California Supreme Court Reigns in Punitive Damage Liability

In the two cases we most recently mentioned, the California Supreme Court has applied the principles of State Farm Mut. Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408 ("State Farm") to pending California punitive damage cases.

In Simon v. San Paolo, the Supreme Court held that an award of $1.7 million in punitive damages is excessive when compared to $5,000 in compensatory damages.

In an action arising from plaintiff’s failed attempt to purchase an office building from defendant, the jury found that the parties had no binding and enforceable agreement but that defendant had committed promissory fraud. On his fraud cause of action, plaintiff was awarded $5,000 in economic compensatory damages and $1.7 million in punitive damages. Considering all the relevant circumstances, we conclude this award of punitive damages exceeds the federal due process limitations outlined in recent United States Supreme Court decisions. We further conclude the maximum award constitutionally permissible in the circumstances of this case is $50,000. The central issue presented is whether, in addition to the $5,000 in compensatory damages awarded, the punitive damages award should be measured against the $400,000 in profit plaintiff claims he would have achieved had defendant sold the property to him at the agreed price. Plaintiff argues this amount represents either the uncompensated harm he suffered from defendant’s conduct or the potential harm that conduct could have caused him. On this issue, we conclude that while uncompensated or potential harm may in some circumstances be properly considered in assessing the constitutionality of a punitive damages award, here defendant’s fraud neither caused nor foreseeably threatened to cause $400,000 in harm to plaintiff. Under these circumstances, the $1.7 million punitive damages award must be measured against the $5,000 compensatory award, and so measured it is grossly excessive.

In Johnson v. Ford Motor Company, the Supreme Court held that the Court of Appeal erred in reducing a $10 million punitive damage award to $53,435 on a compensatory damage award of $17,811.60.

Plaintiffs, purchasers of a used automobile, sued the manufacturer, Ford Motor Company (Ford), for concealing the automobile’s history of transmission repairs and replacements when reselling the car. Plaintiffs presented evidence of corporate practices by Ford identical or closely similar to the fraud inflicted on them, practices they maintain earned Ford millions of dollars in profit in California every year. The jury found in plaintiffs’ favor and awarded them $17,811.60 in compensatory damages and $10 million in punitive damages. The Court of Appeal, holding Ford could constitutionally be punished in this case only for its fraud on plaintiffs and not for its overall course of conduct, reduced the punitive damages award to $53,435, approximately three times the compensatory damages. We agree with the Court of Appeal that the $10 million punitive damages award may not, under the circumstances of this case, constitutionally be justified on the basis of disgorgement of profits earned by Ford through its entire course of wrongful conduct toward other consumers. In reducing the punitives to a small multiple of the relatively modest compensatory damages award, however, the Court of Appeal apparently failed to adequately consider that Ford’s fraud was more reprehensible because it was part of a repeated corporate practice rather than an isolated incident. For this reason, we reverse the Court of Appeal’s judgment and remand for that court to conduct again the independent due process review required under State Farm Mut. Auto Ins. Co. v. Campbell (2003) 538 U.S. 408 (State Farm) and BMW of North America v. Gore (1996) 517 U.S. 559 (BMW).

I think it is safe to say there will never be another Bender v. Darden Restaurants, Inc. If Bender was decided today, the most the plaintiffs would have recovered would have been about $100,000 in punitives for one plaintiff, and $60,000 in punitives for the other. Those would still be significant awards, however, for individual meal and rest break violation claims.

Comments

[Courtney Gidts]

I've managed to save up roughly $73350 in my bank account, but I'm not sure if I should buy a house or not. Do you think the market is stable or do you think that home prices will decrease by a lot?