Friday, June 17, 2005
S.C. Justices, Responding to Ruling by U.S. High Court Slash $10 Million Punitive Damage Award to $50,000
By a MetNews Staff Writer
The California Supreme Court yesterday reduced a $1.7 million punitive damages award to $50,000, saying the action was necessary to comply with a 2003 U.S. Supreme Court precedent.
In a unanimous decision, the justices indicated that punitive damage awards that exceed 10 times the compensatory damages will rarely pass constitutional muster under State Farm Mut. Auto Ins. Co. v. Campbell (2003) 538 U.S. 408.
The reversed award was made by a Los Angeles Superior Court jury in a case involving a soured deal to purchase a $1.1 million office building in Los Angeles in 1996. San Paolo U.S. Holding Co. Inc. initially agreed to sell the Figueroa Street building to Lionel Simon, but eventually sold it to somebody else for a cheaper price, jurors found.
Simon, owner of Liberty Paper Co. in Los Angeles, sued. Jurors awarded him $5,000 in damages to compensate him for his losses and $1.7 million in punitive damages to punish the bank, which had acquired the property through foreclosure the year before. The punitive damages were 340 times the amount of the damages.
Justice Kathryn M. Werdegar, writing for the high court in its first post-Campbell punitive damages case, called the award grossly excessive and said $50,000 was “the maximum award of punitive damages consistent with due process.”
Campbell, which involved a $145 million punitive damages award, did not give an absolute formula for determining what punishment is reasonable, but suggested the 10-1 ratio as the upper limit in most cases. The compensatory damages in Campbell were $1 million.
Simon’s attorney, Andre Jardini of Glendale’s Knapp, Petersen & Clarke, said the ruling went further than the high court had in limiting punitive damages, and that the long-running litigation, which has had several trips through the court system, could be the subject of yet another petition to the U.S. Supreme Court.
Simon had argued that the fraud costs his client a $400,000 profit that he could have made on the resale of the building, and that the expectancy of that profit should be treated as part of the calculation in evaluating whether the punitive damage award was excessive. But Werdegar found the argument to be unsupported by the facts.
“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,” the justice wrote. “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 a companion opinion that drew praise from lawyers on both sides, the justices ordered a Fifth District Court of Appeal panel to reconsider a decision to cut a $10 million punitive verdict against Ford Motor Co. to $53,435.
A Fresno Superior Court jury returned $17,800 in compensatory damages to a man who bought a Ford Taurus. A jury found Ford had concealed the automobile’s history of transmission repairs in 1998. The jury awarded the $10 million in punitive damages, based on allegations that Ford profited at that much a year by undertaking such practices.
The appeals court reduced the award to three times the punitive damages under Campbell. The high court, however, said Ford could be punished for “a practice of engaging in, and profiting from, wrongful conduct similar to that which injured the plaintiff.”
The high court’s majority said the lower court’s ruling was unclear whether it took such conduct into consideration.
Ford attorney Theodore Boutrous of Gibson, Dunn & Crutcher said he and his client “were very pleased” the court had ruled “clearly, cleanly in Ford’s favor that a single plaintiff could not disgorge all of the profits that a defendant is found to have earned as the result of an unlawful practice. The ruling “will bring more rationality to the system,” he said, adding that he hopes the Court of Appeal will reach the exact same result on remand.
But Erwin Chemerinsky, the Duke Law School professor who represented the plaintiff, said he felt “very confident” the Court of Appeal would increase the award. The high court, he said, had rejected the “really radical” argument that “punitive damages can only be used to punish conduct in a specific case.”
The cases are Simon v. San Paolo U.S. Holding Co. Inc., 05 S.O.S. 2889, and Johnson v. Ford Motor Co., 05 S.O.S. 2899.
Copyright 2005, Metropolitan News Company