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California Appellate Court Vacates $15 Million Punitive Damages Award
Tuesday, May 11, 2021

Punitive damages can often multiply a defendant’s potential exposure in litigation. A recent California appellate court decision, however, may make it easier for defendants to obtain summary judgment for punitive damages claims before a jury may consider a possible award. In Morgan v. J-M Manufacturing Company, Inc.,[1] the court vacated a $15 million punitive damages award because there was insufficient evidence to support the award. In fact, the court emphasized that there was no evidence that any corporate officer, director, or managing agent authorized or ratified any wrongful conduct, which a plaintiff must show under California law for a jury to award punitive damages. The ruling could signal that courts are requiring more specific evidence showing corporate defendants authorized or ratified wrongdoing, which in turn could help defendants get punitive damages claims dismissed before trial or awards vacated on appeal.

Morgan v. J-MM

By statute, juries in California may award punitive damages only if the plaintiff proves by clear and convincing evidence that the defendant has been guilty of “oppression, fraud, or malice.”[2] “Malice,” the most commonly-asserted type of wrongful conduct, means that a defendant intended to injure the plaintiff or acted with a willful and conscious disregard for others’ safety.[3] Plaintiffs seeking punitive damages from corporate defendants must also show that “a corporate officer, director, or managing agent” “authorized or ratified the wrongful conduct.”[4] This means plaintiffs must bring sufficient evidence that someone with significant influence over corporate policy decisions acted with malice.[5]

This last requirement was at issue in Morgan. There, the defendant appealed a $15 million punitive damages award, arguing that there was insufficient evidence to show that a corporate officer, director, or managing agent authorized or ratified any malicious conduct.[6] To be sure, the defendant argued there was no evidence pointing to any conduct of this nature by a specific officer, director, or managing agent.[7] Rather than identifying any specific employees who acted with malice, the plaintiff instead referred at trial to the company as a whole as “they.”[8]

In response to defendant’s challenge on appeal, the plaintiff cited Romo v. Ford Motor Co. to argue that it did not need to produce evidence of a specific employee’s conduct because the “entire organization was involved.”[9] The Romo court upheld a punitive damages award on appeal even though no evidence showed any specific executive ever authorized or ratified the wrongful conduct at issue.[10] However, testimony in Romo revealed that while the defendant auto manufacturer’s top executives were not aware of design defects that contributed to the fatal accident at issue, the appropriate division’s executives would have known about the safety risks in the ordinary course of business.[11]

More important, those division executives had the power within the corporation to decide to manufacture the vehicle with the design defects at issue.[12] This control over corporate decision-making, the Romo court reasoned, is the key reason for the officer, director, or managing agent requirement. It assures that the corporate malice sufficient to support punitive damages “occur at the level of ‘employees [who] exercised substantial discretionary authority over decisions’” that ultimately form corporate policy.[13]

Furthermore, the Romo court held that the plaintiff satisfied the officer, director, or managing agent requirement because the jury could infer that the division executives were aware of but consciously disregarded the vehicle’s safety risks.[14] The court determined that a plaintiff may satisfy the officer, director, or managing agent requirement if “the evidence permits a clear and convincing inference” that authorized persons within the corporate hierarchy acted with malice.[15] The plaintiff in Romo brought sufficient evidence permitting an inference of corporate malice through circumstantial evidence showing (1) the corporate defendant had information about the vehicle’s safety risks, (2) in the ordinary course of business, that information would have reached the division executives, and (3) those executives had the authority to form corporate policy.[16] The court reasoned that “[i]t is difficult to imagine how corporate malice could be shown in the case of a large corporation except by piecing together knowledge and acts of the corporation’s multitude of managing agents.”[17]

The plaintiff in Morgan, however, did not offer any evidence to support an inference of corporate malice. Rather, the Morgan court stated that it “reviewed the record for evidence from which the jury could have concluded that an officer, director, or managing agent—someone responsible for J-MM’s corporate policy—had the requisite state of mind to support a punitive damage award” but “found none.”[18] The court went on to state that whether a defendant is a large company “does not relax a plaintiff’s burden of proof” to support punitive damages with sufficient evidence.[19] Thus, while plaintiffs, in general, may “piece together” knowledge and actions from corporate decision-makers to support an inference that a corporate officer, director, or managing agent acted with malice, there was no evidence to support such an inference in Morgan.

Key Takeaways

While it is too early to tell how exactly Morgan will affect future litigation, the decision could signal appellate courts are becoming more likely to reverse a trial court’s ruling on whether there was sufficient evidence to support punitive damages. The decision may also expand discovery and increase summary judgment grants for defendants.

Morgan is noteworthy in that it reversed the trial court’s ruling on whether sufficient evidence supports a punitive damages award. Appellate courts reviewing a punitive damages award apply a deferential standard of review by determining whether there is substantial evidence in the record for a reasonable jury to award punitive damages.[20] Courts have held that evidence was sufficient to support punitive damages where it has included some combination of employee testimony, emails, internal reports, workplace safety procedures for handling hazardous products, compliance with safety standards, and even failures to return a plaintiff’s phone calls raising concerns about a product’s safety.[21] Even in two instances where appellate courts determined that there was insufficient evidence, the trial courts in both instances also ruled that the evidence was insufficient to support punitive damages.[22]

The Morgan ruling may also impact pre-trial litigation as plaintiffs seek expansive discovery of employees’ testimony, emails, and internal documents to find specific evidence supporting punitive damages.

It is yet to be determined exactly how Morgan will impact future litigation. But for now, it is a significant win for a defendant facing a multi-million-dollar punitive damages award.

[1] 60 Cal. App. 5th 1078 (2021).

[2] Cal. Civ Code § 3294(a) (1992).

[3] Id. § 3294(c)(1).

[4] Id. § 3294(b).

[5] Romo v. Ford Motor Co., 99 Cal. App. 4th 1115, 1139 (2002), vacated on other grounds, 538 U.S. 1028 (2003) (citation omitted).

[6] Morgan, 60 Cal. App. 5th at 1078–79.

[7] Id. at 1090.

[8] Id.

[9] Id.

[10] Romo, 99 Cal. App. 4th at 1146.

[11] Id. at 1145.

[12] Id.

[13] Id. at 1139 (alteration in original) (citation omitted).

[14] Id. at 1145.

[15] Id. at 1141.

[16] Id. at 1145.

[17] Id. at 1141.

[18] Morgan, 60 Cal. App. 5th at 1091.

[19] Id.

[20] Romo, 99 Cal. App. 4th at 1137–39.

[21] See, e.g.Johnson v. Monsanto Co., 52 Cal. App. 5th 434, 457–60 (2020); see also Pfeifer v. John Crane, Inc., 220 Cal. App. 4th 1270, 1300–02 (2013).

[22] Echeverria v. Johnson & Johnson, 37 Cal. App. 5th 292, 332 (2019) (affirming grant of judgment notwithstanding the verdict as to punitive damages); Hoch v. Allied-Signal, Inc., 24 Cal. App. 4th 48, 62 (1994) (upholding nonsuit of punitive damages claim).

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