United States: California Court Of Appeal Bends Over Backwards To Uphold Substantial Punitive Award In Asbestos Case

Keywords: Fourteenth Amendment, Punitive, Asbestos, compensatory damages

The Due Process Clause of the Fourteenth Amendment requires procedural fairness in state trials, but that principle seems absent from a recent California Court of Appeal decision upholding a judgment against Kaiser Gypsum Company for almost $1.6 million in compensatory damages and close to $4 million in punitive damages.

The decision arises out of one of the thousands of cases against manufacturers of products containing asbestos. The plaintiff is the widow of a construction worker who died of mesothelioma, a disease typically associated with asbestos exposure. The plaintiff sued more than 60 defendants, alleging that they contributed to her husband's exposure. By the time trial concluded, only Kaiser and one other defendant remained, many of the other defendants having settled. The jury found for the plaintiff on her claims and allocated 3.5% of the fault to Kaiser. It awarded $1,273,421 in economic damages and $20 million in noneconomic damages.

The jury was unable to reach a verdict on liability for punitive damages, so, over Kaiser's objection, the trial court ordered a retrial limited to punitive damages. In the retrial, the jury found that Kaiser had acted with malice or oppression and then imposed $20 million in punitive damages. The trial court thereafter reduced the economic damages to $892,941 to account for settlement offsets, reduced the non-economic damages to $700,000 to reflect Kaiser's proportionate fault, and reduced the punitive damages to $3,982,352.50—2.5 times the compensatory damages payable by Kaiser. Both parties appealed.

Several aspects of the Court of Appeal's decision warrant discussion.

The Trial Court's Refusal To Inform The Second Jury About The Amount of Compensatory Damages Awarded By The First Jury

To begin with, the Court of Appeal found no fault with the trial court's refusal to inform the second jury of the amount of compensatory damages awarded by the first jury. This ruling strikes us as irreconcilable with the U.S. Supreme Court's directive in State Farm v. Campbell that "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." This directive makes clear that, as a matter of due process, a jury cannot set an amount of punitive damages without first determining that the compensatory damages are insufficient for punishment and deterrence.

In rejecting Kaiser's argument that it was critical for the jury to know the amount of compensatory damages, the Court of Appeal reasoned: "[T]here is no serious dispute regarding the tremendous pain and suffering Mr. Casey endured, which culminated in his death. In our view, these facts were sufficient for the jury to maintain a reasonable relationship between plaintiffs' actual harm and any punitive damages that it would award. If the jury awarded an excessive amount, there was an adequate remedy by way of post-trial motion and/or appeal."

This reasoning is fundamentally flawed. The question is whether the amount of compensatory damages payable by Kaiser is relevant to the jury's punishment-setting function, not whether the jury's award of punitive damages was excessive; and because Kaiser could reasonably argue that the large compensatory award fulfilled California's interest in deterrence, the evidence was plainly relevant and should have been admitted.

In any event, the determination of the amount of punitive damages is in the first instance a question for the jury. The courts may do no more than reduce the punitive damages to the maximum permissible amount. As the Court of Appeal acknowledged later in the same opinion (quoting the state supreme court's decision in Simon v. San Paolo U.S. Holding Co.), "[t]he reviewing court's 'constitutional mission is only to find a level higher than which an award may not go; it is not to find the "right" level in the court's own view.'" It follows that a defendant has a right to try to persuade the jury to award less than the constitutional maximum, which it cannot effectively do if it is barred from informing the jury of the amount of compensatory damages it will have to pay the plaintiff.

The Trial Court's Refusal To Inform The Second Jury About The First Jury's Allocation Of Fault

Kaiser also argued that the trial court deprived it of a fair trial by refusing to inform the second jury that the first jury had allocated only 3.5% of the fault to Kaiser. Brushing off Kaiser's arguments that the first jury's allocation of fault is highly relevant to setting punitive damages, the Court of Appeal asserted simply that "[w]e are aware of no requirement that the jury in a new trial must be informed of allocation of fault determined by the first jury in order to determine reprehensibility of a given defendant's conduct."

This dismissive approach to the issue is unwarranted. There should be little doubt that a defendant that bears only 3.5% of the fault for a plaintiff's injury is less culpable than one that bears all or most of the fault for the injury. Yet the jury in the retrial had no idea that Kaiser played only a very minor role in causing decedent's injury and death. All it knew was that the plaintiff had suffered a wrenching and painful decline and death and that Kaiser was to blame. A high punitive award was virtually a foregone conclusion given the manner in which the retrial was structured.

The Court of Appeal reasoned in the alternative that the trial court's refusal to inform the jury of the comparative fault finding did not prejudice Kaiser because "Kaiser Gypsum had an adequate remedy to challenge the amount of the punitive damages award by way of post-trial motion and an appeal, which it pursued." But here again, Kaiser had a constitutional right to try to persuade the jury to impose less than the constitutional maximum amount of punitive damages. The trial court hamstrung Kaiser's ability to do so when it refused to inform the jury of the allocation of fault. The Court of Appeal's holding here is little different from saying that the exclusion of a defendant's alibi evidence was not prejudicial because the prosecution's evidence was sufficient to support the jury's guilty verdict.

The Trial Court's Modification Of The Pattern Jury Instruction On The Reprehensibility Factors

The Court of Appeal also rubberstamped the trial court's modification of a California pattern instruction on the factors that the jury should consider in assessing the degree of reprehensibility of the defendant's conduct.

The pattern instruction tracks the five reprehensibility factors identified by the Supreme Court in State Farm—(i) whether the conduct caused physical harm; (ii) whether the defendant disregarded the health or safety of others; (iii) whether the plaintiff was financially vulnerable and the defendant knowingly exploited that vulnerability; (iv) whether the defendant's conduct involved a pattern or practice; and (v) whether the defendant's conduct involved trickery or deceit.

At the plaintiff's behest, the trial court omitted the third and fifth factors on the ground that there was no evidence supporting the existence of either factor. Kaiser objected that including only the factors as to which there was evidence would mislead the jury into thinking that it had to treat the conduct as being highly reprehensible.

The Court of Appeal affirmed the use of the gerrymandered instruction, reasoning that the instruction told the jury only that it "may consider" the three remaining factors, "among other factors." The court evidently believed that informing the jury that the three factors "are part of a nonexclusive list" was sufficient to avoid "infringing on Kaiser Gypsum's right to a fair trial," though it offered no reason for that belief. The court overlooked the fact that, when conducting their own de novo review of the reprehensibility guidepost, courts routinely consider all five factors and deem the absence of some as indicative of lower reprehensibility; there is no reason to suppose that juries don't view the matter the same way.

The Court of Appeal also held that "any error in modifying the instruction was harmless" because "[t]he evidence at trial established that Kaiser Gypsum's tortious conduct caused Mr. Casey to endure great physical harm and endure a painful and horrible death" and "Kaiser Gypsum had knowledge about the dangers of asbestos, yet took no action to protect its customers and end-users from such known hazards." But it is the jury's task—not the court's—to evaluate the degree of reprehensibility of the conduct in the first instance. That the court believed that the evidence was sufficient to support a finding of high reprehensibility hardly means that a properly instructed jury would have reached the same conclusion.

The Trial Court's Excessiveness Analysis

Lest we appear to be overly critical of the Court of Appeal, it bears mentioning that the court rejected the plaintiff's cross-appeal challenging the reduction of the punitive damages. The court's analysis of the amount of punitive damages—though unfortunately non-precedential in California state courts—contains at least four helpful propositions for which it may be cited in federal courts and the courts of other states.

First, the Court of Appeal made clear that the "vulnerable victim" reprehensibility factor "ordinarily is relevant only if financial vulnerability made the target more vulnerable to the defendant's wrongful conduct or exacerbated the harm, such as where the harm caused by the defendant's conduct was economic."

Second, the court rejected the notion that, for purposes of the ratio guidepost, the punitive damages should be compared to the full amount of compensatory damages even when the defendant does not bear 100% of the fault for the injury. The court held that the punitive damages instead should be compared to the amount of damages for which the defendant is actually responsible—in this case, the full amount of economic damages as reduced by the settlement offsets, plus 3.5% of the noneconomic damages.

In fact, there is a good argument that, although Kaiser may be legally responsible for the full amount of economic damages, less the offsets, only 3.5 % of the economic damages should be included in the denominator of the punitive/compensatory ratio because Kaiser bore only 3.5% of the fault for the injury. But even if not perfect, the trial court's approach, which was endorsed by the Court of Appeal, is far better than the approach urged by the plaintiff.

Third, the Court of Appeal appeared to embrace the view that, for cases in which the conduct is of "moderately high" reprehensibility and the compensatory damages are substantial, the permissible ratio of punitive damages is in the neighborhood of 2-2.5:1. Although there are good arguments that under State Farm the maximum permissible ratio is 1:1 or lower, the court did not need to decide that question because Kaiser elected not to argue that the reduced amount of punitive damages remained excessive. That argument can be made in future cases, but a presumptive ceiling of 2.5:1 is at least a good start.

Finally, the court flatly rejected the notion that evidence that the defendant earned substantial profits on the product in question can justify a punitive award that is disproportionate to both the degree of reprehensibility of the conduct and the compensatory damages.

In the end, though, fending off the cross-appeal is likely of cold comfort to Kaiser, given the very serious concerns it has raised about the fairness of the trial.

Originally published on February 18, 2016

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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