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California Supremes Wrestle with State Farm v. Campbell



The California Supreme Court issued two decisions last week interpreting the U.S. Supreme Court's guidance on punitive damages in State Farm v. Campbell.

In Johnson v. Ford Motor Co., (June 16, 2005), the California Supreme Court reversed in part the ruling of the California Court of Appeals which reduced an award of punitive damages.

At trial, the plaintiff had recovered approximately $17,000 in compensatory damages and $10 million in punitive damages. Applying the State Farm v. Campbell, the California Court of Appeals reduced the punitive award to $53,000, an amount approximately three times the compensatory damages.

The California Supreme Court held this was error and that, while an award of $10 million in punitives would be impermissible where compensatory damages are only $17,000, an award of punitive damages more than ten times greater than the compensatory damages would have been permissible in this case.

In the second case, Lionel Simon v. San Paolo U.S. Holding Company, Inc. , plaintiff obtained a jury verdict for fraud and recovered compensatory damages of $5,000 and punitive damages of $1.7 million.

The California Court of Appeals affirmed the punitive damages award. The U.S. Supreme Court then granted a petition for review, twice, each time remanding the case to the Court of Appeals for reconsideration in light of Cooper Industries v. Leatherman (the first time) and State Farm v. Campbell (the second time).

In each remand, the Court of Appeals affirmed the punitive damages award, even though it was more than ten times the compensatory damages.

After the second remand and affirmation, the California Supreme Court granted a petition for review.

The California Supreme Court reversed the Court of Appeals, holding that, under the facts, an award of punitive damages could not exceed ten times the compensatory damages, or $50,000.

It remains to be seen how the California courts will reconcile these two, seemingly irreconcilable opinions.

The confusion that will almost inevitably follow buttresses one of my two recommendations in Out of Balance: a statutory cap on punitive damages based upon a ratio to compensatory damages. Settling this matter through the legislature will save litigants and the courts inestimable work and expense.

 

 


Rafael Mangual
Project Manager,
Legal Policy
rmangual@manhattan-institute.org

Katherine Lazarski
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.