California Punitives by Horvitz & Levy

  • Scott v. Phoenix Schools: Wrongful Termination Alone is Not Enough to Support Punitive Damages

    The California Court of Appeal (Third Appellate District) reversed a $750,000 punitive damages award in this published opinion, holding that the defendant was liable for wrongful termination, but had not acted with malice or oppression and was therefore not liable for punitive damages.

    The plaintiff, the director of a preschool, refused to enroll a student because doing so would have put the school in violation of minimum teacher-student ratios for child care centers in California. When the parents complained to the school that the plaintiff was rude and dismissive, the school fired her. She sued, claiming she had been fired in violation of public policy, for refusing to violate the minimum teacher-student ratio. A jury awarded $1.1 million in compensatory damages and $750,000 in punitive damages. The Court of Appeal affirmed the jury’s liability finding and compensatory damages award, but reversed the punitive damages award:

    [W]e conclude that wrongful termination, without more, will not sustain a
    finding of malice or oppression. There was no evidence Phoenix attempted to hide
    the reason it terminated Scott. It admitted to terminating her because she would
    not enroll the McMaster child. Likewise, there was no evidence Phoenix engaged
    in a program of unwarranted criticism to justify her termination. Because there
    was nothing more than a wrongful termination here, punitive damages were not
    warranted, and the trial court should have granted defendant’s motion for
    judgment notwithstanding the verdict on the issue of punitive damages

    Interestingly, the court’s analysis seems to apply the “clear and convincing” evidence standard when reviewing the record for evidence to support the punitive damages award. (See, e.g., typed opn. p. 20 [“in order to sustain the punitive damages award, the evidence must leave no substantial doubt that Phoenix engaged in despicable conduct, or conduct intended to cause injury to Scott”].) As we have noted in prior posts, there is a split of authority in California as to whether appellate courts should consider the “clear and convincing” standard when reviewing punitive damages for substantial evidence, or whether that standard is for the exclusive use of the trial court. The California Supreme Court granted review to resolve that split last year in Harvey v. Sybase, but dismissed review when the parties settled. The Supreme Court is being asked to take that issue up again in Leeper-Johnson v. Prudential. (See the Supreme Court’s on-line docket.)

  • Monier-Kilgore v. Flores: Yet Another Reversal Based on a Plaintiff’s Failure to Prove the Defendant’s Financial Condition

    The California Court of Appeal (Third Appellate District) issued this unpublished opinion reversing $1.1 million in punitive damages because the plaintiff failed to introduce meaningful evidence of the defendant’s financial condition. The plaintiff put on evidence regarding the plaintiff’s income and bank deposits, but no evidence of the defendant’s liabilities and expenses. The court found that without such evidence, the jury had no basis for determining the defendant’s net worth or ability to punitive damages, especially since many of the defendant’s assets would be needed to satisfy the compensatory damages award.

    This is the third case in the past week in which a punitive damages award was reversed on this basis. (See our posts about the other two cases here and here.) It would have been four cases if the defense counsel in this case had not bailed out the plaintiff by presenting evidence of net worth after the plaintiff failed to do so.

    I have lost count of how many unpublished cases we have seen on this issue since we launched this blog in January 2008. Perhaps its time for the courts to publish a few of these decisions, to remind trial lawyers of the importance of presenting meaningful evidence of the defendant’s financial condition.

  • Exxon Mobil Asks 9th Circuit to Reconsider Valdez Costs Ruling

    As reported on SCOTUSblog, Exxon Mobil has filed a petition for rehearing, asking the Ninth Circuit to reconsider its ruling that Exxon is responsible for its own costs on appeal ($70 million). Exxon argues that it should be treated as a prevailing party because it succeeded in eliminating 90% of the $5 billion punitive damages awarded by the jury.

    As we noted yesterday, Exxon has decided not to challenge the Ninth Circuit’s determination that the plaintiffs are entitled to interest on the reduced punitive damages award dating back to the date of the original judgment.

    SCOTUSblog has posted a copy of Exxon’s petition for rehearing or rehearing en banc.

  • Punitive Damages and Default Judgments

    In California, a plaintiff cannot obtain punitive damages as part of a default judgment in a personal injury or wrongful death case unless the plaintiff first serves a statement of damages, specifying the amount of punitive damages requested. (See California Code of Civil Procedure 425.11, subd. (c).)

    This rule came in to play in two unpublished decisions issued this week by the California Court of Appeal. In Anson v. St. Michael’s Episcopal Church, the plaintiff failed to serve a statement of damages, and the Fourth Appellate District, Division Three, held that he was not entitled to recover punitive damages by default. By contrast, in Cantu v. Thomas, the plaintiff did serve a statement of damages requesting a specific amount of punitive damages, and the Fourth Appellate District, Division Two, affirmed the $20,000 in punitive damages he obtained by default.

    UPDATE: On June 30, the Second Appellate District, Division Eight, issued another unpublished opinion on this issue. In Daniel v. Lathen, the court upheld the portion of a trial court’s order that vacated a $320,000 punitive damages award obtained by default. The plaintiff was not entitled to punitive damages because he failed to serve a statement of damages before obtaining the default.

  • Exxon Will Not Ask Supreme Court to Review Valdez Interest Ruling

    The Associated Press is reporting that Exxon Mobil Corp. has decided not to seek certiorari from the portion of the Ninth Circuit’s recent opinion ordering Exxon to pay an additional $470 million in interest on the punitive damages award in the Exxon Valdez case. The story indicates, however, that Exxon may yet want to file a cert. petition challenging the part of the opinion that orders Exxon to bear its own costs on appeal ($70 million, consisting mostly of bond premiums). This 20 year litigation saga isn’t over quite yet.

  • Magana v. Charlie’s Foods: $500,000 Punitive Damages Award is Excessive Compared to Defendant’s $600,000 Net Worth

    The California Court of Appeal (4th District, Division 3) issued an unpublished opinion today, reversing a $500,000 punitive damages award as excessive.

    In this sexual harassment case, the defendant asked the Court of Appeal to reverse the punitive damages award in its entirety because the plaintiff failed to meet her burden of introducing meaningful evidence of the defendant’s financial condition. As readers of this blog are well aware, this unique feature of California law is a trap for many an unwary plaintiff’s attorney. (See, for example, these two decisions last week reversing punitive damages awards on this basis.)

    The Court of Appeal here agreed that plaintiff’s counsel failed to present adequate evidence of the defendant’s financial condition. (Typed opn., at p. 13 [“If all we had in this record was the evidence that Magana proffered as to Charlie’s financial condition, we would have to reverse and there would be no possibility of punitive damages on retrial . . . “].) Ordinarily, the plaintiff’s failure to present such evidence would have doomed the punitive damages award. But in this case, the court concluded that defense counsel had elicited evidence that the defendant’s net worth was at least $600,000. Based on that testimony, the court concluded that the record could support an award of some punitive damages, but not an award of $500,000 (83 percent of the defendant’s net worth).

    Having concluded that the award was excessive, the court was then faced with the question of the proper remedy. The court acknowledged that California law allows appellate courts in this situation to simply reduce the amount of punitive damages without ordering a new trial. Following this approach, the court could have used the “rule of thumb” that punitive damages cannot exceed 10 percent of the defendant’s net worth, and reduced the punitive damages to $60,000. (See Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1596.)

    Instead, the court chose to send the case back to the trial court to allow the jury to decide the proper amount of punitive damages in the first instance. But the court made clear that, for purposes of the retrial, the defendant’s net worth is established at $600,000.

    A retrial of this nature seems to offer little upside for the plaintiff. She must incur the expense of a retrial, during which the jury will have to hear much of the evidence from the first trial in order to assess the proper amount of punitive damages. The plaintiff runs the risk that the jury will not award any punitive damages, and even if she wins, any award larger than $60,000 can be challenged as excessive.

    I happened to be present in the courtroom when this case was argued. (I was arguing a different punitive damages case that has not yet been decided.) The plaintiff was represented on appeal by Norm Pine, a well-respected appellate specialist. Mr. Pine was asked by the court during argument what remedy the court should order if the court concluded that the defendant’s net worth was $600,000, based on the evidence in the record. My recollection is that Mr. Pine requested a new trial, to allow the plaintiff to present further evidence regarding the defendant’s finances. I don’t think Mr. Pine contemplated a retrial in which the defendant’s net worth would be fixed at $600,000.

  • Atlantic Sounding Co., Inc. v. Townsend: U.S. Supreme Court Holds That Punitive Damages Are Available in Maritime Cases

    In an unusual 5-4 grouping, Justice Thomas wrote the opinion for the court with Justices Stevens, Souter, Ginsberg and Breyer joining, holding that because punitive damages have long been an accepted remedy under general maritime law, and because neither Miles v. Apex Marine Corp., nor the Jones Act altered this understanding, punitive damages for the willful and wanton disregard of the maintenance and cure obligation remain available as a matter of general maritime law. Justice Alito dissented, joined by Chief Justice Roberts and Justices Scalia and Kennedy, arguing that punitive damages are not available under maritime law. On first impression, unlike the Exxon Shipping case, it does not appear that this case will likely have much impact beyond maritime law.

  • Asfour v. Nix: Yet Another Reversal For Lack of Financial Condition Evidence

    We are a bit behind on the blog this week as our main blogger, Curt Cutting, is on a well deserved vacation. I just posted a few minutes ago about a decision last week reversing a punitive damage award for lack of financial condition evidence. In going through the stack of punitive damage cases, I just came across this one which is yet another reversal for the same defect in plaintiff’s case. Here, the California Court of Appeal (Second District, Division One) issued an unpublished opinion reversing a $500,000 punitive damage award because “at trial, [plaintiff] presented no meaningful evidence of [defendant’s] financial condition.” It seems like a reversal on these ground happens at least once a month.

  • Electronic Funds Solutions, LLC v. Murphy: Court of Appeal Reverses Punitive Damage Award That Is Six Times Defendant’s Annual Income

    The California Court of Appeal (Fourth District, Division Three), in an unpublished opinion, reversed a $50 million punitive damages award on the ground that plaintiff failed to put forward evidence of defendant’s net worth. This is a common mistake plaintiff’s lawyers make, as seen in our prior post here. The court went on to point out that a plaintiff may be able to get around this failure of proof in situations where “net worth may be subject to manipulation, requiring the court to consider other financial indicators of a defendant’s ability to pay.” As an example, the court cited Zaxis Wireless Communications, Inc. (2001) 89 Cal.App.4th 577, 582-583 for the proposition that a “$300,000 punitive damage award [can be] upheld despite large negative net worth where defendant had annual gross revenues in excess of $100 million and cash on hand of $19 million.” By contrast, the punitive damage award in this case had to be reversed because: “Here, plaintiffs point to the income calculations for [defendant] used in supporting their compensatory damages claim, in which they determined [defendant] earned $8,128,800 per year in net income. Viewed in this light, the $50 million punitive damage award represented approximately six times [defendant’s] annual income. Such an award would be ruinous to any company, not to mention its owners.”

    Will plaintiff’s lawyers learn their lessons?

  • Foreign Corporation Not Liable for Punitive Damages Against U.S. Affiliate

    Earlier this week, a trial judge in Miami ruled that BDO International, a Brussels-based corporation, cannot be liable for a $351 million punitive damages award against its U.S. affiliate, BDO Seidman.

    The punitive damages were awarded in a lawsuit by a Portugese bank that accused BDO Seidman of bungling the audits of the bank’s subsidiary. The jury awarded $170 million in compensatory damages and $351 in punitive damages, for a total verdict of $521 million, the largest verdict ever against a U.S. accounting firm. BDO Seidman appealed. The bank then sued BDO Seidman’s parent company, BDO International, seeking to hold them liable for the punitive damages award, but Miami-Dade circuit judge John Schelsinger issued a directed verdict in favor of the defendant.

    Am Law Litigation Daily has more details.

    This case has a California connection. The plaintiffs’ lawyer, Steven W. Thomas, has a small firm in Venice. Coincidentally, my daughter went to preschool with his child a few years ago, but I never met Steve. His wife told me he was off trying some big case in Miami. I had no idea it was this big.

    UPDATE (6/18/09 at 6:13 pm): After the trial court ruled that BDO International was not liable for the punitive damages award against BDO Seidman, the court allowed the jury to decide BDO International’s liability for the compensatory damages. According to the Legalizer, the jury today ruled in favor of BDO International, finding it not liable for the compensatory damages award.