Late last year we blogged about the Ninth Circuit’s published order in Irvin v. Southern Union, in which the court held that a $4 million punitive damages award was excessive, and that any award higher than $1 million (three times compensatory damages) would violate due process.

In a follow-up post, we noted that the Ninth Circuit seems to have a created an intra-circuit split on the proper remedy for an excessive punitive damages. We observed that, in the Leatherman Tool Group opinion in 2002, the Ninth Circuit seemingly adopted the Seventh Circuit’s position that a plaintiff is not entitled to a retrial when the court determines that a punitive damages is excessive. Instead, the court should simply reduce the award to the constitutional maximum and modify the judgment accordingly. We also observed, however, that the court took the opposite approach in its 2005 Planned Parenthood opinion, which afforded the plaintiff a new trial. Then in its 2006 opinion in Exxon Valdez, the court reverted to the approach of Leatherman Tool Group, before changing course again with the Irvin order in 2008.

Subsequent to our blog posts, the Ninth Circuit has now modified the order in Irvin, adding a footnote to address these seeming inconsistencies in its approach. The footnote cites the same cases discussed in our blog post – Leatherman Tool Group, Planned Parenthood, and Exxon Valdez – and attempts to reconcile these opinions by explaining that the court “decide[s] on a case-by-case basis whether to remand for a new trial or simply order a remittitur.” The court did not explain exactly what criteria would lead the court to choose a particular approach in a particular case. The court said it would allow a retrial in Irvin because the plaintiff might introduce additional evidence at a new trial that could affect the calculation of the proper ratio between punitive damages and compensatory damages. But if that reasoning is valid, plaintiffs would be entitled to a retrial in virtually every case, because there is always a theoretical possibility that the plaintiff could present some new evidence at the retrial.

Perhaps the more principled approach is the one adopted by the Seventh Circuit, under which a plaintiff is never entitled to a retrial. If the plaintiff had a full and fair opportunity to present all of its evidence the first time around, why should it be given another bite at the apple? (See., e.g., Kelly v. Haag (2006) 145 Cal.App.4th 910, 919-920 [plaintiff who fails to present evidence to support punitive damages award is not entitled to a retrial].)

We previously blogged about a judgment against the NFL Players Association for $7.1 million in compensatory damages and $21 million in punitive damages. The Associated Press is now reporting (via ESPN) that the Players Association has filed a notice of appeal. Perhaps this case will give the Ninth Circuit an opportunity to clear up the confusion about its policy regarding the appropriate remedy for excessive punitive damages.

Hat tip: ProFootballTalk.com

My colleague Peder Batalden has raised an interesting question regarding the 9th Circuit’s recent order in Southern Union v. Irvin. (See our recent post about that case here.) Peder notes that the 9th Circuit, after determining that any punitive damages award above $1.2 million would violate due process, remanded the case to the district court to give the plaintiff the option of accepting that amount or opting instead for a new trial.

The 9th Circuit’s approach is inconsistent with the 11th Circuit’s holding (followed in California) that plaintiffs have no right to a new trial when a court reduces a punitive damages award to the constitutional maximum:

Giving a plaintiff the option of a new trial rather than accepting the constitutional maximum for this case would be of no value. If, on a new trial, the plaintiff was awarded punitive damages less than the constitutional maximum, he would have lost. If the plaintiff obtained more than the constitutional maximum, the award could not be sustained. Thus, a new trial provides only a “heads the defendant wins; tails the plaintiff loses” option.

(Johansen v. Combustion Engineering (11th Cir. 1999) 170 F.3d 1320, 1332, fn. 19; see also Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159, 1187-1188 [following Johansen].)

Peder asks whether the 9th Circuit’s order in Southern Union (which did not cite Johansen or otherwise indicate that the court considered an alternate disposition) is consistent with the 9th Circuit’s approach in other punitive damages cases, and if so, is there now a circuit split between the 9th Circuit and the 11th Circuit on this issue?

I took a look at the 9th Circuit’s recent punitive damages and I found that the court has been inconsistent in its approach.

The court tackled this issue head-on back in 2002, when it decided Leatherman Tool Group, Inc. v. Cooper Industries, Inc. (9th Cir. 2002) 285 F.3d 1146, on remand from the Supreme Court. At that time, the 9th Circuit expressly followed the Johansen approach:

Absent clear authority or even argument from the parties to the contrary, we see no reason to disagree with the Eleventh Circuit’s opinion in Johansen [citation], that an appellate court need not remand for a new trial in every case in which it finds that a punitive damages award exceeds the constitutional maximum. That conclusion usually follows from the fact that a plaintiff would not be entitled to any greater award on remand and therefore cannot be aggrieved.

Three years later, the court took the opposite approach in Planned Parenthood of Columbia/Willamette Inc. v. American Coalition of Life Activists (9th Cir. 2005) 422 F.3d 949. The court ordered a remittitur of the punitive damages to a nine-to-one ratio and gave the plaintiff the option of accepting the remittitur or opting for a new trial, without addressing Johansen or explaining why the court was departing from its earlier decision in Cooper.

The following year, the court changed its approach yet again, when it issued its third opinion in the Exxon Valdez litigation. In that opinion, the 9th Circuit ordered a reduction of the punitive damages to $2.5 billion without giving the plaintiff the option of a new trial. (See 472 F.3d 600.)

So it appears that there is not only a split within the 9th Circuit on this issue, but also a split between the 9th Circuit and 11th Circuit, at least to the extent that Southern Union and Planned Parenthood represent the law of the 9th Circuit.

In light of the conflicting opinions from prior panels, the panel in Southern Union probably should have called for en banc review. (See Atonio v. Wards Cove Packing Co., Inc. (9th Cir. 1987) 810 F.2d 1477, 1478-79 (en banc).) By failing to call for en banc review, the panel appears to have violated the en banc court’s command in Atonio, but this panel was certainly not alone in doing so.

The Ninth Circuit has issued a published order reducing a $4 million punitive damages award down to $1.1 million, for a three-to-one ratio of punitive to compensatory damages.

The case, Southern Union Company v. Irvin, involved a lawsuit by Southern Union Company against James Irvin, the chairman of the Arizona Corporation Commission. Southern Union argued that Irvin was motivated by “personal interests” to block a proposed merger between Southern Union and an Arizona utility company. A jury awarded $975,181 in compensatory damages to Southern Union and assessed 40 percent fault to Irvin. The jury then awarded an additional $60 million in punitive damages against Irvin.

Irvin appealed and the Ninth Circuit vacated the punitive damages award as constitutionally excessive. (See S. Union Co. v. Sw. Gas Corp. (9th Cir. 2005) 415 F.3d 1001, 1009.) On remand, the district court offered Southern Union the chance to accept a remittitur of the punitive damages to $4 million, which was slightly more than ten times the compensatory damages assessed against Irvin. Southern Union accepted the remittitur and Irvin appealed again.

In the second appeal, the Ninth Circuit issued an order, joined by Judges Fernandez and Reinhardt, concluding that the $4 million punitive damages award was still excessive. Instead of remanding the case to the district court again, the Ninth Circuit reduced the punitive damages to $1.1 million, three times the compensatory damages awarded against Irvin. The court focused primarily on the lack of reprehensibility of Irvin’s conduct, noting that (1) the harm was not physical and did not involve health or safety, (2) the harm was inflicted on a wealthy corporation, not a financially vulnerable individual, (3) the incident was isolated, (4) Irvin was not motivated by a desire for personal financial gain, and (5) the compensatory damages award against Irvin provided significant deterrence by itself.

Judge Reinhardt wrote a separate concurrence suggesting that he would have affirmed the award if the defendant were a wealthy corporation.

Jude Noonan wrote a dissenting opinion in which he suggested that the majority was “mak[ing] up facts” and “suppress[ing] facts established at trial.” In Judge Noonan’s view, the record established, contrary to the majority’s view, that Irvin was motivated by a desire for personal financial gain. Also, Judge Noonan argued that Irvin’s misconduct during litigation justified a higher punitive damages award. (Note: if this case were tried under California law, consideration of the defendant’s litigation would be inappropriate. See De Anza Santa Cruz Mobile Estates Homeowners Assn. v. De Anza Santa Cruz Mobile Estates (2001) 94 Cal.App.4th 890, 895-896 [“[P]unitive damages in a tort action cannot be based on evidence of defendants’ litigation conduct occurring subsequent to the underlying tort . . .”].)

A few points about the majority opinion jump out at me:

• In keeping with recent trends, the majority essentially ignored the third BMW guidepost for reviewing the constitutionality of punitive damages—the “comparable penalties” guidepost. This guidepost seemed like a significant innovation when BMW was decided, but it has not had much of an impact on the development of punitive damages law since BMW.
• The majority dropped a footnote citing the Exxon Valdez case (Exxon Shipping v. Baker). The majority noted that Baker was a maritime law case, not a constitutional case, but the majority nevertheless called attention to the adoption of a one-to-one ratio in Baker.
• For purposes of calculating the ratio, the majority compared the punitive damages award to Irvin’s share of the compensatory damages award, as reduced by the allocation of fault. That may seem like the obvious approach, but we have seen several cases in which plaintiffs argue that a punitive damages award should be compared to the plaintiff’s total compensatory damages, ignoring any allocation of fault.
• When evaluating the reprehensibility of Irvin’s conduct, the majority treated Irvin’s conduct as an isolated incident, even though Irvin’s actions in this case involved a four-month course of conduct. The majority’s approach is consistent with other cases holding that a defendant should not be treated as a repeat offender just because the conduct towards the plaintiff involved multiple different acts; there must be evidence that the defendant previously engaged in the same sort of conduct towards someone else.
• The majority expressly stated that Irvin’s $400,000 share of the compensatory damages award was “substantial,” but the majority did not discuss the Supreme Court’s statement in State Farm v. Campbell that the ratio of punitive to compensatory damages should be low, perhaps only one-to-one, in cases involving “substantial” compensatory damages. I wonder whether the defendant called that statement to the court’s attention.

All in all, it’s somewhat surprising to see the Ninth Circuit, particularly Judge Reinhardt, taking a fairly conservative and restrained approach to the punitive damages award in this case. I suspect that may have a lot to do with the fact that the plaintiff in this case is a wealthy corporation and the defendant is an individual, instead of the other way around.

It wasn’t enough to balance California’s budget, but the $700 million punitive damages jury verdict in favor of the California Department of Insurance (DOI) would have been a welcome addition to state coffers. A 9th Circuit Court of Appeals opinion in Poizner v. Artemis S.A., however, put the kibosh on that, affirming a trial court order vacating the jury’s verdict.

The federal appellate court reviewed a judgment arising out of the 1991 insolvency and subsequent rehabilitation of the Executive Life Insurance Company following what the court characterized as the largest insurance failure in California history. The DOI sued a variety of entities that had bid for the right to assume the insolvent insurer’s assets and preside over the rehabilitation, which was deemed a resounding success both for the former Executive Life policyholders as well as for the defendant entities, which reportedly made hundreds of millions of dollars from appreciation of Executive Life’s junk bond portfolio. The basis for the DOI suit was the claim that purchasing entities had engaged in an unlawful conspiracy that improperly wrested the winning bid from another contender. The jury agreed, but awarded $0 in compensatory damages (because misrepresentations by the defendants had not actually harmed Executive Life)—but then awarded $700 million in punitive damages. The trial court struck the punitive award, but awarded $241 million on an equitable restitution claim. On appeal, the court rejected the DOI’s effort to reinstate the punitive damages award, and disappointed the DOI further by reversing the $241 million, remanding the case for further proceedings. (At least the DOI collected $680 million in pretrial settlements.)

Ordinarily, an order striking a punitive damages award where there are no compensatory damages would seem unremarkable, but as the 9th Circuit noted, the figures at stake in this case are enough to make one look very, very closely, even if ultimately the result remains the same. As the court put it:

Although the numbers in this case are breathtaking, California law is well-established and quite clear. Where the jury here explicitly found “$0” of compensatory damages, the general rule precludes punitive damages. [Citation.] The $0 figure assessed by the jury is striking because the district court clearly instructed the jury on the availability of nominal damages: “If you find for the plaintiff but you find that the plaintiff has failed to prove damages as defined in these instructions, you must award nominal damages.” The jury explicitly declined to award nominal damages, instead awarding “$0” compensatory damages as urged by counsel for Artemis. The California rule that might authorize $700 million in punitive damages if the jury awards $1, but no punitive damages if the jury awards nothing, may seem harsh. But the rule is no less a rule when it prohibits large punitive awards than when it prohibits much smaller punitive awards.

In arriving at this result, the court distinguished Gagnon v. Cont’l Cas. Co., 211 Cal. App. 3d 1598, 1603 n.5 (1989), in which a California appellate court held “an actual award of compensatory damages is not necessary; rather the plaintiff need only prove that he or she suffered damages or injury.” The 9th Circuit noted that Gagnon addressed a situation where harm was shown but damages were barred by statute. Here, the court explained, “The Commissioner has not persuaded us that the reasoning of Gagnon should extend to this case where compensatory damages, even nominal damages, were legally available and explicitly sought by the Commissioner.” The court also rejected the DOI’s argument, based on Ward v. Taggart, 51 Cal. 2d 736, 743 (1959), that the district court’s restitution award could serve as the anchor for the punitive damages verdict:

Ward is distinguishable on two grounds. First, Ward, like Gagnon, is a case where the compensatory damages sought by the plaintiff were legally unavailable. Here, lost profit compensatory damages were legally available and explicitly sought by the Commissioner, yet the jury declined to award even nominal compensatory damages. Second, the jury in Ward found that all of the elements of fraud, including harm, were proven against the defendant. Here, . . . [defendant Artemis] had no legal liability for its own misrepresentation or concealment. The Commissioner sought restitution based on the same record evidence of Artemis’ intentional misrepresentation and concealment. The district court ultimately awarded restitution calculated to disgorge only a portion of the profit that the Commissioner sought as compensatory damages. Permitting the restitution award in this case to serve as a predicate for the jury’s punitive damages award would cast doubt on the equity in the district court’s award and would potentially result in a windfall to the Commissioner. [fn. omitted] We conclude that California courts would not extend the reasoning of Ward to permit restitution to serve as the predicate for punitive damages where a defendant is not legally liable for fraud and a jury has expressly awarded “$0” in compensatory damages.

The DOI won’t be giving up yet, however. Because the district court erroneously precluded the DOI from putting on one part of its case, the 9th Circuit remanded the matter for further proceedings at which punitive damages could again be awarded: “We reverse the Post-Verdict Order and remand for a new damages phase trial limited to proffer of the NOLHGA Premise and a determination of damages (including punitive damages), if any, on that theory.”

Back in 2005 when the jury’s verdict came down, my co-blogger Curt Cutting was quoted as questioning whether the punitive damages award would pass muster. The appellate court’s treatment of the award is discussed in a Mercury News article and in a Business Insurance news piece, which offer more details about the history of the protracted litigation.

As reported in the Worcester Telegram, a federal court jury in Nevada awarded $60 million in punitive damages against Paul Revere Life Insurance Company and UnumProvident Corporation in a case for wrongful denial of a disability claim.

The case has an interesting history. In 2004, a jury awarded $1.6 million in compensatory damages and $10 million in punitive damages. The defendants appealed and the Ninth Circuit reversed the punitive damages award, finding that the trial court failed to give a limiting instruction based on Philip Morris v. Williams (Williams I). The Ninth Circuit ordered a retrial limited solely to punitive damages. On retrial, the jury awarded six times the amount of punitive damages that had been awarded by the original jury. Ouch.

It would be easy to say, in hindsight, that the defendants were foolish to seek a retrial. But given that punitive damages are rarely awarded, and when they are awarded they rarely exceed the amount of compensatory damages (see footnotes 14 & 15 in Exxon Shipping Co.), the defendants played the right odds in seeking a retrial. (Unless of course the facts of this case were so outrageous that any jury would be likely to render a huge punitive damages verdict.)

It seems highly likely that the defendants will try their chances at the Ninth Circuit again if they don’t get relief from the district court. The 37.5-to-1 ratio of punitive-to-compensatory damages cries out for appellate review.

Yesterday we blogged about the Ninth Circuit’s order appointing a special prosecutor to pursue disciplinary sanctions against prominent plaintiffs’ lawyers Tommy Girardi and Walter Lack. Today the Ninth Circuit has issued a further order appointing UC Hastings Law professor Rory K. Little as the special prosecutor. Hat tip to Legal Pad.

UPDATE: You can view Professor Little’s bio here. He has prior experience as a prosecutor and has served on the ABA’s Standing Committee on Legal Ethics, so he appears particularly qualified for this assignment.