California Punitives by Horvitz & Levy

  • Punitive damages vacated because senior management did not approve misconduct of lower-level employees (Bryant v. SDG&E)

    This unpublished opinion is a useful reminder of the principle that, under California law, punitive damages are not available against an employer for an employee’s misconduct unless the employer’s upper-level management authorized, ratified, or committed the misconduct.

    In this wrongful termination case, a jury awarded the plaintiff $860,000 in compensatory damages and $1.3 million in punitive damages.  The California Court of Appeal (Fourth District, Division One) vacated the punitive damages award because the plaintiff failed to prove that the employer’s management either participated in or approved the misconduct at issue. At trial, the plaintiff identified a specific member of the employer’s management team who purportedly approved the malicious and oppressive treatment of the plaintiff.  But the plaintiff apparently realized his argument on that point was weak, so on appeal he placed the blame on three additional members of the management team.

    The Court of Appeal, however, refused to consider the three new individuals.  (“We do not consider whether Aguilar, Heiner, and DaSilva were managing agents as they were not presented as such to the jury.”)  That approach is consistent with the general principle of California appellate procedure that a party cannot change its factual theory of the case on appeal.  Our courts will not affirm a jury verdict based on theories not litigated below, because that would unfairly deprive the opposing party of the opportunity to develop the evidence on that new factual issue.

    The Court of Appeal agreed that the one individual identified at trial (Boland) was indeed a managing agent within the meaning of Civil Code section 3294(b).  But the court found no evidence that Boland, who made the final decision to terminate the plaintiff’s employment, had any actual knowledge of any malicious or oppressive conduct by his subordinates who recommended firing the plaintiff.  In the absence of any awareness by the managing agent of the “outrageous character” of the actions of the lower-level employees, the punitive damages could not stand.

  • Punitive damages awards in favor of corporations and wealthy individuals

    Many folks think of punitive damages as a tool for leveling the playing field between corporations and the little guy.  Under that narrative, punitive damages make it possible for the average person on the street to strike back at the wealthy and the powerful.

    One problem with that narrative is that it overlooks the fact that punitive damages are often awarded in favor of the wealthy and the powerful.   For example, Sears, Roebuck & Co. won an appeal last week that permits it to seek punitive damages against its landlord in a constructive eviction case.   (Read more about that decision here.)  And billionaire Bill Koch recently won an appeal upholding a punitive damages award he collected from a wine dealer.

    These are just a couple of examples.  I have personally been involved in a number appeals challenging punitive damages awarded in favor of a corporation or a wealthy individual (like this one, this one, and this one), or awarded against an individual of modest means (like this one).

    Of course, there are also plenty of punitive damages awards that fit the popular narrative, i.e., awards in favor of an individual against a wealthy defendant.  But when discussing the public policy implications of punitive damages (and the limitations on punitive damages), we should all be aware that many cases don’t fit that mold, and that punitive damages often permit the transfer of wealth in the other direction as well. 

  • Kentucky Supreme Court recognizes that compliance with safety regulations is generally inconsistent with malicious conduct

    Over two decades ago, the Supreme Court of Georgia in Stone Man v. Green held that punitive damages are generally improper where a defendant has adhered to applicable safety regulations.  The rationale behind that proposition is fairly obvious: if a defendant sets out to follow regulations designed to make a product or activity reasonably safe, the defendant’s state of mind is necessarily inconsistent with the sort of “conscious disregard” for safety that justifies punitive damages.  The Georgia rule also increases the predictability of what conduct is punishable, and thereby avoids the problem of punishing a defendant without fair notice, a concern at the heart of the U.S. Supreme Court’s punitive damages jurisprudence.

    Like any general rule, the Georgia rule has exceptions.  Compliance with safety regulations will not be an absolute defense to punitive damages in all circumstances.  For example, Georgia courts have permitted punitive damages against a defendant who knew that government safety tests would not detect a serious safety problem with its product.

    Last year, our firm prepared an amicus brief for the DRI in the Kentucky Supreme Court, asking that court to adopt the same approach as the Georgia Supreme Court.  On September 24, the court did exactly that.  In Nissan Motor Co. v. Maddox, the Kentucky Supreme Court cited with approval to Stone Man and stated that regulatory compliance does not automatically foreclose punitive damages, but “typically” the required state of mind necessary to punitive damages cannot be established “where undisputed evidence indicates that regulatory duties have been satisfied.”

    You can read more about the opinion on the Mayer Brown Guideposts blog, which has a post entitled Kentucky Supreme Court Sets Forth Helpful Principles On Liability For Punitive Damages.

  • Huffington Post editorial criticizes limits on punitive damges

    Joanne Doroshow, director of NYU Law’s Center for Justice & Democracy (CJD), wrote a piece for the Huffington Post last week entitled “When a Corporation is ‘Too Big to Care’ About Breaking the Law.”  The theme is that corporations (particularly Johnson & Johnson) are running amok, and that punitive damages are no longer an effective deterrent of corporate misconduct now that statutory caps and U.S. Supreme Court decisions have taken away the threat of unlimited punitive damages.

    Doroshow supports her argument by linking to an earlier CJD paper that purported to debunk myths about punitive damages.  As we observed when that paper was issued, it didn’t do much debunking.  Instead of focusing on the main criticism of punitive damages (that they are awarded arbitrarily), the article dispelled the “myth” that punitive damages are awarded in a high percentage of cases.  That myth is itself mythical (a meta-myth?) because no-one seems to actually be taking that position.

    The CJD’s arguments about the effects of tort reform seem to be based entirely on anecdotal evidence.  Alleged misconduct by Johnson & Johnson is offered as proof that bad actors don’t fear punitive damages.  The award of punitive damages in Dalkon Shield litigation is offered as proof that punitive damages are needed to deter corporate misconduct.  Of course, critics of punitive damages have plenty of anecdotes of their own to show that juries can and do render arbitrary punitive damages awards against corporations and individuals alike, with devastating effects.  None of that really provides concrete information about whether unlimited punitive damages would provide a net benefit to society.

    I’m still hoping that someone will attempt to elevate this debate with actual data, by devising a method for studying whether malicious misconduct is more prevalent in states that have caps on punitive damages, or states that ban punitive damages altogether, versus states that do not.  States are supposed to provide a laboratory for experimentation on the effects of legislation, but so far no one seems to be monitoring this particular experiment.  

       

  • Florida juries continue to make news with big punitive damages awards

    California has a reputation for headline-grabbing jury awards, especially when it comes to punitive damages.  But Florida juries make a lot of headlines of their own, as illustrated by several news stories this week. 

    Florida juries handed out two mega-verdicts involving punitive damages in the past few days.  NBC6 of South Florida reports that a jury awarded $2.4 million in compensatory damages and $15 million against a produce grower in an employment discrimination lawsuit. That comes just one day after Law 360 (subscription required) reported that a jury awarded $8.5 million in compensatory damages and $3.5 million in punitive damages against Philip Morris in a lawsuit brought by the family of a smoker.

    In some consolation for Florida defendants, JDJournal reports that the Eleventh Circuit overturned an $11 million judgment, including $8.5 million in punitive damages, in a lawsuit alleging that a medical supply company violated anti-kickback laws by giving away free urine specimen cups to doctors.  (Yep, a Florida jury thought sort of conduct warranted hefty punitive damages).

  • Court of Appeal publishes decision on financial condition evidence (Soto v. Borg-Warner)

    We previously reported on this decision in which the Court of Appeal reversed a $32.5 million punitive damages award due to a lack of meaningful evidence of the defendant’s financial condition. As we noted, the decision explains how plaintiffs can be prepared to present evidence of the defendant’s financial condition, notwithstanding the statute that prohibits pretrial discovery on that issue without a court order.

    Since that report, the opinion has now been certified for publication.  This actually happened about a month ago but we neglected to report it at the time.  Sorry for the delay, loyal blog readers.

    (Disclosure: Horvitz & Levy LLP submitted one of two requests for publication.)

  • Submit your nominees for best legal blogs

    The Expert Institute is promoting their “2015 Best Legal Blog Contest” and calling for nominations from blog readers and subscribers.  If you’re inclined to submit a vote, consider our sister blog, At the Lectern, which has unparalleled coverage of everything related to the California Supreme Court.  The deadline for nominations is Friday, August 21.

  • Ninth Circuit clarifies standard for recovering punitive damages in failure-to-protect claims against police officers (Castro v. County of Los Angeles)

    This Ninth Circuit opinion clarifies the showing necessary to recover punitive damages for certain types of lawsuit against government officials under 42 U.S.C. section 1983.

    The plaintiff, Jonathan Castro, was arrested for public intoxication and placed into a “sobering cell” at the local police station.  While he was in custody, he was savagely beaten by another intoxicated arrestee, leaving him with permanent traumatic brain injuries.

    Castro sued the officers on duty, claiming they violated his civil rights by placing a violent inmate in his cell and failing to supervise them.  After a jury trial, he recovered $2.6 million in compensatory damages plus $18,000 in punitive damages.  The officers appealed.

    The officers argued, among other things, that the evidence did not support an award of punitive damages.  That required the Ninth Circuit to examine the standards for recovery of punitive damages in cases like this.  The liability standard for failure-to-protect claims is whether the defendants acted with “deliberate indifference” to a substantial risk of serious harm.  Punitive damages are available when the defendant acted with “reckless or callous indifference” to federally protected rights of others.

    These definitions raise the question whether there a difference between “deliberate indifference” and “reckless or callous indifference.”  In other words, once a plaintiff establishes liability, does the plaintiff need to prove anything else to get punitive damages?  The Ninth Circuit answered “no.”  The court concluded that the terms are effectively synonymous.  Accordingly, once the jury in this case found that the defendant acted with deliberate indifference, the jury was free to tack on punitive damages.

  • Oakland jury awards $46 million in punitive damages against AIG

    Business Insurance reports that a jury in Oakland has ordered three AIG companies to pay $46 million in punitive damages, on top of $9.3 in compensatory damages.  The plaintiff, Victaulic Co., sued the AIG companies for bad faith in connection with their response to third-party lawsuits against Victaulic in various states.

    To our knowledge, no punitive damages award of this size has ever survived appeal in a California  insurance bad faith case. 

    Full disclosure: Horvitz & Levy LLP represents AIG in several pending California cases

  • New York jury awards $48 million in punitive damages in crane collapse case

    Law.com (subscription required) is reporting that a Manhattan jury yesterday awarded $48 million in punitive damages, on top of $48 million in compensatory damages, against the owner of a construction crane that collapsed and killed two men. 

    This award is one of the largest awards we have seen this year, second only to the award of $122.5 million awarded against a doctor accused of injuring the chairman of the Arkansas State Medical Board with a bomb. 

    The $48 million award in the crane case is just barely larger than a Georgia jury’s $47.9 million award against a landlord blamed for a gas explosion.  That award has already been reduced to $250,000 under a statutory cap.

    The next highest punitive award appears to be a Philadelphia jury’s award of $38.5 million against a security firm.