In State Farm Mutual Automobile Insurance Co. v. Campbell, the Supreme Court strongly implied that in some cases even a 1:1 ratio of punitive to compensatory damages might be too high.  In Torres v. B/E Aerospace, Inc., the California Court of Appeal took that hint to heart.

Torres arises out of the termination of a quality-control manager.  She alleged that she was terminated because of her age and gender; her employer maintained that she was terminated for performance reasons.

The jury believed the plaintiff and awarded her $75,000 in economic damages, $1.44 million in past and future non-economic damages, and $7 million in punitive damages.  The trial court upheld the liability findings as well as the awards of compensatory damages.  But it ordered a new trial unless the plaintiff agreed to a remittitur of the punitive damages to $1 million.

The plaintiff accepted the remittitur, and both parties appealed.  The Court of Appeal affirmed.  It held that the evidence was sufficient to support the underlying liability finding, as well as the finding of liability for punitive damages.  It also refused to disturb the compensatory awards for past and future non-economic damages.  But what matters for present purposes is that it strongly endorsed the remittitur of the punitive damages.

The court began by reiterating that “the key question before the reviewing court is whether the amount of damages exceeds the level necessary to properly punish and deter” (internal quotation marks omitted).  As I have noted in a prior post, this understanding of “the key question” reflects a deviation from the hands-off deference to jury verdicts that prevailed before the Supreme Court issued its seminal decision in BMW of North America, Inc. v. Gore and makes it more likely that courts will root out excessive and arbitrary punitive awards.

Having identified the ultimate question, the Court of Appeal then proceeded directly to addressing the ratio of punitive to compensatory damages. The court noted that the California Supreme Court (like the U.S. Supreme Court) has held that “punitive damages should rarely exceed a single-digit multiplier.”  And it also recounted the U.S. Supreme Court’s admonition in State Farm that a punitive award “of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety” (internal quotation marks omitted).

Importantly, however, the court flatly rejected the notion that there is a constitutional safe harbor for ratios that are within the single-digit range, explaining that “[m]ultipliers less than nine or 10 are not presumptively valid.  Especially when the compensatory damages are substantial or already contain a punitive element, lesser ratios can reach the outermost limit of the due process guarantee” (internal quotation marks and ellipses omitted).

With that principle in mind, the court affirmed the trial court’s remittitur, reasoning that even though the initial ratio was 4.67:1, because “the compensatory award for noneconomic damages * * * already contained a large component of emotional distress damages,” the remittitur to a ratio of less than 1:1 “was not an abuse of discretion.”

Because the Court of Appeal opted not to publish its opinion, the decision may not be cited in California courts.  It may be cited anywhere else, however, and therefore should be a useful precedent in non-California cases in which a defendant has been subjected to a large award of non-economic damages.

[View source.]