California Punitives by Horvitz & Levy

  • 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).

  • Robles v. Autozone Inc.: Unpublished Opinion Affirms Trial Court’s Reduction of Punitive Damages Award from 100-to-1 Ratio Down to 6-to-1

    In this unpublished opinion issued yesterday, the California Court of Appeal (Fourth Appellate District, Division One) affirmed a trial court’s decision to reduce a $7.5 million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.

  • 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.

  • 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.

  • 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.

  • 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.

  • 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.

  • 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.