California Punitives by Horvitz & Levy

  • AutoZone settles case involving $185 million punitive damages verdict (Juarez v. AutoZone)

    The Daily Transcript is reporting that a federal judge has agreed to dismiss all of the plaintiff’s claims in the employment case against AutoZone that generated an eye-popping $185 million punitive damages award in 2014.  According to the Daily Transcript story, neither side will confirm that the case settled.  But settlement seems to be the only explanation for the fact that both sides jointly requested dismissal of all claims.

    The plaintiff’s counsel acted wisely by settling this one.  The award was so large—three times the largest award ever affirmed on appeal in California—that the judge might have decided to award a complete new trial rather than just reducing the amount of punitive damages.  Case law in California and elsewhere permits a trial court to grant a new trial on the ground that the the jury’s verdict was the result of passion and prejudice, rather than a reasoned assessment of the evidence.  The size of the award here certainly made this case a candidate for that approach.

    Related posts:

    Trial judge in AutoZone case hears arguments on post-trial motions
     
    California federal jury awards $185 million in punitive damages in pregnancy discrimination case (Juarez v. AutoZone)

  • Court of Appeal reverses $32.5 million punitive damages award due to lack of financial condition evidence (Soto v. Borg-Warner)

    Over the years we have reported on a lot of California appellate opinions that reversed a punitive damages award because the plaintiff failed to present meaningful evidence of the defendant’s financial condition.  This unpublished opinionis especially notable, and not just because it involves an enormous punitive damages award.  The opinion contains a road map for how plaintiffs can conduct discovery of the defendant’s finances without risking the sort of forfeiture that occurred here.

    Readers of this blog are well aware that in California, plaintiffs have the burden of presenting evidence of the defendant’s financial condition as a prerequisite to recovering punitive damages.  But plaintiffs cannot seek pretrial discovery of the defendant’s finances without first obtaining a court order.  To obtain such an order, plaintiffs must demonstrate a substantial probability of prevailing on their punitive damages claim.  (Civil Code section 3295(c).)

    Many plaintiffs choose not to seek a court order.  Instead, they wait until the jury makes a finding that the defendant acted with malice, and then then ask the defendant to immediately produce its financial condition information.

    One problem with that approach is that the defendant, without knowing in advance what information the plaintiffs are seeking, may not be in a position to immediately produce the information that the plaintiffs are seeking.  In this case, for example, the plaintiffs asked the defendant to produce a witness who resides in Michigan and could not reasonably be expected to appear the next day in a California courtroom without any advance notice.

    Another problem is that the defendant may not possess the requested information.  For example, plaintiffs often ask for a balance sheet, but some defendants, especially individuals and closely held corporations, may not have any balance sheet.  Defendants are not required to manufacture evidence in order to respond to a discovery request.  Plaintiffs need to gather whatever documents are available, depose witnesses, and perhaps involve a forensic accountant in order to get an accurate picture of the defendant’s finances.  That is difficult to do in the middle of trial.

    So what is the alternative?  According to this opinion, if a plaintiff does not obtain a court order before trial permitting financial condition discovery, the plaintiff should at least take advantage of the subpoena process provided by Civil Code section 3295(c).  The plaintiff can issue subpoenas to the defendant requiring it to be prepared to produce financial condition information if and when it becomes necessary, and the defendant may be required to identify relevant documents and witnesses who can testify on the issue of financial condition.  Another alternative is to reach a stipulation with the defendant, who would agree to gather specific documents, bring them to trial under seal, and make them immediately available in the event the jury makes a finding of malice.  If the plaintiff sits back and does nothing to initiate financial condition discovery until after the jury’s finding of malice, the plaintiff is at the mercy of the court’s discretion whether to delay the proceedings to permit discovery.

    In this case, the plaintiffs chose the “do nothing” strategy.  They did not seek pretrial discovery of the defendant’s financial condition, did not use the statutory subpoena procedure, and did not reach a stipulation with the defendant.  When the jury found malice and the plaintiffs requested financial information that was not immediately available, the trial court declined to exercise its discretion to delay the trial to permit the plaintiffs to complete their discovery.  (The plaintiffs did not even ask for that—the court raised the idea and then rejected it.)  The best the plaintiffs could do was present an expert to testify about the financial condition of the defendant’s parent company.  That expert was able to provide only a little information about the actual defendant; the expert testified about the defendant’s revenues from one line of business, but could not shed any light on the defendant’s liabilities or expenses.

    The Court of Appeal (Second Appellate District, Division Four) found the plaintiff’s showing wholly inadequate to support an award of punitive damages: the expert’s testimony “at most demonstrated that some portion of [defendant’s] business turned a profit.  It did not provide any of the requisite current information about [defendant]’s overall financial condition outside [that product] line.”

    The Court of Appeal concluded that the plaintiffs, not the defendants, were responsible for this absence of evidence:

     [P]laintiffs erroneously believed the financial information they obtained through publicly available channels would be sufficient until [defendant] pointed out, on the eve of the punitive damages phase, that their expert had analyzed the wrong company. The court was not obligated to accommodate plaintiffs’ last-minute attempt to obtain the correct information through traditional discovery channels. There was no indication that [defendant] in any way hampered or even opposed plaintiffs’ efforts to obtain the information in a more timely fashion. To the contrary, the record reflects that plaintiffs did not undertake any effort to obtain the information at an earlier juncture, whether by issuing a subpoena, seeking a stipulation, or a making a motion pursuant to Civil Code section 3295, subdivision (c). (See Kelly, supra, 145 Cal.App.4th at pp. 919- 920.) Instead, they assumed [the defendant] would simply come forward with the information, unprompted. “Whatever merit there might be to that approach in other cases, it was an unfortunate choice in this one.” (Amoco Chemical Co. v. Certain Underwriters at Lloyd’s of London, England (1995) 34 Cal.App.4th 554, 562.) By all indications, plaintiffs had a full and fair opportunity to engage in discovery but elected to take the wait-and-see approach. They must bear the consequences of the resultant evidentiary shortfall. (See Baxter, supra, 150 Cal.App.4th at p. 681; Kelly, supra, 145 Cal.App.4th at p. 920; contra Mike Davidov Co., supra, 78 Cal.App.4th at pp. 609-610; Green v. Laibco, LLC, supra, 192 Cal.App.4th at pp. 453-454.)

    As a result, the Court of Appeal completely vacated the $32.5 million punitive damages award.  Because the plaintiffs had a chance to conduct proper discovery and failed to do so, they are not entitled to go back and try again.

  • New York appellate court addresses punitive damages in asbestos litigation

    In California, a number of punitive damages cases in recent years have involved asbestos exposure.  See, for example, Bankhead v. Arvinmeritor, Pfeifer v. John Crane, and Izell v. Union Carbide. 

    New York has its share of asbestos litigation as well, but a long-standing case management order prevented plaintiffs from seeking punitive damages in those cases, at least in New York City.  Recently, a new presiding judge modified that order and allowed punitive damages claims to proceed in asbestos cases.  In fact, she ruled that plaintiffs could wait until the close of evidence to indicate whether they will seek punitives.

    A slew of defendants challenged that modification, leading to this appellate opinion.  The appellate court ruled that the trial court had the authority to modify the case management order, but she exceeded her authority when she allowed plaintiffs to wait until the close of evidence.  That was improper, according to the Appellate Division, First Department, because due process requires that a defendant be provided with an opportunity to conduct discovery and establish a defense to a claim for punitive damages.  The order deprived defendants of their due process rights by leaving them guessing, until the close of trial, whether the plaintiffs would seek punitive damages.

    The National Law Review reports that the decision puts the long-term viability of punitive damages in New York City asbestos cases back in question.

  • Canadian appellate court reduces record-setting $4.5 million punitive damages award

    The StarPhoenix of Saskatoon reports that an appellate court in Saskatchewan has reduced an “unprecedented” $5 million damages award in an insurance bad faith case.

    The plaintiff claimed that two insurance companies unreasonably denied his claims for workers’ compensation benefits. The trial court (Justice Murray Acton of the Saskatoon Court of Queen’s Bench) awarded him $450,000 for emotional distress and $4.5 million in punitive damages.  At the time, Justice Acton said he hoped the large award would gain the attention of the insurance industry.

    Instead, the award attracted the attention of the Court of Appeal, which issued a 94-page opinion that dramatically reduced the “extravagant” damages.  The three-judge panel reduced the emotional distress damages to $45,000 and reduced the punitive damages to $675,000.

    The opinion is an illustration of the stark contrast between Canadian courts and American courts when it comes to damages.  We are long past the time in this country when anyone would call a $5 million damages award in a bad faith case “unprecedented” or “record-setting.”

    Will American-style damages awards gain a foothold in Canada?  Perhaps, if this story is any indication.  But for now at least, the Saskatchewan Court of Appeal is holding the line.

  • New York jury awards $16 million in punitive damages in sexual harassment case

    This story in the New York Daily News reports that a federal jury in Manhattan has awarded $2 million in compensatory damages and $16 million in punitive damages to a plaintiff who claimed that her employer sexually harassed her and then defamed her.  The plaintiff was seeking $850 million, so perhaps the jury thought they were showing restraint by awarding “only” $16 million in punitives.

  • San Bernardino jury awards $2 million in punitive damages in murder-for-hire case

    The Associated Press reported over the weekend that a San Bernardino jury awarded $2 million in punitive damages, on top of $4.5 million in compensatory damages, to a man who claimed that the defendants plotted to murder him.  According to a press release by the plaintiff’s attorneys, the two defendants conspired with members of the Mexican Mafia to kill the plaintiff as a result of some sort of confrontation that occurred at a bar. 

    When a jury awards such a large amount of punitive damages against individual defendants, it usually raises questions about whether the award is disproportionate to the defendants’ ability to pay.  Several California decisions have referenced a 10 percent rule of thumb, i.e., awards that exceed 10 percent of a defendant’s net worth are presumed to be excessive.  In this case, the AP story reports that the defendants are members of an Indian tribe and receive in excess of $1 million per year in proceeds from a casino.  If the plaintiff can use that evidence to demonstrate that the defendants each have a net worth in excess of $10 million, the plaintiff may be able to fend off the argument that the award exceeds the defendants’ ability to pay.

  • Canadian smokers win $15 billion in punitive damages

    CBC News reports that a judge in Montreal has ordered three tobacco companies to pay $15 billion in a class action brought by one million Canadian smokers.  The plaintiffs alleged that the defendants failed to warn about the dangers of smoking and engaged in unscrupulous marketing.  The defendants are Imperial Tobacco, Rothmans Benson & Hedges, and JTI-MacDonald.

    Canadian courts are not known for dishing out large punitive damages awards.  A few years ago we reported on a case before the Supreme Court of Canada involving a $500,000 punitive damages award, which was reportedly the largest amount ever awarded in an employment case in Canada.  So this $15 billion award is somewhat of a shock.

    Not surprisingly, the tobacco defendants say they intend to appeal.  But the story also says that the judge will permit the plaintiffs to enforce the judgment up to $1 billion while the appeal is pending.  So even if the defendants win on appeal, they’ll be left with the prospect of trying to claw back $1 billion from a million individual smokers throughout Canada. 

  • Supreme Court calls for response to cert. petition raising punitive damages issues (Quicken Loans v. Brown)

    The Supreme Court has asked the plaintiffs to respond to the cert. petition filed by Quicken Loans in Quicken Loans v. Brown.  As we noted a few weeks ago, the cert. petition raises the following issues:

    1.  Whether a state court may evade its obligation to apply the United States Constitution and this Court’s cases by asserting that expressly and pervasively raised federal constitutional claims were purported waived.

    2.  Whether, in applying the punitive to compensatory damages ratio of State Farm v. Campbell [citation], court awarded attorney’s fees are properly included as compensatory damages?

    Despite the request for a response, this petition still seems like a longshot, given that the Supreme Court has denied other petitions raising similar issues in recent years.  Nevertheless, the request for a response should be welcome news for Quicken Loans.  At least it keeps alive the possibility of a grant.

  • Supreme Court declines to review Fifth Circuit decision that disallowed punitive damages in unseaworthiness cases (McBride v. Estis Well Service)

    Last year we reported on this en banc Fifth Circuit opinion, which held that punitive damages are not available under the Jones Act or general maritime law for a defendant’s failure to maintain a seaworthy vessel.

    Yesterday, the Supreme Court denied the cert. petition filed on behalf of the injured seamen in that case.  You can view the Court’s online docket here.

    Bloomberg BNA has full coverage.

  • Ninth Circuit wipes out $75 million punitive damages award against defense contractor

    A few years ago we reported on this $75 million punitive damages award against defense contractor Kellog Brown & Root for conduct that took place in Iraq.  Today, the Ninth Circuit vacated that award in its entirety.
     
    Members of the Oregon National Guard sued KBR in federal district court in Oregon, seeking recovery under Oregon law.  The plaintiffs blamed KBR for causing them to be exposed to hexavalent chromium in Iraq.  A jury awarded over $80 million in damages, including $75 million in punitive damages.  KBR appealed to the Ninth Circuit and our firm filed an amicus brief, arguing that the Constitution prohibits imposition of punitive damages under state law for conduct that occurred solely in a foreign country.

    Today the Ninth Circuit issued a memorandum disposition reversing the judgment.  The Ninth Circuit didn’t reach the question of extraterritorial punishment.  Instead, it reversed the judgment on the ground that KBR is not subject to personal jurisdiction in Oregon because KBR did not engage in any acts expressly aimed at Oregon.  The fact that KBR engaged in conduct towards members of the Oregon National Guard was not sufficient to create jurisdiction in Oregon.