The Milwaukee Journal-Sentinel reports that Wisconsin governor Scott Walker has signed the bill limiting punitive damages in that state to the greater of $200,000 or double the amount of compensatory damages. The law will undoubtedly be subject to court challenges, but similar laws in other jurisdictions have mostly survived such attacks.
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We have a pretty high threshold for imposing punitive damages in California. The plaintiff has to prove by clear and convincing evidence that the defendant committed intentional fraud or engaged in “despicable” conduct with a “conscious disregard” for the rights others. When a plaintiff’s allegations to meet those standards, courts often strike the punitive damages claims from the complaint, or grant summary adjudication on the issue of punitive damages.
It’s a little hard to see how the claims in this case made it through. The plaintiff is seeking punitive damages against Johnson & Johnson for failing to warn of the possibility of a severe allergic reaction that causes a potentially fatal skin condition. Johnson & Johnson did warn about the possibility of severe allergic reactions, but didn’t specifically warn about skin reddening, blisters, or rash.
The plaintiff also claims Johnson & Johnson should be punished for withholding information from the FDA. Johnson & Johnson did provide all the information in question to the FDA, but allegedly acted with malice by including the information in a voluminous submission without specifically highlighting this particular risk.
The trial court denied Johnson & Johnson motion for summary adjudication on the issue of punitive damages, and Johnson & Johnson petitioned the Court of Appeal for writ relief. The Court of Appeal (Second Appellate District, Division Four) issued an alternative writ and called for briefing on the merits, but then issued an unpublished opinion upholding the trial court’s order. There court concludes there are sufficient facts to create a triable issue on the question of malice.
Maybe there are some additional facts not included in the opinion, but I just don’t see how the a reasonable jury could conclude that the evidence described in the opinion amounts to clear and convincing evidence of “despicable conduct” or “conscious disregard.”
Cornell law professors Theodore Eisenberg & Michael Heise have uploaded a paper to SSRN entitled “Judge-Jury Difference in Punitive Damages Awards: Who Listens to the Supreme Court.”
The authors state that data collected in 2005 confirms a “higher amount of punitive damage awards relative to compensatory damages awards in cases tried to juries than in bench trials.” Some readers might assume that judges award more modest punitive damages awards because judges are aware of the U.S. Supreme Court’s recent case law, and they don’t want to be reversed on appeal. Not so fast, the authors say. According to them, juries award higher amounts only because juries are more likely to get the types of cases that generate big awards.
The AP is reporting (via Bloomberg) that the Wisconsin Senate Judiciary committee has approved a measure to cap punitive damages at $200,000 or twice the amount of compensatory damages, whichever is greater. The full senate is set to vote on the measure on Tuesday. Gov. Scott Walker supports the proposal.
If the bill passes, Wisconsin will apparently become the 25th 30th state to have some sort of limit on punitive damages. (See pages 12-13 and 27 of this article). That includes states that prohibit punitive damages altogether. Of the states that cap punitive damages at a specific amount, the $200,000 cap in Wisconsin would be the lowest number that I’m aware of. If anyone knows about a cap at a lower dollar figure, please let me know. The caps I know about are either $500,000 (e.g., Alabama, Alaska, and Florida), $350,000 (e.g., Virginia and New Jersey) or $250,000 (e.g., Georgia, North Carolina, and North Dakota).
This unpublished opinion presents a punitive damages issue I haven’t encountered before.
The issue is unique to shareholder derivative actions. In such cases, a shareholder of a corporation brings a lawsuit on behalf of the corporation against a third party, typically a corporate insider. The shareholder who brings the suit is referred to as a “nominal” plaintiff because, although he or she initiated the action, any recovery in the action belongs to the corporation, not the individual plaintiff.
The issue that arose here is how to analyze the issue of excessive punitive damages when a court in a derivative action awards punitive damages against a defendant who has a controlling interest in the corporation. If the defendant pays $1 million in punitive damages to the corporation, but owns 60% of the corporation, then $600,000 of the punitive damages payment will flow right back to the defendant. So the question is, can the maximum amount of punitive damages be adjusted upward to compensate for the fact that the defendant will benefit from his or her own payment of damages. The California Court of Appeal (Fourth Appellate District, Division One) says “yes.”
The Court of Appeal accepted the trial court’s conclusion that, if this were not a shareholder derivative action, the facts of the case would not permit a punitive damages award in excess of the amount of compensatory damages (in this case, $2 million). The Court of Appeal further held, however, that the trial court properly adjusted the award upward to $4.7 million to account for the defendant’s control over the corporation. Taking into account the percentage of the punitive award that would flow back to the defendant, the court concluded that the effective award against the defendant would be $2 million, equal to the compensatory damages.
I can see the logic of the Court of Appeal’s reasoning. But the opinion also suggests that the trial court increased the amount of the award partly to ensure that the shareholder who brought the derivative action would be entitled to a $2 million share of the punitive damages award, taking into account the plaintiff’s ownership interest in the corporation. That doesn’t seem right at all. The purpose of a derivative action is to provide a remedy for a wrong to the corporation, not to ensure that the shareholder who brought the action receives any particular amount. And certainly the plaintiff is not entitled to any particular amount of punitive damages, which are always a windfall to the plaintiff. Fortunately, however, the Court of Appeal stayed away from endorsing that part of the trial court’s analysis.
The U.S. Supreme Court has denied the petition for certiorari in Lawnwood Medical Center, Inc. v. Sadow, according to the Order List issued today. Now that the court has denied the petitions in Lawnwood and Hebble and granted the petition in Dukes, I’m not aware of any other pending cert. petitions raising punitive damages issues.
Links:
Petition for certiorari, lower court opinion, Supreme Court docket.
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Courtroom Views is reporting that an Oakland jury awarded a total of $13.5 million in punitive damages against two defendants last Friday, January 7. The jury had previously awarded $4 million in compensatory damages.
The case, Bankhead v. Allied Packing, is a personal injury action based on exposure to asbestos. The two defendants who got hit with punitive damages are ArvinMeritor and Pneumo Abex.
Asbestos plaintiffs rarely recover punitive damages, because their claims usually involve conduct that happened decades ago, when little information was known about the dangers of asbestos. That makes it very difficult to prove that defendants acted with malice, or that there is some need to punish and deter. But when plaintiffs do manage to get a punitive damages claim to a jury in these cases, they can ring up some huge numbers. Like $200 million, for example. That award got a lost of press coverage, but it didn’t last very long.
The Supreme Court’s on-line docket for Wal-Mart v. Dukes indicates that oral argument will take place on March 29, 2011.
Wal-Mart’s cert. petition (via SCOTUSblog)
Related posts:
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
Ninth Circuit’s Dukes v. Wal-Mart decision addresses class certification of punitive damages claims
In this unpublished opinion, the California Court of Appeal (Fourth Appellate District, Division One) affirms punitive damages totaling $625,000 against three defendants in a real estate fraud action. The court rejected the defendants’ “conclusory” argument that the evidence did not support an award of punitive damages. Interestingly, none of the defendants challenged the amount of the punitive damages, even though the ratios were fairly high, including a ratio in excess of 10 to 1 for one of the defendants.
We previously blogged about Turman v. Turning Point, an unpublished opinion in which the California Court of Appeal affirmed a trial court order striking a plaintiff’s claim for punitive damages. Today the Court of Appeal issued an order publishing that opinion. The court ordered publication in response to a request from plaintiff’s counsel, who undoubtedly requested publication not because of the opinion’s discussion of punitive damages, but because of the earlier discussion in the opinion overturning a defense verdict on the plaintiff’s claim for compensatory damages.