California Punitives by Horvitz & Levy

  • California Supreme Court to rule soon on US Bank’s petition for review (King v. U.S. Bank)

    We reported in August about this decision in which the Court of Appeal partially reinstated a big punitive damages award against U.S. Bank.  As you may recall, the case involved a U.S. Bank supervisor who was accused of harassment by his subordinates. The company investigated and fired him.  He then sued the bank for wrongful termination and defamation and won a jury verdict for $24.3 million including $15.6 million in punitive damages.  The trial court reduced the amount to $2.7 million but the Court of Appeal bumped it back up to $8.5 million.

    U.S. Bank has filed a petition for review with the California Supreme Court raising the following issues (these are quoted directly from the petition):

    1. Whether evidence of errors of judgment by human resources (“HR”) employees who repeat allegedly false statements during an internal investigation of alleged workplace misconduct is sufficient to defeat the common-interest privilege and sustain a defamation claim. 

    2. Whether an employer that terminates an employee for misconduct may be held liable for wrongful termination and breach of the covenant of good faith and fair dealing based on an inference that the employer rushed the termination so that the employee would not qualify for a bonus.

    3. Whether evidence that an entry-level HR employee exercised discretion when investigating alleged workplace misconduct is sufficient to support a determination that she was a “managing agent” whose conduct can subject her employer to punitive damages.

    4. Whether the decision below misapplied this Court’s decision—issued the day before—requiring courts to view the evidence supporting a finding of punitive liability through the lens of the clear-and-convincing-evidence standard.

    5. Whether the Court of Appeal accorded legally insufficient deference to the trial court’s order granting a new trial or remittitur. 

    6. Whether the $8,469,696 punitive award approved by the Court of Appeal—six times the maximum permissible punitive award for the more severe conduct and injuries in Roby v. McKesson Corp. (2009) 47 Cal.4th 686—is unconstitutionally excessive, given the punitive and deterrent effects of the $5,000,000 in non-economic damages and USBNA’s minimal to non-existent ill-gotten gain.

    Horvitz & Levy filed a letter on behalf of the Association of Southern California Defense Counsel, asking the Supreme Court to grant the petition. The CELC and the US Chamber of Commerce also submitted letters (see here and here).

    The Supreme Court’s original deadline to rule on the petition was November 3, but the court issued an order extending its time until December 3.  Expect a ruling soon. 

  • Missouri Supreme Court declines to review $1.6 billion punitive damages award against Johnson & Johnson

    Reuters reports that the Missouri Supreme Court has declined to review the intermediate appellate decision that reduced a $4.14 billion punitive damages award to $1.62 billion. You can read our coverage of the Court of Appeal decision here. Not surpisingly, J&J says it plans to file a cert. petition, as reported by Law.com. With a total judgment in excess of $2 billion, how could they not?

  • Court of Appeal re-issues opinion vacating $16 million punitive damages award and orders reduction to $2.5 million (Tilkey v. Allstate)

    In May of this year we reported on a decision affirming a $1.7 million compensatory damages award for the tort of “self-published defamation” but vacating the jury’s $16 million punitive damages award as excessive.

    The Court of Appeal (Fourth District, Division One) granted defendant Allstate’s petition for rehearing, which identified some facts omitted from the opinion.  After accepting supplemental briefing and considering the additional facts, the Court of Appeal reached the same conclusion in its new opinion: compensatory damages affirmed, punitive damages vacated as excessive.  

    The new opinion, however, adopted a different remedy with respect to the excessive punitive damages.  The first opinion simply vacated the award and sent the case back to the trial court for further proceedings, rather than reducing the punitive damages to a fixed amount.  That’s because the Court of Appeal had also eliminated one element of the jury’s damages award (a $1 million award for wrongful termination), and the court said it was impossible to know to what extent the jury based its punitive damages award on that claim.

    In the new opinion, the court decides to reduce the punitive damages rather than ordering a new trial.  The court says “[t]here is some authority that doing so is appropriate,” but no authority is cited.  The opinion reduces the punitive damages award to the amount of $2.5 million, which is about 1.5 times the amount of compensatory damages. 

    That remedy seems to deprive Allstate of its right to have a jury decide in the first instance the proper  punishment for the defamation alone.  Perhaps a jury would award less than $2.5 million.  But given the relatively low ratio that the court adopted, Allstate may actually prefer to simply pay that amount rather than undergoing a new trial and risking a larger award that would generate another appeal.

  • Fight over punitive damages is brewing in Korea

    Punitive damages are primarily an American concept.  They are permitted only to a very limited extent (if at all) in most other countries.  In recent years, South Korea started to dip its toes in the waters, permitting punitive damages for willful patent infringement and products liability cases.  Now they are proposing to expand the availability of punitive damages to all cases in which the defendant is a business.  

    If adopted, the law will permit punitive damages upon a showing of intentional or grossly negligent conduct.  Korea is also considering a law to expand the use of class actions, which are currently limited to securities cases.  Both proposals are described in more detail here.

    The Korea Herald reports that the Korean business community is opposing both proposals, saying they will increase expenses for businesses and benefit only lawyers and not consumers, citing the U.S. legal system as an example.

    Even if the law is adopted, don’t expect to see news reports of California-style punitive damages awards coming out of Korea.  The proposed law would limit punitive damages to five times actual damages.

  • Court of Appeal vacates $725k punitive damages award due to improper expert testimony (Margeson v. Ford)

    In this Lemon Law case, a jury awarded the plaintiff roughly $72,500 in compensatory damages, $142,000 in civil penalties, and $1.4 million in punitive damages (20 times the amount of compensatory damages). The trial court reduced the punitive damages to $725,000 (10 times the compensatory damages) and Ford appealed.

    In an unpublished opinion, the Court of Appeal (Second District, Division Five) vacated the punitive damages award and ordered a new trial on the amount of punitive damages. The court found that the trial court had improperly allowed expert testimony from the plaintiff’s forensic accountant, who purported to advise the jury on how to properly calculate punitive damages. The Court of Appeal ruled that the expert’s testimony usurped the role of the jury in determining the amount of punitive damages and usurped the role of the trial court in instructing the jury on the law of punitive damages.
    I won’t comment on the court’s analysis, because Horvitz & Levy represents Ford in this case.

     

  • Court of Appeal reverses $1 million punitive damages award against Chrysler (Santana v. FCA)

     I’m catching up on the unpublished opinions that came out the past few weeks.  

    In this one, the plaintiff brought lemon law and fraud claims against FCA (Chrysler) in connection with alleged electrical problems in a 2012 Dodge Durango.  A jury awarded $32,000 in economic damages on the lemon law claim, $134,000 in economic damages on the fraud claim, and punitive damages of $1 million. Chrysler appealed, arguing among other things that the plaintiff failed to present any substantial evidence of fraud.

    The Court of Appeal (Fourth District, Division Three) agreed and reversed all the fraud damages, including the punitive damages, in an unpublished opinion. The court said the plaintiff failed to present any evidence that Chrysler fraudulently concealed material information. The evidence showed at most that Chrysler was aware of electrical issues that had occurred different vehicles and was working on fixing the problem.  Because that evidence could not support a finding of fraudulent concealment, and that tort was the sole support for the punitive damages award, the court vacated the punitive damages.

    Horvitz & Levy represents FCA in other matters, so I won’t comment on the court’s analysis.

    Update (10/28/20): the Court of Appeal has now changed the status of the opinion from unpublished to published

  • Court of Appeal affirms $1.95 million punitive damages award in wrongful termination case (Albarracin v. Fidelity National Financial)

    I’m catching up on some unpublished opinions from the past few weeks. In this one, the plaintiff alleged she was fired after complaining that her supervisor sexually harassed her.  A jury found defendant Fidelity National liable for intentional infliction of emotional distress, retaliation, and wrongful termination.  The jury awarded $250,000 in emotional distress damages and $1,950,000 in punitive damages.

    Fidelity appealed, challenging only the punitive damages award.  Fidelity argued that the plaintiff failed to present clear and convincing evidence of malice or oppression within the meaning of Civil Code section 3294.  Fidelity argued that the evidence showed at most that Fidelity’s investigation of the plaintiff’s sexual harassment complaint was negligent, but not malicious.  

    The Court of Appeal (Second District, Division Three) rejected that argument because Fidelity had not challenged the jury’s finding that Fidelity intentionally inflicted emotional distress.  The court said that finding was inconsistent with Fidelity’s appellate argument that its conduct was merely negligent, and because Fidelity had not challenged that finding on appeal, it could not characterize its conduct as mere negligence.

    Next, Fidelity argued that the punitive damages award was excessive and should be reduced to no more than $250,000, the amount of the jury’s emotional distress award. The court rejected that argument too, finding that Fidelity’s conduct was reprehensible enough to justify a nearly eight-to-one ratio.  Fidelity relied on caselaw holding that the maximum ratio may be one-to-one in cases where the compensatory damages are substantial.  But the Court of Appeal rejected that argument on the grounds that the $250,000 award was not all that large. Your mileage may vary; other courts have found that lesser amounts qualified as “substantial.”

  • Seventh Circuit reduces punitive damages to $140 million in case where jury awarded $700 million

    In 2016 we reported on a Wisconsin jury’s award of $700 million in punitive damages against Tata Consultancy Services for theft of trade secrets.

    Tata filed post-trial motions and the trial court reduced the punitive damages to $280 million, and reduced the compensatory damages to $140 million.

    The Seventh Circuit has now issued a published opinion affirming the $140 million compensatory award, but further reducing the punitive damages.  

    The court concluded that Tata’s conduct warranted punishment, but “was not reprehensible ‘to an extreme degree.’ ”  The court then observed that the case presented an unusual situation for determining the ratio of the punitive damages to the harm suffered by the plaintiff, because the plaintiff suffered very little actual harm.  The $140 million in compensatory damages reflected Tata’s profits from its misconduct, not harm to the plaintiff.  The Seventh Circuit noted, however, that Tata did not argue that the punitive damages should be compared to any number besides the compensatory damages.  Accordingly, Tata forfeited its right to argue that the award was excessive in relation to the plaintiff’s actual harm.

    But even comparing the punitive damages to the $140 million compensatory damages award, the court concluded the punitive damages were excessive, and that the reprehensibility of the defendant’s conduct could not justify a ratio above one-to-one.  Accordingly, the court ordered the trial court to reduce the punitive damages to $140 million.   

  • In the first opinion after the Supreme Court’s decision in Conservatorship of O.B., Court of Appeal rejects substantial evidence argument and partially reinstates $15.6 million punitive damages award (King v. U.S. Bank)

    In this published opinion, the Third Appellate District restores millions of dollars in both compensatory and punitive damages that the trial court had stricken from a jury’s verdict in an employment dispute.

    Plaintiff King was a senior vice president at a bank. He gave bad performance reviews to two of his subordinates, who then turn accused him of gender discrimination, harassment, and falsification of records. The bank’s human resources director investigated and recommended that King be fired. When the bank fired him, he sued it for defamation, based on statements made by bank employees during the HR investigation. He also sued for wrongful termination, alleging that the bank’s human resources director conducted an inadequate investigation.
    A jury awarded King $8.5 million in compensatory damages and $15.6 million in punitive damages. The trial court partially granted the bank’s post-trial motions, refusing to vacate the award but chopping the compensatory damages down to $2.7 million and then limiting the punitive damages to the same amount. Both sides appealed.
    The bank argued that King failed to prove by clear and convincing evidence that any officer, director, or managing agent of the bank acted with malice. The Court of Appeal acknowledged that, under the Supreme Court’s decision earlier this week in Conservatorship of O.B., appellate courts must take the “clear and convincing” evidence standard into account when reviewing the sufficiency of the evidence supporting a punitive damages award. Although the Court of Appeal acknowledged that standard, it also stated that it did not matter that the conduct at issue could just as easily have been mere negligence, rather than malice. That statement seems incongruous with O.B. and with prior caselaw holding that evidence of malice cannot be clear and convincing if the evidence merely supports an inference of malice, but is also consistent with the possibility of mere negligence.
    Although the court affirmed the jury’s malice finding, the court also agreed with the trial court that the jury’s punitive damages award was excessive, and that a one-to-one ratio is the constitutional maximum under the circumstances of this case. However, because the court reversed the trial court’s rulings with respect to the compensatory damages and reinstated the jury’s $8.5 million compensatory damages award, application of the one-to-one ratio on appeal resulted in an $8.5 million punitive damages award, much higher than the $2.7 million maximum that the trial court had imposed.
    This opinion, if viewed as a test for how appellate courts will apply the new O.B. standard, suggests that O.B. may not move needle much in some courts. This opinion was clearly written well before O.B. was decided. When the Supreme Court issued its opinion in O.B. on Monday, the Court of Appeal proceeded to publish this opinion the very next day, adding a few citations to O.B. but otherwise not apparently seeing a need to take any additional time to revisit its analysis. Of course this is just one data point. It will take several more decisions before we can really measure the impact of O.B.

  • California Supreme Court confirms that clear and convincing evidence standard applies on appeal (Conservatorship of O.B.)

    Today the California Supreme Court settled a long-running split of authority that we have blogged about often.  In Conservatorship of O.B., the Supreme Court clarified that the clear and convincing evidence standard applies on appeal, and does not “disappear” during appellate review, as some opinions had mistakenly held.

    To recap the issue, most facts in civil cases must be proved by a preponderance of the evidence, which means that the fact is more likely than not to be true.  But for certain facts, California law requires proof by clear and convincing evidence, which is a higher burden, and requires evidence that is “so clear as to leave no substantial doubt” and “sufficiently strong to command the unhesitating assent of every reasonable mind.”  (See In re Angelia P.)

    The clear and convincing evidence standard applies to the facts necessary for an award of punitive damages.  (See Civil Code section 3294, subdivision (a).)  It also applies to the facts necessary for establishing a conservatorship, which was the issue in the O.B. case.  The trial court in O.B. concluded that a conversatorship was warranted for a woman with autism.  She appealed, challenging the sufficiency of the evidence.  The Court of Appeal, in reviewing the evidence, ignored the clear and convincing evidence standard, reasoning that the standard applies only in the trial court but not on appeal.  As we have reported here, several other Court of Appeal opinions have taken that same approach (usually in unpublished opinions), often without acknowledging contrary authority holding that appellate courts must consider the higher standard of proof when evaluating the sufficiency of the evidence.

    The Supreme Court granted review to resolve the split of authority.  The conservators tried to rely on legislative history to defend the Court of Appeal’s approach.  They argued that when the Legislature adopted the clear and convincing standard for conservatorship cases, it did so against a backdrop of “150 years of consistent precedent” from the Supreme Court of California squarely holding that the clear and convincing evidence standard applies only to the trial court, and disappears on appeal.

    The problem with that argument was that it rested on a false premise about “150 years of consistent precedent.” As the O.B. opinion explains (and as our firm pointed out in an amicus brief), the Supreme Court had issued conflicting statements on the issue over the years, so there is no basis to infer that the Legislature adopted the conservators’ view, which is actually a minority view in the case law in California and elsewhere.

    After examining the issue thoroughly, the Supreme Court concluded that “logic, sound policy, and precedent all point toward the same conclusion: When reviewing a finding made pursuant to the clear and convincing standard of proof, an appellate court must attune its review for substantial evidence to the heightened degree of certainty required by this standard.”  Accordingly, the Supreme Court reversed the Court of Appeal and disapproved the line of cases holding that the clear and convincing evidence standard disappears on appeal.

    So how will this actually work in practice?  Does this mean that an appellate court can now reweigh the evidence and reevaluate the credibility of the witnesses when deciding whether the evidence was sufficient to meet the higher standard of proof?  No.  The Supreme Court explains (my emphasis in bold):

    When reviewing a finding that a fact has been proved by clear and convincing evidence, the question before the appellate court is whether the record as a whole contains substantial evidence from which a reasonable factfinder could have found it highly probable that the fact was true. In conducting its review, the court must view the record in the light most favorable to the prevailing party below and give appropriate deference to how the trier of fact may have evaluated the credibility of witnesses, resolved conflicts in the evidence, and drawn reasonable inferences from the evidence. 

    The Supreme Court’s opinion makes clear that Courts of Appeal should take this approach in any case where the clear and convincing evidence standard applies, including punitive damages cases.