California Punitives by Horvitz & Levy

  • Patton v. Target Corp.: Ninth Circuit Certifies Punitive Damages Question to Oregon Supreme Court

    A Ninth Circuit panel consisting of Judges Pregerson, Rymer, and Tashima issued this published order today, certifying a question to the Oregon Supreme Court.

    The dispute in this case centers around Oregon’s split-recovery statute (OR REV. STAT. section 13.735), which provides that the state of Oregon is entitled to 60 percent of any punitive damages award rendered under Oregon law. The statute applies to punitive damages cases decided under Oregon law in federal court.

    The statute gives parties a strong incentive to settle whenever punitive damages are awarded. Settlement benefits both parties because the plaintiff can obtain more, and the defendant can pay less, by cutting the state out of the deal. Or at least the parties here thought they could achieve that result. The state had other ideas.

    The jury in this case awarded roughly $85,000 in compensatory damages and $900,000 in punitive damages. After the verdict, but before the district court entered judgment, the parties settled and jointly moved for a judgment dismissing the case. The motion did not disclose the amount of the settlement and did not provide for any payment to the state. The state intervened, arguing that it had a vested interest in its share of the punitive damages award and that the parties could not settle without its consent. The district court (Judge Brown of the District of Oregon) allowed the state to intervene but ultimately granted the parties’ motion. The state appealed.

    On appeal, the Ninth Circuit determined that the split-recovery statute is ambiguous with respect to the state’s ability to block this kind of settlement. The statute provides that the state becomes a “judgment creditor” upon rendition of a punitive damages verdict, which doesn’t really make any sense because ordinarily there can be no judgment creditor without an actual judgment. The statute doesn’t explain what rights the state has as a judgment creditor before judgment has been entered. Rather than interpreting the statute itself, the Ninth Circuit has certified the following question to the Oregon Supreme Court:

    When a jury has returned a verdict that includes an award of punitive damages under Oregon law, is the State of Oregon’s consent necessary before a court may enter a judgment giving effect to any settlement between the parties that would result in a reduction or elimination of the punitive damages to which the State would otherwise be entitled under Oregon Revised Statutes § 31.735?

    The Oregon Supreme Court is almost certain to accept this issue. As we noted in a previous post, this same issue was pending before the Oregon Supreme Court in another case, but the court never reached the issue because the state decided to settle its claim for a share of the punitive damages award.

    Related posts:

    Oregon Drops Punitive Damages Claim in Order to Save Jobs

    Man v. Freightliner—Oregon Court of Appeals Allows State to Pursue a Share of $350 Million Punitive Damages Verdict After Parties Settle

  • Walmach v. Foster Wheeler: California May Punish for Out-of-State Conduct

    The California Court of Appeal (Second District, Division Three) issued this unpublished opinion today, affirming a $2 million punitive damages award. The court ruled that the trial court did not violate the Due Process Clause by imposing punitive damages for conduct that occurred outside of California.

    The defendant’s alleged misconduct in this case occurred in Washington, a state which does not allow punitive damages. On appeal, the defendant argued that California cannot impose punitive damages for conduct that occurred in another state. The defendant cited the statement in BMW v. Gore that “a State may not impose economic sanctions on violators of its laws with the intent of changing the tortfeasors’ lawful conduct in other States.” The defendant also cited these statements in State Farm v. Campbell:

    A State may not punish a defendant for conduct that may have been lawful where it occurred . . . Nor, as a general rule, does a State have a legitimate interest in imposing punitive damages to punish a defendant for unlawful acts committed outside of the State’s jurisdiction.

    The Court of Appeal rejected these arguments for multiple reasons.

    First, the court observed that the defendant’s conduct (manufacturing a defective product) was not in fact lawful in Washington. In Washington, as in California, selling a defectively designed product is a tort. In my view, that analysis is insufficient to resolve the issue, because it fails to address Campbell’scomment that a state generally has no legitimate interest in punishing lawful or unlawful out-of-state conduct.

    Second, the court held that California may legitimately punish a defendant for out-of-state conduct that causes injury in California. In this case, the plaintiff was a resident of California when he was injured by the defendant’s product. This seems like a more legitimate response to the BMW/Campbell extraterritoriality problem. In essence, the court is saying the conduct was not truly out-of-state conduct, because the plaintiff’s exposure and injury occurred in California.

    Third, the court observed that the defendant had not challenged the trial court’s jurisdiction, and had not argued that Washington law should govern this case. According to the court, because defendant did not challenge the application of California law, the comity and due process considerations discussed in BMW and Campbell did not prohibit the trial court from awarding punitive damages under California law. I am not quite sure about the validity of this argument. BMW and Campbell are based upon the principle of fair notice; a defendant cannot be punished unless it had fair notice that its conduct would be punishable. I don’t know how a court can say that a defendant operating in a state that does not allow punitive damages has fair notice that it might be subjected to punitive damages in another state decades later. If the defendant knowingly sold its product in California, that might provide a basis for concluding that the defendant had fair notice of potential liability for punitive damages under California law. But on a different set of facts, where the defendant does not intend or expect that its product will be used in another state, the imposition of punitive damages would seem to be a Due Process problem, even if that state may have personal jurisdiction over the dispute.

    In any event, this opinion is not likely to be the last word on these issues. Given the growing number of lawsuits being filed in California for conduct that occurred in other states, or even other countries, these issues are bound to recur.

  • Microsoft Files i4i Brief; Contrary to Prior Reports, Punitive Damages Not at Issue

    We previously reported on a huge judgment against Microsoft for alleged infringement of a patent owned by i4i Limited Partnership. In our report, we said (based on another blog’s post about the same case) that the judgment included $40 million in punitive damages.

    Microsoft has now filed its opening brief on appeal (link courtesy of AmLaw Daily), which makes clear that this is technically not a punitive damages case at all. The district court awarded $40 million in “enhanced damages,” which are authorized under the Lanham Patent Act for cases of wilful infringement. Such damages are conceptually similar to punitive damages (since they are awarded to punish the defendant, not to compensate the plaintiff), but they are not true “punitive damages” in the traditional sense of that term. Sorry for the misinformation. Nothing to see here. Move along.

  • Briefs in Roby v. McKesson Now Available on Cal. Supreme Court Website

    Woo-hoo! This is the sort of thing an appellate nerd like me gets excited about. The California Supreme Court has introduced a terrific new feature to its website. The court has posted links to the briefs in the cases on the court’s September 2 oral argument calendar (including Roby v. McKesson). The links include both the review-stage briefs and the merits-stage briefs. I certainly hope the court continues this feature for future argument calendars.

    Hat tip: The Complex Litigator. As Scott at the Complex Litigator points out, this may be the court’s response to a recent controversy over the court’s distribution of briefs to Lexis and WESTLAW. Unlike those fee-based services, the court’s website makes the briefs freely available to anyone, conveniently grouped together so that no searching is necessary.

  • Martin v. Harpaz: $6.6 Million in Punitive Damages Reversed Because of Insufficient Financial Condition Evidence

    The California Court of Appeal (Second Appellate District, Division One) issued this unpublished opinion yesterday, reversing a punitive damages award because the plaintiff failed to introduce sufficient evidence of the defendants’ financial condition. The punitive damages awards, against 5 different defendants, totaled $6.6 million.

    The plaintiff, apparently aware of California’s rule requiring plaintiffs to present meaningful evidence of the defendant’s financial condition, introduced some evidence of the defendants’ finances. The evidence showed the defendants had some large cash receipts for their business operations, but it also showed that the defendants’ had massive debts, and that some of the defendants had declared bankruptcy. Apparently, the plaintiffs offered no forensic accountant or other expert to estimate the defendants’ net worth.

    After a bench trial, the trial court awarded punitive damages awards based on its conclusion that none of the defendants’ testimony regarding their net worth was worthy of belief. Thus, the trial court seemed to mistakenly believe that the defendants, rather than the plaintiffs, had the burden of proof on this issue.

    The Court of Appeal reversed. It ordered all the punitive damages awards stricken from the judgment because the plaintiffs had failed to present evidence of the defendants’ net worth. By my quick count, this is the seventh unpublished California opinion this year reversing a punitive damages award because of the plaintiffs’ failure to present meaningful financial condition evidence.

  • L.A. Jury Awards $13.8 Million in Punitive Damages to Smoker’s Daughter in Bullock Retrial

    Bloomberg reports that a Los Angeles jury has awarded $13.8 million in punitive damages in the retrial of Bullock v. Philip Morris. The compensatory damages were $850,000.

    As readers of this blog may recall, last year the Court of Appeal reversed a $28 million punitive damages award in this case and ordered a retrial on punitive damages. We blogged quite a bit about that decision and the subsequent proceedings before the California Supreme Court. In a nutshell, the Court of Appeal reversed because the trial court improperly refused a defense request for an instruction telling the jury not to punish for harm to others (i.e., an instruction based on Philip Morris v. Williams.)

    The jury in the first trial actually awarded $28 billion in punitive damages, resulting in the second largest judgment in U.S. history. The trial court, however, cut that down to $28 million on posttrial motions. On retrial, plaintiffs’ lawyer Michael Piuze again asked the jury to award “billions,” but instead he got a little less than half of the previous $28 million award. Still a lot of money, but surely a disappointment to Piuze. According to Bloomberg, one of the dissenting jurors wanted to award $500 million. As it is, the $13.8 million award is more than 16 times higher than the actual damages.

  • Hawaii Appeals Court Reverses $12.5 Million Punitive Damages Award

    The Hawaii Intermediate Court of Appeals has issued an opinion reversing a $12.5 million punitive damages award in a products liability case.

    The plaintiff was injured in an auto accident and sued Takata Corporation, a seatbelt manufacturer. The plaintiff claimed he was wearing his seatbelt during the accident but it failed to restrain him and he was ejected from the vehicle. After a jury trial, the plaintiff obtained a judgment for $4.5 million in compensatory damages and $12.5 million in punitive damages.

    The Hawaii appellate court reversed the entire judgment and ordered a new trial, ruling that the trial court had erroneously excluded testimony by a defense expert. The court, having ordered a complete new trial, did not need to address any punitive damages issues. Nevertheless, it went on to hold that the plaintiff was not entitled to punitive damages because he failed to prove by clear and convincing evidence that Takata knew or should have known that the seatbelt in question was susceptible to failure.

    This is just my personal nonscientific observation, but there seems to be an above-average percentage of complete reversals in cases involving huge punitive damages awards. If that’s true, it’s probably because a disproportionately large punitive damages award is often a sign that something went wrong during the trial. That’s my defense lawyer perspective but I’m sure the plaintiffs’ bar sees things differently.

    UPDATE: For a summary of other aspects of the opinion (Udac v. Takata), see Hawaii Legal News.

  • “Smokers, tobacco, both winners in early Engle cases”

    Reuters has this report about the results thus far in the series of individual smoker lawsuits taking place in Florida.

    As mentioned in prior posts, these suits are taking place as a result of the Florida Supreme Court’s 2006 decision in Engle v. Liggett Group, which reversed a $145 billion class action punitive damages award and ruled that the plaintiffs had to bring their own individual cases to prove that cigarettes caused their illnesses.

    According to the Reuters story, the plaintiffs have prevailed in seven of the nine cases to go to trial thus far, winning damages ranging from $600,000 to $30 million. Only two of the plaintiffs have recovered punitive damages.

  • California Supreme Court Will Hear Oral Arguments in Roby v. McKesson on Sept. 2

    In prior posts, we have mentioned in Roby v. McKesson, a case pending before the California Supreme Court. The briefing in that case has focused primarily on employment law issues, but punitive damages are in the mix.

    For example, Roby argues that Court of Appeal went too far in reducing her punitive damages award from $15 million down to $2 million, for a punitive-to-compensatory ratio of 1.4 to 1. Roby’s petition for review suggested that the reduction was the result of a “knee-jerk adherence” to the “mere suggestion” in State Farm v. Campbell that the ratio of punitive damages to compensatory damages should be low, perhaps no more than 1 to 1, in cases involving substantial compensatory damages.

    In April of this year, the Supreme Court asked the parties to file supplemental briefs to address whether the jury’s damages awards are so ambiguous that a new trial is required. That question raises the distinct possibility that the Supreme Court won’t even reach the punitive damages issues in Roby, but we’re continuing to keep an eye on this one just in case. Oral argument has been set for Sept. 2. Click here to view the court’s online docket.

  • New Mexico Appeals Court Reverses $50 Million Punitive Damages Award

    Back in 2007, a New Mexico jury awarded $3.2 million in compensatory damages and $50 million in punitive damages for the alleged neglect of a nursing home patient. The defendant appealed, arguing, among other things, that the punitive damages were unconstitutionally excessive, since the ratio of punitive damages to compensatory damages exceeded 15 to 1.

    Last week, the New Mexico Court of Appeals issued an opinion (Keith v. ManorCare, Inc.) reversing the entire judgment and ordering a new trial. The court did not reach the ratio issue because it concluded that the trial court made a prejuducial instructional error that affected both liability and damages, requiring a complete new trial.