Punitive damages: hypothetical or hyper-technical?

On April 15, a California Court of Appeal affirmed a punitive damages award that was largely based on damages that the plaintiffs could not receive under the law. In most cases, punitive damage awards are a multiple -- typically three times -- of an underlying judgment. But what happens when the trier of fact values damages that a plaintiff cannot recover as a matter of law? When can "hypothetical" damages support a punitive damages award? The Court of Appeal in Rubio v. CIA Wheel Group, 2021 DJDAR 3534, has provided the answer.

Maria Teresa Lopez sued her former employer for wrongful termination, alleging that her employment was terminated because she had cancer. When she first discovered she had cancer, Lopez took a three-month medical leave of absence for surgery. Shortly after returning to work, Lopez began chemotherapy treatments once every three weeks for several months. Then Lopez continued to have follow-up appointments approximately twice per month. Soon thereafter, Lopez was terminated for performance.

According to the court, Lopez's personnel file lacked any written performance warnings or discipline, and she was the highest-producing sales person each year of her employment. Emails showed that before her medical leave, Lopez had a good relationship with her supervisor, who praised Lopez's work. After Lopez's leave, her supervisor made negative comments, gestures, and began complaining about Lopez's behavior, including things she had been doing without incident before her medical leave. Her supervisor also started requiring a higher quality of work from Lopez than from her coworkers.

Lopez's complaints about unfair treatment to human resources were ignored, and her employment was terminated in violation of public policy.

Lopez died during the trial, and the court declared a mistrial. Her children were appointed as her successors in interest. After a second trial, the court held that Lopez was terminated based on her medical condition and awarded the plaintiffs $15,057 in economic damages and $500,000 in punitive damages. The court also calculated Lopez's noneconomic damages (emotional distress) to fall approximately between $100,000 and $150,000, while simultaneously acknowledging that such damages were not recoverable after Lopez's death under Code of Civil Procedure Section 377.34. That section provides that, in an action by a decedent's successor on the decedent's cause of action, recoverable damages are limited to "the loss or damage that the decedent sustained or incurred before death, including [punitive damages] that the decedent would have been entitled to recover had the decedent lived, and do not include damages for suffering, or disfigurement."

CIA appealed the punitive damages award as excessive because it was more than 33% of the economic damages award. Lopez's children countered that the punitive damages award was a standard three times the amount of the actual award based on the trial court's $100,000 to $150,000 noneconomic damages calculation.

It is black letter law that damages cannot be speculative, and the statute is clear that noneconomic damages are unrecoverable by Lopez's estate. Why then did the trial court value these unrecoverable damages?

Citing a 1978 California Supreme Court decision, Neal v. Farmers Ins. Exchange, 21 Cal. 3d 910, the Rubio court relied on the finding of bad faith conduct by the employer and the fact that Lopez's estate was barred from recovery simply based on a technicality: "The trier of fact found appellants caused Lopez significant noneconomic damages" and that "if Lopez had survived, the court would have awarded her substantial noneconomic damages. The only reason that appellants were not liable for those damages was Lopez's untimely death and a provision of California procedural law."

Did the Rubio court do a proverbial "end-run" around Section 377.34? Does the opinion have the effect of making unrecoverable damages recoverable? After all, money is money and it matters little (at least to the heirs) what label one places on it ("noneconomic" or "punitive"). Here, the only actual liability in this case was $15,057, and any punitive damage award should not have exceeded $60,000 to $100,000.

Despite these economic realities, the heirs have now been awarded more than five times that amount!

It is notable that the heirs were invited to testify as to the amount of emotional distress they witnessed, and there was very little citation to any direct testimony by Lopez herself. There was evidence that Lopez did not seek any medical attention for her emotional distress, calling into question whether it was severe enough to warrant such a high valuation.

Rubio now opens the door to less reliable evidence in support of noneconomic damages, irrespective of whether those damages are, in fact, recoverable.

It is unclear why the standard set forth in Civil Code Section 3294 would not have been enough to support an amount beyond the typical multiplier of three (and perhaps provide an amount in the $100,000 to $200,000 overall recovery range)? That provision supports punitive damages where a managing agent of the company acts with fraud, oppression or malice. Not only did the court find that this standard had been met, but the court also found that the conduct in this case was particularly egregious. There are certainly cases where the typical multiplier has been disregarded. Why not work with established jurisprudence to evaluate damage awards and grant a large punitive damages award because the party's conduct was sufficiently egregious to justify it? Rather than creating a hypothetical category of damages, why not instead issue a fact-based hyper-technical award of punitive damages that directly correlates to the conduct justifying the award?

The Rubio decision is not a model of clarity on these points -- and as a result, it might be a decision the California Supreme Court reviews. 