California Punitives by Horvitz & Levy

  • Amerigraphics v. Mercury: $1.7 Million Punitive Damages Award Reduced to $500,000

    In this published opinion, the California Court of Appeal (Second Appellate District, Division Two) holds that a punitive damages award of $1.7 million is excessive and must be reduced to $500,000.

    The jury in this insurance bad faith case originally awarded $170,000 in compensatory damages, plus $3 million in punitive damages, for a 17.6-to-1 ratio. After the verdict, the trial court awarded $346,541.25 in attorney’s fees as additional damages under Brandt v. Superior Court (1985) 37 Cal.3d 813. The trial court also concluded, however, that the jury’s punitive damages award was excessive and should be reduced to $1.7 million, ten times the jury’s compensatory damages award.

    The Court of Appeal concluded that the trial court’s reduced award was still excessive. First, the court noted that the defendant’s conduct, which involved no physical harm or disregard for health and safety, implicated only one of the five “reprehensibility factors” identified by the U.S. Supreme Court in State Farm v. Campbell. The court held that the defendant could not be treated as a repeat offender merely because its conduct in this case involved a course of dealing with the plaintiff, rather than a single isolated incident; the court observed that the case involved only one insured and one claim, without any evidence that the defendant had engaged in similar conduct towards other insureds in the past.

    Next, the court addressed the ratio of the punitive damages award to the compensatory damages award, and concluded that the defendant’s conduct could not support a 10-to-1 ratio. The court rejected the plaintiff’s invitation to add the trial court’s Brandt fee award to the jury’s compensatory damages award, which would yield a 3.2-to-1 ratio. The court said that the Brandt fees could not be considered for ratio purposes because they were awarded after the jury’s verdict.

    Having concluded that a 10-to-1 ratio was too high, the court then turned to the question of what the maximum ratio should be. Although the court discussed the U.S. Supreme Court’s Exxon Shipping opinion and other recent decisions imposing a 1-to-1 ratio (including the California Supreme Court’s recent decision in Roby v. McKesson), the court ultimately decided upon a 3.8-to-1 ratio, which results in an award of $500,000. The court picked that figure not just because it’s a nice round number, but because defense counsel had suggested during closing argument that the jury could award as much as $500,000. The court didn’t assign any evidentiary value to counsel’s argument, and did not find estoppel based on that argument, but the court said it independently agreed that $500,000 was the appropriate ceiling.

    Full disclosure: Horvitz & Levy LLP represented the defendant on appeal.

  • Pennsylvania Jury Awards $95 Million in Punitive Damages Against Mass Murderer

    According to this press release on New York Injury News, a jury in Pennsylvania has awarded $95 million in punitive damages against a former nurse who admitted to killing 29 people and attempting to kill six more by administering lethal doses of drugs. It would be awfully difficult to argue against a big punitive damages award in a case like that. Unfortunately for the plaintiffs, the defendant has no assets, so they’re not likely to see a penny of this award. Unless, of course, the defendant writes a book about his experiences, but a killer would never do something like that, right?

  • Survey Ranks California’s Litigation Climate Among Worst in the Nation, Again.

    We’re 46th! According to this survey conducted by the US Chamber of Commerce’s Institute for Litigation Reform, California’s litigation climate ranks 46th in the nation in the eyes of corporate counsel and executives. That’s down from 44th in 2008, the last time the survey was conducted. The same survey lists Los Angeles County as the second worst venue in the nation. Unlike the 2008 survey, this year’s survey does not include a separate ranking for each state on the issue of punitive damages.

    Hat tip: CJAC

  • Gellerman v. Aldrich: Another Reversal for Failure to Present Financial Condition Evidence

    Regular readers of this blog are well aware that California appellate courts frequently reverse punitive damages awards if the plaintiff failed to introduce meaningful evidence of the defendant’s financial condition. In this unpublished opinion, the Sixth Appellate District reverses another judgment on that basis, with a bit of a twist.

    The trial court made a highly unorthodox damages award after a bench trial; the court awarded a lump sum amount of damages, without differentiating between compensatory damages and punitive damages. The Court of Appeal criticizes that practice, and then goes on to point out flaws in both the compensatory and punitive elements of the undifferentiated award.

    First, the court concludes that the trial court used the wrong measure of compensatory damages. Then the court concludes that the trial court should have decided whether the plaintiff presented sufficient evidence of the defendant’s financial condition to permit an award of punitive damages. The trial court had expressed doubt about the sufficiency of the plaintiff’s evidence, but never actually decided the issue. The plaintiff tried to argue on appeal that California law does not require plaintiffs to introduce financial condition evidence, but the Court of Appeal summarily rejected that contention as a misreading of the law. So the case goes back to the trial court to make evaluate the sufficiency of the plaintiff’s evidence. (And consistent with California law, the plaintiff should not be permitted to introduce new financial condidtion evidence on remand – – see Kelly v. Haag (2006) 145 Cal.App.4th 910, 914.)

  • Proposed Bill to Cap Punitive Damages in California Is Dead

    Last month we blogged about a proposed bill to cap punitive damages in California at three times the amount of compensatory damages (AB X8 40). According to the state legislature’s bill tracking website, the current status of that bill is: “Died at Desk.”

  • “Taxing Punitive Damages”

    Professors Gregg Polsky & Dan Markel of Florida State College of Law have posted an article on SSRN entitled Taxing Punitive Damages. Here’s the abstract:

    There is a curious anomaly in the law of punitive damages. Jurors assess punitive damages in an amount that they believe will best “punish” the defendant. But, in fact, defendants are not always punished to the degree that the jury intends. Under the Internal Revenue Code, punitive damages paid by business defendants are tax deductible and, as a result, these defendants often pay (in real dollars) far less than the jury believed they deserved to pay.

    To solve this problem of under-punishment, many scholars and policymakers, including President Obama, have proposed making punitive damages nondeductible in all cases. In our view, however, such a blanket nondeductibility rule would, notwithstanding its theoretical elegance, be ineffective in solving the under-punishment problem. In particular, defendants could easily circumvent the nondeductibility rule by disguising punitive damages as compensatory damages in pre-trial settlements.

    Instead, the under-punishment problem is best addressed at the state level by making juries “tax aware.” Tax-aware juries would adjust the amount of punitive damages to impose the desired after-tax cost to the defendant. As we explain, the effect of tax awareness cannot be circumvented by defendants through pre-trial settlements. For this and a number of other reasons, tax awareness would best solve the under-punishment problem even though it does come at the cost of enlarging plaintiff windfalls. Given the defendant-focused features of current punitive damages doctrine, this cost is not particularly troubling. Nonetheless, a related paper of ours furnishes a strategy for overcoming this tradeoff through some basic reforms to punitive damages law.

    Hat tip: TortsProfBlog

  • Federal Judge Tosses $100 Million Punitive Damages Award Against BP

    In December of last year we reported on a jury’s award of $100 million in punitive damages to ten workers who claimed they were exposed to toxic fumes at a BP plant in Galveston. We noted that the award was not likely to hold up because of the absurdly high ratio of punitive damages to compensatory damages.

    As it turns out, we were correct that the award wouldn’t hold up, but the ratio issue never came into play. The Associated Press is reporting that the trial judge (U.S. District Judge Kenneth M. Hoyt) has ruled that the plaintiffs are not entitled to any punitive damages in this case. According to the story, Judge Hoyt has issued a posttrial ruling stating that the plaintiffs failed to present clear and convincing evidence that BP acted with intent to harm or engaged in gross negligence, and plaintiffs are therefore entitled to no punitive damages.

    I have no evidence to back this up, but my sense is that judges are more inclined to do this sort of thing (toss out a punitive damages award altogether) when the amount of the award is obviously excessive. Thus, even if they don’t reach the issue of excessiveness, they are influenced by the size of the award. Maybe it’s just because an obviously excessive award is a clear indication that something went awry during the jury’s deliberative process.

    UPDATE: California appellate specialist Donna Bader has posted some commentary about this story on her Appeal to Reason Blog. She writes:

    Some will celebrate this reduction as a victory for companies. Those
    who do so may believe that individual plaintiffs should not be entitled to
    punitive damages at all or that the award just seems like a lot of money. Others
    will despair, as this case is just one of many where judges have reduced
    punitive damages – ignoring the jury’s verdict – until they do nothing to punish
    wrongdoers. As stated by plaintiff’s attorney, the decision gives BP a “free pass” to
    continue hurting its workers.

    Personally, I don’t see this case a victory for companies. Nor do I see it as a cause for despair because a trial judge has ignored a jury’s verdict. Instead, I presume that the judge honestly concluded that the plaintiffs in this particular case had failed to introduce evidence to satisfy the legal standard for imposing punitive damages. That type of post-verdict review is an integral part of our justice system; trial and appellate judges are not supposed to reflexively accept any result reached by a jury, even if that result is unsupported by the evidence. In particular, judicial review of punitive damages awards has existed as a safeguard for as long as punitive damages have been awarded. (See, e.g., Huckle v. Money (C.P. 1763) 2 Wils. 205, 95 Eng. Rep. 768.) Sometimes that review works in favor of a defendant (corporate or otherwise), and sometimes it doesn’t.

  • California Jury Awards $50 Million in Punitive Damages Against Shell Subsidiary

    This case has already gone up on appeal once, and is likely headed that way again.

    In 2008 we blogged about this case, which involves a plaintiff who purchased a gas station from Shell subsidiary Equilon Enterprises and claims Equilon defrauded him by withholding material information. He claims that Equilon failed to tell him that the site of the gas station was about to become the target of state regulatory agencies, a fact that ultimately prevented him from being able to operate a gas station on the site.

    When the case went to trial in 2006, the jury awarded the plaintiff $1.65 million in compensatory damages and found that Equilon acted with malice, oppression, or fraud. But the trial court dismissed the plaintiff’s punitive damages claim because he failed to present meaningful evidence of the defendant’s financial condition. The California Court of Appeal (Second Appellate District, Division Eight) reversed, concluding that the trial court should have given the plaintiff more time to marshal his financial condition evidence.

    According to the plaintiff’s attorney’s press release, a new jury has awarded $50 million in punitive damages. That makes for a ratio in excess of 30 to 1, a ratio that should not withstand posttrial and appellate scrutiny. Even assuming the defendant’s conduct was extremely egregious, the defendant seems to have a strong argument that the maximum ratio cannot exceed one to one, given the size of the compensatory damages award and the purely economic nature of the plaintiff’s injuries.

    The appeal may also raise some interesting issues about the proper procedures for a trial like this, in which one jury decided the issues of liability and malice, and another jury awarded punitive damages. In such situations, it is difficult if not impossible to ensure that the second jury bases its punitive damages award solely on the same conduct that the first jury found to be tortious and malicious. If the plaintiff made multiple arguments in the first trial, the first jury may have accepted some of those arguments and rejected others. Unless the jury made very specific findings, however, there would be no way for anyone to know the precise basis for the first jury’s findings, and therefore no way to comply with the requirement of California law that punitive damages must be based on malice, oppression or fraud in the conduct that gave rise to liability.

  • L.A. Times Story Mangles the Facts on Punitive Damages

    This L.A. Times story (“Toyota Just the Latest Automaker To Face Auto Safety Litigation“) is not really about punitive damages. But it does touch on the topic, and in the process it gets the facts all wrong.

    The author of the story argues that products defect litigation has made cars safer. As an example of a case that spurred safety innovations, the story reports that in the 1975 case Grimshaw v. Ford Motor Co., “a California appeals court ordered the carmaker to pay $125 million in punitive damages to the victims of one of the Ford Pinto’s fiery explosions.”

    Umm, no. The Court of Appeal ordered Ford to pay $3.5 million in punitive damages, not $125 million. The jury awarded $125 million in punitive damages, but the trial court reduced that amount to $3.5 million (by ordering a conditional new trial subject to a remittitur), and the Court of Appeal affirmed that ruling.

    The story comes a little closer to the truth when it says a couple of sentences later that “[t]he award was reduced to $3.5 million in a post-verdict negotiation . . . .” But that’s not right either. As noted, the punitive damages award was reduced to $3.5 million by the trial court, not as a result of a post-verdict negotiation. The post-verdict negotiations reduced the compensatory damages award from $3.5 million to a little over $3 million (see footnote 1 in the opinion), but the parties did not agree to a reduction of the punitive damages. If the parties had agreed to a post-verdict of reduction of punitive damages, there wouldn’t have been an appeal on the punitive damages, and so the Court of Appeal couldn’t possibly have ordered Ford to pay the full amount of the jury’s award, as the story reports. In short, the article is not only wrong on the facts, but it reports facts that are just plain nonsensical.

    As I said, the Times article isn’t really about punitive damages, so perhaps I’m being unfair by zeroing in on that part of the article for criticism. But in my view, this article is an example of a recurring pattern; when reporters in the mainstream media start talking about punitive damages, they often mangle the facts.

  • Boothby v. Parker: $350,000 in Punitive Damages Affirmed, Despite Reduction of Compensatory Damages

    There seems to be a growing split in the California Court of Appeals on the question of what should happen to a punitive damages award when a court slashes the compensatory damages award. In SEIU v. Colcord, the First Appellate District, Division One, ordered a reduction in the compensatory damages and then sent the case back to the trial court to reconsider the amount of the punitive damages in light of the reduction. But in McGee v. Tucoemas, both the trial court and the Court of Appeal refused to reevaluate the amount of punitive damages after a reduction of the punitive damages award.

    In this unpublished opinion, the Second Appellate District, Division Two, affirms a $350,000 punitive damages award, even though the court reduced the compensatory damages from $725,000 to $325,000. The court relies on McGee but does not discuss SEIU or any other similar authority. (E.g., Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1254 [reducing compensatory damages and reducing punitive damages to preserve the ratio awarded by the jury].)

    This is an issue that could eventually end up before the California Supreme Court.