California Punitives by Horvitz & Levy

  • Kuist v. Hodge—Unpublished Decision Demonstrates the Use of Reprehensibility Evidence in the Second Phase of a Punitive Damages Trial

    In a case arising out of a partnership dispute, the Court of Appeal issued an unpublished opinion yesterday that’s not earth shattering, but prompts a note about the scope of second-phase evidence in a bifurcated punitive trial.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    One last aside—whatever one might think of California’s rules allowing “unpublished” opinions, this case provides an example of an opinion that seems to have been written without any intent to provide guidance to litigants other than the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.

  • Exxon Valdez Oral Argument Transcript

    The transcript of this morning’s oral argument is available here.

  • Mixed Bag for Exxon in US Supreme Court?

    SCOTUSblog has posted their initial impressions from the oral argument. They conclude that Exxon may lose on the argument that no punitive damages can be awarded in maritime cases but might win that the award is too high.

    We will post our analysis of the oral argument once we have had time to digest the transcript of the argument.

    UPDATE (by Curt Cutting on 2/27/08 at 10:51 AM): Here is a link to the AP story on the oral argument. The Supreme Court has not yet released the transcript.

    UPDATE (at 11:27 AM): More links:

    L.A. Times

    Bloomberg News

    Reuters

    Further UPDATE (at 4:55 PM):

    Slate (Dahlia Lithwick)

  • Judge Denies DuPont’s New Trial Motion in Case with $196.2 Million Punitive Damages Award

    This story today on CNNMoney.com reports that a West Virginia trial judge has denied DuPont’s new trial motion in a class-action pollution case involving a $196.2 million punitive damages award. The way things have been going in West Virginia for corporate defendants in punitive damages cases, DuPont is unlikely to obtain any relief from the appellate courts.

    UPDATE (2/26/08 at 1:52): DuPont plans to appeal. No surprise there.

  • Reverse Bifurcation of Punitive Damages Trials—”Why Not? It’s No Worse Than How We Handle Asbestos Cases?”

    The blog asbestosland.com has this post about yesterday’s denial of certiorari in Philip Morris v. Accord. The post predicts that West Virginia will impose a huge punitive damages award, which will then end up back in federal court and will ultimately be overturned.

    As we mentioned yesterday, the Supreme Court has another chance to address this issue in the pending cert. petition in Chemtall v. Stern.

  • SEIU v. Colcord—Punitive Damages Must Be Reconsidered After Compensatory Damages Are Reduced

    In this published opinion, the California Court of Appeal (First Appellate District, Division One) reduced the amount of compensatory damages by $300,000 and then remanded the case for reconsideration of the punitive damages award in light of the reduced amount. That seems like a straightforward proposition. Juries are instructed that punitive damages must bear a reasonable relationship to the plaintiff’s actual harm, so if a jury or trial court awards punitive damages based on an a false understanding of the plaintiff’s actual harm, they should reconsider their award in light of the correct amount of compensatory damages. At the least, the punitive damages award should be reduced to preserve the original ratio of punitive to compensatory damages (assuming that ratio was not excessive). (See Las Palmas Associatesv. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1254 [reducing compensatory damages and reducing punitive damages to preserve the ratio awarded by the jury]; but see Stevens v. Owens-Corning Fiberglas Corp. (1996) 49 Cal.App.4th 1645, fn. 11 [dicta stating “there is no rule requiring preservation of the original ratio between punitive damages and compensatory damages”].)

    But compare this decision to the Fifth Appellate District’s opinion in McGee v. Tucoemas, in which the court refused to order a reconsideration (or reduction) of the punitive damages award after a reduction of the compensatory damages award.

    Full disclosure: our firm (Horvitz & Levy) represents the defendant in McGee, in which a cert. petition is currently pending before the U.S. Supreme Court (on a different issue).

  • ExxonMobil v. Grefer—Exxon Files Another Punitive Damages Cert. Petition

    On the eve of oral arguments in the Exxon Valdez case pending in the U.S. Supreme Court, ExxonMobil has filed another cert. petition raising punitive damages issues.

    ExxonMobil v. Grefer, arising from a toxic tort case in Louisiana state court, involves a claim for property damage to a piece of industrial property worth $1.5 million. The plaintiff leased its property to a company that cleaned oil pipes for various oil companies, including ExxonMobil. The plaintiff contends the property is contaminated by material released from the pipes. A jury awarded $56 million in remediation costs and $1 billion in punitive damages. The Court of Appeal reduced the punitive damages award to $112 million. The Louisiana Supreme Court denied review, but the U.S. Supreme Court granted cert., vacated the lower court decision, and remanded the case for reconsideration in light of Philip Morris v. Williams. On remand, the Court of Appeal reaffirmed the $112 million punitive damages award in full.

    ExxonMobil’s cert. petition raises the following three issues:

    1. Whether the Court of Appeal on remand denied due process when it continued to punish ExxonMobil for harm to nonparties, left intact a punitive damages award without finding that ExxonMobil’s conduct was reprehensible as it affected plaintiffs, and held that the jury could “consider the harm suffered by both parties and non-parties regardless of the type or similarity of harm suffered.”

    2. Whether, contrary to the decisions of other federal and state appellate courts, a court may remedy a concededly tainted punitive damages trial by affirming the maximum punitive damages award due process permits, rather than by ordering a new trial.

    3. Whether due process permits punitive damages twice the amount of compensatory damages in a case of economic injury when compensatory damages are $56 million and plaintiffs’ actual harm is no greater than $1.5 million.

    The Supreme Court may think it has already answered questions one and three, even if many lower courts haven’t gotten the message. Issue number two, however, is a recurring issue that the Supreme Court has not addressed. We have encountered this issue in several California punitive damages cases, with conflicting results. A resolution of that issue by the Supreme Court would be enormously beneficial.

  • Cert. Denied in Philip Morris v. Accord; Petition in Chemtall v. Stern Raises the Same Issue

    The petition for certiorari in Philip Morris v. Accord, which we mentioned previously here, has been denied.

    The issue (constitutionality of a reverse-bifurcation procedure in which punitive damages issues are decided before liability and compensatory damages) is still before the court in another case, Chemtall v. Stern. The petition in that case was filed Feb. 8 and the opposition is due March 10.

    UPDATE (2/25/08 at 11:39 AM): Here is an Associated Press story on the denial of certiorari in Accord. The headline is a bit misleading; the Supreme Court did not “side with” the plaintiffs, it just denied the cert. petition.