California Punitives by Horvitz & Levy

  • Price v. Gingrich: Unpublished CA Court of Appeal Opinion Reinstates $500,000 Punitive Damages Award

    In this unpublished opinion, the California Court of Appeal (Fourth District, Division Two) reinstated a $500,000 punitive damages award that had been declared void by the trial court.

    This is a fraud case in which the defendant was accused of running a Ponzi scheme and defrauding the plaintiff of $500,000. The jury awarded $500,000 in compensatory damages and $500,000 in punitive damages. Over a year later, the defendant moved to vacate the judgment, arguing that the plaintiff had failed to meet his burden of presenting evidence of the defendant’s financial condition. The trial court agreed and vacated the award on the ground that the trial court did not have jurisdiction to award punitive damages in the absence of evidence of the defendant’s financial condition.

    The Court of Appeal reversed. While acknowledging that a party can move to vacate a void judgment at any time, the court concluded that this particular judgment was not void. A plaintiff’s failure to present evidence of the defendant’s financial condition is not a jurisdictional issue – – it is a collateral attack on the judgment that must be raised either by a timely posttrial motion or on a direct appeal. Accordingly, the court erred in granting the motion to vacate. The Court of Appeal went on to say that, aside from the procedural problem, the trial court’s ruling was substantively erroneous because the plaintiff did in fact present sufficient evidence of the defendant’s financial condition to demonstrate that the award was not excessive.

    The Court of Appeal’s procedural analysis seems correct, but the analysis of the substantive issue is a little troubling. The court focuses on evidence that the defendant had sufficient unencumbered assets to pay a $500,000 punitive damages award. The court’s analysis suggests that a $500,000 is not excessive so long as the defendant has $500,000 in liquid assets. But California courts have traditionally applied a different standard. The California Supreme Court has said that courts should consider whether the award is disproportionate to the defendant’s ability to pay, not merely whether the award exceeds the defendant’s ability to pay. (See Adams v. Murakami (1991) 54 Cal.3d 105, 112.) Applying that standard, the lower courts have adopted a 10 percent “rule of thumb” – – an award is disproportionate to the defendant’s ability to pay if the award exceeds 10 percent of the defendant’s net worth. (See Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1596 [“Punitive damages constitute a windfall. [Citation.] Such awards generally are not allowed to exceed 10 percent of the net worth of the defendant”].)

    Under the 10 percent rule, the award in this case appears to be excessive, since the opinion indicates that the defendant had a net worth of $1.8 million. That wouldn’t make any difference to the ultimate outcome of this appeal because the defendant failed to raise the issue in a timely fashion. Nevertheless, it is a little troubling to see the Court of Appeal departing from traditional principles of California punitive damages law, even if the entire discussion is dictum in an unpublished opinion.

  • Three Strikes For Linda Greenhouse: Her Commentary on Williams III Misses the Mark

    Linda Greenhouse reported here on the United States Supreme Court’s recent cert grant in Williams III. As we pointed out here, the court granted cert only on the question regarding the independent state law ground and declined to review the award for excessiveness. Greenhouse writes that “the justices denied review on the first question, which would have had broad application to all punitive damages cases. In earlier rulings, the Supreme Court has suggested that punitive damages should be no more than nine times the compensatory damages, and perhaps a good deal less than that, but there is evidently not a clear majority to convert the suggestion into a firm rule. Instead, they will hear Philip Morris’s appeal only on the second question, which applies to this convoluted case, now in its ninth post-verdict year, and to no other. The justices, in other words, appeared less concerned with making law than with asserting their own authority over that of state courts on the issue of punitive damages.”

    Greenhouse’s analysis ignores the current state of punitive damages jurisprudence. First, the Supreme Court has not “suggested” that the ratio of punitive damages to compensatory damages must be in the single digits and perhaps the very low single digits; it has held that such an outcome is mandated by federal due process (subject to a few narrow exceptions, e.g., where the compensatory damages are very small). Second, there plainly is a clear majority for this holding and a firm rule that is required to be applied nationwide. Indeed, the State Farm v. Campbell case was a 6-3 opinion and is controlling authority on this point. Third, the issue raised by the second question is not unique only to this case. It is the question squarely presented by the petition for review to the California Supreme Court in Buell-Wilson v. Ford.

  • Ninth Circuit Appoints Special Prosecutor to Pursue Disciplinary Action Against Tommy Girardi and Walter Lack

    Prominent plaintiffs’ lawyers Tommy Girardi and Walter Lack have been successful in obtaining some eye-popping punitive damages awards in California. For example, in the Lockheed Litigation cases in the late 1990’s, Girardi won a jury verdict for $760 million in punitive damages. The award was later vacated on appeal, but it helped solidify Girardi’s reputation as a hugely successful trial lawyer.

    Now it seems that Girardi and Lack themselves are in need of a good advocate. As we noted in a prior post, the Ninth Circuit appointed Judge Wallace Tashima to investigate whether Girardi, Lack, and others should be sanctioned or disbarred (the Ninth Circuit’s order actually used that term) for their involvement in pursuing a frivolous case against Dole Food Company and Shell Chemical Company.

    In March, Judge Tashima issued a scathing report, recommending that the Ninth Circuit impose sanctions of $250,000 against Lack and his firm, $125,000 against Girardi and his firm, $10,000 against Paul A. Traina, and $5,000 against Sean A. Topp. Judge Tashima also recommended disciplinary actions against the lawyers involved, but that part of the order was filed under seal.

    The Ninth Circuit has now issued this order (certified for publication), which explains that the lawyers involved did not object to Judge Tashima’s recommended monetary sanctions, but they objected to Judge Tashima’s disciplinary recommendations. Accordingly, the Ninth Circuit has decided to appoint an independent prosecutor to present evidence against the attorneys involved and make a recommendation regarding disciplinary sanctions. The monetary sanctions will be held in abeyance until the disciplinary issues are resolved.

    This story has been largely ignored by the media, despite the fact that it involves some very high profile attorneys. Girardi hosts his own radio show and is a current member of the California Judicial Council.

  • U.S. Supreme Court Grants Certiorari in Williams III

    The U.S. Supreme Court has granted cert. yet again in Philip Morris v. Williams. The Court’s order limits the grant of certiorari to Question 1 presented by the opinion, which involves the Oregon Supreme Court’s use of a state-law procedural rule to find that Philip Morris forfeited its right to complain about the due process violation that the Supreme Court found in its earlier opinion:

    “Whether, after this Court has adjudicated the merits of a party’s federal claim and remanded the case to state court with instructions to “apply” the correct constitutional standard, the state court may interpose–for the first time in the litigation–a state-law procedural bar that is neither firmly established nor regularly followed.”

    The Court declined to review the second issue presented, which was the constitutional excessiveness of the award. The Court’s limited grant of review is interesting because the Court granted review on the excessiveness issue last time around, although the Court never reached that issue given its disposition of the case. The limited grant of review will probably lead to a lot of speculation about whether the Court’s views on excessiveness have shifted after the addition of Justices Roberts and Alito, who may share the view of Justices Scalia and Thomas that the Constitution does not impose restrictions on the amount of punitive damages. On the other hand, the Court’s decision not to review the second issue may simply reflect an understanding among the members of the Court that they are likely to reverse the Oregon Supreme Court on the procedural issue (again) and therefore won’t need to reach the excessiveness issue. Or perhaps the justices feel that they said all that needs to be said about excessiveness in BMW v. Gore and State Farm v. Campbell.

    In any event, the Supreme Court’s grant of certiorari in this case will come as a bit of surprise to some. Howard Bashman, for example, predicted that the Court would not be interested in the procedural issue. My co-blogger Jeremy Rosen, on the other hand, was highly confident that the Court would reverse the Oregon Supreme Court on the procedural issue. Jeremy predicted a summary reversal, which obviously didn’t happen, but a reversal seems likely nevertheless.

    SCOTUSblog has links to the opinion below, petition, the brief in opposition, the reply, and the amicus briefs at the petition stage (by the US Chamber, Washington Legal Foundation, Associated Oregon Industries, and the Products Liability Advisory Council).

  • Oregon Seeks To Collect $82 Million of Adidas’s $137 Million Punitive Damages Award Against Payless

    According to this Bloomberg.com report, the state of Oregon has filed papers to protect its right to collect a share of the $137 million punitive damages award Adidas recovered from Collective Brands, Inc. (the owner of Payless Shoes) in a trademark infringement case.

    An Oregon statute provides that 60 percent of all punitive damages awards go to the state. In a case decided earlier this year, the Oregon Court of Appeals recognized the state’s right to intervene in a case with a large punitive damages award. In that case, the parties had reached a settlement that did not involve the state. The state, a non-party, appealed the judgment of dismissal, arguing that the parties could not bargain away the state’s share of the award. The Court of Appeal, on its own motion, called for briefing on the state’s standing to pursue the appeal, and ultimately ruled in favor of the state.

  • Mercer Law Review Casenote: “Who’s on First? Why Philip Morris USA v. Wililams Left Juries Confused . . .”

    The Spring 2008 edition of the Mercer Law Review has a casenote on Philip Morris v. Williams entitled “Who’s on First? Why Philip Morris USA v. Williams Left Juries Confused About Whose Injuries Can Be Considered When Determining Punitive Damages.” (I don’t have a link to the article, but the Westlaw citation is 59 MERLR 1043.)

    The note, written by Steven Moulds, is largely a summary of the Williams decision and the Supreme Court’s recent series of punitive damages decisions. But the note concludes with a few interesting observations. Among them is the observation that only Justice Thomas, and not Justice Scalia, dissented on the ground that the Constitution does not protect defendants from excessive punitive damages. The article notes that Justice Scalia consistently dissented on that basis in the Court’s prior punitive damages cases, but he did not do so in Williams. He did not write a separate opinion on that basis nor did he join Justice Thomas’ dissent. Instead he joined Justice Ginsburg, who did not address whether the Constitution limits the jury’s discretion to award punitive damages.

    The article suggests that “Justice Scalia’s shift from Justice Thomas’s to Justice Ginsburg’s dissent might suggest that he is backing down from his previous dissents in Gore and Campbell, and that he may accept some limitations on punitive damages in future cases.” It never occurred to me before that Justice Scalia’s nonparticipation in Justice Thomas’s dissent might suggest a shift in Justice Scalia’s views. I had always assumed Justice Scalia did not think it necessary to reiterate his standing objection to the court’s due process excessiveness analysis in Williams because the Court did not reach that issue in Williams. We may have to wait some time to learn whether Justice Scalia’s views have shifted. Although the forthcoming decision in the Exxon Valdez case could conceivably shed some light on the issue, in all likelihood that decision will not delve into any Constitutional issues.

  • Plaintiffs in “Rocky Flats” Case Don’t Expect to Collect on $200 Million Punitive Damages Award

    This story from the Rocky Mountain News reports that plaintiffs who won a massive judgment against Dow Chemical and Rockwell International (see our prior posts here and here) don’t expect to collect any of it. Said one of the plaintiffs, “I’m realistic. If you got a dollar you’d be lucky. You don’t count on it.”

    The plaintiffs’ skepticism is warranted. In our experience, appellate courts heavily scrutinize these kind of jackpot awards. Often, a close review of the record in these cases indicates that the awards lack a solid legal foundation, and that the large award is more a reflection of the passions and emotions of the jurors than any legitimate legal basis. I certainly don’t have any data to back this up, but it seems that awards of this size have a greater likelihood of being vacated altogether (as opposed to merely being reduced), whereas more modest awards are more likely to survive appellate scrutiny. That’s true in most jurisdictions anyway, but perhaps not in West Virginia.

  • “Exxon Valdez Ruling Could Reshape Tort Law”

    LegalNewsline has this story about the impact of the forthcoming decision in the Exxon Valdez case. The article quotes Ted Frank, director of the American Enterprise Institute’s Legal Center for the Public Interest (and blogger at Overlawyered):

    “It has the potential to be a major case,” Frank said. “The court could remove strictures on punitive damages and leave it to the discretion of the lower courts and juries, and if that happens that obviously gives free rein for gigantic punitive damages.”

    He said the “more likely scenario” is that the high court “does something” to the punitive damage verdict against Exxon, noting that the justices decided to take the case when they could have declined it.

    Our own assessment of the likely outcome, based on our review of the oral argument transcript, was that: “The most likely outcome seems to be a split-decision affirming the plaintiffs’ entitlement to punitive damages, but holding the amount of the award excessive under federal common law.“

  • Wow – Taxpayers to Foot Bill for $200 Million in Punitive Damages for Rocky Flats Nuclear Plant Activities?

    As we previously reported, Rockwell International and Dow Chemical Company were whacked for $350 million in a case brought by landowners who claimed that contamination from the Rocky Flats nuclear weapons facility reduced their property values. The judgment included punitive damages of $111 million against Dow and $89 million against Rockwell, plus an award of interest dating back to 1990, which could bring the total judgment to more than $900 million.

    The Denver Post now reports that, “The ruling in the 18-year-old case was stayed by[Judge] Kane to give Dow and Rockwell time to appeal.” That certainly helps avoid one major stumbling block faced by defendants hit with mega-awards – how to bond the judgment to stay enforcement pending appeal. The Post also reports that the defendants “were indemnified by the federal government in the case, meaning taxpayers will ultimately pay any judgment and the companies’ legal fees.” Ouch. Interestingly, these other reports about the case don’t mention the indemnity angle (though they mention that Boeing is liable for Rockwell’s portion of the judgment because Boeing acquired Rockwell).

  • Marcisz v. Movie Theatre Entertainment Group: CA Court of Appeal Upholds New Trial on Punitive Damages Because Jury’s Award Was Excessive

    In this unpublished opinion, the Fourth Appellate District, Division One, upheld an order granting a new trial on the issue of punitive damages. The plaintiffs, movie theater employees, claimed they were subjected to a hostile work environment and discrimination because of their gender. The jury agreed and awarded a total of $1.4 million in compensatory damages to the four plaintiffs, plus a total of $6 million in punitive damages.

    The trial court granted a new trial on the punitive damages, on the ground that the award was excessive in light of the defendant’s financial condition. The Court of Appeal agreed. Although the plaintiffs pointed to the defendant’s annual revenues of over $20 million, the Court of Appeal said that was only “half the equation,” because it ignored the defendant’s expenses and liabilities. Taking everything into account, the defendant had a negative net worth (-$300,000) and a negative annual income. Thus, the Court of Appeal concluded that “the $6 million punitive damages total far exceeded UltraStar’s ability to pay and the jury clearly should have reached a different verdict.”

    Incidentally, the plaintiffs made an unsuccesful argument that illustrates a pattern in cases like this. The plaintiffs, citing Mike Davidov Co. v. Issod (2000) 78 Cal.App.4th 597, argued that the defendant forfeited its right to challenge the award as excessive in relation to its net worth. In the Mike Davidov case, the court found a waiver because the defendant refused to comply with a court order directing it to turn over evidence of its financial condition. Plaintiffs who fail to present sufficient evidence of the defendant’s financial condition (as required by a unique rule of California procedure that plaintiffs frequently overlook), often attempt to save their punitive damages claim by citing the Mike Davidov case and arguing forfeiture, even where, as here, they never obtained any court order requiring the defendant to turn over financial condition information. In keeping with the pattern, the Court of Appeal rejected the plaintiffs’ argument because of there was no evidence the defendant violated any court order: “this contention is not supported by any references to the record showing that UltraStar failed to respond to a valid court order to produce financial records.”