Punitive Damages: California Model Applying Gore and State Farm[dagger]

Hagan, Patrick J

I.

INTRODUCTION This article contextualizes the role of punitive damages in an award model based essentially upon California law. First, it discusses the United States Supreme Court decision in BMW of North America, Inc. v. Gore.1 An overview of the Ninth Circuit's interpretation of Gore, as articulated by In re the Exxon Valdez,2 follows that analysis. Finally, the article explores California's interpretation of Gore based on relevant California appellate decisions.

II.

THE ORIGIN AND NATURE OF PUNITIVE DAMAGES

The practice of assessing punitive damages to punish particularly blameworthy conduct is centuries old. The punitive and deterrent purposes of such damages, highlighted in the early common law, established a foundation for the use of punitive damages in the modern common law system.

Introduced into the United States in the late eighteenth century, punitive damages were firmly accepted as a noncompensatory award. Depending on the particular jurisdiction, however, courts have varied in their approach to determining the appropriate size of such an award. California is fairly typical of the majority, identifying three factors by which to gauge the propriety of a punitive award: (1) the reprehensibility of the defendant's conduct; (2) the amount of compensatory damages awarded; and (3) the wealth of the defendant. Nevertheless, questions continue to surface regarding the permissible scope and size of any punitive damage award.

III.

GORE: SETTING A PRECEDENT FOR PUNITIVE DAMAGES

A. Criteria before Gore

Before establishing punitive damage guideposts in Gore, the Supreme Court had addressed the issue of punitive damages in Honda Motor Co. v. Oberg? The decision in Honda focused the Court's prior attempts to deal with punitive damages in TXO Production Corp. v. Alliance Resource Corp.4 and Pacific Mutual Life Insurance Co. v. Haslip.5 Reasoning from those decisions, the Court noted that lower courts must follow a rational process when assessing punitive damages:

The opinions in both Haslip and TXO strongly emphasized the importance of the procedural component of the Due Process Clause. In Haslip, the Court held that the common-law method of assessing punitive damages did not violate procedural due process. In so holding, the Court stressed the availability of both "meaningful and adequate review by the trial court" and subsequent appellate review. Similarly, in TXO, the plurality opinion found that the fact that the "award was reviewed and upheld by the trial judge" and unanimously affirmed on appeal gave rise "to a strong presumption of validity." 509 U.S., at 457, 113 S.Ct, at 2720. Concurring in the judgment, Justice Scalia (joined by Justice Thomas) considered it sufficient that traditional common-law procedures were followed. In particular, he noted that '"procedural due process' requires judicial review of punitive damages awards for reasonableness."6

Thus, the decisions in Haslip and TXO were catalysts for Honda, but it was Honda that bridged the road to the Gore guideposts.

B. Facts and Procedural History of Gore

In Gore, an automobile purchaser brought an action against a foreign automobile manufacturer and dealer based on a distributor's failure to disclose that the automobile had been repainted after being damaged prior to delivery.7 The Alabama Circuit Court entered judgment on the jury verdict awarding the plaintiff (Gore) compensatory damages of $4,000 and punitive damages of $4 million. Both the automobile distributor and automobile manufacturer appealed. After determining that the court lacked jurisdiction over the manufacturer, the Alabama Supreme Court reduced the award to $2 million and conditionally affirmed the punitive damage award. Certiorari was granted, and the United States Supreme Court eventually held that: (1) lawful conduct by the automobile distributor outside the state of Alabama could not be considered by the Alabama court in making the award of punitive damages; and (2) the punitive damage award of $2 million was grossly excessive.8

IV.

SUPREME COURT "GUIDEPOSTS" IN CALCULATING PUNITIVE DAMAGES

In determining that the Alabama Supreme Court's award of punitive damages was excessive, the United States Supreme Court adopted three "guideposts." The Court examined "the degree of reprehensibility of the nondisclosure; the disparity between the harm or potential harm suffered by Dr. Gore and his punitive damages award; and the difference between this remedy and the civil penalties authorized or imposed in comparable cases."9

A. Applying the Gore Guideposts

The Supreme Court in Gore cited these three guideposts to calculate punitive damages. The California courts, both federal and state, have adopted the principles articulated in Gore, but award less credence to the Supreme Court's analysis and conclusions when applying those guideposts. Using the Supreme Court's language piecemeal, California instead articulates a different analysis and offers independent conclusions when relating these guideposts to the relevant facts.

1. Guidepost No. 1 : Degree of Reprehensibility

a. The Supreme Court

The first guidepost analyzed by the Supreme Court in Gore was the degree of reprehensibility involved in the nondisclosure ("degree of reprehensibility"). The Court initiated its analysis with the following statement: "Perhaps the most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant's conduct."10 The Court continued: "In TXO, both the West Virginia Supreme Court and the Justices of this Court placed special emphasis on the principle that punitive damages may not be 'grossly out of proportion to the severity of the offense.' "" In making its decision, the Court reasoned that "none of the aggravating factors associated with particularly reprehensible conduct" was present.12 The Court observed in particular that "BMW's conduct evinced no indifference to or reckless disregard for the health and safety of others."13 Further, the Court noted that "[t]here is no evidence that BMW acted in bad faith when it sought to establish the appropriate line between presumptively minor damages and damage requiring disclosure to purchasers."14 When summarizing its analysis of this guide-post, as applied to the facts, the Court stated, "Finally, the record in this case discloses no deliberate false statements, acts of affirmative misconduct, or concealment of evidence of improper motive. . . ."'5 The Court concluded: "That conduct is sufficiently reprehensible to give rise to tort liability, and even a modest award of exemplary damages does not establish the high degree of culpability that warrants a substantial punitive damages award."16

b. Post-Gore Modifications

In State Farm Mutual Automobile Insurance Co. v. Campbell," the Supreme Court later observed:

We have instructed courts to determine the reprehensibility of a defendant by considering whether: the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health and safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident. The existence of any one of these factors weighing in favor of a plaintiff may not be sufficient to sustain a punitive damages award; and the absence of all of them renders any award suspect.18

The Court continued, clarifying its concept of reprehensibility and the sanction available for such reprehensible conduct. In that regard, the Court observed that the conduct must be "so reprehensible" in order to warrant punitive damages.l9 Furthermore, a "defendant should be punished for the conduct that harmed the plaintiff, not for being an unsavory individual or business."20 Finally, the "reprehensibility guidepost does not permit courts to expand the scope of the case so that a defendant may be punished for any malfeasance. . . ."2I

The opinion in State Farm reinforced Gore by underscoring the need to limit punitive damages and to award them with cautious discrimination. "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 or deterrence."22 In addition to protecting defendants against excessive damage claims, the Court attempted to ensure that punitive damages do not become criminal penalties imposed in a civil court: "Although these awards 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."23 The Court affirmed its Gore guidelines, instructing lower courts to maintain a low ratio of punitive to compensatory damages: "Single-digit multipliers are more likely to comport with due process, while still achieving the State's goals of deterrence and retribution, than awards with ratios in the range of 500 to 1. . . ."24 It added that "few awards exceeding a single-digit ratio between punitive and compensatory damages . . . will satisfy due process."25

c. The Ninth Circuit

In its analysis of Exxon's appeal in In re the Exxon Valdez, the Ninth Circuit cited as a key issue "whether punitive damages should have been barred as a matter of law and whether the award was excessive."26 The court went on to examine the guideposts articulated in Gore.

Turning initially to Exxon's "degree of reprehensibility," the court acknowledged plaintiffs' argument that "Exxon's conduct was reprehensible because it knew of the risk of an oil spill in the transportation of huge quantities of oil through the icy waters of Prince William Sound. And it knew Hazelwood was an alcoholic who was drinking."27 However, the court remarked that such an argument "goes more to justify punitive damages than to justify punitive damages at so high a level."28 Comparing the Exxon facts to other cases demonstrating a much higher degree of reprehensibility, the Ninth Circuit discounted Exxon's reprehensible conduct:

Exxon spent millions of dollars to compensate many people after the oil spill, thereby mitigating the harm to them and the reprehensibility of its conduct. Reprehensibility should be discounted if defendants act promptly and comprehensively to ameliorate any harm they cause in order to encourage such socially beneficial behavior. Also, as bad as the oil spill was, Exxon did not spill the oil on purpose, and did not kill anyone. By contrast, in Protectus Alpha, a man was foreseeably killed by a deliberate act.29

d. The California Court of Appeal

The California Court of Appeal likewise summarized the Gore guideposts in Sierra Club Foundation v. Graham?0 The court noted that the first guidepost is an "exact [match] in California's scheme which requires [the court] to look at the defendant's conduct and the amount of compensatory damages."31

In another decision of some note, the California Court of Appeal held in favor of the plaintiffs, stating that the defendants had failed to meet the Gore guidepost requirements for reducing punitive damages. In Notrica v. State Compensation Insurance Fund,32 an employer commenced an action against State Compensation Insurance Fund (SCIF), the employer's workers' compensation insurer, alleging tortious breach of the implied covenant of good faith and fair dealing, and unfair, unlawful, or fraudulent business practices relating to SCIF's case reserve and claims handling policies and practices. The Los Angeles County Superior Court entered a judgment awarding the employer $478,606 in compensatory damages and $20 million in punitive damages. It also enjoined SCIF from various business practices and awarded $333,319.65 in attorneys' fees.

After hearing SCIF's appeal, the appellate court held that: (1) SCIF breached the covenant of good faith and fair dealing requiring it to defend and resolve workers' compensation claims with due regard to the impact of outstanding claims and reserves on the premiums an insured would be assessed and on policy dividends it could receive; (2) SCIF's claims handling protocol supported a bad faith judgment; (3) the insured was entitled to introduce evidence of SCIF's financial condition to support the liability claim; (4) a lower court finding that SCIF engaged in unfair business practices was supported by substantial evidence; (5) the injunction was not overreaching, unnecessary, or unworkable; (6) the evidence supported awards to the insured for both compensatory and punitive damages; and (7) as a matter of law, the punitive damage award of $20 million was excessive, but a $5 million award was not. The court therefore reduced the plaintiff's award of $20 million in punitive damages to $5 million, implementing a 10 to 1 ratio of punitive damages to compensatory damages. The decision was otherwise affirmed.

Relying on Gore, defendants argued that the jury's punitive damage award, though supported by findings of covenant breach and fraud, nevertheless violated its right to due process since it did not receive fair notice either that such conduct would subject it to punishment or that the penalty could be so severe. The court disagreed, however, noting that:

[t]here was substantial evidence that senior management personnel at SCIF, the insurer of last resort, knew it was over-reserving and intentionally misled prospective insureds regarding how the reserve policy would be implemented. In addition, SCIF's claims handling and control of file access served to obfuscate the impact of the new "maximum probable potential cost" reserve guideline. SClF management and sales personnel understood that the increase in case reserves would lead to increased future premiums for the affected employers, a factor potential insureds would want to consider before purchasing a policy. Notrica's premiums did increase substantially as a result of the implementation of the new guideline. This conscious disregard of Notrica's rights was fair notice that SCIF's conduct could subject it to punitive damages.33

It is apparent that the California Court of Appeal heavily weighs a defendant's conscious disregard of rules or regulations. Here, the court determined that such disregard provided fair notice to defendants that punitive damages were an appropriate remedy for plaintiffs.

2. Guidepost No. 2: The Ratio Requirement

a. The Supreme Court

The second guidepost analyzed by the Supreme Court in Gore was the disparity between the harm or potential harm suffered by Dr. Gore and his punitive damage award ("ratio requirement"). The Court began its analysis as follows: "The second and perhaps most commonly cited indicium of an unreasonable or excessive punitive damages award is its ratio to the actual harm inflicted on the plaintiff."34 The Court continued: "TXO, following dicta in Haslip, refined this analysis by confirming that the proper inquiry is 'whether there is a reasonable relationship between the punitive damages award and the harm likely to result from the defendant's conduct as well as the harm that actually has occurred.'"35 In determining that the ratio of disparity between the harm or potential harm suffered by Dr. Gore and his punitive damage award was excessive, the Court noted that "low awards of compensatory damages may properly support a higher ratio than high compensatory awards, if, for example, a particularly egregious act has resulted in only a small amount of economic damages."36

The Court upheld its ratio requirements in State Farm, while allowing for some flexibility. Although it again declined to establish rigid ratio requirements, the Court nevertheless cautioned that its "jurisprudence and the principles it has now established demonstrate . . . that, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process."37

b. The Ninth Circuit

In Exxon, the Ninth Circuit continued with its analysis of the guideposts from Gore and examined the "ratio requirement." The court analyzed the disparity between the harm or potential harm suffered by plaintiffs and the amount of punitive damages awarded. The court stated:

Although it is difficult to determine the value of the harm from the oil spill in the case at bar, the jury awarded $287 million in compensatoiy damages, and the ratio of $5 billion punitive damages to $287 million in compensatory damages is 17.42 to 1. The district court determined that 'total harm could range from $288.7 million to $418.7 million' which produces a ratio between 12 to 1 and 17 to 1. This ratio greatly exceeds the 4 to 1 ratio that the Supreme Court called 'close to the line' in Pacific Mutual Life Ins. Co. v. Haslip.38

Calculating the ratio requirement, the Ninth Circuit also considered Exxon's post-oil spill actions. Specifically, the court examined the costs and fines Exxon paid to remedy the oil spill. In doing so, the court remarked that, "[t]he cleanup expenses Exxon paid should be considered as part of the deterrent already imposed."39 The court analogized the situation to someone who ruined a $ 10,000 rug by spilling a bottle of ink on it. The person who spilled the ink "would be exceedingly careful never to spill ink on the rug again, even if it cost him 'only' $10,005 and he was not otherwise punished."40 In its calculation of Exxon's already-paid expenses, the court included the costs of clean up, the fine and restitution, settlement with government entities, settlements with private parties, and the net compensatory damages. The court finally concluded that "[b]ecause the costs and settlements in this case are so large, a lesser amount is necessary to deter future acts."41

c. The California Court of Appeal

When summarizing the Gore guideposts in Sierra Club as noted above, the court observed that the second guidepost is also an "exact [match] in California's scheme which requires [the court] to look at the defendant's conduct and the amount of compensatory damages."42 Specifically, the court remarked:

The high court in TXO and BMW has refined the disparity analysis to take into account the potential loss to plaintiffs, as where a scheme worthy of punitive damages does not fully succeed. In such cases, the proper ratio would be the ratio of punitive damages to the potential harm to plaintiff. This twist helps the plaintiff, not the defendant, and thus does not raise the constitutional ante.43

However, the court cautioned that "[t]he BMW guidelines are just that - they are guidelines which, if not exactly replicated in a state scheme, do not spell constitutional doom."44

3. Guidepost No. 3: Comparable Other Penalties

a. The Supreme Court

The Supreme Court in Gore outlined the final guidepost as follows: "Comparing the punitive damages award and the civil or criminal penalties that could be imposed for comparable misconduct provides a third indicium of excessiveness." In its analysis, the Court prescribed that "[a] reviewing court engaged in determining whether an award of punitive damages is excessive should 'accord "substantial deference" to legislative judgments concerning appropriate sanctions for the conduct at issue.'"45 Concluding its point, the Court observed that, "In the absence of a history of noncompliance with known statutory requirements, there is no basis for assuming that a more modest sanction would not have been sufficient to motivate full compliance with the disclosure requirements imposed by the Alabama Supreme Court in this case."46 Beyond these comments, the Court did not "dwell long" on this same guidepost in State Farm due to the lack of relevant civil sanctions.47

b. The Ninth Circuit

Concluding its analysis of the Gore guideposts, the Ninth Circuit likewise turned to the "comparable penalties" rubric in Exxon. The Ninth Circuit noted that the underlying purpose of the third guidepost was to "accord 'substantial deference' to legislative judgments concerning appropriate sanctions for the conduct at issue."48 When analyzing comparable penalties, the court examined Exxon's casualty losses for the vessel and cargo, the costs of clean-up, the fine and restitution, settlement with government entities, settlements with private parties, and net compensatory damages.49 Exxon was to pay over $3.4 billion in penalties, compensatory payments, and other voluntary expenditures. The court remarked that it was "hard to imagine a more adequate deterrence for negligence, [sic] but unintentional conduct."50 The Ninth Circuit also observed that the district judge had denied plaintiffs' prayer for $150 million and denied the motion for a new trial on punitive damages because Exxon had paid certain criminal penalties before the harm to the plaintiffs was quantified. Although the criminal fine would not serve to limit punitive damages, it nevertheless offered a significant datum. Under the circumstances, a $5 billion punitive damage award was excessive under Gore. Thus, the court vacated the award and remanded the matter to the district court to set a lower amount.

c. The California Court of Appeal

Offering an interpretation of the third guidepost, the California Court of Appeal stated, "[t]he third factor can assist a reviewing court in figuring out whether the punitive damages award approaches the point of equilibrium that satisfies but does not exceed the amount necessary to properly punish and deter."51 It continued:

In a proper case, our inquiry into whether there is equilibrium between the penalty and its deterrent and punitive effects would take into account the comparative sanctions question. As our Supreme Court has stated, this inquiry is to be made in light of the relevant facts. There is, of course, nothing in California's procedures which would preclude a defendant from developing facts on comparative sanctions which, in turn, would inform appellate review.52

The decision by the California Court of Appeal in Rich v. Schwab" provides a third interpretation of the Gore guideposts, analyzing comparable penalties in detail.54 The facts of the Rich case involved a retaliatory rent increase. In response to a thirteen percent rent increase, and a subsequent $80 increase after tenants sought relief for the thirteen percent rent increase, tenants at Rancho Carlsbad sued Western, Schwab and Dawes to recover the excessive rent. Trial was conducted in two phases commencing in 1991. In the initial phase, a jury determined that the March 1981 rent increase was, in fact, imposed in retaliation for the tenants' opposition to the earlier rent increase. In the second phase of the trial, conducted in 1996 after an intervening bankruptcy proceeding initiated by Dawes, a second jury determined that 423 tenants had left Rancho Carlsbad as a result of Schwab's and Dawes's conduct, suffering $1.7 million in compensatory damages. The jury also imposed $1,000 in punitive damages against Schwab for each of the 653 tenants who had suffered the $80 rent increase. Following the jury's verdict, however, the trial court refused to award any punitive damages to the 230 tenants who had stayed at Rancho Carlsbad despite the rent increase. The trial court also refused to award the tenants any of their attorneys' fees.

After judgment against Schwab and Dawes was entered accordingly, Schwab, Dawes and the tenants each appealed from the judgment.55 Ruling on their issues, the court stated as follows:

Under [Civil Code] section 3294, "the judge or jury, as the case may be, has the authority to decide whether and what amount of punitive damages should be awarded. In contrast, statutory damages56 are set by a legislative body; while the fact finder must still determine whether such damages are to be awarded, if they are granted the amount is fixed by statute. Statutory damages may either take the form of penalties, which impose damages in an arbitrary sum, regardless of actual damages suffered or, as in the instant case, may provide for the doubling or trebling of the actual damages as determined by the judge or jury. Thus, while both exemplary damages and statutory damages serve to motivate compliance with the law and punish wrongdoers, they are distinct legal concepts, one of which is entrusted to the fact finder, the other to the Legislature."37

Citing Gore, the Rich court continued:

Where, as here, the Legislature has set the level of punishment which may be imposed for a particular act, the doctrine of separation of powers limits the nature of our review when such a penalty has in fact been imposed. We are required to '"accord "substantial deference" to legislative judgments concerning appropriate sanctions for the conduct at issue.'" As with any other statute, we may interfere with the Legislature's determination of what is required by the public interest only when there is no rationale [sic] basis for the decision reached by the Legislature.58

The court concluded that though it might interfere with the legislature's determination of what is required by the public interest, it must still give some consideration to the cumulative impact upon the defendant.59

V.

CONCLUSION

The Supreme Court articulated a test for analyzing punitive damages in Gore. This test frequently becomes a tool for reducing punitive damage awards. The three components of the test include the reprehensibility of defendant's conduct, the ratio of compensatory damages to punitive damages, and a comparison of relevant civil or criminal penalties. In the case of In re the Exxon Valdez, the Ninth Circuit limited a punitive damage award based on the third component of the test, finding that Exxon already had paid a great deal of money to clean up the oil it spilled prior to litigation.

Likewise, in Sierra Club, Notrica, and Rich, the California appellate court also used the three Gore guideposts to analyze punitive damage awards. However, none of these state cases reduced a punitive damage award to the respective plaintiff.

[dagger] Submitted by the authors on behalf of the FDCC Toxic Tort and Environmental Law Section.

1 517 U.S. 559 (1996).

2 270F.3d 1215 (9thCir. 2001).

3 512 U.S. 415(1994).

4 509 U.S. 443 (1993).

5 499 U.S. 1 (1991).

6 Honda Motor Co., Ltd. v. Oberg, 512 U.S. 415, 420-21 (1994) (citing TXO Production Corp. v. Alliance Resource Corp., 509 U.S. 443, 457, 471 (1993) and Pacific MuI. Life Ins. Co. v. Haslip, 499 U.S. 1, 20(1991)).

7 Gore, 517 U.S. 559.

8 Id.

9 Id. at 575.

10 Id.

11 Id. at 576 (citing TXO, 509 U.S. at 453, quoting Haslip, 499 U.S. 1 at 22).

12 Id.

13 Id.

14 Id. at 579.

15 Id.

16 Id. at 580.

17 123 S.Ct. 1513(2003).

18 Id. at 1521 (citing Gore, 517 U.S. at 576-77).

19 Id. (citing Gore, 517 U.S. at 575).

20. Id. at 1523.

21 Id. (emphasis added).

22 Id. at 1521 (citing Gore, 517 U.S. at 575).

23 Id. at 1520.

24 Id. at 1524 (citing Gore, 517 U.S. at 582).

25 Id.

26 In re the Exxon Valdez, 270 F.3d 1215, 1221 (9th Cir. 2001). The Exxon Valdez departed from the Trans-Alaska Pipeline terminal March 23, 1989. William Murphy, an expert ship's pilot hired to maneuver the 986-foot vessel through the Valdez Narrows, was in control of the wheelhouse. At his side was the captain of the vessel, Joe Hazelwood. The ship ran aground on Bligh Reef in Prince William Sound, Alaska, on March 24,1989. The vessel spilled 261,905 barrels of oil when it ran ashore. Captain Hazelwood was seen in a local bar before the accident and admitted to having some alcoholic drinks. A blood test showed alcohol in his blood even several hours after the accident. Captain Hazelwood was found guilty of a misdemeanor and was fined. Due to the complexity of the case, the district court divided the case into four phases:

In the first phase, the jury found that Hazelwood and Exxon had been reckless, in order to determine liability for punitive damages. The second phase assessed the amount of compensatory damages attributable to the spill to commercial fishermen and Alaska Natives. The third phase established the amount of punitive damages. A fourth phase, which settled before trial, was to determine the compensatory damages of plaintiffs whose damages were not determined in Phase II, including landowners and participants in other commercial fisheries.

Id. at 1225.

Using this analysis:

The jury awarded $287 million in compensatory damages, from which the court deducted released claims, settlements, and payments by the Trans-Alaska Pipeline Liability Fund to find net compensatory damages of $19,590,257. The jury also awarded, in what was then the largest punitive damages award in American history, $5 billion in punitive damages against Exxon, as well as $5,000 in punitive damages against Hazelwood.

Id.

27 Id. at 1242.

28 Id.

29 Id. at 1242-43 (citing Protectus Alpha Navigation Co. v. N. Pac. Grain Growers, Inc., 767 F.2d 1379, 1381-82 (9th Cir. 1985)).

30 85 CaI. Rptr. 2d 726 (Ct. App. 1999).

31 Id. at 743 (citing Gore, 517 U.S. at 581-83 and TXO, 509 U.S. at 460). In Sierra Club, a charitable environmental foundation brought an action against a donor for malicious prosecution based on the donor's fruitless federal suit against the foundation for fraud, breach of contract, and other causes. The Superior Court, San Francisco County, entered judgment in favor of the foundation for $672,638.07 in compensatory damages and $2,017,914.21 in punitive damages. On review, the court of appeal he Id that: (l)agrant of summary judgment to the foundation in the donor's federal action was a favorable termination; (2) substantial evidence supported a finding that the donor did not have probable cause to initiate or maintain the federal action; (3) a finding that the donor acted with malice in commencing and maintaining a federal action was supported by substantial evidence; (4) the donor's claim that jury instructions on separate malice elements for the tort of malicious prosecution and punitive damages confused jurors was speculative; (5) the punitive damage award was not excessive; and (6) the trial court lacked authority to award sanctions to the foundation in connection with the donor's third motion for summary judgment. Judgment was affirmed and the sanctions order reversed.

32 83 CaI. Rptr. 2d 89 (Ct. App. 1999).

33 Id. at 114-15 (citing J.R. Norton Co. v. Gen. Teamsters, Warehousemen & Helpers Union, 256 CaI. Rptr. 246(Ct. App. 1989)).

34 Gore, 517 U.S. at 580 (citing TXO, 509 U.S. at 459 and Haslip, 499 U.S. at 23).

35 Id. at 581 (citing TXO, 509 U.S. at 460 (emphasis in original), quoting Haslip, 499 U.S. 1).

36 Id. at 582.

37 Slate Farm, 123 S.Ct. at 1524.

38 Exxon Valdez, 270 E3d at 1243 (citing Haxlip, 499 U.S. at 23).

39 Id. at 1244.

40 Id.

41 Exxon Valdez, 270 F.3d at 1244.

42 Sierra Club, 85 Cal. Rptr. 2d at 743 (citing Gore, 517 U.S. at 581-83 and TXO, 509 U.S. at 460).

43 Id. (citations omitted).

44 Id.

45 Core, 517 U.S. at 583 (citing Browning-Ferris Indus, v. Kelco Disposal, Inc., 492 U.S. 257, 301 (1989)).

46 Id, at 584-85. In concluding that the Alabama Supreme Court's award of punitive damages was excessive, the Court reasoned: "The fact that BMW is a large corporation rather than an impecunious individual does not diminish its entitlement to fair notice of the demands that the several States impose on the conduct of its business." Id. at 585. Finally, the Court concluded that it was not "prepared to draw a bright line marking the limits of a constitutionally acceptable punitive damages award." Id. The Court reversed the judgment of the Alabama Supreme Court and remanded the case for further proceedings not inconsistent with its opinion.

47 Stale Farm, 123 S. Ct. at 1526.

48 Exxon Valdez, 270 F.3d at 1245 (citing Gore, 517 U.S. at 582).

49 The court noted that criminal fines are "particularly informative because punitive damages are quasi-criminal." Id.

50 Mat 1246.

51 Sierra Club, 85 CaI. Rptr. 2d at 743.

52 Id. In this case the defendant did not allude to any comparable civil or criminal penalties for deterring malicious prosecution of a civil lawsuit. While court sanctions are available in many jurisdictions against frivolous claims and delaying tactics (e.g., CAL. Civ. PROC. CODE § 128.7), such sanctions are meted out on a pleading-by-pleading and motion-by-motion basis. By their nature they do not address the grander scale of harm inflicted from a lawsuit seen to judgment. Also, in this case, using the Gore guideposts, the court stated:

Under either BMW or Neal, the award was not excessive. The reprehensibility of [defendant's] conduct can be seen in his own disbelief in the underlying charges; his media strategy to extract settlement on his terms while bringing negative attention to the Foundation during its centennial fund-raising campaign; and his vendetta over the Oxbow incident. Proportionality is not a problem-the punitive damages award was three times the compensatory award, not a penny more. (see Haslip, 499 U.S. at 23-24 upholding award with greater than four-to-one ratio.) We are not aware of any comparable civil or criminal penalties that could be levied to deter malicious prosecution. Finally the award was more than 2 percent of Graham's net worth, far less than the 10 percent cap generally recognized by our courts. (see Weeks v. Baker & McKenzie, 74 Cal. Rptr. 2d 510 (Ct. App. 1998)).

Id. at 743-44.

53 75 Cal. Rptr. 2d 170 (Ct. App. 1998).

54 Id.

55 Id.

56 It is plausible that, when referencing "statutory damages," the court intended to include CAL. Bus. & PROF. CODE § 17200 among others. However, the opinion is void of any specific reference tosuch a statute. The vague reference to "statutory damages" is the only potential reference to such a statute.

57 Id. at 816.

58 Id. (citing Gore, 517 U.S. at 583; Horeczko v. State Bd. of Registration, 284 Cal. Rptr. 149 (Ct. App. 1991)). On this point, the court stated:

Here, the maximum potential penalty for each violation, $1,000, is in no sense disproportionate to the annual rent collected on typical commercial, residential or agricultural leaseholds covered by the terms of section 1942.5 or disproportionate to the public interest in deterring retaliatory conduct by landlords. Given the relatively low limit imposed and the well-established public interest in regulating real property leases, we are in no position to add any general requirement that a tenant also show the financial condition of his landlord before the penalties authorized by section 1942.5, subdivision (f), may be imposed. Presumably, the Legislature considered the potential impact on landlords in setting the very specific monetary parameters which exist in the statute.

Id. at 816-17.

59 Rich, 75 CaI. Rptr. 2d 170. The court further stated:

We hasten to add that where, as here, the penalties imposed amount to several hundred thousand dollars, some consideration of their cumulative impact on a landlord might be warranted. However, in the context of a statutory penalty, the issue of defendant's financial condition will at most be a matter for the defendant to raise in mitigation. (see e.g. State of Cal. v. City & County of San Francisco, 156 Cal. Rptr. 542 ___ (Ct. App. 1979), holding that once evidence of statutory violation is presented, defendant bears the burden of establishing that the court should impose less than statutory maximum.) Here, no such mitigating evidence was offered on Schwab's behalf.

Id. at 176-77.

Patrick J. Hagan is a partner and supervising attorney for the Environmental/Product Liability Team at Dillingham & Murphy, LLP, in San Francisco. He is a graduate of St. Joseph's University in Philadelphia, PA (B.S. 1965) and the University of California, Hasting College of the Law (J.D. 1975). Mr. Hagan is a member of the California, San Francisco County and the American Bar Associations. He is also a member of the Federation of Defense & Corporate Counsel (former chair of the Toxic Tort and Environmental section), the Defense Research Institute and the Association of Defense Counsel for Northern California. He is widely published in his areas of expertise.

Anne Marie Bridges is an associate attorney in the San Francisco office of Tucker Ellis & West, LLP. She is a graduate of St. Mary's College of California (B.A., cum laude) and the University of San Francisco School of Law (J. D.). During law school Ms. Bridges completed the Intensive Advocacy Program and taught juvenile delinquents through the national Street Law program. She has experience in director and officer liability, products liability, environmental law, general business and commercial liability, and in defending class actions and complex litigation.

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