California Punitives by Horvitz & Levy

  • Hold the Gravy: No Punitive Damages in Fosamax Litigation

    Bloomberg is reporting that U.S. District Judge John Keenan intends to dismiss the plaintiffs’ punitive damages claims in a massive lawsuit against Merck & Co.

    The lawsuit alleges that Merck’s osteoporosis drug Fosamax causes irreversible “jaw rot.” (I don’t know exactly what that is, but it doesn’t sound good.) Merck is facing more than 850 lawsuits over Fosamax. Judge Keenan’s ruling comes in connection with three bellwether trials set to begin on August 11.

    The plaintiffs’ lawyers are downplaying the dismissal of their punitive damages claim. “The punitive damages are just the gravy,” said plaintiffs’ counsel Timothy O’Brien.

  • Berry v. Taggart: Trial Court Properly Denied Motion to Strike

    The California Court of Appeal (First District, Division 1) issued this unpublished opinion, affirming a trial court order denying a defendant’s special motion to strike the plaintiff’s complaint under Code of Civil Procedure section 425.16 (the “anti-SLAPP” statute).

    I won’t delve into the anti-SLAPP aspects of this opinion, which are beyond the scope of this blog. For our purposes, its important to note only that an appellate court reviewing the denial of an anti-SLAPP motion must consider whether the plaintiff established a probability of prevailing on the complaint. With respect to the punitive damages allegation in the complaint, the defendant argued that the plaintiff could not prevail on its fifth cause of action for punitive damages because California law does not recognize a “cause of action” for punitive damages.

    The Court of Appeal agreed that there is no separate cause of action or tort for punitive damages under California law. But the court nevertheless concluded that the fifth cause of action in plaintiff’s complaint, although styled as a cause of action for punitive damages, actually stated facts sufficient to support a cause of action for malicious prosecution. The court went on to say that, because punitive damages are unquestionably recoverable in a malicious prosecution action, plaintiff had established a likelihood of obtaining punitive damages sufficient to defeat the defendant’s special motion to strike.

  • Superior Dispatch, Inc. v. Insurance Corp of New York: Trial Court Erred in Striking Punitive Damages Claim in Insurance Bad Faith Case

    The California Court of Appeal (Second District, Division 3) issued this published opinion yesterday, reversing a trial court’s grant of summary judgment to an insurer in an insurance bad faith suit.

    Among other things, the opinion states that the trial court erred in striking the plaintiff’s punitive damages claim because the facts alleged in the complaint would be sufficient to support a finding of “oppression,” one of the predicates to awarding punitive damages under Civil Code 3294.

    The punitive damages portion of the opinion is not particularly noteworthy. We mention it only in connection with our ongoing efforts to develop a complete picture of all the punitive damages decisions coming out of the California Court of Appeal.

  • $25 Million Punitive Damages Award in Riverside Employment Case

    The Riverside Press-Enterprise is reporting that a jury has awarded $916,000 in compensatory damages and $25 million in punitive damages in an age discrimination case against Sears Holdings. The plaintiff, a former manager of a KMart store, claims he was fired as part of a company-wide policy of replacing older workers with “fresh blood.”

    The 27.3-to-1 ratio of punitive damages to compensatory damages is suspect, to say the least. Not surprisingly, Sears says it plans to file posttrial motions and, if necessary, an appeal.

  • Some Stats On Punitive Damages in the California Court of Appeal

    Since we began this blog in January 2008, we’ve tracked every California Court of Appeal opinion on the topic of punitive damages, published and unpublished. As a result, we’ve collected a fair amount of data. I’m starting to sift through some of that data to see what it might tell us about how our appellate courts deal with punitive damages. I’ve started by looking just at the 2009 California punitive damages decisions. When I have time, I’ll update these figures with the cases from 2008.

    Total decisions, published and unpublished

    There have been 26 California Court of Appeal decisions in 2009 addressing punitive damages, not counting cases where punitive damages were awarded but the court of appeal’s opinion did not address punitive damages issues (e.g., not including Blanks v. Seyfarth Shaw, in which the Court of Appeal ordered a new trial on all issues, resulting in the reversal of a $15 million punitive damages award). Only 2 of the punitive damages opinions in 2009 have been published. (Scott and Major).

    Defendants’ success rates in challenging punitive damages

    To date, there have been 18 appeals in 2009 involving a defendant’s challenge to an award of punitive damages. (As explained below, the other cases involve defense verdicts or punitive damages claims that were dismissed before trial.)

    In 13 of those 18 cases, the defendant was successful in getting a punitive damages award vacated or reduced, either by the trial court or the court of appeal. That’s an overall success rate of 72 percent for defendants.

    In 6 of those 18 cases (33 percent), the punitive damages were vacated entirely.

    Looking exclusively at cases in which the trial court rejected the defendants’ posttrial challenges, the defendants succeeded in getting some relief from the Court of Appeal (either a reduction or a completely reversal) in 8 out of 13 cases (62 percent).

    Plaintiffs’ success rates in appealing from trial court rulings for the defense

    There have been 4 cases so far in 2009 in which a plaintiff appealed from a trial court decision dismissing a punitive damages claim (by nonsuit, directed verdict, or a motion to strike). Only one of those plaintiffs were successful (25 percent).

    There have been 3 cases in which plaintiffs appealed from a decision not to award punitive damages (two jury trials and one bench trial). All 3 of those appeals were unsuccessful.

    Conclusions

    These sample sizes are too small to support any conclusions. And even when we have more data, it is important to keep in mind that these stats are based exclusively on appellate decisions, and do not include cases in which a trial court made a posttrial ruling that was never appealed. So you have to take all these numbers with a grain of salt.

    Nevertheless, the one thing that jumps out at me from these stats is the high success rates for defendants. It will be interesting to see whether that is just a 2009 anomaly, or whether those percentages hold true when we add in the stats from the 2008 cases.

  • L.A. Jury Awards $370 Million Against Co-Founder of Guess Inc.

    The Associated Press is reporting that a Los Angeles jury has awarded a $370 million verdict, including $25 million in punitive damages, in a defamation lawsuit against Georges Marciano, co-founder of Guess, Inc.

    The plaintiffs in the action are five former employees of Marciano. He sued them in 2007, accusing them of stealing from him. His claims were dismissed, but the ex-employees counter-claimed for defamation.

  • Prof. Dan Markel Previews Article: “Taxing Punitive Damages”

    Professor Dan Markel of the Florida State University College of Law has a post on Prawsblog previewing his upcoming article on taxation of punitive damages. Here’s his preliminary abstract:

    In this article, we address the important but astonishingly under-examined issues associated with the taxation law and policy related to punitive damages. For the most part, the tax consequences of punitive damages are not on anyone’s minds, and as a result of this blind spot, plaintiffs and their lawyers are likely leaving enormous amounts of money on the table in every case involving punitive damages against defendants whose torts occurred in the context of business operations. Of course, even if we assumed that decision-makers regarding punitive damages were aware of the relevant tax effects, there are still a number of other important issues affecting whether a jurisdiction should make punitive damages a) deductible from defendants’ gross income or non-deductible, and b) taxable gains to the plaintiff.

    This Article examines those issues, and by doing so, spotlights the policy difficulties associated with trying to use tax law to help achieve the goals of current punitive damages law. Contrary to a number of scholars who have flatly endorsed the move to a non-deductibility rule to simply increase the putative “sting” of punitive damages, we explain what that change in taxation would augur for a broad array of policy concerns including federalism, settlement incentives, collusion against third parties, and administrative oversight. Although it is not without its own problems, we suggest that a tax-aware decision-maker might better gross-up the damages to
    take account of one’s marginal tax rate rather than simply make the punitive damages non-deductible. Moreover, because we think a lot of the difficulties associated with the taxation of punitive damages cannot be readily fixed simply by tweaking tax law, we sketch out in the last two parts of the Article a vision for what a more attractive punitive damages regime would look like, and how the tax rules would correspond appropriately.

  • Essex Ins. v. Professional Building Contractors: Punitive Damages Reduced to 1-to-1 Ratio in Insurance Bad Faith Case

    The California Court of Appeal (Second Appellate District, Division Two) has issued an opinion which, although unpublished, is a must read for anyone handling an insurance bad faith case involving punitive damages.

    The jury awarded $682,000 in compensatory damages and $2.5 million in punitive damages (a ratio of 3.7-to-1) against an insurance company for unreasonably denying coverage. The trial court granted a conditional new trial unless the plaintiff agreed to accept a remittitur of the punitive damages to $682,000. The plaintiff refused to accept the remittitur and appealed from the order granting a new trial.

    The Court of Appeal affirmed. First, it noted the “abuse of discretion” standard of review governs appellate review of a trial court order granting a conditional new trial based on excessive punitive damages, not the “de novo” standard of review that applies to a defendant’s appeal from a judgment awarding punitive damages.

    Next, the court evaluated the defendant’s conduct and determined that it was relatively low on the reprehensibility scale because the plaintiff’s losses were purely economic, there was no indifference to public health or safety, the plaintiff was not financially vulnerable, and the defendant was not a repeat offender.

    Turning to the ratio between punitive and compensatory damages, the court cited several recent California opinions that have imposed a 1-to-1 limit in cases with relatively low levels of reprehensibility. The court rejected the plaintiff’s argument that the ratio calculation should include prejudgment interest or speculative “potential harm” claimed by the plaintiff. The court also cited Justice Souter’s majority opinion in Exxon Shipping, which noted that the median ratio is less than 1-to-1 across the entire gamut of circumstances that can support punitive damages.

    Finally, when considering the third guidepost for evaluating punitive damages – – legislative or regulatory penalties for comparable misconduct – – the court rejected the plaintiff’s argument that the defendant insurer could have been fined $10,000 under Insurance Code section 790.035 for each “will, unfair or deceptive act” in its dealing with the plaintiff. The court said that even assuming the insurer’s acts were punishable under that statute, the insurer’s liability in this case was based on its handling of a single claim for a single insured, and therefore was not comparable to conduct that would trigger multiple penalties under the statute.

    By our count, this is the sixth California appellate decision in the past 3 years in which a punitive damages award was reduced from a single digit ratio down to a 1-to-1 ratio, either by the trial court or by the court of appeal. The others are:

    Stevens v. Vons (2009) [unpublished] [ratio reduced from 10-to-1 down to 1-to-1]

    Walker v. Farmers Ins. Group (2007) 153 Cal.App.4th 965 [ratio reduced from 5.6-to-1 down to 1-to-1]

    Jet Source Charter, Inc. v. Doherty (2007) 148 Cal.App.4th 1 [ratio reduced from 4-to-1 down to 1-to-1]

    Grassilli v. Barr (2006) 142 Cal.App.4th 1260 [ratios reduced from 8.4-to-1 and 7.5-to-1 down well below 1-to-1]

    Roby v. McKesson HBOC (2006) 146 Cal.App.4th 63, review granted [ratio reduced from 10.7-to-1 down to 1.4-to-1]

  • Pagarigan v. Libby Care: Conclusory Allegations of Corporate Ratification Cannot Support Punitive Damages Claim

    The California Court of Appeal (Second Appellate District, Division Seven) issued this unpublished opinion yesterday, affirming a trial court’s order striking a claim for punitive damages.

    The plaintiffs were seeking punitive damages against a corporation that operates a nursing home. The plaintiffs alleged that the nursing home was understaffed and underfunded, which ultimately led to the death of their mother, a resident at the facility.

    Under California law, punitive damages cannot be awarded against a corporation unless an officer, director, or managing agent of the corporation committed, authorized, or ratified the punishable conduct. (Civil Code section 3294.) To satisfy this requirement, the plaintiffs alleged in their complaint that the decision to underfund and understaff the facility was “committed by, or authorized and ratified by officers, directors and/or managing agents.” In other words, the complaint alleged a legal conclusion but did not allege any specific facts to support that conclusion.

    The Court of Appeal affirmed the trial court’s order striking the punitive damages claim, holding that:

    absent any allegations that employees at [the nursing home] have any responsibility for or authority over . . . corporate-wide policies and procedures, rather than day-to-day management duties at one facility, or allegations that individuals . . . within [the corporation’s] leadership group were aware of and ratified the corporate funding and staffing policies that allegedly led to the abuse suffered by [plaintiffs’ mother], the trial court properly granted the motion to strike the claims for punitive damages

    In the year and half since we launched this blog and began tracking all California appellate opinions on punitive damages, this is only the second case involving a punitive damages claim that was rejected because the allegations of the complaint were insufficiently specific. (Here’s our post about the other case.)

  • Texas Jury Awards $145 Million in Punitive Damages

    Law.com is reporting that a Texas jury has awarded $178.7 million, including $145 million in punitive damages, against NL Industries (a holding company) and its general counsel (who is personally liable for $5 million of the punitive damages). The Law.com story says the plaintiffs were minority shareholders in a subsidiary of NL Industries. They claimed they lost most of their investment when the holding company improperly stripped the subsidiary of its assets. Not suprisingly, NL is planning an appeal.