A new post on Mayer Brown’s punitive damages blog discusses an interesting decision from the Second Circuit on the subject of punitive damages in class actions.

In a nutshell, the Second Circuit said that the district court should not have adopted a trial plan that called for the jury to decide the appropriate ratio of punitive damages to compensatory damages before the jury had determined the amount of compensatory damages.

This issue—how to resolve punitive damages claims in class actions—has been simmering for years.  Appellate decisions in other jurisdictions have approved so-called reverse bifurcation trial plans that permit a jury to decide punitive damages before compensatory damages, and sometimes even before deciding the question of liability.  The Supreme Court has had several opportunities to address the constitutionality of that practice, but so far has declined to wade into this area.

Related posts:

Cert. Denied in Chemtall v. Stern

Reverse Bifurcation of Punitive Damages Trials—”Why Not? It’s No Worse Than How We Handle Asbestos Cases?”

Cert. Denied in Philip Morris v. Accord; Petition in Chemtall v. Stern Raises the Same Issue

Philip Morris v. Accord: Cert Petition on Punitive Damages Issue Will Be Considered on February 15

Last year we blogged about the $185 million punitive damages verdict that a San Diego federal jury awarded to a single plaintiff in an employment case (Juarez v. AutoZone).  We predicted, along with pretty much everyone else, that the award would not survive judicial review.  Even the Consumer Attorneys of California, who ordinarily advocate for big punitive damage awards, went on record saying that this award is obviously excessive.

ABC10News in San Diego reported this morning that the trial judge in that case was set to hear arguments on AutoZone’s post-trial motions.

For those interested in digging into this a little further, here are links to the parties’ primary briefs on the post-trial motions:

AutoZone’s new trial motion
AutoZone’s motion for judgment as a matter of law
Plaintiff’s opposition to new trial motion
Plaintiff’s opposition to motion for judgment as a matter of law
AutoZone’s reply in support of new trial motion
AutoZone’s reply in support of motion for judgment as a matter of law

Law360 reported on January 21 (and it escaped my notice until now) that U.S. District Judge Michael P. Shea of the District of Connecticut awarded $27.5 million in punitive damages in an antitrust and trade secrets case.

According to the Law 360 article, a jury awarded $35 million in compensatory damages, which Judge Shea founded to be excessive.  He ordered a conditional new trial on the issue of compensatory damages, subject to an agreement by the plaintiff (MacDermid Printing Solutions) to reduce the award to $20 million.  But the defendant (Cortron Corp.) probably didn’t spend much time celebrating when they learned that Judge Shea also granted the plaintiff’s motion for punitive damages and awarded $27.5 million.

The Daily Report of Fulton County, Georgia is reporting that a jury there has awarded $72.8 million to a school teacher who was burned after a gas line in his apartment exploded. He sued his landlord, claiming that the explosion was caused by the landlord’s violation of building codes.  The verdict consists of $17.9 million in compensatory damages, $47.9 million in punitive damages, and $7 million in attorney fees. 

A Georgia statute limits punitive damages to $250,000 except in products liability cases, cases involving a specific intent to harm, and cases where the defendant was under the influence of drugs or alcohol.  None of those exceptions would seem to apply here.

The American Tort Reform Foundation’s released its annual “Judicial Hellholes” report yesterday.  As usual, ATRF does not have kind things to say about the administration of civil justice in California. 

The report names California as the second worst jurisdiction in the nation in terms of fairness to defendants in civil litigation (behind the New York City asbestos docket).  The report offers a variety of reasons for that assessment, most of which are beyond the scope of this blog (e.g., that our courts have made it too easy for plaintiffs to “rifle the deep pockets of corporate defendants” in public nuisance actions, asbestos lawsuits, disability-access lawsuits, etc.) 

The report intersects with the focus of this blog when discussing Izell v. Union Carbide, in which the Court of Appeal recently affirmed an $18 million punitive damages award in a published decision.  The report highlights the dissenting opinion of Justice Kitching which, as we have noted, could attract the attention of the California Supreme Court as well.  (The discussion of Izell appears on page 14 of the report.)

Yesterday, the Ninth Circuit issued its en banc opinion in Arizona v. Asarco.  As our readers may recall, that’s the sexual harassment case in which a jury awarded the plaintiff no compensatory damages, $1 in nominal damages, and nearly $900,000 in punitive damages.

The district court reduced the punitive damages to $300,000 under Title VII’s statutory cap on punitive and non-economic damages.  A three-judge panel of the Ninth Circuit then ruled, in a 2-1 decision, that the punitive damages were still excessive and should be further reduced to $125,000.

Both parties sought en banc review.  The plaintiffs argued that they are entitled to the full $300,000 permitted by the cap, because an award within the cap cannot be unconstitutional.  The defendant argued that the 125,000 ratio permitted by the three-judge panel was still excessive.  Both parties got what they wanted—the court agreed to rehear the case en banc.  But the result isn’t quite what the defendant envisioned.  It’s a unanimous 11-0 win for the plaintiffs.

The en banc opinion starts by discussing the due process test for evaluating the excessiveness of a punitive damages award, as laid out in BMW v. Gore and State Farm v. Campbell.  The opinion then states that the due process standards are “of some relevance”in Title VII cases.  In other words, it is theoretically possible that punitive damages awarded under a carefully crafted statutory scheme could nonetheless violate due process.

But the opinion goes on to say that, when punitive damages are awarded under a “robust” statutory scheme, a “rigid application of the Gore guideposts is less necessary or appropriate.” Following that logic, the court concludes that a punitive damages award under Title VII can never really violate due process, because the statute clearly states the state of mind necessary for imposition of punitive damages, and provides fair notice of the possible amount of the punitive damages (i.e., up to $300,000).

While it’s clear that the en banc court has no problem with 300,000 to 1 ratios in Title VII cases, it’s not at all clear how the court’s analysis would translate to other statutory schemes.  How is a district court supposed to determine which statutes are sufficiently robust and carefully crafted, such that a vigorous due process analysis becomes unnecessary?  And when a statute qualifies as robust and carefully crafted, how exactly does a district court perform the relaxed and non-rigid version of the BMW and Campbell analysis that this opinion seems to require?

Given the murkiness of the court’s analysis, it is a bit surprising to see that this was a unanimous opinion.  The Ninth Circuit is known as a court whose members have a wide diversity of viewpoints and aren’t afraid to share them.  And this 11-member panel includes some judges whom we’d ordinarily expect to have some discomfort with an opinion holding that lower courts can, under circumstances that are not clearly defined, choose to disregard a due process analysis mandated by the U.S. Supreme Court.

So long as the analysis of this opinion is limited to Title VII cases, it’s impact will be limited.  Because the $300,000 cap is a modest one, the Ninth Circuit wouldn’t be striking down many punitive damages awards as excessive under the BMW standards anyway, even if the court had not excepted Title VII cases from the usual BMW analysis.  But this opinion could end up being quite significant if its analysis spreads to other areas, or if the Title VII cap ever gets raised.

As a side note, nowhere in this opinion does the court ever suggest that it might have a common-law duty to analyze the punitive damages award for excessiveness, apart from whatever the constitution requires.  As our friends over at Guideposts have pointed out, other circuits have held that in cases involving claims under federal law, federal courts have supervisory authority to ensure that those awards are not excessive, and should scrutinize them more closely under that common law authority than they would under the Due Process Clause.  Most likely, the parties did not make that argument here.

 Related posts:

New punitive damages blog analyzes case pending before en banc Ninth Circuit (Arizona v. ASARCO)

Ninth Circuit reduces $300,000 punitive damages award to $125,000 in Title VII harassment case (Arizona v. ASARCO)

Ninth Circuit grants en banc rehearing to decide excessiveness of punitive damages in Title VII case (Arizona v. ASARCO)

9th Circuit hears oral arguments in punitive damages case where jury awarded no compensatory damages

A week ago we reported on a jury award of $185 million in punitive damages in a single-plaintiff employment case against AutoZone.  Not surprisingly, that colossal award got a lot of media attention.  Some even called it a “preposterous” verdict by a runaway jury.

In response to this criticism, the Consumer Attorneys of California issued a remarkable press release.  The press release says that criticism of the verdict is unwarranted, which isn’t a surprising position for CAC to take.  But CAC’s reasoning is quite surprising.  According to CAC, it makes no sense to talk about runaway juries or preposterous damage awards until the post-verdict proceedings are resolved, because “such big punitive damages awards are inevitably scaled back to a fraction of what was ordered by the jury.”  The press release goes on to say that “nobody at AutoZone is expecting to write a check for $185 million” because U.S. Supreme Court precedent limits punitive damages to no more than nine times the amount of compensatory damages.

CAC has a point.  Many of the big punitive damages awards that generate media attention are later reduced during post-trial proceedings or on appeal.  And those rulings rarely get the same kind of press as the original verdict. 

Nevertheless, CAC’s position is a startling one.  CAC’s members fight vigorously to obtain awards like this. And they fight to hold on to them during post-verdict review.

Consider, for example, Bullock v. Philip Morris, in which a California jury awarded $28 billion in punitive damages to a single plaintiff.  The plaintiff’s lawyer fought hard to hold on to that award.  When the trial court reduced it to $28 million, plaintiff’s counsel filed a cross-appeal asking the Court of Appeal court to reinstate the full amount of the jury’s award.  (See 2005 WL 4656293.)  That lawyer—Michael J. Piuze—is a past recipient of CAC’s “Trial Lawyer of the Year Award.” One of the attorneys at his firm is currently on CAC’s board. 

It isn’t just CAC’s individual members who defend punitive damages awards in the nine-figure range and above.  CAC itself files amicus curiae briefs to defend such awards.  For example, in Romo v. Ford Motor Co., CAC filed an amicus brief to defend a $290 million punitive damages award. (See 2003 WL 22455474.)

Given this history, the CAC press release on the Auto Zone case comes as a great surprise, because it  seemingly acknowledges that an award much smaller than the Bullock and Romo awards is obviously excessive and will inevitably be reduced or vacated.  Having taken that position, it would now be difficult for CAC to file another amicus brief like the one it filed in Romo if the AutoZone case ends up on appeal.

The Sacramento Bee reports that Judge Stephen Berrier of the Yuba County Superior Court has vacated nearly all of a jury’s $16.2 million damages award against a New Jersey company that provides mortgage loan servicing.

The article reports that the plaintiff bought a home and was unable to afford his monthly mortgage, so he obtained a loan modification from the defendant (PHH Mortgage Services).  He thought the modification would reduce his monthly payments from $2,100 to $1,543 but, for reasons not explained in the story, things didn’t work out that way and the plaintiff ended up over $7000 in arrears.

PHH initiated foreclosure proceedings and the plaintiff sued PHH to fend off foreclosure.  It worked.  PHH halted foreclosure and a jury awarded the plaintiff $16.2 million in damages, including $15.7 million in punitive damages.

Judge Berrier, however, ruled that plaintiff was entitled to only $159,000.  Presumably that ruling was in response to posttrial motions filed by PHH, but the article doesn’t say.  And the article doesn’t say whether the $159,000 represents compensatory damages or punitive damages.  It does mention, however, that Judge Berrier found that PHH did not act with malice or reckless disregard.  That suggests he tossed out the entirety of the punitive damages award.

Thanks to Evan Tager of Guideposts for calling the story to our attention.

The absurd $9 billion dollar punitive damages award that made headlines earlier this year is no more.  The National Law Journal reports that U.S. District Judge Rebecca Doherty of the Western District of Louisiana has reduced the award to $36.8 million.

According to the story, Judge Doherty concluded that the 6000 to 1 ratio between the punitive damages and compensatory damages was unconstitutionally excessive.  No surprise there.  She reduced the award to $27.6 million against one defendant (Takeda Pharmaceuticals) and $9.2 million against the other (Eli Lilly & Co.).  She also reduced the total compensatory damages to $1.27 million.

Even as reduced, the punitive damages are roughly 29-to-1, which is awfully hard to square with State Farm v. Campbell and its admonition that substantial compensatory damages of $1 million or more call for a low ratio.  Eli Lilly says it plans to appeal.

Earlier this year we reported on a jury verdict in federal court in Sacramento that awarded $22.2 million in compensatory damages and $17.4 million in punitive damages.  That verdict was apparently based on allegations that the defendant railroad breached a nondisclosure agreement and improperly poached the plaintiff railroad’s clients. 

Now the Sacramento Bee is reporting that the judge in the case, U.S. District Judge Troy L. Nunley, has awarded another $13.1 million in exemplary damages for the defendant’s violations of California trade secrets law.  That claim was apparently tried to the court after the conclusion of the jury trial. According to the story, Judge Nunley believed the award was appropriate because California courts have held that “an exemplary damage award of 17.5 percent of an offending company’s value is sufficient to punish extremely reprehensible conduct.”

I haven’t yet been able to read Judge Nunley’s opinion, but presumably he pulled the 17.5 percent number from a 1984 case called Devlin v. Kearny Mesa AMC/Jeep/Renault, Inc.  In that case, the court affirmed an $80,000 punitive damages award that happened to be 17.5% of the defendant’s net worth.  But the court certainly did not announce a rule that punitive damages should be 17.5 percent of the defendant’s net worth when the defendant’s conduct was highly reprehensible.  And in the years since Devlin, other California courts have held that punitive damages are presumed to be excessive when they exceed 10 percent of the defendant’s net worth.  (See, e.g., Grassilli v. Barr.)  In any event, it’s hard to imagine how the purely economic harm in this business dispute could be characterized as highly reprehensible.The defendant plans to appeal, and based on the information in this article there appears to be a decent chance the Ninth Circuit will conclude Judge Nunley’s decision went off the rails.