California Supreme Court Applies a 1:1 Ratio of Punitive Damages to Compensatory Damages in an Employment Action
In an employment case involving alleged wrongful termination and harassment, the California Supreme Court has embraced the principle suggested by the U.S. Supreme Court that a ratio of punitive damages to compensatory damages of one-to-one is the federal constitutional maximum where there is relatively low reprehensibility and the compensatory damages award is substantial.
In Roby v. McKesson Corporation (S149752, filed November 30, 2009), plaintiff Charlene Roby claimed she was fired because of a medical condition and a related disability. A jury found in her favor and awarded her $3.5 million in compensatory damages and $15 million in punitive damages against her employer, McKesson.
The California Court of Appeal reduced the compensatory damages award to $1.4 million, finding there was insufficient evidence for a harassment verdict against McKesson and that the $15 million punitive damages award was excessive under the federal due process clause. The Court of Appeal determined that the maximum permissible punitive damages award, based on the facts of the case and size of the compensatory damages award, was $2 million, or 1.4 times the amount of the compensatory damages award.
The California Supreme Court reversed, holding that there was sufficient evidence to support the harassment verdict and affirming $1.9 million in compensatory damages. While the Supreme Court agreed that the award of $15 million in punitive damages was excessive, it rejected the Court of Appeal’s adoption of a maximum ratio of 1.4-to-one, instead holding that the ratio could not exceed one-to-one.
The California Supreme Court based its determination on an analysis of the five “reprehensibility factors” articulated by the U.S. Supreme Court inState Farm Mut. Auto Ins. Co. v. Campbell, 538 US 408 (2003): (1) the harm caused was physical as opposed to economic, (2) the defendant’s indifference to or reckless disregard of the health or safety of others, (3) the plaintiff’s financial vulnerability, (4) the defendant’s conduct involved repeated actions or an isolated incident, and (5) the harm was the result of intentional malice, trickery or deceit. The California Supreme Court found that only the first three factors were present, and that the defendant’s conduct “was at the low end of the range of wrongdoing.” Nevertheless, it found that corporate managers with substantial authority had participated in some of the misconduct at issue.
Based on a one-to-one ratio, the Court slashed the punitive damages award from $15 million to a $1.9 million maximum. The Court noted that when the amount of compensatory damages is substantial, the maximum permissible ratio of punitive damages is low, especially where, as in this case, the compensatory damages award includes a punitive component in the form of emotional distress damages.