California Punitives by Horvitz & Levy

  • Disability Insurers Get Hit for $60 Million in Punitive Damages on Retrial; Original Verdict was $10 Million

    As reported in the Worcester Telegram, a federal court jury in Nevada awarded $60 million in punitive damages against Paul Revere Life Insurance Company and UnumProvident Corporation in a case for wrongful denial of a disability claim.

    The case has an interesting history. In 2004, a jury awarded $1.6 million in compensatory damages and $10 million in punitive damages. The defendants appealed and the Ninth Circuit reversed the punitive damages award, finding that the trial court failed to give a limiting instruction based on Philip Morris v. Williams (Williams I). The Ninth Circuit ordered a retrial limited solely to punitive damages. On retrial, the jury awarded six times the amount of punitive damages that had been awarded by the original jury. Ouch.

    It would be easy to say, in hindsight, that the defendants were foolish to seek a retrial. But given that punitive damages are rarely awarded, and when they are awarded they rarely exceed the amount of compensatory damages (see footnotes 14 & 15 in Exxon Shipping Co.), the defendants played the right odds in seeking a retrial. (Unless of course the facts of this case were so outrageous that any jury would be likely to render a huge punitive damages verdict.)

    It seems highly likely that the defendants will try their chances at the Ninth Circuit again if they don’t get relief from the district court. The 37.5-to-1 ratio of punitive-to-compensatory damages cries out for appellate review.

  • Exxon Valdez Interest Issue Should Be Resolved by July 28

    The Anchorage Daily News reports, in a story entitled “Resolution of Exxon interest issue may be soon,” that the Supreme Court typically issues its final judgment 32 days after issuance of the opinion. In this case, the 32nd day falls on July 28. Thus, the court is likely to either clarify the interest issue by July 28, or issue a final judgment without addressing the interest issue. Both sides have argued that they should win if the final judgment is silent on the question of interest.

  • Shapiro v. Clark: Court of Appeal Reverses Order Requiring Defendant to Bond Punitive Damages Portion of Default Judgment

    This published opinion by the California Court of Appeal (Sixth District) involves a fairly obscure corner of punitive damages law, namely, whether a trial court can require a defendant who is seeking relief from default to post a bond to cover the amount of the plaintiff’s punitive damages claim. The short answer is, “no.”

    The trial court entered a default judgment against Pamela Clark and two co-defendants, holding them jointly and severally liable for $300,000 in compensatory damages and $1.5 million in punitive damages. Clark alone sought relief from default, providing a variety of reasons why she should be excused from her failure to answer the complaint, including the fact that her adult son died unexpectedly during the time period when her answer was due. The trial court entered an order denying Clark’s request for relief from default unless she agreed to post a bond of $1.8 million with the superior court for the duration of the litigation.

    The Court of Appeal acknowledged that trial courts have discretion to require a party to post a bond in order to obtain relief from a default judgment. The bonding requirement protects the plaintiff in the event of an eventual recovery. But the court found that the bond required by the trial court in this case was excessive. The court noted that the bond grossly exceeded the amount of compensatory damages at issue, and the bond could not be justified based on the plaintiff’s prospect of obtaining punitive damages:

    A punitive damages award is “essentially a windfall for plaintiffs that the law permits for public policy reasons.” . . . We question whether a bond protecting only a plaintiff’s interest in a “windfall” can ever constitute a reasonable condition . . . We have found no case in which such a condition was imposed, let alone upheld on appeal. Nor do we detect any circumstance in this case that might justify such a condition. . . . The essential function of the law is to strike a balance between competing interests and policies. As against the policy strongly favoring adjudication on the merits, and appellant’s interest in securing such an adjudication, respondents’ interest in securing the payment of a windfall, and the policy of punishing wrongdoers through civil actions in tort, lack sufficient weight to sustain the order under review. We conclude that insofar as the amount of the bond exceeded an amount reasonably anticipated to make the plaintiff whole, its imposition as a condition of relief was an abuse of discretion.

    Thanks to Ben Shatz at Manatt, Phelps & Philips for alerting me to this decision.

  • Exxon Opposes Plaintiffs’ Request for Interest on $500 Million Punitive Damages Award

    Last week, the plaintiffs in Exxon Shipping Co. v. Baker asked the Supreme Court to clarify whether they are entitled to interest on their punitive damages award. The plaintiffs were concerned that they might be denied interest under Supreme Court Rule 42.1, which provides: “If a judgment is modified or reversed with a direction that a judgment for money be entered below, the mandate will contain instructions with respect to the allowance of interest.” In this case, the Supreme Court’s opinion did not contain any instructions regarding interest. The plaintiffs claim they are entitled to about $488 million in interest.

    Exxon has now filed a response. Exxon agrees that the Supreme Court should resolve the interest issue, but Exxon contends the plaintiffs are not entitled to any interest. Exxon argues that the purpose of awarding postjudgment interest is to compensate a plaintiff for the lost use of their money during the time between the ascertainment of the damages and the payment of the judgment. But Exxon contends that the plaintiffs in this case have no right to compensation of any kind, because they have already been fully compensated by the compensatory damages award. The punitive damages were awarded purely for the public purposes of punishment and deterrence, and those purposes will be served regardless of whether interest is added to the award. Exxon also argues that the extraordinary delay between the date of the original judgment and the Supreme Court’s decision was caused by the plaintiffs, who repeatedly persuaded the district court to ignore the decisions of the Ninth Circuit and the Supreme Court.

    Hat tip: SCOTUSblog.

  • Miller v. Mercury: Unpublished Opinion Affirms Order Granting Motion to Strike Punitive Damages Claim

    The California Court of Appeal (Second Appellate District, Division Seven) issued an unpublished opinion yesterday that highlights an underutilized defense strategy. The defendant in this case successfully moved to strike a punitive damages claim from the plaintiffs’ complaint on the ground that the plaintiffs failed to plead that claim with specificity. The Court of Appeal affirmed. Here’s the relevant portion of the Court of Appeal’s opinion:

    It is settled law that in order to state a claim for punitive damages the pleadings require specificity and not generalities. This means pleading the “facts” with certainty and specificity. Miller’s SAC is simply wanting in this regard. In essence, it merely alleges that Mercury disagreed that there was a potential for coverage under the policy and simply refused to provide a defense as requested. As the cases point out, even a mistaken belief as to lack of coverage and denial thereof does not warrant imposition of punitive damages. We further note that the plaintiff’s burden of proof with respect to punitive damages, as well as the requirement of specificity in pleading, is that of “clear and convincing evidence” which is an elevated standard over the usual civil burden of proof by a preponderance of the evidence. Additionally, it has been historically held in appellate decisions that punitive damages are generally disfavored in the law. This decisional attitude is an additional reason for requiring specificity in pleading facts to warrant punitive damages. The Millers have simply failed in their effort to convince this court that punitive damages should be allowed under the facts and status of the pleadings in this case.

    UPDATE (7/16/07): Spencer Kook at Cal Insurance Regulation has a post about this case, in which he links to our post. In response to our observation that this defense strategy is underutilized, Spencer notes that his firm (Barger & Wolen) employs this strategy and he has seen it used regularly by others as well.

  • CQ Politics Emphasizes Supreme Court’s Observation that Punitive Damages Are Not “Out of Control”

    CQ Politics has a post by columnist Kenneth Jost entitled “Courts & the Law: Damage Controlled.” Jost writes that most commentators on Exxon Shipping Co. v. Baker have overlooked a fundamental premise of the Court’s reasoning, namely, that most punitive damages awards are infrequent, have not increased in recent years, and are generally lower than the amount of compensatory damages.

    Personally, I find this aspect of the Supreme Court’s opinion very ironic. For years, a contingent of lawyers who oppose restrictions on punitive damages have written articles and published studies showing that punitive damages are rarely awarded, and when they are, the awards are usually modest. (See, e.g., the writings of Neil Vidmar and Michael Rustad.) I have always thought that such studies are effective in countering the perception that punitive damages are “out of control,” but they really don’t support the argument that the monster awards, rare as they may be, shouldn’t be reined in.

    Justice Souter, in his opinion in Exxon Shipping Co., actually turned these stats against the people who have long been touting them. He pointed to these stats as evidence that plaintiffs’ advocates have no basis for complaining about a 1-to-1 ratio limit, because it will only affect a small subset of all punitive damages cases.

  • PrawfsBlawg: Supreme Court Punitive Damages Cases Illustrates Folly of Attempting to Predict Outcomes Based on Political Labels

    Prof. Rick Hills at PrawfsBlawg has a post entitled “Spatial Attitudinalism & Philip Morris v. Williams.” Hill criticizes the approach of political scientists who attempt to predict or explain the outcomes of legal cases by focusing on the political ideology of the judge (often based on the party of the President who appointed the judge.) Hill points out that the voting patterns of Supreme Court Justices in punitive damages cases illustrates the shortcomings of such an approach:

    Could any attitudinalist model predict that these two conservative Republicans would be making a stand against the National Association of Manufacturers in favor of state power over punitive damages? Loyalty to federalism and hostility to judicial discretion in interpreting the due process clause surely explain their votes more than any constitutionally irrelevant “attitude.” Likewise, Breyer’s championing restrictions on juries surely rests on his love of technocracy over decentralized juries more than any fealty to the values of the Democratic Party or love of Big Tobacco.

    I think Hill has a good point. As my co-blogger Jeremy Rosen has observed, however, popular commentary on the Court’s punitive damages decisions (and even some academic commentary, like this article by Erwin Chemerinsky) has often criticized the “conservative” court for the outcomes in those cases, without even seeming to notice that the most conservative justices on the court dissented from those opinions. After all, BMW v. Gore, the case that launched the Court’s foray into substantive due process restrictions for punitive damages, was authored by Justice Stevens, not usually described as a conservative. (Though he was appointed by a Republican, so I guess that would fit a primitive “spatial attitudinalism” model.)

  • Alliance For Justice Responds to Ted Frank’s WSJ Op-Ed on Exxon Shipping v. Baker

    A few days ago we linked to Ted Frank’s Wall Street Journal op-ed on Exxon Shipping Co. v. Baker. Justice Watch, a blog maintained by the Alliance for Justice, responds to that op-ed in a post entitled “WSJ Editorial Attempts to Exonerate Exxon.” The Justice Watch blog post criticizes Frank for suggesting that state legislatures should impose restrictions on punitive damages. It also criticizes the Supreme Court’s opinion in Exxon Shipping Co. for reducing the the punitive damages to the point that they no longer have any deterrent value.

  • Lu v. Qi: Another California Punitive Damages Award Reversed Because the Plaintiff Failed to Present Evidence of the Defendant’s Net Worth

    The California Court of Appeal (Second Appellate District, Division Five), issued an unpublished opinion yesterday reversing a punitive damages award because the plaintiff failed to present evidence of the defendant’s net worth. The court reversed the award with directions to enter judgment for the defendant on the punitive damages claim; the plaintiff doesn’t get a new trial, because a party who fails to present evidence on an element of its claim doesn’t get a second bite at the apple. (See Kelly v. Haag (2006) 145 Cal.App.4th 910, 914.)

    As we have observed before, it is surprising how often plaintiffs’ attorneys overlook this rule, which has been part of California law since 1991. This is the fourth opinion already this year reversing a punitive damages award on this basis.

  • Daily Journal Article: “Supreme Court Will Review Award of $55 Million in Punitive Damages”

    Today’s edition of the Daily Journal has this story (subscription required) by staff writer Laura Ernde on the California Supreme Court’s grant of review in Buell-Wilson v. Ford Motor Co.