California Punitives by Horvitz & Levy

  • 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  As we have reported here, several other Court of Appeal opinions have taken that same approach (usually in unpublished opinions), often without acknowledging contrary authority holding that appellate courts must consider the higher standard of proof when evaluating the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.

  • Court of Appeal concludes that $2.1 million punitive damages award is excessive, limits maximum amount to $371,000 (Orozco v. Conrad)

    I’m a bit tardy in reporting on this unpublished decision, which was issued last week. 

    The opinion arises out of a rather unusual dispute between a restaurant owner and her commercial landlord.  The dispute culminated with the landlord sending a crew of workers to forcibly remove equipment and supplies from the restaurant.  The tenant sued on various theories and a jury awarded her $50,000 in emotional distress damages, $3,000 for trespass to chattels, and $2.1 million in punitive damages.  The trial court determined that the punitive damages were excessive, and ordered a new trial unless the plaintiff consented to accept a reduce amount of $250,000 in punitive damages.

    Both sides appealed.  The Third Appellate District largely affirmed the judgment, agreeing with the trial court that the jury’s award of punitive damages was excessive.  But the court concluded that the maximum permissible amount is $371,000, rather than the $250,000 figure selected by the trial court. 

    The court cited its prior opinion in Bardis v. Oates for the proposition that a four-to-one ratio of punitive damages to compensatory damages is usually the limit in a case in which the compensatory damages are neither exceptionally high nor low, and the defendant’s conduct is neither exceptionally extreme nor trivial.  But the court concluded that the defendant’s conduct in this case registered “high on the reprehensibility meter,” and therefore warranted a ratio of seven to one, rather than the usual four to one. 

  • Ninth Circuit vacates Monster Energy’s $5 million punitive damages award (Monster Energy v. Integrated Supply Network)

    This case involves a trademark dispute between Monster Energy Drinks and a tool manufacturer that produced a line of tools using the name Monster and the same green and black color scheme used by Monster Energy.

    In 2018, a federal court jury in the Central District of California ruled in favor of Monster Energy, awarding $0 in actual damages and $5 million in punitive damages.  (You can read a story about the verdict here.)

    In this unpublished opinion, the Ninth Circuit reverses the punitive damages award.  The opinion explains that Monster’s claim for punitive damages was based on California common law, which prohibits an award of punitive damages to a plaintiff who suffered no actual damages.  But the opinion is not all bad news for Monster Energy.  The Ninth Circuit reinstated some of Monster’s claims that the district court had dismissed, including claims for violation of California’s Unfair Competition Law and for disgorgement of profits under the Lanham Act.

    Law 360 has a story on the decision.

      

  • Court of Appeal reduces Roundup punitive damages from $39.3 million to $10.3 million (Johnson v. Monsanto)

    In 2018, a San Francisco jury awarded $39.3 million in compensatory damages and $250 million in punitive damages to a man who claimed he developed cancer as a result of using Monsanto’s weedkillers Roundup and Ranger Pro.  The trial court reduced the punitive damages to $39.3 million in response to Monsanto’s post-trial motions, resulting in a 1-to-1 ratio between the punitive and compensatory damages.

    The Court of Appeal (First District, Division One), affirmed the judgment in a partially published opinion, but reduced the compensatory damages to $10.3 million and then reduced the punitive damages to $10.3 to preserve the trial court’s 1-to-1 ratio.

    I won’t comment on the court’s analysis, because Horvitz & Levy represents Monsanto in this case.

  • Missouri Court of Appeals affirms $1.62 billion punitive damages award against Johnson & Johnson in talc case


    Back in 2018 we reported on this Missouri verdict awarding $550 million in compensatory damages and $4.14 billion in punitive damages against Johnson & Johnson. The case involved 22 plaintiffs who claim they developed ovarian cancer as a result of using J&J’s Baby Powder and Shower-to-Shower products.

    In this opinion issued today, the Missouri Court of Appeals affirms the bulk of that award, except for some portions attributable to out-of-state plaintiffs, whose claims should have been dismissed for lack of personal jurisdiction.  After subtracting those amounts, the court affirmed the remaining $500 million in actual damages and $1.62 billion in punitive damages.

    Before reaching any punitive damages issues, the court rejected various arguments Johnson & Johnson raised to attack the entire judgment, including Johnson & Johnson’s arguments that the plaintiffs’ scientific evidence was unreliable and contrary to overwhelming scientific consensus. The court concluded that the validity of the scientific evidence was an issue properly decided by the jury.

    On punitive damages, the court first rejected Johnson & Johnson’s argument that the plaintiffs failed to present clear and convincing evidence of willful, wanton, or malicious conduct, as required by Missouri law for imposing punitive damages.  The opinion discusses a variety of internal J&J communications, dating from the 1970s through the 2000s, in which the company expressed concern about the possibility of asbestos contamination in talc and discussed methods for reducing it.  The company also discussed possible alternatives to talc and evaluated the cost of switching to those alternatives.  Finally, the company lobbied other manufacturers and the FDA to adopt a testing method which they believed would not be able to detect trace amounts of asbestos.

    Based on this evidence, the court concluded that the jury could have reasonably inferred that “motivated by profits, defendants disregarded the safety of consumers despite their knowledge the talc in their products caused ovarian cancer.” 

    There seems to be a disconnect between the court’s conclusion and the evidence recited.  The court does not actually mention any evidence that Johnson & Johnson knew asbestos-contaminated talc products could cause ovarian cancer.  To the contrary, the opinion mentions that public health agencies found insufficient evidence to conclude cosmetic talc causes ovarian cancer, and several epidemiological studies found no association between cosmetic talc and ovarian cancer.  If that’s true, then how can the court conclude that Johnson & Johnson knew its products would cause ovarian cancer?  The opinion does not explain.

    The absence of such evidence caused California courts to conclude Johnson & Johnson could not be subject to punitive damages for the same course of conduct.  In 2017, a Los Angeles jury awarded $417 million in a case with similar allegations, but the trial court vacated the punitive damages award and the Court of Appeal affirmed that decision, as reported here. 

    The Missouri Court of Appeal acknowledges that decision but distinguishes it on the ground that the plaintiffs in the California case did not present evidence about Johnson & Johnson influencing the industry to adopt its preferred testing method.  That distinction, however, fails to address the core holding of the California decision: the plaintiffs could not show Johnson & Johnson knew that contaminated talc presented a risk of ovarian cancer.

    Turning to the amount of punitive damages, the court noted that the jury separately awarded punitive damages against two related corporate entities: Johnson & Johnson (“J&J”) and Johnson & Johnson Consumer Companies Inc. (“JJCI”). After subtracting the amounts attributable to the out-of-state plaintiffs, the jury’s awards amounted to $716 million against J&J and $900 million against JJCI.  Those amounts were 1.8 times and 5.7 times the amount of compensatory damages against each defendant, respectively.  The court found those ratios were justified by the extreme reprehensibility of the conduct at issue.

    The court acknowledged that U.S. Supreme Court’s statement that a ratio of one-to-one may be the outermost limit of due process in cases involving substantial compensatory damages awards.  But the court concluded that due process permits larger ratios in this case because the defendants are “large, multi-billion dollar corporations.”  That holding would seem to conflict with the U.S. Supreme Court’s holding in State Farm v. Campbell that an otherwise unconstitutional award cannot be upheld based on the wealth of the defendant. 

    Nor surprisingly, Johnson & Johnson has already said it plans to take the case to the Missouri Supreme Court.  (See NY Times story here.)

  • Court of Appeal reverses $750,000 punitive damages award due to the absence of current evidence of the defendant’s finances (Saxton v. Hip Hop Beverage Corp.)

    Here is another installment in the long line of unpublished California opinions reversing a punitive damages award on the grounds that the plaintiff failed to present evidence of the defendant’s financial condition.  This opinion addresses a recurring sub-issue in this area: if the defendant has no current balance sheets or other financial documents, does that excuse the plaintiff from presenting evidence of the defendant’s current finances?  The answer is no.

    The plaintiff sued his former employer for discrimination and harassment.  Shortly before trial, he served the defendant with a notice to produce documents at trial, including the defendant’s financial records.  The defendant objected and the plaintiff filed a motion to compel production of the documents.  The trial court granted the motion and ordered the defendant to produce its tax returns, income statements, and balance sheets. 

    On the first day of trial, the defendant provided the plaintiff with its documents through 2015, but did not produce any documents for 2016 or 2017.  (The trial took place in 2018.)  The company had apparently stopped operating in 2017.  When the plaintiff asked the defendant to produce records for 2016 and 2017, the defendant argued that it had “produced what existed” and was not required to “go create things.”  The trial court agreed, and informed the plaintiff that he still needed to carry his burden of proof on the financial condition issue.

    The case proceeded to trial and the plaintiff won a jury verdict for $72,000 in compensatory damages and $750,000 in punitive damages.  The defendant appealed, arguing that the plaintiff had failed to present evidence of the defendant’s financial condition at the time of trial.

    The Court of Appeal (Second District, Division Four) agreed and reversed the punitive damages award. The court held that the record contained evidence of the defendant’s finances in 2016, but absolutely no evidence of the defendant’s finances in 2018.  The record showed that the defendant ceased operations in 2017, and there was no evidence that it maintained the same assets or equity in 2017 or 2018 that it had in 2016. 

    The plaintiff argued that the defendant should be estopped from complaining about the lack of  evidence of its current finances because the defendant failed to produce financial records for 2017 or 2018.  The Court of Appeal rejected that argument, citing the trial court’s finding that the defendant produced all the information in its possession, and was not required to create non-existent documents in order to comply with the court’s discovery order.  The court also rejected the plaintiff’s request to consider new evidence that the plaintiff obtained while the appeal was pending.  The plaintiff bore the burden of presenting financial condition evidence at trial, and that failure could not be cured by supplementing the record after the fact.

  • Texas Court of Appeals reverses $470.8 million punitive damages award against title insurer

    One of the largest punitive damages awards in recent years has been reversed by the Texas Court of Appeals. 

    Last summer a Texas state court jury awarded a total of $706.2 million, including $470.8 million in punitive damages, in a lawsuit claiming that title insurer Amrock misappropriated trade secrets from tech firm HouseCanary, Inc.  Yesterday the entire judgment was reversed due to an error in the jury instructions on the liability issues.  Blooomberg Tech has the story here.

  • Supreme Court of California seems to preview its holding on clear-and-convincing evidence issue

    Last week we reported on the oral argument in Conservatorship of O.B., and we noted that the Supreme Court of California seems inclined to hold that the clear-and-convincing evidence standard applies on appeal.

    Further evidence of the Supreme Court’s inclination can be found in the Court’s May 21 opinion in In re White.  As At the Lectern points out, the Court’s framing of the substantial evidence issue in that case might presage the outcome in O.B.: the Supreme Court said it needed to determine “whether any court could have found clear and convincing evidence that the person’s release on bail posed a substantial likelihood of great bodily harm to others.”  By baking the concept of clear and convincing evidence into that question, the Supreme Court seems to be disagreeing with the idea that the clear and convincing evidence standard disappears during appellate review.  We will find out soon enough.

  • Supreme Court of California hears arguments in case with punitive damages implications (Conservatorship of O.B.)

    The California Supreme Court held oral argument yesterday in Conservatorship of O.B.  That case is not a punitive damages case, but the issue it presents has significant implications for punitive damages litigation in California.

    As previously reported here, the issue presented is whether California appellate courts should take the “clear and convincing” evidence standard into account when deciding whether substantial evidence supports a factual finding that must be proven by clear and convincing evidence.  As readers of this blog are aware, that issue has come up often in punitive damages litigation, including a 2008 case in which the Supreme Court granted review but never reached the issue because the parties settled.

    The Supreme Court received amicus briefing in O.B. discussing the implications of this issue in punitive damages cases.  (Horvitz & Levy submitted one of those briefs, on behalf of the U.S. Chamber of Commerce.)  However, the oral argument yesterday focused exclusively on the application of the clear and convincing standard in the context of conservatorship cases.  Neither the parties nor the justices touched on the application of the heightened standard of proof outside of that context.

    Based on the questions asked by the justices, I am cautiously optimistic that the California Supreme Court will ultimately take the same position as the U.S. Supreme Court and hold that the clear and convincing evidence standard applies on appeal, and does not “disappear” during appellate review as some Court of Appeal decisions have held.  But it is also possible that the Supreme Court may issue a very narrow opinion, leading to further litigation over this issue outside the conservatorship context.

  • Washington Legal Foundation article on Missouri punitive damages reform

    Anyone interested in Missouri’s recent legislation on punitive damages can find a summary in this WLF Legal Opinion Letter, written by Mark Behrens and Jennifer Artman of Shook Hardy & Bacon.

    Some highlights: (1) the law limits punitive damages to cases in which a “defendant intentionally harmed the plaintiff without just cause or acted with a deliberate and flagrant disregard for the safety of others,” (2) the law codifies the requirement that plaintiffs must prove these facts by clear and convincing evidence, and (3) plaintiffs cannot seek punitive damages in their initial complaint, and can add a punitive damages claim only after presenting the judge with evidence establishing a reasonable basis for imposing punitive damages.