California Punitives by Horvitz & Levy

  • Interplay Between Punitive Damages and Statutory Penalties/Remedies?

    Our recent posts about the “new right/exclusive remedy” issue pending in Savaglio v. Walmart and about the inapplicability of the Adams v. Murakami financial condition rule in statutory penalty cases prompt this observation: I wonder if courts and litigants are broadly aware of the election of remedies rule discussed in Fassberg Const. Co. v. Housing Authority of City of Los Angeles (2007) 151 Cal.App.4th. 267. Here’s an excerpt with part of that discussion:
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    The Housing Authority contends it is entitled to recover the compensatory damages for breach of contract, treble damages for false claims, civil penalty, and punitive damages. We conclude that the trial court correctly required an election of remedies. (FN 27)
    California courts have held that if a defendant is liable for a statutory penalty or multiple damages under a statute, the award is punitive in nature, and the award penalizes essentially the same conduct as an award of punitive damages, the plaintiff cannot recover punitive damages in addition to that recovery but must elect its remedy. (Troensegaard v. Silvercrest Industries, Inc. (1985) 175 Cal.App.3d 218, 226-228, 220 Cal.Rptr. 712 [civil penalty under Civ.Code, § 1794]; Marshall v. Brown (1983) 141 Cal.App.3d 408, 419, 190 Cal.Rptr. 392 [treble damages under Lab.Code, § 1054]; see Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1256, 79 Cal.Rptr.2d 747 [stating that the plaintiffs must elect between statutory penalties or treble damages under Pen.Code, § 637.2, subd. (a) and punitive damages]; Turnbull & Turnbull v. ARA Transportation, Inc. (1990) 219 Cal.App.3d 811, 826, 268 Cal.Rptr. 856 [treble damages under Bus. & Prof.Code, § 17082].) To impose both a statutory penalty or multiple damages award and punitive damages in those circumstances would be duplicative. (Troensegaard, supra, at pp. 227-228, 220 Cal.Rptr. 712; Marshall, supra, at p. 419, 190 Cal.Rptr. 392.) We presume that the Legislature did not intend to allow such a double recovery absent a specific indication to the contrary. (Troensegaard, supra, at p. 228, 220 Cal.Rptr. 712; see Hale v. Morgan (1978) 22 Cal.3d 388, 405, 149 Cal.Rptr. 375, 584 P.2d 512 [narrowly construing Civ.Code, § 789.3 with regard to the amount of a civil penalty]; People ex rel. Lungren v. Superior Court (1996) 14 Cal.4th 294, 313-314, 58 Cal.Rptr.2d 855, 926 P.2d 1042 [discussing Hale].)
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    The court went on to discuss and reject the plaintiff’s contention that the penalties were really compensatory in nature, and thus did not preclude an additional award of punitive damages:

    We need not decide categorically whether the recovery of treble damages and a civil penalty under the California False Claims Act precludes the recovery of punitive damages on a common law cause of action arising from the same conduct in all cases. Instead, we focus on the nature of the awards in this case (see Cook County, supra, 538 U.S. at p. 130, 123 S.Ct. 1239) to determine whether the treble damages award and civil penalty included sufficient amounts serving a punitive objective so as to render an additional award of punitive damages a prohibited double recovery under California law. Because there was no qui tam relator entitled to a significant portion of the treble damages award, we conclude that most of the treble damages award here served a punitive rather than a compensatory purpose. Moreover, particularly in light of the treble damages award, we conclude that the additional civil penalty served primarily a punitive purpose. Considering the amount of the civil penalty ($1,491,500) relative to the amount of the Housing Authority’s purported actual damages resulting from false claims ($455,000), together with our conclusion that the majority of the treble damages award served a punitive purpose, we are compelled to conclude that the aggregate punitive portion of the treble damages award and civil penalty is sufficiently large that any additional award of punitive damages would be duplicative and unwarranted.

  • In re Estate of Sheen: California Court of Appeal Holds Statutory Penalty is Not Subject to Rule Requiring Proof of Net Worth for Punitive Damages

    npublished opinion (2008 WL 2059133), the Second District court of appeal reviewed a trial court’s decision not to award statutory penalties under Probate Code section 859 where the plaintiff failed to produce evidence of net worth. Section 859 allows a court to award twice the amount of damages against a person who, in bad faith, wrongfully takes estate or trust property. The court of appeal reversed, holding that the California Supreme Court’s Adams v. Murakami rule (plaintiffs must present evidence of the defendant’s financial condition to preserve a claim for punitive damages) does not apply to statutory penalties:

    “In cases of statutory penalties, with amounts or ranges legislatively fixed, the precondition of showing the defendant’s financial condition (Adams v. Murakami (1991) 54 Cal.3d 105) does not apply – although the defendant may raise financial condition as a fact in mitigation of the penalty or its amount. (E.g., Rich v. Schwab (1998) 63 Cal.App.4th 803, 814-817.) The trial court here overlooked this distinction, or misconstrued petitioners’ prayer for a penalty as one for conventional punitive damages.”

  • 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.