California Punitives by Horvitz & Levy

  • 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    In this unpublished opinion, the Fourth Appellate District, Division One, upheld an order granting a new trial on the issue of punitive damages.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.”

  • Still No Ruling On Cert. Petition in Williams II

    As we noted in a prior post, the Supreme Court originally distributed the third cert. petition in Philip Morris v. Williams for consideration at its May 22 conference, but when the court issued its order list for the May 22 conference, the court did not rule on Williams II. The court then redistributed the case for consideration at its May 29 conference. Today, the order list for that conference is now available, and there’s still no ruling on Williams II. Does this mean (as my co-blogger Jeremy Rosen has suggested) that the Supreme Court is planning to issue a summary reversal and they’re taking additional time to draft their opinion? Are they having trouble reaching a decision on whether to grant cert.? Are they holding the case pending the disposition of the Exxon Valdez case (which seems unlikely, since the excessiveness issue in that case arises under federal common law rather than the Due Process clause, as in Williams)?

    UPDATE: SCOTUSblog reports that Williams II has been re-distributed for the court’s June 5 conference.

    FURTHER UPDATE: A reader points out: “Actually, it is the third petition for cert. in this saga. The first was GVR’d in light of State Farm, the second granted, and now this one.” Good point. We’ve corrected our post accordingly. We’re still referring to this as Williams II for now, since the Supreme Court’s opinion (if cert. is granted) will be its second in this case.

  • California Attorney’s Fees: New California-Centric Blog on Attorney’s Fees

    Marc Alexander and William M. (Mike) Hensley of Adorno Yoss Alvarado & Smith have launched a blog called California Attorney’s Fees, with a mission to: “provide a resource tool to practitioners, jurists, and the public about the law governing attorneys’ fees/costs awards, but focused on the law and pragmatic experiences in California state or California federal judicial forums.” The blog launched in May and is off to a roaring start, with a steady stream of informative and thoughtful posts.

    Hat tip: UCL practitioner.

  • Plaintiff’s Lawyer in Texas Vioxx Case Suggests Appellate Justices Were Influenced by Campaign Contributions

    Yesterday we blogged about Merck’s appellate victories in two Vioxx cases that involved large punitive damages awards. Mark Lanier, the plaintiff’s lawyer in the Texas case, has issued a press release suggesting that he lost because the “activist” appellate justices were swayed by campaign contributions: “This decision was handed down by a group of judges who regularly accept campaign contributions from law firms representing corporations that appear in their courts. We will appeal this decision to the United States Supreme Court if necessary.”

    Hat tip: WSJ Law Blog.

    Update: Ted Frank at Overlawyered has some harsh words for Mark Lanier. Frank suggests that Lanier may have violated the Texas rules of professional conduct when he implied that campaign contributions from law firms influenced the appellate court to rule in Merck’s favor.

  • Chesapeake Energy, Diasappointed with West Virginia Supreme Court’s Refusal to Hear Case, Cancels Plans for New West Virginia Headquarters

    We recently blogged about the West Virginia Supreme Court’s decision not to review a case involving a $404 million judgment, including $270 million in punitive damages, against energy company NiSource Inc. According to the Charleston Gazette, Chesapeake Energy, a co-defendant in that case, is so angry with the denial of review that it is canceling its plans to build a new $30 million headquarters in Charleston. A company vice president said in an official statement: “While we hold a less significant amount of the liability in the verdict, we do believe it sends a profoundly negative message about the business climate in the state. The reality of this decision is that nobody in West Virginia, similarly situated, has a guaranteed right of appeal in the judicial system.”

    This has all taken place after West Virginia placed dead last in a national survey of corporate lawyers about the reasonableness of each state’s tort liability system. Now we know at least one company exec who isn’t going to change his vote any time soon.

  • “Foreign Torts and the Commerce Clause: Territorial Limitations on State Power to Impose Punitive Damages”

    The Spring 2008 edition of Mass Torts, a publication of the Mass Torts Litigation Committee of the ABA’s Litigation Section, contains this punitive damages article (ABA membership required) by William E. Thompson of Gibson Dunn’s LA office. The article examines the constitutional problems that arise when a plaintiff seeks punitive damages for out-of-state or out-of-country conduct. Drawing on Commerce Clause principles and the Supreme Court’s recent series of punitive damages decisions, the article offers five guidelines:

    1. Punitive damages must vindicate an identified, concrete state interest.
    2. Generalized assertions that out-of-state or overseas conduct was “unlawful” where it occurred are insufficient.
    3. There must be more than “some” actions emanating from the forum to support asserting punitive damages jurisdiction.
    4. The court must rigorously examine the lawfulness of the defendant’s specific in-state acts, if any.
    5. Where the foreign jurisdiction does not provide for punitive damages, that fact is relevant, especially under the due process fairness litigation.

    The idea of imposing punitive damages for overseas conduct came into the spotlight recently when a group of Nicaraguan farm works sued Dole and others in Los Angeles, complaining about the use of the agricultural chemical DBCP on banana farms in Nicaragua nearly 30 years ago. The case fizzled, however, when the plaintiffs obtained only $2.5 million in punitive damages (a fraction of what they were seeking) and the trial court later tossed out the entire amount.

    Hat tip to Mass Tort Litigation Blog.

  • Grimes v. Rave Motion Pictures: District Court Holds FACTA Punitive Damages Provision Unconstitutional

    The Fair and Accurate Credit Transactions Act (FACTA), 15 U.S.C. sections 1681c(g) and 1681n, prohibits anyone who accepts credit cards for a business transaction from printing more than the last 5 digits of the credit card number or the expiration date of the credit card on any receipt provided to the cardholder. FACTA also provides that any person who “willfully fails to comply” with the act is subject either to actual damages suffered or strict liability damages of not less than $100 and not more than $1000, and such amount of punitive damages as the court may allow. This act has spawned numerous class action lawsuits across the country. The Northern District of Alabama ruled that those provisions of FACTA as applied in that case are unconstitutional under the Due Process Clause. The court first found that the strict liability provision standing alone was unconstitutional because there is no criteria for determining whether the strict liability award should be $100 or $1000 or any amount in between. To the extent the higher award was given as a form of punishment, that would run into difficulties if punitive damages were also given in that the defendant would be punished twice for the same conduct.

    The court went on to find that the statute’s allowance of punitive damages where there are no actual damages (i.e., strict liability awards between $100 and $1000) is independently unconstitutional because “to impose punitive damages without the suffering of any harm is inherently disproportionate” and thus suspect under State Farm v. Campbell. The court distinguishes these damages from nominal damages, which in some cases are a substitute for actual damages. But, here, the damages “are by statute expressly not compensatory in nature.”

    The reasoning in this opinion, especially if affirmed on appeal, could have an important impact on a host of similar statutes.

    Hat Tip: Overlawyered.

  • Merck Wins Appellate Reversals in Two Vioxx Cases With Big Punitive Damages Awards

    Merck scored two big appellate victories today in Vioxx cases in New Jersey and Texas. In the Texas case, Merck & Co. v. Ernst, a jury had awarded $253.4 million, including $229 million in punitive damages, to a plaintiff who claimed Vioxx caused her husband’s death. That judgment was reduced to $26 million under Texas law capping damage awards. The Texas appellate court (the Fourteenth Court of Appeals) reversed the judgment in its entirety, ruling there was “no competent evidence that a blood clot triggered by Vioxx ingestion” caused Mr. Ernst’s death. This follows on the heels of another recent appellate win for Merck in a Texas Vioxx case in which the jury awarded $25 million punitive damages.

    In the New Jersey case, McDarby v. Merck & Co., the Appellate Division of the Superior Court of New Jersey tossed out a $9 million punitive damages award. The court also reduced a portion of the $4.5 million compensatory damages award that was based on the state’s consumer fraud statute.

    In light of Merck’s string of appellate victories, the WSJ law blog asks whether Merck jumped the gun in reaching a $4.85 billion Vioxx settlement last November.

    Hat tip: Texas Appellate Law Blog.

  • Stahl v. Acuna: CA Court of Appeal Vacates Another Punitive Damages Award Because Plaintiff Failed to Present Evidence of the Defendant’s Net Worth

    In this unpublished decision, the California Court of Appeal (Second Appellate District, Division Four) reversed two $40,000 punitive damages awards because the plaintiffs failed to present evidence of the defendants’ financial condition. As we observed in a previous post, California has a unique requirement that a plaintiff must introduce evidence of the defendant’s financial condition in order to recover punitive damages. The California Supreme Court announced this rule in 1991, but as we said in our prior post, “every year there are a few appellate decisions reversing a punitive damages award on this basis.” Perhaps we underestimated, since this is already the second such decision this year.

    The Stahl opinion also illustrates the operation of procedural forfeiture rules that may be surprising to those who are unfamiliar with this area of litigation. The plaintiffs argued that the defendants forfeited their objection to the lack of financial condition evidence by not raising that point in the trial court. The court rejected the plaintiff’s forfeiture argument because this particular issue need not be raised in the trial court to preserve it for appeal. On the other hand, the court agreed with the defendants’ argument that the plaintiffs had forfeited their counter-argument that their failure to present financial condition evidence was due to the defendant’s noncompliance with subpoenas for the information. In other words, the defendants did not need to raise their argument in the trial court, but the plaintiffs needed to anticipate the argument and make their counter-arguments in the trial court.

    While these forfeiture rules may seem counterintuitive at first, they flow logically from the rule that the plaintiff has the burden of introducing financial condition evidence, and the rule that a defendant can always challenge a plaintiff’s failure to present substantial evidence, even if that issue wasn’t raised below. On appeal, the plaintiff is not in a position to complain about the belated challenge to the sufficiency of the evidence, since the plaintiff was on notice all along that it had to prove the elements of its claim. Nevertheless, this is an area of the law where the forfeiture rules can present a trap for the unwary plaintiff.

  • Williams Cert. Petition Moved to May 29 Conference

    Yesterday we reported that the U.S. Supreme Court did not rule on the second cert. petition in Philip Morris v. Williams at its May 22 conference, even though the court’s online docket indicated that the petition was on the May 22 conference list. Today the court’s docket has been updated to reflect that the Williams petition has been moved to the court’s May 29 conference.