Limits on Civil Penalties Under California’s UCL and FAL Are of Minimal Significance, Opinion Says, Boosting
Award of Exemplary Damages Against Volkswagen From Four Times Compensatory Damages to Eight Times
By a MetNews Staff Writer
Punitive damages awarded in diversity actions brought in U.S. district courts under California consumer protection statutes need not be influenced to any appreciable extent by the maximum civil penalties that are set forth in two of those statutes, the Ninth U.S. Circuit Court of Appeals held yesterday, taking the unusual step of itself setting the amount of such damages to be awarded five plaintiffs in actions against Volkswagen.
Applying the guidelines laid down by the U.S. Supreme Court in the 1996 case of BMW of North America, Inc. v. Gore, it determined that punitive damages that were eight times compensatory damages would not be so high as to offend due process and would be appropriate in light of the reprehensibility of Volkswagen’s conduct in rigging its diesel vehicles to show less than the actual amount of emissions when tested.
Writing for a three-judge panel, Circuit Judge Ronald M. Gould, in setting the ratio, took heed of the U.S. Supreme Court’s admonishment in the 2003 case of State Farm Mutual Automobile Insurance Co. v. Campbell that “[s]ingle-digit multipliers are more likely to comport with due process, while still achieving the State’s goals of deterrence and retribution.”
The five plaintiffs—three individuals and a couple—had opted out of a class action. Although the German automaker’s chicanery has resulted in paying out in excess of $20 billion in settlements and fines, the amount of money involved in the case before the Ninth Circuit was relatively small.
Compensatory damages to the five plaintiffs, set by the jury, totaled $22,988; District Court Judge Charles R. Breyer of the Northern District of California pared punitive damages to four times that amount, or a total of $91,952; yesterday’s opinion boosted that total to $183,904.
Two Code Sections
One of the three guideposts provided by Gore in considering whether a punitive-damage award is excessive is to compare the award with civil and criminal penalties in comparable cases. Breyer, accordingly, took into account California’s Unfair Competition Law (“UCL”) and its Fair Advertising Law (“FAL”).
Business & Professions Code §17206(a), a part of the UCL, says:
“Any person who engages, has engaged, or proposes to engage in unfair competition shall be liable for a civil penalty not to exceed two thousand five hundred dollars ($2,500) for each violation….”
Sec. 17500 of that code, the seminal section of the FAL, provides:
“Any violation of the provisions of this section is a misdemeanor punishable by imprisonment in the county jail not exceeding six months, or by a fine not exceeding two thousand five hundred dollars ($2,500), or by both.”
The plaintiffs noted that in addition to suing under those statutes, they stated claims under California’s Consumer Legal Remedies Act (“CLRA”), although Breyer dismissed those claims with prejudice. They argued that by suing under the CLRA, which entails no civil penalties, they put Volkswagen on notice that it was exposed to potentially large punitive damages.
“They also point out, correctly, that the UCL and the FAL are not directly analogous, because they may also be invoked to punish much less reprehensible behavior,” Gould wrote.
“Although this factor may weigh slightly against higher punitive damages, Volkswagen’s actions were extremely reprehensible, and the civil penalties in these statutes are not directly analogous. Thus, this factor does not require us to reduce the single digit multiplier punitive damages determined by the jury.”
The other guideposts in Gore are reprehensibility of the conduct and whether there is a disparity between the harm suffered and the amount of the punitive damages.
Gould labeled Volkswagen’s conduct “highly reprehensible,” explaining:
“ Although Volkswagen’s calculated deceit did not physically harm its vehicle customers, it engaged in intentional deceit for years, hi addition to the economic harm, evidenced by the compensatory damages, the deceit frustrated the fuel-economy, and reduced emissions objectives of those customers who bought their Volkswagen and Audi vehicles. Appellants doubtless expected vehicles that met mandatory regulatory standards for emissions. But they got vehicles that grievously understated noxious emissions whenever emissions were tested. Not only did those vehicles fail to comply with health-based emissions standards, they also were advertised as eco- friendly vehicles. In selling these cars. Volkswagen continued to make misrepresentations to consumers, preying upon those who sought eco-friendly vehicles. All of this directly contradicted the plaintiffs’ contractual expectations.”
“The uncovering of this fraudulent scheme revealed Volkswagen’s deliberate indifference to compliance with mandatory emissions standards—Volkswagen intentionally and fraudulently hid then vehicles’ true emissions to the detriment of their customers and the public at large. Had Volkswagen’s abhorrent behavior not been discovered by a third party. Volkswagen would have continued to defraud its customers and allow vehicles spewing noxious emissions well above EPA’s health-based standards to operate undetected.”
The judge declared that “this is a paradigm case where high reprehensibility coupled with relatively low compensatory damages can support a higher multiplier for punitive damages consistent with due process.”
Considering proportionality of the harm, he said that “we conclude that this case warrants a single digit multiple greater than four times that of the compensatory award” and concluded that “a punitive damages award of approximately 8 times that of the compensatory damages award fairly comports with due process requirements under the Supreme Court’s Gore and State Farm guidelines.”
Other issues were addressed in a memorandum opinion. The panel—comprised of Gould, Circuit Judge Daniel P. Collins, and District Court Judge David A. Ezra of the District of Hawaii, sitting by designation—affirmed the judgment, although it found that Breyer erred in dismissing the CLRA claim.
That act bars damages where a business makes an “appropriate correction.” Volkswagen contended that it made such a correction by offering to allow the five plaintiffs who opted out of the class to rejoin it.
The opinion says:
“Here, Volkswagen gave a class settlement offer that, inter alia, required Appellants to waive all claims, not just those arising under the CLRA. We conclude that Volkswagen’s collection offer was not ‘appropriate’ because it barred the Appellants’ ability to bring their other claims arising outside of the CLRA.”
The panel did not explain why the error did not result in a remand.
The opinion agrees with Breyer that the plaintiffs failed to state a claim under California’s Song-Beverly Act—the “lemon law”—because “the cars were merchantable and did not qualify for relief under the statute.”
Breyer, the plaintiffs argued, should have recused himself because he formed impressions in the course of presiding over the class action. The panel found the contention to be “entirely without merit,” elaborating:
“Here, the knowledge Judge Breyer developed in the related Volkswagen litigation was gained through proper juristic proceedings. That does not require recusal. Further, the district judge’s comments on the record show no predisposition toward one side or another in the case.”
The case is Riley v. Volkswagen Group of America, Inc., 20-15882.
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