California Punitives by Horvitz & Levy

  • Court of Appeal reduces punitive damages award from $1 million to $11,800 (Rinehart v. Bank Card Consultants)

    This unpublished opinion holds that a $1 million punitive damages award is excessive in light of the defendant’s financial condition.

    A jury found the defendant liable for wrongful termination and awarded $500,000 in compensatory damages and $1 million in punitive damages.  The defendant appealed, arguing that the punitive damages award was excessive because it was disproportionate to the defendant’s ability to pay.

    The Court of Appeal (Fourth District, Division Three) agreed.  The only evidence of the defendant’s financial condition showed an annual net income of $180,000 and a net worth of $86,000.  The Court of Appeal said the punitive damages award was “clearly excessive” because it represented five times the defendant’s annual net income and more then 10 times its net worth. The court explained that an award of one month of net income, or 10 percent of net worth, “would approximate the maximum award that would pass muster.”  Ten percent of net worth would be $8,600, and one month of net income would be $15,000, so the court averaged those two amounts and concluded that the maximum permissible award would be $11,800.

    The Court of Appeal should have ended the proceedings by ordering the trial court to reduce the punitive damages to the maximum amount.  (See Simon v. San Paolo U.S. Holding Co.)  As some courts put it, the plaintiff should not get a “second bite at the apple” after having failed to present sufficient financial condition evidence to support the punitive damages award the first time around.  (See Kelly v. Haag.)  Here, however, the Court of Appeal did exactly that.  It let the plaintiff choose between a new trial or a reduction of the punitive damages to $11,800.

  • Court of Appeal reduces punitive damages award from $1 million to $11,800 (Rinehart v. Bank Card Consultants)

    This unpublished opinion holds that a $1 million punitive damages award is excessive in light of the defendant’s financial condition.

    A jury found the defendant liable for wrongful termination and awarded $500,000 in compensatory damages and $1 million in punitive damages.  The defendant appealed, arguing that the punitive damages award was excessive because it was disproportionate to the defendant’s ability to pay.

    The Court of Appeal (Fourth District, Division Three) agreed.  The only evidence of the defendant’s financial condition showed an annual net income of $180,000 and a net worth of $86,000.  The Court of Appeal said the punitive damages award was “clearly excessive” because it represented five times the defendant’s annual net income and more then 10 times its net worth. The court explained that an award of one month of net income, or 10 percent of net worth, “would approximate the maximum award that would pass muster.”  Ten percent of net worth would be $8,600, and one month of net income would be $15,000, so the court averaged those two amounts and concluded that the maximum permissible award would be $11,800.

    The Court of Appeal should have ended the proceedings by ordering the trial court to reduce the punitive damages to the maximum amount.  (See Simon v. San Paolo U.S. Holding Co.)  As some courts put it, the plaintiff should not get a “second bite at the apple” after having failed to present sufficient financial condition evidence to support the punitive damages award the first time around.  (See Kelly v. Haag.)  Here, however, the Court of Appeal did exactly that.  It let the plaintiff choose between a new trial or a reduction of the punitive damages to $11,800.

  • Supreme Court grants cert. in Ninth Circuit case involving maritime punitive damages (Batterton v. Dutra Group)

    When the Ninth Circuit issued this opinion back in January, we observed that it had the makings of a good cert. petition.  The Supreme Court thought so too, and issued an order today granting the defendant’s petition.

    Here’s a link to the Supreme Court’s online docket.

    Related posts:

    “Circuit Split Encourages Forum Shopping by Injured Seamen”

    Ninth Circuit creates circuit split on availability of punitive damages in unseaworthiness cases (Batterton v. Dutra Group)

  • Supreme Court grants cert. in Ninth Circuit case involving maritime punitive damages (Batterton v. Dutra Group)

    When the Ninth Circuit issued this opinion back in January, we observed that it had the makings of a good cert. petition.  The Supreme Court thought so too, and issued an order today granting the defendant’s petition.

    Here’s a link to the Supreme Court’s online docket.

    Related posts:

    “Circuit Split Encourages Forum Shopping by Injured Seamen”

    Ninth Circuit creates circuit split on availability of punitive damages in unseaworthiness cases (Batterton v. Dutra Group)

  • Published opinion exacerbates split over application of clear-and-convincing evidence standard on appeal (Morgan v. Davidson)

    This published opinion may cause the California Supreme Court to finally settle a long-simmering split of authority.

    The issue in question is whether appellate courts should consider the clear-and-convincing evidence standard of proof when reviewing the sufficiency of the evidence to support a punitive damages award.

    By statute, California plaintiffs must prove all the prerequisites for a punitive damages award by clear and convincing evidence.  When a defendant challenges a punitive damages award on appeal, arguing that the plaintiff failed to meet the burden of proof, appellate courts often take the heightened standard of proof into account, and ask whether a reasonable factfinder could have found that plaintiff’s evidence amounted to clear and convincing proof of malice, oppression, or fraud. (See, e.g. Shade Foods v. Innovative Products [“since the jury’s findings were subject to a heightened burden of proof, we must review the record in support of these findings in light of that burden . . . . we must inquire whether the record contains substantial evidence to support a determination by clear and convincing evidence’ “]; Pfeifer v. John Crane [“we review the evidence in the light most favorable to the Pfeifers, give them the benefit of every reasonable inference, and resolve all conflicts in their favor, with due attention to the heightened standard of proof”].)

    Some courts have concluded, however, that the clear-and-convincing standard applies only in the trial court and “disappears” in the Court of Appeal.  As we have observed, that view is supported by some older opinions and continues to pop up in unpublished decisions.

    Earlier this year, Division Four of the First Appellate District attempted to put and end to the notion that the clear-and-convincing evidence standard disappears on appeal.  T.J. v. Superior Court explained why it is important for appellate courts to take the heightened standard of proof into account:

    If the clear and convincing evidence standard “disappears” on appellate review, that means the distinction between the preponderance standard and the clear and convincing standard imposed by statute is utterly lost on appeal, an outcome we believe undermines the legislative intent as well as the integrity of the review process. . . . If that standard is ignored on appeal, the heightened standard of proof . . . loses much of its force, or at least the ability of the appellate court to correct error is unacceptably weakened.

    We hoped that would put an end to the debate, but yesterday Division Two of the Fourth Appellate District reached the opposite conclusion and embraced the older cases holding that the higher standard of proof disappears.  The court did not cite the T.J. v. Superior Court opinion, but did acknowledge some of the other recent decisions that applied the clear-and-convincing standard on appeal.  The court rejected these cases as inconsistent with Supreme Court precedent, citing Crail v. Blakely, a 1973 decision in which the Supreme Court indicated outside the punitive damages context that the clear and convincing standard was adopted only “for the edification and guidance of the trial court.” 

    The court failed to recognize, however, that the Supreme Court has held otherwise, more recently, in the punitive damages context.  The Supreme Court’s decision in In re Angelia P. adopted the view that the clear and convincing evidence standard is incorporated into the substantial evidence standard on appeal.  And the Supreme Court has continued to follow that approach in more recent decisions in other contexts.  (See Conservatorship of Wendland (2001) [“The ‘clear and convincing evidence’ test requires a finding of high probability . . . we ask whether the evidence [on the issue before the court] has that degree of clarity”]; Estate of Ford (2004) [finding that certain testimony “was not clear and convincing evidence” on the issue of equitable adoption].)

    We can only hope that the Supreme Court will grant review to sort this out.  The Supreme Court actually attempted to do that a decade ago.  In an unpublished decision, Harvey v. Sybase, the Court of Appeal took the same position as the Court of Appeal here (i.e., that the clear-and-convincing standard disappears on appeal), and the Supreme Court granted review to address that issue.  But the parties settled that case and the issue became moot.  Perhaps the defendant in this case will seek review, providing the Supreme Court with another opportunity to take up the issue.

  • Los Angeles jury awards $34 million in punitive damages against owner of mobile home park

    Law 360 (subscription required) reports on a jury verdict awarding $34 million in punitive damages, on top of $5.56 million in compensatory damages, to the residents of a Long Beach mobile home park.  The plaintiffs alleging that the park was built on top of a former landfill, and that the shifting ground released noxious odors and damaged their homes.

  • Published opinion exacerbates split over application of clear-and-convincing evidence standard on appeal (Morgan v. Davidson)

    This published opinion may cause the California Supreme Court to finally settle a long-simmering split of authority.

    The issue in question is whether appellate courts should consider the clear-and-convincing evidence standard of proof when reviewing the sufficiency of the evidence to support a punitive damages award.

    By statute, California plaintiffs must prove all the prerequisites for a punitive damages award by clear and convincing evidence.  When a defendant challenges a punitive damages award on appeal, arguing that the plaintiff failed to meet the burden of proof, appellate courts often take the heightened standard of proof into account, and ask whether a reasonable factfinder could have found that plaintiff’s evidence amounted to clear and convincing proof of malice, oppression, or fraud. (See, e.g. Shade Foods v. Innovative Products [“since the jury’s findings were subject to a heightened burden of proof, we must review the record in support of these findings in light of that burden . . . . we must inquire whether the record contains substantial evidence to support a determination by clear and convincing evidence’ “]; Pfeifer v. John Crane [“we review the evidence in the light most favorable to the Pfeifers, give them the benefit of every reasonable inference, and resolve all conflicts in their favor, with due attention to the heightened standard of proof”].)

    Some courts have concluded, however, that the clear-and-convincing standard applies only in the trial court and “disappears” in the Court of Appeal.  As we have observed, that view is supported by some older opinions and continues to pop up in unpublished decisions.

    Earlier this year, Division Four of the First Appellate District attempted to put and end to the notion that the clear-and-convincing evidence standard disappears on appeal.  T.J. v. Superior Court explained why it is important for appellate courts to take the heightened standard of proof into account:

    If the clear and convincing evidence standard “disappears” on appellate review, that means the distinction between the preponderance standard and the clear and convincing standard imposed by statute is utterly lost on appeal, an outcome we believe undermines the legislative intent as well as the integrity of the review process. . . . If that standard is ignored on appeal, the heightened standard of proof . . . loses much of its force, or at least the ability of the appellate court to correct error is unacceptably weakened.

    We hoped that would put an end to the debate, but yesterday Division Two of the Fourth Appellate District reached the opposite conclusion and embraced the older cases holding that the higher standard of proof disappears.  The court did not cite the T.J. v. Superior Court opinion, but did acknowledge some of the other recent decisions that applied the clear-and-convincing standard on appeal.  The court rejected these cases as inconsistent with Supreme Court precedent, citing Crail v. Blakely, a 1973 decision in which the Supreme Court indicated outside the punitive damages context that the clear and convincing standard was adopted only “for the edification and guidance of the trial court.”

    The court failed to recognize, however, that the Supreme Court has held otherwise, more recently, in the punitive damages context.  The Supreme Court’s decision in In re Angelia P. adopted the view that the clear and convincing evidence standard is incorporated into the substantial evidence standard on appeal.  And the Supreme Court has continued to follow that approach in more recent decisions in other contexts.  (See Conservatorship of Wendland(2001) [“The ‘clear and convincing evidence’ test requires a finding of high probability . . . we ask whether the evidence [on the issue before the court] has that degree of clarity”]; Estate of Ford (2004) [finding that certain testimony “was not clear and convincing evidence” on the issue of equitable adoption].)

    We can only hope that the Supreme Court will grant review to sort this out.  The Supreme Court actually attempted to do that a decade ago.  In an unpublished decision, Harvey v. Sybase, the Court of Appeal took the same position as the Court of Appeal here (i.e., that the clear-and-convincing standard disappears on appeal), and the Supreme Court granted review to address that issue.  But the parties settled that case and the issue became moot.  Perhaps the defendant in this case will seek review, providing the Supreme Court with another opportunity to take up the issue.

  • Los Angeles jury awards $34 million in punitive damages against owner of mobile home park

    Law 360 (subscription required) reports on a jury verdict awarding $34 million in punitive damages, on top of $5.56 million in compensatory damages, to the residents of a Long Beach mobile home park.  The plaintiffs alleging that the park was built on top of a former landfill, and that the shifting ground released noxious odors and damaged their homes.

  • Divided Ninth Circuit affirms punitive damages award in unpublished decision (Fair Housing Center of Washington v. Breier-Scheetz Properties)

    This unpublished memorandum disposition from the Ninth Circuit affirms a punitive damages award in a housing discrimination case. 

    The defendant landlord limited occupancy in certain studio apartments to one person per studio.  The Fair Housing Center of Washington argued that this policy unfairly discriminated against families, in violation of federal, state, and local housing laws. The district court ruled agreed and imposed punitive damages on the landlord, who appealed.

    The Ninth Circuit affirmed in an opinion with very little analysis, as is typical of unpublished memorandum dispositions.  The discussion is so cursory, it does not even reveal the amount of punitive damages at issue.  (Press reports indicate the award was $100,000.)

    Although the majority seemed to think the case was a slam-dunk, Judge Bea dissented from the decision to affirm the punitive damages.  He explained that the plaintiff presented no evidence that the defendant acted with an “evil motive” as required for punitive damages under the Fair Housing Act:

    [The defendant] was simply unwilling to change a longstanding and reasonable business policy—which [the defendant] maintained was legal—until ordered to do so by a court. It cannot be the case that in order to avoid being subjected to punitive damages, a business must immediately change its policies whenever it is accused of misconduct by an advocacy group or an administrative agency, rather than insist that the group or agency prove liability in a court of law. A defendant similarly cannot be subjected to punitive damages for failing prophetically to cease conduct that is only subsequently enjoined by a court order. . . . . None of the district court’s findings in this case come close to evincing the “reckless or callous indifference” required to award punitive damages under the FHA.

    This is an issue that comes up fairly often in California punitive damages litigation.  Plaintiffs’ counsel will sometimes argue that a defendant’s failure to admit liability is itself a reason for punishment.  California courts have recognized, however, that a defendant cannot be punished merely for defending itself.  In light of Judge Bea’s dissent on this point, it’s a bit surprising that the judges in the majority did not bother to offer any response to his arguments.

  • “Circuit Split Encourages Forum Shopping by Injured Seamen”

    Law 360 has this Expert Analysis-Opinion piece by Troy McMahan, Joe Akrotirianakis, and Andrew Stakelum at King & Spalding, about the split between the Fifth Circuit and the Ninth Circuit about whether merchant seamen can recover punitive damages for the common law claim of unseaworthiness.

    We reported on the split when the Ninth Circuit issued its opinion in Batterton v. Dutra Group.

    The defendant’s cert. petition in Batterton is pending before the U.S. Supreme Court and is on the list for the Court’s November 30 conference, according to the online docket.