No Punitive Damages Awards by Human Rights Commission, Illinois Supreme Court Rules

Late last week, in a unanimous opinion by Justice Rita Garman, the Illinois Supreme Court held that the Cook County Commission on Human Rights lacks any authority to award punitive damages. Our detailed summary of the facts and administrative and lower court rulings in Crittenden v. Cook County Commission on Human Rights is here. Our report on the oral argument is here.

Crittenden arises from a sexual harassment claim filed with the Cook County Commission on Human Rights by a bartender working at a Cook County bar. After a contentious hearing, a hearing officer recommended that the employee receive an award of lost wages, compensatory and punitive damages. The Commission adopted the hearing officer’s proposed order. The Circuit Court denied certiorari, affirming the administrative decision on liability and compensatory and punitive damages. The Appellate Court (First District, Sixth Division) affirmed the Commission on liability and compensatory damages, but reversed on punitive damages. According to the Appellate Court, it made no difference whether the challenged conduct merited an award of punitive damages, since the Commission lacked the authority to award them in the first place. In so holding, the Appellate Court refused to follow Page v. City of Chicago, in which Division One of the First District had held that the Chicago Human Rights Ordinance does permit awards of punitive damages by the Commission.

The Supreme Court affirmed the First District. Although the Commission argued that it had the power to award punitive damages pursuant to Cook County’s broad home rule authority, the Supreme Court disagreed. As an administrative agency, the Commission had no inherent power: its powers were limited to those granted to it by the legislature, and any actions it takes must be authorized by statute. According to the Human Rights Ordinance, the Commission may grant a wide range of forms of relief, including cease and desist orders, awards of damages and costs and fees, and orders to rehire. The Commission pointed out that the list of permissible forms of relief wasn’t exclusive, but the Court held that that made no difference. As an administrative agency, the Commission was without common law authority, and therefore couldn’t award punitive damages without express language saying so. The Court pointed out that a number of different state statutes expressly authorized administrative agencies to award punitive damages, and finding such authority merely by implication was inconsistent with the view that punitive damages are not favored in the law. Rejecting Page, the Court declined to find that policy considerations required implying the power to award punitive damages, specifically pointing again to the disfavored status of punitive damages in the law, as well as to the risks involved in assessing punitive damages when the defendant is merely vicariously liable for the actions of an employee. Finding no basis for deviating from the established rule that administrative agencies have only the power they are expressly given, the Court held that the Cook County Commission on Human Rights lacks any power to award punitive damages.

A Busy Day of Civil Arguments at the Illinois Supreme Court

Tomorrow will be a busy day for the Illinois Supreme Court's civil docket, with five cases being argued, beginning at 9:00 a.m. They are:

  • Wilkins v. Williams, Case No. 114310 - (1) Does the immunity conferred by the Emergency Medical Services Act, 210 ILCS 50/3.150(a), extend to the non-emergency transport of patients? (2) Does the statute bar suits in connection with injuries sustained by third parties not directly treated by the EMS workers? Our detailed preview of the facts and lower court opinions in Wilkins is here.
  • Standard Mutual Insurance Co. v. Lay, Case No. 114617 - Is the Federal statutory penalty imposed pursuant to the Federal Telephone Consumer Protection Act for sending unsolicited advertisements to a fax machine in the nature of punitive damages, and therefore uninsurable as a matter of Illinois law? Our detailed preview of the facts and lower court opinions in Standard Mutual Insurance is here.
  • Mayfield v. Mayfield, Case No. 114655 - (1) Is a lump-sum workers’ compensation settlement “net income” within the meaning of Section 505(a)(3) of the Illinois Marriage and Dissolution of Marriage Act; and (2) If so, is the 20% rule-of-thumb set forth in Section 505(a) of the Act for calculating the per-child support obligation applicable to the entire settlement? Our detailed preview of the facts and lower court opinions in Mayfield is here.
  • Earlywine v. Earlywine, Case No. 114779 - Is an advance payment retainer to a spouse's retained attorney in divorce proceedings the attorney's property at the moment of payment, and therefore not subject to disgorgement for an award of interim attorney's fees pursuant to 750 ILCS 5/501(c-1), the Illinois Marriage and Dissolution of Marriage Act? Our detailed preview of the facts and lower court opinions in Earlywine is here.
  • Crittenden v. Cook County Commission on Human Rights, Case No. 114876 - May the Cook County Commission on Human Rights award punitive damages? Our detailed preview of the facts and lower court opinions in Crittenden is here.

Can the Cook County Commission on Human Rights Award Punitive Damages?

Our previews of the new civil cases granted review at the end of the Illinois Supreme Court’s November term conclude with Crittenden v. Cook County Commission on Human Rights [pdf]. Crittenden involves a question of administrative law which, depending on the breadth of the Court’s ultimate decision, could have broad implications: when can an administrative board award punitive damages?

Crittenden arises out of a sexual harassment claim. A bartender working at a Cook County bar filed a police report against her supervisor, resulting in a criminal trial at which he was acquitted. Shortly thereafter, the alleged victim filed a complaint with the Cook County Commission on Human Rights, alleging that her supervisor’s alleged conduct violated the Cook County Human Rights Ordinance. After a contentious hearing on the complaint, a hearing officer recommended that the employee receive an award of lost wages, compensatory and punitive damages. The Commission adopted the hearing officer’s recommended order.   The supervisor and the bar filed a petition for writ of certiorari with the Circuit Court, seeking administrative review of the Commission’s decision. The Court denied the writ, affirming the Commission’s decision on liability and compensatory and punitive damages.

The Appellate Court (First District, Sixth Division) affirmed the Commission in most respects. The appellants – the supervisor and the bar – argued that the Commission’s determination that the complainant was more credible that the appellants’ witnesses was against the manifest weight of the evidence. The Appellate Court rejected the argument, concluding that the appellants were essentially asking the Court to reweigh the evidence and substitute its assessment of credibility on a cold record for that of the hearing officer and Commission. The Appellate Court also found no reason to disturb the decision of the hearing officer, confirmed by the Commission, to allow the complainant to contradict her complaint with respect to the date of the principal events at issue.

The appellants also claimed that the hearing officer and Commission had erred by considering hearsay – testimony that the employee’s son had accompanied her to the bar the day after the principal events and damaged the bar in a fit of anger. The Appellate Court disagreed, pointing out that the rules of evidence didn’t apply to Commission proceedings, and any error in considering the expressive acts of the son was harmless anyway. The Court also concluded that there was sufficient evidence in the record to support the award of compensatory damages, and that the appellants hadn’t proven that the plaintiff failed to mitigate her damages.

The Court reversed the Commission’s award of punitive damages, however. According to the Court, in an action based on a statutory violation, punitive damages may be awarded either because the statute authorizes them, or the facts of the case support common law punitive damages. The Court concluded that the Cook County Human Rights Ordinance doesn’t authorize punitive damages awards, either expressly or by fair implication. Although the Ordinance states that the enumerated penalties are not an exhaustive list, the Court observed that each of the enumerated penalties is compensatory in nature, rather than a windfall like punitive damages. The Court also thought it was significant that the power to award punitive damages was expressly given in other ordinances, suggesting that if such a power had been intended, the Ordinance would say so.

The Appellate Court acknowledged that Division One of the First District had come to the opposite conclusion in Page v. City of Chicago, holding that the Chicago Human Rights Ordinance does permit an award of punitive damages for acts of sexual harassment and discrimination, but the Court declined to follow Page, noting among other things that the Page Court had failed to adequately address the limited powers of administrative agencies.

Finally, the Court refused to permit a common law award of punitive damages. As an administrative agency, the Commission had no common law authority, the Court held. Moreover, even if the Commission did have such authority, the Court pointed out that the Commission had made no findings that the supervisor’s alleged actions were committed with malice, or any of the other grounds which justify a common law award of punitive damages.

We expect the Supreme Court to decide Crittenden within four to six months.

Illinois Supreme Court Adopts Tort of Intrusion Upon Seclusion

It's not often that you see a trial end in verdicts for both plaintiff and defendant, with both sides receiving awards of not only compensatory but punitive damages against the other. The Illinois Supreme Court heard such a case today. A 6-1 majority led by Justice Mary Jane Theis affirmed in part and reversed in part a judgment arising out of a complex employment dispute in Lawlor v. North American Corp. of Illinois.

Plaintiff was a commission-based salesperson for defendant. Just short of seven years after starting work for the defendant, the plaintiff resigned and went to work for a competitor who also sold corporate-branded promotional items. The defendant suspected that the plaintiff had violated her noncompetition agreement with the defendant, so the company instructed its lawyer to investigate. The company lawyer retained a private investigation firm which had worked for the company before.

The president of the investigation firm testified that he had conducted previous noncompetition investigations for the defendant, and that the defendant wanted him to obtain the plaintiff's telephone records. For his part, the defendant company's designated liaison with the private investigators testified that he relied on the lawyer and the investigator to perform the investigation and did not instruct them on what to do or not to do. He received several faxes from the investigator containing hundreds of phone numbers during the investigation, but he never asked how the phone records had been obtained.

Plaintiff was recruited to join her new company by a former employee of the defendant. In the final months before she resigned from the defendant's employ, she spoke several times to an outside consultant hired by a customer to negotiate its business with defendant. The consultant testified by declaration that the plaintiff had encouraged him to delay awarding his business until the plaintiff moved to her new employer, but at trial, the consultant disavowed his own declaration. Only a month into her new job, the plaintiff sent her new boss a letter discussing her sales history while working for the defendant; the letter disclosed the defendant company's typical profit margin.

The plaintiff sued the defendant for outstanding commissions; not long after, upon learning of the defendant's investigation, she added a claim for intrusion upon seclusion. The defendant countersued for breach of the fiduciary duty of loyalty and for excess commission draw payments. At the conclusion of the trial, the jury returned a verdict for plaintiff on the intrusion claim, awarding $65,000 in compensatory damages and $1.75 million in punitive damages. The court subsequently entered judgment for defendant on its breach of fiduciary duty claim, awarding the defendant $78,781 in compensatory damages and $551,467 in punitives. On posttrial motions, the court reduced the plaintiff's punitive damages award to $650,000. The Appellate Court affirmed the plaintiff's judgment on the intrusion claim and reinstated the plaintiff's original $1.75 million award of punitive damages. The Court also reversed the Circuit Court's judgment in defendant's favor on the breach of fiduciary duty claim. The Supreme Court affirmed in part and reversed in part.

Much of the Court's opinion seems fact-specific and unlikely to have a dramatic influence on Illinois law going forward. The Court found that adequate evidence supported the judgment that the private investigators were an agent of the defendant for purposes of vicarious liability. The Court further held that although the defendant had apparently obtained the plaintiff's phone records on multiple occasions, the defendant's conduct nevertheless ranked low on all the common law criteria of gravity. Moreover, the Court held, the justification for a heavy award of punitive damages was "sharply diminished" where liability was vicarious. The court also affirmed the vacatur of the award for the defendant on the counterclaim, finding that there was no evidence that the plaintiff had breached her common law duty of loyalty.

One aspect of the decision, however, carries with it a potential impact for future litigation: in affirming the judgment in plaintiff's favor in connection with the defendant's investigation of her phone records, the Court adopted the tort of intrusion upon seclusion as a valid cause of action in Illinois. The Court endorsed the standard set forth in Section 652B of the Restatement(Second) of Torts for the new cause of action, holding that an intrusion upon the private affairs and concerns of another would be actionable "if the intrusion would be highly offensive to a reasonable person." How dramatic an effect on Illinois law this new cause of action has will have to await subsequent lawsuits by other parties.

Chief Justice Thomas L. Kilbride dissented in part. Although the Chief Justice agreed that the plaintiff's judgment on her intrusion claim should be affirmed and the defendant's judgment for breach of fiduciary duty reversed, the Chief concluded that the majority had been insufficiently deferential to the lower court's findings with respect to the plaintiff's claim for punitive damages. Chief Justice Kilbride wrote that he would have affirmed the Circuit Court's remittitur of the punitive damages award to $650,000.

Will Justice Stevens' Retirement Make A Difference In The Supreme Court's Approach To Punitive Damages?

Justice John Paul Stevens has been tagged by many as a “liberal.” Appellate Strategist does not propose to debate that general proposition here. Rather, it’s time to begin assessing what effect his absence might have on the growing body of Supreme Court jurisprudence that has been cutting back, a little at a time, on the blockbuster punitive damages awards that so commonly make the headlines. Or at least used to make the headlines.

Here are a few thought-provoking tidbits concerning his role in the development of this important body of law: 

  • Justice Stevens pioneered the recent punitive damages jurisprudence, authoring two of the Court’s first forays into the constitutionality of the award amounts. The first was the “granddaddy” of them all, BMW, which blazed the trail. (BMW of No. Amer. v. Gore (1996) 517 U.S. 559.)  After that came Cooper, which created an unprecedented de novo standard of review of punitive awards for constitutional excessiveness. Appellate courts were no longer constrained by the trial judges’ decision re the propriety/excessiveness of the amount. Cooper gave courts of appeal a free hand to bring the excessive “outlier” verdicts into line. (Cooper Industries, Inc. v. Leatherman Tool Group, Inc. (2001) 532 U.S. 424.)
  • He joined in the Campbell majority opinion, the behemoth that expanded the defendant’s constitutional rights beyond a mere review for excessiveness of the amount. (State Farm Mut. Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408.)
  • He dissented in Williams. He still believed that due process imposes both substantive and procedural constraints on State power to impose punitive damages, but Williams presented a different issue. The majority held the State may not punish the defendant with punitive damages for harming other victims who were not plaintiffs and not before the jury. (Philip Morris USA v. Williams (2007) 549 U.S. 346.) Justice Stevens saw “no reason why an interest in punishing a wrongdoer ‛for harming persons who are not before the court,’ should not be taken into consideration when assessing the appropriate sanction for reprehensible conduct.” (Citation omitted.)
  • We discount the Court’s most recent decision, Exxon Shipping Co. v. Baker (2008) 128 S.Ct. 2605, which presented unique issues of punitive damages under federal maritime law, and anyway, there are so many separate opinions and joinders, it would take a computer program to keep the justices’ various positions straight.

These cases have revolutionized the law of punitive damages, helped level the once-tilted playing field, and afforded them relief – in the form of reduced awards – awards that a few years ago were often rubberstamped on appeal as within the jury’s discretion. Countless billions – literally – “billions” with a “b” – have been saved thanks to these legal developments. He clearly made an important contribution.

Now the burning question is: where will the successor stand? In a series of future posts, Appellate Strategist will try to explore that question, and perhaps even offer some answers.

Illinois Supreme Court's New Punitive Damages Opinion Signals Trial Judges on When and How to Cut Such Awards Under State Law

Today, the Illinois Supreme Court affirmed a punitive damage award that had been drastically reduced by the trial judge, and cut still more by the intermediate appellate court, to slightly over $80,000, or 1:1.  The State high court affirmed the punitives as reduced to 1:1.  This may sound like just another case applying the Campbell federal due process guidelines regarding excessive awards.  It isn’t. 

In Slovinski v. Elliott (pdf), plaintiff sued his former employer for defamation.  The jury awarded him $81,600 in emotional distress damages and $2 million in punitives.  The trial judge cut that number to $1 million; the appellate court chopped it down still more,  to 1:1.  The Illinois Supreme Court, with one dissenter, affirmed the reduction to $81,600.  In the process it provided some insight into Illinois procedure for “remitting” –  that’s appellate-speak for cutting –  punitive awards, and the propriety of the amount under Illinois state law.

Procedural challenges. Plaintiff argued that the reductions by the trial and appellate courts were procedurally improper for a number of reasons, e.g., that “specific findings” were required in order to cut, and the failure to make findings meant plaintiff should get his $2 million reinstated.  The answer to that one was “no.”  Courts are simply required to explain why a reduction is necessary, and why they think the trial judge or jury got it wrong, not to jump through meaningless hoops.  A refreshing, common sense approach.

Substantive challenge.   The Supreme Court began by noting that a punitive damage award never compensates the plaintiff, who has been made whole by the compensatory award.  Thus, the focus should be on whether the defendant’s conduct justifies the award.  After that, the court had no trouble concluding that $81,600 in punitives was ample punishment, noting:

  • Defendant’s intent.  The jury heard no evidence that defendant had an intentional, premeditated scheme to harm the plaintiff.  At most, defendant consciously disregarded its employee’s rights. “This places defendant’s conduct on the low end of the scale for punitive damages, far below those cases involving a defendant’s deliberate attempt to harm another person.”
  • No recidivism.  Defendant did not repeat the defamatory statements, but made them only once, and only those present at the meeting heard them.
  • Minimal harm to plaintiff.  The jury’s compensatory damages verdict showed “limited harm to plaintiff.”  There was no damage award for loss of reputation or lost wages.  And on the emotional distress award, there was no evidence of any physical harm to plaintiff, no visits to a doctor or therapist, no evidence that plaintiff missed work, no evidence of any alteration in his daily work activities.

This is Illinois State law we’re talking about.  All of this analysis sounds reminiscent of the federal guidepost considerations used to determine when a punitive award is excessive under the due process clause.  But this court was not using a Campbell-BMW analysis.  Slovenski decided this as a matter of Illinois State law.  

This reduced verdict was affirmed because under Illinois law, “an award of punitive damages must be remitted to the extent that there is no material evidence to support it.”  Even in cases of defamation per se, the  malicious conduct necessary to support an award of punitive damages may not be presumed, but must be proved by competent evidence.”  (Emphasis added.)  The trial court thus abused its discretion is remitting the award to only $1 million because there is no basis in the record to support such an award. 

Trial judges take note: whether you cut or not, abuse of discretion won’t necessarily be a shield.

New California Bill Would Cap Punitive Damages at Three Times Compensatories, Outright Bar Punitives Retroactively in Product-Warning Cases

CAPPING AT THREE.  AB2740, a new version of an old bill pending in the California State Legislature, would cap the amount of punitive damages available in California to a flat three times the jury’s award of compensatory damagesAB2740 The previous version died in Committee.  The new iteration (tacked onto a National Guard bill, of all things) was alive and well as of late March, 2010.

  • Should the measure pass, California would fall in step with many other States that impose some type of ceiling on punitive damages, whether flat-out monetary caps, caps keyed to a multiple of compensatory damages, caps based on defendant’s wealth or the nature of the act, the type of action (e.g., medical malpractice) or some combination, including: Alaska, Arkansas, Alabama, Colorado, Florida, Georgia, Idaho, Indiana, Kansas, Mississippi, Montana, North Carolina, North Dakota, New Jersey, Nevada, Oklahoma, and Texas.  That isn’t a comprehensive list, nor can AppellateStrategist list all the wrinkles and permutations in this post.  But the point is clear.  There’s a growing movement afoot to impose a bright line on the imposition of punitives, thereby streamlining or eliminating the current multipart constitutionality analysis mandated by State Farm Mut. Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408, and BMW of North America, Inc. v. Gore (1996) 517 U.S. 559.

PRODUCT WARNING CASES.  AB2740 would also bar punitive damages in products cases if the warning accompanying the product was “either approved by, or in material compliance with,” a statute, or the standards, rules, regulations or requirements of the federal or state agency responsible for “regulating, evaluating, or approving the product.”  Should the bill pass, it would apply to every products-warning “case pending on or after the date of enactment regardless of when the case was filed.”

The sole exception is that the bar would not apply if plaintiff proves by clear and convincing evidence that defendant intentionally withheld or intentionally misrepresented information it was required to submit to the agency at any time, and the withholding or misrepresentation of that information was causally related to the injury or harm alleged.

AppellateStrategist will monitor the bill, and provide regular updates.  Stay tuned.

"Cutting-Edge" Law: Another California Court Trims a 7-Figure Punitive Damages Award Down to Size

Add yet another appellate opinion to the growing list of California courts that have cut punitive damage awards on constitutional excessiveness grounds. In this one, Amerigraphics, the jury awarded $3 million in punitive damages in an insurance bad faith case.  The trial court cut that number  to $1.7 million, but according to the California Court of Appeal (Second District, Division 2), that was not enough.  The constitutionally-permissible maximum was $500,000. 

At the risk of looking a gift horse in the mouth, the case is a mixed bag for insurer defendants.

One of the principal questions in deciding excessiveness is how bad – “reprehensible” -  the defendant’s conduct was.  That is determined under a scale of relative reprehensibility.  The theory is simple: relatively speaking, some acts and harms are worse, and therefore more deserving of punishment, than others.  For example:

1. Defendants who are repeat offenders – who have committed the act before – need a bigger punishment to discourage them from repetition, to get the message across.

Amerigraphics rejected the notion that an insurer which commits multiple acts in the handling of a single claim for benefits can be viewed as a “repeat offender.”  Though the insurer’s

“conduct could  be characterized as more than a single isolated incident, as the evidence showed several discrete acts of misconduct involving Amerigraphics’s claim for coverage under various policy provisions, the conduct at issue ultimately involved only one insured and one claim. There was no evidence presented that [the insurer] acted similarly toward other insureds in similar circumstances.”   (Emphasis added.)

More authority for the “one claim, one punishment rule.”  That’s as it should be.  Any act – such as the denial of a single claim for benefits – could theoretically be broken down into a series of smaller “sub-acts.” That doesn’t mean the punishment should be multiplied by the number of sub-acts.  (See also Walker v. Farmers Ins. Exch. (2007) 153 Cal.App.4th 965, 975; 63 Cal. Rptr. 3d 507)  Courts should not be in the business of finding ways to maximize a plaintiff’s punitive award.  By definition, in the constitutionality jurisprudence, the plaintiff is made whole by the compensatory award;  the punitive award punishes the defendant; it does not compensate the plaintiff for the injury.

2. Physical harm is worse than economic harm, but, relatively speaking, a defendant who causes economic injury to a financially vulnerable plaintiff deserves more punishment.  

Amerigraphics suggested that the very nature of the insurance relationship means that insureds will qualify as “financially vulnerable.”  The court relied on the “unique” nature of the relationship: insureds purchase policies “precisely to buy peace of mind and security.” Therefore, an insured is “not on equal footing . . . .” with its insurer.  That may have been true in the Amerigraphics case, which involved a small insured put out of business by the carrier’s claims handling, but it does not apply across the board, nor should it.  When, e.g., the insured is a large corporation with an insurance claim, the parties are on relatively equal footing.  The concept of financial vulnerability is not automatically satisfied merely because this is an insurance relationship.  Example in point: Slottow v. Amer. Cas. Co. of Reading, Pa. (9th Cir. 1993) 10 F.3d 1355, 1362 (applying Calif. law.)

Illinois Supreme Court Will Release Two New Civil Opinions on Thursday

The Illinois Supreme Court announced this afternoon that it will release seven opinions [pdf] on the morning of Thursday, April 15th, including two civil cases:

  • No. 106511, Carter v. SSC Odin Operating Company, LLC, which presents the issue of whether the clauses of the Illinois Nursing Home Care Act invalidating any contractual provision limiting a resident's cause of action under the Act, or waiving jury trial, are preempted by the Federal Arbitration Act?
  • No. 107146, Slovinski v. Elliott, which presents the following issues: (1) Must a Circuit Court make findings of fact and conclusions of law before it may set aside a jury's award of punitive damages?  (2) What standard of review applies to an Appellate Court's power to review a punitive damages award? and (3) May a party attack a punitive damages award based on lack of evidence, when the party declined to produce that evidence in discovery? 

For full details on these cases, click our Illinois Supreme Court Update.  These cases can be found under the links for Arbitration, Punitive Damages, and Civil Procedure, respectively.

California: Cutting Back On Punitive Damages Against Insurers?

With a recent employment decision, the California Supreme Court has handed insurance companies a compelling new argument, potentially limiting their exposure to punitive damages in bad faith cases. The question is: when is an insurance company subject to punitive damages for the acts of an employee/ adjuster in connection with the handling of a single insured’s claim for benefits? The answer is, in all probability: not as often as it was before.

In California, a corporate defendant can only be subject to punitive damages if a corporate officer, director or managing agent committed, authorized, or ratified the wrongful conduct. Cal. Civil Code, § 3294(b). Everyone knows who the officers and directors are, but the meaning of "managing agent" has been open to debate.

In 1999, the State Supreme Court, in White v. Ultramar, Inc. (1999) 21 Cal.4th 563, held a managing agent is someone who makes "corporate policy."

But White was an employment case. For the next decade, insureds continued to argue that the managing agent test was different for corporate insurer defendants. They relied on a 1972 State Supreme Court opinion – a holdover from the Bird Court - in an insurance bad faith case: Egan v. Mututal of Omaha Ins. Co. (1979) 24 Cal.3d 809. Egan, decided before the punitive damages statute was amended, had said that the corporate insurer could be liable for punitives for the adjuster’s malicious, fraudulent or oppressive acts because the insurer vested the adjuster with discretion over the handling of the claim.

Egan’s test for managing agent (discretion over a single claim) appears at odds with White’s narrower test (one who makes "corporate policy.") Which rule applies in bad faith cases? The White court clearly intended to narrow Egan’s definition of managing agent, but was Egan still good law in insurance lawsuits? White did not overrule Egan and in fact sometimes cited with it with seeming approval.

The tension between the two tests went unresolved, and indeed largely unnoticed until 2009. Then, one California intermediate court of appeal came down on the Egan side in an insurance case. (Major v. Western Mut. Ins. Co. (2009) 169 Cal.App.4th 1197.) Major held that it is the vesting of discretion in the adjuster that matters, not so much whether that adjuster is thereby making corporate policy.

But Major was on the books for barely half a year when it turned out to be not so "major" after all. In Roby v. McKesson Corp. (2009) 47 Cal.4th 686, the California Supreme Court explained what it meant by the making of "corporate policy," in the bargain further narrowing the test:

"we were referring to formal policies that affect a substantial part of the company and that are the type likely to come to the attention of corporate leadership. It is this sort of broad authority that justifies punishing an entire company for an otherwise isolated act of oppression, fraud or malice." (Emphasis added.)

Note the critical language:

  • The policy must be "formal;" it must affect a "substantial part of the company;" it should be of the type "likely" to come to the attention of the corporation’s leadership; indeed, the very rationale for imposing punitive damages is to punish the corporation for something it did, in its own right, not for a renegade or isolated act.
  • Roby thereby rejects the notion that a corporation can be subject to punitive damages for what might be characterized as the making of ad hoc "policy." Yet that is precisely what a rogue or unsupervised insurance adjuster does when "maliciously" handling a single claim.

Defense lawyers take note: Roby offers a potent new weapon in the arsenal for defending against punitive damage claims in bad faith cases. It is far from clear that an insurer can be subject to any punitive damages for merely vesting discretion in an adjuster in connection with a single claim for benefits.

Texas Supreme Court Civil Issues Pending: Intentional Torts


Conversion, Punitive Damages.
Does probative evidence support the finding that defendant stole 13 cattle? Did evidence support finding that defendant acted with malice under the “clear and convincing standard?” Is award of over $1 million in punitive damages constitutionally excessive in case involving theft of cattle worth approximately $5,000? Bennett v. Reynolds, No. 08-0074, formerly 242 S.W.3d 866 (Tex. App.—Austin 2007), review granted 08/28/09. 

Why File A Post-Trial Motion?

1. Snatch victory from the jaws of defeat. A new trial motion gives the trial judge a chance to cut the jury's punitive verdict, eliminate it altogether, or grant a new trial. A successful motion for judgment notwithstanding the verdict (JNOV) – known as JMOL in federal court - lets the trial judge declare the party who lost at trial the winner. These motions can be powerful tools for defendants, particularly useful in cases of large punitive awards. The trial judge has considerable power to reduce an excessive verdict or order a new trial.

2. Preserve issues/avoid waiver for appeal. In many states, a defendant who lost at trial must raise certain issues by way of a post-trial motion in order to preserve the right to raise that issue on appeal. That is increasingly true of punitive damage verdicts the defendant believes are excessive under federal constitutional law. A growing number of courts around the country are concluding that an excessiveness challenge may only be raised on appeal if the defendant has first filed a new trial motion on that ground.

3. Create a record for appeal. The cardinal rule of appellate practice is: if it's not in the record, it doesn't count. (See Ch. 2A, Imre & Schiavelli, Preserving the Record for Appeal, California Civil Appellate Practice (CEB 2005). Often, filing a post-trial motion is the only way to get a critical fact, issue or error into the record. Otherwise, the appellate court probably won't not consider it, even if it wanted to.

4. Strategic advantages. Defendant’s settlement leverage is usually at its lowest point just after the jury has rendered a large verdict. Many plaintiffs consider a judgment, however exorbitant, to be “money in the bank.” Strong, tightly-constructed post-trial motions can help bring the opponent back down to earth, forcing plaintiffs’ counsel to confront the weaknesses in his or her case. And often, a post-trial motion serves a secondary strategic purpose: to get a preview of plaintiff’s arguments on appeal. This can provide a distinct tactical advantage when it comes to preparing the first appellate brief.