Addressing an issue of damages, the US Court of Appeals for the Ninth Circuit vacated the district court’s grant of punitive damages in favor of the plaintiff, finding “passion and prejudice” mitigated finding of “malice”. Waverly Scott Kaffaga, as Executrix of the Estate of Elaine Anderson Steinbeck v. The Estate of Thomas Steinbeck et al., Case No. 18-55336 (9th Cir. Sept. 9, 2019) (Tallman, J).

The lawsuit related to decades of litigation among the heirs to John Steinbeck’s registered copyrights to his works, including The Grapes of Wrath, Of Mice and Men, East of Eden and The Pearl. When Steinbeck died in 1968, he left interest in his works to his third wife, Elaine. Steinbeck’s two sons by a previous marriage each received $50,000. In the 1970s, the sons obtained rights in their father’s works when interests in works were renewed pursuant to US Copyright law.

In 1983, changes in the law prompted Elaine and the sons to enter into an agreement that provided each of them with an equal share of the royalties and gave Elaine “complete power and authority to negotiate, authorize and take action with respect to the exploitation and/or termination of rights” in the works. In 2003, Elaine passed away, and her daughter, Waverly Kaffaga, assumed the role of successor under the 1983 agreement. The sons challenged the validity of the 1983 agreement, and the US Court of Appeals for the Second Circuit determined that the agreement was valid and enforceable. Despite losing in court, one of the sons, Thomas Steinbeck, along with his wife Gail and Gail’s media company, filed a lawsuit in California asserting rights to the works that the courts had already told them they did not have. The district court held, and the Ninth Circuit affirmed, that the Steinbecks’ claims were barred by collateral estoppel.

Kaffaga countersued Thomas and Gail for their attempts to assert various rights in the works despite having no rights. Those attempts led to multiple Hollywood producers abandoning negotiations with Kaffaga to develop screenplays for the works. The district court granted Kaffaga summary judgment on her breach of contract and slander of title claims, citing many detailed facts it believed supported those claims. The district court let the jury decide on her claim of tortious interference. The jury unanimously found for Kaffaga and awarded $5.25 million in compensatory damages and $7.9 million in punitive damages, including $6 million against Gail individually.

On appeal, the Ninth Circuit found clear support in the record for the lower court’s decisions, save for one—punitive damages. There, the appellate court noted that although Kaffaga had the better argument, and although there was ample evidence of defendants’ malice in the record to support the jury’s verdict, triggering punitive damages, Kaffaga missed one key piece of evidence.

Under California law, there is a “passion and prejudice” standard that measures the amount of punitive damages against the ratio between damages and the defendant’s net worth. It is the plaintiff’s burden to place into the record “meaningful evidence of the defendant’s financial condition” to support a defendant’s ability to pay.” Thus, for the punitive damage award to stand, the record needed to contain sufficient evidence of Gail’s assets, income, liabilities and expenses. Here, Kaffaga failed. Although Gail testified that she received approximately $120,000 to $200,000 per year from domestic book royalties, Kaffaga introduced no estimate of Gail’s potential income from the four television series and six feature films in development, nor did she introduce an estimate of the total value of Gail’s other intellectual property assets. The Ninth Circuit found that Kaffaga failed to meet her burden of placing into the record “meaningful evidence” of Gail’s financial condition showing that she had the ability to pay any punitive damages award as required by California law. The Ninth Circuit therefore vacated the almost $6 million punitive damages award.

Practice Note: When seeking punitive damages in California, the moving party must place “meaningful evidence” of the non-moving party’s financial condition and ability to pay any punitive damages awarded, including their assets, income, liabilities and expenses. If there are problems obtaining such evidence during discovery, procedures such as a motion to compel or proposing an appropriate adverse inference instruction at trial are in order.