A state appeals court stunned California plaintiffs lawyers Tuesday by issuing a bombshell ruling that completely alters the long-established process judges and juries use to determine punitive damages. Lawyers on both sides of the issue say the ruling -- which reduced the largest punitive damage judgment ever upheld by a California appellate court from $290 million to about $23.7 million -- could eliminate most multimillion-dollar punitive awards.

"It's a huge loss for the people of California," said Erwin Chemerinsky, the University of Southern California Law School professor who argued the plaintiffs' appeal, "because it's going to allow companies that intentionally market products, knowing they will kill, to avoid liability and responsibility."

The 30-page opinion by Fresno, Calif.'s 5th District Court of Appeal interpreted State Farm Mutual Automobile Insurance Co. v. Campbell, in which the U.S. Supreme Court earlier this year narrowed the scope of punitive damages, saying they must bear some reasonable relationship to the individual injury at issue and the compensatory damages awarded.

The Fresno court followed suit, saying that punitive damages can be awarded only in relation to the harm to the plaintiffs in a particular case -- not as a bludgeon to deter similar acts in the future. The court also said a defendant's general wealth can be taken into account only to determine the appropriate punishment for any particular malicious conduct, not for across-the-board problems.

"As we read State Farm ? the legitimate state goal that punitive damages may seek to achieve is the 'condemnation of such conduct' as has resulted in 'outrage and humiliation' to the plaintiffs before the court," Justice Steven Vartabedian wrote for the court. "It is not a permissible goal to punish a defendant for everything it may have done wrong."

Vartabedian noted that this marks a substantial change in California punitive damages law as set out in the 1981 ruling Grimshaw v. Ford Motor Co., 119 Cal.App.3d 757.

Justices Timothy Buckley and Dennis Cornell concurred.

In Romo v. Ford Motor Co., 03 C.D.O.S. 10150, Juan, Evangelina and Maria Romo sued Ford after they were injured -- and their parents and one brother died -- in a car crash on Father's Day 1993. They claimed that their dad's used 1978 Ford Bronco, with a roof that was two-thirds fiberglass, was defectively designed.

Stanislaus County jurors awarded $6.2 million in compensatory damages in 1999, as well as $290 million in punitive damages, after finding that Ford executives had acted with malice, in part, by not warning buyers about a lack of rollover protection.

The 5th District, in an opinion highly critical of Ford, upheld the punitive damage award last year. The state Supreme Court subsequently denied review, but earlier this year the U.S. Supreme Court sent the case back for further review in light of its ruling in State Farm.

Following an extensive review of the analysis in State Farm and a look at the history of punitive damages, the appeal court held that the high court had "impliedly disapproved" of the broad view "of the goal and measure of punitive damages" as accepted in California, and instead adopted a constitutional view that the permissible punishment is restricted to "the harm inflicted on the present plaintiffs."

It also said that deterrence under this standard "arises as a natural result of imposing damages over and above traditional compensatory damages, not from the imposition of sanctions in an individual case that are actually disabling to the defendant."

The appeal court noted the Supreme Court's view that most punitive awards should be limited to single-digit multipliers of compensatory damages. It made an exception for the wrongful-death causes of action, where the decedent can't be awarded damages for pain and suffering.

"Public policy and legitimate interests of the state in the protection of its people require a mechanism to punish and deter conduct that kills people," Vartabedian wrote. "It would be unacceptable public policy to establish a system in which it is less expensive for a defendant's malicious conduct to kill rather than injure a victim."

 

For the overall judgment, which included claims by survivors of the crash as well the estate of those killed, the court reduced the amount to five times the compensatory damages.

Theodore Boutrous Jr., the attorney at Los Angeles' Gibson, Dunn & Crutcher who represented Ford, called the court's overall ruling a "very strong statement and a thoughtful opinion."

"The court correctly interpreted State Farm to require a whole new approach to punitive damages in product liability cases, by requiring the focus to remain on the particular plaintiffs before the court, and to preclude use of the defendants' wealth and profits -- as a general matter -- as a basis for punishment," he said.

Curt Cutting, an associate at Encino, Calif.'s Horvitz & Levy who wrote the amicus curiae brief for the California Chamber of Commerce, the American Chemistry Council and Exxon Mobil Corp., said the appeals court went well beyond the reasoning of State Farm.

"The [State Farm] case wasn't talking about California law," he noted, "so they had to look beyond, to the purpose, the underlying meaning of [State Farm], to see how it interacts with California law.

"We've got a lot of cases at this firm," he said, "where this opinion is going to be very important."

Joseph Carcione Jr., the lead plaintiffs lawyer, accused the court of letting Ford, a company with billions in assets, get away with murder by hitting it with the economic equivalent of a parking ticket.

"What this decision does is make the legal system of the United States of America irrelevant to the large corporations of America," the Redwood City, Calif., lawyer said. "The big boys, they're toasting back in Detroit. They're toasting at Exxon. They're toasting at R.J. Reynolds. They can do anything they want, and we won't have the resolve to punish them."

Chemerinsky, of USC Law School, said he believes the appeal court misread the State Farm case.

"They are saying punitive damages can't be used to deter wrongful conduct in the state, and that's not what State Farm v. Campbell said," Chemerinsky said. "The court here is reading State Farm as much more restrictive on punitive damages than the U.S. Supreme Court intended."

Paul Glad, managing partner of the San Francisco office of Chicago's Sonnenschein Nath & Rosenthal, disagreed, saying the appeal court justices understood State Farm completely.

"What [State Farm] did is say you shouldn't be looking at the wealth of a defendant and should instead be looking at the particular harm of the person before the court," said Glad, a defense-side expert on punitive damages.

"The recognition of meaningful due process limitations is of critical importance," he added, "because without meaningful limitations a jury has such wide discretion, and there is such a possibility of passion and prejudice influencing them, that there have been these horrendous punitive damages awards."

The 5th District also released an unpublished companion ruling Tuesday. In Johnson v. Ford Motor Co., F040188 and F040529, the court used its reasoning in regard to the State Farm case to reduce a punitive damages award of $10 million in a lemon law case to about $53,000.