Punitive Damages in Year One
After ‘Campbell’:
Leveling the Playing Field
JULY 2004
CHRISTINA J. IMRE
Sedgwick, Detert, Moran & Arnold LLP
801 S. Figueroa Street, 18th Floor
Los Angeles, CA 90017-5556
Tel: 213.615.8049
Fax: 213.426.6921
Email: [email protected]
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Year One After Campbell: Leveling The Playing Field
TABLE OF CONTENTS
I.
II.
III.
THE U.S. SUPREME COURT’S RECENT “BIG THREE”
DECISIONS
A.
First Try: BMW’s Substantive Standards
B.
Second Try: Cooper’s Procedural Approach
C.
Third Try: State Farm v. Campbell
1.
Overview
2.
The facts
3.
Procedural history
4.
Substantive guidelines
a.
Heightened concerns
b.
Stronger language on the reprehensibility
test
c.
Stricter ratios
d.
Punishment for out-of-state conduct
e.
The “other acts” similiarity requirement
f.
Comparable fines & penalties
g.
Wealth evidence after Campbell
(1) Changing the role of wealth
(2) How should wealth be handled?
(3) Danger of excluding all wealth evidence
(4) Judge or jury determination?
CAMPBELL TRENDS: HOW APPELLATE COURTS ARE
APPLYING THE DECISION
A.
Overview
B.
California
1.
The California remands
2.
Other California decisions
3.
The Ninth Circuit
POST-CAMPBELL PRACTICAL ISSUES AND PROBLEMS
A.
Raising Constitutionality Objections
B.
Evidence
C.
Requests for Bifurcation
D.
Arguments And Motions
E.
Effect On Discovery
F.
Jury Instructions
1.
Current practice
2.
Should the jury be instructed on these guideposts?
3.
Existing pattern instructions
a.
California approved instructions
b.
Constitutional problems with CACI
4.
Examples of possible instructions
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Year One After Campbell: Leveling The Playing Field
I.
THE U.S. SUPREME COURT’S RECENT “BIG THREE” DECISIONS.
Legislative efforts at tort reform have done little to correct the problem of
burgeoning punitive verdicts or their underlying causes. However, after some
slow starts in the 1980’s, the U.S. Supreme Court has become surprisingly active
in the field. In the last eight years, the court has issued three major decisions on
excessive punitive damages, each time making its message blunter: it’s time to
put the brakes on these runaway verdicts. As with every Supreme Court opinion,
these cases answer many questions, but raise even more.
A.
First Try: BMW v. Gore’s Substantive Standards.
The court fired its first major salvo against punitive damages in 1996. In
BMW, it recognized that defendants have a constitutional right to be free of
“grossly” excessive awards and a due process right to notice of the extent of the
potential monetary punishment. The court remanded a $2 million punitive award
(reduced from $4 million by the lower court), in the process creating three
substantive “guideposts” for reviewing courts to use in evaluating when, and
whether, a punitive verdict is grossly or constitutionally excessive. (BMW v. Gore
(1996) 517 U.S. 559.) Those “guideposts” are:
(1)
degree of reprehensibility: how bad was defendant’s conduct?
(2)
ratio: what is the ratio of punitive damages to actual or potential
harm?
(3)
comparable penalties:
what comparable civil penalties are
available for the conduct at issue in the case?
Terming the “reprehensibility” guidepost the most important factor, BMW created
what could be called a scale of relative reprehensibility, as a marker for lower
courts to use in evaluating how much punishment is warranted. It noted, for
example, that
•
conduct causing physical injury is generally more reprehensible than
purely economic harm
•
economic harm is worse, relatively speaking, when inflicted on the
financially vulnerable than on the wealthy
•
reckless disregard of another’s rights or safety is more serious than
indifference
•
repeated conduct is more blameworthy than a single isolated act or
incident, and
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•
harm resulting from mere accident is less onerous than that arising
from intentional malice, deceit or trickery. (BMW, supra, 517 U.S. at
575-576.)
In announcing these ‘relative reprehensibility’ factors, the court provided
benchmarks, which, all other things being equal, should provide some guidance
to evaluate the degree of reprehensibility. In other words, the court was striving
for proportionality: how bad was the defendant’s conduct when viewed in relation
to the general scheme of things? This ‘relative reprehensibility’ scale requires
placing the conduct into perspective. Thus, for example (assuming all other
factors balance out), a defendant who intentionally and deliberately causes
serious physical harm, or does it repeatedly, is more worthy of blame and
punishment than a defendant that causes accidental injury; a defendant who
causes economic harm to a wealthy plaintiff is less deserving of punishment than
one who injures the financially vulnerable, and so on, in many permutations.
The conduct in BMW clearly fell on the low end of the scale. The actual
harm inflicted was minimal, a few thousand dollars. Defendant BMW failed to
advise the Alabama plaintiff (a doctor) that his new car, after sustaining minor
damage en route to the dealership, had been repainted. In remanding to the
lower court for a redetermination of the proper amount, the opinion relied heavily
on the fact that BMW’s conduct was legal in many states.
Admittedly, however, the guideposts were (perhaps unavoidably) vague,
and thus subject to a great deal of interpretation. After the BMW decision issued
in 1996 it was business as usual for large punitive damage awards. In fact, a
well-known study of California punitive verdicts suggests that the size and
number of verdicts actually increased between 1995 and 2000. (See, e.g., Kelso
& Kelso, An Analysis Of Punitive Damages In California Courts, 1991-2000,
Capital Center for Government Law & Policy, University of the Pacific, McGeorge
School of Law.)
B.
Second Try: Cooper’s Procedural Approach.
Changing Tactics. Evidently recognizing that the vague BMW guideposts
were not equal to the task of policing and reducing large verdicts, in 2001, the
court switched gears. Leaving BMW’s substantive standards untouched, this
time the majority changed the procedural mechanism by which punitive awards
are reviewed on appeal. (Cooper Industries, Inc. v. Leatherman Tool Group, Inc.
(2001) 532 U.S. 424.) Cooper held that where the defendant claims the punitive
award exceeds the bounds set by the Federal Constitution, appellate courts must
review the amount independently, no longer constrained by the trial court’s
determination that the amount passes constitutional muster.
Why the change was so significant. Cooper was a radical procedural
revolution, at least in theory. Before, when a defendant claimed on appeal that
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the punitive verdict was constitutionally excessive, appellate courts reviewed the
award under a standard known as “abuse of discretion.” If the trial judge had
denied a post-trial motion brought on excessiveness grounds, the appellate court
was required to give that ruling substantial deference. Only if the trial court had
abused its discretion – i.e., acted beyond the bounds of reason – could the court
of appeal conclude the amount was grossly excessive. In other words, in
conducting the BMW excessiveness review, appellate courts were constrained
by the trial court, in effect required to conduct their review with one hand tied
behind their backs. Cooper changed that by giving appellate courts the freedom
to independently decide the question of “gross excessiveness.” Under this less
restrictive standard, courts of appeal are no longer hampered by the trial court’s
decision or the deferential abuse of discretion rule.
Rationale. In the course of revamping the standard of review, the
Supreme Court explained that punitive damages are “quasi-criminal” and serve
as private fines designed to punish the defendant and deter similar conduct in
future. However, these quasi-criminal systems lacked the procedural safeguards
afforded a criminal defendant. Cooper held the Federal Constitution requires
independent review to ensure the defendant’s constitutional rights have not been
violated.
Goal: Uniformity & Proportionality. Cooper concluded that appellate
courts are just as capable of applying the three guideposts as trial judges and, in
some respects, are better suited to do so. Juries, given general guidelines for
awarding punitive damages, typically make their decisions in a vacuum, with no
basis for comparison.
In contrast, the constitutional concept of “gross
excessiveness” is “fluid,” comparable to a criminal determination of probable
cause, and acquires “more meaningful content through case-by-case application”
at the appellate level. (532 U.S. at 436.) Thus, courts of appeal, with their
greater perspective and experience in evaluating punitive awards, are particularly
well-equipped to decide if the punishment is “proportional” to the offense and
comparable to penalties imposed against other defendants. (Id. at 440.) This
independent review tends to “unify precedent and stabilize the law,” with the goal
of helping to “assure uniform treatment of similarly situated persons.” (Id. at 436,
citation omitted.)
Not A “Fact” Finding. Notably, Cooper’s majority went to great lengths
to justify its radical new rule of procedure. In granting appellate courts
independent or de novo power to review verdicts, the Supreme Court faced a
theoretical dilemma: typically, jury determinations of damages are semisacrosanct, and reducing verdicts might be viewed as violating plaintiff’s Seventh
Amendment right to a jury trial. The majority opinion offered the following
answer: though a jury’s award of compensatory damages is essentially a factual
determination (thereby requiring some deference on review to the trial judge, who
heard the evidence), deciding the proper amount of punitive damages is a
question of constitutional dimensions and “an expression of moral
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condemnation.” (Id. at 432.) Thus, the independent review standard did not run
afoul of any jury trial rights. Unlike the actual measure of plaintiff’s compensatory
damages, “which presents a question of historical predictive fact [citation], the
level of punitive damages is not really a fact tried by the jury. [Citation.]” (Id. at
437, emphasis added.)
Disappointing Results. In other words, Cooper was an attempt at a
practical solution. It gave appellate courts considerable leeway, intending that
this power be used as a safety net, to help ensure that the penalties were not
excessive, were relatively uniform, and fair. Though a theoretical bombshell, this
procedural change probably did little to alter the outcome in individual cases.
Granting broad new powers did not mean all lower courts would exercise them.
For example, two California intermediate appellate courts, both ordered by the
Supreme Court to reconsider large punitive damage awards in light of Cooper,
simply issued new opinions concluding the amounts passed muster even under
the new de novo standard. (See, e.g., Simon/Sao Paolo (Cal. 2001) 2001
Cal.App. Unpub. Lexis 1860 [remanded by Supreme Court: 121 S.Ct. 2190];
Textron v. National Union (Cal. 2002) 2002 Cal.App. Unpub. Lexis 6131
[remanded by Supreme Court: 121 S.Ct. 1678].)
C.
Third Try: State Farm v. Campbell.
1.
Overview.
With the advent of the Campbell decision in April of 2003, the high court
has gone even further, using sweeping language about restraining punitive
awards, limiting a state’s power to punish a corporation for conduct outside that
state, and even limiting what types of evidence may be used to prove when and
how much punitive damages are constitutionally permissible. (State Farm Mut.
Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408; 155 L.Ed.2d 585; 123 S.Ct.
1513.) The opinion has far-ranging implications for virtually every aspect of trials
and appeals involving a punitive damages claim. It should revolutionize how
punitive cases are tried, from top to bottom, including the role of wealth evidence,
discovery, pre-trial motions, permissible evidence, argument, verdict forms and
jury instructions.
2.
The facts.
Campbell was an insurance bad faith case brought in Utah state court for
the insurer’s failure to settle a serious (death and permanent injury) auto accident
lawsuit against its elderly, and clearly culpable, insured. In the underlying
lawsuit, the jury awarded damages exceeding Campbell’s policy limit. The insurer
refused to appeal the judgment; Campbell had to hire his own appellate attorney,
and the insurer declined to post any bond to stay enforcement of the judgment
while the appeal was pending. It paid only when the higher court affirmed the
personal injury judgment against its insured.
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3.
Procedural history.
In the ensuing bad faith case against State Farm, the trial court admitted
evidence not only of the company’s handling of the underlying third-party claim,
but of a wide range of practices around the country spanning a 20-year period.
This included a performance directive to employees to reduce claim payouts,
evidence that managers in other states did not report punitive damage awards to
home office, how State Farm handled auto repair claims in other states, and
even the fact that employees had sued the company in various states for
wrongful employment practices. The Utah jury set compensatory damages at
$2.6 million and punitives of $145 million.
The trial judge reduced
compensatories to $1 million and punitives to $25 million. However, the Utah
Supreme Court, largely relying on evidence of the company’s unrelated out-ofstate acts and wealth, reinstated the jury’s original punitive verdict. (65 P.3d
1134.) The U.S. Supreme Court granted certiorari. Its opinion, which found the
case “neither close nor difficult,” concluded $145 million was grossly excessive
and arbitrary, and remanded the case for a re-determination of the proper
amount of punishment.1
4.
Substantive guidelines.
a.
Heightened concerns about the dangers of punitive
damages.
In comparison with BMW and Cooper, this time around, the court was
especially blunt about the dangers of runaway punitive awards. Justice
Kennedy, writing for the majority, began by noting that juries have wide latitude in
determining the amount of punishment, and evidence of financial condition,
required in most states, creates a danger that juries “will use their verdicts to
express biases against big businesses.” He echoed Justice O’Connor’s dissent
in a prior opinion, that:
“[p]unitive damages are a powerful weapon. Imposed
wisely and with restraint, they have the potential to
advance legitimate state interests.
Imposed
indiscriminately, however, they have a devastating
potential for harm.
Regrettably, common-law
procedures for awarding punitive damages fall into
the latter category.” (Campbell, supra, 123 S.Ct. at
1520.)
The majority also voiced dismay over the “imprecise manner” in which punitive
damages systems are administered, the “acute danger of arbitrary deprivation of
1
After remand, the Utah Supreme Court issued a new opinion in April, 2004,
setting the punitives at $9 million, or a ratio of 9:1. (2004 Utah Lexis 62.)
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property,” and vague and inadequate instructions that do little to guide the jury in
setting the appropriate amount. (Ibid.) “Vague jury instructions . . . do little to aid
the decisionmaker in its task of assigning appropriate weight to evidence that is
relevant and evidence that is tangential or only inflammatory.” The court finally
observed that although punitive awards are designed to serve the same
purposes as criminal penalties, “defendants subjected to punitive damages in
civil cases have not been accorded the protections applicable in a criminal
proceeding. This increases our concerns over the imprecise manner in which
punitive damages systems are administered.” (Ibid.)
b.
Stronger language on applying the reprehensibility test.
Campbell reiterated its statements about the first BMW guidepost, i.e.,
how courts should go about deciding the degree of reprehensibility of the
defendant’s act. Reciting the five relative reprehensibility factors first raised in
BMW, the majority provided more guidance on how to apply them and what they
mean:
“the existence of any one of these factors weighing in
favor of plaintiff may not be sufficient” to sustain a
punitive award, and the absence of all of them
renders any award suspect.” (Campbell, supra, 123
S.Ct. at 1521, emphasis added.)
Since the plaintiff already has been made whole by the compensatory award,
punitive damages should only be awarded if the defendant’s culpability is “so
reprehensible as to warrant the imposition of further sanctions.” (Ibid., emphasis
added.) Notably, though the court observed that the defendant’s conduct
“merited no praise,” State Farm’s acts were not “so reprehensible” to warrant
$145 million. The court concluded, “a more modest punishment for this
reprehensible conduct could have satisfied the State’s legitimate objectives, and
the Utah courts should have gone no further.” (Ibid.)
c.
Stricter, almost-quantifiable ratios.
On these facts, Campbell continued, the conduct “likely would justify a
punitive damage award at or near the amount of compensatory damages.” That
would be approximately $1 million, the reduced compensatory award. In even
plainer language, the court made its bluntest statements to date on the BMW
ratio guidepost. Though declining to establish a bright line, Campbell said that
few awards significantly exceeding a single-digit ratio between punitive and
compensatory damages will satisfy due process. It reiterated that a 4:1 ratio
(originally stated in Haslip) is close to the line of constitutional excessiveness, but
added that when the compensatory damages are themselves substantial,
“then a lesser ratio, perhaps only equal to the
compensatory damages, can reach the outermost
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limit of the due process guarantee.” (Campbell,
supra, 123 S.Ct. at 1524, emphasis added.)
The court observed that State Farm ultimately paid the excess judgment, so the
compensatory award represented $1 million for 1 ½ years of emotional distress.
Thus, the clearly-substantial compensatory award consisted largely of ‘soft’
damages. Campbell believed that a punitive component already was built into
the compensatory verdict and that this can play a role in the ratio determination:
“The compensatory damages . . . likely were based
on a component which was duplicated in the punitive
award. Much of the distress was caused by the
outrage and humiliation the Campbells suffered at the
actions of their insurer; and it is a major role of
punitive damages to condemn such conduct.
Compensatory damages, however, already contain
this punitive element.” (Id. at 1525.)
.
Since there is no “bright line,” what conclusions can we draw from the ratio
discussion? It appears that ratios exceeding a single digit multiplier (more than
9:1) may be appropriate only in two situations: (1) the compensatory damages
themselves are low and probably contain no punitive component, or (2) the
conduct is exceptionally egregious or reprehensible, repeated on a grand scale
or difficult to detect. In most other cases, 4:1 is “close to the line.” However, if
the compensatory damages are high and/or themselves reflect a punitive
element, then 1:1 may approach the constitutional maximum.
And even then, deciding on the constitutionally-permitted maximum does
not necessarily mean that the maximum amount is appropriate or must be
awarded. In BMW, the court suggested that the award should be the least sum
needed to punish and deter. (See discussion in Continental Trend Resources,
Inc. v. OXY USA, Inc. (10th Cir. 1996) 101 F.3d 634, 641 [“The Supreme Court’s
opinion [in BMW] seems to ask for the least punishment that will change future
behavior . . . . “].) The Tenth Circuit Court of Appeals interpreted BMW as
requiring courts to lower punitive verdicts to the level necessary to deter
defendants economically, and no more.
d.
Punishment for conduct outside the state.
In an attempt to justify the $145 million award, the Campbells argued that
the verdict was necessary to punish the defendant for its conduct towards other
insureds in other states. As the opinion puts it, the plaintiffs’ evidence at trial
represented an attempt to “rebuke” State Farm for its “nationwide activities.”
However, Campbell narrowly circumscribed the use of evidence of out-of-state
acts towards persons other than the plaintiff.
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The court first raised its concern over a state’s use of punitive damages to
punish for nationwide conduct – the so-called “one-way class action” - in BMW.
There, the act, repainting new cars with minor damage before sale, was lawful in
many states. BMW observed that a jury may consider evidence of conduct
affecting persons in other states in calculating the degree of reprehensibility of
the conduct aimed at the plaintiff. However, under principles of comity and
sovereign immunity, juries may not punish conduct directed at non-plaintiffs in
other states where the conduct was lawful in those other jurisdictions. BMW left
open the question of whether one state may punish for out-of-state acts directed
at non-residents if the conduct is unlawful in the other state.
Campbell answered that question, all but slamming the door shut on
evidence of conduct unlawful in the other state: “[n]or, as a general rule, does a
State have a legitimate concern in imposing punitive damages to punish a
defendant for unlawful acts committed outside of the State’s jurisdiction.”
(Campbell, supra, 123 S.Ct. at 1522.) Any other rule would allow one state’s
imposition of punitive damages to punish the defendant for conduct in the other
state. That, Campbell plainly believed, is the function of the other state’s juries
and regulators.
Making it still harder for plaintiffs to secure extra-territorial punishment,
even for conduct unlawful elsewhere, the court clarified that “[a]ny proper
adjudication of conduct that occurred outside Utah to other persons would
require their inclusion, and, as to those parties, the Utah courts, in the usual
case, would need to apply the laws of their relevant jurisdiction.” (Id. at 1522,
emphasis added.) This would basically require the joinder of parties-plaintiff from
the other states, as well as instructions on what is and is not lawful in the other
jurisdictions, and could radically expand the scope of trial. In all likelihood, the
extra-territoriality holding, coupled with comments about what is and is not
sufficiently similar conduct (see below), should spell the end of many “one-way”
class actions, and to jury arguments to “send a nationwide message.”
e.
The tighter “other acts” similarity requirement.
As an additional constraint, the court concluded that, in determining
reprehensibility, the only germane evidence of the defendant’s other acts is
conduct similar to that directed at the plaintiff. The other-conduct evidence must
have “a nexus to the specific harm suffered by the plaintiff.” (123 S.Ct. at 1522.)
Putting an end to general character assassination evidence, Campbell’s majority
observed:
“A defendant’s dissimilar acts, independent from the
acts upon which liability is premised, may not serve
as the basis for punitive damages. A defendant
should be punished for the conduct that harmed the
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plaintiff, not for being an unsavory individual or
business.” (123 S.Ct. at 1523, emphasis added.)
What’s more, when the ‘relative reprehensibility’ issue is whether defendant was
a recidivist, only evidence of acts similar to that which harmed this plaintiff may
be considered.
The court did not provide an express calculus for determining what
constitutes a sufficiently “similar” act, but it did give ample illustrations of what is
not sufficiently similar. Campbell was a third party excess liability case. In a kind
of evidentiary wildfire, the trial court appeared willing to admit evidence on
everything State Farm ever did, anywhere, to anyone. The majority roundly
rejected the notion that State Farm’s allegedly wrongful employment practices
had any bearing on setting its punishment for its treatment of the Campbells,
clearly-irrelevant evidence aimed at character assassination.
More telling on the “similarity” issue is the court’s rejection of how State
Farm handled other insurance claims, such first party earthquake claims,
“improper” payment of replacement auto parts, and its employee performance
directive to reduce claim payouts across the board. Each of these acts was
related, however tangentially, to the handling of insurance claims, but that was
not enough. The acts lacked a sufficient nexus to the specific harm to this
plaintiff. Thus, the court’s definition of sufficient similarity appears to approach
that of nearly identical.
While evidence other acts may be used to show that the conduct toward
plaintiff was part of a wider plan, hence raising the degree of reprehensibility, the
conduct must be highly similar. And even then, punitive damages for the
repeated conduct cannot be too high a multiple of the compensatory award. The
court clearly disapproved of the practice of multiple lawsuits by different plaintiffs,
who often bootstrap themselves into higher punitive awards by sharing
witnesses, evidence of other acts, and even the same experts. The court
appears to be putting an end to the uncertified “one-way” class action.
f.
Comparable fines and penalties.
Some lower courts, to justify high awards, have used criminal penalties as
the basis for comparison, or the highest possible administrative fine, however
remote its imposition might be. For example, one California appellate court,
justifying a $290 million punitive damage verdict against Ford in a rollover-death
case, noted that the comparable criminal sanction was manslaughter, and the
huge amount of punitives was proper because corporations cannot be jailed.
(Romo v. Ford Motor Co. (Romo I) (Cal. App. 2002) 99 Cal.App.4th 1115, opinion
vacated and remanded for reconsideration in light of Campbell.) The Utah
Supreme Court had relied on the severest potentially-available administrative
penalty, loss of license to do business in the state for repeated claims
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mishandling, as well as the possibility that defendant’s corporate officers could
be prosecuted criminally.
Campbell added much-needed clarity to this often-overlooked BMW
guidepost, cautioning against using criminal penalties to justify a high punitive
verdict:
“The existence of a criminal penalty does have
bearing on the seriousness with which a State views
the wrongful action. When used to determine the
dollar amount of the award, however, the criminal
penalty has less utility. Great care must be taken to
avoid use of the civil process to assess criminal
penalties that can be imposed only after heightened
protections of a criminal trial have been observed,
including, of course, its higher standards of proof.
Punitive damages are not a substitute for the criminal
process, and the remote possibility of a criminal
sanction does not automatically sustain a punitive
damages award.” (Campbell, supra, 123 S.Ct. at
1526, emphasis added.)
Where the Utah Supreme Court had justified the $145 million based on the
potential loss of business license, disgorgement of profits, and perhaps even
imprisonment, the U.S. Supreme Court dismissed these possibilities as
“speculative.” Moreover, the Utah opinion’s reliance on the most severe
sanctions available had been predicated on the “nationwide fraud scheme,”
which turned on the now-discredited evidence of other acts. Notably, Campbell
observed that the most relevant civil sanction under Utah law appeared to be
$10,000 for a single act of fraud, a point defendants should keep in mind in
preparing instructions and challenging awards post-trial. (Campbell, supra, 123
S.Ct. at 1526.)
g.
Wealth evidence after Campbell.
(1)
Changing the role of wealth evidence.
Many states have traditionally justified wealth evidence as necessary to
achieve the “proper” amount of deterrence and punishment, on the theory that
the state has an interest in protecting its citizens from reprehensible acts, and an
easily absorbed monetary punishment will not achieve those goals. However, as
a practical matter, giving wealth evidence to the jury has functioned as an
aggravating factor, tending to substantially increase the jury’s award. California,
for example, requires plaintiffs to offer evidence of defendant’s wealth; the failure
to meet this burden is grounds for overturning the award. (See, e.g., Cal.
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approved jury instruction, BAJI 14.71 [wealth is one of three factors jury must
consider]; Adams v. Murakami (Cal. 1991) 54 Cal. 3d 105 [plaintiff’s burden to
offer evidence of financial condition].)
Notably, BMW omitted defendant’s wealth from the three guideposts
courts use to evaluate excessiveness, instead suggesting that wealth alone is not
a proper criterion in assessing punishment: “[t]he fact that BMW is a large
corporation rather than an impecunious individual does not diminish its
entitlement to fair notice of the standards that the several States impose on the
conduct of its business.” (517 U.S. at 585.) Cooper ignored the question of
wealth, although the lower court had cited defendant’s financial condition as a
factor justifying a $4.5 million punitive verdict. In Campbell itself, the Utah
Supreme Court relied heavily on defendant’s financial condition, noting $145
million was a small percentage of the company’s overall net worth.
The Campbell court made no secret of its concerns about the abuse of
wealth evidence in punitive damages trials nor its function as a factor that
enhances the jury’s punitive award. Quoting a concurrence of Justice Breyer in a
prior case, it noted:
“‘[Wealth] provides an open-ended basis for inflating
awards when the defendant is wealthy. . . . That does
not make its use unlawful or inappropriate; it simply
means that this factor cannot make up for the failure
of other factors, such as ‘reprehensibility,’ to constrain
significantly an award that purports to punish a
defendant’s conduct.’ The principles set forth in
[BMW v.] Gore must be implemented with care, to
ensure both reasonableness and proportionality.”
(Campbell, supra, 123 S.Ct. at 1525-1526, citation
omitted, emphasis added.)
Responding to the Utah Supreme Court’s use of wealth evidence, among other
things, to support the high verdict, the Campbell majority stated that a
defendant’s wealth “cannot justify an otherwise unconstitutional punitive
damages award.” (Campbell, supra, 123 S.Ct. at 1525, emphasis added.) In
other words, the amount of the verdict must be supportable under the three BMW
factors. Using wealth to uphold the award would, in essence, trump the three
constitutionality standards, i.e., depart from these “well-established constraints
on punitive damages.” (Ibid.)
(2)
How should wealth evidence be handled after
Campbell?
The question remains, however, precisely what role financial-condition
evidence should play. Does the court’s strong indictment of the misuses of
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wealth evidence mean it is no longer admissible at all, for any purpose? That
seems doubtful. As noted above, wealth cannot be used to sustain an award
that is otherwise constitutionally excessive under the three BMW factors. But the
court went on to say “that does not make it uses unlawful or inappropriate.”
(Campbell, supra, 123 S.Ct. at 1525.) Reading these two statements together,
financial condition apparently continues to have some relevance, but, at
minimum, serves a less important function than before. The most logical
conclusion is that now wealth should function as a limiting factor, constraining the
size of the award. Even California state law recognizes a punitive award can be
excessive solely because it is too high a percentage of defendant’s net worth.
(Adams v. Murakami (1991) 54 Cal.3d 105, 111.) Thus, arguably, juries should
not use wealth as an enhancement, to inflate the punitive award against a rich
defendant. As the court noted: financial condition encourages poorly instructed
juries to “vent their bias” against business and thus is one of the causes of
excessive awards. (Campbell, 123 S.Ct. at 1520.)
Even now, courts and litigants are struggling with this issue. Should
defendants move to exclude any and all evidence of their wealth? The Breyer
comment (the fact that wealth provides an open-ended basis for inflating awards
does not make its use unlawful or inappropriate) suggests otherwise, but the
answer far from clear.
(3)
The danger of excluding all wealth evidence.
Many defendants, relying on Campbell, are moving to exclude all evidence
of their financial condition. Arguably, this over-reads Campbell, which expressly
noted that the fact wealth is not a BMW factor does not make its use “unlawful or
inappropriate.” Moreover, in many states, moving to exclude all wealth evidence
could backfire. California is an example. In reviewing punitive damages awards
on appeal, it invokes a judicially-imposed state (i.e., a non-constitutional) ceiling.2
In its last major pronouncement on punitive damages, the California Supreme
Court held that “the award can be so disproportionate” to defendant’s ability to
pay that it is excessive for that reason alone. (Adams v. Murakami, supra, 54
Cal.3d 105.) As a result, California uses a “10% rule:” punitive damages
“exceeding 10% of a defendant’s net worth have generally been disfavored by
the appellate courts” and “significantly lower percentages are indeed the norm.”
(Goshgarian v. George (Cal. App. 1984) 161 Cal.App.3d 1214, 1228, emphasis
omitted; Storage Services v. Oosterbaan (Cal. App. 1989) 213 Cal. App.3d 498,
516.) Any award exceeding that amount is presumptively the product of jury
2
Ironically, in California, wealth evidence must be given to the jury, where it clearly
serves as an “aggravating” factor. However, post-trial, when courts review the jury’s
punitive damages award for excessiveness under state law, wealth evidence may work
to reduce or mitigate the verdict. Why introduce the jury to such a potentiallyinflammatory factor as wealth, only to use the same evidence on appeal to conclude the
verdict resulted from passion or prejudice?
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passion and prejudice. Thus, a defendant in California who, relying on Campbell,
blocks all evidence of its financial condition has sacrificed its chance to obtain
relief under the “10% (or less) rule” on appeal.
(4)
Jury or judge determination?
The question remains, however, what should the jury be told about
defendant’s wealth, or has wealth dropped out of the jury’s consideration? The
Supreme Court seems to be moving away from the notion that juries should be
involved in deciding the amount of punitive damages. Cooper noted that the
amount of punitive damages is not, or “not really” a fact question, but rather a
non-factual, or perhaps quasi-factual, expression of moral condemnation. The
high court is clearly concerned that wealth evidence is inflammatory, gives jurors
an excuse to vent their spleen against big business, and plays a major role in the
enormous awards we see reported regularly in the news.
While lower courts around the country are still struggling with the
ramifications of the 14-month old Campbell decision, the solution, what to do with
wealth, is far from clear. Here is one suggestion for states, such as California,
that apply their own “passion and prejudice” review on appeal. As noted above,
any punitive verdict over 10% of net worth or financial condition is presumptively
excessive as the product of jury passion and prejudice. Appellate courts cannot
apply that rule if there is no evidence in the appellate record of defendant’s
worth. Thus, defendant might consider offering evidence of financial condition to
the trial judge, either in chambers or post-trial. Warning: this is a novel,
untested argument, contrary to existing case law that requires the jury to hear
evidence of wealth.3 However, this approach would go a long way toward
satisfying Campbell’s concerns about the misuse of wealth evidence, and at the
same time preserve the defendant’s ability to avail itself of the 10% rule on
appeal.
As the preceding discussion shows, all states that allow wealth evidence
as part of the jury’s punitive damages calculation will have to rethink the role of
wealth, at trial and on appeal. Assuming wealth evidence is still a jury issue,
should juries now be instructed that it can be considered only in mitigation, or
that the award cannot exceed a maximum set by the trial judge after hearing
financial condition evidence? These and other solutions have been offered by
legal commentators but are not without their flaws. In the mitigation-instruction
proposal, the jury still hears about wealth, thus requiring jurors to ignore
enormous numbers except for mitigation. And any pre-set maximum instructions
Under current California law, the jury must be given financial condition evidence
and the trial and appellate courts cannot consider evidence the jury did not hear.
(Adams v. Murakami, supra, 54 Cal.3d at 111; Stevens v. Owens Corning, supra, 49
Cal.App. 4th 1645.) Based on existing California authority, the trial court will probably
feel constrained to deny the motion, but the issue would be preserved for adjudication in
a higher court in light of Campbell’s changed circumstances.
3
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suffer from problems of their own. An instruction saying “do not exceed $10
million” or “do not exceed a ratio of 4:1” is an open invitation to award $10 million
or the highest permitted ratio.
II.
CAMPBELL TRENDS: HOW APPELLATE COURTS ARE APPLYING
THE DECISION.
A.
Overview.
It has been fourteen months since the landmark decision came down. In
that period, courts around the country have been faced with scores of cases in
which defendants have relied on Campbell to significantly reduce the amount of
the punitive damages award. For a detailed analysis of the results and
approaches to the new Campbell rule, see Table, “Appellate Court Reactions To
Campbell.”
Prior to Campbell, many appellate courts had simply affirmed the amount,
citing e.g., deference to the jury’s “discretion” (discretion that has been
constitutionally circumscribed by Cooper and Campbell) or casually referring to
the “extreme reprehensibility of defendant’s conduct.” That is changing, although
the decision is not being applied as rigorously as the language seemingly
requires.
Thus far, the trend in California state courts has been to set the puntitives
at approximately four to one, even in cases of economic harm and even where
the compensatory damages are substantial. Some have exceeded 4:1 but
remained within the “single digit ratio” parameter, and some decisions have
continued to rely on wealth evidence as a justification for not reducing the award
further.
Many of these decisions do not seriously evaluate degree of
reprehensibility.
B.
California.
1.
The California remands.
After issuing its Cooper decision, the U.S. Supreme Court remanded
cases to the lower appellate courts, instructing them to reconsider the amount in
light of Cooper’s new de novo standard of review. Those courts issued new
opinions reaffirming the punitive damage awards. (See Table, “Appellate Court
Reactions To Campbell.”). California was among them. In many instances, the
U.S. Supreme Court granted certiorari again, vacated the decisions and again
remanded, ordering propriety of the award be reconsidered in light of Campbell’s
principles and precepts.
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This time, the California lower courts responded more favorably, reducing
the awards, but many of them arguably read the permissible ratio language too
broadly, using 4:1 as a benchmark, even in fact patterns where the defendant
caused economic harm only and the compensatory damages were substantial.
•
Textron. A case the U.S. Supreme Court remanded twice, first in light
of Cooper and then Campbell, to reconsider the amount. (See Table,
“Appellate Court Reactions To Campbell;” Textron II (2004 118
Cal.App.4th 1061.) On its third try, in mid-2004, the court of appeal
reduced the punitives from approximately $1.7 million to $360,000, a
ratio of about 4:1. Arguably, the number is still too high. Textron II
found the compensatories neither exceptionally high nor low, the
conduct neither very extreme nor trivial. That the maximum usually
should not exceed 4:1 does not mean such a ratio is appropriate for
“average” cases. The harm here was economic only and the plaintiff
was not financially vulnerable.
•
Simon v. Sao Paolo. Another case the U.S. Supreme Court
remanded twice. The Los Angeles Court of Appeal (Second District,
Division Four) originally affirmed a $1.7 million punitive award on a
$5,000 compensatory verdict, and reaffirmed that amount after remand
for reconsideration in light of Cooper. (2001 Cal. App. Unpub. Lexis
1860.) After a second “Campbell” remand, the same appellate court
once again reaffirmed the punitive award. (Simon II (Cal. 2003),
formerly published at 113 Cal.App.4th 1137.) The court rejected
defendant’s argument that Campbell bars all wealth evidence, which it
found “still useful” in determining the amount. It also considered the
conduct, causing only economic harm, to be very egregious, noting
that extremely reprehensible conduct warrants higher punitives where
only a small economic harm results. The California Supreme Court
granted review in March, 2004. The issue is proper calculation of the
ratio after Campbell. (See fn. 10, post.)
•
Romo. In this defective product case, the jury returned a punitive
damages verdict of $290 million against Ford for design of the vehicle
roof, which partially collapsed during a rollover causing serious injuries
and deaths. The trial judge granted a new trial for juror misconduct
during deliberations. In an opinion giving short shrift to Ford’s
constitutional challenges, the Fresno Court of Appeal reinstated the
award and the California Supreme Court denied review. (Romo I,
supra, 99 Cal.App.4th 1115.) However, after the U.S. Supreme Court
remanded for reconsideration under Campbell, the same appellate
court reduced the punitives to approximately $24 million. (Romo II
(Cal. 2003) 113 Cal.App.4th 738.) The new opinion criticized the BAJI
instruction’s emphasis on defendant’s wealth as one of the three
factors the jury should consider in setting the amount, concluding this
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improperly focused the jury more on defendant’s wealth, distracting
attention from the real issue: what is the harm to this plaintiff.4 Since
Ford settled the case soon after, no petition for review was filed with
the state Supreme Court.
2.
Other California decisions.
•
Diamond Woodworks. One of the first California opinions to come
down after Campbell was Diamond Woodworks v. Argonaut Ins.
Co. (2003) 109 Cal.App.4th 1020. The court of appeal reduced the
$ 5 million punitive damage award to $1 million, a 3.8 ratio of
punitives to compensatory damages. This was the same appellate
court (Fourth District, Division Three (Santa Ana) that a year before
had reaffirmed the award after a “Cooper remand.” (See Textron I,
supra.) The court expressed its conviction that awards exceeding
four to one could not pass constitutional muster: “We have no
doubt that any [ratio] exceeding four-to-one would not comport with
due process under Campbell.” Though it represents a step in the
right direction, Diamond Woodworks set the punitive award at the
high end of the four to one scale, for economic harm inflicted on a
single plaintiff, and, like Campbell, the compensatories themselves
were substantial. The court of appeal thereby set a trend, which
has been followed in several other California cases, that four to one
is permissible, placing far less emphasis on the other factors, e.g.,
whether the act was intentional, repeated, caused physical injury or
only economic harm, whether plaintiff was financially vulnerable,
and the like.
•
Bardis. Defendants were accused of fraud against their partners,
taking kickbacks, concealing commissions and serious breaches of
fiduciary duties. The jury awarded $166,000 in compensatories
and $7 million in punitives. The Sacramento Court of Appeal
reduced punitives to $1.5 million, observing the reprehensibility was
high, but not extremely so, the acts were intentional and repeated,
but the harm was economic only. After concluding that the 42:1
ratio was grossly excessive and only a single digit ratio was proper,
the opinion found that a ratio of more than 4:1 was proper, in light
of defendant’s high net worth. A 4:1 ratio would equal only 1% of
defendant’s net worth, the equivalent of a “slap on the wrist.” The
court thereby arguably ignored Campbell’s mandate that
defendant’s wealth cannot be used to justify a punitive award that is
otherwise
constitutionally
excessive
under
the
three
4
In contrast, an unpublished California opinion rejected defendant’s challenge to
the instruction’s emphasis on wealth, stating “this is not a case [where] defendant’s
wealth provides the sole justification for an otherwise unconstitutional punitive damages
award.” (Alberts (Cal. 2004) 2004 Cal. App. Unpub. Lexis 5698.)
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Campbell/BMW factors. Notably, Bardis observed that this case
was a “stronger candidate” for high punitives than Romo (which
involved several deaths and serious injuries) because Romo
involved a much higher compensatory award. (Bardis v. Oates
(2004) 2004 Cal.App. Lexis 826.)
•
Henley. In this tobacco personal injury case, the jury returned a
verdict of $1.5 million in compensatories and $50 million punitives.
The trial judge reduced punitives to $25 million, and that reduction
was originally affirmed on appeal. After the California Supreme
Court ordered remand for reconsideration in light of Campbell, the
appellate court (First District – San Francisco) conditionally reduced
punitives to $9 million. The court concluded that given the highly
reprehensible nature of the conduct over a lengthy period, a ratio of
6:1 was appropriate. It also relied heavily on the defendant’s
wealth, noting that an instruction on the limits of wealth evidence
would not have produced a result more favorable than the appellate
court’s reduction to 6:1. (Henley (Cal. 2004) formerly published at
114 Cal.App.4th 1429.) The California Supreme Court has granted
review, on a “grant and hold” basis, deferring briefing pending
decision in the lead case, Simon II. (Case No. S123023, rev.
granted 4/28/04.)
•
Taylor Woodrow. An insurance bad faith case where the jury
assessed compensatories at $293,000 and punitives at $5 million.
In an unpublished opinion issued soon after Campbell, the court of
appeal reduced the punitives to $1 million, finding, that while the
insurer was “distastefully opportunistic,” 17:1 was “way too much”
to punish an insurer and the maximum penalty under the Insurance
Code was only $55,000. (Taylor Woodrow (Cal. 2003) 2003
Cal.App.Unpub. Lexis 5209.) Note: this is the same court of
appeal (Santa Ana) that had resisted reducing punitives on remand
from the U.S. Supreme Court in Textron.
3. Ninth Circuit.
•
Ratio: One panel of the Ninth Circuit approved a 7:1 ratio in a
discrimination case, citing large punitive awards in comparable
cases and noting discrimination involves an affront to personal
liberty. (Zhang (9th Cir. 2003) 339 F.3d 1020.)
•
Wealth. Reversing and remanding for redetermination of
punitives, since the trial court erred evaluated the
reprehensibility of multiple defendants “en grosse” instead of
individually, this Ninth Circuit opinion noted that if the trial court
decides to reduce punitives, it may do so only to the extent the
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record substantiates defendant’s wealth and any indemnification
of individual defendants by employer must be considered. It
arguably uses wealth as an aggravating factor. (Bell (9th Cir.
2003) 341 F.3d 858, see Table 1.)
III.
•
Comparable penalties: Affirming a 4.4:1 ratio in a bad faith
case, the court noted that the conduct could have justified
revocation of the insurer’s license even though the Campbell
decision expressly repudiated this justification. (Greenberg (9th
Cir. 2004) 91 Fed. Appx. 539.)
•
The Exxon Valdez cases: After the Cooper decision required
de novo review of awards, the Ninth Circuit remanded the $5
billion punitive damage award (on compensatories of about
$300 million), in cases brought by fisheries for economic losses,
for redetermination by the trial judge. The Ninth Circuit’s
opinion gave broad hints that $5 billion was far too high for
Exxon’s conduct, failing to monitor the Valdez’ captain, a
relapsed alcoholic. The opinion also noted that Exxon had
already been penalized severely, having paid billions of dollars
in fines and administrative penalties, billions more to clean up
the oil spill, and lost its valuable tanker and cargo. (Sea Hawk
Foods (9th Cir. 2003) 2003 U.S. App. Lexis 18219.) On remand,
the trial judge set the award at $4 billion, and Exxon appealed
again. Since Campbell came down before the appellate briefs
were even filed, the Ninth Circuit again remanded to the trial
judge, who this time set the punitive award at $4.5 billion, i.e.,
the amount went up. (In Re Exxon Valdez (D. Alaska 2004)
296 F.Supp.2d 1071.) Exxon has appealed again. The Valdez
case is one of the most flagrant examples of judicial nullification
by the trial judge to arise in the post-Campbell world.
POST-CAMPBELL PRACTICAL PROBLEMS AND QUESTIONS
A.
Raising Constitutionality Objections.
Given Campbell’s scathing indictment of the American systems for
administering punitive damages, the defendant may want to consider raising
constitutional objections and affirmative defenses early in the case. Objections
may be particularly important in state systems which lack procedural safeguards
– where, for example, the burden of proof for punitive damages is only
preponderance of the evidence, the state allows purely vicarious or joint and
several liability for punitives, or there are no recognized instructions to guide the
jury on whether and how much to award. And raising the constitutionality issues
should not be limited to affirmative defenses. When, for example, the plaintiff
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proposes an instruction that entitlement to punitives and the amount calculus is
determined by a preponderance of the evidence, defendants should object and
offer their own instructions that, given the quasi-criminal nature of the
proceeding, a higher burden of proof is constitutionally required on all elements
of the punitive case.
B.
Evidence.
Evidence of other bad acts may be relevant to the reprehensibility
analysis, but Campbell has severely restricted the type and scope of such acts.
“In this case, because the Campbells have shown no conduct by State Farm
similar to that which harmed them, the conduct that harmed them is the only
conduct relevant to the reprehensibility analysis.” (Campbell, supra, at 1524.)
As noted, Campbell’s facts are illustrative. This was a third party claim for the
failure to settle within policy limits. The jury heard evidence of how State Farm
had handled first party claims (e.g., made by the insured for property damage),
evidence of an Illinois lawsuit against the company for its policy of paying for
after-market parts, and the fact that employees had sued for wrongful
employment practices. In other words, the trial court wrongly admitted evidence,
on a nationwide basis, of all sorts of unrelated, allegedly wrongful acts. The
Campbell majority held that none of these acts were sufficiently similar to the
conduct in issue, even rejecting evidence of State Farm’s allegedly “nationwide”
practice of reducing claim payouts without regard to the merits of the claim.
Campbell held that other “bad acts” require a nexus, a showing of sufficient
similarity to qualify as “reprehensible.”
The majority thereby substantially restricted the meaning of the word
“similar,” which no longer includes anything the defendant did, anywhere, at any
time. It no longer involves “nationwide” policies. Now, “similar” is a very narrow
concept. It probably means “‘pretty close to identical, in kind, location, and time.”
(See Kolinski, Gore, Cooper Industries, and State Farm v. Campbell: Game, Set
And Match For Exorbitant Punitive Damages Awards, The Florida Bar Journal,
Nov. 2003.)
In other words, to be “similar” under Campbell, the other “bad act” must
not only be similar to the conduct that harmed this plaintiff, it seemingly requires
proximity in time and place. Many states allow “pattern and practice” or “course
of conduct” evidence in punitive damages cases. Campbell appears to define
“similar” or “course of conduct” far more narrowly than any state. There is now a
constitutional overlay to state law on admissibility of other acts.
Certainly, “pattern and practice” evidence remains permissible under
Campbell, and probably is even more important to plaintiffs than before.
Evidence of truly similar “other acts” could be used to show defendant is a repeat
offender, i.e., the conduct is not isolated and therefore more deserving of
punishment under the relative reprehensibility scale. However, the trial court
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should make a pretrial determination that the other acts are sufficiently similar
under Campbell, and that they have a nexus to the specific harm to this plaintiff.
Likewise, defendants could argue that the state’s legitimate interest in
punishment decreases when the conduct occurred out of state, and thus even
greater similarity is required to justify its introduction. Moreover, defendants
might argue that a few pieces of “other act” evidence are not sufficient to
establish pattern or practice, and thus anecdotal evidence of the handling (e.g.)
of a few insurance claims is statistically insignificant given the volume of claims
defendant processes.5 In contrast, evidence showing a standard practice that
satisfies the nexus/similarity requirement would likely qualify. (See, e.g., Downey
Savings & Loan Assn. v. Ohio Cas. Ins. Co. (Cal. App. 1987) 189 Cal.App.3d
1072 [evidence showed defendant had a standard procedure because its claims
manual instructed adjusters to misuse discovery to coerce claimants].)
C.
Requests For Bifurcation
What It Is. In the typical bifurcated trial, the jury determines liability and
compensatory damages, and often some punitive damage issues, before hearing
evidence of wealth. For example, in California, the defendant has the option of
requesting bifurcation of any trial in which punitives are being sought. (Cal. Civ.
Code, § 3295(d).) The concept of bifurcation was designed to avoid tainting the
jury with wealth evidence while the fact finder is deciding basic liability issues. In
the typical bifurcation scenario contemplated by the California statute, the jury
decides all liability issues (e.g., was a tort committed), the amount of
compensatory damages, and whether the defendant acted with malice, fraud or
oppression (California’s predicate requirement for punitive damages). If the jury
concludes defendant acted out of malice, fraud or oppression, a second phase
commences, in which the jury hears evidence relevant to the need to punish or
deter, including wealth evidence.
“Trifurcation” – where liability and
compensatory damages are separated from virtually all punitive damages issues
– is possible, but not mandatory.
Does Bifurcation Help, Or Hurt, Defendants? As a strategic matter,
whether the defendant should request bifurcation is a question lawyers have
debated for years. Traditionally, bifurcation serves to exclude wealth evidence
while the jury is deciding liability issues. But if the defendant is a large
corporation, juries know or assume the defendant is wealthy; the evidence only
serves to quantify the number. Thus, with large corporate defendants, bifurcation
may not serve, or fully serve, its intended purpose. In fact, many defense
lawyers believe that bifurcating actually backfires, working to the plaintiff’s
advantage by giving the jury two opportunities to punish. Typically, juries are not
told there will be a second phase of trial. Anecdotal evidence suggests that if
5
For example, a circuit court of appeals required statistical evidence and adequate
samplings to determine business habit in the civil rights context. (See, e.g., United
States v. Jacksonville Terminal Co. (5th Cir. 1971) 451 F.2d 418, 441; see also United
States v. Gray (D. R.I. 1970) 315 F.Supp. 13, 20.)
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jurors are irritated with the defendant, they tend to inflate compensatory awards
by adding something extra for punishment, though technically this is not
permissible. Campbell seemingly agreed when it noted that many “soft”
compensatory damage awards, such as emotional distress, contain a punitive
component. A second phase gives the jury the opportunity to take a second
“swipe” at defendant. As the compensatory award artificially inflates, the more
difficult the Campbell ratio argument may become for defendants. That appears
to be part of plaintiffs’ post-Campbell trial strategy: introduce evidence on all
potential compensatory damages, focus on potential harm, and thereby
maximize the compensatory verdict as much as possible.
D.
Argument And Motions.
Campbell can be a useful tool to restrict the typical plaintiff arguments that
jurors must “send a message to the company nationwide,” that punitive damages
should be awarded to punish for other conduct or that this “renegade” company
is a national menace. Likewise, if plaintiff’s reprehensibility evidence is marginal
under Campbell, or involves out-of-state conduct, defense counsel should move
in limine to prevent reference to “character assassination” in argument, and
require plaintiff to make a sufficient showing of similarity and satisfy the extraterritoriality requirements.
If the “other acts” are allowed into evidence,
defendants should propose limiting instructions on their use. (See discussion at
p. 31.)
E.
Effect On Discovery.
Many states permit discovery of how the defendant acted towards others,
e.g., the handling of other claims in bad faith cases, on the theory this may show
aggravated, repeated conduct or pattern and practice. (See, e.g., Colonial Life &
Acc. Ins. Co. v. Superior Court (Cal.1982) 31 Cal.3d 785 [discovery of other
claims files may be relevant to show a course of conduct by the insurer
warranting punitive damages if the conduct is sufficiently similar; see also Cal.
Ev. Code, § 1101(b)].)
The redefinition of “similar acts” and extra-territoriality could well have a
significant restrictive effect on discovery. In most states, the test for discovery
relevance is broad: whether the request calculated to lead to the discovery of
admissible evidence. Campbell has redefined what “admissible” evidence
means. Thus, plaintiffs’ broad-based discovery of everything the defendant has
done on a nationwide basis may no longer be appropriate. (See, e.g., Evans v.
Allstate Ins. Co. 2003 WL 21382474 (N.D. Okla. 2003) [using Campbell to reject
plaintiffs’ request for discovery of insurer’s senior officers to support a punitive
claim predicated on allegedly pervasive practice of inadequate supervision over
adjusters; court limited the geographical scope of request to the state of
Oklahoma]; but see Sperros Drelles (3d Cir. 2003) 357 F.3d 344 [Campbell dealt
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with whether a punitive award may be based on nationwide conduct, not whether
such evidence is relevant].)
F.
Jury Instructions.
1.
Current Practice.
In its opening indictment of the current systems for assessing punitive
damages, the Campbell majority voiced serious concern over the “imprecise
manner” in which these systems are administered, the “acute danger” of arbitrary
deprivation of property, and, finally, the vague and inadequate instructions that
do little to guide the jury. (Campbell, supra, 123 S.Ct. at 1520.)
The court’s criticism is well-founded. In most states, instructions provide
little guidance to the jury not only on when an award of punitive damages is
appropriate, but on how much the award should be. Although many states have
several approved pattern jury instructions on punitive damages, others, such as
Kentucky, have paid far less attention to instructions. (See Sand Hill Energy v.
Ford Motor Co. (Estate of Smith) (Ky. 2002) 83 S.W.2d 483.) In Sand Hill,
defendant proposed pinpoint instructions on the criteria for any award and the
amount, but was rebuffed by the Kentucky trial judge, who would only allow Ford
to argue these points to the jury. The Kentucky Supreme Court was untroubled
by the notion of “barebones” instructions or limiting defendant to argument about
the appropriate punitive factors.6 (See Sand Hill, supra.) Clearly, after Campbell,
that is no longer acceptable practice.
And though many states require pattern jury instructions on punitive
damages, local courts may have to rethink them. For example, on remand after
Campbell, a California court of appeal criticized an approved jury instruction for
placing too much emphasis on defendant’s wealth, thereby diverting the jury’s
attention from the key issue, punishing for what the defendant did to this plaintiff.
(Romo v. Ford Motor Co. (Romo II) (Cal. App. 2003) 113 Cal.App.4th 738.)7
2.
Should The Jury Be Instructed On These Guideposts?
The Supreme Court’s complaint about vague and inadequate instructions
appears to be an open invitation for defendants to get creative about how the jury
6
Sand Hill (Smith) is one of several cases in which the U.S. Supreme Court
granted certiorari, vacated the opinion and remanded to reconsider the punitives in light
of Campbell. (123 S.Ct. 2072; 71 USLW 3721.)
7
A year before, this same court had approved a $290 million punitive damage
verdict for three deaths arising out of a single products liability rollover. (See Romo I,
supra, 99 Cal.App.4th 1115.) After remand by the U.S. Supreme Court, the panel
reduced the verdict to about $24 million. (See Romo II, supra, 113 Cal.App.4th 738.)
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should be instructed on punitive damages. The court observed that lacking any
real basis for comparison, and blinded by the corporate defendant’s wealth, juries
use punitive damages to express their bias against big business. Many
commentators have suggested that the jury now must be instructed on
Campbell’s principles, including the three guideposts, relative reprehensibility
scale and other considerations espoused in the decision. The argument is based
on the compelling notion that relief from a grossly excessive award via appellate
review is only a safety net; defendants are entitled to a fair trial when it comes to
whether and how much punitives are permissible. Of course, we are writing on a
clean slate here. Courts have yet to decide whether the jury should be told of
these Supreme Court principles, or if instead these concepts are to be applied
only by the trial and appellate courts when reviewing the jury’s verdict for
constitutional excessiveness.8 Instructing the jury on the guideposts might
provide some basis for stemming high awards. However, caution is needed
here. Many states tend to disapprove of jury instructions taken from appellate
case law, as too theoretical for juries.
Campbell clearly contemplates at least some additional instructions. (See
123 S.Ct. at 1522-1523, emphasis added [“A jury must be instructed,
furthermore, that it may not use evidence of out-of-state conduct to punish
defendant for action that was lawful in the jurisdiction where it occurred”].)
3.
Problems With Existing Pattern Jury Instructions.
a.
California Approved Instructions.
Under existing California law, juries are required to consider (1) the
reprehensibility of the defendant’s act, (2) the ratio of punitive to compensatory
damages, and (3) the defendant’s wealth. (Neal v. Farmers Ins. Co. (1978) 21
Cal.3d 910, 929, 930.) Plaintiff bears the burden of producing evidence of
defendant’s financial condition, which the jury currently must consider in arriving
at the punitive award.
The principal California Approved Civil Instruction, CACI 39499, tracks
8
Cooper concluded that the amount of punitive damages is not really a fact tried
by the jury and seemingly intended the BMW factors to be used by courts when
reviewing the amount for excessiveness. The logical conclusion of Cooper would be to
eliminate the jury entirely from the amount determination, relegating its role to deciding,
as a factual matter, whether the defendant’s conduct was reprehensible enough to
warrant any punishment.
9
CACI contains a group of instructions designed for use depending on whether
the trial is birfurcated at defendant’s request and whether the defendant is a corporate
employer being held liable for an employee’s acts. (See CACI 3940-3949.) Since the
salient points are largely the same, this discussion focuses on CACI 3949 and, to a
lesser degree, the BAJI instructions, where they differ in material respects.
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existing state law by providing:
“You must now decide the amount, if any, that you
should award [plaintiff] in punitive damages. The
purposes of punitive damages are to punish the
wrongdoer and to discourage him or her and others
from similar conduct in the future.
“There is no fixed standard for determining the
amount of punitive damages and you are not required
to award any punitive damages. In deciding the
amount of punitive damages, you should consider all
of the following separately for each defendant:
“(a) How reprehensible was that defendant’s conduct?
“(b) Is there a reasonable relationship between the
amount of punitive damages and [plaintiff’s] harm?
“(c) In view of that defendant’s financial condition,
what amount is necessary to punish [it] and
discourage future wrongful conduct?
The California Supreme Court has yet to consider the effect of Campbell’s
federal constitutional law pronouncements on the state’s punitive damage
requirements and currently-approved instructions.10 However, that this landmark
decision has significant implications on existing state law is beyond dispute. For
example, a California Court of Appeal recently held that the trial court’s decision
to give a pre-Campbell BAJI 14.71 meant the jury was “fundamentally
misinstructed concerning the amount of punitive damages it could award. . . .”
requiring an enormous remittitur of the jury’s punitive damage verdict. (Romo v.
Ford Motor Co. (2003) 113 Cal.App.4th 738, 804-805, emphasis added, hereafter
“Romo II”.) As discussed in detail below, the problem is that the state’s Neal
factors (consider reprehensibility, ratio and wealth) may no longer pass muster
after Campbell, not only for their omissions, but for affirmatively misleading the
jury on certain key points.
10
In late March of 2004, the state Supreme Court granted review on two postCampbell issues. Johnson v. Ford Motor Co., Case. No. S121723, and Simon v. San
Paolo United States Holding Co., Inc. (See http://www.courtinfo.ca.gov/courts/supreme/
summaries/WS032204.PDF.) However, the issues to be decided do not directly address
how the jury should be instructed. Johnson presents the question whether disgorgement
of defendant’s profits from the wrongful act may constitute excessive punishment after
Campbell. Simon concerns how to calculate the BMW ratio; specifically, in situations
where some of plaintiffs’ claims for compensatory damages are time-barred, should the
potential value of those claims be included in determining whether the ratio is
constitutionally permissible? (See ibid.)
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b.
Constitutional problems with CACI.
•
Failing to tell the jury that punitive damages are not
designed to compensate plaintiff. Punitive damages do not
serve to compensate plaintiff in any way. On this, both state
and federal courts agree. By definition, the plaintiff has already
been made whole by the compensatory award. (Campbell,
supra, 123 S.Ct. at 1521; see also Adams v. Murakami (1991)
54 Cal.3d 105, 110). Indeed, Campbell found there is a
presumption that the plaintiff has been fully compensated.
(Campbell, supra, at 1523.) Arguably, in order to render a
better-informed, fairer decision on the appropriate amount of
punishment after Campbell, juries need the difference between
the two types of damages spelled out, and must be told that
duplication or overlap should be avoided.
•
Failing to tell the jury that punitive damages serve a purely
public purpose, or how to balance the competing interests
involved. California law recognizes that punitive damages
serve, not the plaintiff’s individual interest, but the purely public
goal of punishing sufficiently egregious conduct in order to deter
its repetition in the future.11 Existing pattern instructions do not
help the jury to make an informed and principled decision, and
in fact require the jury to reach a number by focusing on
defendant’s wealth in a vacuum. For a fuller perspective, jurors
need to know that the public interest’s is not served by an award
which cripples or destroys a defendant and they should not
ignore the broader implications of the award, e.g., when a
defendant business has minimal financial resources, and a
punitive award, in the guise of punishment, could threaten the
company’s continued viability, with the resulting loss of jobs, tax
revenue and other adverse effects on the economy. The jury
needs evidence and direction in setting the award, so as to
balance the public’s interest in deterrence and punishment
against these other, equally valid, public interests.
•
CACI does not address Campbell’s constitutional threshold
reprehensibility requirement. Notably, Campbell states that
punitive damages should be awarded only where the
defendant’s conduct is “so reprehensible as to warrant the
imposition of further sanctions to achieve punishment or
11
For example, the public’s interest is not served by a quasi-criminal penalty that “cripples
or destroys a defendant.” (Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269, 1283,
citation omitted [“function of punitive damages is ‘ a purely public one. . .’”]; see also id., at 1283
[public’s interest may be served by an award which punishes and deters, but not by one which
cripples or destroys”]; see also Chavez v. Keat (1995) 34 Cal.App.4th 1406, 1410.
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deterrence.” (Campbell, supra, 123 S.Ct. at 1521, emphasis
added.) This appears to recognize there is a constitutional
threshold, based on notice and fairness factors, regarding the
type of conduct that may be punished, i.e., it must be “so
reprehensible” that it warrants “further sanctions.” (Emphasis
added.) And as previously noted, even under California law, a
jury is not required to award any punitive damages, even if it
already has found malice, fraud or oppression. The CACI
instruction, patterned after California case law, does not
acknowledge the existence of this threshold. Instead, it merely
asks the jury to consider how “reprehensible was the
defendant’s conduct,” in a vacuum, with no benchmarks or
bases for comparison against other types of acts. This makes it
virtually impossible for juries to render verdicts proportionate to
the harm caused plaintiff, the critical focus under Campbell.
•
In contravention of Campbell, the CACI instruction states
“there are no fixed standards for determining the amount of
punitive damages.” One of the opinion’s clearest messages is
that the lack of standards given the jury is precisely the problem
with large punitive awards. Every defendant has a constitutional
right to a verdict that is neither arbitrary nor grossly excessive.
(Campbell, supra,, 123 S.Ct. at 1520.) “A State can have no
legitimate interest in deliberately making the law so arbitrary that
citizens will be unable to avoid punishment based solely on bias
or whim.” (Ibid., citation omitted.) As a matter of substantive
and procedural due process, Campbell requires guidelines. Yet
the pattern instruction, by affirmatively stating that “there are no
fixed standards,” (a phrase borrowed from state punitive
damages cases), is tantamount to saying that there no
standards, i.e., the jury’s discretion is virtually unfettered.
Fundamentally, that is no different than telling the jury it should
“avoid passion and prejudice.” (See ibid. [instructions merely
telling jury to avoid “‘passion and prejudice’ do little to aid the
decisionmaker . . . .”].)
•
CACI provides no framework or basis for comparing
degrees of reprehensibility. Campbell and BMW focus on the
“degree” of reprehensibility of defendant’s act or relative
reprehensibility.
In other words, the question is how
reprehensible is defendant’s conduct “in light of the types of
misconduct that will support punitive damages.” (See Adams v.
Murakami, supra, 54 Cal.3d at 110-112 & n. 2.) BMW and
Campbell reinforced the notion that some acts are more
blameworthy, and thus more deserving of punishment than
others. This is a common sense proposition, but a critical one.
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This ‘relative reprehensibility’ test is one of constitutional
dimensions, yet CACI is silent about it.12
Absent from the
approved instruction is the critical explanation that
“reprehensibility” means degree of reprehensibility, i.e., relative
to other conduct warranting punitive damages, thereby placing
the conduct into perspective and helping to assure a
punishment proportionate to the act.
•
4.
BAJI 14.71 has been criticized by the California Court of
Appeal and the CACI instruction is subject to the same
fault. CACI 3949, paragraph (c) is virtually identical to that
portion of BAJI 14.71 which Romo II found constitutionally
deficient.13 (Romo II, supra, 113 Cal.App.4th at 805.) Romo II
criticized BAJI 14.71 for stating that one of the three factors the
jury must consider is “the amount of punitive damages which will
have a deterrent effect on the defendant in light of defendant’s
financial condition.”
(Ibid., quoting BAJI 14.71, emphasis
added.) The Romo II court found the instruction constitutionally
deficient because it over-emphasized the role of wealth in
determining amount, thereby diverting the jury’s attention from
the critical question: punishing for the harm inflicted on to this
plaintiff. (Romo II at 805.)
Examples of possible instructions.
•
WEALTH INSTRUCTIONS:
Assuming the jury should be
allowed to hear wealth evidence at all (see discussion at pp.
11-15):
o Alternative # 1: an instruction limiting the uses to which
evidence of defendant’s wealth may be put. Such an
instruction would state that wealth can only be a limitation on
the amount of the jury’s award, not an enhancement or
aggravating factor. The instruction might be warranted
because the constitutionality of the amount is determined by
12
The January, 2004 edition of BAJI contains a new instruction (14.72.2)
expressly patterned on the Supreme Court’s “degree” of reprehensibility language.
CACI does not.
13
The financial condition paragraph of BAJI 14.71 requires the jury to
consider “the amount of punitive damages which will have a deterrent effect on the
defendant in light of defendant’s financial condition.” CACI 3949, paragraph (c) states:
“[i]n view of defendant’s financial condition, what amount is necessary to punish
[defendant] and discourage future wrongful conduct.” Thus, for all practical purposes,
the two approved state jury instructions are identical when it comes to consideration of
wealth evidence.
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the three BMW factors, infused by Campbell’s relative
reprehensibility and other precepts. Wealth is not a BMW
guidepost, and it is those guideposts which determine if the
amount is constitutionally excessive. Campbell does not say
wealth is necessarily irrelevant, but notes that financial
condition cannot be used to justify an otherwise
constitutionally-excessive award under the BMW factors.
Thus, if the jury is allowed to hear wealth evidence, that
evidence should only be used to reduce the award, i.e., as a
mitigating, rather than as an aggravating, factor. The jury
could also be told that the award should not be
disproportionate to defendant’s present ability to pay, nor
should the punitive award cripple or destroy the defendant.
(See discussion, post.)
Comment: one could argue that any evidence on wealth
might be inappropriate. Why should the jury be told of
wealth, as an aggravating factor, when, as Campbell notes,
it allows juries to express their biases against big business?
This would mean allowing the introduction of inflammatory
evidence (which ratchets up the award), only to require the
trial judge or appellate court to reduce the excessive verdict
after trial. However, a defendant who seeks to exclude
wealth evidence entirely may regret it. As noted in the
discussion, ante, in California financial condition evidence
may be used on appeal or post-trial motion to reduce the
jury’s punitive award under state law. If there is no wealth
evidence in the record, the court cannot determine if the
award is excessive under state law in relation to defendant’s
wealth.
o Alternative # 2: after hearing wealth evidence, the trial
judge instructs the jury on the maximum permissible
award: a sometimes suggested alternative is that the trial
judge, after considering evidence of the defendant’s wealth,
instructs the jury on the maximum punitive award
constitutionally permissible given defendant’s financial
condition. The jury then applies the three BMW factors to
set the amount within the given parameters. There are
problems with this approach. (a) It encourages and invites
an “outer limit” award rather than one tailored to the conduct
toward this plaintiff; and more importantly, (b) since wealth is
not a BMW factor used to determine when an award is
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excessive, why introduce an irrelevant factor into the jury’s
decision-making process at all?14
o Alternative # 3: instructing on the maximum permissible
ratio? Another unanswered question is whether the jury
should be told about the the constitutionally-permissible ratio
parameters. The problem is complicated by the fact that
there is no bright line litmus test, although Campbell said
that few awards significantly exceeding a single-digit ratio
will satisfy due process. It reiterated that a 4:1 ratio is close
to the line of constitutional excessiveness, but added that
when the compensatory damages are themselves
substantial, “then a lesser ratio, perhaps only equal to the
compensatory damages, can reach the outermost limit of the
due process guarantee.” (Campbell, supra, 123 S.Ct. at
1524, emphasis added.)15 Although a ratio instruction might
tend to rein in large awards, it could also encourage juries in
non-bifurcated trials to “pump up” the compensatories.
Moreover, the overall balancing test is so complex that
instructing the jury on ratio could build in instructional error
for appeal.
•
REPREHENSIBILITY INSTRUCTIONS:
o An instruction, where appropriate, on the degree of
reprehensibility or “relativity scale.” Campbell spends
considerable time discussing relative reprehensibility, noting,
for example, that conduct causing physical injury is more
reprehensible than economic harm, that intentional acts,
trickery or deceit are more blameworthy than mere
accidents, etc. The court also noted that the existence of
any one of these factors may not be sufficient to sustain a
14
As previously discussed, another novel possibility is that the jury hears no
evidence of wealth, and indeed does not consider wealth at all. Instead, financial
condition evidence is presented to the trial court and made part of the record on appeal.
This is the procedure used in Alabama. Though the U.S. Supreme Court has decided
two Alabama punitive damages cases, it has never criticized this approach.
15
Even without a “bright line,” some conclusions can be drawn from the ratio
discussion. First, in the vast majority of cases, a ratio of 4:1 is “close to the line.”
Second, where the compensatories are themselves substantial, 1:1 may be the more
appropriate number. Ratios exceeding a single digit multiplier (more than 9:1) may be
acceptable only in narrow situations: (1) the compensatory damages themselves are low
and probably contain no punitive component, and (2) the conduct is exceptionally
egregious, reprehensible, repeated on a grand scale, but the individual harm is slight.
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punitive award. Since these are the principles under which
the jury’s verdict will be reviewed, many commentators have
argued that the jury needs to know about the reprehensibility
scale to provide some perspective on the amount to award.
Critics believe that the more the jury is told about
constitutional excessiveness cases and principles, the less
likely a trial judge or reviewing court will be inclined to
reduce the verdict on new trial motion or appeal. BAJI
contains an instruction on the relative reprehensibility scale;
CACI does not.
o PUNISH FOR HARM TO THIS PLAINTIFF: An instruction
that defendant should be punished, if at all, for conduct
toward this plaintiff.
Perhaps the central theme of
Campbell is the punishment should be focused on the act
committed toward, or harm to, the plaintiff in the case at bar.
o OTHER ACTS: An instruction narrowly defining
“similarity” of other acts, limiting use of the evidence to
acts that qualify as sufficiently similar, with a nexus to
harm to this plaintiff.
o An instruction that punitive damages should be awarded
only when defendant’s conduct is “so reprehensible” to
warrant further punishment, based on Campbell’s
threshold reprehensibility requirement.
•
EFFECT OF EXTRA-TERRITORIALITY EVIDENCE: An
instruction not to consider out-of-state conduct, or limiting the
use of such evidence. As Campbell noted, “[a] jury must be
instructed . . . that it may not use evidence of out-of-state conduct
to punish defendant for action that was lawful in the jurisdiction
where it occurred.” (123 S.Ct. at 1522-1523.)
•
COMPARABLE PENALTIES: An instruction to consider the
realistic, comparable civil fines and penalties established by
the state. This third BMW guidepost was established to illustrate
what penalties the state has deemed appropriate for the conduct in
issue. As noted, Campbell rejected speculative or doomsday
administrative fines and penalties, and most if not all criminal
sanctions, as bases for comparison. This instruction would advise
the jury of the penalty realistically available, e.g., as Campbell
noted, a $10,000 penalty for one act of fraud, not potential loss of
license.
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•
An instruction that an award of punitive damages is not
required, even if the jury finds reprehensible conduct. In its
degree-of-reprehensibility discussion, Campbell notes that punitive
damages should be assessed only where the conduct is so
reprehensible that it warrants further punishment. Thus, the jury
should be told it is not required to award any punitive damages.
This complies with current state law. Even if the jury has already
found defendant acted with malice, fraud or oppression, it is not
required to award any punitive damages. (Adams v. Murakami,
supra, 53 Cal. 3d at 120 [“windfall”]; Haines v. Parra, (1987) 193
Cal.App.3d 1553, 1560-1561, emphasis original [plaintiff “never
entitled” to punitive damages]; Pelletier v. Eisenberg, (1986) 177
Cal.App.3d 558, 564-565 [even with the clearest proof of malice,
jury still decides whether punitives should be awarded]; see Civ.
Code, § 3294, subd. (a) [“may” award]; see also BAJI 14.72.2 (9th
ed. 2002) emphasis added [“determine whether you should award
punitive damages”].)
•
An instruction that the amount should be the least necessary
to achieve the purpose of punitive damages. BMW suggested
that the appropriate amount is the least sum needed to punish and
deter. (See discussion in Continental Trend Resources, Inc. v.
OXY USA, Inc. (10th Cir. 1996) 101 F.3d 634, 641 [“The Supreme
Court’s opinion [in BMW] seems to ask for the least punishment
that will change future behavior . . . . “].) The Tenth Circuit read
BMW as requiring courts to lower punitive verdicts to the level
necessary to deter defendants economically, and no more.
•
An instruction on the public purpose of punitive damages.
California law provides that the sole purpose of punitive damages is
to serve the public’s interest, punishing conduct sufficiently
reprehensible that it should be discouraged and deterred from
future repetition. (See, e.g., Tomaselli v. Transamerica Ins. Co.
(1994) 25 Cal.App.4th 1269, 1283, citing Adams v. Murakami,
supra, 54 Cal.3d at 110 [function of punitive damages is “ purely
public,” “to punish wrongdoing and thereby protect [the public. . .
”].) But because the public interest is involved, a punitive award
cannot be so high that it puts a defendant out of business: “The
public may well be served by an award which punishes and deters,
but not by one which cripples or destroys a defendant.” (Tomaselli,
supra, 25 Cal.App.4th at 1283; see also Chavez v. Keat, supra, 34
Cal.App.4th at 1410, citing Adams, supra, 43 Cal.3d at 112 [purpose
“not to destroy the defendant”].) Arguably, the jury should be told to
consider the ramifications of any contemplated punitive award on
the public’s interest, e.g., to evaluate not only the need for
punishment and deterrence, but the effect on the company, and the
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resulting loss of jobs and tax revenue to achieve the proper balance
between punishment and judicially-sanctioned destruction of a
business that contributes to the economic welfare].) 16
In
determining the amount of any punitive award, the verdict should
not be so high that it cripples or destroys defendant.
•
An instruction on the difference between compensatory and
punitive damages. Punitive damages are a “windfall” to a plaintiff,
who is not entitled to such damages as a matter of right. Moreover,
the law presumes that plaintiff has been made whole by the
compensatory award. Even if the jury has already found defendant
acted with malice, fraud or oppression, it is not required to award
any punitive damages.17 In determining whether to award punitive
damages, the jury should should keep in mind that plaintiff has
already been compensated for any harm sustained as a result of
defendant’s acts. The jury should award punitive damages only if
defendant’s conduct is so reprehensible that it warrants further
sanctions to achieve punishment or deterrence. (See Campbell,
123 S.Ct. at 1521 [“It should be presumed a plaintiff has been
made whole for his injuries by compensatory damages, so punitive
damages should only be awarded if the defendant’s culpability,
after having paid compensatory damages, is so reprehensible as to
warrant the imposition of further sanctions to achieve punishment
and deterrence.”
This instruction would explain the critical
difference between compensatory and punitive damages, and the
different function served by each. It might help avoid situations
where the jury inflates the compensatory award, thereby injecting
an element of punishment to some extent duplicated by the punitive
verdict. (See Campbell, supra, 123 S.Ct at 1525 [$1 million
compensatory damage verdict for emotional distress contained an
element of punishment, thereby justifying a lower ratio of perhaps
only one to one].)
•
Insurance coverage not a consideration. Under California law,
punitive damages are uninsurable as a matter of public policy;
16
The purpose of awarding punitive damages is a public one. In the appropriate
case, the public interest may be served by an award which punishes and deters. In
determining if the public’s interest is served by a punitive award, you should consider the
effect of any such award on defendant’s ability to remain in business.
17
See, e.g., Adams v. Murakami, supra, 53 Cal. 3d at 120 [“windfall”]; Haines v.
Parra, (1987) 193 Cal.App.3d 1553, 1560-1561, emphasis original [plaintiff “never
entitled” to punitive damages]; Pelletier v. Eisenberg, (1986) 177 Cal.App.3d 558, 564565 [even with the clearest proof of malice, jury still decides whether punitives should be
awarded]; see Civ. Code, § 3294, subd. (a) [“may” award]; see also BAJI 14.72.2 (9th ed.
2002) emphasis added [“determine whether you should award punitive damages”].
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otherwise, the insurer, rather than the defendant, would be
punished and the defendant itself would not be deterred. (PPG
Industries, Inc. v. Transamerica Ins. Co. (1999) 20 Cal.4th 310, 317319.) Juries should not speculate about the possible existence of
insurance to help defendant defray the costs of paying any award if
the award is not covered by insurance, nor use the possibility of
insurance coverage to “enhance” the award. If the subject of
insurance coverage has been raised, or the defendant has reason
to suspect that insurance may play a role in the jury’s decision,
counsel may want to consider offering an instruction that insurance
coverage should not be a consideration. However, some states
permit coverage for punitive damages, and there is a danger that
this instruction might backfire. (See Stevens v. Owens-Corning,
supra, 49 Cal.App.4th 1645, 1663-1664.)
•
Burden of proof instruction. Some states already require plaintiff
to prove by clear and convincing evidence that punitive damages
are warranted. For example, in California, plaintiffs must prove by
clear and convincing evidence that defendant committed malice,
fraud or oppression. (See Cal. Civ. Code, § 3294.) Indeed, under
a recent case, plaintiffs now must establish every element of
punitive damages by this higher standard.
(See Barton v.
Alexander Hamilton Life Ins. Co. (Cal. App. 2003) 110 Cal.App.4th
1640; 3 Cal.Rptr.3d 258 [all elements of the punitive damages
statute must be proved by clear and convincing evidence, including,
for corporate defendants, that an officer, director or managing
agent ratified or approved the employee’s reprehensible conduct].)
Thus, the clear and convincing standard should apply not only to
malice, fraud or oppression, but to whether a managing agent was
involved, whether the corporate defendant ratified or authorized
the employee’s act or had advance knowledge of the employee’s
unfitness, as well as clear and convincing proof of the defendant’s
financial condition. “Ratification” requires that the officer, director or
managing agent had actual knowledge not only of the employee’s
act, but that it was wrongful. (College Hospital v. Superior Court
(1994) 8 Cal 4th 704, 726 [“corporate ratification in the punitive
damages context requires actual knowledge of the conduct and its
outrageous nature”]; Cruz v. Home Base (2000) 83 Cal.App. 4th
160, 163 [constructive notice of wrongful conduct or notice to
inquire further into the employee’s acts is insufficient; actual notice,
as defined by College Hospital, is required].)
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