2:1 Ratio of Punitive to Compensatory Damages Appropriate, California Court Says

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In a recent disability discrimination case, a California trial court properly reduced a second jury’s $5 million punitive damages award to $1,831,290 (a 2:1 ratio), instead of a 1:1 ratio, the California Court of Appeals stated.

Background

In Contreras-Velazquez v. Family Health Centers of San Diego, Inc., 62 Cal. App. 5th 88 *; 2021 Cal. App. LEXIS 227 **; 276 Cal. Rptr. 3d 358; 2021 WL 1034831 (March 18, 2021), Rosario Contreras-Velazquez worked as a medical records clerk and a patient service representative for Family Health, a nonprofit organization that operates community health clinics. She was there from 2003 to 2006, but was rehired to Family Health’s medical records department in 2008. In 2012, she suffered a work-related repetitive stress injury to her right upper arm. She underwent surgery to treat the injury, but the surgery wasn’t effective.

Velazquez returned to work after her surgery and, in December 2013, was transferred to Family Health’s call center to work as an appointment tech. In her new position, she had to use a headset and a PC mouse repetitively for up to eight hours a day. Family Center provided her with a right-handed computer mouse and a pull-out tray for her mouse on the right side of her desk. But within days of beginning her new position, she had pain in her right arm. She told her supervisor about this and asked for an accommodation such as a left-handed mouse or a roller mouse. Family Health provided Velazquez a roller mouse, but it didn’t work properly. About a week after she started her new position, her boss told her to stop coming to work, schedule an appointment with her doctor, and provide a doctor’s report before returning to work.

Velazquez saw her doctor, who prepared a report indicating she complained of pain on both sides, did not feel able to do her usual job duties, and wanted to be taken completely off work because of significant discomfort. Nonetheless, the report indicated that she could return to modified work with some restrictions. The report stated Velazquez was “eventually going to wind up with some fairly profound limitations in the long run” and Family Health should contact her doctor to discuss her work status because “whatever they have her doing at work is just aggravating everything, which is going to be to nobody’s advantage.”

A few days after the doctor’s visit, Velazquez provided the doctor’s report to her supervisor and spoke with a human resources representative about her injury. The HR rep told her to stay home and continue seeing her doctor. For the next three months, she didn’t work per the HR reps’ instructions. She visited her doctor monthly and provided Family Health a doctor’s report after each visit. Family Health didn’t contact her doctor to discuss possible work arrangements to accommodate her injury. However, one of Family Health’s HR representatives searched online for employment positions that were available and suitable for Velazquez given her qualifications and work restrictions, but she was unable to identify a position appropriate for her.

Family Health terminated her in April 2014. In two separate conversations, she told one of their HR representatives she wanted to stay employed and asked if there were any jobs available for her. The HR rep stated they couldn’t accommodate her disability and could no longer employ her.

The First Trial

Velazquez sued Family Health alleging six causes of action under the California Fair Employment and Housing Actdisparate treatment based on physical disability; failure to accommodate physical disability; failure to engage in the interactive process; hostile work environment; retaliation; and failure to prevent discrimination; as well as a cause of action for wrongful termination in violation of public policy.

The jury found for Family Health on all seven causes of action. Velazquez moved for a new trial on grounds that the evidence was insufficient to justify the verdict. She didn’t limit the scope of her request for a new trial; therefore, she presumably sought a new trial on all seven causes of action. However, in a supplemental brief, she limited the scope of her new trial request to three causes of action—the FEHA causes of action for failure to accommodate, failure to engage in the interactive process, and failure to prevent discrimination.

The court granted the motion for a new trial on the three causes, holding that the weight of the evidence was that (1) Family Health failed to participate in a timely, good faith interactive process with Velazquez to determine whether reasonable accommodation could be made; (2) Velazquez was able to perform essential job duties with reasonable accommodation for the physical disability; and (3) Family Health failed to provide reasonable accommodation for her. As a result, the court ordered a new trial for the failure to accommodate, failure to engage in the interactive process, and failure to prevent discrimination causes of action.

The First Appeal

Family Health appealed the order granting a partial new trial. They argued that substantial evidence didn’t support the trial court’s reasons for granting a new trial. The Court of Appeals rejected Family Health’s sufficiency of the evidence argument and affirmed the partial new trial order.

On remand, Family Health moved for summary judgment and argued that all three causes of action required Velazquez to show that she was able to perform her essential job duties with reasonable accommodation for her disability. Family Health stated the first jury resolved this issue against Velazquez when it returned its special verdict finding Family Health not liable for disparate treatment based on physical disability. Velazquez didn’t pursue—and the trial court did not grant—a new trial for Velazquez’s disparate treatment cause of action. The trial court denied Family Health’s motion for summary judgment, reasoning as follows:

The issue of whether Plaintiff could have performed her essential job duties with reasonable accommodation as it related to the three causes of action remaining has not been finally adjudicated and collateral estoppel, therefore, does not bar [Velazquez] from proceeding on the three pending causes of action.

The court added that it “saw no persuasive authority to support [Family Health’s] position … that because a trial court granted a new trial on less than all the causes of action (thereby simply reducing [Velazquez’s] claims) that [Velazquez] nevertheless had to proceed to overturn the jury’s findings as to any cause of action containing a common element.”

The Retrial

A jury found in favor of Velazquez on all three causes of action and awarded her $915,645 in compensatory damages consisting of $115,645 for past economic loss, $50,000 for future economic loss, $450,000 for past noneconomic loss, and $300,000 for future noneconomic loss. The jury also returned a special verdict finding Family Health engaged in conduct with malice, oppression, or fraud. The jury awarded Velazquez $5 million in punitive damages, and the trial judge entered judgment in favor of Velazquez in the amount of $5,915,645.

Family Health then filed a motion for JNOV, arguing, inter alia, that the punitive damages award was grossly excessive in violation of its due process rights. The court granted the motion in part. It found, on the one hand, that Family Health’s conduct “appear[ed] to be the product of neglect as opposed to intentional malice,” the compensatory damages award was “substantial,” and the award for noneconomic damages appeared to contain a “punitive element,” factors that weighed in favor of a reduced punitive damages award. But the court stated that Family Health’s conduct was at least moderately reprehensible because it caused Velazquez physical harm in the form of emotional distress, Velazquez was financially vulnerable, and Family Health engaged in a “course of conduct showing a conscious disregard for the health, safety and rights of [Velazquez].”

These were factors that weighed against a reduction of the punitive damages award. Based on these findings, the court determined a two-to-one ratio of punitive to compensatory damages was the maximum constitutionally permissible ratio for any punitive damages award. It therefore reduced the punitive damages award from $5 million to $1.83 million. Plus, the court awarded Velazquez attorney fees and costs totaling approximately $1.1 million.

The Court of Appeals Says That the Reduction of Punitive Damages Award Was Proper

Family Health also appealed the partial JNOV order reducing the punitive damages award from $5 million to $1,831,290 (a two-to-one ratio of punitive to compensatory damages). They argued that any punitive damages award exceeding $915,645 (a one-to-one ratio of punitive to compensatory damages) violates its federal due process rights. Velazquez cross-appealed the partial JNOV order and asserted that the jury’s original punitive damages award of $5 million (a 5.46-to-one ratio of punitive to compensatory damages) was constitutionally permissible. She sought reinstatement of the original $5 million punitive damages award.

Presiding Justice Judith McConnell, with Associates Justices Patricia D. Benke and Joan K. Irion, concurring, wrote in her opinion that the U.S. Supreme Court has articulated “a set of substantive guideposts that reviewing courts must consider in evaluating the size of punitive damages awards:

  • the degree of reprehensibility of the defendant’s misconduct;
  • the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and
  • the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.

Justice McConnell noted, citing an early case, that this “exacting appellate review” is designed to make certain that punitive damages are the product of the “application of law, rather than a decisionmaker’s caprice.”

Reprehensibility

Of the three guideposts articulated by the U.S. Supreme Court, Justice McConnell stated that the most important is the degree of reprehensibility of the defendant’s conduct, the Court wrote. In assessing reprehensibility, the Court must consider the following five factors:

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

The Court found that some reprehensibility factors were present, while others are absent or present only to a small extent. On balance, the Court agreed with the trial court’s assessment that Family Health’s conduct was moderately reprehensible.

Disparity Between Compensatory Damages and Punitive Damages

As to the second guidepost governing the constitutionality of a punitive damages award—the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award—Justice McConnell opined that the U.S. Supreme Court has refrained from “identify[ing] concrete constitutional limits on the ratio between harm, or potential harm, to the plaintiff and the punitive damages award.” Despite this, it’s “establish[ed] a type of presumption: ratios between the punitive damages award and the plaintiff’s actual or potential compensatory damages significantly greater than 9 or 10 to 1 are suspect and, absent special justification … cannot survive appellate scrutiny under the due process clause.”

“Multipliers less than nine or 10 are not, however, presumptively valid” under the due process clause, the Court wrote. “When compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee.” A lesser ratio may also be warranted where the compensatory damages award appears to contain a punitive element—for example, a substantial award of emotional distress damages. Ultimately, the precise amount of an award “must be based upon the facts and circumstances of the defendant’s conduct and the harm to the plaintiff.”

“Quite A Handsome Recovery”

In this case, the jury awarded Velazquez $915,645 in compensatory damages consisting of $165,645 for economic losses and $750,000 for noneconomic losses including pain and suffering. Justice McConnell stated there can be no reasonable dispute the compensatory damages award was substantial, or as the trial court put it, “quite a handsome recovery.” Further, it’s apparent the compensatory damages contain a punitive element. The judge found that while the record supports a finding that Velazquez suffered noneconomic losses, the sheer amount of the damages that were awarded for noneconomic losses—$750,000, or 4.5 times the amount of Velazquez’s total economic losses—shows the compensatory damages award is to some extent duplicative of the punitive damages award.

“These factors warrant a lower ratio of punitive to compensatory damages,” Justice McConnell held.

Given the sizable compensatory damages award as well as the state’s relatively diminished interests in punishment and deterrence, Justice McConnell held that Family Health’s financial condition didn’t warrant a punitive damages award exceeding a two-to-one ratio of punitive to compensatory damages.

The final guidepost requires a comparison of the punitive damages award and civil penalties authorized or imposed in comparable cases. Since neither party made mention of this, Justice McConnell stated that the Court wouldn’t consider this guidepost in ‘the calculus of the constitutional maximum of punitive damages.”

Justice McConnell and the panel held that Family Health engaged in misconduct that can be characterized as “somewhat or moderately reprehensible.” It caused physical harm to a financially vulnerable victim in a foreseeable manner. However, they weren’t recalcitrant in their misconduct, and much of its behavior appears to have been the product of mere neglect or accident. Further, the jury awarded Velazquez a substantial compensatory damages award that appears to contain a punitive element. Given all these factors, the Court of Appeals held that the trial court didn’t err in determining the constitutional maximum ratio for a punitive damages award was twice the amount of the compensatory damages award and therefore reducing the punitive damages award to $1,831,290. The judgment and the order granting partial JNOV were affirmed.

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Eanet, PC is a boutique law firm located in Los Angeles, California specializing in business litigation, real estate litigation, employment litigation, and employment advice and counsel. We represent and counsel companies in California regarding disability issues, accommodation, wrongful termination, retaliation and discrimination under California and federal law. Contact us to discuss your employment questions, including this new decision concerning punitive damages award ratios.

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