California Punitives by Horvitz & Levy

  • Pending Appeal Will Affect Punitive Damages Claims in Wage & Hour Class Actions

    The California Court of Appeal may soon resolve a punitive damages issue of critical importance to California employers: whether employees may seek punitive damages when they sue their employers for wage and hour violations.

    In 2003, a California trial court certified a class in Savaglio v. Wal-Mart, reportedly consisting of more than 115,000 hourly Wal-Mart employees, which sought to recover premium payments from Wal-Mart under Labor Code section 226.7 for missed or late meal periods. Subsequently, the class amended their allegations to seek punitive damages in addition to premium payments. In December 2005, following a rare class action trial, an Alameda jury awarded the class more than $66 million in premium payments and $115 million in punitive damages. Wal-Mart appealed and the case is currently pending before the First Appellate District, Division Four. (See the court’s online docket.)

    Among the issues that Wal-Mart has raised on appeal is whether California’s “new right-exclusive remedy” rule bars the punitive damages award in this wage and hour case. Under this rule, “where a statute creates a right that did not exist at common law and provides a comprehensive and detailed remedial scheme for its enforcement, the statutory remedy is exclusive.” (Rojo v. Kliger (1990) 52 Cal.3d 65, 79.) According to Wal-Mart’s opening appellate brief, no California appellate cases have upheld an award of punitive damages for any statutory wage and hour claims, and at least three federal district courts have applied the “new right-exclusive remedy” rule to dismiss claims seeking punitive damages predicated on alleged wage and hour violations.

    California has seen a boom in wage and hour class actions in the last decade and, according to some reports, claims seeking relief for meal period violations have been among the fastest growing areas of employment law over the past few years. Indeed, a recent report issued by Littler Mendelson (which specializes in labor and employment law) indicates that at least 311 wage and hour related class actions were filed in California state courts alone in the nearly six-month period between October 1, 2007, and March 28, 2008. (Hat tip to Wage Law Blog.) Given the dramatic rise in wage and hour class actions, the issue of whether punitive damages are available in wage and hour cases will likely have a significant impact on the potential liability California employers could face in the future.

  • DISH Network Sues News Corp. for $1.6B, Gets Only $1,500

    Reuters is reporting that a federal court jury in Santa Ana awarded DISH Network $1,500 in its piracy suit against NDS, a division of News Corp. DISH claimed that NDS employed a rogue software engineer who systematically broke into DISH’s network, stole software code, and posted information on the Internet to let users unscramble DISH’s signals and receive satellite television for free. DISH asked for $900 million in compensatory damages and another $700 million in punitive damages. The trial lasted a month but the jury deliberated for a single day before awarding $1,500. Missed it by that much.

  • Will the California Supreme Court’s Gay Marriage Opinion Lead to a Lawsuit Seeking Punitive Damages?

    This is not an idle question. After the Massachusetts Supreme Court ruled in favor of gay marriage in 2003, there was an effort to overturn that decision by amending the state constitution through the referendum process. The Legislature blocked the effort to put the measure on the ballot for submission to the voters. Individual members of the Legislature were then sued by voters seeking, among other remedies, punitive damages.

    It does seem likely that there will be numerous legal challenges to the ballot efforts already underway to seek an amendment to California’s constitution to essentially overrule the Supreme Court’s opinion. We will, of course, monitor those challenges to see if any involve claims for punitive damages.

  • Saunders v. Branch Banking & Trust: Fourth Circuit Affirms 80-to-1 Ratio

    The U.S. Court of Appeals for the Fourth Circuit issued an opinion today affirming a punitive damages award that is eighty times larger than the compensatory damages award. Despite the eye-popping ratio, the court’s punitive damages analysis is not really a departure from recent U.S. Supreme Court precedent. In State Farm v. Campbell the Supreme Court held that ratios above single digits can be appropriate in cases involving very small compensatory damages. The compensatory award here was only $1,000.

    Hat tip to Howard Bashman.

  • Merck & Co. v. Garza: Texas Court of Appeals Overturns Judgment In Vioxx Case Involving $25M Punitive Damages Verdict

    The New York Times is reporting that the Fourth Court of Appeals in Texas has reversed a judgment against Merck & Co. arising out of its painkiller Vioxx. The jury in this case had awarded $25 million in punitive damages and $7M in compensatory damages, but the punitive damages award was reduced to $750,000 pursuant to a statutory cap. You can view the full opinion here. (As an aside, I can’t recall another published appellate opinion that cites only one case in the entire opinion.)

  • Plaintiffs File Reply in Support of Petition for Review in Holdgrafer v. Unocal

    For your reading pleasure, here is a copy of the plaintiffs’ reply in support of their petition for review to the California Supreme Court in Holdgrafer v. Unocal. As you may recall, this is the case in which the Court of Appeal reversed a $5 million punitive damages award and ordered a retrial on punitive damages because the plaintiffs improperly presented the jury with evidence of Unocal’s dissimilar conduct towards nonparties. We have previously linked to the petition for review, and the answer to the petition for review.

    The Supreme Court has until June 16 to rule on the petition. The court normally holds its case conferences every Wednesday, but the court will not conference on May 28 or June 4 due to oral arguments. That means the court will either rule on this petition May 21 or June 11.

  • Economists’ Paper Contends that Caps on Punitive Damages Cause Doctors to Behave Less Carefully

    Whenever a state contemplates passing a bill to place restrictions on punitive damages, people on both sides line up with predictions about what will happen if the bill does or does not pass. The proponents usually say the reforms will address unfairness and abuses in the current system, draw business to the state, lower insurance premiums, etc. Opponents argue that the reforms will allow corporations and bad actors to run amok in the state without fear of consequences. Rarely does anyone ever attempt to back up their predictions with studies about what has happened in states that have already passed similar reforms.

    For this reason, this report from Healthcare Economist about a recent study on the effects of tort reform in the medical malpractice arena is very interesting. The paper, First Do No Harm? Tort Reform and Birth Outcomes, examined the effect of tort reforms (including, but not limited to, caps on punitive damages) on the the number of Caesarean sections performed compared to “regular” births.

    The Healthcare Economist report says doctors prefer to use C-sections because they receive additional compensation compared to a “regular” birth. (I suspect that doctors might also prefer C-sections because they can be scheduled, as opposed to the unpredictable alternative.) But performing a C-section exposes the mother to additional risks.

    The authors of study found that different types of tort reform had different impacts on the incidence of C-sections. Reforms to the joint and several liability rule, such as requiring allocation of fault to co-defendants based on culpability and preventing plaintiffs from holding a minor contributor responsible for the entire judgment, reduced C-sections and complications of labor and delivery. The authors of the study say this shows that doctors behave more carefully when they fear that an injured plaintiff may go after them and not just a deep-pocket co-defendant such as a hospital. But caps on damages were found to increase the use of the C-section procedure. The authors suggest that damages caps make doctors less cautious because they are less fearful of litigation.

    The article does not attempt to examine all the possible impacts of punitive damages reforms – – it only examines one small corner of the big picture. But perhaps this study represents the first step in an effort to raise the level of debate about punitive damages reforms by studying empirical results.

  • Payless (Collective Brands Inc.) Letter to Shareholders Outlines Arguments Against $137 Million Punitive Award

    Last week we blogged about Adidas’s $305 million verdict against Payless for trademark infringement. Today, Payless (actually Collective Brands Inc.) has issued this letter to its shareholders regarding the verdict. The letter sets forth Collective’s various arguments for attacking the verdict, including the fact that the total verdict is roughly 15 times the profits that Payless made on the offending shoes.

  • Mortgage Lenders Hit with $99 Million in Punitive Damages

    InjuryBoard.com has a post entitled “Mortgage lenders ordered to pay $99,000,000.00 in punitive damages.“ In a class action against three mortgage lenders, a Missouri jury ordered defendants Residential Funding Company LLC, Household Finance Corporation III and Wachovia Equity Servicing LLC to pay $5.1 million in compensatory damages and $99,000,000.00 in punitive damages. According to Injury Board, “The actual damages suffered by the plaintiffs as a result of the illegal conduct of the three mortgage companies occurred because the original lender had charged the victims excessive interest and illegal charges for origination fees, loan discount fees, underwriting fees, processing fees, document preparation fees, and legal fees.”

    It seems doubtful that this punitive damage award (at nearly a 20 to 1 ratio) can survive constitutional scrutiny.

  • Civil Penalties and Punitive Damages: SEC Backdating Fines Could Provide Some Useful Comparison

    As we all know, one of the “guideposts” for evaluating the constitutionality of a punitive damages award is “the disparity between the punitive damages award and the ‘civil penalties authorized or imposed in comparable cases.’” (State Farm Mut. Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408, 428.) “[A] reviewing court engaged in determining whether an award of punitive damages is excessive should ‘accord “substantial deference” to legislative judgments concerning appropriate sanctions for the conduct at issue.’” (BMW of North America, Inc. v. Gore (1996) 517 U.S. 559, 583.)

    A Cal Law article, Marvell Slapped: $10 Million Fine for Backdating, is potentially relevant to this sometimes overlooked “comparable fines” guidepost. The piece describes a $10 million SEC fine against the Marvell Technology Group as “unusually pricey” in a case involving charges that the company ” regularly backdated options from 2001 to 2004″ and the CEO “picked the dates in hindsight and signed faked meeting minutes to cover her tracks.” The article further notes that other companies with similar backdating problems paid much less than Marvell, and “[o]nly two other companies, Mercury Interactive and Broadcom Corp., have paid higher fines: $28 million and $12 million, respectively.”

    When that’s the kind of penalty you get for the kind of conscious, corporate-wide policies of dishonesty at the highest levels of a company, one would think that some of the transgressions made in one-shot transactions or sporadically committed at lower levels of management shouldn’t readily garner the eight-figure punitive awards that juries so commonly return.