Today’s LA Times contains an editorial entitled The Supreme Court and Law Left Hanging. The editorial makes the same point as this editorial we blogged about last week, namely, that the Supreme Court should have used Williams III as a vehicle for clarifying and strengthening the limits on excessive punitive damages. Neither editorial mentions that the excessiveness issue was not before the court in Williams III because the Supreme Court declined to consider that issue when it granted certiorari last June.
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Sukumar v. Sukumar: Court of Appeal Reaffirms Rule that Punitive Damages Cannot Exceed 10 Percent of Defendant’s Net Worth
The Fourth Appellate District, Division One, issued this unpublished opinion last week affirming a trial court order that reduced a $5 million punitive damages award to $1.4 million.
The trial court reduced the punitive damages based on California’s longstanding rule that punitive damages generally cannot exceed 10 percent of the defendant’s net worth. (See Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1593.) On appeal, the plaintiff challenged that ruling on several grounds.
First, the plaintiff argued that trial court failed to consider whether factors other than the defendant’s net worth, such as future dividend income, made it possible for the defendant to pay the judgment. The Court of Appeal ruled that, although the Supreme Court has declined to adopt a rigid rule that net worth is the only appropriate measure of a defendant’s ability to pay punitive damages, net worth is the appropriate measure in the vast majority of cases. The few cases where courts looked to other measures involved exceptional circumstances. (See Zaxis Wireless Communications, Inc. v. Motor Sound Corp. (2001) 89 Cal.App.4th 577, 582-583 [defendant’s negative net worth was due primarily to accumulated depreciation and a note to its sole shareholder, while it had annual sales exceeding $250,000,000, cash of $19,000,000, and a $50,000,000 line of credit, evidencing its ability to pay punitive damages award of $300,000]; Rufo v. Simpson (2001) 86 Cal.App.4th 573, 579, 621, 623-624 [reprehensibility of defendant’s conduct (i.e., two deliberate, vicious murders) provided exceptional circumstances].)
Second, the plaintiff argued that the trial court should have viewed the defendant’s testimony about his own net worth with suspicion. The Court of Appeal rejected that argument on the ground that the plaintiff bore the burden of proving that the defendant had a greater net worth, and she failed to carry that burden. For example, while defendant owned an apartment, plaintiff failed to rebut defendant’s evidence that defendant owed more money on the apartment than it was worth.
Third, the plaintiff argued that the 10 percent rule should not apply when the defendant’s conduct is especially reprehensible. The Court of Appeal rejected that argument as a matter of law:
[Plaintiff] does not cite any apposite case showing, or otherwise persuade us,
such conduct is so reprehensible that the general rule limiting punitive
damages to 10 percent of a defendant’s net worth should not apply. In any
event, as the California Supreme Court stated, a punitive damages “award can
be so disproportionate to the defendant’s ability to pay that the award is
excessive for that reason alone” regardless of the reprehensibility
of the defendant’s conduct. (Adams v. Murakami [(1991)] 54 Cal.3d [105,] 111.)Full disclosure: Horvitz & Levy participated in this case, representing one of the defendants on appeal (the defendant who was subject to the punitive damages award).
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Plaintiff Asks California Supreme Court to Dismiss Review in Buell-Wilson v. Ford
The plaintiff in Buell-Wilson has asked the California Supreme Court to dismiss review in that case. (See the court’s online docket.)
The court agreed to review Buell-Wilson last year but deferred briefing pending the U.S. Supreme Court’s decision in Williams III. As we noted last week, the U.S. Supreme Court’s decision to dismiss certiorari in Williams III without deciding the case could cause the California Supreme Court to dimiss review in Buell-Wilson as well. On the other hand, the petition in Buell-Wilson raises recurring issues that are not related to Williams III, so perhaps the court will call for briefing on the merits in Buell-Wilson notwithstanding the dismissal in Williams III.
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Amended 9th Circuit Order Addresses Issue Raised on This Blog
Late last year we blogged about the Ninth Circuit’s published order in Irvin v. Southern Union, in which the court held that a $4 million punitive damages award was excessive, and that any award higher than $1 million (three times compensatory damages) would violate due process.
In a follow-up post, we noted that the Ninth Circuit seems to have a created an intra-circuit split on the proper remedy for an excessive punitive damages. We observed that, in the Leatherman Tool Group opinion in 2002, the Ninth Circuit seemingly adopted the Seventh Circuit’s position that a plaintiff is not entitled to a retrial when the court determines that a punitive damages is excessive. Instead, the court should simply reduce the award to the constitutional maximum and modify the judgment accordingly. We also observed, however, that the court took the opposite approach in its 2005 Planned Parenthood opinion, which afforded the plaintiff a new trial. Then in its 2006 opinion in Exxon Valdez, the court reverted to the approach of Leatherman Tool Group, before changing course again with the Irvin order in 2008.
Subsequent to our blog posts, the Ninth Circuit has now modified the order in Irvin, adding a footnote to address these seeming inconsistencies in its approach. The footnote cites the same cases discussed in our blog post – Leatherman Tool Group, Planned Parenthood, and Exxon Valdez – and attempts to reconcile these opinions by explaining that the court “decide[s] on a case-by-case basis whether to remand for a new trial or simply order a remittitur.” The court did not explain exactly what criteria would lead the court to choose a particular approach in a particular case. The court said it would allow a retrial in Irvin because the plaintiff might introduce additional evidence at a new trial that could affect the calculation of the proper ratio between punitive damages and compensatory damages. But if that reasoning is valid, plaintiffs would be entitled to a retrial in virtually every case, because there is always a theoretical possibility that the plaintiff could present some new evidence at the retrial.Perhaps the more principled approach is the one adopted by the Seventh Circuit, under which a plaintiff is never entitled to a retrial. If the plaintiff had a full and fair opportunity to present all of its evidence the first time around, why should it be given another bite at the apple? (See., e.g., Kelly v. Haag (2006) 145 Cal.App.4th 910, 919-920 [plaintiff who fails to present evidence to support punitive damages award is not entitled to a retrial].)
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Shakespeare, the Supreme Court, and Punitive Damages
Legal Times (via Law.com) has this amusing report about a theater production that took place this evening involving Justices Ginsburg, Alito, and Breyer. Those three, and five lower court judges, presided over a mock argument in a production called Malvolio’s Revenge, based on Twelfth Night. The premise is that Malvolio has won a $10 million punitive damages verdict for false imprisonment and the judges must decide if the award is constitutional.
Click here for the event’s official website.
UPDATE: The BLT (blog of Legal Times) reports that the court ruled against Malvolio and vacated his $10 million punitive damages award.
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“Court Missed Opportunity to Limit Punitive Damages”
So says this Reading Eagle editorial about the Supreme Court’s dismissal of cert. in Williams III.
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Oregon Drops Punitive Damages Claim in Order to Save Jobs
The state of Oregon has settled its claim for $200 million in punitive damages against truck manufacturer Freightliner, according to the Statesman Journal and OregonLive.com.
The settlement ends a dispute that raised very interesting questions about the consequences of “split-recovery” statutes that authorize a state to recover a portion of any punitive damages award. In this case, which we discussed last February, German truck manufacturer Man AG sued Freightliner in Oregon state court. Man AG won an $850 million jury verdict, including $350 million in punitive damages. Under Oregon law, the state becomes a creditor on any punitive verdict when entered, and is entitled to 60 percent of any punitive award.
Before the state could collect its cut, the parties settled and Man agreed to drop the punitive damages portion of the verdict. The trial court vacated the original judgment and dismissed the case pursuant to the settlement, but the state intervened and appealed from the judgment of dismissal, arguing that the parties could not bargain away the state’s 60 percent share of the award. The Court of Appeals agreed that the state had standing to proceed on the merits of the appeal. The Oregon Supreme Court then agreed to hear the issue of the state’s standing.
In the meantime, as the global economy worsened and truck sales declined, the City of Portland and Multnomah County complained to the state that the lawsuit might force Freightliner to close its plant in Portland. Despite these objections, the state pressed on with its claims. Sure enough, Freightliner announced in October of last year that it had decided to close the plant, as reported by the Portland Tribune. A spokesman for the state said the closure had nothing to do with the state’s $200 million claim, but the general counsel of Frieightliner disagreed, saying company executives were “deeply disappointed that Oregon would sue us while other states are courting us.”
Apparently, the state had a change of heart, and agreed to settle in order to keep the plant open. The state gave up its $200 million claim in exchange for a donation of $150,000 to a crime victims fund, but if Freightliner closes its plant, it has to pony up another $300,000 to the state.
We can expect more litigation like this in states that have adopted split-recovery statutes. These laws may turn out to have a variety of unintended consequences.
Hat tip: Robin’s Nest.
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Birts v. The Estate Plan: $10 Million Punitive Damages Award Entered on Default of Living Trust Seller
A Texas law journal (The Southeast Texas Record) reported yesterday that a federal judge in Arkansas has entered a $16 million default judgment—including $10 million in punitive damages—against The Estate Plan, a company that sells living trusts. The plaintiffs brought a class action alleging that The Estate Plan was exploiting senior citizens and offering unsound financial and legal advice in a manner giving rise to claims of fraud, unauthorized practice of law, negligence, breach of fiduciary duty, and conspiracy. The March 16 default judgment in Birts, et al v. The Estate Plan (case 4:08-cv-04047-HFB) also reportedly requires the defendant to correct misrepresentations in the materials that it provides to consumers and to engage in a public information campaign.
Public outrage over financial shenanigans like this will likely result in a continuing stream of big-ticket punitive damages awards.
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New Zealand High Court Mulls Punitive Damages Down Under
According to a report on Voxy.co.nz, the high court of New Zealand recently heard arguments in a case involving the standards for imposing punitive damages under that country’s law. Plaintiff Susan Couch sued the New Zealand Department of Corrections on claims arising out of serious injuries sustained at the hands of a prison inmate who was granted parole and proceeded on a highly publicized rampage known as the Mt Wellington-Panmure RSA killings. Couch claims the department acted with “outrageous and flagrant” disregard for her safety. The court will address whether Couch’s claim for exemplary damages can go forward on that basis, without any allegation that the defendant made a conscious decision to act wrongfully.
New Zealand has a no-fault accident compensation system, and the Deputy Solicitor-General John Pike reportedly argued to the court that allowing punitive damages could undermine the compensation system under the circumstances presented in Couch’s case.
Signs of efforts to expand the availability of punitive damages around the globe could be viewed as an unwelcome American export. This blog has reported previously (e.g., here, here, here and here) on other foreign jurisdictions’ attempts to refine their punitive damages jurisprudence, and on attitudes toward U.S. punitive damages. As noted by Professor Helmut Koziol (the author of a Louisiana Law Review article we’ve described), the American system of punitive damages “cause[s] continential Europeans to shake their heads.”
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Marsten v. Walgreens: Illinois Appellate Court Vacates $25 Million Punitive Damages Award
The Daily Herald has a story about an Illinois appellate opinion vacating a $25 million punitive damages award because the plaintiff died. Apparently, Illinois law differs from California law on this point. In California, when a plaintiff dies, the plaintiff’s estate can recover punitive damages, although the plaintiff’s heirs cannot recover punitive damages in a wrongful death action. (See Code Civ. Proc., §§ 377.34 [authorizing in a survival action the recovery of damages “the decedent sustained or incurred before death, including any penalties or punitive or exemplary damages”], 377.61 [precluding in a wrongful death action “damages recoverable under Section 377.34”].) Last year we blogged about a case in which a federal district court vacated a $5 million punitive damages award that was improperly awarded on a wrongful death claim.