Last year the Missouri Supreme Court struck down Missouri’s statutory cap on punitive damages as unconstitutional. Today the Missouri Chamber of Commerce reports that state senator Ron Richard has introduced a bill to amend the Missouri constitution to reinstate the cap. Not surprisingly, the chamber of commerce supports the proposal.
Related post:
Missouri Supreme Court strikes down punitive damages cap as unconstitutional
The plaintiff in this case, a former employee of a trucking company, claimed that her supervisor repeatedly subjected her to unwanted sexual advances. She obtained a jury verdict for $391,000 in compensatory damages, $1.17 million in punitive damages against her former employer, and $3,500 in punitive damages against her individual supervisor.
The employer filed post-trial motions to challenge the verdict. The trial court agreed that the plaintiff failed to prove that the employer acted with malice, oppression, or fraud. As a result, the court granted judgment notwithstanding the verdict (JNOV) on the issue of punitive damages against the employer, wiping out the jury’s $1.17 million award.
The plaintiff appealed, arguing that the trial court erred in granting the JNOV motion. The California Court of Appeal (Fourth Appellate District, Division Three) agreed with the plaintiff in this unpublished opinion.
The court began its analysis by noting that the supervisor unquestionably engaged in malice and oppression; throughout a 28-day training period, he made numerous unwanted sexual advances towards the plaintiff.
The question then became whether the employer could be punished for ratifying the supervisor’s misconduct. The Court of Appeal concluded that the company’s human resources a director was a managing agent within the meaning of Civil Code section 3294, and that the human resources director ratified the supervisor’s conduct by failing to investigate the plaintiff’s complaints. That failure to investigate was directly contrary to the company’s written policies for responding to and preventing sexual harassment.
The employer argued on appeal that the company did not need to investigate in this particular instance because because the plaintiff did not complain about the harassment until after she left the company. The Court of Appeal rejected that argument, holding that “there is no applicable law or evidence that once an employee leaves an investigation is unnecessary.”
The Court of Appeal then reversed the trial court’s JNOV, reinstating the full amount of the jury’s punitive damages award. That will be a bitter pill for the corporation’s board of directors, who probably thought they had protected the company from this type of award by adopting a policy that required a thorough investigation of any harassment claims.
The Daily Report of Fulton County, Georgia is reporting that a jury there has awarded $72.8 million to a school teacher who was burned after a gas line in his apartment exploded. He sued his landlord, claiming that the explosion was caused by the landlord’s violation of building codes. The verdict consists of $17.9 million in compensatory damages, $47.9 million in punitive damages, and $7 million in attorney fees.
A Georgia statute limits punitive damages to $250,000 except in products liability cases, cases involving a specific intent to harm, and cases where the defendant was under the influence of drugs or alcohol. None of those exceptions would seem to apply here.
Senator Patrick Leahy (D-VT), a member and former chairman of the Senate Judiciary Committee, issued a press release today announcing that he has introduced a bill that would prevent taxpayers from deducting payments of punitive damages as business expenses.
The proposed bill is entitled the No Tax Writeoffs for Corporate Wrongdoers Act. The title is a bit misleading, because the actual text of the proposal would apply to all taxpayers, not just corporations. Individuals get hit with punitive damages too, as many of the reports on this blog attest. I’m not a tax lawyer (though my first law job was with the IRS), but my understanding is that current law permits self-employed individual taxpayers to deduct payments of punitive damages as business expenses.
Several other lawmakers have proposed the idea of eliminating the deductibility of punitive damages in recent years, both in California and at the federal level. None of the previous proposals were adopted, although President Obama has voiced his support for the idea.
UPDATE: For those you might want to track the progress of this proposal, be aware that it has been designated as Senate Bill 169.
Related posts:
Bill to eliminate tax deductions for punitive damages appears to be dead
Assembly approves bill to prevent tax deduction of punitive damages; Senate not expected to act until August
Committee on Appropriations approves bill to prohibit deductions of punitive damages
Another proposal to prohibit California taxpayers from deducting punitive damages
Assembly rejects proposal to eliminate tax deductions for punitive damages
Proposed California bill would prevent tax deductions for punitive damages
Proposal to eliminate [federal] tax deduction for punitive damages still alive
Senate Adopts Proposal to Eliminate Tax Deduction for Punitive Damages
More from Prof. Markel on Tax Policy and Punitive Damages
Proposed [federal] legislation would eliminate tax deduction for punitive damages
Obama administration proposes to eliminate tax deduction for payment of punitive damages
This unpublished opinion contains an unusually lengthy discussion of an issue that rarely arises in California punitive damages cases: whether punitive damages can be awarded in a case in which the plaintiff has already recovered a statutory penalty.
The general rule on this issue is well established: if a defendant is liable for a statutory penalty (such as treble damages) for a particular act of misconduct, the defendant cannot be subjected to punitive damages for the same act. Allowing both a statutory penalty and punitive damages would be duplicative, so the plaintiff must choose one or the other.
Notwithstanding this general rule, courts sometimes permit both statutory penalties and punitive damages in the same case, either because (a) the particular statutory language in question shows that the Legislature intended to authorize duplicative penalties, or (2) the case involves separate acts of misconduct that merit separate punishment.
In this case, the plaintiff alleged that the defendant hotel discriminated against her because she is Jewish. She recovered compensatory damages and statutory penalties under California’s Unruh Civil Rights Act, and she also recovered $405,000 in punitive damages.
The Court of Appeal (Second Appellate District, Division Three) vacated the punitive damages, finding that this case did not fit within either of the exceptions to the general rule against duplicative punishment. The court first concluded that the provision of the Unruh Act that authorizes treble damages is punitive in nature, and that nothing in the statute indicates that the Legislature intended to permit duplicative damages. The court also went on to say that the statutory penalty and the punitive damages were awarded for the same misconduct, and therefore the defendant could be subjected only to one punishment. The plaintiff gets to keep the statutory penalties, but not the punitive damages.
The Second Circuit issued an interesting opinion today that illustrates how a federal appellate court can apply two independent standards when reviewing a punitive damages award for excessiveness.
In this employment discrimination case, a federal jury in New York awarded a total of $1.32 million in compensatory damages and $24 million in punitive damages, broken down between individual and corporate defendants. The district court concluded that the punitive damages were excessive, and granted a new trial conditioned on the plaintiff’s acceptance of a reduction of the punitive damages award to a total of $5 million. The plaintiff accepted the reduction and the defendant appealed.
On appeal, the Second Circuit affirmed the judgment in all respects except for the amount of punitive damages. The court began its discussion of that issue by noting that it was required to review the excessiveness of punitive damages pursuant to the federal appellate courts’ supervisory authority over the trial courts. Such authority requires that reviewing courts “exercise relatively stringent control over the size of punitive damages,” separate and apart from any obligation to review the award under constitutional due process standards.
The court then went on to explain that federal courts should exercise their common law supervisory authority first, before considering constitutional standards. Following that approach, the court concluded that the $5 million punitive damages award in this case was still excessive. The court explained that the award is disproportionate both to the $1.32 million compensatory damages award and to the amount of punitive damages awarded in other comparable cases. Ultimately, the court determined that any amount in excess of a 2:1 ratio would be excessive.
Having settled on a 2:1 ratio as the maximum permissible under common standards, the court considered whether due process concerns might require an even further reduction. The court concluded that, in light of the extremely egregious nature of the defendants’ conduct, a 2:1 ratio would pass muster under the Constitution. The court expressly declined to decide whether constitutional principles might permit a higher ratio than 2:1 on the facts of this case.
This case stands in contrast to the Ninth Circuit’s recent decision in the Arizona v. ASARCO case, in which the en banc court reviewed the punitive damages award only under federal due process standards, without even mentioning its separate obligation to review the amount of the award under federal common law.
The American Tort Reform Foundation’s released its annual “Judicial Hellholes” report yesterday. As usual, ATRF does not have kind things to say about the administration of civil justice in California.
The report names California as the second worst jurisdiction in the nation in terms of fairness to defendants in civil litigation (behind the New York City asbestos docket). The report offers a variety of reasons for that assessment, most of which are beyond the scope of this blog (e.g., that our courts have made it too easy for plaintiffs to “rifle the deep pockets of corporate defendants” in public nuisance actions, asbestos lawsuits, disability-access lawsuits, etc.)
The report intersects with the focus of this blog when discussing Izell v. Union Carbide, in which the Court of Appeal recently affirmed an $18 million punitive damages award in a published decision. The report highlights the dissenting opinion of Justice Kitching which, as we have noted, could attract the attention of the California Supreme Court as well. (The discussion of Izell appears on page 14 of the report.)
Yesterday, the Ninth Circuit issued its en banc opinion in Arizona v. Asarco. As our readers may recall, that’s the sexual harassment case in which a jury awarded the plaintiff no compensatory damages, $1 in nominal damages, and nearly $900,000 in punitive damages.
The district court reduced the punitive damages to $300,000 under Title VII’s statutory cap on punitive and non-economic damages. A three-judge panel of the Ninth Circuit then ruled, in a 2-1 decision, that the punitive damages were still excessive and should be further reduced to $125,000.
Both parties sought en banc review. The plaintiffs argued that they are entitled to the full $300,000 permitted by the cap, because an award within the cap cannot be unconstitutional. The defendant argued that the 125,000 ratio permitted by the three-judge panel was still excessive. Both parties got what they wanted—the court agreed to rehear the case en banc. But the result isn’t quite what the defendant envisioned. It’s a unanimous 11-0 win for the plaintiffs.
The en banc opinion starts by discussing the due process test for evaluating the excessiveness of a punitive damages award, as laid out in BMW v. Gore and State Farm v. Campbell. The opinion then states that the due process standards are “of some relevance”in Title VII cases. In other words, it is theoretically possible that punitive damages awarded under a carefully crafted statutory scheme could nonetheless violate due process.
But the opinion goes on to say that, when punitive damages are awarded under a “robust” statutory scheme, a “rigid application of the Gore guideposts is less necessary or appropriate.” Following that logic, the court concludes that a punitive damages award under Title VII can never really violate due process, because the statute clearly states the state of mind necessary for imposition of punitive damages, and provides fair notice of the possible amount of the punitive damages (i.e., up to $300,000).
While it’s clear that the en banc court has no problem with 300,000 to 1 ratios in Title VII cases, it’s not at all clear how the court’s analysis would translate to other statutory schemes. How is a district court supposed to determine which statutes are sufficiently robust and carefully crafted, such that a vigorous due process analysis becomes unnecessary? And when a statute qualifies as robust and carefully crafted, how exactly does a district court perform the relaxed and non-rigid version of the BMW and Campbell analysis that this opinion seems to require?
Given the murkiness of the court’s analysis, it is a bit surprising to see that this was a unanimous opinion. The Ninth Circuit is known as a court whose members have a wide diversity of viewpoints and aren’t afraid to share them. And this 11-member panel includes some judges whom we’d ordinarily expect to have some discomfort with an opinion holding that lower courts can, under circumstances that are not clearly defined, choose to disregard a due process analysis mandated by the U.S. Supreme Court.
So long as the analysis of this opinion is limited to Title VII cases, it’s impact will be limited. Because the $300,000 cap is a modest one, the Ninth Circuit wouldn’t be striking down many punitive damages awards as excessive under the BMW standards anyway, even if the court had not excepted Title VII cases from the usual BMW analysis. But this opinion could end up being quite significant if its analysis spreads to other areas, or if the Title VII cap ever gets raised.
As a side note, nowhere in this opinion does the court ever suggest that it might have a common-law duty to analyze the punitive damages award for excessiveness, apart from whatever the constitution requires. As our friends over at Guideposts have pointed out, other circuits have held that in cases involving claims under federal law, federal courts have supervisory authority to ensure that those awards are not excessive, and should scrutinize them more closely under that common law authority than they would under the Due Process Clause. Most likely, the parties did not make that argument here.
Related posts:
New punitive damages blog analyzes case pending before en banc Ninth Circuit (Arizona v. ASARCO)
9th Circuit hears oral arguments in punitive damages case where jury awarded no compensatory damages
A week ago we reported on a jury award of $185 million in punitive damages in a single-plaintiff employment case against AutoZone. Not surprisingly, that colossal award got a lot of media attention. Some even called it a “preposterous” verdict by a runaway jury.
In response to this criticism, the Consumer Attorneys of California issued a remarkable press release. The press release says that criticism of the verdict is unwarranted, which isn’t a surprising position for CAC to take. But CAC’s reasoning is quite surprising. According to CAC, it makes no sense to talk about runaway juries or preposterous damage awards until the post-verdict proceedings are resolved, because “such big punitive damages awards are inevitably scaled back to a fraction of what was ordered by the jury.” The press release goes on to say that “nobody at AutoZone is expecting to write a check for $185 million” because U.S. Supreme Court precedent limits punitive damages to no more than nine times the amount of compensatory damages.
CAC has a point. Many of the big punitive damages awards that generate media attention are later reduced during post-trial proceedings or on appeal. And those rulings rarely get the same kind of press as the original verdict.
Nevertheless, CAC’s position is a startling one. CAC’s members fight vigorously to obtain awards like this. And they fight to hold on to them during post-verdict review.
Consider, for example, Bullock v. Philip Morris, in which a California jury awarded $28 billion in punitive damages to a single plaintiff. The plaintiff’s lawyer fought hard to hold on to that award. When the trial court reduced it to $28 million, plaintiff’s counsel filed a cross-appeal asking the Court of Appeal court to reinstate the full amount of the jury’s award. (See 2005 WL 4656293.) That lawyer—Michael J. Piuze—is a past recipient of CAC’s “Trial Lawyer of the Year Award.” One of the attorneys at his firm is currently on CAC’s board.
It isn’t just CAC’s individual members who defend punitive damages awards in the nine-figure range and above. CAC itself files amicus curiae briefs to defend such awards. For example, in Romo v. Ford Motor Co., CAC filed an amicus brief to defend a $290 million punitive damages award. (See 2003 WL 22455474.)
Given this history, the CAC press release on the Auto Zone case comes as a great surprise, because it seemingly acknowledges that an award much smaller than the Bullock and Romo awards is obviously excessive and will inevitably be reduced or vacated. Having taken that position, it would now be difficult for CAC to file another amicus brief like the one it filed in Romo if the AutoZone case ends up on appeal.
This unpublished opinion is the latest example of the California Court of Appeal vacating a punitive damages award because the plaintiff failed to present meaningful evidence of the defendant’s financial condition.
The defendant testified that she owned a home and paid cash for it. But the Court of Appeal (Fourth District, Division Two) said that evidence was not nearly sufficient to support a punitive damages award; the plaintiff presented no evidence of the value of the house, the defendant’s other assets or liabilities, or her income and expenses. As a result, the court vacated $50,000 in punitive damages.