California Punitives by Horvitz & Levy

  • Hudgins v. Southwest Airlines: Arizona Appellate Court Reduces Punitive Damages, Adopts One-to-One Ratio

    The Arizona Court of Appeals (Division One) issued this opinion last week, reducing two $4 million punitive damages awards down to $500,000 each, equal to the amount of compensatory damages.

    By adopting a one-to-one ratio of punitive to compensatory damages, the court joined a small but growing number of courts around the country that have finally begun to implement the U.S. Supreme Court’s statement in State Farm v. Campbell that, in cases involving substantial compensatory damages, the ratio of punitive to compensatory damages should be low, perhaps only one-to-one. (For another example of this trend, see our recent blog post about the Third Circuit’s decision in Jurinko. See also the Jet Source and Walker opinions from the California Court of Appeal.) I am working on a short paper about this trend, which I hope to post on this blog some time in the next few weeks.

    Aside from the ratio analysis, this opinion contains an interesting statement about the role of the defendant’s wealth. The opinion concludes with the statement that the court might have reduced the punitive damages award even further, but decided to stick with a one-to-one ratio because “SWA’s wealth warrants a more substantial punitive damages award.” That sort of analysis seems directly contrary to the Supreme Court’s admonition in Campbell that lower courts should not use wealth to support an otherwise excessive award.

    Many lawyers disagree about how to interpret the U.S. Supreme Court’s statements about the role of the defendant’s wealth in the constitutional analysis of punitive damages for excessiveness. Some defense lawyers take the position that, in light of BMW and Campbell, the defendant’s wealth can no longer be considered for any purpose. My personal view is that the Supreme Court has not categorically ruled out consideration of the defendant’s wealth for all purposes. I think the Court’s statements about wealth leave open the possibility that a jury might be able to consider the defendant’s wealth in assessing punitive damages, so long as the end result does not exceed the maximum amount permitted under the guideposts established in BMW v. Gore. But it seems to me that Campbell forecloses the sort of reasoning that the court adopted here, i.e., using the defendant’s wealth to uphold an award that would otherwise be excessive under the guideposts. Given that this case is otherwise a win for the defense on the excessiveness issue, however, the defendant may not be interested in challenging the court’s analysis on this point.

    Hat tip: EvidenceProf Blog.

  • Trial Court Upholds $21 Million in Punitive Damages Against NFL Players Association

    Judge William Alsup of the Northern District of California issued an order yesterday denying the NFL Player’s Association’s post-trial motions in a case in which a jury awarded $7.1 million in compensatory damages and $21 million in punitive damages. The plaintiffs in this case are retired players who alleged that the union failed to properly market their images, and that the union cut them out of licensing deals so that active players could receive bigger royalty payments. The Players Association says it will appeal to the Ninth Circuit.

    Hat tip: Retired Players.org

  • House Passes Paycheck Fairness Act, Authorizing Punitive Damages for Violations of the Fair Pay Act

    The Associated Press is reporting that the U.S. House of Representatives has passed the Paycheck Fairness Act (H.R. 12) today. The bill makes punitive damages available for the first time for violations of the Fair Pay Act, according to EmployerLawReport.

  • Bloomberg Study: Megabucks Verdicts Declined in 2008

    Margaret Cronin Fisk has a story on Bloomberg.com entitled Billion-Dollar U.S. Verdicts Vanish After Appeals, New Rulings, reporting on data compiled by Bloomberg about the largest civil jury verdicts in the U.S. in 2008. The story reports, among other things, that no jury verdicts topped $1 billion in 2008. That makes two of the last three years with no billion-plus verdicts.

    More directly relevant to this blog, the top ten punitive awards in 2008 totaled $960 million, which is nothing to sneeze at, but still down 30 percent from 2007 and 63 percent from 2006. If this trend continues, perhaps we will look back on 2006 as the zenith (or nadir, depending on your point of view) of the megabucks punitive damages award.

  • Rojas v. Akopyan: Plaintiffs Get Another Bite at the Apple After Failing to Prove Case for Punitive Damages

    The California Court of Appeal (Second District, Division Eight) issued this unpublished opinion yesterday, affirming a trial court order granting a new trial on the issue of punitive damages.

    The plaintiffs obtained a jury verdict for $225,000 in punitive damages, but the trial court granted a new trial because the plaintiffs failed to present sufficient evidence of the defendant’s financial condition. As we have mentioned before, it is surprising how often plaintiffs overlook this requirement of California law, and forfeit punitive damages as a result. In this case, the plaintiffs presented evidence of the defendant’s income, but not expenses or liabilities. The Court of Appeal noted that, under California law, evidence of expenses and liabilities are necessary to create a complete picture of the defendant’s financial condition.

    One thing strikes me as odd about this opinion. Under California law, when a plaintiff fails to present evidence of the defendant’s financial condition, the proper remedy is to enter judgment in favor of the defendant on the punitive damages claim. (See Kelly v. Haag (2006) 145 Cal.App.4th 910, 919-920; see also these four unpublished opinions from 2007.)

    In other words, the plaintiff only gets one chance to prove its claim for punitive damages, and if the plaintiff fails to present sufficient evidence to support the claim, the plaintiff does not get to try again. Game over. That rule applies not only to punitive damages claims, but to any situation in which the Court of Appeal reverses a judgment based on a failure of proof. (See McCoy v. Hearst Corp. (1991) 227 Cal.App.3d 1657, 1661.)

    So why did the plaintiffs in this case get a new trial after failing to present sufficient evidence the first time around? I’m not quite sure. The opinion doesn’t say. Perhaps the defendant never argued for judgment as a matter of law, or perhaps the defendant raised the argument but the Court of Appeal neglected to address the issue. If it’s the latter, a petition for rehearing may be in order.

  • Major v. Western Home: California Court of Appeal Affirms $646,000 Punitive Damages Award

    The California Court of Appeal issued this published opinion today, affirming a punitive damages award of $646,471.53, roughly equal to the compensatory damages.

    The case required the court to interpret a provision of California’s punitive damages statute, Civil Code section 3294. That statute provides that punitive damages cannot be awarded against a corporation based on the wrongful acts of a corporate employee unless an officer, director, or managing agent of the corporation either participated in, authorized, or ratified those acts.

    The defendant was an insurance company that hired a third-party claims administrator to process the plaintiffs’ claim for the destruction of their home by fire. The insurer paid benefits representing the full limits of the policy at the time of the fire, but a jury nevertheless found that the company acted in bad faith by delaying the payment of benefits to the plaintiffs, and by withholding about $30,000 in additional benefits above the policy limits (which the plaintiffs claimed they were entitled to because the insurer raised the policy limits after the loss).

    On appeal, the primary punitive damages issue was whether the person who committed the wrongful conduct, an employee of a third-party claims administrator, qualified as an “managing agent” of the insurer, such that her conduct could subject the company to punitive damages. The Court of Appeal relied heavily on the California Supreme Court’s 1979 decision in Egan v. Mutual of Omaha, which concluded that punitive damages can be awarded against an insurance company based on the acts of a claims representative if the claims rep has the effective authority to set corporate policy. The Court of Appeal extended Egan a step further. It held that the employee of the third-party administrator had the effective authority to set policy for the insurer, and therefore subject the insurer to punitive damages. The court did not explain how the conduct as issue could effectively set corporate policy when the actual corporate policies of the insurer prohibited that conduct.

    After concluding that the plaintiff had satisfied the managing agent requirement of section 3294, the court went on to discuss the amount of the punitive damages award. The court concluded that a relatively low punitive damages award was appropriate because the harm to the plaintiff was purely economic, the case did not involve a disregard of health or safety, and there was no evidence that the defendant had ever engaged in similar misconduct towards other insureds. The court also concluded that the analogous civil penalty for insurer misconduct, a fine of $10,000, also weighed in favor of a relatively low punitive damages award. Accordingly, the court concluded that a one-to-one ratio of punitive damages to compensatory damages was appropriate and did not raise due process concerns.

    Finally, the court examined whether the jury’s verdict was inconsistent because the jury found the defendant acted with “oppression” (one of the grounds for imposing punitive damages under section 3294), but also found the defendant did not act with “malice.” The court found no inconsistency, because the statutory definition of malice requires that the defendant acted with a “willful and conscious disregard” of the rights and safety of others, whereas oppression requires only a finding of “conscious disregard.” The court did not explain exactly how the defendant’s conduct could have exhibited a conscious disregard for the plaintiffs’ rights without also being willful.

    Full disclosure: Horvitz & Levy represents the defendant, Western Home Insurance Company.

  • Supreme Court of British Columbia: No Punitive Damages Under Marine Liability Act

    The Supreme Court of British Columbia ruled a few weeks ago, in McDonald v. Queen of the North, that a plaintiff cannot obtain punitive damages for violation of Canada’s Marine Liability Act. This seems consistent with other opinions suggesting a generally restrictive approach towards punitive damages in Canada. I would love to know if anyone has conducted research to determine whether Canadian citizens are victims of malicious and oppressive conduct more frequently than U.S. citizens, as a result of the fact that tortfeasors in Canada don’t have to worry about the threat of blockbuster punitive damages.

  • Food Pro v. Farmers: California Court of Appeal Affirms Denial of Punitive Damages

    The California Court of Appeal (Sixth District) issued this published opinion yesterday affirming a summary adjudication order that rejected the plaintiff’s claim for punitive damages in an insurance bad faith case.

    The Court of Appeal reversed the trial court’s ruling that the insurer had no duty to defend its insured from a third party lawsuit, but the Court of Appeal agreed with the insurer that the plaintiff failed to create a triable issue of fact on its entitlement to seek punitive damages.

    The court emphasized that, under California law, punitive damages are not available unless the plaintiff demonstrates, by clear and convincing evidence, that the defendant engaged in despicable conduct demonstrating an extreme level of indifference to the plaintiff’s rights. The court also noted that punitive damages are not available if the defendant’s conduct is merely consistent with the hypothesis that the defendant acted despicably – – the evidence must be inconsistent with the hypothesis that the defendant simply made a mistake or an honest error in judgment.

    The plaintiff in this case presented an expert declaration cataloging all of the insurer’s bad acts. The Court of Appeal held, however, that all of those alleged acts were consistent with the theory that the insurer was negligent or overzealous, but none of them demonstrated conclusively that the insurer acted with an evil motive or an extreme indifference:

    The asserted bad acts could be found to be negligent (an incomplete investigation and reliance on erroneous facts), factually and legally erroneous (an incorrect assumption regarding breadth of exclusion and failure to give proper weight to relevant facts), and even overzealous. However, Food Pro presented no evidence that “could be described as evil, criminal, recklessly indifferent to the rights of the insured, or with a vexatious intention to injure.” [Citation omitted.] Although we disagree with Farmers’ position regarding its duty to defend, Farmers relied upon two separate coverage opinions by two different law firms that arrived at the same conclusion regarding the lack of coverage. Moreover, the trial court agreed with Farmers, and the position cannot be deemed so unreasonable as to evidence malice, fraud, or gross negligence.

    This opinion doesn’t really add much to the body of California law regarding the standards for imposition of punitive damages. Nevertheless, my sense is that trial courts sometimes lose sight of how stringent those standards are, so it’s nice to see the Court of Appeal issue this published opinion as a reminder.

  • Jurinko v. Medical Protective Company: Third Circuit Reduces Punitive Damages Award, Adopts 1-to-1 Ratio

    Just when we thought there would be no more punitive damages news this year, the U.S. Court of Appeals for the Third Circuit issued this published non-precedential opinion today.

    The jury in this insurance bad faith case awarded $1.66 million in compensatory damages and $6.25 million in punitive damages, for a roughly four-to-one ratio (more like a three-to-one ratio if you include attorney’s fees and costs as part of the compensatory damages award, which the Third Circuit did). The Third Circuit rejected the defendant’s argument that punitive damages were not warranted in this case, but agreed that the amount of the punitive award was excessive under the three BMW v. Gore “guideposts” (reprehensibility, ratio, and comparable penalties).

    First, the court observed that the defendant’s conduct implicated only two of the five “reprehensibility factors” identified in State Farm v. Campbell. The plaintiff had argued that a third factor – recidivism – was also present, based on the fact that the defendant’s wrongful behavior consisted of a course of conduct, rather than a single act. The Third Circuit, citing the Sixth Circuit’s decision in Bridgeport Music, Inc. v. Justin Combs Publ’g (6th Cir. 2007) (“The repeated conduct factor requires that the similar reprehensible conduct be committed against various different parties rather than repeated reprehensible acts within the single transaction with the plaintiff”), discounted the recidivism factor because there was no evidence that the defendant insurer had previously engaged in similar misconduct towards other policyholders.

    Second, the court concluded that the ratio awarded by the jury was excessive in light of the substantial compensatory damages. The court cited Campbell‘s statement that the ratio should be low, perhaps only one-to-one, in cases involving substantial punitive damages. The court also cited a number of other federal cases that have recently implemented that statement and adopted one-to-one ratios. The court also referred to the Supreme Court’s recent decision in Exxon Shipping, which although it did not directly address constitutional limits on punitive damages, did reiterate that 1-to-1 ratios are appropriate in cases involving substantial compensatory damages.

    Third, the court compared the punitive damages award to penalties authorized by statute for similar misconduct. Because this was a diversity case, the court looked to Pennsylvania law, which provides a $5,000 penalty for unfair practices by insurers. The court noted that the jury’s punitive damages award was 1250 times higher than the comparable statutory penalty. Accordingly, the third guidepost also weighed in favor of a reduction of the award.

    The court’s adoption of a one-to-one ratio in this case follows a trend we have observed in California and elsewhere. After the Supreme Court issued its opinion in Campbell in 2004, very few courts followed the Supreme Court’s statement that one-to-one ratios are appropriate in cases with substantial punitive damages. But in the past two years, even before the Exxon Shipping decision, many courts have begun to follow Campbell and reduce punitive damages down to one-to-one ratios, even in cases like this where the ratio was already in the single-digit range.

    Hat tip: The Legal Intelligencer (via Law.com).

    [UPDATE: I originally described this as a “published” opinion, but a reader pointed out to me that the opinion is designed as non-precedential. In other words, it’s the sort of opinion that would have been unpublished and unciteable prior to the enactment of FRAP 32.1. Technically it is “published” in the sense that all federal appellate decisions are publicly available and citeable now, but I should have noted in my original post that the opinion is designated as non-precedential, so I have made a correction above.]

  • Law Review Article Discusses Punitive Damages Case Pending Before U.S. Supreme Court

    Things have been pretty quiet on the punitive damages front lately, leaving us no significant case developments to discuss for almost two weeks. But for those of you who are just dying for one last fix of punitive-damages-related analysis before the end of the year, you might want to check out this article in the latest edition of the University of San Francisco Maritime Law Journal: “A Beacon for the Protection of Seamen: the Eleventh Circuit Permits Punitive Damages for the Willful Withholding of Maintenance and Cure in Atlantic Sounding Co. v. Townsend.”

    I don’t have an online link for the article, but you can find it on Westlaw using the citation 20 USFMLJ 237. The article, written by Joshua Hanbury, a third-year law student at the University of Richmond School of Law, provides an in depth discussion of the Eleventh Circuit’s decision in Atlantic Sounding Co. The article was written before the U.S. Supreme Court granted cert. in that case, but this article seems to include more information about the issues than anything I’ve seen even since cert. was granted. For some strange reason, the availability of punitive damages for maintenance and cure violations has not captured the public imagination. Go figure.

    As previously noted, Atlantic Sounding Co. is set for oral argument on March 2.