California Punitives by Horvitz & Levy

  • Red Hill Enterprises v. Gould: Defendant Who Refuses To Turn Over Requested Documents Cannot Challenge Plaintiffs’ Failure to Prove Net Worth

    Yesterday, the California Court of Appeal (Second District, Division Seven) issued this unpublished opinion reversing a nonsuit order and allowing the plaintiff to proceed with a claim for punitive damages.

    This fraud trial was bifurcated into two phases. Before the trial began, the plaintiff asked the defendant to produce certain documents regarding its financial condition, so that the plaintiff could meet its burden of proving the defendant’s net worth in the punitive damages phase of the trial. (See our prior posts about other recent opinions apply this unique rule of California appellate procedure.) After the jury ruled for the plaintiff in the first phase, the defendant said it would promptly produce the requested documents for the plaintiff’s review. A few days passed and the defendant failed to turn over the documents as promised. Instead, the defendant waited until the morning of the second phase of the trial and then turned over only some of the documents.

    The plaintiff tried to establish the defendant’s financial condition through other means, such as asking the trial court to take judicial notice of public records. The trial court shot down all of the plaintiff’s requests, and then granted nonsuit on the ground that the plaintiff had failed to present sufficient evidence of the defendant’s financial condition.

    The Court of Appeal reversed, ruling that the defendant, by failing to turn over the requested documents, forfeited its right to complain about the plaintiff’s failure of proof. In so doing, the court extended the holding of Mike Davidov Co. v. Issod (2000) 78 Cal.App.4th 597. That opinion found a forfeiture where the defendant refused to comply with a court order to turn over financial condition documents. The court here extended that ruling to situations where the is no court order, only a request by the plaintiff.

    The Court’s reasoning makes sense to me, so long as the record established that the defendant actually had additional documents that it failed to turn over. When a defendant turns over all the information in its possession, there should be no forfeiture, even if the defendant’s documents are inadequate to establish the defendant’s net worth. The defendant should not be required to create documents to satisfy the plaintiff’s burden. If the defendant does not have an adequate statement of its net worth, the plaintiff bears the burden of gathering the necessary information, by eliciting testimony from the defendant or through other means. In this case, however, it seems that trial court blocked the plaintiff from pursuing any other means, leaving the plaintiff with no way to meet its burden.

  • Utah District Court’s Order Reducing $63 Million Punitive Damages Award Now Available

    As a follow-up to last week’s post about the District of Utah opinion that cut a $63 million punitive damages award to $3.6 million (for a 1-to-1 ratio with the compensatory damages), here’s a link to the copy of the opinion. The punitive damages discussion begins on page 15. The Westlaw citation is 2009 WL 361267.

    In addition to the ratio analysis, the opinion is interesting because it highlights a significant difference between Utah law and California law. Unlike California, Utah does not require plaintiffs to present evidence of the defendant’s financial condition as a prerequisite to obtaining a punitive damages award. Accordingly, the district court here rejected the defendants’ argument that the plaintiffs failed to introduce sufficient evidence of the defendants’ financial condition, even though that argument likely would have succeeded in California.

  • La Baw v. Campbell: Court of Appeal Vacates $100,000 Punitive Damages Award Against Defendant With Negative Net Worth

    In this unpublished opinion, the California Court of Appeal (Fourth District, Division Two) vacated a punitive damages award of $100,000 because the defendant could not afford to pay.

    We have previously blogged about California’s rather unique rule that plaintiffs seeking punitive damages must present evidence of the defendant’s financial condition. As we observed, California plaintiffs routinely overlook this rule and end up losing their punitive damages awards on appeal.

    Even when plaintiffs do meet their burden, California courts will reduce punitive damages awards that are disproportionate to the defendant’s ability to pay. For individual defendants, the courts have adopted a rule of thumb that any award that exceeds 10 percent of the defendant’s net worth is excessive. (See Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1596.)

    This case is a little unusual because the evidence showed that the defendant had a negative net worth. He testified that his debts exceeded his assets, and the plaintiff presented no evidence to the contrary. The court therefore concluded that the defendant is unable to pay any punitive damages award. It vacated the award in its entirety and did not afford the plaintiff a new trial on this issue, because she had a full and fair opportunity to present her evidence in the first trial. (See Kelly v. Haag (2006) 145 Cal.App.4th 910, 914.) That aspect of the opinion conflicts with this recent unpublished decision, in which the Court of Appeal inexplicably gave the plaintiff a second chance to present evidence of the defendant’s financial condition after failing to do so the first time around.

  • Hudgins v. Southwest Airlines: Arizona Appellate Court Reduces Punitive Damages, Adopts One-to-One Ratio

    The Arizona Court of Appeals (Division One) issued this opinion last week, reducing two $4 million punitive damages awards down to $500,000 each, equal to the amount of compensatory damages.

    By adopting a one-to-one ratio of punitive to compensatory damages, the court joined a small but growing number of courts around the country that have finally begun to implement the U.S. Supreme Court’s statement in State Farm v. Campbell that, in cases involving substantial compensatory damages, the ratio of punitive to compensatory damages should be low, perhaps only one-to-one. (For another example of this trend, see our recent blog post about the Third Circuit’s decision in Jurinko. See also the Jet Source and Walker opinions from the California Court of Appeal.) I am working on a short paper about this trend, which I hope to post on this blog some time in the next few weeks.

    Aside from the ratio analysis, this opinion contains an interesting statement about the role of the defendant’s wealth. The opinion concludes with the statement that the court might have reduced the punitive damages award even further, but decided to stick with a one-to-one ratio because “SWA’s wealth warrants a more substantial punitive damages award.” That sort of analysis seems directly contrary to the Supreme Court’s admonition in Campbell that lower courts should not use wealth to support an otherwise excessive award.

    Many lawyers disagree about how to interpret the U.S. Supreme Court’s statements about the role of the defendant’s wealth in the constitutional analysis of punitive damages for excessiveness. Some defense lawyers take the position that, in light of BMW and Campbell, the defendant’s wealth can no longer be considered for any purpose. My personal view is that the Supreme Court has not categorically ruled out consideration of the defendant’s wealth for all purposes. I think the Court’s statements about wealth leave open the possibility that a jury might be able to consider the defendant’s wealth in assessing punitive damages, so long as the end result does not exceed the maximum amount permitted under the guideposts established in BMW v. Gore. But it seems to me that Campbell forecloses the sort of reasoning that the court adopted here, i.e., using the defendant’s wealth to uphold an award that would otherwise be excessive under the guideposts. Given that this case is otherwise a win for the defense on the excessiveness issue, however, the defendant may not be interested in challenging the court’s analysis on this point.

    Hat tip: EvidenceProf Blog.

  • Rojas v. Akopyan: Plaintiffs Get Another Bite at the Apple After Failing to Prove Case for Punitive Damages

    The California Court of Appeal (Second District, Division Eight) issued this unpublished opinion yesterday, affirming a trial court order granting a new trial on the issue of punitive damages.

    The plaintiffs obtained a jury verdict for $225,000 in punitive damages, but the trial court granted a new trial because the plaintiffs failed to present sufficient evidence of the defendant’s financial condition. As we have mentioned before, it is surprising how often plaintiffs overlook this requirement of California law, and forfeit punitive damages as a result. In this case, the plaintiffs presented evidence of the defendant’s income, but not expenses or liabilities. The Court of Appeal noted that, under California law, evidence of expenses and liabilities are necessary to create a complete picture of the defendant’s financial condition.

    One thing strikes me as odd about this opinion. Under California law, when a plaintiff fails to present evidence of the defendant’s financial condition, the proper remedy is to enter judgment in favor of the defendant on the punitive damages claim. (See Kelly v. Haag (2006) 145 Cal.App.4th 910, 919-920; see also these four unpublished opinions from 2007.)

    In other words, the plaintiff only gets one chance to prove its claim for punitive damages, and if the plaintiff fails to present sufficient evidence to support the claim, the plaintiff does not get to try again. Game over. That rule applies not only to punitive damages claims, but to any situation in which the Court of Appeal reverses a judgment based on a failure of proof. (See McCoy v. Hearst Corp. (1991) 227 Cal.App.3d 1657, 1661.)

    So why did the plaintiffs in this case get a new trial after failing to present sufficient evidence the first time around? I’m not quite sure. The opinion doesn’t say. Perhaps the defendant never argued for judgment as a matter of law, or perhaps the defendant raised the argument but the Court of Appeal neglected to address the issue. If it’s the latter, a petition for rehearing may be in order.

  • Kim v. Weston: Unpublished Opinion Reverses Punitive Damages Award

    Stop me if you’ve heard this before, but the California Court of Appeal has reversed a punitive damages award because the plaintiff failed to present sufficient evidence of the defendant’s financial condition. That makes at least four such reversals this year alone, arising from California’s unique rule that plaintiffs must present meaningful evidence of the defendant’s financial condition in order to obtain punitive damages. This rule has been part of California law since 1991, but it’s amazing how many lawyers seem to be unfamiliar with it.

    In this case, the plaintiff presented evidence that the defendant owned several rental properties, but that evidence was insufficient to create a complete picture of the defendant’s financial condition because plaintiff failed to provide evidence regarding the profitability of the properties or any encumbrances on the property. Since the plaintiff had a full and fair opportunity to present all her evidence at trial, she was not entitled to a retrial on the issue of punitive damages. The court directed entry of judgment for the defendant on the punitive damages claim.

  • Atallah v. Equilon: Court of Appeal Reinstates Punitive Damages Claim in Unpublished Opinion

    The California Court of Appeal (Second Appellate District, Division 8), issued an unpublished opinion yesterday reinstating a claim for punitive damages. The jury in this case had ruled for the plaintiff on liability, awarded compensatory damages, and found that the defendant acted with malice, oppression, or fraud. But the trial court did not allow the punitive damages claim to go to the jury because the plaintiff failed to present evidence of the defendant’s net worth. The Court of Appeal reversed, concluding that the trial court should have granted plaintiffs’ counsel a continuance in order to marshal evidence regarding the defendant’s financial condition.

    The plaintiff in this case fared better than the plaintiffs in these opinions from earlier this year, all of which reversed a punitive damages award because the plaintiffs failed to present adequate evidence of the defendants’ financial condition. The Court of Appeal was merciful to the plaintiff here because the trial court had, over the plaintiff’s objection, excused a witness who could have testified to the defendant’s financial condition. Although the Court of Appeal did not actually rule that the trial court erred in excusing the witness, the Court of Appeal concluded that the trial court should have given plaintiff’s counsel a short continuance to marshal his remaining evidence in light of that witnesses’ unavailability.

  • San Francisco Jury Awards $21 Million in Punitive Damages Against NFL Players Association

    The Associated Press is reporting that a jury in federal district court in San Francisco has awarded $7.1 million in compensatory damages and $21 million in punitive damages against the NFL Players Association in a lawsuit brought by retired players. The plaintiffs alleged that the union failed to properly market their images, and cut them out of licensing deals so that active players could receive bigger royalty payments.

    The AP story says the $21 million is slightly less than 10 percent of the union’s net worth at the start of the year. If the case was tried under California law, it’s the union’s net worth at the time of trial that’s relevant, not the net worth at the start of the year. (See, e.g., Washington v. Farlice (1991) 1 Cal.App.4th 766, 777 [the only relevant financial condition is that existing as of the time of trial].) Given the recent events in the stock market, the union’s current net worth could be quite a bit lower. If the award exceeds the union’s net worth at the time of trial, that could lead to a reduction of the award on appeal. (See Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1596 [punitive damages are generally are not allowed to exceed 10 percent of the net worth of the defendant].)

  • Plaintiff Can Obtain Discovery of Defendant’s Finances Without Establishing Prima Facie Case for Punitive Damages, Federal Judge Rules

    Law.com is reporting that U.S. District Judge James M. Munley of the Middle District of Pennsylvania has ruled that a plaintiff seeking punitive damages can obtain discovery of a defendant’s financial condition without making a prima facie showing that the punitive damages claim is bona fide. Judge Munley recognized that the defendant’s financial documents could contain “sensitive” information, but he nonetheless concluded that the defendant had not established good cause to prevent discovery of those documents. (The case is Grosek v. Panther Transportation Inc. You can view the opinion here.)

    In California, this issue is resolved by statute. Civil Code section 3295, subdivision (c), precludes discovery of the defendant’s financial condition unless the plaintiff can establish “a substantial probability that the plaintiff will prevail on the claim” for punitive damages.

  • Lu v. Qi: Another California Punitive Damages Award Reversed Because the Plaintiff Failed to Present Evidence of the Defendant’s Net Worth

    The California Court of Appeal (Second Appellate District, Division Five), issued an unpublished opinion yesterday reversing a punitive damages award because the plaintiff failed to present evidence of the defendant’s net worth. The court reversed the award with directions to enter judgment for the defendant on the punitive damages claim; the plaintiff doesn’t get a new trial, because a party who fails to present evidence on an element of its claim doesn’t get a second bite at the apple. (See Kelly v. Haag (2006) 145 Cal.App.4th 910, 914.)

    As we have observed before, it is surprising how often plaintiffs’ attorneys overlook this rule, which has been part of California law since 1991. This is the fourth opinion already this year reversing a punitive damages award on this basis.