California Punitives by Horvitz & Levy

  • Essex Ins. v. Prof. Building Contractors: settlement offsets should not be considered when calculating ratio

    It’s amazing how many questions continue to arise with respect to the proper method for calculating the ratio between punitive damages and compensatory damages.  In this unpublished opinion, the California Court of Appeal (Second Appellate District, Division Two) tackles the following ratio-calculation issue:

    Whether the one-to-one ratio between compensatory damages and punitive damages ordered by the trial court and affirmed by this Court must be measured by the jury’s award of compensatory damages or by an amount that takes account of a setoff for a third-party settlement.

    The court answers the question by concluding that the ratio calculation should not take settlement offsets into account; courts should compare punitive damages to the jury’s award of compensatory damages before any post-verdict reductions under Code of Civil Procedure section 877. 

    The opinion relies on out-of-state authorities reaching the same result.  But it makes no mention of  some prior California opinions that appear inconsistent with this result.  Two published Court of Appeal opinions have held that a proper calculation of punitive damages should take into account any amounts the plaintiffs received from third parties as compensation for their injuries.  (See Palmer v. Ted Stevens Honda, Inc. (1987) 193 Cal.App.3d 530, 540-542 and Krusi v. Bear, Stearns & Co. (1983) 144 Cal.App.3d 664, 680-681.)  Perhaps the Court of Appeal thought these cases were distinguishable, or perhaps the parties simply did not call them to the court’s attention.  In any event, given the apparent conflict in these cases, we probably haven’t seen the last of this issue. 

    Related post: Essex Ins. v. Professional Building Contractors: punitive damages reduced to 1-to-1 ratio in insurance bad faith case

  • U.S. Supreme Court requests response to cert. petition in Shell v. Hebble

    Last week we reported on the cert. petition in Shell Oil v. Hebble, which asks the Supreme Court to address the proper method for calculating the ratio of punitive damages to compensatory damages in cases where a high rate of interest is imposed as a penalty.   We thought the petition raised some interesting issues, but the respondent apparently did not agree, and did not file a response. 

    The Supreme Court has now requested a response, which is due November 12.  While this development certainly does not guarantee a grant of certiorari, the Supreme Court would not grant cert. in a case like this without requesting a response, so this is at least a step in the right direction for the petitioner.

    Links: Petition for certiorari, National Association of Manufacturers (NAM) amicus brief, International Association of Defense Counsel (IADC) amicus brief, Supreme Court docket

  • Yusuf v. Tija: $500,000 punitive damages award affirmed

    This unpublished opinion from the California Court of Appeal (Second Appellate District, Division Eight) affirms $500,000 in punitive damages.  The defendant apparently didn’t challenge the amount of the award, and argued only that the evidence was insufficient to support a finding of malice, oppression, or fraud.  The court easily disposed of that argument, concluding that the evidence of the defendants’ participation in human trafficking and false imprisonment was sufficient to warrant punitive damages.

  • Stroud v. Blount: cert. petition asks whether courts can consider attorneys’ fees as “actual harm” for ratio purposes

    The U.S. Supreme Court will decide tomorrow whether to grant two cert. petitions raising punitive damages issues: the Hebble case we discussed last week, and Stroud v. Blount, which is featured today on SCOTUSblog’s Petitions to Watch.

    The Stroud petition asks the court to decide whether a court can count a plaintiff’s attorneys’ fees as “actual harm” for the purpose of calculating the ratio of punitive damages to the plaintiffs’ actual harm, as required under the due process test set forth in BMW v. Gore and State Farm v. Campbell.  This issue could have a big impact; obviously, allowing courts to consider attorneys’ fees for ratio purposes would result in larger punitive damage awards surviving judicial review. 

    California courts have already answered this question. The Third Appellate District held in Bardis v. Oates (2004) 119 Cal.App.4th 1 that attorneys’ fees are not properly considered part of the plaintiff’s actual harm for ratio purposes.  The Bardis opinion conflicts with the lower court opinion in Stroud, but the petition does not cite Bardis.  The petition does, however, cite a decision from the Utah Supreme Court that reached the same result as Bardis on this issue.

    Links: Cert. petition, lower court opinion, Supreme Court docket.

  • Larry Hagman wins $10 million in punitive damages against Citigroup

    We haven’t had a post about a celebrity punitive damages award in quite a while.  Assuming that Larry Hagman still qualifies as a “celebrity,” here’s one for you: Bloomberg reports that Hagman just won an arbitration award against Citigroup, including $10 million in punitive damages.  Hagman doesn’t get to keep the punitive award though: it goes to the charities of his choice. The story doesn’t give any details about the conduct that prompted the award, and doesn’t mention whether the arbitration agreement gives Citigroup any rights to appellate review.

  • Pending cert. petitions raise punitive damages issues

    Two recent cert. petitions ask the U.S. Supreme Court to address interesting questions of punitive damages law.

    The first is Lawnwood Medical Center, Inc. v. Sadow, featured today on SCOTUSblog as a “Petition of the Day.”  The defendant, challenging a punitive damages award of $5 million, raises questions about the application of the due process limitations on excessive punitive damages in cases involving intentional harm and nominal damages:

    1. Are punitive damages for intentional harm exempt
    from the guidepost analysis?

    2. Can state law exempt punitive awards for certain
    conduct from the guidepost analysis mandated
    by the Federal Constitution?

    3. When actual damages are small or nominal, may
    a court rely on the defendant’s wealth–rather
    than awards in similar cases or comparable legislative
    penalties–as an objective indicator of
    whether a punitive award is constitutional?

    Links: Petition for certiorari, lower court opinion, Supreme Court docket.

    The second notable petition is Shell Oil v. Hebble, in which the plaintiff obtained a $53.6 million punitive damages award.  The defendant’s cert. petition asks the Court to consider what components of a plaintiff’s recovery can properly be considered as “actual harm” for the purposes of comparing a punitive damages award to the plaintiff’s actual harm:

    1. Whether, in calculating the ratio of punitive damages
    to harm to the plaintiff, heightened penalties such as
    12% interest imposed to compel compliance may be
    treated as “compensatory.”

    2. Whether, in determining the maximum punitive
    damages award in a case involving a substantial compensatory
    award and only economic harm, courts should be
    guided by the 1-to-1 ratio mentioned in State Farm or
    instead presume that anything within the range of 4-to-1
    is permissible.

    Links: Petition for certiorari, National Association of Manufacturers (NAM) amicus brief, Supreme Court docket, our prior blog post.

    The Hebble petition has been distributed for the Supreme Court’s Oct. 15 conference, so we will have a ruling on that one soon.

    Both petitions impliedly assume that, if the Supreme Court accepts these cases, it will adhere to its recent line of cases holding that the Due Process Clause limits the imposition of excessive punitive damages.  That assumption is not necessarily a foregone conclusion.  Of the Justices who joined the majority in BMW v. Gore and State Farm v. Campbell, only Justices Kennedy and Breyer remain with the Court.  Three justices who dissented from those opinions, Justices Scalia, Thomas, and Ginsburg, all remain with the Court.  Chief Justice Roberts signed on to the majority opinion in Philip Morris v. Williams, which probably means he is not ready to jettison the BMW/Campbell line of precedent, but the views of Justices Alito, Sotomayor, and Kagan are unknown (at least to me).  If two of those three joined with the trio of dissenters, they could conceivably toss this precedent aside. 

  • L.A. jury awards $4.8 million in punitive damages against Rite Aid in employment suit

    The Beverly Hills Courier is reporting that a Los Angeles jury has awarded $3.5 million in compensatory damages and $4.8 million in punitive damages against drug store chain Rite Aid.  The plaintiff, a former Rite Aid employee, claimed that Rite Aid discriminated against her based on disability (psychiatric illness) and retaliated against her for complaining that a manager sexually harassed her.  This is the largest California punitive damages award we’ve heard about in several months.

  • Kentucky appellate court holds that statutory limitation on punitive damages is unconstitutional

    Although we focus primarily on California punitive damages litigation, we occasionally discuss interesting punitive damages decisions from other jurisdictions.  This recent opinion from Kentucky caught our attention.

    In it, the court declares unconstitutional a Kentucky law that prohibits the award of punitive damages against a dram shop.  The decision is based on a provision of the Kentucky constitution which, as interpreted by the Kentucky courts, prohibits the state legislature from limiting the remedies available to plaintiffs in personal injury or wrongful death actions. 

    That’s a stark contrast to California law, where we have no such provision in the constitution and, as noted last week, our legislature has prohibited the recovery of punitive damages in all wrongful death actions (not just a subcategory of cases against a particular class of defendants).  So despite California’s reputation for a pro-plaintiff litigation climate, here’s at least one situation in which California law is not as plaintiff-friendly as another state.

  • Canadian court orders Facebook spammer to pay $437 million California punitive damages award

    Two years ago, Judge Jeremy Fogel of the Northern District of California entered a judgment against Canadian resident Adam Guerbuez, ordering him to pay Facebook $873 million, half of which is punitive damages, for violating the “CAN-SPAM Act.”  The Quebec Superior Court has now recognized the enforceability of that judgment in Canada, according to this report in the Montreal Gazette.

    Mr. Guerbez doesn’t seem all that concerned about the award.  In fact, he seems proud.  He’s billing himself as “the $1 billion dollar man” on his personal blog.  He didn’t bother to contest the suit, and I’m guessing he doesn’t have $873 million laying around, so this may be another award that is more symbolic than anything else. 

    As I have commented before, I fear that the publicity surrounding these massive but uncontested and uncollectible awards may be contributing to a culture that views 9-digit punitive damages awards as an accepted part of our legal system.

  • Federal judge awards $61.3 million in punitive damages against Iran

    Courthouse News is reporting that a Washington DC federal district court has ordered the Republic of Iran to pay $92 million, including $61.3 million in punitive damages, to the victims of the 1983 bombing of the Marine barracks in Beirut.  This is the latest in a series of large punitive damages damages awards against Iran.  As we have noted, the awards have only a symbolic significance because Iran never pays a penny.