In this unpublished opinion issued today, the California Court of Appeal reversed a $5 million punitive damages award in an employment discrimination case.  Or at least two of the justices did.  A third justice indicated that she plans to dissent.  More about that later.  First, the facts of the case.

The plaintiff, a former a Rite Aid store manager, sued Rite Aid for harassment and discrimination based on race and disability.  A jury awarded him $3.7 million in compensatory damages and $5 million in punitive damages.

Rite Aid appealed, challenging both the compensatory and punitive damages.  The Court of Appeal (Second Appellate District, Division One) affirmed the compensatory damages award but vacated the punitive damages award in its entirety, on the ground that the plaintiff failed to satisfy the “managing agent” requirement of Civil Code section 3294.

Section 3294 provides that punitive damages cannot be awarded against a corporation based on the misconduct of a low-level employee.  The plaintiff must show that an officer, director, or managing agent of the corporation was involved.  Here, the plaintiff claimed he was harassed and discriminated against by two district managers, whom he argued were managing agents within the meaning of section 3294 because they oversaw 10 to 15 stores.  But merely managing a large number of stores does not make someone a managing agent.  The Supreme Court has explained that corporate employees do not qualify as managing agents unless they exercise substantial discretionary authority over vital aspects of the company’s business, and therefore have the power to create company policies that will govern the business in the future.

In this case, the plaintiff presented no evidence that the Rite Aid district managers had that sort of discretionary authority to set company policy.  To the contrary, the record showed that the managers had no discretion to deviate from Rite Aid policies and were obligated to follow them strictly.

A couple of low-level Rite Aid employees testified that they thought the managers had authority to set policies, but the Court of Appeal concluded that testimony did not satisfy plaintiff’s burden of proof.  The court observed that their testimony lacked any indication that they knew anything about how Rite Aid formed its corporate policies.

The end of the opinion indicates that Justice Chaney wrote the opinion, Justice Johnson concurred, and Justice Rothschild dissented.  But no actual dissenting opinion appears.  Instead, there is a statement by Justice Rothschild that “I will be filing a dissent.”  I’ve read a lot of California Court of Appeal opinions and I’ve never seen that before.

Even more odd, the opinion contains footnotes that refer to the content of the non-existent dissent.  See for example footnote 3 on page 39 (“The dissent suggests . . . “).  I’m not sure exactly what happened here, but there are sure to be further developments.  Stay tuned.

UPDATE (11/15):  The Court of Appeal reposted the opinion, this time with Justice Rothschild’s concurring and dissenting opinion attached.  Justice Rothschild agreed with the majority’s analysis on punitive damages, but in her view Rite Aid is entitled to a complete new trial on all issues because the trial court wrongly excluded evidence that supported the reasonableness of Rite Aid’s employment decisions.

There isn’t much to say about this unpublished decision, but we try to report all California appellate decisions involving significant amounts of punitive damages.

A construction contractor sued the San Diego Zoo for fraud and recovered $222,741 in compensatory damages and $371,250 in punitive damages.  The zoo appealed, arguing that the punitive damages should be reversed because it was based on the conduct of a zoo employee who was not a managing agent within the meaning of Civil Code section 3294.

The Court of Appeal (Fourth Appellate District, Division One) disagreed, finding that the employee originated the idea for the construction project and made a number of discretionary decisions that influenced the scope and tenor of the project: “There can be no serious dispute he ‘exercise[d] substantial discretionary authority over decisions that ultimately determine[d] corporate policy.’ ”

The court also rejected the zoo’s argument that the ratio of 1.667-to-1 between the punitive damages and compensatory damages was constitutionally excessive.