California Punitives by Horvitz & Levy

  • Shahinian v. Cedars-Sinai Medical Center: Court of Appeal declines to review amount of arbitrator’s punitive damages award

    In a prior post we pointed out that there are strong arguments that punitive damage awards issued by arbitrators should be subject to judicial review for constitutional error notwithstanding the general rule against review of arbitration awards for legal error. The California Court of Appeal (Second Appellate District, Division Eight) rejected that argument in a published opinion, re-affirming Rifkind & Sterling, Inc. v. Rifkind (1994) 28 Cal.App.4th 1282 and holding that the amount of punitive damages awarded in a private arbitration is not subject to judicial review for constitutional error because the constitutional limits on punitive damages apply only when a state is imposing punitive damages through a court proceeding, not when a private arbitrator is imposing them in a contractual arbitration proceeding.

    The court rejected the argument that judicial confirmation and enforcement of the arbitrator’s punitive damage award is a form of state action that triggers the protections of the Due Process Clause. But the court did not rule out the possibility that, in some cases, a private arbitration award may be so excessive and contrary to public policy that judicial review is appropriate. The court concluded, however, that the punitive damages award in this case, which was only 1.2 times the amount of the compensatory damages award, did not represent an exceptional circumstance in which judicial review is required.

  • Cal. Supreme Court dismisses review in Nelson v. Exxon Mobil (assignability of punitive damages)

    The Supreme Court has granted Exxon Mobil’s motion to dismiss review in Nelson v. Exxon Mobil, which raised the question whether punitive damages claims could be assignable in certain circumstances.  The text of the order (which you can view on the court’s on-line docket) confirms that the motion was part of a settlement between the parties.  The docket does not indicate that either party has asked the Supreme Court to reinstate the published status of the Court of Appeal’s opinion, so the opinion remains depublished and nonprecedential.

    Interestingly, the Supreme Court had to appoint a temporary justice (Presiding Justice Barbara Jones of the First Appellate District) to rule on the motion to dismiss.  As noted in our prior post, the court is short-handed due to the retirement of Justice Moreno, and three of the remaining six justices on the court were recused from participating in this case.  So a temporary justice was needed to provide the fourth vote necessary to dismiss review.

    Today’s Daily Journal (subscription required) has a story about the dismissal, as an illustration of the complications created by the open seat on the court.

    Related posts:

    Exxon Mobil asks California Supreme Court to dismiss case on assignability of punitive damages

    California Supreme Court grants review in case involving assignability of punitive damages

    Nelson v. Exxon Mobil: punitive damages claims can be assigned

  • 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

    The defendant in Behr v. Redmond has filed a petition for review with the California Supreme Court, asking the court to decide the following three issues:

    1. When an appellate court substantially reduces a compensatory damages award, must it remand for a new trial on the corresponding punitive damages award—which the jury calibrated in part on the basis of the excessive compensatory award—or may it simply affirm the punitive award?

    2. Does article I, section 16 of the California Constitution create a constitutional right to a jury trial on punitive damages?

    3. Does a 1.75-to-i ratio of punitive to compensatory damages violate the Fourteenth Amendment’s due process clause, where non-economic damages overwhelmingly predominate in the compensatory award?

    As mentioned in prior posts, there is a split of Court of Appeal authority on the first question.  As the petition explains, the lower courts have taken five different approaches on this issue: (1) send the case back to the trial court to conduct a new trial on punitive damages, (2) reduce the punitive damages award to maintain the jury’s original punitive-to-compensatory ratio, (3) remand to the trial court so that the trial court, not a jury, can decide whether to retry, reduce, or let stand the punitive damages award, (4) affirm the trial court’s decision to leave the punitive damages award undisturbed where the trial court had itself ordered a reduction of compensatory damages and determined that no reduction of the punitive damages was necessary, and (5) affirm the punitive damages award so long as the Court of Appeal finds the award is not excessive.

    There is no question in my mind that this is a recurring issue of statewide importance that merits Supreme Court review.  I’m going out on a limb to predict the Supreme Court will grant review.  (So far I’m two for two on such predictions; see here and here).

    Related posts:

    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

  • Miller v. Faiz: California Court of Appeal considers an excessiveness argument not raised below, and cuts $250,000 punitive damages award in half

    This unpublished opinion from the California Court of Appeal (Fourth District, Division Three) addresses a recurring procedural question: can an appellate court consider a defendant’s argument that a punitive damages award is excessive even if the defendant did not raise that argument in a new trial motion?

    Ordinarily, a defendant who wants to argue excessive damages must do so in a new trial motion, or waive the right to make the argument on appeal.  The idea is that the trial court is in the best position to evaluate any factual disputes regarding the appropriate amount of damages.

    The plaintiff tried to invoke that rule here, to argue that the defendant had waived any right to challenge the amount of punitive damages appeal by not raising that argument in a new trial motion.  The Court of Appeal disagreed, holding that a constitutional challenge to the amount of a punitive damages award is a purely legal issue that the Court of Appeal reviews de novo, and therefore can be considered for the first time on appeal.  (That seems entirely correct to me, but I’m not sure any published California opinion says so.)

    The court’s ruling on that procedural issue turned out to be important for the parties to this case, because the court went on to determine that the jury’s $250,000 punitive damages award (ratio of 8.3 to 1) was excessive, and that any award in excess of $125,000 (ratio of 4.2 to 1) would be unconstitutional.

    Justice Aronson dissented, disagreeing with the court’s decision to reduce the award. In his view, the defendant’s conduct (fraudulently promising to take care of the plaintiff’s elderly father, and then neglecting him) was sufficient to support the jury’s award.  The dissenting opinion also cites the defendant’s wealth as a basis for affirming a higher award, which seems inconsistent with the U.S. Supreme Court’s statement in State Farm v. Campbell that “[t]he wealth of a defendant cannot justify an otherwise unconstitutional punitive damages award.”

  • Exxon Mobil asks California Supreme Court to dismiss case on assignability of punitive damages

    Exxon Mobil has asked the California Supreme Court to dismiss review in Nelson v. Exxon Mobil, the case in which the Court of Appeal held that plaintiffs in certain cases can assign their claims for punitive damages.  Exxon Mobil persuaded the Supreme Court to grant review in the first place, so Exxon Mobil’s motion to dismiss suggests that the parties have reached a settlement.  (We’re just speculating here; we have no first-hand information about the reason for the motion).

    The short-handed Supreme Court (which has only six justices following the retirement of Carlos Moreno) will probably be more than happy to grant the motion to dismiss.  To reach a decision in this case, the Supreme Court would have needed to appoint four temporary justices: one to replace Justice Moreno, two to replace Justices Chin and Baxter who recused themselves from participation in this case when review was granted, and one to replace Chief Justice Cantil-Sakauye, who is disqualified from participation in this case because she wrote the Court of Appeal’s opinion when she was still a member of that court.

    Related posts:

    California Supreme Court grants review in case involving assignability of punitive damages

    Nelson v. Exxon Mobil: punitive damages claims can be assigned

  • Atlas Flooring v. Porcelanite: 9th Circuit affirms $25M punitive damages award

    In this memorandum disposition, the Ninth Circuit affirms a $25 million punitive damages award in a business dispute involving claims of fraud and intentional interference.  That’s an awfully big number for conduct that caused purely economic harm.

    The panel, composed of Judges O’Scannlain, Trott and Campbell (a federal district court judge sitting by designation), affirmed the award based on the egregious nature of the defendant’s conduct and the low ratio (1.5 to one) of punitive to compensatory damages.  But the memorandum disposition doesn’t elaborate on the facts, so it’s hard to tell why the court thought this case warranted a departure from the statement in State Farm v. Campbell that cases with substantial compensatory damages will often support no more than a 1 to 1 ratio.

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

    Here we go again: this unpublished opinion from the California Court of Appeal (Second Appellate District, Division Five) reverses a punitive damages award because the plaintiff failed to introduce meaningful evidence of the defendant’s financial condition. “There is little evidence of [defendant]’s actual assets or income and no evidence of his liabilities. . . . Accordingly, the punitive damage award is reversed and retrial is unnecessary.” 

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

    Here’s yet another California appellate opinion reversing a punitive damages award because the plaintiff failed to introduce meaningful evidence of the defendant’s financial condition.

    The trial proceedings in this case began as an employment discrimination lawsuit against the Los Angeles County Metropolitan Transit Agency by a former employee.  The trial ended with a damages award against the ex-employee, as a result of the MTA’s cross-complaint for misappropriation and fraudulent inducement.  The MTA’s cross-complaint alleged that the ex-exmployee misrepresented his employment history in his employment application and retained confidential documents belonging to MTA after he was fired.  A jury agreed and awarded the MTA $600,000 in compensatory damages and $150,000 in punitive damages.

    On appeal, the California Court of Appeal (Second Appellate District, Division Three) issued an unpublished opinion affirming the liability findings but reversing the punitive damages because the record contained no meaningful evidence of the ex-employee’s financial condition.  The record contained evidence of his income after he was fired, but no evidence of his assets or liabilities.

    The MTA tried to get around that problem by arguing that the ex-employee provided evasive and inadequate responses to questions regarding his financial condition in discovery and at trial, and thereby waived his right to complain that the record lacked information about his finances.  The Court of Appeal rejected this argument on two grounds.  First, it observed that unlike other cases where a waiver was found (e.g., Mike Davidov v. Issod), this case did not involve a defendant’s failure to comply with a court order; the MTA did not request any such order and the trial court never issued one.  Second, the MTA had only requested information about income and tax returns, which even if produced would not have sufficent to establish the ex-employee’s financial condition and ability to pay.

  • Law professors’ $5 million punitive damages award cut to $220,000

    Last December we reported on a $5 million punitive damages award in favor of two law professors against West Publishing.  The professors, as you may recall, were the authors of a West treatise on criminal procedure.  They won the big punitive award (along with $180,000 in compensatory damages) based on allegations that West wrongly identified them as the authors of shoddy updates to the treatise.

    Predictably, that punitive award did not survive post-trial review.  The trial court has issued an order (link via Courthouse news) finding that the award is excessive and that the professors must choose between a new trial or a remittitur of the total punitive damages to $220,000.

    UPDATE:  The original post erroneously reported that the trial court ordered a remittitur of the punitive damages to $400,000.  The correct figure is $220,000 (for a total award of $400,000 including the compensatory damages).  The text of the post has been corrected.

  • U.S. Supreme Court hears oral argument in Wal-Mart v. Dukes

    Yesterday, the U.S. Supreme Court heard oral argument in Wal-Mart v. Dukes, which we’ve been tracking for its possible impact on the availability of punitive damages in class actions.

    Based on a reading of the oral argument transcript, at least five justices appeared ready to overturn the district court’s decision to certify what is reportedly the largest class action in history. Justices Alito, Kennedy, Roberts, and Scalia seemed to signal that they agree the class does not satisfy the threshold requirements set by Federal Rule of Civil Procedure 23(a) for all federal class actions. Even several of the other justices who one might expect would be sympathetic to the plaintiffs’ argument appeared troubled by aspects of the class certification decision, although they did not necessarily agree the plaintiffs failed to satisfy Rule 23(a)’s threshold requirements.

    For example, the questions Justice Ginsburg asked suggested she may yet conclude at least some portion of plaintiffs’ lawsuit cannot be certified solely under Rule 23(b)(2) even if the plaintiffs satisfied Rule 23(a). Justice Ginsburg indicated that, under the advisory committee’s note for Rule 23(b)(2), a class action cannot be certified under that rule if the monetary relief sought predominates over injunctive relief. She questioned how plaintiffs could say injunctive rather than monetary relief predominates here given that nearly half of the class members are not interested in injunctive relief but all of the members are interested in money.

    Interestingly, Justice Sotomayor seemed to suggest that, where a class seeks both injunctive and monetary relief, it may be appropriate for courts to decide whether the class should be certified under Rule 23(b)(2) based on a test developed by the Fifth Circuit in Allison v. Citgo Petroleum Corp., 151 F.3d 402 (5th Cir. 1998). If the Allison test were applied to the plaintiffs’ lawsuit, the plaintiffs in Wal-Mart—and plaintiffs in future class actions—may face an uphill struggle persuading a court to certify requests for back pay and punitive damages for class treatment under Rule 23(b)(2). See Allison, 151 F.3d at 416-418 (affirming determination that class certification for claims seeking compensatory and punitive damages was inappropriate under Rule 23(b)(2) because these claims for monetary relief were not sufficiently incidental to the injunctive and declaratory relief sought).

    Given the questions posed by Justices Ginsburg and Sotomayor, it will be interesting to see whether the Supreme Court reverses class certification in a close (perhaps 5 to 4) decision holding the plaintiffs failed to satisfy Rule 23(a)’s threshold requirements or whether, either in lieu of or in addition to this determination, a broader coalition of justices agrees the class fails to satisfy Rule 23(b)(2).

    Related posts:

    Wal-Mart v Dukes argument set for March 29

    Cert. granted in Dukes v. Wal-Mart; review limited to first question plus new issue added by the Court

    Wal-Mart v. Dukes cert. petition redistributed for Dec. 3 conference

    Wal-Mart v. Dukes cert. petition up for consideration next week

    Cert. Petition in Wal-Mart v. Dukes raises class certification issues that may impact whether punitive damages are subject to class treatment

    Ninth Circuit’s Dukes v. Wal-Mart decision addresses class certification of punitive damages claims