California Punitives by Horvitz & Levy

  • Sare v. Rosa—Unpublished Opinion Reverses Punitive Damages Obtained in Default Judgment

    This unpublished opinion serves as a reminder of the rule that a plaintiff cannot recover punitive damages in a default judgment unless the plaintiff first serves the defendant with a notice specifying the amount of punitive damages sought. Here, the plaintiff obtained a punitive damages award by default but the Third Appellate District reversed because the plaintiff had not served the required notice.

    The opinion contains a rather pointed concurring opinion by Justice Robie: “I completely concur in the opinion of my colleagues and write separately only to point out that the conduct of the trial judge in granting the default judgment is inexcusable. The appellate courts should not be burdened by appeals from default judgments exceeding the demand of the complaint. The law is long settled and every trial judge in the state should be aware of it.”

  • Holdgrafer v. Unocal—California Court of Appeal Reverses Punitive Damages on Due Process Grounds

    Division Six of the Second District Court of Appeal in Ventura, California has just issued its opinion in Holdgrafer v. Unocal. [Our firm is counsel for defendant Unocal.] Based on the US Supreme Court decisions in Philip Morris v. Williams and State Farm v. Campbell, the court found the $5 million punitive damages award was tainted by improperly admitted evidence. We’ll offer further thoughts once we’ve fully digested the decision but, in the meantime, here’s language from the opinion’s s introduction:

    In deciding whether a punitive damages award violates the constitutional prohibition of arbitrary or grossly excessive punishment, the most important factor to be considered is the reprehensibility of the defendant’s conduct.[1] The United States Supreme Court has instructed courts undertaking this inquiry that “[a] defendant’s dissimilar acts, independent from the acts upon which liability was premised, may not serve as the basis for punitive damages.”[2] On de novo review, we conclude that evidence of two massive oil spills is too dissimilar to be considered in assessing defendant’s reprehensibility in causing and responding to the underground contamination of plaintiffs’ commercial property. We further conclude that in order to comply with due process, the proscription of “dissimilar acts” evidence in punitive damages cases must apply to boththe jury’s predicate determination whether a defendant is liable for punitive damages (Civ. Code, § 3294, subd. (a)), as well as to its subsequent evaluation of a defendant’sreprehensibility in assessing the amount of punitive damages to be awarded.
    …
    We agree with Unocal that the punitive damages award does not comport with due process because the jury was effectively invited to punish Unocal for injuring persons or entities that are not parties to this litigation, for conduct that had nothing to do with that which harmed the plaintiffs in this case. Because Unocal’s dissimilar conduct was admitted not only for the purpose of evaluating the degree of Unocal’s reprehensibility in setting the amount of punitive damages, but also to prove that Unocal was guilty of malice, fraud or oppression, the jury’s findings of liability for punitive damages and the amount of the award are both fatally undermined. Accordingly, although we affirm the award of compensatory damages, we reverse and remand for anew trial on punitive damages liability and the amount of such damages to be awarded, if any.

    Update (3/5/2008): Here is media coverage of the opinion.

  • Mark Geragos, Michael Jackson, and Punitive Damages

    Well-known lawyer Mark Geragos was just awarded $2 million in compensatory damages and $16 million in punitive damages in a lawsuit against the people who supposedly illegally taped his conversations with Michael Jackson the day Jackson surrendered to face child molestation charges.

    Update (3/4/2008): The punitive damages were awarded after a bench trial and defendants say they will appeal.

  • ATRA’s Summary of State Punitive Damage Reform Statutes

    ATRA has prepared a nice chart showing recent state reforms of punitive damages. These state reforms include limits on the ratio between punitive and compensatory damages and a requirement that punitive damages be proven by clear and convincing evidence.

  • “Rogue” Booster Gets $3 Million in Punitive Damages from NCAA

    A former University of Alabama booster got a $3 million punitive damage award in his lawsuit against the NCAA after being called a “rogue booster” in association with an investigation over NCAA recruiting violations.

  • “Conservative” Judges and Punitive Damages

    A commentator on the recent Exxon Valdez argument in the U.S. Supreme Court opined that “The right wing judges who pollute our courts have drastically reduced punitive damages, which is the issue here, to the point where they’re completely useless.” As set forth in greater detail in an earlier post, it is difficult to make the traditional “liberal” vs. “conservative” judge argument with respect to punitive damages considering that Justices Scalia and Thomas (presumably two of the justices considered to be most “conservative”) have joined with Justice Ginsberg to dissent from the Supreme Court’s jurisprudence in finding due process limitations on the size of punitive damage awards. Similarly, Justices Stevens, Breyer, and Souter have joined with Justices Kennedy, O’Connor, Rehnquist, Alito and Roberts to find due process limitations on punitive damage awards.

  • West Virginia Leads Nation in High Jury Verdicts and Punitive Damages Awards

    A recent report from the National Law Journal shows that in 2007, three of the top seven highest jury awards in the nation were from West Virginia. At number three, the January verdict for $404 million ($270 million in punitive damages) in the Tawney vs. Columbia Natural Resources case in Roane County; at number five, the October verdict of $251 million ($196.2 million in punitive damages) in the Perrine vs. DuPont case in Harrison County; and at number seven, the July verdict of $219 million in the Wheeling Pitt vs. Central West Virginia Energy case in Brooke County.

  • Kuist v. Hodge—Unpublished Decision Demonstrates the Use of Reprehensibility Evidence in the Second Phase of a Punitive Damages Trial

    In a case arising out of a partnership dispute, the Court of Appeal issued an unpublished opinion yesterday that’s not earth shattering, but prompts a note about the scope of second-phase evidence in a bifurcated punitive trial. The jury in this case awarded two attorneys about $4.5 million and $4 million respectively in compensatory damages against their former law partner. And, after finding malice, oppression or fraud, the jury heard evidence from the defendants in the “amount” phase of trial concerning their claimed good faith actions, but still awarded punitive damages totalling almost $2 million.

    While the propriety of introducing mitigation evidence during the amount phase of trial was not apparently directly at issue in the case, the court’s discussion of defendant’s challenge to the sufficiency of evidence to support punitive liability suggests there’s nothing suspect about such a procedure (even if it may not always be tactically advisable). The court explained that the mitigation evidence “was not revealed to the jury when it was asked to decide whether appellants had engaged in conduct tantamount to oppression, fraud or malice. . . . Appellants may not assert that the jury failed to consider evidence they chose not to present to nullify its conclusion.” What’s somewhat interesting about this is that we’ve heard arguments by some counsel in other cases that no evidence may be introduced during the second phase of a bifurcated punitive trial aside from information about the defendant’s financial condition, which seems plainly wrong if the jury’s task is to evaluate reprehensibility – anything relevant to that specific task should, presumably, come in from either side.

    One last aside—whatever one might think of California’s rules allowing “unpublished” opinions, this case provides an example of an opinion that seems to have been written without any intent to provide guidance to litigants other than the parties before the court. Responding to the defendant’s challenge that no evidence supported punitive liability (i.e., that there was no evidence of conduct that harmed the plaintiffs and was undertaken with malice, oppression or fraud), the court offered this rather unsatisfying description: “The record amply supports the jury’s findings and trial court’s conclusion that appellants engaged in conduct warranting imposition of punitive damages. Specifically, in denying appellants’ motion for judgment notwithstanding the verdict, the trial court noted that substantial evidence permitted the jury to find ‘the partnership was never concluded properly,’ and Hodge ‘motivated by . . . any one of the factors that are taken into consideration for punitive damages, took advantage of the situation for his own benefit,” in “a conscious, deliberative manner.’”

  • The Health Net Punitive Damages Award: Are Arbitration Awards of Punitive Damages Subject to Federal Due Process Review?

    The Los Angeles Times reports on a recent arbitration award of $9 million in damages, of which $8.4 million was punitive damages, against Health Net for canceling plaintiff’s coverage while she was undergoing chemotherapy. Generally, an arbitration award is extremely difficult to set aside merely because of legal error. However, this case may raise an interesting issue that is percolating through courts around the country regarding whether the due process review of punitive damage awards applies to punitive damages awarded in an arbitration.

    A California Court of Appeal opinion, Rifkind & Sterling, Inc. v. Rifkind (1994) 28 Cal.App.4th 1282, 1291-1292 held that the process of “confirming an arbitration award and converting it into a judicial judgment constitutes state action” which requires a “traditional measure of due process.” However, the court concluded under the then-existing punitive damages due process cases, due process did not require any heightened review of a punitive damages award in arbitration. At the time Rifkind was decided the federal due process clause merely required some review of punitive damages awards and had not yet become a significant substantive check on punitive damages awards. (See, e.g., Honda Motor Co. Ltd. v. Oberg (1994) 512 U.S. 415, 432 [114 S.Ct. 2331, 129 L.Ed.2d 336]; Pacific Mut. Life Ins. Co. v. Haslip (1991) 499 U.S. 1, 18, 20, 21-22 [111 S.Ct. 1032, 113 L.Ed.2d 1].)

    Since Rifkind was decided in 1994, there has been a sea change in the law with respect to the significant limits the due process clause places on punitive damages awards. (See, e.g., BMW of North America, Inc. v. Gore (1996) 517 U.S. 559, 574-575 [116 S.Ct. 1589, 134 L.Ed.2d 809]; Cooper Industries v. Leatherman Tool (2001) 532 U.S. 424, 436 [121 S.Ct. 1678, 149 L.Ed.2d 674]; State Farm Mut. Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408, 418 [123 S.Ct. 1513, 155 L.Ed.2d 585] Williams v. Philip Morris (2007) ___ US ___ [127 S.Ct. at p. 1062].)

    Thus, there is a strong argument that since enforcing an arbitration award involves state action, subjecting it to due process review, arbitration awards of punitive damages should be evaluated the same way any other punitive damage award awarded during a trial would be. So far, three courts have considered this question in the post-BMW environment, and there is a nationwide split of authority. (See Birmingham News Co. v. Horn (Ala. 2004) 901 So.2d 27, 66 [holding that judgments confirming arbitration awards constitute state action, thus warranting “review of the awards under governing federal due-process considerations”]; but see MedValUSA Health Programs, Inc. v. MemberWorks, Inc. (2005) 273 Conn. 634, 641 [872 A.2d 423]; Davis v. Prudential Securities, Inc. (11th Cir. 1995) 59 F.3d 1186, 1192.)

    At some point, the United States Supreme Court may need to resolve this split.

    Full disclosure: I am currently handling an appeal, Raymond v. Flynt, in the California Court of Appeal raising this issue.

  • The Implications of the Exxon Valdez Oral Argument

    We have reviewed the transcript of this morning’s oral argument in the Exxon Valdez case and generally agree with the comments expressed elsewhere. Although the questions indicate a divided Court, Exxon seems unlikely to prevail on the argument that the actions of a ship captain cannot, as a matter of law, expose the ship owner to punitive damages. And Exxon is unlikely to prevail on the argument that the Clean Water Act prohibits the imposition of punitive damages in this case as a matter of law.

    Nor does the Court seem likely to agree that Exxon is entitled to a new trial because the jury instructions erroneously allowed the jury to conclude that Captain Hazelwood had sufficient managerial authority to make Exxon liable for punitive damages. There is at least some possibility of a new trial on that issue, as the Chief Justice and Justices Scalia and Kennedy asked some hostile questions to plaintiffs’ counsel about the jury instruction. Justice Thomas was silent as usual, but is probably in Scalia’s camp on that issue. One more vote for Exxon could yield a new trial, but that vote may be hard to come by, especially since Justice Alito has recused himself.

    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. If the Court adopts an excessiveness test as a matter of maritime law or federal common law, technically that test won’t apply to many cases. But the Supreme Court’s reasoning may influence many state court judges in applying the common law excessiveness standards that many state courts have developed

    Perhaps more importantly, if the Supreme Court holds that the ratio in this case should only be two-to-one (as some of the justices’ questions suggested), such a holding might lend additional weight to the court’s prior holdings on the ratio issue in the cases involving the due process limits on punitive damages. (BMW v. Gore and State Farm v. Campbell). In State Farm, for example, the Court suggested that the ratio of punitive to compensatory damages should be low, perhaps only one-to-one, where the compensatory damages are substantial. Few courts have paid any attention to that holding, but perhaps this case will serve as a reminder to the lower courts about this aspect of the Court’s earlier holdings. Indeed, it seems likely that the Court would refer to its ratio analysis in State Farm if the Court addresses the ratio issue in the Exxon Valdez case.

    We’ve recently seen two California cases in which the courts reduced punitive damage awards down to a one-to-one ratio (Jet Source v. Doherty and Walker v. Farmers Insurance) based on State Farm. This may become a growing trend if the Supreme Court revisits this notion in the Exxon Valdez opinion.

    If the Court focuses on the ratio between the punitive damages and the plaintiffs’ actual harm, that will raise some interesting questions about exactly what the plaintiffs’ “actual harm” is. The Ninth Circuit’s opinion included not only the compensatory damages awarded, but also settlements and judgments obtained by “various plaintiffs.” The opinion does not make clear whether those “various plaintiffs” included parties not before the court in this case. Does that sort of analysis comport with the U.S. Supreme Court’s opinion last year in Philip Morris v. Williams, which held that defendants may not be punished for harm to others?

    Exxon argued that, for purposes of calculating its “actual harm,” the court should subtract Exxon’s payment of $493 million through its voluntary claims program and other settlements. Thus, if the actual harm was $513.1 million (as found by the Ninth Circuit), the remaining total would be only $20.1 million. Even at the maximum ratio of nine-to-one, that would cap the punitive damages at $180 million, a far cry from the $2.5 billion approved by the Ninth Circuit.

    It will be interesting to see if the Court resolves any of these issues surrounding the calculation of the proper ratio, or simply sends the case back to the Ninth Circuit with directions to re-assess the ratio under some new standard announced by the Supreme Court.