California Punitives by Horvitz & Levy

  • Court of Appeal affirms $200,000 punitive damages award in a published opinion (Powerhouse Motorsports v. Yamaha Motor)

    This published opinion affirms a judgment awarding $1.1 million in compensatory damages and $200,000 in punitive damages against Yamaha Motor Corp. in a dispute between Yamaha and a former franchisee.

    Yamaha argued on appeal, among other things, that the punitive damages should be vacated under Civil Code section 3294, which provides that punitive damages cannot be awarded for the breach of obligations arising solely from a contract.  Yamaha claimed the plaintiff’s various claims all arose from Yamaha’s alleged breach of a franchise agreement.  The California Court of Appeal (Second Appellate District, Division Six) disagreed, finding that the plaintiff had a valid tort claim for interference with a separate contract (to which Yamaha was not a party), between the plaintiff and a third party.

    Yamaha also argued that the plaintiff failed to prove, as section 3294 requires, that any misconduct was committed by an officer, director, or managing agent of Yamaha.  Again, the Court of Appeal disagreed.  It held that Yamaha’s regional sales manager, who testified that he was responsible for the total well-being of between 140 and 240 dealerships, was a managing agent within the meaning of section 3294.

  • Punitive damages in Taiwan?

    China Post reports on proposed legislation to authorize punitive damages as a remedy under Taiwan’s civil code.  The article says that the proposal is supported by 19 lawmakers, but opposed by the Deputy Minister of Justice, who argues that punitive damages should be authorized only for violation of specific laws. 

  • Court of Appeal reissues opinion approving jury instruction on clear and convincing evidence (Nevarrez v. San Marino Skilled Nursing)

    In June we reported on this case, in which the defendant challenged the wording of CACI 201, the pattern jury instruction that defines “clear and convincing evidence.”  After our initial post, the Court of Appeal granted rehearing to reexamine a different aspect of the case.

    The court has now reissued its published opinion. It contains the same analysis of CACI 201, i.e., the opinion once again holds that CACI 201 is correct as written and should not be augmented to reflect the definition of clear and convincing evidence set forth by the California Supreme Court in In re Angelia P.

  • Court of Appeal reverses $500,000 punitive damages award because plaintiff failed to provide evidence of the defendant’s financial condition at the time of trial (Oggi’s Pizza v. Durrant)

    This unpublished opinion from the California Court of Appeal (Fourth Appellate District, Division One) reminds us that plaintiffs seeking punitive damages must not only introduce meaningful evidence of the defendant’s financial condition, but they must present evidence of the defendant’s finances at the time of trial.

    The trial in this case took place in December 2011.  The plaintiff presented evidence that the defendant had a net worth of $2.2 million as of June 2009.  Plaintiff’s counsel did not ask the defendant (who testified during the punitive damages phase of trial) about his current assets or liabilities.  The plaintiff introduced a copy of the defendant’s most recent tax return, but that showed only his income, not his assets or liabilities.

    That evidence was not enough to sustain the jury’s punitive damages award, according to the Court of Appeal.  The court reversed the $500,000 punitive award and directed the trial court to enter judgment in favor of the defendant on that issue.

  • Court of Appeal affirms $14.5M punitive damages award in asbestos case (Pfeifer v. John Crane)

    The California Court of Appeal issued this 68-page published opinion today, affirming a $14.5 million punitive damages award.

    The opinion might not remain on the books for long, for reasons having nothing to do with the court’s punitive damages analysis.  The opinion addresses an issue that’s already before the California Supreme Court in another matter, Webb v. Special Electric.  Both cases raise the following question: when a supplier sells a product to a purchaser who is already aware of dangers of the product, can the supplier still be liable for failure to warn?  Because that issue is already before the court in Webb, there is a strong chance the court will grant John Crane’s petition for review (assuming it files one) and hold this case pending the disposition in Webb.

    Aside from that “sophisticated purchaser” issue, there is a lot of interesting stuff in this opinion. I won’t attempt to summarize all 68 pages, but here are some highlights of the punitive damages analysis:

    1.  The opinion states that reviewing courts should take the “clear and convincing” evidence standard into account when deciding whether a plaintiff presented substantial evidence of malice, oppression, or fraud.  As we have noted in prior posts, other recent published cases have said the same thing, but some recent unpublished opinions have disagreed.

    2.   The opinion concludes that the record in this case supports the jury’s finding of malice, because the plaintiffs presented evidence that John Crane knew its customers used its products in ways capable of generating dangerous levels of asbestos dust. 

    3.  The opinion rejects John Crane’s argument that the trial court erred by ordering John Crane to disclose information about its financial condition during trial, after the jury found that John Crane acted with malice.  John Crane argued that the plaintiffs were not entitled to that information because they failed to follow the procedure spelled out in Civil Code section 3295(c) for requesting pretrial discovery of financial condition information.  The opinion follows the holding of Mike Davidov Co. v. Issod, which said that a court can order the defendant to produce its financial condition evidence during trial, after a finding of malice, so long as the trial court allows the defendant sufficient time to gather its records.

    4.  The opinion rejects John Crane’s argument that its financial condition was insufficient to support the punitive damages award.  According to the plaintiffs’ expert, John Crane had $403 million in assets and nearly $16 million in cash on hand, but had a negative net worth of $125 million.  The opinion observes, however, that John Crane’s net worth would be a positive $98 million if not for its  asbestos-litigation liabilities.  And the opinion observes that the jury’s award of $14.5 million is only six percent of the funds John Crane set aside for payment of asbestos litigation.  Based on these observations, the opinion concludes that John Crane could afford to pay the award without being destroyed.  

    5.  The opinion rejects John Crane’s argument that California’s punitive damages statute, Civil Code section 3294, is unconstitutionally vague as applied to this case.

    6.  The opinion holds that the jury’s $14.5 million award was not excessive.  The opinion compares that amount to the $6.2 million compensatory damages owed by John Crane (after reduction to reflect the jury’s allocation of fault), and concludes that the resulting ratio of 2.3 to one is not excessive, considering the highly reprehensible nature of John Crane’s conduct.

    We will keep tabs on this one to see if the Supreme Court grants review.

  • Ninth Circuit reduces $300,000 punitive damages award to $125,000 in Title VII harassment case (Arizona v. ASARCO)

    The Ninth Circuit rarely issues published opinions on punitive damages, but they issued an interesting one yesterday. 

    The jury in this sexual harassment case awarded the plaintiff no actual damages, $1 in nominal damages, and $868,750 in punitive damages against ASARCO, a copper mining outfit.  The trial court reduced the punitive damages award to $300,000, the statutory maximum under Title VII for an employee of ASARCO’s size.  ASARCO appealed the award as reduced.

    Judge O’Scannlain, writing for the majority, framed the issue as follows: 

    We must decide whether the Constitution permits a six-figure punitive damages award in a sexual harassment suit where the jury awarded no compensatory damages and only one dollar in nominal damages.

    To answer that question, the court began by evaluating the first BMW guidepost – the reprehensibility of the defendant’s conduct.  The court concluded that the defendant’s conduct was highly reprehensible, implicating all five of the State Farm reprehensibility factors.  I’m a little surprised the court thought the defendant’s conduct implicated the “physical harm” factor, since the plaintiff did not apparently suffer any physical harm.  But the court dealt with this issue by saying intentional discrimination is a “serious affront to personal liberty” and therefore more reprehensible than other conduct that causes only economic harm.

    The court turned next to the ratio between the punitive damages and the $1 nominal award.  The court concluded that a ratio of 300,000 to 1 is constitutionally excessive, even in the face of highly reprehensible conduct.  That left the court with a dilemma of choosing a smaller award that would not be excessive, but would still have some deterrent effect.  The court settled on $125,000, only because 125,000 to 1 was the highest ratio that had been affirmed in any other published discrimination case: Abner v. Kan City S. R.R. Co., 513 F.3d 154, 157 (5th Cir. 2008).

    Judge Hurwitz dissented, arguing that the award should be affirmed and that Abner, although correctly decided on its facts, should not operate as a ceiling for punitive damages awards in harassment cases.

  • Oklahoma jury hits Toyota with $3 million in compensatory damages and sets the stage for punitive damages

    The LA Times reports that yesterday a jury in Oklahoma awarded $3 million in compensatory damages against Toyota in a “sudden acceleration” case.  The jury also found that Toyota acted with “reckless disregard,” the prerequisite for awarding punitive damages under Oklahoma law. 

  • $500,000 punitive damages award reduced to $150,000 (Wallis v. PHL Associates)

    The California Court of Appeal (Third Appellate District) issued this published opinion today, reducing a jury’s $2 million compensatory damages award to $15,000, and reducing a $500,000 punitive damages award to $150,000.

    The case involves allegations of fraud in connection with the sale of an antigen used in a vaccine.  Although the jury awarded $2 million in compensatory damages for fraud, the Court of Appeal said the evidence could only support an award of $15,000.

    The court then had to decide what to do about the $500,000 punitive damages award, in light of the reduced compensatory damages award.  As we have seen, courts have taken differing approaches to that issue.  The court could have sent the case back to the trial court to reevaluate the punitive damages in light of the reduced compensatories.  Instead, the court decided to simply order a reduction of the award to $150,000, representing ten times the amount of the compensatory damages as reduced, because the defendant offered to accept that amount, and any higher amount “would surely violate [the defendant’s] due process rights.”

    The court noted that the reprehensibility of the defendant’s conduct was “moderate” because it implicated only three of the five reprehensibility factors identified in State Farm v. Campbell.  The plaintiff argued that the presence of three out of five factors supports a finding of heightened reprehensibility, but the court disagreed:

    Wallis argues that the reprehensibility is rather more extreme. Keeping in mind that reprehensible conduct is, by definition, reprehensible in all instances and that extreme reprehensibility is found only in exceptional cases, we conclude that this case does not rise to the level of extremely reprehensible cases.

    In particular, the court noted that the defendant caused no physical harm, and did not act with an indifference to health and safety.  Accordingly, the court concluded that the jury’s award of $500,000, more than 33 times the compensatory damages as reduced, could not withstand constitutional review.  The court did not have to decide the maximum permissible ratio in this case, because the defendant agreed to pay the award if reduced to a ratio of 10 to 1 ($150,000).  So the court simply ordered a reduction of the punitive damages award to that amount, without the need for any further proceedings.

    Related posts:

    Petition for review asks Cal. Supreme Court to resolve split in authority regarding the proper treatment of a punitive damages award after reduction of compensatories

  • Supreme Court denies Novartis cert. petition

    The U.S. Supreme Court has denied certiorari in Novartis v. Fussman.  Novartis’s petition asked the court to decide whether federal law preempts punitive damages claims against drug manufacturers who have satisfied FDA approval and labeling requirements. The court requested a response to the petition, but ultimately decided not to take up the case.

    The court’s order list is here.  Law 360 has coverage here (subscription required).

    Related posts:

    Novartis cert. petition distributed for Sept. 30 conference

    Cert. petition asks Supreme Court to address preemption of punitive damages claims against drug makers (Novartis v. Fussman)

  • Court of Appeal rules that trial court properly struck punitive claim against employer as a matter of law (Nadaf-Rahrov v. Neiman Marcus Group, Inc.)

    In an unpublished opinion last Friday, the Court of Appeal (First Appellate District, Division Five) affirmed a nonsuit on a plaintiff’s punitive damages claim in an employment case.  Reinforcing a point that is occasionally overlooked, the court elaborated on the statutory rule that there is no such thing as vicarious liability for punitive damages.  Rather, such damages can be imposed on a company only for conduct directly committed by the company (through its officers, directors or managing agents), and not for malicious conduct by non-managing employees.  In addition, the opinion demonstrates that some mistakes in the hiring and retention of workers, even if tortious, simply could not be found by a reasonable jury to be “malicious.”

    The plaintiff in this case argued that one company vice president was an “officer” whose actions contributed to the plaintiff’s inability to obtain a work reassignment within the company.  The court noted, however, that this person played no role in the employment decisions made with respect to this plaintiff.  Moreover, the court held that the officer’s alleged misconduct–failing to “assure that the company’s human resource managers followed a uniform written policy when dealing with disabled employees who wished to return to work”–did not come close to establishing malice, oppression, or fraud.

    With respect to another employee—a human resource manager—the court held she also was not, as a matter of law, a managing agent with respect to the dispute in this case.  The court applied the rule that the “mere ability to hire and fire employees” does not render a supervisory employee a managing agent, and that “even the highest-ranking employee in one office of a corporation may not qualify as a managing agent when business policies are made at corporate headquarters.”  The human resources manager did not shape corporate policy beyond her authority to hire and fire employees.  Moreover, the court held, even if she were a managing agent, “substantial evidence did not support a finding she was guilty of malice, oppression, or fraud as is necessary to support an award of punitive damages” because some facts relating to plaintiff’s ability to return to work were unclear.  “The evidence supports the jury’s finding (by a preponderance of the evidence) that [the manager] should have done more to try to locate a new position for [plaintiff], but it would not support a finding by clear and convincing evidence that [the manager’s] decision to adopt a “wait-and-see” approach was ‘despicable’ as required by [Civil Code] section 3294, subdivisions (a) and (b), i.e., ‘base,’ ‘vile’ or ‘contemptible.’”