Punitive damages: Punishing and deterring oppression, fraud, and malice

A review of the statutes, case law and constitutional holdings, and illustrative cases

2015 February

While the purposes of punitive damages are laudable in a proper case, the limitations imposed upon recovery of punitive damages, and the procedural and substantive obstacles to obtaining and preserving an award of punitive damages, are considerable. This article presents the law and practical considerations that should be taken into account in cases which present a potential for punitive damages.

Punitive damages and their purpose

The right to a punitive damages award in California is strictly statutory. Civil Code section 3294 provides that a plaintiff can obtain punitive damages when it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud or malice. (See also CACI 3940-3942.)

“The primary purposes of punitive damages are punishment and deterrence of like conduct by the wrongdoer and others.” (Grimshaw v. Ford Motor Co. (1981) 119 Cal.App.3d 757, 810.) The Grimshaw Court commented that punitive damages are “the most effective remedy” for consumer protection against defectively designed mass produced articles:

Deterrence of ‘objectionable corporate policies’ serves one of the principal purposes of Civil Code section 3294. Governmental safety standards and the criminal law have failed to provide adequate consumer protection against the manufacture and distribution of defective products. Punitive damages thus remain as the most effective remedy for consumer protection against defectively designed mass produced articles. They provide a motive for private individuals to enforce rules of law and enable them to recoup the expenses of doing so which can be considerable and not otherwise recoverable. We find no statutory impediments to the application of Civil Code section 3294 to a strict products liability case based on design defect.

(Grimshaw v. Ford Motor Co., supra, at 119 Cal.App.3d 810.)

Pleading considerations

When punitive damages may be recoverable, a threshold pleading decision is necessary. Plaintiff’s counsel can decide to allege punitive damages in the original complaint, and face a probable motion to strike punitive damages by the defense. In the alternative, plaintiff’s counsel may elect to withhold punitive-damage allegations in the original complaint and later bring a motion for leave to file an amended complaint alleging punitive damages after significant discovery has been conducted.

The decision of whether or not to allege punitive damages in the original complaint will depend upon the nature of the defendant’s conduct and the facts known at the time the original complaint is filed.

In some types of cases, punitive damages have long been recognized as properly awarded and, in such cases, it is almost always appropriate to allege punitive damages in the original complaint. (Livesey v. Stock (1929) 208 Cal. 315 [plaintiff assaulted with deadly weapon – punitive damages proper]; Boyes v. Evans (1936) 14 Cal.App.2d 472 [narcotic officer used excessive force on suspect – punitive damages award proper]; Herman v. Glasscock (1945) 68 Cal.App.2d 98 [plaintiff assaulted with knife – punitive damages proper]; Thomas v. Doorley (1959) 175 Cal.App.2d 545 [plaintiff beaten by two assailants – punitive damages proper]; Magliulo v. Superior Court (1975) 47 Cal.App.3d 760 [three assaults by employer on employee – punitive damages proper].)

In other cases, such as those seeking punitive damages against an employer based on the conduct of an employee, it will ultimately be necessary to plead and prove an employer’s knowledge of the unfitness of an employee, or the employer’s ratification of the wrongful conduct, or the advance knowledge and conscious disregard on the part of an officer, director or managing agent of the corporation. When dealing with these complex factual patterns it may be preferable not to allege punitive damages in the original complaint, and to instead bring a later motion for leave to file an amended complaint alleging punitive damages – after obtaining discovery that factually supports recovery of punitive damages.

It is invariably asserted by the defense in a motion to strike that punitive damage allegations in plaintiff’s complaint (or amended complaint) must allege facts demonstrating malice. “Conclusory allegations” that defendant’s conduct was “malicious” are insufficient and subject to being stricken. (Smith v. Superior Court (1992) 10 Cal.App.4th 1033, 1036.) The proper standard for determination of a motion to strike punitive damages is whether plaintiff has alleged “ultimate facts” showing an entitlement to exemplary damages. (Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.)

Plaintiff is not required to prove in his complaint that the defendant is liable for punitive damages.  That is an issue to be decided by a jury at trial. Rather, plaintiff is required to allege in his complaint the “ultimate facts” upon which his claim for punitive damages is based. (Burke v. Superior Court (1969) 71 Cal.2d 276, 279, fn 4 [It is “the general rule that a complaint must contain only allegations of ultimate facts as opposed to allegations of the evidentiary facts or of legal conclusions or arguments”].)

Further, less specificity is required in pleading “when the facts lie more in the knowledge of the opposite party.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216-217.) When the allegations of the complaint are considered as a whole – as they must be – even seemingly “conclusory” language may properly support recovery of punitive damages. (Perkins v. Superior Court (1981) 117 Cal.App.3d 1, 6.)

If you elect to conduct discovery and later amend the complaint to allege punitive damages, bear in mind that courts are bound to apply a policy of great liberality in permitting amendments to the complaint at any stage of the proceedings, up to and including trial. (Atkinson v. Elk Corp. (2003) 109 Cal.4th 739, 761; Code Civ. Proc., § 437, subd. (a)(1).) Judicial policy so strongly favors resolution of all disputed matters on the merits, courts usually exercise their discretion liberally to permit amendment. (Nestle v. Santa Monica (1972) 6 Cal.3d 920, 939.) The policy is so strong that it is a rare case in which denial of leave to amend can be justified. (Mabie v. Hyatt (1998) 61 Cal.App.4th 581, 596.)

Thus, plaintiff’s motion for leave to file an amended complaint alleging punitive damages will almost certainly be granted by the court, and the sufficiency of the punitive damage allegations in the amended complaint will then be tested by defendant’s motion to strike the punitive damage allegations from plaintiff’s amended complaint.

Punitive damages: Requisite proof

“Malice” means “conduct which is intended by the defendant to cause injury to the plaintiff (i.e., intentional tort), or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.” (non-intentional tort). (Civil Code, § 3294, subd. (c)(1); College Hospital, Inc. v. Superior Court (1994) 8 Cal.4th 704, 725.) To establish malice plaintiff need not prove an evil mental intent or motive on the part of the defendant. Plaintiff need only establish (by clear and convincing evidence) that the defendant intended the consequences that were substantially certain to occur from his or her wrongful conduct. (Schroeder v. Auto Driveway Co. (1974) 11 Cal.3d 908, 922; George F. Hillenbrand, Inc. v. Insurance Co. of North America (2002) 104 Cal.App.4th 784, 816.)

Evidence of negligence, gross negligence, or even recklessness is not sufficient to support an award of punitive damages. (Lackner v. North (2006) 135 Cal.App.4th 1188, 1210-1211; Bell v. Sharp Cabrillo Hospital (1989) 212 Cal.App.3d 1034, 1044.) Thus, plaintiff must prove (again, by clear and convincing evidence) that the defendant was: (1) aware of the probable dangerous consequences of his or her conduct; and (2) that with such awareness defendant willfully and deliberately failed to avoid those consequences. (Taylor v. Superior Court (1979) 24 Cal.3d 890, 89; Hoch v. Allied-Signal, Inc./Bendix Safety Restraints Division (1994) 24 Cal.App.4th 48, 61.)

It need not be proven that the defendant acted with an awareness of probable harm to a particular victim (i.e., the plaintiff). It is sufficient that the defendant knew his or her conduct would probably have injurious consequences to someone. (Ramona Manor Convalescent Hospital v. Care Enterprises (1986) 177 Cal.App.3d 1120, 1133.) Thus, intoxicated drivers may be held liable for punitive damages despite not knowing the specific identity of their victim (Taylor v. Superior Court, supra), and manufacturers may bear liability for punitive damages in product-liability actions upon a showing of willful and conscious disregard of the probable dangerous consequences of the products placed by them into the stream of commerce. (Hilliard v. A.H. Robins Co. (1983) 148 Cal.App.3d 374, 391-392 [injuries caused by Dalkon Shield]; West v. Johnson & Johnson Products, Inc. (1985) 174 Cal.App.3d 831, 867-871.)

“Oppression” means “despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights.” (Civ. Code, § 3294, subd.(c)(2).)  Although malice requires a showing of willful conscious disregard, “oppression” does not require willful behavior. (Major v. Western Home Insurance Co. (2009) 169 Cal.App.4th 1197, 1225-1226.)

“Fraud” for purposes of a punitive damages award means “an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.” (Civ. Code, § 3294, subd. (c)(3).)

Under the provisions of Civil Code section 3294, subd. (b), an employer may be found liable for punitive damages upon any of three separate bases: (1) when an employee was guilty of oppression, fraud or malice, and the employer with advance knowledge of the unfitness of the employee employed him or her with a conscious disregard of the rights or safety of others, (2) when an employee was guilty of oppression, fraud or malice, and the employer authorized or ratified the wrongful conduct, or (3) when the employer was itself guilty of the oppression, fraud or malice. Civil Code section 3294, subdivision (b) further provides that: “With respect to a corporate employer, the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud or malice must be on the part of an officer, director, or managing agent of the corporation.”

A corporate employee’s status as a “managing agent” under Civil Code section 3294(b) does not turn on his or her precise position in the corporate hierarchy, or upon whether he or she has authority to hire or fire other employees. The question is whether the employee exercises substantial independent authority and judgment over decisions that ultimately contribute to corporate policy. Plaintiff must show that “the employee exercised substantial authority over significant aspects of a corporation’s business.” (White v. Ultramar, Inc. (1999) 21 Cal.4th 563, 576-577.)

Other burdens of proof may apply if punitive damages are sought under specific statutory authorization. For example, under the Federal Civil Rights Act (42 U.S.C § 1983) punitive damages are recoverable against an individual “…when the defendant’s conduct is shown to be motivated by evil motive or intent, or when it involves reckless or callous indifference to the federally protected rights of others.” (Smith v. Wade (1983) 461 US 30, 56; Dang v. Cross (9th Cir. 2005) 422 F3d 800, 806.)

Clear and convincing evidence

Plaintiff must prove a statutory basis for recovery of punitive damages (malice, oppression or fraud) by “clear and convincing evidence.” (Civ.Code, § 3294, subd. (a); Westrec Marina Management, Inc. v. Jardine Insurance Brokers Orange County, Inc. (2000) 85 Cal.App.4th 1042, 1050.)  Interestingly, Civil Code section 3294 does not define the “clear and convincing evidence” burden of proof. Case law has determined that “clear and convincing” means a standard higher than “preponderance of the evidence,” but not as high as the criminal standard of “beyond a reasonable doubt.” Thus, case law has found “clear and convincing” to be synonymous with a “high probability” standard of proof. (In re Angelina P. (1981) 28 Cal.3d 908, 919; Nevarrez v. San Marino Skilled Nursing & Wellness Center (2013) 216 Cal.App.4th 1349, 1355.)

The “high probability” standard is now reflected in CACI 201 which states, in part, that: “Certain facts must be proved by clear and convincing evidence, which is a higher burden of proof…the party must persuade you that it is highly probable that the fact is true.”

Importantly, whether plaintiff’s evidence at trial has proven malice, oppression or fraud to the standard of “clear and convincing” is for the jury to decide. Thus, a defense motion for nonsuit or directed verdict on the issue of punitive damages may be granted only where the trial court determines that no reasonable jury could find plaintiff’s evidence to be clear and convincing. (American Airlines, Inc. v. Sheppard, Mullin, Richter & Hampton (2002) 96 Cal.App.4th 1017, 1048-1054; Hoch v. Allied-Signal, Inc./ Bendix Safety Restraints Division, supra, at 24 Cal.App.4th 61.)

Illustrative cases

In practice, preparing and trying a case that results in an award of punitive damages presents unique challenges and requires precision in both the pleading and evidentiary aspects of the case. In my personal experience, several such cases come immediately to mind.

Zerby v. City of Long Beach (USDC Case No. SACV 11-00536-AG-RNBx). On December 12, 2010, the decedent Douglas Zerby was seated on the landing of an exterior stairway with a water nozzle in his hand waiting for the arrival of a friend. At the time Mr. Zerby was highly intoxicated, having a .44 blood alcohol content. Long Beach police officers were called to the scene by a neighbor who mistook the water nozzle for a handgun. Prior to the fatal shooting, the Long Beach police officers were on scene for approximately seven minutes. Amazingly, the officers never announced their presence, never gave any verbal commands to Mr. Zerby, and were concealed behind barriers at all times before the shooting. There was every reasonable inference that Mr. Zerby did not even know the police officers were present. When Mr. Zerby inadvertently lifted the water nozzle upward, one of the police officers fired at Mr. Zerby from behind a barrier – striking Mr. Zerby and setting off a chain reaction of gunshots from another officer. Although the first shot did not kill Mr. Zerby, he was struck by multiple police officer bullets and expired at the scene.

At trial the jury found the City of Long Beach and two of the police officers to bear liability, and awarded compensatory damages in the amount of $6.5 million in favor of Mr. Zerby’s heirs. The jury also found that plaintiffs are entitled to recovery of punitive damages against two of the police officers involved in the shooting. [Note: Counsel for the defendant police officers elected to bifurcate the punitive damages issue, requiring the jury to return a finding that plaintiffs are entitled to punitive damages before the jury hears any evidence regarding the personal assets of the defendant police officers. The trial court must grant a defendant’s motion to bifurcate the punitive damages issue (Civ. Code, § 3295, subd. (d)). The purpose of bifurcation is to avoid any risk that evidence of defendant’s financial condition will taint the jury’s determination of underlying liability or the issues of “oppression, fraud or malice.” (Adams v. Murakami (1991) 54 Cal.3d 105, 123.) In federal court bifurcation is a discretionary decision made by the trial judge. (Federal Rules of Civil Procedure, rule 42(b).)

In Zerby, upon the jury finding that plaintiffs are entitled to punitive damages against two police officer defendants, we reached an immediate settlement of the punitive damages in a moderate amount, rather than produce evidence of the police officers’ personal assets in a second phase of the trial. As noted, the California Government Claims Act expressly exempts California public entities from liability for punitive damages (Gov. Code, §§ 811.2, 818), and punitive damages cannot be awarded against a municipality that is found liable under the Federal Civil Rights Act. 42 U.S.C. § 1983; City of Newport v. Fact Concerts, Inc. (1981) 453 U.S. 247, 263-271.)

Under certain extremely limited conditions, a governmental entity can elect to pay an award of punitive damages awarded against its employee. (Gov.Code, § 825; Grassilli v. Barr (2006) 142 Cal.App.4th 1260, 1292-1293.) But it is not common that a governmental entity ever pays punitive damages awarded against an employee. Any mention before the jury during trial that the governmental entity may pay a punitive damage award against its employee is expressly prohibited by statute and is “grounds for a mistrial.” (Gov. Code, § 825(b).)

Evidence of the defendant’s assets and liabilities is essential to the jury’s determination of an appropriate amount of punitive damages to award. (Pfeifer v. John Crane, Inc. (2013) 220 Cal.App.4th 1270, 1308.) “[E]vidence of the defendant’s financial condition is required to establish the defendant’s ability to pay an award of punitive damages. (Adams, supra, 54 Cal.3d at p. 108) ‘…The ultimately proper level of punitive damages is an amount not so low that the defendant can absorb it with little or no discomfort [citation], nor so high that it destroys, annihilates, or cripples the defendant.’ (Rufo v. Simpson (2001) 86 Cal.App.4th 573, 621-622)”). Further, it is plaintiff who bears the burden of producing evidence of the defendant’s financial condition to the jury for purposes of determining an amount of punitive damages.

Given these considerations, in Zerby, it was more beneficial to plaintiffs to accept a moderate punitive-damage settlement with the two police officers than it would have been to present their personal asset information to the jury during a second phase of the trial to determine the amount of punitive damages.

Castillo v. Korman Center Enterprises, Inc.: Four days before Christmas in 2000, Quantez Castillo, then age 9, attempted to warm his hands late at night by holding them over the open flame on the kitchen stove. His mother, then asleep in the bedroom with her boyfriend, had left the flame of the stove turned on in an effort to warm the apartment. The flame ignited Quantez’s pajamas and he suffered severe burns to his right arm, shoulder and back. At trial, the evidence established that the landlord had failed to connect the wall heater in the apartment to the gas line, and that the landlord had ignored the repeated requests by Quantez’s mother for months that he provide heat in the apartment. The defendant landlord owned many apartment buildings in Los Angeles. The jury returned compensatory damages in the amount of $3.2 million and punitive damages in the amount of $3 million.

Punitive damages: Constitutional considerations

The U.S. Supreme Court has rejected any notion that punitive damages awards are inherently unconstitutional, holding that an initial determination by a jury instructed to consider the gravity of the wrong and the need to deter similar wrongful conduct, followed by trial and appellate court review for reasonableness is not “so inherently unfair as to deny due process and be per se unconstitutional.” (Emphasis in original) (Pacific Mutual Life Insurance Co. v. Haslip (1991) 499 US 1, 17; BMW of North America, Inc. v. Gore (1996) 517 US 559, 568. [“Punitive damages may properly be imposed to further a State’s legitimate interests in punishing unlawful conduct and deterring its repetition”].)

The U.S. Supreme Court has, however, held that a punitive award is arbitrary – and violates due process – where it is “grossly excessive” in relation to a state’s legitimate interests in punishment and deterrence. (BMW of North America, Inc. v. Gore, supra, 517 US at 568; State Farm Mutual Auto Ins.Co. v. Campbell (2003) 538 US 408, 416-417; Pacific Mutual Life Insurance Co. v. Haslip, supra, 499 US at 17 [“We note again our concern about punitive damages that ‘run wild’”].)

The U.S. Supreme Court has enumerated three tests for determining whether the amount of a punitive damages award is “grossly excessive.” (BMW of North America, Inc. v. Gore, supra; State Farm Mutual Auto Ins. Co. v. Campbell, supra; Cooper Industries, Inc. v. Leatherman Tool Group, Inc. (2001) 532 US 424, 440.) In State Farm, supra, 538 U.S. at p. 418, the California Supreme Court articulated ‘three guideposts’ for courts reviewing punitive damages: “(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.” Of the three guideposts that the high court outlined in State Farm, the most important is the degree of reprehensibility of the defendant’s conduct. On this question, the high court instructed courts to consider whether “[1] the harm caused was physical as opposed to economic; [2] the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; [3] the target of the conduct had financial vulnerability; [4] the conduct involved repeated actions or was an isolated incident; and [5] the harm was the result of intentional malice, trickery, or deceit, or mere accident.” (Id. at p. 419.)

The application of these standards to actual punitive damage awards tends to distill down to an analysis of the “ratio of punitive damages to compensatory damages.” On this issue the U.S. Supreme Court seems to want it both ways. On one hand, the U.S. Supreme Court has rejected any “bright-line ratio” and has stated that, “we have consistently rejected the notion that the constitutional line is marked by a simple mathematical formula.” (BMW of North America, Inc. v. Gore, supra, 517 US at 582.) On the other hand, the U.S. Supreme Court stated in State Farm Mutual Auto Ins. Co. v. Campbell, supra, 538 US at 425, that: “Our jurisprudence and the principles it has now established demonstrate, however, that, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.”

California rulings

This fundamental perspective seems to have been accepted by the California Supreme Court. (Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159, 1182 [“…ratios between the punitive damages award and the plaintiff’s actual or potential compensatory damages significantly greater than 9 or 10 to 1 are suspect and, absent special justification (by, for example, extreme reprehensibility or unusually small, hard-to-detect or hard-to-measure compensatory damages), cannot survive appellate scrutiny under the due process clause”].) More recently, it was observed in Pfeifer v. John Crane, Inc. (2013) 220 Cal.App.4th 1270, 1311-1312, that California courts have adopted a broad range of permissible ratios, from 1-to-1 to 16-to-1.

A brief survey of California cases tends to confirm this general principle. Bullock v. Philip Morris USA, Inc. (2011) 198 Cal.App.4th 543, 550-556 [affirming $13.8 million punitive award for cigarette manufacturer’s misconduct during a portion of  plaintiff’s entire period of cigarette use]; Boeken v. Philip Morris, Inc. (2005) 127 Cal.App.4th 1640, 1690-1704 [modifying judgment against cigarette manufacturer to reduce $100 million punitive damages award to $50 million, and affirming judgment as modified]; Romo v. Ford Motor Co. (2003) 113 Cal.App.4th 738, 755-764, disapproved on another ground in Johnson v. Ford Motor Co. (2005) 35 Cal.4th 1191, 1205 [affirming $23.7 million punitive award against manufacturer of defective vehicle that caused death of plaintiffs’ family members]; Bankhead v. ArvinMeritor (2012) 205 Cal.App.4th 68, 85-86 [$6 million punitive award, 2.4 times compensatory damages, affirmed due to “highly reprehensible” conduct of defendant asbestos manufacturer].)

Thus, California Appellate Courts remain willing to affirm a “a broad range of permissible ratios” between punitive damage and compensatory damage awards, so long as the proven conduct of the defendant is sufficiently reprehensible.

Of course, an occasional case of punitive damages “run wild” captures the attention of the public and the legal community. For example, in 2013, a Florida jury awarded punitive damages in the sum of $23.6 billion dollars against R.J. Reynolds Tobacco Company, and in favor of Cynthia Robinson whose husband Michael chain smoked Kool cigarettes from age 13 until the time of his death from lung cancer at age 36. Perhaps this case illustrates that punitive damage issues will remain extremely challenging and extensively litigated for many years to come.