California Updates

Title: New California Appellate Decision On Punitive Damages

The California First District Court of Appeal (San Francisco) has now weighed in on the United States Supreme Court Campbell decision. In Henley v. Phillip Morris (2-20-04) the Court of Appeal evaluated a tobacco case which resulted in a plaintiff verdict for $1.5 million in compensatory damages and $50 million in punitive damages.

The court held that the punitive damage verdict could not be sustained, consistent with Campbell, knocking it down to $9 million. There is some good language in the case stating that Campbell applied the due process clause of the 14th amendment to "constitutionalize" the field of punitive damages by adopting substantive and procedural safeguards against excessive awards. Justice Sepulveda also stated that scrutiny of punitive awards were governed by a "de novo" standard of review. The court read Campbell as requiring the consideration of three constitutional "guideposts":

1. The degree of the defendant's culpability;
2. The ratio between the punitive damage award and the harm to the victim caused by the defendant's actions; and
3. The sanctions imposed in other cases for comparable misconduct.

The court further broke down defendant's culpability into five subsidiary factors:

1. Whether the defendant inflicted bodily injury as opposed to merely economic injury;
2. Whether the tortious conduct "evinced an indifference to or a reckless disregard of the health and safety of others";
3. Whether the target of the conduct had financial vulnerability;
4. Whether the conduct involved repeated actions or was an isolated incident; and
5. Whether the harm was the result of intentional malice, trickery, deceit, or mere accident.

The court found that all five of the subfactors in Campbell pointed to a high degree of reprehensibility on the part of Phillip Morris who targeted much of their activity toward children. However, the court also noted that:

1. The State of California cannot punish a defendant for conduct that may have been lawful where and when it occurred;
2. The State of California cannot punish unlawful out-of-state conduct because the State has no legitimate interest imposing punitive damages to punish a defendant for unlawful acts outside of that state's jurisdiction; and
3. Punitive damages cannot permissibly rest on "dissimilar acts" bearing no relation to plaintiff's harm.

The court went on to distinguish Campbell, which involved only a single insurance claim, against the nationwide practices of Phillip Morris before considering the relationship between actual damages and the punitive award. Noting that Campbell held:

1. Few awards exceeding a single digit ratio between punitive and compensatory damages will satisfy due process;
2. A four-to-one ratio may typically be close to the line of constitutional impropriety;
3. Higher ratios may be appropriate where a particularly egregious act resulted in small economic damages or where the injury is hard to detect;
4. Lower ratios, perhaps as low as one-to-one may reach the outermost limit of due process where the compensatory damages are substantial; and
5. The precise award in any case must be based upon the facts and circumstances of the defendant's conduct and harm to plaintiff.

After considering all of these factors, noting that a four-to-one ratio was "close to the line," the court nonetheless felt a six-to-one ratio ($9 million) was justified against Phillip Morris by reason of the "extraordinarily reprehensible conduct of which the plaintiff was a direct victim."

This line of cases represents a substantial change in favor of defendants charged with punitive damages by placing some reason back into the process and by avoiding the impact of runaway juries swayed by passion and prejudice.

Title: THE CALIFORNIA THIRD APPELLATE DISTRICT JOINS THE SECOND AND FOURTH DISTRICT COURTS OF APPEAL IN HOLDING THAT THERE IS NO CAUSE OF ACTION FOR NEGLIGENT SPOILATION OF EVIDENCE

Synopsis

In the case of Cleo Lueter v. State of California 2002 DJDAR 85, published January 7, 2002, a unanimous Third District Court of Appeal joined the Second and Fourth District Courts of Appeal in rejecting an attempt to state a cause of action for negligent spoliation of evidence.

Plaintiff claimed personal injuries as the result of a traffic accident with an oil tanker after the left front tire of the oil tanker blew out. The CHP took custody of samples of the blown out tire, but discarded it after they concluded there was no evidence of any defects. Six months after the crash, plaintiff’s forensic engineer sought to examine the tire samples that had been thrown out.

Presiding Justice Scotland reviewed the history of spoliation of evidence causes of action.

In Cedars-Sinai Medical Center v. Superior Court (1998) 18 Cal. 4^th 1, the California Supreme Court held that there was no independent cause of action for intentional spoliation of evidence by a party to a lawsuit (the court left open evidentiary and issue sanctions as a remedy for such conduct by a party). The following year, the court further held that there was no cause of action for intentional spoliation of evidence against a non-party in the case of Temple Community Hospital v. Superior Court (1999) 20 Cal. 4^th 464.

In the year following Temple Community, both the Second District and the Fourth District applied the Supreme Court’s rationale to attempts to state a cause of action for negligent spoliation of evidence by a non-party, holding that there was no cause of action for negligent spoliation of evidence. (Coprich v. Superior Court (2000) 80 Cal.App. 4^th 1081; Farmers Ins. Exchange v. Superior Court (2000) 79 Cal.App. 4^th 1400)

This same result was adopted by the Third District in Lueter.

Interestingly, in the second part of the opinion, the court addressed a conversion cause of action, upholding a verdict for $1.50 plus interest. The court held that this was sufficient compensation for the detriment caused by the wrongful conversion of the personal property and it declined to adopt plaintiff’s contention that the measure of damages should be the same as for the negligent spoliation cause of action. The court felt that the mere possibility that the tire tread might have had evidentiary value was too "speculative and conjectural."

This leaves open the possibility of a conversion cause of action if such damages are reasonably certain. For example, had the CHP concluded that the tire they took showed evidence of a defect and then they discarded or lost it, the court might have reached a different result on the measure of damages on the conversion cause of action.

Title: PREMISES LIABILITY: SUPREME COURT HOLDS THAT LACK OF INSPECTIONS WITHIN A REASONABLE PERIOD OF TIME IS SUFFICIENT TO ALLOW THE JURY TO DRAW AN INFERENCE THAT A DANGEROUS CONDITION EXISTED LONG ENOUGH TO ESTABLISH CONSTRUCTIVE NOTICE

On December 21, 2001, the California Supreme Court published Richard M. Ortega v. K Mart Corporation 2001 DJDAR 13099. The undivided court (one concurring opinion by Justice Kennard) in an opinion authored by Justice Chin, held that if a plaintiff can show that inspections were not made for a reasonable period of time prior to an accident, evidence of the lack of inspections, by itself, may raise an inference that the condition existed long enough that it should have been discovered and remedied by an owner in the exercise of reasonable care.

Richard Ortega sued K Mart claiming he sustained torn knee ligaments as a result of slipping and falling in a puddle of milk on the floor adjacent to the milk refrigerator at a K Mart in Torrance, California. A jury trial was conducted before Judge Matusinka in the Torrance Branch of the Los Angeles Superior Court.

Plaintiff’s evidence: Both plaintiff and plaintiff’s maintenance expert admitted that there was no evidence to suggest how long the milk had been on the floor (whether it was warm or cold, fresh or odorous). However, plaintiff’s expert did testify that K Mart should have a written record verifying the person inspecting and the frequency of the inspections.

Defendant’s evidence: K Mart’s manager admitted that no written inspection records were kept. However, he said that all employees are trained to look for any hazards as they walk the aisles and to immediately clean up any spills. He felt that an employee was usually in the area of plaintiff’s fall every 15 to 30 minutes but he admitted that management did not know what specific times the floor was inspected on the day of the accident and the milk "could have been on the floor for as long as two hours."

Verdict: Plaintiff argued that the evidence showed a lack of inspections sufficient to create an inference that the milk spill had been there long enough for K Mart to have discovered and cleaned it. Defendant argued that plaintiff failed to carry his burden of proof as to how long the milk had been on the floor and could not prove constructive notice. The jury returned a verdict in plaintiff’s favor in the amount of $47,200.

Court of Appeal: The Second District Court of Appeal affirmed the judgment and concluded that a plaintiff could be relieved of the burden of proving the length of time the milk was on the floor by demonstrating that the site had not been inspected within a reasonable length of time.

After a recitation of general negligence law as it applies to self-serve grocery stores, the court pointed out that the defendant must have notice of the existence of a dangerous condition causing the customer’s injury. Where there is no evidence that a market employee actually knew about the injury causing condition, the court noted that the plaintiff must prove constructive notice, i.e., that the condition had been present for so long that a reasonable inspection would have disclosed it. While prior cases have held that constructive notice can be proven by circumstantial evidence and that the owner’s inspection practice was one of several factors to be considered in determining the length of time a dangerous condition was in existence, the court observed that no prior case had held that the failure to inspect, alone, could satisfy the plaintiff’s burden of proving constructive knowledge. This was the question addressed.

Citing Sapp v. W. T. Grant Co. (1959) 172 Cal.App.2d 89 (plaintiff slipped on a spool of thread after a clerk left a customer area unattended for 20 minutes to take a coffee break) and Bridgman v. Safeway Stores, Inc. (1960) 53 Cal.2d 443 (customer knocked down by a falling pumpkin display which had not been inspected for 45 minutes), the court read these cases to hold that evidence showing a reasonable inspection had not been made allows plaintiff to raise the inference that the condition existed for a long enough period to establish constructive notice. Coupling this analysis with language in Louie v. Hagstrom’s Food Stores (1947) 81 Cal.App.2d 601 stating that constructive notice can be established by circumstantial evidence, the court concluded that plaintiff may raise an inference that a dangerous condition existed long enough to establish liability simply by introducing evidence that reasonable inspections were not done.

The main difference between the Ortega case and earlier cases is that, before Ortega, evidence of the lack of reasonable inspections was just one factor to be considered in determining how long a condition had been present on the floor. Under Ortega, the court has held that evidence of the lack of reasonable inspections, by itself, can be sufficient to raise an inference that the dangerous condition existed long enough to create liability. This appears to run contrary to long established law stating that an inference does not follow from the "nonexistence" of a fact and cannot be based on speculation, supposition, conjecture, or guesswork. Traxler v. Thompson (1970) 4 Cal.App.3d 278.

Under a strict legal analysis, the court’s opinion seems to skip causation. The main elements of a negligence cause of action are duty, breach, causation and damages. The question of whether a defendant breached its duty is entirely separate and distinct from whether that breach of duty caused plaintiff’s damages. It seems to us that the absence of inspection evidence can certainly raise an inference that a market breached the duty to perform reasonable inspections, but to go beyond this and hold that such evidence creates an inference that the condition was present so long that it should have been caught by a reasonable inspection is not logical.

Consider a hypothetical situation in which an area of a market has not been inspected for two hours but it has remained clean, safe and dry for that entire time. A customer drops a raw egg on the floor and leaves it. Within 15 seconds, another customer comes around the corner from an aisle and slips in it. Unquestionably, the lack of reasonable inspections in such a case was not the cause of this condition remaining on the floor for an unreasonable period. However, without witnesses to the fact that the egg was on the floor for only 15 seconds, the Ortega opinion seems to say that the jury can draw an inference from the lack of inspections that the egg was on the floor for an unreasonably long period of time. Under these hypothetical facts, using evidence of inspections (breach) to create an inference on the length of time a dangerous condition was allowed to exist (causation) just doesn’t make sense.

The court gave the K Mart causation argument short shrift, essentially saying that the Bridgman court didn’t have a problem with it and that important public policy considerations place a premium on a storekeeper’s duty to maintain the premises.

It appears from the opinion that the court knew the result it wanted to reach in the case, and secondarily, did the legal analysis to get there. This is suggested by the court’s somewhat one-sided view of the evidence adduced at trial. While K Mart had no documented inspections, the former manager testified that an employee normally walked through the relevant area every 15 to 30 minutes and that they always inspect as they go. In the context of being asked if the milk "could have been" on the floor for 5 minutes or 2 hours, he said that it would be hard for something to remain on the floor for more than 15 to 30 minutes. However, he then admitted that it "could have been" on the floor for 2 hours.

The thrust of this custom and practice testimony seems to be that, with the procedures in place, it was far more likely than not that the area had been inspected within 15 to 30 minutes prior to plaintiff’s fall. The 2 hour testimony has the flavor of being a slight possibility. However, in the court’s opinion, the 2 hour testimony rose above the rank speculation it appears to have been and was sufficient to raise an inference of negligence.

From a public policy perspective, once having decided to hear the case, the court really couldn’t reach the contrary result and overturn this jury verdict. To do so would have created an incentive for markets to eliminate documented inspections, putting plaintiffs to their burden of proving that undocumented custom and practice inspections were not done as well as the length of time a dangerous condition was present. However, since the Court of Appeal had already upheld this verdict, one questions why the court felt the need to hear this case and create this causation inference from the single fact of a lack of inspections, rather than allowing causation to remain a separate analysis.

Many plaintiff attorneys are hailing this case as a tremendous shift in the burden of proving reasonable inspections, which it clearly is not. At several points in Ortega, the court reiterated that it was not changing the burden of proof and that plaintiffs still must produce evidence to show that a dangerous condition existed for a sufficient period of time to establish constructive notice. All Ortega has done is to state that evidence showing a lack of reasonable inspections can create an inference that the dangerous condition was present long enough to have been discovered in the exercise of ordinary care.

The Evidence Code section 600 et seq. discusses the differences between inferences, rebuttable presumptions, and conclusive presumptions. Only presumptions, established by law, can shift the burden of proof. Inferences are merely deductions of fact that are logically drawn from another fact or group of facts. Evidence Code section 600 (b).

The Ortega holding will likely make it very difficult, if not impossible, to prevail on summary judgment, motion for non-suit, or motion for directed verdict based upon a failure to produce evidence of how long a dangerous condition had been present. Regardless of what the inspection evidence is, the courts will be loath to remove the triable question of reasonableness of those inspections from the jury and that evidence now creates an inference regarding causation. As a practical matter, prevailing on such motions was very rare even before Ortega.

The vast majority of markets currently document their inspections and cases where written inspections were not done on the day of an incident, or where those records have been lost or destroyed, have created problems at trial before Ortega. In the absence of adequate documentation, defendants have often struggled with presenting evidence of reasonable inspections, sometimes introducing evidence of custom and practice as K Mart tried to do in Ortega, and sometimes introducing other specific evidence of a remembered inspection (such as a manager testifying that he/she always walks the entire market upon their return from lunch at 1:15 p.m., or an employee testifying that they couldn’t believe an accident had occurred because they had just been in that area 5 minutes before, etc.). None of this has really changed due to Ortega.

About the only additional trial weapon resulting from Ortega will likely be some added requests from plaintiffs for a special jury instruction saying that the absence of reasonable inspections creates an inference of how long the dangerous condition existed. The defense response should be to oppose such an instruction as it tends to single out one inference above other inferences to be deduced from the evidence. In Ortega, the Supreme Court didn’t address the propriety of a jury instruction regarding this inference, they simply ruled that the verdict could be upheld based upon the inference discussed. If a trial court appears intent on allowing an instruction, the fall back position should be to ask for modifying language saying that this is only one of many inferences to be drawn from the evidence, and a number of instructions should then be proposed regarding other inferences from the evidence favorable to the defense (e.g., testimony regarding a last inspection creates an inference that the floor was clean, dry and safe at that time, etc.).

On balance, other than potentially having to fight additional battles to educate the court about what Ortega does and does not say, and to oppose any attempts by plaintiffs to turn Ortega into jury instructions, not much has significantly changed. Problems in the evidence relating to inspections were not well received by juries before Ortega, and Ortega indicates that plaintiff verdicts based upon poor evidence regarding inspections are going to be upheld.

RR

Title: Expansive View of Duty to Defend per Presley Homes, Inc. v. American States Insurance Co.

In Presley, a real estate developer brought an action against the insurer of two subcontractors to recover, as an additional insured, under the subcontractor’s policies, the expenses of defending a construction defect lawsuit against the developer. The California Court of Appeal held that where an insurer has a duty to defend, the obligation generally applies to the entire action, even if the suit involves both covered and non-covered claims, or a single claim only partially covered by the policy. While the additional insured endorsements in question limited coverage for the developer to "liability" arising from the subcontractor's work, nothing in the additional insured endorsements limited the insurer's obligation to provide the developer with a defense. The court further held that regardless of the party's reasonable expectations regarding the defense obligation, an insurer's duty to defend the entire action is based on public policy, not the contract terms. Had the insurer provided the developer with a complete defense, it could have, and should have, sought contribution from other insurers obligated to defend the claim against the developer.