California Limits Punitive Damages Against Corporations

By on February 22, 2021

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 . . .

***

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.

Filed under California, Punitive Damages

California to Apply Sharia Law in an Asbestos Exposure Case!…Sort Of

By and on November 14, 2018

A judge in the southern California coordinated asbestos matters issued an order applying Iranian law where all of a California plaintiff’s alleged exposure to asbestos occurred in Iran. In Sabetian v. Air and Liquid Systems Corporation, Judge John Kralik applied Iranian law on (1) punitive damages, (2) strict liability, and (3) joint and several liability. However, the court declined to apply the Iranian (1) standard of negligence, (2) the cap on general damages, and (3) the formula to determine loss of consortium damages.

Other judges in this court when presented with a similar issue have declined to apply Iranian law due to the religious influence on Iranian law. Judge Kralik nevertheless stated that “these provisions of law appear well-established, civil, and secular in nature…and these laws do not radically or offensively differ from traditions in the law of the various United States.”

Judge Kralik’s decision to apply Iranian law is a step forward for defendants who often face plaintiffs who now reside in California but allegedly were injured elsewhere. Judge Kralik’s decision relies heavily on McCann v. Foster Wheeler, LLC (2010) 48 Cal.4th 68, in which one of this post’s authors persuaded the trial court to apply Oklahoma law to a California resident suing a New York manufacturer for injuries caused by alleged exposure from asbestos-containing products in Oklahoma. In both McCann and Sabetian, plaintiff was a resident of California at the time of suit, but alleged exposure to asbestos elsewhere.

I. The governmental interest analysis

Similar to other jurisdictions, California applies the governmental interest analysis to determine choice-of-law inquiries. The analysis involves three steps: First, the court determines whether the applicable rules of law are different. Second, the court analyzes each jurisdiction’s interest in having its own law applied to the dispute. Third, the court determines which jurisdiction’s interest would be more significantly impaired if its law were not applied, and applies that jurisdiction’s law.

Here, Judge Kralik determined that Iranian law was materially different from California law. Both California, where plaintiff has lived for decades, and Iran, the “locus” of the injury, have an interest. Judge Kralik also determined that Iran’s interest would be more significantly impaired if Iranian law was not applied. The government of Iran would have a “strong interest in applying its own laws to a refinery it owned and an employee that it employed…California has little interest in legislating behavior at such refineries and oil fields.”

II. Iranian law applied

Because neither punitive damages or strict liability are recognized by Iranian law, the court ruled that defendants would be subject to neither in this case.

Iranian law does not recognize joint and several liability unless there is an explicit statutory exception. Plaintiff argued that a statutory exception existed for those determined to be an “employer” under the Civil Responsibility Act. Here, the court decided that it would apply Iranian law, but that it would issue a post-verdict determination of whether plaintiff has shown whether any of the defendants were “joint employers” for the exception to apply.

III. Iranian law not applied

The court declined to apply Iranian law in three areas, not because the “government interest” analysis was different but because either the court could not satisfy itself as to what Iranian law was on that point, or because the Iranian law offended American norms.

For example, the Iranian negligence standard of care is based on “custom and usage” rather than the California reasonable person standard. The court declined to apply the Iranian standard because there was a lack of authority explaining “custom and usage.”

Similarly, although Iran generally prohibits loss of consortium damages, the court ruled that “the prohibition is not established with sufficient clarity ion Iranian law to allow for application in this case.”

Iranian law has a cap on general damages that is set by reference to a memorandum prepared by unnamed Iranian government lawyers who have the power to alter the cap as they see fit. Judge Kralik declined to apply the Iranian limit because its apparently arbitrary nature could “offend fundamental due process if applied in an American court.”

IV. Conclusion

This decision offers hope that defendants will be able to apply the law of the jurisdiction in which the injuries allegedly occurred, rather than the law of a more plaintiff-friendly jurisdiction like California. Judge Kralik conceded that this issue had substantial grounds for difference of opinion and expressly invited appellate resolution. However, as of the posting of this article, plaintiff had not sought any appellate review.

Filed under Asbestos, Choice of Law, Governmental Interest, Iran, Punitive Damages

California Court Concludes Sarcastic Comment Sufficient For Punitive Damages

By on April 4, 2017

Earlier this month, a California appellate court ruled that an offhand remark by a corporate employee may be sufficient to award punitive damages. The court also addressed issues related to the “every-exposure” theory, without wading directly into the every-exposure debate.

In Phillips v. Honeywell International Inc. (March 17, 2017. Case F070761) — Cal.App.5th –, the court held that the trial court properly admitted a 1966 letter from an employee who was not an officer, director, or managing agent. The letter is well known (described in the opinion as “infamous”) in asbestos litigation as “the E.A. Martin letter,” and is the frequent subject of in limine motions. Martin was a purchasing director, and he was writing to one of his asbestos suppliers, sarcastically addressing an article in Chemical Week magazine: “[I]f you have enjoyed a good life while working with asbestos products why not die from it. There’s got to be some cause.”

The court held that the letter served as circumstantial evidence that the company was aware that asbestos could be a potential health hazard years before it ceased using asbestos, and was sufficient to support an award of $3.5 million in punitive damages (of a total $5.8 million award).

The admittance of the letter has broad implications, suggesting that any stray remark – even a sarcastic expression of confidence in a product ingredient by a corporate employee who was not in the upper echelon – can serve to support a finding of massive punitive damages.

As the California court noted, the same letter has been both admitted and rejected by multiple other courts. For example, an Illinois appellate court pronounced the letter “a revealing historical anecdote that may give us insight into the thinking within the asbestos industry in 1966, but it was irrelevant. A persuasive argument can also be made that even if it had some modest relevance, it was inflammatory, and whatever probative value it had was outweighed by its prejudicial effect.” (Dukes v. Pneumo Abex Corp. (2008) 386 Ill.App.3d 425, 439.)

In an unpublished portion of the decision (meaning it may not be cited as precedent in California, though it may be citable elsewhere), Phillips also addressed the split in authority regarding the “every-exposure” (a.k.a. “no safe dose”) theory versus the “every-identified-exposure” theory in asbestos litigation. Under the every-exposure theory of causation, “every exposure to asbestos fibers is a substantial factor in causing disease, regardless of fiber type or dose, so long as the fibers are traceable to a product and are not merely ‘background’ fibers found in the ambient air.” The same defendant lost a challenge to that theory in Davis v. Honeywell International Inc. (2016) 245 Cal.App.4th 477, and sought to have the Phillips court part ways with Davis. Instead, the Phillips court found that the expert had espoused the subtly different “every-identified-exposure” theory.

In reaching this conclusion, the Phillips court quoted an Ohio decision approvingly: “Although some courts have rejected the ‘each and every exposure’ theory, others have distinguished testimony suggesting a de minimis exposure to asbestos could cause mesothelioma from testimony that each significant exposure to asbestos could be a cause.” The California court found that this theory was “consistent with California law addressing proof of causation in asbestos-related cancer cases,” in that it considered only significant and identifiable exposures in determining the risk of the disease.

Filed under Asbestos, California, Every Exposure, no safe dose, Punitive Damages

Settlement Means No Determination of Take-Home, Punitive Damages Questions

By on October 15, 2015

A settlement reached after oral argument at the California Court of Appeal will likely leave unresolved two questions: (1) whether the consumer expectations test can impose liability on a manufacturer for “take-home” exposure, and (2) whether there should be liability, including punitive damages liability, for take-home exposure that occurred before any scientific studies indicating that take-home exposure was a potential health risk. Despite the proliferation of lawsuits alleging this fact pattern, no California appellate case has ever held that a product manufacturer owes a duty of care to household members of persons exposed to their products.

Grigg v. Owens-Illinois, Inc. involved a woman who allegedly contracted mesothelioma from being exposed to asbestos dust brought home the clothes of her husband, an Owens-Illinois insulation clothes, in the 1950s. “Take-home exposure” lawsuits are increasingly common in the world of asbestos litigation, as well as in cases alleging exposure to other allegedly harmful substances. The jury awarded Mrs. Grigg approximately $27 million, including $11 million in punitive damages against Owens-Illinois. The case presented the as yet unanswered question of the scope of a manufacturer’s duty to family members of persons who work with their products, in the context of the consumer expectations test for strict products liability.

At oral argument in September 2015, the panel appeared skeptical of the plaintiffs’ argument that there is no person who is outside the class of persons who could recover under a consumer expectations theory in a take-home exposure case. The court suggested that the plaintiffs’ argument was a rule of absolute liability because it “doesn’t matter” who the injured person is or what are the details of their relationship to the take-home vector. On the other hand, the court inquired of Owens-Illinois’ counsel why there should be a distinction between the well-established liability for injuries to bystanders to work with a manufacturer’s product and liability for injuries to persons exposed by take-home exposure.

The case also presented punitive damages issues. Owens-Illinois argued that (as all experts in the case agreed) no published medical literature indicated hazards to family members of insulation workers until years after Mrs. Grigg’s take-home exposure, and that studies which Plaintiffs argued reflected the required “actual knowledge” to support punitive damages were conducted to determine hazards to workers themselves, not to their family members. Plaintiffs countered that reports of testing conducted prior to Mrs. Grigg’s exposure indicated that asbestos dust from insulation was “hazardous” and that “every precaution” should be taken to avoid breathing that dust. The panel’s feelings about these arguments were less clear than about the ultimate liability issue, but the court did press plaintiffs’ counsel to confirm that these studies were the only evidence he believed supported the punitive damages award.

Ted Pelletier of the Kazan law firm argued for the plaintiffs, and Robert Riley of Schiff Hardin argued for Owens-Illinois.

The parties informed the court on October 6, 2015 that they settled the case. Even so, the court retains jurisdiction over the case and may issue an opinion. While that is unlikely, it will happen, if at all, within 90 days from the date of argument. If it does not, these issues will remain unresolved in California for the time being.

Filed under Asbestos, Consumer Expectations, Punitive Damages, Take-Home Exposure

Important Recent Decisions From New York City Asbestos Litigation

By on December 31, 2014

As 2014 draws to a close, the New York City asbestos litigation (“NYCAL”) has seen reaffirmation of the recent decision to allow punitive damages claims to go forward, and two summary judgments that show the court is requiring solid, non-speculative evidence of exposure to a defendant’s products.

Punitive Damages

On December 15, 2014, Justice Sherry Klein Heitler denied the NYCAL defendants’ motion to renew and reargue the court’s April 8, 2014 decision to allow punitive damages to be pursued in NYCAL cases.  Prior to the April 8 ruling, defendants and plaintiffs had an agreed-upon Case Management Order (“CMO”) that stayed claims for punitive damages.  In the motion to renew and reargue, defendants asserted that the April 8 ruling created mass confusion among the asbestos judges and counsel, and undermined the parties’ voluntary CMO which was designed to provide a fair, expeditious and inexpensive means to resolve asbestos claims. Defendants also argued that Judge Heitler exceeded her authority because the CMO was a negotiated, agreed-upon compromise of the parties.   Judge Heitler rejected these arguments, ruling that the court has the authority to correct what in its view was “a fundamental inequality in the CMO.”

In rejecting defendants’ arguments, Judge Heitler and relied on the overarching principle that New York public policy recognizes that an asbestos plaintiff has a right to seek punitive damages in appropriate circumstances.  The court noted that punitive damages are not deferred in any other county in the State, and denied there was any confusion among the asbestos judges.  Judge Heitler ruled that each trial judge has the authority and responsibility to determine whether a jury instruction for punitive damages should be permitted.

Justice Heitler also rejected defendants’ equal protection and due process claims.  She noted that asbestos defendants in NYCAL are not treated any differently than in any other county and reiterated that the April 8 ruling made clear that punitive damages are only recoverable if the proof establishes there was ‘such gross, wanton or willful fraud or other morally culpable conduct to a degree sufficient to justify such an award.’  Moreover, neither the April 8 ruling nor the CMO prohibited a defendant from moving to dismiss a punitive damage claim.

Lack of Nexus and Causation

In Falkenmeyer v. A.O. Smith Water Products Co., defendant Cleaver-Brooks moved for summary judgment based on the absence of evidence of exposure.  The court recognized that a plaintiff must demonstrate that there was actual exposure to asbestos fibers released from the defendant’s product.  Plaintiff’s decedent died of lung cancer attributed to an occupational exposure to asbestos.  To prove liability, plaintiff proffered the testimony of decedent’s co-worker, who testified that both he and the decedent worked on boilers and burners and were thereby exposed to asbestos.  The co-worker generally recognized the name of defendant’s product, but also admitted that he didn’t know which particular boilers and burners that he or the decedent worked on. Falkenmeyer granted summary judgment, ruling that the nexus to defendant’s product was speculative and liability could not be reasonably inferred from co-worker testimony.

Similarly, in Casaregola v. 3M Company, defendant Cleaver Brooks moved for summary judgment after two-co-workers of the plaintiff’s decedent failed to demonstrate that the decedent was exposed to asbestos from defendant’s product.  Casaregola was a carpenter and worked on various Navy ships.  One ship, the Mormac Cargo, did use defendant’s evaporator and acid-cleaning pumps.  However, there was no showing that the decedent worked on the Mormac Cargo or that similar ships that decedent actually worked on had the same equipment.  Moreover, even if these ships had the same equipment, there was no evidence of Mr. Casaregola’s actual exposure.  The court rejected a co-worker’s affidavit because it failed to demonstrate Mr. Casaregola’s actual exposure.  The court ruled that “plaintiff cannot show that Mr. Casaregola was exposed to asbestos from the products for which the defendant bears responsibility without resorting to speculation” and granted summary judgment.

Filed under Co-worker, New York, Punitive Damages, Summary Judgment

The New York City Asbestos Litigation Just Became More Complicated

By on April 14, 2014

Pursuant to the Decision and Order of the Hon. Sherry Klein Heitler, dated April 8, 2014, asbestos plaintiffs for the first time since 1996 may seek permission from the New York City trial judges to charge the jury on the issue of punitive damages. Until Judge Heitler’s ruling, the New York City Asbestos Litigation (“NYCAL”) Case Management Order, as amended May 26, 2011 (“CMO”), provided that counts for punitive damages were to be “deferred” until such time as the Court deemed otherwise, upon notice and hearing. Therefore, punitive damages still could be sought, but only after a hearing to determine if it was appropriate to award them.

The importance of Justice Heitler’s ruling cannot be understated. As she notes, “tens of thousands of complex, time-consuming asbestos personal injury actions have been filed in New York County Supreme Court alone.” Her ruling is likely to have an impact on the thousands of future or presently pending cases.

Justice Helen E. Freedman, who oversaw the creation of the CMO in 1988, which governs all NYCAL cases, explained in a well-reasoned Southwestern Law Review article published in 2012, why she added the provision in 1996 that punitive damages claims should be deferred. According to Justice Freedman:

1. Punitive damages have little or no place in asbestos litigation. To charge companies with punitive damages for wrongs committed twenty or thirty or more years before, serves no correct purpose. In many cases, the wrong was committed by a predecessor company, not even the company now charged, and the responsible individuals are long gone;

2. Punitive damages only deplete financial resources that are better used to compensate injured parties;

3. Since some states do not permit punitive damages, and the federal MDL, precludes them, disparate treatment among plaintiffs would result if permitted in New York City; and

4. No company should be punished repeatedly for the same wrong.

Justice Freedman’s rationale is as valid today as it was in 1996. The only thing that has changed is that multiple bankruptcies, oftentimes involving companies whose only wrongdoing was to acquire the stock of another entity with some asbestos involvement, continue to corrode the fiber of American industry and plaintiffs have look farther and farther afield to find “fresh” defendants, many of whom have only de minimis relationship to asbestos.

Although Justice Heitler contends that the defendants, in opposing the motion, failed to provide empirical proof that punitive damages awards have contributed to bankruptcies, she overlooks the reality that defendants make oversized settlements based upon their potential exposure and that the threat of punitive damages increases that exposure calculus exponentially. One only need read the Garlock decision written by the Hon. George R. Hodges, United States Bankruptcy Judge for the Western District of North Carolina, to appreciate how settlement negotiation leverage in asbestos litigation can contribute to corporate insolvency.

Justice Heitler bases her ruling on constitutional equal protection grounds. And yet, paradoxically, she seeks to minimize the potential repercussions of her ruling (and reassure defendants) by demonstrating how other New York asbestos courts have been restrained in awarding punitive damages due to both New York’s “heavy burden” for seeking punitives and federal due process standards. If the award of punitives in New York courts outside NYCAL’s jurisdiction is so difficult to obtain, where is the loss of equal protection by requiring the filing of a notice and conducting a hearing in NYCAL?

Justice Heitler was reassured by the plaintiff asbestos lawyers that, if punitives were to be permitted, they would not abuse this long sought after opportunity and only seek punitives in the most egregious cases. However, after giving the foxes the keys to the hen house, what leverage did she retain to ensure restraint? The Decision and Order seems to suggest that these particular foxes would be content to take one plump hen and be content. She writes:

“While Plaintiffs have evinced their intention not to abuse this opportunity, it is appropriate for the court to caution the plaintiffs’ bar not to overstep this permission by attempting to seek punitive damages indiscriminately. Punitive damages should only be sought in the most serious cases to correct for the most egregious conduct, and must present a valid reference to corrective action.”

Every plaintiff lawyer has a duty to maximize his client’s recovery in a personal injury action, particularly when the client is suffering from a horrific illness like mesothelioma. If the lawyer believes he can elicit a more attractive offer from a defendant by threatening to seek punitive damages, how could he not do so within the bounds of ethical conduct? Justice Heitler notes that the use of asbestos peaked in the 1960’s and 1970’s when asbestos was used in the more than 3,000 industrial applications. Today, there are probably none. If that is the case, how can a plaintiff make a “valid reference to corrective action” in any demand for punitive damages?
 

Filed under Asbestos, Case Management Order, City, CMO, fox in the hen house, Garlock, Hon. Sherry Klein Heitler, Justice Helen E. Freedman, Litigation, NYCAL, Punitive Damages, Voluntariness, York Tagged with