KansasCity.com reports that the insurer for Collective Brands (the company that owns and operates Payless Shoes) has filed a lawsuit in federal district court in Kansas to establish that Adidas’ $305 million judgment against Payless is not covered by insurance. (View our prior posts about this litigation here.) The insurer, American Guarantee & Liability Insurance Co., contends that the judgment is not covered because the policy excludes coverage for intentional acts. The lawsuit also contends that Kansas law governs, and that punitive damages are uninsurable in Kansas. (The judgment includes a $137 million punitive damages award.)
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Harvey v. Sybase: California Supreme Court Grants Review In Case With Punitive Damages Issue
A few months ago, we blogged about the Court of Appeal’s decision in Harvey v. Sybase. We noted at the time that the unpublished portion of the opinion seemed to take the position that the clear and convincing evidence standard (which governs punitive damages determinations in California) applies only in the trial court, and not in the Court of Appeal. We noted that the court’s approach to that issue was directly in conflict with other published authority.
Attorney Bruce Nye, who represented the plaintiff in that case (and also maintains the excellent Cal Biz Lit blog), commented on our post, acknowledging the split in appellate authority on this issue. To which we responded: “Eventually the Supreme Court should resolve this issue once and for all.”
It looks like that resolution will come a little sooner than we expected. The California Supreme Court has granted review in Harvey. According to the Supreme Court’s news release, the second issue presented is the same issue we flagged in our blog post:
This case presents the following issues: (1) Must the plaintiff in a discriminatory termination
case under the Fair Employment and Housing Act (Gov. Code, § 12900 et seq.) present stronger evidence of bias if the person responsible for the termination had previously treated the plaintiff favorably? (2) On review of an order granting a motion for judgment notwithstanding the verdict with respect to an award of punitive damages, must the appellate court determine whether the record contains substantial evidence to support the award by clear and convincing evidence, or is the clear and convincing standard only applicable at the trial court level?This is an issue we’ve briefed in quite a few cases. California case law has been all over the map. There are conflicts not only between the districts of the Court of Appeal, but in some instances the same district has issued conflicting decisions. I’m out of the office right now so I don’t have access to our research from those cases, but I’ll follow up with some further posts on this when I’m back in the office.
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Doug Rendleman Law Review Article: “A Plea to Reject the United States Supreme Court’s Due Process Review of Punitive Damages”
Doug Rendelman, a law professor at Washington & Lee School of Law, has posted this article on SSRN. Here’s the abstract:
Because the audience and readers of this piece are not United States lawyers, I supply background and I paint with a broad brush. In short, the United States Supreme Court’s use of the Due Process Clause for judicial tort reform of punitive damages was a serious mistake. On the nebulous due-process foundation, the Court built imprecise yet wrongheaded doctrine based on misguided policy justifications. Other common-law countries ought to learn from our blunders, above all not to repeat them.
I wrote this for the Second International Symposium on the Law of Remedies sponsored by the University of Windsor and the University of Auckland. The Symposium was in Auckland, New Zealand, in November 2007. It will be published in 2008 in a book titled The Law of Remedies: New Directions in the Common Law edited by Jeff Berryman and Rick Bigwood. The footnotes are in Canadian, not Bluebook, form.
The adoption of U.S.-style judicial review of punitive damages is not likely to be a big issue in many countries; most other legal systems don’t seem to generate the sort of mega-awards we see here in the U.S. As far as the U.S. system goes, Rendleman’s criticisms echo the views Justices Scalia and Thomas have expressed ever since the Supreme Court required due process review of punitive damages in BMW v. Gore in 1996. Nevertheless, there is no indication that Justices Scalia and Thomas will be able to win over a majority of the justices on that issue anytime soon. Things may change, however, if McCain wins the presidential election and appoints a justice or two in the Scalia/Thomas mold. This is one area in which a more conservative court would actually be bad news for business interests.
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Senators Criticize “Pro-Business” Supreme Court for Exxon Valdez and Other Decisions
As reported on LegalNewsline, the Senate Judiciary Committee held a hearing yesterday entitled “Courting Big Business: The Supreme Court’s Recent Decisions on Corporate Misconduct and Laws Regulating Corporations.” Committee Chairman Patrick Leahy took the lead in chiding the Supreme Court for ruling in favor of businesses in several high profile cases.
As Patricia Ann Millett (a former attorney in the SG’s office) notes in the article, however, it is a fallacy to say the Supreme Court favored corporate interests in its previous term. Over the past term, the Supreme Court decided 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.
A debate over whether the Supreme Court is actually pro-business has been raging for a while. See, for example, the New York Times Magazine article “Supreme Court Inc.” by Jeffrey Rosen (contending the Supreme Court has shifted to a pro-business philosophy), and this Slate blog post by Eric Posner (contending the Court is pro-free-market, not pro-business).
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Robles v. Autozone Inc.: Unpublished Opinion Affirms Trial Court’s Reduction of Punitive Damages Award from 100-to-1 Ratio Down to 6-to-1
In this unpublished opinion issued yesterday, the California Court of Appeal (Fourth Appellate District, Division One) affirmed a trial court’s decision to reduce a $7.5 million punitive damages award down to $438,900.
The plaintiff was a former employee of AutoZone. He brought a claim against AutoZone for false imprisonment, claiming that he was wrongly accused of stealing money, questioned for three hours, and then coerced into signing a false confession. A jury awarded him $73,150 in compensatory damages and $7.5 million in punitive damages. In response to the defendant’s motion for JNOV, the trial court reduced the punitive damages to $438,900, six times the compensatory damages.
The punitive damages discussion in this opinion is unusually long and I haven’t had time to read it carefully, but the court seems to reach these basic conclusions:
1. The trial court did not err when it used a verdict form that did not require the jury to identify, by name, the corporate managing agent who authorized the misconduct at issue.
2. Substantial evidence supported the jury’s conclusion that the defendant’s managing agents did in fact authorize the misconduct of lower level employees. Although the employees violated express company policies, the Court of Appeal said there was evidence to support a reasonable inference that AutoZone management had effectively authorized the employees’ conduct by structuring the company loss prevention department and procedures in such a way that effectively fostered abuses of power. (Without knowing all the details of the case, it’s a little hard to imagine how a jury could reasonably infer that corporate management authorized conduct which corporate management had expressly prohibited.)
3. The trial court did not err in reducing the amount of punitive damages. The Court of Appeal found that the facts justified a significant punitive damages award because: (a) the defendant took advantage of a financially vulnerable plaintiff, (b) the conduct was not an isolated incident, and (c) the defendant engaged in intentional trickery and deceit. At the same time, however, the Court of Appeal found there were no extremely unusual circumstances that could support a double-digit ratio of punitive to compensatory damages. Accordingly, the Court of Appeal agreed with the trial court that 6-to-1 was the maximum ratio permitted by due process. Notably, the court observed that:
[E]ven a six-to-one ratio of punitive damages represents a blot on a corporation’s reputation and has a punitive effect. The level of punitive damages imposed is not required to be so large as to impede the activities of the corporation.
As I was reading through this opinion, a few peculiarities jumped out at me. First, the court cites its own prior opinion in Buell-Wilson v. Ford, without acknowledging that the California Supreme Court has granted review in that case, which therefore cannot be cited under California’s rules of court.
Second, the court states that “It was appropriate for [plaintiff] to go forward and make out a case for punitives, to fully redress his injury.” That language seems contrary to the California rule that punitive damages can never be awarded to compensate for a plaintiff’s injuries, and are only available to serve the purposes of punishment and deterrence. See, e.g., Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1387 (“‘punitive damages by definition are not intended to compensate the injured party’”).
Presumably, these are things that the court would have cleaned up if it decided to publish this opinion.
Hat tip to California Attorney’s Fees.
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New York Appellate Court Says Smokers Cannot Recover Punitive Damages
New York’s intermediate appellate court (New York Supreme Court, First Department Appellate Division) issued an opinion yesterday holding that smokers are barred from recovering punitive damages in New York. (Fabiano v. Philip Morris Inc., 2008 NY Slip Op 06353.)
In a unanimous opinion, the court reasoned that “punitive damages claims are quintessentially and exclusively public in their ultimate orientation and purpose,” and the public interest in punitive damages was “previously and appropriately represented by the State Attorney General” in a 1998 settlement brought on behalf of all of the people of the New York.
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Rex Heeseman Op-Ed in Daily Journal Discusses Impact of Exxon Valdez
Rex Heeseman, a superior court judge in Los Angeles County and an adjunct law professor at Loyola Law School, wrote an op-ed in the Daily Journal entitled “Award Season” (subscription required) discussing the Exxon Valdez decision (Exxon Shipping Co. v. Baker).
Judge Heeseman predicts that the Supreme Court’s decision will be influential on punitive damages law beyond the narrow confines of maritime cases:
[S]ome have remarked that, as a maritime case, Exxon will not influence the general law regarding punitive damages. While an understandable view from a plaintiff perspective, much in Exxon suggests otherwise.
I tend to agree, and have made the same observation on this blog (scroll down to the last paragraph of the post). I think that Judge Heeseman may be taking this a little too far, however, when he suggests that the Supreme Court may adopt a one-to-one ratio limit for all punitive damages case. As I said in that same post, I don’t see enough votes on the Court for that point of view. But you never know what might happen with this issue the next time a new justice joins the court.
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Exxon Valdez Plaintiffs File Reply In Support of Request for Interest
The plaintiffs in Exxon Shipping Co. v. Baker have filed their reply brief in support of their request for interest on the $500 million punitive damages award. You can read our prior posts on this subject here, here, and here, plus the plaintiffs’ original submission and Exxon’s response (courtesy of SCOTUSblog).
On a related note, the Alaska Public Radio Network reports a disagreement among Alaska state officials on whether the state should weigh in on the interest dispute. Three state legislators thing the state should get involved, but a state attorney who has represented the state in Exxon Shipping thinks otherwise. Personally, I don’t see how an amicus brief would have much influence with the court on a question like this.
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Larry Tribe’s Oral Argument in TXO v. Alliance Resources Was One of the Best, According to Linda Greenhouse
The New York Times’ Linda Greenhouse, responding to a reader question about the best and worst Supreme Court arguments she has witnessed, identified Larry Tribe’s performance in a punitive damages case, TXO v. Alliance Productions, as one of the best:
As for the best — I’ve seen many terrific arguments. One memory that always brings a smile was an argument by Laurence H. Tribe, the Harvard law professor, in a 1993 punitive damages case, TXO v. Alliance Resources. He had been brought in after the court, over his client’s opposition, had agreed to hear the other side’s appeal — not a good posture to be in. Larry completely changed the theory of the case — turning a likely loser into a case that during the argument appeared to be making unexpected headway. As this was unfolding, to the surprise of nearly everyone, Justice Scalia said to him with evident irony — “Professor Tribe, I don’t remember this argument in your opposition to cert” (knowing, of course, that Larry had nothing to do with the case at that stage of the proceedings) — to which Larry replied without breaking stride: “Justice Scalia, I like to think it was there by implication.” (This is my memory — I haven’t checked the transcript — but he won the case.)
If Greenhouse is right about Tribe’s influence on the outcome of the case, perhaps that explains the fractured Court in that case. The justices could not put together a five-justice majority to answer whether the amount of punitive damages violated due process. Three justices (Stevens, Rehnquist, Blackmun) said courts should review punitive damages for “reasonableness,” and they concluded that the award in that case passed the test. One justice (Kennedy) thought a more stringent test was appropriate, but he thought the award in TXO barely passed the test. Three justices (O’Connor, White and Souter) said a more stringent test was appropriate and the award did not pass the test. And two justices (Scalia and Thomas) said the Supreme Court has no business reviewing state court punitive damages awards for excessiveness. If Greenhouse’s assessment is correct, O’Connor’s opinion might have been the majority opinion going into the argument, but maybe Tribe persuaded two of the others (possibly Kennedy and Rehnquist) to jump ship. If so, Tribe successfully delayed the Supreme Court’s crackdown on excessive punitive damages for three years, when the court revisited the issue in in BMW v. Gore.
Thanks to my partner David Ettinger for the tip.
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L.A. Jury Rejects Claim for $950 Million in Punitive Damages
The Associated Press is reporting that a Los Angeles County jury returned a defense verdict in a case against Johnson & Johnson, in which the plaintiffs claimed that Children’s Motrin nearly killed their daughter and caused her to become blind.
The plaintiffs’ attorney, well-known L.A. lawyer Browne Greene, sought over $1 billion in damages: $14 million in actual damages, $103 million for pain and suffering and $950 million in punitive damages. The jury found that Motrin presented substantial risks, but the jury rejected the plaintiffs’ failure-to-warn claim. One of the jurors spoke to the press and said the girl’s mother failed to follow directions on the label by giving Samantha Children’s Motrin after the girl woke up with puffy eyes. “It said on the label, any new symptoms call the doctor, and she didn’t do that,” the juror said.