California Punitive Damages Update: $290 Million Punitive Verdict Slashed By Court of Appeal
Just two days before Thanksgiving, 2003, a California appellate court gave all defendants who are prey to punitive damages more than turkey and trimmings to chew. The Fifth District Court of Appeal (Fresno) reduced a jury’s $290 million punitive damages verdict against Ford Motor Company to $27.3 million. The reduction came after a long and hard series of appellate battles. It is the latest and most dramatic proof that courts are recognizing they must employ a radical new approach to dealing with high punitive verdicts on appeal. Romo v. Ford Motor Co. opinion can be found at: www.courtinfo.ca.gov/opinions/documents/F03424A.pdf.
Little more than a year ago, the very same court of appeal had reinstated the jury’s $290 million punitive damages verdict in this products liability death and injury case after the trial court had ordered a new trial for jury misconduct. Romo v. Ford (2002) 99 Cal.App.4th 1115. Ford, supported by an avalanche of amicus letters, sought review in the California Supreme Court, but lost by a single vote. As a result, Romo I was a record-breaking decision: the single largest punitive verdict ever upheld on appeal in a published California decision.
Fast forward to April, 2003: the U.S. Supreme Court issued a radical new opinion sending a clear message to lower courts that it is time to put the brakes on the monster punitive awards we see reported regularly in the news. In State Farm v. Campbell (2003) 123 S.Ct. 1513, the high court used sweeping language about the need to restrain punitive damages verdicts, limiting a state’s power to punish a corporation for conduct outside that state, and even restricting what types of evidence may be used to prove when and how much punishment is constitutionally permissible. Campbell noted that punitive damages are being assessed indiscriminately, recognized the danger that juries use such verdicts to express their bias against big business, and that juries are given little if any guidance on when and how to punish. Soon after issuing Campbell decision, the court remanded an even dozen cases back down to the lower courts, to reconsider the verdict amounts in light of this watershed opinion.
Romo was one of them. This time, the same appellate court that had given short shrift to Ford’s excessiveness arguments now read the handwriting on the wall, cutting the verdict to $27 million. In the process, the court offered some noteworthy comments and predictions about Campbell’s potential impact on the future of California punitive damages litigation.
Sharper focus on the defendant’s conduct in the individual case. Romo II observed that, in the past, some courts used punitive damages to punish the defendant for a general course of conduct. The court correctly read Campbell as meaning the punishment must be tailored to fit the defendant’s individual act in the plaintiff’s case. In other words, the punishment focus should shift from defendant’s “general incorrigibility” or wealth. Character assassination, pleas to send a nationwide message, or punish on a national basis, appear to be out of bounds, even to a court that reinstated $290 million in punitives verdict little over a year ago, before Campbell.
The future of wealth evidence? In a surprising move, Romo II found California’s approved jury instruction (BAJI 14.71), which tells the jury to consider defendant’s financial condition, constitutionally incomplete: the instruction highlights the role of wealth evidence without telling the jury to tailor the punishment to the defendant’s particular act. BAJI 14.71 strongly suggests that wealth should be used to enhance the award amount, rather than to establish the outer limit of a constitutionally-permissive (i.e., non-excessive) award.
Use of a quantifiable ratio test. Campbell contains strong language establishing a quantifiable test for when a punitive verdict is constitutionally excessive, and a benchmark telling reviewing courts how much is enough: a 4:1 ratio of compensatory to punitive damages is “close to the line,” and, where the compensatory damages are themselves substantial, then perhaps only a 1:1 ratio is permissible. Confronted with this plain, quantifiable bright line, Romo II cut the punitives to $27.3 million: 3 times the compensatory damages awarded to the individual plaintiffs ($17.3 million total punitives) and $10 million to the heirs of two people who died in the crash. Here, Romo II seems to have applied Campbell’s letter, but not its spirit. The $10 million punitive component was not tied to any compensatory damage or harm.
At the very least, the Fresno court’s response is a strong indication that Campbell’s message - that the entire system for reviewing excessive punitive damages must be rethought - is getting through. Other California appellate districts, which, like Fresno, had ignored prior Supreme Court directives to review and reduce punitive damages, are now towing the line. See, e.g., Diamond Woodworks v. Argonaut (2003) 109 Cal.App.4th 1020.
However, not all California courts are responding as hoped. On December 2, 2003, the Los Angeles Court of Appeal (Second District, Division Four), just affirmed a $2 million punitive award, after twice being told by the U.S. Supreme Court to reconsider the amount. Simon v. Sao Paolo U.S., http://www.courtinfo.ca.gov/opinions/documents/B12191B.pdf
This article originally appeared in The Recorder.