California Punitives by Horvitz & Levy

  • Court of Appeal vacates punitive damages in case where jury awarded $75 million (City of Modesto v. Dow)

    This partially published opinion issued yesterday contains an interesting discussion of California’s “managing agent” requirement.  As we have discussed in prior posts, California law does not permit punishment of corporations for the acts of non-managerial employees.  Civil Code section 3294 requires plaintiffs seeking punitive damages to prove that the misconduct at issue was committed (or authorized or ratified) by an officer, director, or managing agent of the corporation.

    The California Supreme Court has set a fairly high bar for proving that a corporate employee qualifies as a managing agent within the meaning of section 3294.  The employee must have authority to create “formal policies that affect a substantial portion of the company and that are the type likely to come to the attention of corporate leadership.”  (See Roby v. McKesson.)

    Recent cases have applied this standard inconsistently.  One decision last summer found that an employee who merely applied company policy qualified as a managing agent. Another decision a few months ago ruled that employees who applied corporate policy were not managing agents because they did not have the discretion to create company policy.

    Yesterday’s decision arises from a long and complex procedural history, most of which is not relevant to the subject of this blog.  What’s important for our purposes is that a jury in a groundwater contamination case, the City of Modesto won a jury award of $3.1 million in compensatory damages against various defendants, and $75 million in punitive damages against one defendant (Dow).

    The City’s punitive damages claim against Dow rested on the premise that Dow sold dry cleaning chemicals and knowingly provided inadequate instructions regarding the proper use and disposal of the chemicals, which ultimately led to the contamination of groundwater supplies in Modesto.

    The trial court reduced the punitive damages awards during the posttrial proceedings, ruling that any amount in excess of $5,444, 221 (four times compensatory damages) would violate due process.

    The City and Dow both appealed.  The City sought reinstatement of the jury’s $75 million punitive damages award, and Dow argued that it was entitled to judgment in its favor on the issue of punitive damages because the City failed to satisfy the managing agent requirement.

    The Court of Appeal (First Appellate District, Division Four) agreed with Dow and vacated the punitive damages award in its entirety.  The court rejected the City’s argument that Dow’s “product stewards” qualified as managing agents. Product stewards were responsible for knowing and understanding the health, safety, and environmental effects of Dow’s chemical products. They were involved in the preparation of Dow’s communications with its customers, including instructions on how users could properly dispose of chemicals.  But the Court of Appeal found no evidence that the product stewards had “broad discretion” or “ultimate authority” regarding Dow’s communications, as the City contended.

    Having concluded that the product stewards did not qualify as managing agents, and finding no other evidence of any culpable officer, director, or managing agent, the Court of Appeal vacated the jury’s award of punitive damages against Dow.

    Notably, the Court of Appeal took the clear and convincing standard of proof into account when evaluating the sufficiency of the evidence on the managing agent issue.  That approach is well grounded in California case law, but not every Court of Appeal has adhered to it, as we have noted.

    Unfortunately, the entire punitive damages discussion in this opinion has been designated “not for publication.”

    Disclosure: Horvitz & Levy LLP represented Dow as consulting counsel on appeal.

  • $150 million punitive damages award against AbbVie vacated

    The National Law Journal reports that an Illinois trial court has vacated a $150 million punitive damages award rendered against drug maker Abbvie last summer.  The court ruled that the jury’s award findings were “logically incompatible” because the jury found AbbVie liable for fraudulent misrepresentation–a claim that includes damages as an element–and yet the jury awarded $0 in compensatory damages.  The court ordered a new trial.

  • Court of Appeal conditionally affirms $500,000 punitive damages award despite vacating all compensatory damages (Jensen v. Charon Solutions)

    This unpublished opinion continues an unfortunate trend in the California Court of Appeal.

    Readers of this blog have heard me complain before that an appellate court should not affirm a punitive damages award after ordering a significant reduction in compensatory damages.  Punitive damages are supposed to bear a reasonable relationship to the plaintiff’s actual harm. Juries are instructed to make that determination in every case, and the defendant is entitled to have the jury decide that issue in the first instance.

    In this malicious prosecution case, a jury awarded $1 million in compensatory damages and $500,000 in punitive damages.  On appeal, the Court of Appeal (Second Appellate District, Division Two) concluded that the trial court erred by allowing the plaintiff’s counsel to seek over $400,000 in damages in the form of attorneys fees, based on bills which were so heavily redacted that almost no content was left.  Accordingly, the court sent the case back for a new trial on compensatory damages.

    The court should have ordered a new trial on the punitive damages as well.  That’s what some other  Courts of Appeal have done in this situation.  (See e.g., SEIU v. Colcord (2008) 160 Cal.App.4th362.)

    Instead, the Court of Appeal here affirms the punitive damages award, on the theory that, as long as the compensatory damages on remand total at least $50,000, the jury’s award of $500,000 in punitive damages will be below the “10-to-1 cap” for punitive damages.

    That’s wrong for at least two reasons.  First, as noted, the defendant has a right to have a jury decide what amount of punitive damages is appropriate based on the harm caused.  Second, our Supreme Court has explained that punitive damages are not presumptively valid whenever they are less than ten times the amount of compensatory damages.   (See Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159, 1182 [“Multipliers less than nine or 10 to one are not, however, presumptively valid“].)  A lesser ratio may still be excessive, depending on the other circumstances of the case.

    The Supreme Court will have to sort this out someday, but this case may not be the right vehicle.  The opinion is not only unpublished, but the Court of Appeal observes that “both parties’ briefs on appeal mispresent the facts and the law.”  That isn’t going to encourage the Supreme Court to solicit further briefing in this case.

  • N.J. district court vacates $50 million punitive damages award against Lockheed

    We previously reported that a jury in federal jury in New Jersey awarded $50 million in punitive damages against Lockheed Martin in an age discrimination case. That award has been vacated, according to this story published today in the Courier Post.  The district court concluded that the plaintiff failed to present clear and convincing evidence of wrongdoing by Lockheed’s senior management.

  • “CT Supreme Court Issues Punitive Damages Ruling Favorable to Policyholders”

    This article appears today in the National Law Review, discussing a Connecticut Supreme Court opinion scheduled for official release on December 19.  The article reports that the Connecticut Supreme Court has rejected the argument that insurance coverage for punitive damages would violate that state’s public policy.  Instead, “where an insurance policy expressly provides coverage for an intentional act, common-law punitive damages are properly included in such coverage.”

    The Supreme Court of California has reached the opposite conclusion.  Because Insurance Code section 533 prohibits insurers from covering losses caused by an insured’s willful act, the Supreme Court has concluded that “our public policy prohibits indemnification of punitive damages.”  (PPG Industries v. Transamerica Ins. Co. (1999) 20 Cal.4th 310, 317.)

  • Alameda County jury awards $4.6 million in punitive damages against talc defendants

    Law 360 is reporting (subscription required) that a jury has awarded $4.6 million in punitive damages, in addition to $17.57 in compensatory damages, in a lawsuit alleging that asbestos-contaminated talc caused a man to develop mesothelioma.  The defendants are Imerys Talc America  and Vanderbilt Minerals.  Vanderbilt has already settled, according to the story.

  • “J&J Faces High-Stakes Appeal to Toss Pinnacle Hips Judgment”

    Bloomberg Technology has this story about today’s oral argument in the Fifth Circuit in the case in which a jury awarded $360 million in punitive damages against Johnson & Johnson for allegedly defective hip implants.

    Related posts:

    $360 million punitive damages award reduced under Texas cap

  • Dallas jury awards $168 million in punitive damages against Johnson & Johnson in hip implant suit

    The Dallas Morning News reports that a jury yesterday awarded Johnson & Johnson to pay $247 million, including $168 million in punitive damages, for allegedly failing to warn about defects in artificial hips.

    As the article notes, this is the third time a Dallas jury has whacked the company for punitive damages in hip implant litigation. Mark Lanier is the plaintiffs’ lawyer in all three cases.  The company says it plans to appeal.  Presumably, Lanier will again enlist Ken Starr to defend the punitive damages on appeal.

  • Court of Appeal vacates $5 million punitive damages award, with an invisible dissent (Leggins v. Rite Aid)

    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.

  • Ninth Circuit reduces $2.5 million punitive damages award to $1 million (King v. GEICO)

    This unpublished memorandum disposition from the Ninth Circuit does not have much factual detail, so we can’t tell exactly what GEICO did to warrant punitive damages.  But whatever it was, the Ninth Circuit found GEICO’s conduct to be “of low to moderate reprehensibility.”

    As a result, the court concluded that the jury’s $2.5 million punitive damages award was unconstitutionally excessive when compared to the $266,000 in compensatory damages (a nine to one ratio).  The court observed: “This is significantly higher than the four-to-one proxy that we apply in similar contexts.”  The court then reduced the award to a little over $1 million, right at the four-to-one benchmark.

    The panel consisted of Judges McKeown, Gould, and Rothstein (a district court judge for the Western District of Washington, sitting by designation).