On June 9, 2016, the California Supreme Court issued its decision in Nickerson v. Stonebridge Life Insurance Co., holding that so-called Brandt fees should be treated as compensatory damages when calculating the ratio of punitive to compensatory damages even when they are awarded by the trial court after the jury has returned its punitive damages award.
As discussed in my post about our amicus brief for the Chamber of Commerce in Nickerson, Brandt fees are the attorneys’ fees incurred by an insured in obtaining policy benefits that an insurer has been held to have denied the insured in bad faith. Accordingly, at first blush Nickerson may appear to be irrelevant outside the insurance context. But that first impression may be mistaken.
Because our friends at California Punitive Damages have already done an excellent recap of the decision, I am going to focus on two aspects of Nickerson that may be important to all defendants, not just insurers.
First, I find it troubling that the court provided a gerrymandered description of the U.S. Supreme Court’s guidance regarding permissible ratios of punitive to compensatory damages. Focusing exclusively on the Supreme Court’s admonition that ordinarily “few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process,” the court ignored the Supreme Court’s additional statements that “an award of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety” and that “[w]hen compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee.”
This could be merely a function of the fact that the trial court had reduced the punitive damages to a 10:1 multiple of the tort damages, excluding the Brandt fees. But I worry that the oversight may be indicative of the general leanings of the current California Supreme Court. Though the court has not had a pro-business majority in quite some time, with the addition of Justices Liu, Cuellar, and Kruger (the author of Nickerson), the current court may be among the least business-friendly in decades.
It was less than seven years ago that the California Supreme Court held in Roby v. McKesson Corp. that a 1:1 ratio of punitive to compensatory damages was the constitutional maximum under the circumstances of that case. Nickerson does not so much as cite Roby, let alone acknowledge its ratio analysis. Could this be an indication that the current California Supreme Court is going to retreat from its recognition that the Constitution may often require ratios far lower than 10:1?
The second aspect of the decision that could have broad significance is the court’s rationale for holding that Brandt fees should be included in the punitive/compensatory ratio even when they are awarded by the court after the jury has already returned its punitive award.
The court explained that “[b]ecause the Gore guideposts are designed to govern postverdict judicial review of the amount of a jury’s award, not the adequacy of the jury’s deliberative process, there is no apparent reason why a court applying the second guidepost may not consider a postverdict compensatory damages award in its constitutional calculus.” In supporting this conclusion, it pointed out that “in Gore itself, the United States Supreme Court’s application of the guideposts touched on matters of which the jury could not have been aware when it rendered its punitive damages verdict.” And it further emphasized that “the third [Gore] guidepost, concerning available sanctions for comparable misconduct, is by its nature a question aimed at reviewing courts, rather than juries.”
As I pointed out in the post about our amicus brief in Nickerson, this rationale should be a two-way street. If reviewing courts must consider damages awarded by a court post-trial about which the jury had no knowledge when it set the punitive award, so too should reviewing courts be required to consider other post-trial evidence, such as evidence of other punitive awards imposed against the defendant for the same conduct, administrative fines for that conduct, and post-verdict changes in the defendant’s financial condition. It remains to be seen whether the California courts will adopt this more laissez faire approach to post-verdict review or instead treat Nickerson as a one-way ratchet.