California Punitives by Horvitz & Levy

  • South Carolina House of Representatives approves bill to cap punitive damages

    Bloomberg reports that a bill to cap punitive damages was overwhelmingly approved in the South Carolina House of Representatives, by a vote of 100-7.  The bill would limit punitive damages to $350,000 or three times compensatory damages, whichever is higher.  A similar bill was approved by the state House of Representatives last year, but never won approval in the state Senate.

    If this bill wins approval, it’ll be a little too late for Fortis Insurance Company.  Fortis was on the losing end of a $10 million punitive damages award in a South Carolina insurance bad faith case a little over a year ago.

    To the best of my knowledge, South Carolina would become the 27th state to have a cap on punitive damages, including those states that prohibit punitive damages altogether.  Wisconsin recently became number 26.  So 2011 marks the year in which uncapped punitive damages awards became the minority position among state legislatures.  If this trend continues, this blog may become obsolete.  Please, no tears.  I think we’ve got a few years left.

    The latest proposal to cap punitive damages in California is awaiting the decision of the Assembly Commission on the Judiciary, but I’ve seen no indication that it will fare any better than last year’s proposal, and the one before that, and the one before that . . .

    Hat tip: TortsProf Blog.

  • Another year, another proposal to cap punitive damages in California

    Stop me if you’ve heard this one before:  a California lawmaker has introduced a bill to limit punitive damages.  AB 157, introduced by assembly member Linda Halderman (R-Fresno), would cap punitive damages in California at three times the amount of compensatory damages.

    The bill would also eliminate punitive damages in products liability cases in which the defendant could establish that its product was in compliance with applicable regulations.  

    Oh, and one more little thing.  It would put a $250,000 cap on noneconomic damages in all negligence cases (i.e., it would expand the MICRA limit on nonecomonic damages to all cases).

    If this sounds familiar, that’s because it’s essentially the same as a bill Assemblyman Roger Niello (R-Fair Oaks) introduced last year (AB X8 40).  That bill failed to get past the Assembly Judiciary Committee.  A similar bill was rejected by the Senate Judiciary committee in 2008.

    You can track the status of the bill here, but I think you all have a pretty good idea how this sequel is going to end.  California is not Wisconsin.

    UPDATE:  The proposal is actually AB 158, and it can be tracked here.

  • AP story illustrates confusion about punitive damages

    Earlier this week, the Associated Press reported about a case in which the Fifth Circuit asked the Mississippi Supreme Court to decide whether that state’s cap on punitive damages is constitutional. 

    When I saw the story, it seemed like good material for this blog.  But further investigation revealed that the case in question (Learmonth v. Sears, Roebuck & Co.) has nothing to do with punitive damages.  The Fifth Circuit’s opinion asks the Mississippi Supreme Court to decide the constitutionality of a cap on noneconomic damages (emotional distress, pain & suffering, etc.).

    The AP reporter clearly didn’t understand that noneconomic damages are a form of compensatory damages, and are quite different from punitive damages.  In fact, the AP story actually says noneconomic damages are “also called punitive damages.”  Umm, no.  The AP ran a correction the following day.

    I don’t want to be too critical of the AP for making this mistake.  Since we launched this blog over two years ago, I have seen a number of other stories making the same mistake.  In fact, if you read a comment page for almost any story about a proposal to cap noneconomic damages, there’s a good chance you’ll see several comments mistakenly assuming the cap applies to punitive damages.  Apparently, despite all the discussion of punitive damages in the press in recent years, many members of the public (and even a few reporters) are unclear on the basic concept. 

  • Wisconsin governor signs law capping punitive damages

    The Milwaukee Journal-Sentinel reports that Wisconsin governor Scott Walker has signed the bill limiting punitive damages in that state to the greater of $200,000 or double the amount of compensatory damages.  The law will undoubtedly be subject to court challenges, but similar laws in other jurisdictions have mostly survived such attacks.

    Related posts:

    Wisconsin moves towards cap on punitive damages

  • Wisconsin moves towards cap on punitive damages

    The AP is reporting (via Bloomberg) that the Wisconsin Senate Judiciary committee has approved a measure to cap punitive damages at $200,000 or twice the amount of compensatory damages, whichever is greater.  The full senate is set to vote on the measure on Tuesday.  Gov. Scott Walker supports the proposal.

    If the bill passes, Wisconsin will apparently become the 25th 30th state to have some sort of limit on punitive damages.  (See pages 12-13 and 27 of this article).  That includes states that prohibit punitive damages altogether.  Of the states that cap punitive damages at a specific amount, the $200,000 cap in Wisconsin would be the lowest number that I’m aware of.  If anyone knows about a cap at a lower dollar figure, please let me know.  The caps I know about are either $500,000 (e.g., Alabama, Alaska, and Florida), $350,000 (e.g., Virginia and New Jersey) or $250,000 (e.g., Georgia, North Carolina, and North Dakota).

  • Proposal to Eliminate Tax Deduction for Punitive Damages Still Alive

    Business Insurance reports that the newest version of the proposed federal tax bill, the American Jobs and Closing Tax Loopholes Act, still includes a provision to eliminate the deductibility of punitive damages.

    Related posts:

    More from Prof. Markel on Tax Policy and Punitive Damages

    “Taxing Punitive Damages”

    Proposed Legislation Would Eliminate Tax Deduction for Punitive Damages

    Obama Administration Proposes To Eliminate Tax Deduction for Payment of Punitive Damages

  • NYT Op-Ed on Taxing Punitive Damages

    We previously blogged about the Senate’s recent approval of a measure to prevent corporations from taking tax deductions for punitive damages awards.

    Law Professors Gregg Polsky and Dan Markel criticize that proposal in a New York Times op-ed entitled “Damages Control.” Profs. Polsky and Markel argue that the proposal won’t work because parties will still be able to settle punitive damages cases, and the defendants can characterize the settlements as payments of compensatory damages, which will remain deductible.

    Polsky and Markel contend that, instead of eliminating the tax deduction, we should allow plaintiffs’ lawyers to explain to juries that punitive damages awards are tax deductible, which would then encourage juries to award higher amounts to offset the fact that the award will be deductible. Polsky and Markel concede, however, that “tax-aware” juries would have to know the defendant’s marginal tax rate in order to figure out the appropriate amount to offset the deduction.

    It seems to me that the jury would have to know more than that; the jury would have to understand the defendant’s overall tax situation to calculate any such offset. If the defendant were not expected to report any income for the year in question, would any offset be appropriate? Would the jury be asked to consider the effect of carry-overs from one tax year to the next? Would the jury be asked to determine the defendant’s expected tax liability, based on speculation about what was likely to occur during the remainder of the tax year?

    California courts decided long ago that juries should not be asked to consider the tax consequences of any damages awards, because juries would have to engage in “intense speculation about the future” in order to accurately adjust their awards. (See Rodriguez v. McDonnell Douglas Corp. (1978) 87 Cal.App.3d 626, 667-668.) Any proposal that increases speculation by the jury is probably not a good idea.

  • Senate Adopts Proposal to Eliminate Tax Deduction for Punitive Damages

    A few months ago we blogged about a proposed bill that would prevent defendants from treating payments of punitive damages as tax-deductible business expenses. The Senate adopted that proposal yesterday, stating that the revenues from the proposal would be used to fund a 90-day extension of the home buyer’s tax credit.

    Hat tip: TaxProf Blog.

    UPDATE (6/18/10 at 2:07 pm): The National Law Journal has more on this story. The NLJ story clarifies that the Senate adopted this proposal as an amendment to the American Jobs and Closing Tax Loopholes Act of 2010, which was approved by the House last month. The Senate has not yet acted on the full act.

  • The “Big Oil Polluter Pays Act”: Probably Unconstitutional

    Senator Sheldon Whitehouse (D-RI) has introduced a proposed bill called the “Big Oil Polluter Pays Act” (S.3345), which is intended to overrule the U.S. Supreme Court’s decision in Exxon Shipping v. Baker. In light of the Gulf of Mexico oil spill disaster, the proposal is likely to be popular. But the Act’s constitutionality is questionable at best.

    The Act would amend the U.S. Code to provide:

    In a civil action for damages arising out of a maritime tort, punitive damages may be assessed without regard to the amount of compensatory damages assessed in the action.

    There’s nothing unconstitutional about the basic premise of passing legislation to override the Exxon Shipping decision. The majority in that case adopted a 1-to-1 ratio of punitive damages to compensatory damages for maritime cases as a matter of federal common law, and not as a matter of constitutional law. Congress clearly has the authority to change a common law rule.

    The actual text of the act, however, goes much further than just changing the common law rule adopted in Exxon Shipping. The act says that punitive damages would be assessed “without regard to the amount of compensatory damages” in maritime actions. That language is directly contrary to the Supreme Court’s decisions in BMW v. Gore and State Farm v. Campbell, which held that the constitution requires proportionality between punitive damages and actual damages.

    Thus, if the Act passed, the lower courts would be required to strike it down under BMW and Campbell. The more interesting question is: what would happen if the Act passed and the question of its constitutionality made its way up to the Supreme Court? There is no guarantee that the court as presently constituted would adhere to the BMW and Campbell analysis. Justices Souter and O’Connor, who joined the majority in both cases, are gone. Justices Thomas, Scalia, and Ginsburg dissented in both cases. If the dissenters could pick up two more votes from the new members of the court, they might be willing to jettison the BMW/Campbell analysis.

  • Bill To Cap Punitive Damages is Dead. Again.

    In a prior post, we reported on the death of a bill to cap punitive damages in California at three times the amount of compensatory damages. That report turned out to be premature, because the proposal wasn’t really dead. It came back to life with a different number (AB 2740). Now that bill is really dead. It was rejected by the Assembly Judiciary Committee. Don’t take our word for it; the Civil Justice Association of California (CJAC), which sponsored the bill, has the full report on its blog.