California Limits Punitive Damages Against Corporations

Last week, a California appellate court limited punitive damages against corporations. By statute, punitive damages can be awarded against a corporation only if the acts were taken or approved by an “officer, director, or managing agent.” Yet courts regularly allow plaintiffs to tar the entire organization without such specific proof. Morgan v. J-M Manufacturing Co. rejected that standard plaintiff position, re-affirmed the statutory restriction, and reversed a $15 million punitive damages award in an asbestos case.

Defendants will be able to use this decision to ward off punitive damages claims, including at the summary adjudication stage, for lack of sufficient evidence. Plaintiffs’ counsel will likely cite this decision to support discovery and deposition demands about specific individuals from corporate defendants. Even such more robust discovery may not uncover witnesses or other evidence to support a punitive damages claim, particularly in cases involving asbestos or other materials that have not been used for decades.

Some highlights from the decision:

The primary focus of J-MM’s argument is that there is no evidence in the record that a J-MM officer, director, or managing agent authorized or ratified any conduct. J-MM contends that at trial, Morgan “treated J-MM as a monolithic entity” and referred to the company—in its entirety—as “they,” without ever identifying who “they” referred to. “[O]f the few J-MM employees whose conduct was specifically identified at trial,” J-MM argues, “none even qualified as officers, directors or managing agents of J-MM during the relevant time period.”

Morgan does not argue that there is evidence identifying any act of any particular J-MM officer, director, or managing agent. Morgan’s argument is that “the entire organization was involved in the acts giving rise to malice,” and therefore it need not introduce clear and convincing evidence that any particular officer, director, or managing agent had the requisite state of mind.

…

“[i]t is difficult to imagine how corporate malice could be showing in the case of a large corporation except by piecing together knowledge and acts of the corporation’s multitude of managing agents.” … It may be that J-MM’s officers, directors, and managing agents acted with the requisite state of mind to support an award of punitive damages in an appropriate case. A plaintiff may be able to provide evidence at trial to “piec[e] together knowledge and acts of [J-MM’s] multitude of managing agents.” But that did not happen here.

That the defendant is a large company does not relax a plaintiff’s burden of proof . . .

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The decision changed from unpublished, which could not be cited to California courts, to published and therefore citable. I joined in a successful publication request.