California Punitives by Horvitz & Levy

  • Law Profs Contend Their Statistical Studies Were Misused By the U.S. Supreme Court in Exxon Valdez Case

    Cornell law professors Theodore Eisenberg, Michael Heise, and Martin T. Wells, who have written a number of articles applying statistical analysis to empirical data about civil litigation, have posted a paper on SSRN entitled “Variability in Punitive Damages: An Empirical Assessment of the U.S. Supreme Court’S Decision in Exxon Shipping Co. v. Baker.” The professors contend that Justice Souter improperly used their prior statistical studies to support his majority opinion holding that punitive damages cannot exceed the amount of compensatory damages in cases arising under federal maritime law. Here’s the abstract:

    Abstract:

    Exxon Shipping Co. v. Baker acknowledged what virtually all methodologically
    sound punitive damages research shows. The Supreme Court relied in part on an
    article by the present authors and others to state that empirical studies undercut the most audible criticism of punitive damages and that no mass of runaway punitive awards existed. Paradoxically, the Court simultaneously expressed concern about jury predictability based on a high mean and standard deviation in the punitive-compensatory ratio published in our article. The Court therefore reduced a $2.5 billion punitive award relating to the Exxon Valdez oil spill to $500 million to implement a 1:1 punitive-compensatory ratio and stated that “the constitutional outer limit may well be 1:1.” This article shows that our empirical findings relied on by the Court do not support the unpredictability concern or widely applying the limiting ratio. The high mean and standard deviation are artifacts of not accounting for the key variable that explains punitive awards – the compensatory award. Stratifying the mean and standard deviation of the punitive-compensatory ratio by the level of the compensatory award shows that the ratio is reasonably stable in high award cases and significantly and explicably more variable in low award cases. Basing doctrine on summary statistics that combine these heterogenous [sic] distributions is not statistically supportable. The award reduction in Exxon Shipping may have promoted consistency with other high compensatory award cases but the 1:1 principle the case hints at is not statistically supportable across the broad range of compensatory awards, and could contribute to an inability to tailor punitive awards to the facts and circumstances of particular cases.

  • Lopez v. Bimbo Bakeries: Court of Appeal Affirms $2 Milllion Punitive Damages Award

    The California Court of Appeal (First District, Division Four) issued this unpublished opinion last week, affirming a $2 million punitive damages award in an employment case involving compensatory damages of $340,700 (a ratio of 5.87 to 1).

    This punitive damages discussion goes into more detail than the typical unpublished opinion. From my perspective, these are the two most interesting aspects of the court’s analysis:

    1. The court stated that the clear and convincing evidence standard, which applies to punitive damages determinations, “does not alter our standard of review.” That holding is directly contrary to published opinions (See, e.g., 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’”].) Admittedly, there are cases going both ways on this issue. But I’m a little disappointed to see the Court of Appeal deciding this issue in an unpublished opinion without even acknowledging the split of authority. The California Supreme Court granted review last year in Harvey v. Sybase to resolve the split on this issue, but the court later dismissed review after the parties settled. Presumably the Supreme Court still views this as a review-worthy issue and will take up another case on this subject, perhaps even this one.

    2. The court concluded that the amount of the punitive damages award, and the ratio of nearly six-to-one, was not excessive under the Due Process Clause. In reaching that holding, the court did not mention the U.S. Supreme Court’s statement in State Farm v. Campbell that the ratio should be low, perhaps only one-to-one, in cases involving substantial compensatory damages. Other California appellate panels (and courts in other jurisdictions) have followed the Supreme Court’s direction on that point and have reduced punitive damages awards down to a single-digit level. (See my Washington Legal Foundation paper discussing a possible nationwide trend on this issue.) The $340,700 compensatory damages award in this case is well in excess of the amount that other courts have found to be “substantial” within the meaning of Campbell. Perhaps the Court of Appeal in this case thought the defendant’s conduct was so reprehensible that it justified an award well above the 1-to-1 ratio, notwithstanding the Supreme Court’s reasoning in Campbell. If so, it would have been nice for the court to acknowledge this aspect of Campbell and explain why it decided not to follow the Supreme Court’s reasoning.

    The opinion also addresses other issues, such as the sufficiency of the evidence to satisfy California’s “managing agent” requirement, and the relevance of the defendant’s $826 million net worth. I’m not going to make this blog post any longer by summarizing the court’s holdings on those points, but the opinion is definitely worth a read, especially for anyone handling a punitive damages appeal before the First District, Division Four.

  • Op-Ed Contends That Punitive Damages Are Insurable In California

    Attorney Kirk Pasich has an op-ed in the Los Angeles Daily Journal (subscription required) arguing that, under California law, insurers may be obligated to indemnify their policyholders for punitive damages awards. While Mr. Pasich certainly deserves points for creativity, his argument runs afoul of settled California law.

    California Insurance Code section 533 states that an insurer is not liable for the willful acts of its insured. The California Supreme Court, interpreting section 533, has unequivocally held that indemnification of punitive damages “is disallowed for public policy reasons.” (Peterson v. Superior Court (1982) 31 Cal.3d 147, 159.) The Supreme Court has never overruled or even questioned its decision in Peterson, which is binding in all California courts.

    Despite the clear rule established in Peterson, Mr. Pasich argues that California law is unsettled. He relies on other cases applying section 533 outside the punitive damages context. He notes that, in those cases, courts have held that section 533 does not bar a corporate defendant’s claim for indemnification from an insurer where the corporate defendant is held vicariously liable for compensatory damages arising from the wilful or intentional acts of its employee or agent, except that it does bar indemnification by the insurer where corporate management authorized or ratified the employee’s intentional acts. Relying on these cases, Mr. Pasich contends that a corporate insured may be entitled to insurance coverage for punitive damages, so long as the corporation’s management has not authorized or ratified the conduct that gave rise to the punitive damages.

    Regular readers of this blog can probably spot the flaw in Mr. Pasich’s reasoning already: under California law, punitive damages cannot be awarded against a corporation unless corporate management authorized or ratified the wrongful conduct. (See Civil Code section 3294, subdivision (b).) Thus, the scenario in which Mr. Pasich says indemnity would be available – – an award against a corporate employer without a finding of authorization or ratification by corporate management – – simply cannot occur under California law. (See Weeks v. Baker & McKenzie (1998) 63 Cal.App.4th 1128, 1154-1155 [noting that Civil Code section 3294(b) “does not authorize an award of punitive damages against an employer for the employee’s wrongful conduct. It authorizes an award of punitive damages against an employer for the employer’s own wrongful conduct”].)

    Mr. Pasich’s opinion notwithstanding, corporations in California should not expect indemnity for punitive damages awards unless the California Supreme Court overrules its opinion in Peterson.

  • Dole Wins Dismissal of Banana Litigation

    Bloomberg reports that Judge Victoria Chaney of the Los Angeles County Superior Court has dismissed the claims against Dole by Nicaraguan banana workers. (See our prior posts about this litigation here here and here.) The Bloomberg story says Judge Chaney found “deliberate and egregious misconduct” by the plaintiffs’ lawyers and described the case as “a blatant extortion of the defendants.” What began as a claim for millions of dollars in punitive damages may end up as a disciplinary proceeding before the state bar.

    Hat tip: WSJ Law Blog.

    UPDATE: AmLaw Daily has posted a link to a .pdf of the hearing transcript.

  • The Largest Punitive Damages Award to Survive Appeal in California?

    When the California Supreme Court dismissed review yesterday in Buell-Wilson v. Ford, it may have set a new high for punitive damages in California. Unless the Court of Appeal has a dramatic change of heart or the U.S. Supreme Court intervenes, it appears that Ford will have to pay $55 million in punitive damages, which appears to be the largest punitive damages award to survive appeal in California.

    To our knowledge, these five cases represent the largest punitive damages awards that California appellate courts have allowed to stand:

    1. Buell-Wilson v. Ford (2008) [depublished]: $55 million

    2. Boeken v. Philip Morris (2005) 127 Cal.App.4th 1640: $50 million

    3. Rufo v. Simpson (2001) 86 Cal.App.4th 573: $25 million

    4. Vann v. Travelers (1998) [unpublished]: $25 million

    5. Paine Webber v. Fireman’s Fund (1997) [unpublished] $21 million

    It’s possible there may be some others we don’t know about, especially since the older unpublished opinions are not available on Westlaw, but based on our firm’s experience in handling these types of cases, we’re fairly confident this list is accurate. If anyone knows of a case that’s missing from the list, please let us know. (Keep in mind that we’re talking about the post-appeal numbers; we know that California juries have awarded verdicts that would top anything on this list, but those awards did not survive appeal.)

  • Cal. Supreme Court Dismisses Review in Buell-Wilson v. Ford

    The California Supreme Court has changed its mind about reviewing the $55 million punitive damages award in Buell-Wilson v. Ford. The Court issued an order today dismissing review, according to the court’s online docket.

    As we noted in our prior post about this case, the plaintiff in Buell-Wilson moved to dismiss review in light of the U.S. Supreme Court’s decision to dismiss certiorari in Philip Morris v. Williams (Williams III). The Supreme Court could have used Buell-Wilson to decide some important issues raised by the petition which had nothing to do with the issue in Williams III. But the Supreme Court decided to remand the case back to the Court of Appeal without deciding anything.

    Although the Supreme Court won’t be addressing any of the issues raised by Buell-Wilson, the Supreme Court’s grant of review has an important consequence for California punitive damages litigation. When the Supreme Court granted review, the Court of Appeal’s published opinion was automatically de-published, preventing litigants from citing that opinion in any California court. (See California Rules of Court, rules 8.1105(e) and 8.1115(a).) Even though the Supreme Court dismissed review, the Court of Appeal’s opinion in Buell-Wilson remains depublished and uncitable. That’s good news for other defendants in products liability cases in California, because the opinion contained some language making it easier for plaintiffs to recover punitive damages in such cases. But the depublication of Buell-Wilson is cold comfort for Ford, which must now pay the $55 million punitive damages award upheld by the Court of Appeal.

    UPDATE: Cal Biz Lit blogs about the dismissal here.

  • Dole Accuses Attorneys of Fraud In Banana Litigation

    The Associated Press (via the Sacramento Bee) is reporting on hearings that took place today in an ongoing punitive damages case in Los Angeles. The plaintiffs claim they became sterile when they were exposed to pesticide on a Nicaraguan banana farm. The defendant, Dole Fresh Fruit Co., is accusing the plaintiffs’ attorneys of recruiting clients to make false claims.

    As we noted in a prior post, some of the plaintiffs in this litigation won a $2.5 million punitive damages award back in 2007, but the victory was short-lived. Judge Victoria Chaney of the Los Angeles Superior Court vacated the punitive damages award, ruling that Dole couldn’t be punished for injuries that incurred in a foreign country. Last month Judge Chaney threatened to dismiss other similar cases.

    Now things have gotten even worse, with Judge Chaney holding hearings to determine whether the two attorneys for the plaintiffs knowingly brought false claims. According to the AP Story, Dole alleges that the two attorneys paid witnesses and cajoled plaintiffs into saying they had worked on banana plantations and been rendered sterile. Dole says the attorneys showed videos to the men depicting life on the plantations to help them tell their stories, falsified sterility documents, and hid evidence that some of the men went on to sire children.

    UPDATE: Cal. Biz Lit blogs about this story here.

  • Cal. Supreme Court Requests Supplemental Briefing in Roby v. McKesson

    The California Supreme Court has asked the parties in Roby v. McKesson to address the following question:

    Are the jury’s compensatory damages verdicts so ambiguous as to
    whether there is overlapping recovery as to require a remand to the trial
    court for a new trial limited to determining the amount of compensatory and
    punitive damages?

    Roby has been pending before the California Supreme Court since April 2007. The issues before the court are primarily questions of employment law, but they also include a punitive damages issue. Specifically, the petitioner contends that the Court of Appeal erred when it determined that a $15 million punitive damages award was excessive and ordered the award reduced to $2 million, roughly 1.4 times the compensatory damages. The question that the Supreme Court is now posing suggests that the court may order a new trial in that case without deciding the punitive damages issue.

    A very similar issue is also before the California Supreme Court in Buell-Wilson v. Ford. In that case, the Court of Appeal took the opposite approach from Roby; the court refused to reduce a punitive damages award to a 1-to-1 ratio, notwithstanding the U.S. Supreme Court’s admonition in State Farm v. Campbell that a 1-to-1 ratio may be the outer limit in cases involving substantial compensatory damages. The defendant petitioned for review on that issue.

    There is a chance, however, the California Supreme Court won’t address this issue in Buell-Wilson either. As we have noted, the plaintiff in Buell-Wilson has moved to dismiss review based on the U.S. Supreme Court’s decision to dismiss certiorari in Williams III.

    Interestingly, the lawyer who represents the defendant in Roby also represents the plaintiff in Buell-Wilson. He may find himself on opposite sides of the same issue if the Supreme Court actually hears both cases on the merits. He will probably have to argue that, even though both cases involve substantial compensatory damages, the facts of Buell-Wilson permit a ratio in excess of 1-to-1 while the facts of Roby do not.

  • $1 Million in Punitive Damages Against Blogger

    Overlawyered has this story about a South Carolina blogger who was hit with a $1.8 million judgment, including $1 million in punitive damages, for making defamatory blog posts.

    Yikes! Be careful what you say, fellow bloggers. The award isn’t quite as scary as it sounds, however, because the defendant apparently didn’t bother to show up to defend himself. As some commenters to the Overlawyered post have pointed out, it’s not all that surprising for an unopposed lawsuit to result in a large judgment.

  • California Supreme Court Denies Review in Food Pro v. Farmers

    Last December we blogged about the Court of Appeal’s published opinion in Food Pro v. Farmers, which rejected a plaintiff’s claim for punitive damages in an insurance bad faith case.

    The insurance company petitioned for review to the California Supreme Court (see the court’s online docket here). Obviously they weren’t challenging the opinion’s punitive damages analysis; they were challenging the portion of the opinion in which the Court of Appeal concluded (contrary to the trial court’s ruling) that the insurer had a duty to defend its insured from a third party lawsuit. The Supreme Court denied review yesterday, according to the Supreme Court’s conference results.

    Although the petition for review did not address the punitive damages issue, the denial of review is relevant to this blog. If the Supreme Court had granted review, the entire opinion, including the punitive damages discussion, would have been vacated (and therefore not citeable in California courts).