9th Circuit: $1 in damages....$125,000 Punitive Award OK?

Punitive damages can be unconstitutional when the punishment does not fit the "crime" (or liability).  The Supreme Court noted in BMW v. Gore a long time ago that “[punitive] damages must bear a reasonable relationship to compensatory damages.”  There is case law in which courts held that punitive damages in many cases should not exceed a 1:1 ratio, usually should not exceed 3:1 and pretty much never should exceed 9:1. Further,the Supreme Court stated in another case, State Farm, that “few awards exceeding a single-digit ratio between punitive and compensatory damages . . . will satisfy due process.”

Here's a case that apparently is an exception to the rule. This case was about how a court reaches a proper award of punitive damages when there are no compensatory damages.  ($1.00 to be exact).  

Angela Aguilar sued ASARCO LLC, a mining company,  for sexual harassment.  The allegations included sexual solicitations and a vandalized portable toilet at the work site. Supervision and HR were generally unsympathetic and took practically no action in response to her complaints.  One HR person told her she had to "handle" the 350 lb would-be paramour herself.  

Management did not take action on the basis of another supervisor's rude and obnoxious behavior towards her, apparently contending he was an "equal opportunity a*****" (to use the official employment law legal jargon).  That argument rarely works.

After trial, a jury found in favor of Aguilar on the sexual harassment claim, but not on her constructive termination based claims.  But the jury awarded just $1.00 in damages, apparently believing that although the conduct towards Aguilar was harassment, she suffered no actual harm. The jury, though, decided to punish ASARCO, probably for its less than stellar handling of Aguilar's complaints, and awarded punitive damages of over $800,000.

Under federal law, the maximum punitive damages award on a Title VII claim is $300,000. So, on ASARCO's motion for new trial, the trial court reduced the punitive damages award accordingly.   

ASARCO appealed to the Ninth Circuit, arguing that an award of $300,000 was way too high when the jury awarded $1.00.  The Court of Appeals did not ignore the ratio. In fact, the Court held that courts must consider the Supreme Court's analysis of the ratio.  

Yet, the Court of Appeals found a way to uphold a substantial punitive damages award anyway:  At a ratio of 125,000:1.  Here's how they got there:

Given ASARCO’s highly reprehensible conduct and the presence of a comparable civil penalty in the form of the Title VII damages cap, we conclude that the Constitution does not bar the imposition of a substantial punitive award in this case. But this does not change the fact that a 300,000 to 1 ratio raises our “judicial eyebrow[s].” Gore, 517 U.S. at 583.
* * *
Although we think a ratio higher than 2,500 to one is called for by ASARCO’s conduct, the $300,000 awarded was nonetheless excessive. As we indicated above, no court in a discrimination case has ever upheld a ratio of punitive damages to compensatory damages greater than 125,000 to 1. Many discrimination cases have struck down awards as constitutionally excessive with substantially smaller ratios. See Thomas v. iStar Fin., Inc., 652 F.3d 141, 149–50 (2d Cir. 2011) (holding that a $1.6 million punitive damages award, in comparison to a $280,000 compensatory damages award, violates due process); Mendez-Matos v. Mun. of Guaynabo, 557 F.3d 36, 55 (1st Cir. 2009) (holding that a $350,000 punitive damages award, in comparison to a $35,000 compensatory damages award, violates due process); Bains, 405 F.3d at 776–77 (holding that a $5 million punitive damages award, in comparison to a $50,000 compensatory damages award, violates due process); Williams, 378 F.3d at 798 (holding that a $6,063,750 punitive damages award, in comparison to a $600,000 compensatory damages award, violates due process); Lincoln v. Case, 340 F.3d 283, 294 (5th Cir. 2003) (holding that a $100,000 punitive damages award, in comparison to a $500 compensatory damages award, violates due process); Ross v. Kan. City Power & Light Co., 293 F.3d 1041, 1049 (8th Cir. 2002) (holding that a $120,000 punitive damages award, in comparison to a $6,000 compensatory damages award, violates due process); Rubinstein v. Adm’rs of Tulane Educ. Fund, 218 F.3d 392, 408 (5th Cir. 2000) (holding that a $750,000 punitive damages award, in comparison to a $2,500 compensatory damages award, violates due process).

* * * *

Since nothing compels a particular dollar figure, we conclude that the highest punitive award supportable under due process is $125,000, in accord with the highest ratio we could locate among discrimination cases. Abner, 513 F.3d at 164. We think this is the highest award which maintains the required “reasonable relationship” between compensatory and punitive damages. Gore, 517 U.S. at 580. This award is nonetheless on the order of the damages cap in Title VII and proportional to the reprehensibility of ASARCO’s conduct.

So, here's why I am too dumb to be a judge.  The court cites to abundant case law showing that when a defendant inflicts actual harm - measured in money - it's unconstitutional to award punitive damages in a ratio well below 100:1, or 10:1.  In fact, $100,000 is unconstitutional when the award of actual damages is $500; and $120,000 is unconstitutional when the actual damages are $6,000.  But here, where the Defendant inflicted no actual harm, the punitive damages ratio can be 125,000:1. Does that make sense to you?  

I guess the court was more than a little unimpressed with ASARCO's supervisors' conduct and the corporation's poor handling of the situation.  And rightly so.  But I don't understand how one is able to divine a rule regarding what is "due process." 

We'll see if the Supreme Court takes up the issue of whether punitive damages implicate the Gore Due Process analysis when there is no actual damage. Until then, it looks like the Constitution says punitive damages of $125,000 are permitted when a jury awards $1.00.  

The case is Arizona v. ASARCO LLC and the opinion is here.

Court of Appeal: State Anti-Hacking Criminal Statute Applies to Employee

Childs was a senior engineer for the City and County of San Francisco.  Via a series of events, he assumed significant control over a major part of the city's IT infrastructure, against the wishes of management.  I'm oversimplifying here.  The opinion contains all the gory IT details, and there are many.

At different times, management attempted to retrieve network passwords, which Childs refused to provide.  He claimed certain network configurations were his intellectual property, and he claimed that there would be a risk of disclosure of the passwords.  He also stored the passwords in such a way that they would be erased if the network had a power outage, resulting in the need to entirely reconfigure the system.

By the time Childs was fired, he had assumed total control of the network.  He became threatening and combative when another employee came to his offices to conduct an inventory.  After many meetings, the city naturally fired  attempted to reassign Childs to another job.  Management and the police met with him to recover the passwords.  He refused to provide them, with policy "pleading" with him for cooperation.

The city was locked out of its own computer system for several weeks.  Childs ultimately returned the correct passwords via his attorney, directly to the Mayor at the time.

Childs eventually was convicted under California Penal Code Section 502.  As told by the Court,

Section 502, subdivision (c)(5) makes it a crime for any person who “[k]nowingly and without permission disrupts or causes the disruption of computer services or denies or causes the denial of computer services to an authorized user of a computer, computer system, or computer network.”

One of Childs's many arguments was that he was an authorized user because the City employed him. Therefore he was not acting "without permission."  The Court of Appeal affirmed the conviction:

It appears that subdivision (c)(5) may properly be applied to an employee who uses his or her authorized access to a computer system to disrupt or deny computer services to another lawful user.

The opinion contains details about how the employee was able to take over the city's computer system.  Employers: don't let this happen to you. Ensure you have outside help to create secure "back doors" and fail safe ways of accessing the system. The employment law upshot is:  employers should ensure there are policies for IT engineers defining what is authorized and unauthorized access / permission. Then, if an IT employee goes off the rails, it is easier to raise the issue of criminal prosecution.  

Criminal Background Check

Here's another interesting part of this case.   I say interesting because of all the negative attention the government is giving to employers conducting criminal background checks.  Perhaps this case will serve as a reminder that criminal background checks could be a good idea for positions such as Childs's.

Childs lied on his employment application, because he had been convicted of several crimes out of state but did not list the convictions.  

More than once during his employment, Childs was asked to undergo a background check:

In February 2005, a San Francisco County sheriff told Childs that he needed to undergo a criminal background check. Childs offered both his California and Kansas driver‟s licenses to the sheriff, prompting an out-of-state inquiry. The sheriff discussed his findings about Childs‟s criminal history with his supervisor, who agreed that Childs could work on the project. Months later, the sheriff acknowledged to Childs that he knew of this criminal history when he praised the network engineer for “turning his life around.”

Oops. Then, 

By the end of 2007, the city was planning how to connect the city‟s law enforcement functions on FiberWAN. The combined system would allow users access to state and federal databases. For security reasons, all DTIS employees had to pass a criminal background check in order to have access to the law enforcement system. Childs had adult felony convictions that he had not revealed when he applied to work for the city.8 When asked to submit to a voluntary background check, Childs balked. Instead, he made a temporary arrangement with Tong and law enforcement officials to have Ybanez—who had passed his background check—escort him when Childs was required to work on the law enforcement network. This procedure continued to be used through July 9, 2008.

So, he said "no background check" for me - and they went for it.  

Long after Childs refused to provide the passwords to his supervisor, and after there were discussions about how to rein in Childs, a manager pondered...

Robinson knew that Childs had not passed his background check. He sought out more information about the engineer‟s criminal history. Reviewing the reports that Childs gave during the hiring process, Robinson saw the discrepancy between his initial job application reflecting no prior convictions and his time-of-hiring forms in which he admitted that he had once been convicted as an adult. Tong believed that Childs had suffered a juvenile conviction, but Robinson learned that Childs had been convicted of a criminal offense as an adult. The adult conviction and the perjured filing of personnel records were both grounds for dismissal.

And they still did not fire him for lying or because the convictions rendered him unfit.  Anyway, that's a slice of personnel management in San Francisco.

The case is People v.  Childs and the opinion is here.

 

California Supreme Court: Arbitration Agreement Can Waive Labor Commissioner Hearings. I think.

We posted about the California Supreme Court's decision in Sonic-Calabassas A, Inc. v. Moreno (2011) 51 Cal.4th 659  here.  In that case, the California Supreme Court decided that an employer cannot make an employee skip a labor commissioner hearing in favor of arbitration.

The U.S. Supreme Court then issued its opinion in AT&T Mobility v. Concepcion (discussed here).  The California Supreme Court agreed to reconsider Moreno in light of Concepcion.  In the meantime, Moreno's author, Justice Moreno (no relation) and Chief Justice Ronald George retired.  Justice Goodwin Liu and Chief Justice Tani Cantil-Sakauye joined the Court.

Many thought the Court would re-examine its arbitration / unconscionability case law and come up with some clear standard for what is "unconscionable."  Because the California Supreme Court's jurisprudence on arbitration agreements plainly is inconsistent with the U.S. Supreme Court's interpretation of the Federal Arbitration Act. (Don't take it just from me.  Justices Chin and Baxter in their dissent in this case say the same thing.)

Well, if you were one of those people, you were half right.  The Court indeed re-examined its jurisprudence in a long, scholarly opinion.  And the Court decided (5-2) that Concepcion indeed overruled Moreno I.  Therefore, we know after this opinion that employers are not absolutely required to allow employees to go to the Labor Commissioner before arbitrating wage claims if they so choose.

But the Court also held that state courts can continue to invalidate arbitration agreements as "unconscionable" under the case law that has developed in California over several years.  "Scholarly" does not mean "clear."  After this case,  we know precious little about how to draft an enforceable arbitration agreement.  In fact, I am more confused than ever after reading this opinion.  I will read it again to see if I can come up with some rules.

I remain confused because the Court does not explain well what is "unconscionable" in an arbitration agreement. The Court does not draw a clear rule for how a court decides if it must defer to the agreement to arbitrate under the Federal Arbitration Act, or apply the California courts' maze of rules that the courts have developed following the Armendariz case.

The California Supreme Court is considering arbitration in several pending cases that have been briefed but not yet heard.  We will have to wait a bit longer for some clearer guidance, or wait for the U.S. Supreme Court to review Armendariz or one of its progeny. In the meantime, if you have an hour or so,  there are about 95 pages of majority and dissent opinion to read here.

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San Francisco Flexible Schedule Ordinance - Update

We posted about San Francisco's newest ordinance here.  Here's an update.

If the Mayor approves, and he says he will, the new law will take effect on January 1, 2014. Here is a link to a draft of the ordinance, which is going to be codified as Administrative Code Chapter 12Z.  I can't confirm that this is the final text, so caveat employer.

Here is a quick and dirty summary. We'll have an article once this is finalized.

Employers of > 20 employees must consider requests by employees with at least six months service who work more than 8 hours per week.

The requests can range from fixed schedules, to telecommuting, to regular work hours / days.  The employee must make a written request; the employer must respond in writing and must give a legitimate reason (specified in the ordinance) for any denial.  The employee can ask for reconsideration.  It bears emphasis: An employer need not agree to any request.

The employee can make a request twice a year, unless there is a major life change, in which case the employee can make a request based on that.

The ordinance protects employees from retaliation for making such requests. The San Francisco Office of Labor Standards Enforcement will enforce the provision. There will be a poster, natch.

Again, there are more details in the text. Stay tuned for more analysis.

Greg

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Correction re California Minimum Wage Post

We posted about California's minimum wage increase here.  We mis-stated that the first increase occurs January 1, 2014.  It actually increases to $9.00 on July 1, 2014.  It's fixed now.  We regret the error.

San Francisco Enacts Ordinance Requiring Employers to Consider Employees' Requests for Flexible Schedules

The San Francisco Board of Supervisors  passed an ordinance requiring an employer to consider employees' requests for "flexible or predictable" working arrangements to assist with care giving responsibilities.  The employer can deny the request for legitimate reasons.  But there will be another poster, and the city's Office of Labor Standards Enforcement will enforce its anti-retaliation provisions.

Here is the Supervisors' summary of the ordinance, passed on October 1, 2013.  Stay tuned for a copy of the entire bill and more details as they emerge (including the effective date).

130785 [Administrative Code - Family Friendly Workplace Ordinance]

Sponsors: Chiu; Cohen, Mar, Campos, Yee, Breed, Avalos and Kim

Ordinance amending the Administrative Code to allow San Francisco-based employees to request flexible or predictable working arrangements to assist with care giving responsibilities, subject to the employer’s right to deny a request based on business reasons; prohibit adverse employment actions based on caregiver status; prohibit interference with rights or retaliation against employees for exercising rights under the Ordinance; require employers to post a notice informing employees of their rights under the Ordinance; require employers to maintain records regarding compliance with the Ordinance; authorize enforcement by the Office of Labor Standards Enforcement, including the imposition of remedies and penalties for a violation and an appeal process for an employer to an independent hearing officer; authorize waiver of the provisions of the Ordinance in a collective bargaining agreement; and making environmental findings.

PASSED, ON FIRST READING by the following vote:

Ayes: 11 - Avalos, Breed, Campos, Chiu, Cohen, Farrell, Kim, Mar, Tang, Wiener, Yee

Court of Appeal: No Employer Liability for Employee's Car Accident in Company Truck

We posted about the Court of Appeal's previous opinion in Moradi v. Marsh here.  That case caused quite a stir, when it held that an employer could be vicariously liable for an employee's car accident when she took a detour for yoga and frozen yogurt during her commute home.  The premise was that the employer required the employee to use her personal vehicle for work. Therefore, the  "going and coming" rule exonerating employers did not apply.  The employer was held vicariously liable for accidents occurring during foreseeable detours from the commute as well as the commute itself.

Now, just a few days later, a different court decided that an employer was NOT liable for an employee's accident when he was using a company-owned vehicle.   Why? Because he took a long detour away from work, over 100 miles.  Here is the Court's analysis.

The undisputed facts presented by Halliburton’s motion for summary judgment demonstrated that Martinez’s purpose in traveling to and from Bakersfield on September 13, 2009, was entirely personal. He finished his shift and drove the company truck 140 miles to Bakersfield; he intended to meet his wife at a car dealership and sign the papers to purchase a vehicle for her. Martinez was not performing any services or running any errands for Halliburton. His supervisor was unaware of the trip until after the accident. The trip was not made in the furtherance of any business activity of the employer. The
risk of a traffic accident during this personal trip was not a risk inherent in, or “‘“typical of or broadly incidental to,”’” Halliburton’s enterprise. (Bailey, supra, 48 Cal.App.4th at pp. 1558-1559.)

The Court here read Moradi before issuing the opinion, but held that the plaintiff's trip for yogurt and yoga was way more closely related to her commute than the plaintiff in the Haliburton case.

The plaintiffs in this opinion were the injured persons who sued Martinez, Halliburton's employee. Halliburton argued that it was not liable for Martinez's accident because he was acting outside the course and scope of his employment by driving the company owned truck on a personal errand taking him miles away from his home and work. 

The Court rejected the plaintiff's argument that the 100 mile detour was part of his commute or that it was foreseeable:

The Plaintiffs argue Martinez was returning to work at the time of the accident, so the trip, or at least the return from Bakersfield, was part of Martinez’s commute back to work. We do not believe the purpose or destination of the return leg of the journey can be separated from the purpose of the trip as a whole in this manner. Under plaintiffs’ theory, the return leg of any personal trip in the company vehicle, regardless of the length of time spent, the distance traveled, and the complete lack of connection between the trip and the enterprise of the employer or the work of the employee, would give rise to respondeat superior liability, as long as the employee’s ultimate destination on return was the workplace. We reject such an expansion of the incidental benefit exception to the going and coming rule.

The purpose of Martinez’s trip as a whole was entirely personal. The trip to Bakersfield was such a complete and material departure from his employment duties that it could not reasonably be considered to be an activity in pursuit of the employer’s business or a minor deviation from the strict course of the employee’s duties. It was such a marked turning aside from the employer’s business as to be inconsistent with its pursuit: driving to a location 140 miles from his assigned worksite, a trip that would take more than six hours to complete, without asking his employer’s permission or informing his supervisor that he would be gone, when, according to plaintiffs, Martinez was on call 24 hours, seven days a week, and might be called at any time to proceed to a new location. This activity would be entirely inconsistent with serving the employer’s purposes. Consequently, the trip to Bakersfield was, as a matter of law, outside the scope of Martinez’s employment.

Plaintiffs attempt to characterize the trip to Bakersfield as part of Martinez’s commute between the oil rig in Seal Beach and his home in Caliente. But the evidence presented indicated Martinez did not go home, because it was too far out of the way. Martinez met his wife and daughter at a car dealership in Bakersfield, 45 to 50 miles from his home, in order to sign the documents necessary to purchase a vehicle for his wife. The undisputed evidence does not support a contention that Martinez was
commuting between his home in Caliente and the oil rig at the time of the accident.

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So, Moradi is not going to expand liability as far as some imagine, apparently.  

This case is Halliburton Energy Services, Inc. v. Department of Transportation and the opinion is here.