Governor Schwarzenegger has issued a press release listing his proposals for getting California’s economy back on track. One of those proposals is a cap on punitive damages. The press release doesn’t explain exactly where the cap would be set, but it hardly matters. As I mentioned in my previous post, the California Legislature shot down a proposed cap last year and they’re not likely to change course in the near future. The consumer attorneys won’t let that happen.
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Another Case Involving the Validity of Statutory Caps on Punitive Damages
The California Legislature has never imposed a cap on the amount of punitive damages awards a jury can award, and that’s not likely to change any time soon. (See our post about the failed effort to enact a cap in California last year). In the rest of the country, however, roughly half of the states have adopted a statutory cap of some kind. According to this Daily Journal column, caps have been enacted in 22 of the 45 states that allow punitive damages.
One state with a cap is Nevada, which has a statute limiting punitive damages to three times the amount of compensatory damages, up to a maximum of $300,000. According to this article in the Las Vegas Review-Journal, a Las Vegas plaintiffs’ lawyer is mounting a challenge to the constitutionality of that statute.
Similar issues have been raised in other states, with the result that caps have usually been upheld. For example, caps have been upheld in Alaska, North Carolina, Ohio, Texas, and Virginia, but overturned in Georgia, Illinois, and Indiana. The validity of the Georgia cap is currently pending before the Georgia Supreme Court.
The most common argument against statutory caps on punitive damages is that they violate the right to a jury trial. But creative plaintiffs’ lawyers have also argued that the caps violate: (1) state constitutional provisions guaranteeing open courts, (2) separation of powers principles, (3) specific statutes governing punitive damages, and (4) state laws prohibiting special legislation.
Given the enormous sums of money at stake, we can expect to see a lot more litigation on this issue around the country (but not in California).
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Everest Properties II v. Diller: Punitive Damages Claim Barred by Collateral Estoppel
We don’t see many opinions involving the intersection of punitive damages and collateral estoppel. But in this unpublished opinion, the California Court of Appeal (First Appellate District, Division One), holds that the collateral estoppel doctrine bars a plaintiff from seeking punitive damages.
The plaintiffs, investors in a partnership, sued the corporate general partner for breach of fiduciary duty. They won $23 million in compensatory damages, but the trial court ruled that the plaintiffs could not recover punitive damages because they failed to prove by clear and convincing evidence that the corporation acted with malice, oppression, or fraud.
The plaintiffs then pursued a separate action against the individual who controlled the corporation, trying to get punitive damages for the same misconduct at issue in the first action. The trial court dismissed the action and the Court of Appeal affirmed, ruling that the plaintiffs were collaterally estopped from seeking punitive damages. The court determined that the two actions involved identical allegations of misconduct. Because the trial court in the first action determined that the conduct did not support punitive damages against the corporation, the plaintiffs could not use the same conduct to support a punitive damages claim against the individual.
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“Depecage, Punitive Damages, and Mass Torts”
Jim Beck at Drug and Device Law has an interesting post about choice of law issues in mass tort cases involving claims for punitive damages. Beck suggests that the law of the defendant’s home state should govern the punitive damages issues, even if the law of a different forum (e.g., the place of injury) governs the plaintiff’s entitlement to compensatory damages. It’s an interesting concept that I have not seen explored elsewhere. Beck cites an Indiana opinion that rejected the concept, but that shouldn’t stop parties from raising this issue in other jurisdictions.
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Goldstein v. Beck: Unpublished Opinion Affirms $4 Million in Punitive Damages
The California Court of Appeal (Second Appellate District, Division Seven) issued this unpublished opinion last week, affirming a $2 million compensatory damages award and a $4 million punitive damages award. The court rejected the appellant’s argument that the record contained no substantial evidence of malice, oppression, or fraud. I won’t comment further about this one, since my firm represents the appellant and the litigation is ongoing.
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A Quiet Year for Blockbuster Punitive Damages in California
Bruce Nye at Cal Biz Lit has prepared a chart showing a breakdown of the compensatory damages and punitive damages awarded in the top ten verdicts in California in 2009 (as reported by the Recorder’s Legal Pad). As Bruce notes, only three of the top 10 verdicts included punitive damages, and none of them include a “blockbuster” award (i.e., an award in excess of $100 million).
As we observed in this post, a recent study shows that California leads the nation with 25 blockbuster punitive damages verdicts since 1985. That works out to roughly one per year, so a single year without such an award isn’t all that surprising. We’ll have to see what the next few years bring. Even if turns out that California juries have stopped dishing out blockbuster punitive awards, we’ll still have those “garden variety” 8-digit punitive damages awards to blog about. (Though we won’t be blogging much about the $50 million punitive damages award on top of the 2009 list, since our firm is representing the defendant in that case.)
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“The Supremes and Punitive Damages”
Judge Rex Heeseman of the Los Angeles Superior Court has an essay entitled “The Supremes and Punitive Damages” in today’s Daily Journal (subscription required). The essay gives a brief overview of the recent punitive damages decisions from the U.S. Supreme Court and the California Supreme Court, particularly last month’s decision in Roby v. McKesson, which we summarized here.
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Texas Jury Awards $100 Million in Punitive Damages Against BP
I will go out on a limb and predict that this award won’t hold up. As reported by the Associated Press, a jury in federal district court in Texas has awarded $100 million in punitive damages to 10 workers at a BP plant who claimed they were exposed to toxic fumes.
Why do I say the award won’t hold up? Because the jury awarded $10 million in punitive damages to each plaintiff, but awarded only $5,000 to $10,000 in compensatory damages to nine of the ten plaintiffs, and $240,000 or so to the remaining plaintiff. That means the ratio of punitive damages to compensatory damages is somewhere between 10,000 to 1 and 20,000 to 1 for nine of the plaintiffs, and 42 to 1 for the other plaintiff.
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“The Need for Enforcement of U.S. Punitive Damages by the European Union”
The Minnesota Journal of International Law has an article by Jessica J. Berch in its Winter 2010 edition entitled “The Need for Enforcement of U.S. Punitive Damages by the European Union.” For those of you with access to Westlaw or Lexis, the citation is 19 Minn. J. Int’l L. 55.
As Adam Liptak of the New York Times noted in a story last year, many European nations refuse to enforce U.S. punitive damages awards because they believe that compensation should be the only goal of civil litigation, and punishment should be reserved for criminal proceedings. Ms. Berch would like that to change, as summarized in the article’s conclusion: “In a world with increasing amounts of cross-border transactions, it is imperative that judgments can be enforced in countries other than the one handing down the judgments. If another round of negotiations begins over the provisions of the Hague Convention, this author hopes that both sides will be more informed about the trends in punitive damages and will use that information to grant reciprocal, uniform, and liberal enforcement to all foreign judgments.”
UPDATE: (1/11/10: Donna Bader comments on this post at her blog, An Appeal to Reason.)
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North Carolina Supreme Court Applies “Clear and Convincing” Standard to Appellate Review of Punitive Damages
The North Carolina Supreme Court’s decision last week in Scarborough v. Dillard’s addresses an issue that has divided California appellate courts for quite some time.
The issue is whether the “clear and convincing evidence” standard has any role in appellate review of punitive damages awards. In most jurisdictions, plaintiffs are not entitled to punitive damages unless they can prove by clear and convincing evidence that the defendant acted with malice. But what happens when a defendant challenges a jury’s award of punitive damages, arguing that the award is not supported by substantial evidence? Should the reviewing court (either an appellate court or a trial court ruling on a JNOV motion) apply the usual “substantial evidence” rules without regard to the heightened standard of proof, and uphold the award if there is any slight amount of evidence supporting a finding of malice? Or should the reviewing court take the heightened standard of proof into account?
As we have reported in prior posts, California courts are all over the map on this issue. There is published case authority expressly holding that reviewing courts should take the “clear and convincing” standard into account. (See Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847 [“since the jury’s findings were subject to a heightened burden of proof, [this court] must review the record . . . in light of that burden. In other words, [this court] must inquire whether the record contains ‘substantial evidence to support a determination by clear and convincing evidence’”].) But there are other cases outside the punitive damages context holding that the clear and convincing evidence standard does not apply on appellate review. We occasionally see unpublished opinions (like this one and this one) applying this analysis to punitive damages decisions without even mentioning Shade Foods.
California Supreme Court opinions spanning a century or more leave the question up in the air, as we noted here. Last year the California Supreme Court granted review on this issue, but later dismissed review because the parties settled the case. Sooner or later, the court is likely to take this issue up again, but for now California law is in limbo.
In North Carolina, however, it is now clear that reviewing courts should take the clear and convincing standard into account:
[W]e hold that in reviewing a trial court’s ruling on a motion for judgment
notwithstanding the verdict on punitive damages, our appellate courts must
determine whether the nonmovant produced clear and convincing evidence from
which a jury could reasonably find one or more of the statutory aggravating
factors required by N.C.G.S. § 1D-15(a) and that that aggravating factor was
related to the injury for which compensatory damages were awarded. Reviewing the trial court’s ruling under the “more than a scintilla of evidence” standard does
not give proper deference to the statutory mandate that the aggravating factor
be proved by clear and convincing evidence. Evidence that is only more than a
scintilla cannot as a matter of law satisfy the nonmoving party’s threshold
statutory burden of clear and convincing evidence.Hat tip: North Carolina Business Litigation Report
Related post:
Interesting North Carolina Punitive Damages Decision on the Standard of Review