Calif. Supreme Court Overturns Rulings Limiting Punitive Damages

The California Supreme Court issued two landmark rulings that could have a nationwide impact on how courts award punitive damages. Applying the argument offered in an amicus brief filed by Pillsbury & Levinson LLP on behalf of United Policyholders, the California Supreme Court determined that previous rulings across the country severely limiting punitive damages were misinterpretations of a 2003 U.S. Supreme Court ruling. These rulings effectively lift the ceiling previously applied on punitive damages.

Courts across the country have almost uniformly applied a “single-digit” test to determine the ratio between punitive damages and compensatory damages, such that punitive damages could not exceed a ratio of 9 to 1. The California Supreme Court ruled in the case of Johnson v. Ford Motor Company and Simon v. San Paolo U.S. Holding Company, Inc. that this is a misinterpretation of the guidelines for awarding punitive damages under the principles laid out by the U.S. Supreme Court in State Farm Mutual Auto Insurance Co., v. Campbell in 2003, The California Supreme Court, however explained that Campbell said not support a uniformly applied single-digit test. The California Supreme Court said that punitive damages are expected to exceed single-digit ratios in many cases, but should not exceed them “to a significant degree.” This language was left for interpretation in future cases but clearly permits much larger punitive damage awards that could be five or 10 times as large as they were under the previous interpretations of Campbell.

“These rulings will reverberate across the country. They blow the doors off of the idea dearly held by insurance companies and large corporations that punitive damages must be confined to a small multiplier of compensatory damages,” said Arnold Levinson, partner at Pillsbury & Levinson. “They rebalance the scales to properly assess punitive damages and mark a major victory for those seeking justice against fraudulent corporate behavior. Before this ruling many corporations believed that they could justify reprehensible business practices because they thought that the penalty for fraudulent conduct was so small that it could simply be absorbed as a cost of doing business. These two cases will be a shock to their systems.”