opinion, the California Court of Appeal (Fourth Appellate District, Division One) once again reverses a punitive damages award because the plaintiff failed to present meaningful evidence of the defendant’s financial condition. 

    The plaintiff presented evidence of the defendant’s assets, income, earning capacity, future earning capacity, and the present value of his lifetime earnings.  But that was not enough.  There was no meaningful evidence of the defendant’s liabilities.  Without such evidence ” ‘the jury was unable to ‘assure that the award punishes but [would] not cripple or bankrupt [him].’ ” 

    The plaintiff argued that the defendant waived the issue by failing to produce adequate information about his financial condition.  But the court rejected that argument because the record did not indicate that the defendant failed to comply with a court order or otherwise interfered with the plaintiff’s ability to obtain evidence.  As a result, the court reversed the jury’s $700,000 punitive damages award with directions to enter judgment for the defendant on the punitive damages claim.