California Punitives by Horvitz & Levy

  • California DOI Loses Out on Collecting $700 Million Punitive Damages Award—For Now

    It wasn’t enough to balance California’s budget, but the $700 million punitive damages jury verdict in favor of the California Department of Insurance (DOI) would have been a welcome addition to state coffers. A 9th Circuit Court of Appeals opinion in Poizner v. Artemis S.A., however, put the kibosh on that, affirming a trial court order vacating the jury’s verdict.

    The federal appellate court reviewed a judgment arising out of the 1991 insolvency and subsequent rehabilitation of the Executive Life Insurance Company following what the court characterized as the largest insurance failure in California history. The DOI sued a variety of entities that had bid for the right to assume the insolvent insurer’s assets and preside over the rehabilitation, which was deemed a resounding success both for the former Executive Life policyholders as well as for the defendant entities, which reportedly made hundreds of millions of dollars from appreciation of Executive Life’s junk bond portfolio. The basis for the DOI suit was the claim that purchasing entities had engaged in an unlawful conspiracy that improperly wrested the winning bid from another contender. The jury agreed, but awarded $0 in compensatory damages (because misrepresentations by the defendants had not actually harmed Executive Life)—but then awarded $700 million in punitive damages. The trial court struck the punitive award, but awarded $241 million on an equitable restitution claim. On appeal, the court rejected the DOI’s effort to reinstate the punitive damages award, and disappointed the DOI further by reversing the $241 million, remanding the case for further proceedings. (At least the DOI collected $680 million in pretrial settlements.)

    Ordinarily, an order striking a punitive damages award where there are no compensatory damages would seem unremarkable, but as the 9th Circuit noted, the figures at stake in this case are enough to make one look very, very closely, even if ultimately the result remains the same. As the court put it:

    Although the numbers in this case are breathtaking, California law is well-established and quite clear. Where the jury here explicitly found “$0” of compensatory damages, the general rule precludes punitive damages. [Citation.] The $0 figure assessed by the jury is striking because the district court clearly instructed the jury on the availability of nominal damages: “If you find for the plaintiff but you find that the plaintiff has failed to prove damages as defined in these instructions, you must award nominal damages.” The jury explicitly declined to award nominal damages, instead awarding “$0” compensatory damages as urged by counsel for Artemis. The California rule that might authorize $700 million in punitive damages if the jury awards $1, but no punitive damages if the jury awards nothing, may seem harsh. But the rule is no less a rule when it prohibits large punitive awards than when it prohibits much smaller punitive awards.


    In arriving at this result, the court distinguished Gagnon v. Cont’l Cas. Co., 211 Cal. App. 3d 1598, 1603 n.5 (1989), in which a California appellate court held “an actual award of compensatory damages is not necessary; rather the plaintiff need only prove that he or she suffered damages or injury.” The 9th Circuit noted that Gagnon addressed a situation where harm was shown but damages were barred by statute. Here, the court explained, “The Commissioner has not persuaded us that the reasoning of Gagnon should extend to this case where compensatory damages, even nominal damages, were legally available and explicitly sought by the Commissioner.” The court also rejected the DOI’s argument, based on Ward v. Taggart, 51 Cal. 2d 736, 743 (1959), that the district court’s restitution award could serve as the anchor for the punitive damages verdict:

    Ward is distinguishable on two grounds. First, Ward, like Gagnon, is a case where the compensatory damages sought by the plaintiff were legally unavailable. Here, lost profit compensatory damages were legally available and explicitly sought by the Commissioner, yet the jury declined to award even nominal compensatory damages. Second, the jury in Ward found that all of the elements of fraud, including harm, were proven against the defendant. Here, . . . [defendant Artemis] had no legal liability for its own misrepresentation or concealment. The Commissioner sought restitution based on the same record evidence of Artemis’ intentional misrepresentation and concealment. The district court ultimately awarded restitution calculated to disgorge only a portion of the profit that the Commissioner sought as compensatory damages. Permitting the restitution award in this case to serve as a predicate for the jury’s punitive damages award would cast doubt on the equity in the district court’s award and would potentially result in a windfall to the Commissioner. [fn. omitted] We conclude that California courts would not extend the reasoning of Ward to permit restitution to serve as the predicate for punitive damages where a defendant is not legally liable for fraud and a jury has expressly awarded “$0” in compensatory damages.

    The DOI won’t be giving up yet, however. Because the district court erroneously precluded the DOI from putting on one part of its case, the 9th Circuit remanded the matter for further proceedings at which punitive damages could again be awarded: “We reverse the Post-Verdict Order and remand for a new damages phase trial limited to proffer of the NOLHGA Premise and a determination of damages (including punitive damages), if any, on that theory.”

    Back in 2005 when the jury’s verdict came down, my co-blogger Curt Cutting was quoted as questioning whether the punitive damages award would pass muster. The appellate court’s treatment of the award is discussed in a Mercury News article and in a Business Insurance news piece, which offer more details about the history of the protracted litigation.

  • Freedman v. Superior Court: California Court of Appeal Clarifies Procedural Rules Governing Punitive Damages Claims in Healthcare Cases

    This isn’t one of those headline-grabbing punitive damages cases. It’s only for those readers with an abiding interest in the most minute details of California’s procedural rules for punitive damages claims in medical malpractice actions.

    What? You’re still reading? OK, if you really care about this stuff, here’s a summary of this published opinion from California’s Fourth Appellate District, Division Three (Santa Ana):

    Section 425.13(a) of the California Code of Civil Procedure bars a plaintiff from including a punitive damages claim in a complaint based upon a health care provider’s professional negligence. To assert a punitive damages claim in such a case, the plaintiff must file a motion for leave to amend the complaint and show a substantial probability of prevailing on the punitive damages claim. The plaintiff must file the motion within two years after the complaint is
    filed, or not less than nine months before trial, whichever is earlier.

    In Goodstein v. Superior Court (1996) 42 Cal.App.4th 1635, the Court of Appeal carved out an exception to the strict time limits of section 425.13(a). In that case, which was governed by “fast track” rules, a status conference was held and the clerk set a trial date less than nine months after the status conference. Thus, the plaintiff could not comply with the statutory deadline once trial was set. Moreover, the plaintiff had no meaningful opportunity to object at the status conference, which was conducted not by the court but by a clerk who was merely following the quick trial setting practices that apply to fast track cases.

    Freedman was not a fast track case. In Freedman, the trial date was set 11 months after the trial setting conference, so the plaintiff effectively had two months to file a motion to amend the complaint to add a punitive damages claim. But the plaintiff’s counsel conducted no discovery and filed no such motion. Less than nine months before trial, the plaintiff hired a new counsel who moved to amend the complaint to add a claim for punitives. The trial court granted the motion, even though it was untimely under section 425.13. The court relied on Goodstein as authority for excusing the plaintiffs’ noncompliance with the statute. The defendant petitioned for writ relief and the Court of Appeal summarily denied the petition. The California Supreme Court, however, intervened in the case, granting review and transferring the case back to the Court of Appeal to consider the defendant’s arguments the merits.

    The Court of Appeal took a closer look at the case and granted the defendant’s petition. It ruled that Goodstein was inapplicable because, unlike the plaintiff in Goodstein, the plaintiff here had sufficient time to file a motion under section 425.13 and simply failed to do so. The Court of Appeal, however, did not seem very happy with this result, and expressed its frustration with the strict deadlines established by the Legislature:

    The court’s decision to allow leave to amend and continue the trial date appears reasonable. But section 425.13(a) demands strict adherence to the Legislature’s chosen deadline. It may have been better had the Legislature left case management decisions to the sound discretion of trial judges, who are in the best position to weigh the competing interests and circumstances in particular cases. Bright line statutory rules governing the timing nuts and bolts of the trial court’s management of a case, without at least providing exceptions for good cause, have the potential to impair the fair administration of justice. But trial judges are nonetheless obliged to follow the rules established by the Legislature, even if doing so does not always advance a fair resolution of the case.

    The plaintiff in Freedman was represented on appeal by appellate specialist Donna Bader, who maintains a blog entitled An Appeal to Reason.

  • West Virginia Gov. Defends His Amicus Brief in Punitive Damages Case

    West Virginia Governor Joe Manchin probably had no idea he would stir up a hornet’s nest of controversy by filing an amicus brief in the West Virginia Supreme Court, supporting DuPont’s petition for review of a case involving a $196.2 million punitive damages award. (See our prior posts on this subject here and here.)

    According to this report, Gov. Manchin visited the offices of the Charleston Gazette to defend himself against a Gazette editorial that harshly criticized him for supporting DuPont’s petition. Gov. Manchin says the newspaper has wrongly portrayed him as taking DuPont’s side in the dispute. He says he has not taken an position on the merits of the case, and has only asked the West Virginia Supreme Court to address the issues.

    The governor’s argument rings hollow. Even if he hasn’t taken a position on the merits, he has effectively taken DuPont’s “side” by asking the West Virginia Supreme Court to get involved. The only way DuPont can win this case now is to get review from a higher court. The plaintiffs, having prevailed below, certainly don’t want any further review. The governor may have legitimate arguments that his amicus brief was in the best interests of the people of West Virginia, but he’s being disingenuous when he tries to pretend that his involvement in this case has been neutral with respect to the interests of the parties.

  • “Exxon Punitives Case May Be Litigated Until Earth is Consumed by Dying Sun”

    Unbelievably, the subject of punitive damages continues to provide comedic inspiration. The always amusing Lowering the Bar has this humorous take on the Exxon Valdez punitive damages saga.

  • OJ Got Off Easy, Part Deux

    A California jury awarded $25 million in punitive damages in the civil lawsuit against O.J. Simpson. Compare that to the $60 million in punitives awarded yesterday by a Kentucky jury for a single homicide: “Jury Hits Ragland with $63.3 Million Verdict.” Like OJ, the defendant in this case is a free man. He was convicted of murder, but the Kentucky Supreme Court overturned the conviction and he pleaded guilty to second-degree manslaughter, receiving a sentence of time served plus three days. He now has to contend with a $63.3 million jury verdict, but at least he’s better off than this guy.

  • $250 million in Punitive Damages Awarded Against Cal Franchise Tax Board

    The Sacramento Bee reports that a jury in federal district court in Nevada last week awarded not only $138.1 million to Las Vegas inventor Gilbert P. Hyatt for invasion of privacy and emotional distress, but also an additional $250 million in punitive damages against the California Franchise Tax Board. The Tax Board began investigating Hyatt in 1993 in an attempt to get him to pay a multi-million dollar California income tax bill—Hyatt apparently moved from California to Nevada, which has no income tax, right around the time he started cashing in big from a computer-related patent. Hyatt disputed the claimed tax obligation and sued the Tax Board on a variety of intentional tort theories. According to the Sacramento Bee article, Hyatt’s complaint alleged that “board auditors went through his garbage and mailbox, spread the word he was being audited to his business associates, and sent letters containing his Social Security number to third parties that included newspapers and doctors who had never treated Hyatt.”

    This case has already gone up once to the US Supreme Court, which ruled Hyatt could sue the California agency in a Nevada court. If the state appeals to the Nevada Supreme Court, it’ll be interesting to see whether the unprecedented $138 million emotional distress award holds up and, if so, whether any of the justices think that award is punishment enough so as to obviate the need for any punitive damages, or at least is sufficiently “substantial” within the meaning of State Farm v. Campbell to warrant reducing the punitive damages to a 1:1 ratio. No offense to Mr. Hyatt but, as a California taxpayer, I have to hope this windfall verdict goes away—there have got to be better ways (maybe something involving the democratic process?) to punish and deter bad behavior by folks within a state agency like the FTB.

    [Note: I should add that California’s Government Code section 818 provides, “Notwithstanding any other provision of law, a public entity is not liable for damages awarded under Section 3294 of the Civil Code or other damages imposed primarily for the sake of example and by way of punishing the defendant.” Nevada apparently doesn’t have a counterpart to that statute. – LP]

  • Senator McCain Sought $1 Million in Punitive Damages

    My co-blogger Jeremy Rosen has noted that Senator Obama won an appeal involving a modest punitive damages award. Now comes this story from the Associated Press indicating that Senator McCain also had a personal connection to a punitive damages case. According to the story, McCain and his ex-wife Carol filed a lawsuit in 1990 against a property management firm, claiming the firm had mistakenly removed some family treasures from a garage that they shared with an adjacent townhouse. The complaint asked for $1 million in punitive damages. The parties settled the case for an undisclosed amount.

  • “Last Term’s High Court Rulings Mostly Pro-Corporation”

    Law.com features this story by Adam H. Charnes and James J. Heffernan, Jr. of Kilpatrick Stockton, taking the position that the Supreme Court’s latest term was predominately pro-business. The primary example cited in the story is the punitive damages decision in Exxon Shipping Co. v. Baker.

    The authors’ view conflicts with that of Patricia Ann Millett, a former attorney in the Solicitor General’s office who co-chairs Akin Gump’s Supreme Court practice. In this story, Millett stated that the Court’s last term involved 24 cases involving business concerns, and in those decisions, the Court split almost evenly, ruling in ways that could be described as pro-business in thirteen of the cases, and ruling against business interests in eleven cases.

  • Monroe v. Singh: Unpublished Opinion Disallows Punitive Damages In Auto Accident Case

    The California Court of Appeal, Third Appellate District, issued this unpublished opinion yesterday, affirming a trial court order that granted summary adjudication in favor of the defendant on the plaintiff’s punitive damages claim.

    The case involved a low speed auto accident. The defendant collided with one car at about 15 to 20 mph and then kept driving, hitting a second car a few seconds later. The driver and passenger of the second car sued and sought punitive damages, but the trial court granted the defendant’s motion for summary adjudication on the punitives claim, finding there was no evidence that the defendant engaged in the sort of “despicable” conduct that could support punitive damages under California law.

    The plaintiffs appealed, arguing as a matter of law that anyone involved in a hit-and-run accident is guilty of the sort of despicable conduct. The Court of Appeal disagreed. It emphasized that punitive damages are reserved for only the most egregious misconduct, and are rarely allowed in unintentional tort cases. The court concluded that a “garden-variety hit-and-run incident,” where the defendant was not speeding and was not driving under the influence, could not possibly support a finding of despicable conduct.

    Full disclosure: Horvitz & Levy represented the defendant on appeal.

  • Utah Jury Awards Punitive Damages of 16 Times the Substantial Compensatory Award

    According to news reports here, here, here and here, a Utah jury has awarded plaintiff $3,606,214 in compensatory damages and $60 million in punitive damages against American National Insurance Company. American National plans to appeal, and seems to have a very strong ratio argument especially given the rather substantial compensatory award.