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.
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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.

9th Circuit: No Jury, Compensatory or Punitive Damages for ADA Retaliation

Alvarado sued his former employer, Cajun Operating Co., for retaliation because he complained to an internal hotline about discrimination based on disability, national origin, etc. Before trial, the court granted a motion in limine barring Alvarado's punitive damages, compensatory damage, and jury trial demand. The Ninth Circuit affirmed on appeal.

The analysis is interesting if you like statutory construction cases. I know what you're thinking: Zzz. If you just want the punchline - the Ninth Circuit joined the Seventh in holding that the Americans With Disabilities Act does not provide for compensatory or punitive damages in retaliation cases asserted under the ADA. As with pre-Civil Rights Act of 1991 cases, the only relief available is equitable, which removes the jury trial too. My bold prediction is that Congress will fix this issue in a few weeks or months.

The case is Alvarado v. Cajun Operating Co. and the decision is here.

Court of Appeal: Wrongful Termination Alone Insufficient for Punitive Damages Liability

Scott sued her employer, Phoenix Schools, for wrongful termination in violation of public policy. A jury awarded her damages, including punitive damages. The Court of Appeal upheld the verdict for wrongful termination and the compensatory damages, but reversed on the punitive damages claim:

Thus, in order to sustain the punitive damages award, the evidence must leave no substantial doubt that Phoenix engaged in despicable conduct, or conduct intended to cause injury to Scott. “‘Something more than the mere commission of a tort is always required for punitive damages. There must be circumstances of aggravation or outrage, such as spite or “malice,” or a fraudulent or evil motive on the part of the defendant, or such a conscious and deliberate disregard of the interests of others that his conduct may be called wilful or wanton.’ [Citation.]” (Taylor v. Superior Court (1979) 24 Cal.3d 890, 894-895, italics omitted.) The only evidence of wrongful conduct directed toward Scott was her termination for an improper reason. This evidence was insufficient to support a finding of despicable conduct, because such action is not vile, base or contemptible.

So, a wrongful termination in violation of public policy, without additional evidence of malice, is not enough to sustain an award of punitive damages.

The case is Scott v. Phoenix Schools and the opinion is here.

No Punitive Damages for Meal and Rest Period Violations

While the wage and hour world waits for the Walmart decision, in which the court awarded roughly $170 million in meal period premiums, penalties and punitive damages. the other courts are working away.

Wait no longer. Ms. Brewer is a waitress at Cottonwood golf resort's restaurant. She sued for meal and break violations among a smorgasbord of other employment claims. She lost on her age discrimination claims. But she won on some Labor Code violations. The jury also awarded her punitive damages, over and above the meal and break premiums, penalties for improper wage statements, etc. (I bet you thought I was going to make food puns throughout this post, didn't you?)

The court of appeal reversed on punitive damages. The court decided that the Labor Code creates new rights not available at common law. Therefore, their remedies are exclusive. The court also held that a claim for unpaid meal periods and other Labor Code violations "arise" out of contract - the employment relationship. As such, punitive damages are not available as a matter of law.

Here's a long quote from the opinion to prove I read it, or at least that I know how to cut and paste:

We agree with Cottonwood’s contention, which Brewer does not dispute on appeal, that the Labor Code statutes regulating pay stubs (§ 226) and minimum wages (§ 1197.1) create new rights and obligations not previously existing in the common law. Moreover, those same statutes provide express statutory remedies, including penalties for the violation of those statutes that are punitive in nature, that are available when an employer has violated those provisions. Section 226, subdivision (e), provides that any employee “suffering injury as a result of a knowing and intentional failure by an employer to comply with [the pay stub requirements] is entitled to recover the greater of all actual damages or fifty dollars ($50) for the initial pay period in which a violation occurs and one hundred dollars ($100) per employee for each violation in a subsequent pay period, not exceeding an aggregate penalty of four thousand dollars ($4,000), and is entitled to an award of costs and reasonable attorney’s fees.” Similarly, section 1197.1, subdivision (a) provides that any employer who pays or causes to be paid to any employee a wage less than the minimum wage “shall be subject to a civil penalty as follows: [¶] (1) For any initial
violation that is intentionally committed, one hundred dollars ($100) for each underpaid employee for each pay period for which the employee is underpaid[;]
[¶] (2) For each subsequent violation for the same specific offense, two hundred fifty dollars ($250) for each underpaid employee for each pay period for which the employee is underpaid regardless of whether the initial violation is intentionally committed.” Here, Brewer sought and recovered the maximum $4,000 penalty available for Cottonwood’s pay stub violations, and the judgment contained an additional penalty of $15,300 pursuant to section 1197.1 for the overtime violations. We are not persuaded by Brewer’s argument that the remedies set forth in the statutory scheme were not intended to be the exclusive remedy available for statutory violations, and Brewer does not articulate any basis for concluding those penalties are so inadequate that other remedies should be permitted. Similarly, the
regulations requiring employers to provide meal breaks (§ 512) and rest breaks
(Cal. Code Regs., tit. 8, § 11090, subd. 12(A)), and providing numerous forms of
remedies for their violation, also appear to have created new rights and obligations not previously existing in the common law, and the statutory scheme provides “a comprehensive and detailed remedial scheme for its enforcement.” (Rojo v. Kliger, supra, 52 Cal.3d at p. 79.) Those remedies include an award in the nature of liquidated damages under section 226.7 (cf. Murphy v. Kenneth Cole
Productions, Inc. (2007) 40 Cal.4th 1094, 1112 [because “damages [from missed
meal and rest breaks] are obscure and difficult to prove, the Legislature may
select an amount of compensation [for the violation] without converting that
remedy into a penalty” for statute of limitations purposes]), injunctive relief
(see generally § 1194.5), and potential statutory penalties (see § 558). We are convinced that, because the meal and rest break provisions of the Labor Code “established a new and comprehensive set of rights and remedies for [employees]… [and] [n]o such specialized rights and remedies existed at common law… the remedy provided in the statute ‘is exclusive of all others unless the statutory remedy is inadequate.’ [Quoting Turnbull, supra, 219 Cal.App.3d at p. 827.]” (De Anza Santa Cruz Mobile Estates Homeowners Assn. v. De Anza Santa Cruz Mobile Estates, supra, 94 Cal.App.4th at p. 916.)

* * *
We are also convinced that, even were the remedies provided by the statutory scheme not the exclusive remedies for the new rights, punitive damages would nevertheless be unavailable because punitive damages are ordinarily limited to actions “for the breach of an obligation not arising from contract” (Civ. Code, § 3294), and Brewer’s claims for unpaid wages and unprovided meal/rest breaks arise from rights based on her employment contract. Brewer argues, without citation to relevant authority, that Cottonwood’s breach of its statutory obligations under the Labor Code is a “breach of an obligation not arising from contract,” thereby supporting the award of punitive damages.

However, in analogous situations, the courts have recognized that, when a statute imposes additional obligations on an underlying contractual relationship, a breach of the statutory obligation is a breach of contract that will not support tort damages beyond those contained in the statute.(See, e.g., Kwan v. Mercedes-Benz of North America, Inc. (1994) 23 Cal.App.4th 174, 187–192 [breach of Consumer Warranty law obligations is breach of contract and does not support tort damages for emotional distress].) We apprehend the Labor Code provisions governing meal and rest breaks, minimum wages, and accurate pay stubs constitute statutory obligations imposed only when the parties have entered into an employment contract and are obligations arising from the employment contract. The breach of an obligation arising out of an
employment contract, even when the obligation is implied in law, permits contractual damages but does not support tort recoveries. (Cf. Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 700.) Although Brewer relies on language from Gould v. Maryland Sound Industries, Inc. (1995) 31 Cal.App.4th 1137, 1147 to assert prompt payment of wages involves sufficiently fundamental public polices that the willful failure to make such payments will support punitive damages, the court in Gould expressly recognized that, although a claim for wrongful discharge in violation of public policy would state a tort claim, a claim seeking tort recoveries based on the allegation the employer otherwise breached the employment contract agreement was barred by Foley. (Gould, at p. 1155.)

The case is Brewer v. Premier Golf Properties and the opinion is here.

California Supreme Court Takes Up Harvey v. Sybase

I posted here about Harvey v. Sybase. The California Supreme Court granted review here. The issues are whether the "same actor inference" (against discrimination) applies at trial and heightens the plaintiff's burden, and whether a court of appeal reviews a punitive damages award under the "clear and convincing" evidence standard.

Stay tuned.