California Punitives by Horvitz & Levy

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    The California Court of Appeal (First District, Division Four) issued this unpublished opinion last week, affirming a $2 million punitive damages award in an employment case involving compensatory damages of $340,700 (a ratio of 5.87 to 1).

    This punitive damages discussion goes into more detail than the typical unpublished opinion.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 But I’m a little disappointed to see the Court of Appeal deciding this issue in an unpublished opinion without even acknowledging the split of authority.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.

  • Rich v. Koi Restaurant: Plaintiff Not Entitled to Retrial on Punitive Damages When Jury Ignores Defendant’s Admission

    Last Friday, the California Court of Appeal (Second District, Division Four) issued this unpublished opinion affirming the trial court’s denial of the plaintiff’s motion for new trial after a jury declined to award punitive damages.

    In this sexual harassment case, the corporate defendant admitted before trial (in response to a request for admissions) that the alleged harasser was a managing agent of the corporation within the meaning of Civil Code section 3294. The jury was informed of this admission and told to accept it. Defense counsel also conceded the point in closing argument.

    When the case was submitted to the jury, the jury found in favor of the plaintiff and awarded compensatory and punitive damages against the alleged harasser. But when the jury was asked to decide whether the alleged harasser was a managing agent, the jury answered “no,” and therefore awarded no punitive damages against the corporation.

    The plaintiff moved for a new trial, arguing that the jury’s answer to the managing agent question was improper. The trial court denied the motion, finding that the jury’s answer was “a technical error at most,” and that the denial of punitive damages against the corporation represented “a measured and calculating or calculated decision to punish the truly culpable and to treat the less culpable with a lighter touch.”

    The Court of Appeal affirmed, finding that the trial court did not abuse its discretion in denying the new trial motion. The Court of Appeal cited the California Supreme Court’s decision in Brewer v. Second Baptist Church (1948) 32 Cal.2d 791 and Sumpter v. Matteson (2008) 158 Cal.App.4th 928 (which we blogged about here in one of our earliest posts), both of which held that a plaintiff has no right to punitive damages even when the statutory prerequisites for awarding punitive damages are established.

    For what it’s worth, I think the Court of Appeal correctly deferred to the trial court’s discretion, but I’m not sure I would have decided this issue the same way the trial court did. It seems possible that the jury’s response on the verdict form was just a mistake, and not a measured or calculated decision. At the same time, I have to wonder why plaintiffs’ counsel did not object to the inclusion of the managing agent question on the verdict form, given that the defense had already conceded the issue.

  • Enriquez v. Amerifirst: Court of Appeal Affirms Nonsuit on Punitive Damages

    The California Court of Appeal (Fourth District, Division Three) issued this unpublished opinion affirming a trial court order granting nonsuit on a claim for punitive damages.

    Plaintiff, a homeowner who lost her home through foreclosure, sued the lender (Amerifirst) that had refinanced her initial mortgage. She presented evidence that Amerifirst had overstated her income on a mortgage application and forged her signature. The trial court ruled, however, that the plaintiff failed to present sufficient evidence of intentional misconduct by Amerifirst.

    The Court of Appeal affirmed, but on a different ground. It relied on Civil Code section 3294, subdivision (b), which provides that a corporation cannot be liable for punitive damages unless an officer, director, or managing agent of the corporation authorized or ratified the misconduct at issue. In this case, the evidence suggested that the person who prepared the loan application was an employee in the processing department. She was not an officer or a director of Amerifirst, and she did not qualify as a managing agent because she did not have authority to set corporate policy. Accordingly, the plaintiff’s evidence was insufficient to support the findings required by Civil Code section 3294, subdivision (b)

  • Major v. Western Home: California Court of Appeal Affirms $646,000 Punitive Damages Award

    The California Court of Appeal issued this published opinion today, affirming a punitive damages award of $646,471.53, roughly equal to the compensatory damages.

    The case required the court to interpret a provision of California’s punitive damages statute, Civil Code section 3294. That statute provides that punitive damages cannot be awarded against a corporation based on the wrongful acts of a corporate employee unless an officer, director, or managing agent of the corporation either participated in, authorized, or ratified those acts.

    The defendant was an insurance company that hired a third-party claims administrator to process the plaintiffs’ claim for the destruction of their home by fire. The insurer paid benefits representing the full limits of the policy at the time of the fire, but a jury nevertheless found that the company acted in bad faith by delaying the payment of benefits to the plaintiffs, and by withholding about $30,000 in additional benefits above the policy limits (which the plaintiffs claimed they were entitled to because the insurer raised the policy limits after the loss).

    On appeal, the primary punitive damages issue was whether the person who committed the wrongful conduct, an employee of a third-party claims administrator, qualified as an “managing agent” of the insurer, such that her conduct could subject the company to punitive damages. The Court of Appeal relied heavily on the California Supreme Court’s 1979 decision in Egan v. Mutual of Omaha, which concluded that punitive damages can be awarded against an insurance company based on the acts of a claims representative if the claims rep has the effective authority to set corporate policy. The Court of Appeal extended Egan a step further. It held that the employee of the third-party administrator had the effective authority to set policy for the insurer, and therefore subject the insurer to punitive damages. The court did not explain how the conduct as issue could effectively set corporate policy when the actual corporate policies of the insurer prohibited that conduct.

    After concluding that the plaintiff had satisfied the managing agent requirement of section 3294, the court went on to discuss the amount of the punitive damages award. The court concluded that a relatively low punitive damages award was appropriate because the harm to the plaintiff was purely economic, the case did not involve a disregard of health or safety, and there was no evidence that the defendant had ever engaged in similar misconduct towards other insureds. The court also concluded that the analogous civil penalty for insurer misconduct, a fine of $10,000, also weighed in favor of a relatively low punitive damages award. Accordingly, the court concluded that a one-to-one ratio of punitive damages to compensatory damages was appropriate and did not raise due process concerns.

    Finally, the court examined whether the jury’s verdict was inconsistent because the jury found the defendant acted with “oppression” (one of the grounds for imposing punitive damages under section 3294), but also found the defendant did not act with “malice.” The court found no inconsistency, because the statutory definition of malice requires that the defendant acted with a “willful and conscious disregard” of the rights and safety of others, whereas oppression requires only a finding of “conscious disregard.” The court did not explain exactly how the defendant’s conduct could have exhibited a conscious disregard for the plaintiffs’ rights without also being willful.

    Full disclosure: Horvitz & Levy represents the defendant, Western Home Insurance Company.

  • Robles v. Autozone Inc.: Unpublished Opinion Affirms Trial Court’s Reduction of Punitive Damages Award from 100-to-1 Ratio Down to 6-to-1

    In this unpublished opinion issued yesterday, the California Court of Appeal (Fourth Appellate District, Division One) affirmed a trial court’s decision to reduce a $7.5 million punitive damages award down to $438,900.

    The plaintiff was a former employee of AutoZone. He brought a claim against AutoZone for false imprisonment, claiming that he was wrongly accused of stealing money, questioned for three hours, and then coerced into signing a false confession. A jury awarded him $73,150 in compensatory damages and $7.5 million in punitive damages. In response to the defendant’s motion for JNOV, the trial court reduced the punitive damages to $438,900, six times the compensatory damages.

    The punitive damages discussion in this opinion is unusually long and I haven’t had time to read it carefully, but the court seems to reach these basic conclusions:

    1. The trial court did not err when it used a verdict form that did not require the jury to identify, by name, the corporate managing agent who authorized the misconduct at issue.

    2. Substantial evidence supported the jury’s conclusion that the defendant’s managing agents did in fact authorize the misconduct of lower level employees. Although the employees violated express company policies, the Court of Appeal said there was evidence to support a reasonable inference that AutoZone management had effectively authorized the employees’ conduct by structuring the company loss prevention department and procedures in such a way that effectively fostered abuses of power. (Without knowing all the details of the case, it’s a little hard to imagine how a jury could reasonably infer that corporate management authorized conduct which corporate management had expressly prohibited.)

    3. The trial court did not err in reducing the amount of punitive damages. The Court of Appeal found that the facts justified a significant punitive damages award because: (a) the defendant took advantage of a financially vulnerable plaintiff, (b) the conduct was not an isolated incident, and (c) the defendant engaged in intentional trickery and deceit. At the same time, however, the Court of Appeal found there were no extremely unusual circumstances that could support a double-digit ratio of punitive to compensatory damages. Accordingly, the Court of Appeal agreed with the trial court that 6-to-1 was the maximum ratio permitted by due process. Notably, the court observed that:

    [E]ven a six-to-one ratio of punitive damages represents a blot on a corporation’s reputation and has a punitive effect. The level of punitive damages imposed is not required to be so large as to impede the activities of the corporation.

    As I was reading through this opinion, a few peculiarities jumped out at me. First, the court cites its own prior opinion in Buell-Wilson v. Ford, without acknowledging that the California Supreme Court has granted review in that case, which therefore cannot be cited under California’s rules of court.

    Second, the court states that “It was appropriate for [plaintiff] to go forward and make out a case for punitives, to fully redress his injury.” That language seems contrary to the California rule that punitive damages can never be awarded to compensate for a plaintiff’s injuries, and are only available to serve the purposes of punishment and deterrence. See, e.g., Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1387 (“‘punitive damages by definition are not intended to compensate the injured party’”).

    Presumably, these are things that the court would have cleaned up if it decided to publish this opinion.

    Hat tip to California Attorney’s Fees.