California Punitives by Horvitz & Levy

  • Bullock v. Philip Morris Court of Appeal opinion affirms 16:1 punitive damages

    We’ve blogged many times about the saga of the Bullock v. Philip Morris case, which has bounced up and down through the California trial and appellate court system for a while now. Most recently, we reported on the second jury verdict (on remand after the judgment on the first jury verdict was reversed). That 2009 verdict reflected the finding that $13.8 million was the appropriate amount of punitive damages to award on account of harm to a plaintiff who, a prior jury had found, suffered $850,000 in actual damages. As we noted, the resulting judgment allows for a greater than 16:1 ratio between punitive and compensatory damages.

    The Court of Appeal (Second District, Division Three) yesterday affirmed the judgment in a divided opinion. Justice Croskey, writing for the majority, acknowledged that, when “substantial” compensatory damages are awarded, there is a presumption of unconstitutionality as to punitive awards exceeding a single-digit ratio (in comparison to the compensatory damages) to a significant degree. (See opn., fn. 18.) However, he concluded that a departure from a single-digit ratio was acceptable because, in his view, an $850,000 compensatory award is not “substantial” within the meaning of United States Supreme Court jurisprudence, when the award is viewed in light of the defendant’s financial condition.

    Justice Kitching, dissenting, pointed out that those two concepts have not previously been linked. In fact, in many cases around the country, considerably smaller compensatory awards against very well-heeled companies have been deemed “substantial” within the meaning of the due process principles set out by the United States Supreme Court, and have triggered reversal or reduction of punitive awards that exceed single-digit ratios. It will be interesting to see what happens with the Bullock opinion, and whether other courts will similarly veer off in this new direction for punitive damages jurisprudence.

  • Jim & Ray Telecom v. Kim: unpublished appellate decision shows the Supreme Court really should clarify the status of punitive damages awards after compensatories are cut

    As we’ve discussed a number of times before (see related posts linked below), there’s a lot of uncertainty out there about what’s supposed to happen when a jury does its job of weighing the amount of punitive damages in light of a reasonable relationship to compensatory damages, but then the compensatory damages are cut on posttrial motions or on appeal. The Supreme Court recently declined to take up that question, denying review in Behr v. Redmond, despite the split of authority on the recurring issue.

    An unpublished decision handed down last week from the California Court of Appeal is yet another case in point confirming that some guidance is needed here. In that matter involving a commercial dispute, the jury awarded $374,646.01 in compensatory damages and a matching $375,000 in punitive damages, for a 1:1 ratio. The trial court then found the compensatory damages were subject to an offset for amounts owed by the plaintiff to the defendant, and thus reduced those damages to $202,533.75. The court did not, however, adjust the punitive damages accordingly. So much for a 1:1 ratio.

    Now, it may be that a postverdict reduction of compensatory damages due to a counterclaim by the defendant is treated differently from a reduction on excessiveness or legal error grounds. But this case won’t provide a vehicle for the Supreme Court to analyze that issue because, while the court of appeal noted that the defendant (acting in pro per) raised six arguments on appeal, a challenge to the amount of punitive damages was not among them. Nonetheless, the case highlights another example of the interconnected complex questions arising when compensatory damages are reduced in a punitive damages case.

    Related posts:

    Rex Heeseman op-ed discusses Behr v. Redmond

    Two out of three ain’t bad: Supreme Court denies review in Behr v. Richmond, despite my prediction that they’d take the case

    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

    Behr v. Redmond: Court of Appeal publishes previously unpublished opinion, creates split of authority

    Behr v. Redmond: $2.8M punitive award affirmed, despite reduction of compensatory damages from $4M to $1.6M

  • Bratz attack pins Barbie to the mat — to the tune of $85 million in punitive damages

    There’s epic litigation, and then there’s Bryant v. Mattel (aka “Mattel v. MGA”). Back in 2008, we had a post right here on this blog titled “No Punitive Damages Awarded in Bratz Trial.” Well, a bit more of the dolly drama has played out since then, requiring this update. In the megalitigation pitting the House of Barbie against the Bratz pack, the parties are up to two trials before two different district judges, plus one big trip to the Ninth Circuit and several smaller trips, and more than 10,700 filings generated by the parties.

    Now, as recounted in a great many media reports (e.g., from the LA Times and Bloomberg), federal district court judge David Carter yesterday handed down an order awarding MGA $85 million in punitive damages. Awards of that size can be good candidates for a constitutional excessiveness challenge, often because such awards tend to be many times greater than the 1:1 ratio (or sometimes higher single-digit ratio) recognized as appropriate in comparison to significant compensatory damages. But in this case, the award of punitive damages is equal to the award of compensatory damages, so a ratio argument may not be the focus of any excessiveness challenge that Mattel mounts in posttrial motions or on appeal.

    This award is atypical of most large punitive damages awards because it was made by a judge, not a jury. MGA’s basis for seeking punitive damages arose from a claim for willful misappropriation of trade secrets. That claim was tried to the jury, but the applicable California statute authorizes the court to award punitive damages, and the statute caps any award at twice the compensatory damages. Cal. Civ. Code § 3426.3(c). MGA asked the district court to award the maximum amount of punitive damages—double its compensatory damages—but the court declined to do so.

    This won’t be the last time you hear about this case. In addition to the large awards of compensatory and punitive damages, the district court’s companion order saddled Mattel with paying MGA some $140 million in attorney’s fees and costs. (Yes, that’s a nine-figure fee award.) With combined awards of more than $300 million, you can expect Mattel to appeal.

    All in all, it’s quite a reversal of fortune for Mattel, which won the first trial and obtained millions in damages against MGA, only to see the Ninth Circuit reverse the judgment and order this new trial. According to one analyst’s estimate (as quoted in the Financial Times), it has likely cost Mattel some $400 million in legal fees since 2004 to get to this point. For MGA’s part, its CEO Isaac Larian reportedly said yesterday that the protracted litigation has damaged the Bratz brand by an estimated $1 billion, and that MGA intends to seek recompense in a separate antitrust proceedings against Mattel.

  • State Fish Co., Inc. v. Deluca: California Court of Appeal explains interplay between nominal and punitive damages

    In this unpublished opinion handed down last week, the California Court of Appeal (Second District, Division Three), rejected a plaintiff’s appeal challenging the trial court’s denial of nominal damages under Cal. Civil Code section 3360 and denial of punitive damages. The appellate opinion explains that, even if the trial court erred in denying statutory nominal damages for a breach of fiduciary duty that did not apparently cause actual damages, reversal is not warranted unless some further consequence would result—such as triggering the possibility that the plaintiff might obtain a punitive damages award. The court noted,

    An award of “nominal damages” can mean two different things: “a trifling or token allowance for mere technical invasion of a right, without actual damages; and the very different allowance made when actual damages are substantial, but their extent and amount are difficult of precise proof.” (Kluge v. O’Gara (1964) 227 Cal.App.2d 207, 209–210.) Only the second can provide a basis for an award of punitive damages. (Id. at p. 210.) Punitive damages cannot be awarded in the absence of actual damages. (Id. at p. 209.) The type of nominal damages to which State Fish would conceivably be entitled is the type of nominal damages which do not imply the existence of actual damages and therefore do not justify an award of punitive damages.

    As the nominal damages sought by State Fish would not permit an award of punitive damages, the failure to award nominal damages is not a sufficient basis for reversal. We therefore need not consider whether a breach of fiduciary duty which did not cause actual damages justifies an award of nominal damages.

    Side note: if you’re interested in the fate of punitive damages where no compensatory damages were awarded, you might follow the continuing progress of a Missouri wrongful death case against Alberta Comstock, whose daughter sued her mother, claiming the mother shot and killed her ex-husband (the plaintiff’s adoptive father). According to news accounts (e.g., “Comstock lawyers appeal judgment“), the civil jury found no compensatory damages were owed, but awarded $125,000 in punitive damages—half the amount suggested by the plaintiff’s attorney. Ms. Comstock is reportedly challenging the award.

    UPDATE (8/4/11): In a decision decided this week, the Missouri Court of Appeal ruling in Lindahl v. State that a jury verdict awarding no compensatory damages but awarding punitive damages is inconsistent, and that a defendant who obtained judgment notwithstanding the verdict (on the ground that no punitives can stand where no compensatory damages are awarded) had invited an error by the trial court by affirmatively suggesting the matter need not be returned to the jury while it was still empaneled, to resolve the inconsistency. Therefore, the appellate court reversed the defense judgment and granted a complete new trial.

    Related posts discussing punitive damages in the context of nonexistent or nominal compensatory damages:

    Pending cert. petitions raise punitive damages issues

    A Curious Punitive Damages Opinion from Florida

    California DOI Loses Out on Collecting $700 Million Punitive Damages Award—For Now

    Grimes v. Rave Motion Pictures: District Court Holds FACTA Punitive Damages Provision Unconstitutional

  • XTC Investments, LLC v. Bluenose Trading, Inc.: California Court of Appeal affirms $318,551 punitive damages award (1:1 ratio) for financial tort

    In this unpublished opinion, the California Court of Appeal (Second District, Division Four) affirmed a punitive damages award against an individual defendant (Sanford Gaum) and a corporate defendant (Bluenose Trading, Inc.) based on evidence that Gaum used Bluenose to conceal assets from creditors such as the plaintiff investment company, which had made a loan guaranteed by Guam. The trial court found Gaum had diverted his own earnings to another company, “making it impossible for [creditors] to learn about, attach or garnish the monies that were due Gaum. At the same time, Gaum held himself out to the plaintiff (and the community he lived in) as having title to all the assets that he had transferred to [the other company], creating the impression that he was a sound investment partner.”

    The court awarded $318,551 in compensatory damages on a fraudulent conveyance theory and the same amount in punitive damages, awarded jointly and severally against the defendants. The court found that Gaum had acted with malice, oppression and fraud, and added that defendant Bluenose “possesses sufficient assets . . . and derives sufficient income to support punitive damages in an amount equal to the actual damages and that a multiplier of 1 to 1 is entirely appropriate and reasonable.”

    On appeal, the defendants argued there was insufficient evidence of defendants’ financial condition, which plaintiffs bear the burden of producing. The Court of Appeal dispensed with this argument in one sentence. After briefly quoting the trial court’s summary of income evidence, the court stated simply, “Defendants cite no authority to suggest that evidence of Bluenose’s income and of the value of real property it owns is insufficient to support a punitive damages award.”

    Of course, plenty of authority indicates that net worth is the best measure of financial condition, and evidence of income and property value alone is not meaningful evidence of a defendant’s financial condition without taking into account liabilities as well as assets. (E.g., Baxter v. Peterson (2007) 150 Cal.App.4th 673, 680 [“Normally, evidence of liabilities should accompany evidence of assets, and evidence of expenses should accompany evidence of income”]; Kenly v. Ukegawa (1993) 16 Cal.App.4th 49, 58 [“Without evidence of the actual total financial status of the defendants, it is impossible to say that any specific award of punitive damages is appropriate”]; see Adams v. Murakami (1991) 54 Cal.3d 105, 109-110, 114 [jury must not be left to “speculate” on the extent of the defendant’s ability to pay a punitive damages award, and appellate court has a duty to independently evaluate the evidence to ensure plaintiff introduced meaningful evidence of financial condition relating to ability to pay].)

    Recent related posts:

    Nguyen v. Do: $50,000 punitive damages award reversed for lack of meaningful financial condition evidence

    Tran v. Lecong: $100,000 in punitive damages vacated due to lack of meaningful financial condition evidence

    LeFlore v. MTA: $150,000 in punitive damages vacated due to lack of meaningful financial condition evidence

  • Thomas v. iStar Financial, Inc.: $1.6 million punitive damages award in retaliatory discharge case is excessive

    An opinion from the U.S. Court of Appeals for the Second Circuit last week affirms a trial court ruling that a jury’s $1.6 million punitive damages award, on top of a compensatory award of about $280,000 (a 5.7:1 ratio between punitive and compensatory damages), was excessive, in violation of federal due process principles.

    The appellate court noted that the tort (termination of plaintiff’s employment in retaliation for complaints of workplace discrimination) was apparently part of a pattern of corporate conduct, but (1) the conduct reflected a “moderate level of reprehensibility; (2) the tort did not result in physical injury; (3) the punitive award was on top of a “substantial” compensatory award; and (4) the punitive damages far exceeded a potential statutory fine of up to $250,000 for malicious discriminatory practices. Accordingly, the Court of Appeals affirmed the district judge’s order reducing the punitive award to $190,000 (less than a 1:1 ratio).

    This result seems to be consistent with the conclusion reached by University of Iowa College of Law professor N. William Hines (see article discussed in our recent post) that trial court and appellate court judges are, in the professor’s words, “faithfully implementing the evolving due process guideposts to catch and correct excessive punitive damages awards. “

  • Sex and punitive damages

    Here’s an interesting cross section of punitive damages news over the last week, offering a non-statistically significant glimpse into the punishment meted out for certain inappropriate (bit of understatement there) behavior:

    Gang rape — $1.03 million compensatory damages; $1.5 million punitive damages (about 1.5:1 ratio). As reported by the Wisconsin Law Journal, a state appellate court found last week that $1.5 million is not an excessive punitive damages award for the trial judge to have awarded against three men after a default prove-up hearing in a case in which the men were alleged to have drugged and raped the plaintiff. (See opinion in Pausch v. Cormier.) However, because the judge’s ruling did not make clear whether the award was assessed individually against the defendants ($500,000 owed by each), or was to be awarded jointly and severally against them, the court of appeal could not determine whether the trial court should have taken the defendants’ financial condition into account (which, under Wisconsin law, would be appropriate only if the awards were made individually and not jointly). The matter was remanded for clarification by the trial judge.

    Diocese’s fraudulent concealment of molestation — $2.4 million compensatory damages; $2.6 million punitive damages (less than 1:1 ratio). The National Catholic Reporter notes that last month the Illinois Supreme Court rejected a final plea for relief from the Catholic Diocese of Belleville, which had sought review of an intermediate appellate court decision affirming an adverse judgment that included punitive damages awarded to molestation victim James Wisniewski. Notably, the diocese did not argue that the punitive award was excessive, but instead challenged the liability finding on statute of limitations and evidentiary error grounds.

    Adultery resulting in “alienation of affection” — $1.275 million compensatory damages; $1.025 million punitive damages (a bit more than 1:1 ratio). A North Carolina jury has awarded compensatory and punitive damages against a man who, the plaintiff claimed, had an affair with the plaintiff’s wife and caused the breakup of a marriage that the plaintiff said had been characterized by “genuine love and affection.” Specifically, according to a Salisbury Post article, the jury awarded $425,000 for alienation of affection and $175,000 in punitive damages on that count, plus $850,000 for “criminal conversation” (i.e., sex outside of marriage) and the same amount for punitive damages on that count. The article observes that this was far more than the plaintiff had asked for, the defendant filed for bankruptcy, and the case (McCoy v. Freeman) settled after trial, effectively insulating the award from any appellate review.

    Update (8/26): last March another North Carolina court case involving “criminal conversation” (reported here and here) resulted in a default judgment of $30 million to a jilted spouse (Carol Puryear) who sued the cheating spouse’s lover (Betty Devin). The total is comprised of $10 million in compensatory damages and $20 million in punitive damages.

    Update (8/21/11): see this article (“Even a sex-toy purveyor can have a sexually hostile workplace“) about a divided New Jersey appellate division ruling last week in Longo v. Pleasure Productions Inc. The court upheld a Florida jury’s award in an employment discrimination case brought by a plaintiff who worked at a sex toy company. She complained of harrassment by a co-worker and retaliatory discharge, and received a compensatory damages award of $150,000 (awarded jointly against an individual and against the employer), plus $500,000 in punitive damages against the employer only.

  • The French dip deeper into punitive damages jurisprudence

    We have in prior posts touched on the historic reluctance outside of the United States (such as in France) to embrace the routine awarding of punitive damages. Last fall we noted commentary suggesting that reluctance may be fading, as indicated by a French high court ruling allowing enforcement of certain foreign punitive awards. A recent newsletter from ILO (International Law Office) notes a similar trend, and offers some thoughts on the subject, particularly with regard to insurance coverage for such awards.

    The introduction to the newsletter reads, “Recent developments point towards greater receptivity to punitive damages. In the past few months punitive damages have received increasing attention, not only from the legislature (leading to a proposed revision to the Civil Code), but also from the Court of Cassation. On December 1 2010 the Court of Cassation issued an interesting decision with regard to foreign judgments granting punitive damages. Whether insurance coverage will be available for foreign decisions awarding punitive damages may be a vital question for insureds, insurers and plaintiffs.”

    Check out the rest of the article online, titled, “Punitive Damages: is coverage available in France?” for more info.

    Update (8/3/11): Professor Francois Xavier Licari, at the University of Metz,
    has provided these additional helpful links:

    Professor Xavier’s comment published in a French law review and posted on SSRN (in
    French, but with an English abstract).

    A case summary with link to the opinion decided by the court of cassation.

  • Punitive damages may be available in copyright infringement actions under the U.S. Copyright Act

    In a prior post, we noted a case where Viacom was denied punitive damages under the copyright act. A law review article by Marketa Trimble makes the claim that the copyright act does not bar punitive damages simply because it does not affirmatively provide for them. The article also discusses cases in the Southern District of New York which suggest that plaintiffs may elect punitive damages under the act, and which differ from the Viacom ruling we discussed in our prior post.

  • Two unpublished California court of appeal opinions reach different results in writ petitions involving claims for punitive damages

    In Newland v. Superior Court, the California Court of Appeal, Third Appellate District, granted plaintiff’s writ petition challenging the trial court’s grant of summary adjudication on the plaintiff’s punitive damages claim. The potentially punitive conduct was an insurance company’s denial of a claim for a stolen car based upon the insurance adjuster’s opinion that the insured had been responsible for the theft. The Court of Appeal found that the insurance company had not met its burden to show that the conduct could not be punitive given the allegedly inappropriate manner in which the insured was treated.

    By contrast, in Old Republic Home Protection Co., Inc. v. Superior Court, the California Court of Appeal, Fourth Appellate District, Division Two, granted defendant’s writ petition challenging the trial court’s overruling of its demurrer to an insurance bad faith complaint that included a prayer for punitive damages. The lawsuit involved a claim for breach of a home warranty contract. The Court of Appeal held that breach of contract actions should not lightly be turned into tort actions outside the insurance context. Therefore, the bad faith claim, and the attendant claim for punitive damages, should be dismissed with prejudice.