This unpublished opinion is the latest chapter in a long-running saga involving Sage Automotive Group, a family-owned car dealership.

Leonard Schrage accused his brothers Michael and Joseph of mismanaging the family business and misappropriating assets for their own personal use.  After a bench trial on Leonard’s claim for breach of fiduciary duty, he obtained a judgment for $21 million in compensatory damages and $10 million in punitive damages against his brothers, who appealed.

The Court of Appeal (Second District, Division Seven) reversed, finding that Leonard did not have standing to pursue the breach of fiduciary duty claim because he was complaining primarily about harm to Sage Automotive Group, not harm to himself.  The claim for harm to the corporation could only be pursued as a derivative action, not by Leonard as an individual action.  Because Leonard did not assert a derivative claim, the Court of Appeal vacated his recovery on the fiduciary duty claim and all the associated damages, both compensatory and punitive.

This unpublished opinion involves the availability (or not) of punitive damages for spoliation of evidence.

Two foreign investment firms bought an interest in a family trust that owned a $4 million life insurance.  They hired a broker (who was also a lawyer) to help them sell the policy.  The broker did not advise them to pay the renewal premiums on the policy, which lapsed and become worthless.  Before any litigation ensued, the broker deleted or destroyed many of his emails and files relating to the transaction.  The firms then sued him for breach of contact and breach of fiduciary duty and sought punitive damages.

During trial, before the close of evidence, the defendant moved for nonsuit and asked the trial court to strike the punitive damages claim.  The trial court granted the motion in part and denied it in part.  The court found most of the plaintiffs’ punitive damages theories were unsupported by the evidence and the court allowed the plaintiffs to seek punitive damages solely for the defendant’s destruction of evidence.

That ruling was error, because the California Supreme Court has held that a party may not recover any form of tort damages for spoliation of evidence.  (See Cedars-Sinai Medical Center v. Superior Court.)  The trial court realized its error after the fact, and granted the defendant’s motion for JNOV to vacate the jury’s award of punitive damages.

When the plaintiff challenged the JNOV order on appeal, the Court of Appeal (Fourth District, Division Three) affirmed.  First, it held that the trial court correctly ruled that Cedars-Sinai prohibits punitive damages for spoliation of evidence.

Second, the court rejected the plaintiffs’ argument that the punitive damages could be upheld on an alternative theory, namely, that the defendant acted with malice in breaching his fiduciary duties.  The punitive damages could not be upheld on that theory because the plaintiff had not presented that theory to the jury.

Third, the court rejected the plaintiffs’ argument that the jury could have inferred that the records destroyed by the defendant contained evidence of malice, oppression, or fraud.  The Court of Appeal held that juries are permitted to draw adverse inferences from the destruction of evidence, but such inferences cannot constitute the sort of clear and convincing proof required to support punitive damages: “[a] purely permissive adverse evidentiary inference does not rise to that level.”

This unpublished opinion illustrates a rule of California punitive damages law that sometimes gets overlooked.

In a survival action, where the plaintiff is asserting claims for injuries to a decedent, the plaintiff cannot recover punitive damages unless the defendant caused some actual economic loss to the decedent or the decedent’s estate.  This rule derives from two other rules: (1) actual damages are a prerequisite for punitive damages (see Kizer v. County of San Mateo), and (2) noneconomic damages are not recoverable in survival actions (see Civil Code section 377.34).  Thus, because economic damages are the only recoverable form of compensatory damages in a survival action, the plaintiff must prove economic damages in order to recover punitive damages.

Here, the trial granted a motion for nonsuit on the plaintiff’s punitive damages claim after the plaintiff conceded that the decedent and his estate suffered no economic loss. On appeal, the plaintiff argued that punitive damages could be based on statutory remedies available on the plaintiff’s claim for elder abuse.  That argument, however, has already been rejected in a published opinion.  See Berkley v. Dowds.  The Court of Appeal in this case (the Second Appellate District, Division One), followed Berkley and affirmed the nonsuit.

This case arises out of a dispute between a Ventura County jalapeno farmer (Underwood) and a hot sauce maker (Huy Fong Foods).  The parties started doing business together in 1988 and enjoyed a mutually beneficial relationship for several decades.  For the first decade, they operated using written agreements that specified the volume of peppers that that the farmer would supply and the price that the hot sauce maker would pay.  But eventually, as the relationship evolved, the parties operated under informal oral arguments.

That relationship seemed to be working fine until 2017, when the hot sauce company determined that it had been overcharged, and that it could obtain peppers at a lower price from other farmers.  The company terminated the relationship and sued the farmer to recover a refund of $1.4 million that the farmer had allegedly overcharged.  The farmer cross-complained for breach of contract and fraud, alleging that that the sudden decision to end the relationship had devastated the farmer, who was dependent upon its sales to the company, and had acquired leases of additional land in order to meet the company’s production demands.

A Ventura County jury ruled in favor of the farmer and awarded $13.3 million in compensatory damages and $10 million in punitive damages. On appeal, the company argued that the punitive damages should be vacated because “punitive damages cannot be awarded for breach of contract in the absence of an independent tort.”  The Court of Appeal rejected that argument in a published opinion, citing cases that permit punitive damages for fraud even when the parties have a contractual relationship.  The court did not address Civil Code section 3294, which authorizes punitive damages only for “breach of an obligation not arising from contact.”  Under the statutory language, a party ought not to be able to recover punitive damages for fraud or any other tort that involves the breach of an obligation that wouldn’t exist but for the contract.  That seems like a tricky question here, where the parties had no written contract and arguably all the representations they made were part of the terms of an oral contract.  But the court doesn’t grapple with that issue, perhaps because it wasn’t framed that way in the briefing.

The company also argued on appeal that the punitive damages are excessive, but the Court of Appeal rejected that argument too, finding that the company’s conduct was reprehensible enough to support a .75 to one ratio of punitive to compensatory damages.

At first glance, this published opinion appears to affirm a punitive damages award that is 33 times greater than the plaintiff’s actual harm.

The appeal arose from a bench trial on a claim for wrongful termination.  The trial judge awarded the plaintiffs $15,000 in economic damages and $500,000 in punitive damages.  In the process, the trial court made a finding that the wrongfully terminated employee, who died while the litigation was pending, suffered non-economic damages between $100,000 and $150,000.  That amount was not included in the judgment because Code of Civil Procedure section 377.34 precludes recovery for a decedent’s pain and suffering.

The defendant appealed, arguing that the 33-to-1 ratio of punitive damages was excessive.  The Court of Appeal (Second District, Division Eight) disagreed.  Citing the California Supreme Court’s opinion in Simon v. San Paolo U.S. Holding Co., the court held that the decedent’s nonrecoverable emotional distress damages should be treated as part of the actual harm caused by the defendant, when calculating the ratio between the punitive damages and the actual harm.  With those damages included, the ratio was only 3.5 to 1.

The court went on to conclude that the 3.5-to-1 ratio was not excessive because the defendant acted with a “medium high” degree of reprehensibility when it fired an employee who was seriously ill with cancer, under the false pretense of poor job performance.  The court also found that the defendant had forfeited various other challenges to the punitive damages award by failing to procure an adequate record on appeal.

In this asbestos-injury case, a jury awarded approximately $8.5 million in compensatory damages and $25.5 million in punitive damages against Ford Motor Co. The trial court ruled the punitive damages were excessive and reduced the amount to $8.7 million.

Ford appealed and the Court of Appeal (Second District, Division Two) reversed in an unpublished opinion, finding that the jury’s allocation of fault could not be squared with the evidence. The jury allocated 100% of the fault to the one defendant remaining at trial (Ford), even though the evidence showed that the plaintiff used identical asbestos-containing products made by others. Accordingly, the Court of Appeal ordered a new trial on the allocation of fault.

The Court of Appeal then concluded it should also order a new trial on the amount of punitive damages. The court reasoned that the jury in the first trial based its award of punitive damages on the assumption that Ford was 100 percent responsible for the plaintiff’s injury, but if the jury had apportioned fault based on the plaintiff’s proportional exposure to Ford products as compared to other defendants’ products, the jury would have assigned only 8 percent fault to Ford, possibly less. The court concluded that the possibility of a much smaller allocation to Ford weighed in favor of retrying the amount of punitive damages: “the potential for a jury to find that Ford’s violation is of a substantially smaller magnitude counsels in favor of letting the jury on retrial evaluate the opprobrium of Ford’s conduct in light of Ford’s proportionate fault for plaintiff’s injury rather than simply using the constitutional maximum as a back-end safety valve.”

Disclosure: Horvitz & Levy represents Ford in this case