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The California Supreme Court this week agreed to decide the boundaries for punitive damage awards under California law. The court granted review in two cases in which state appeal courts, interpreting a landmark 2003 U.S. Supreme Court opinion on punitives, ended up with drastically different results. In State Farm Mutual Automobile Insurance Co. v. Campbell, 123 S.Ct. 1513, the nation’s high court ruled that punitives must bear some reasonable relationship to the harm involved. Although the court had been reluctant to identify concrete ratios, Justice Anthony Kennedy wrote that “in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages will satisfy due process.” Citing State Farm, the Fifth District Court of Appeal in November reduced a punitive award in a lemon law case from $10 million to $53,435, or three times the compensatory damages. That unpublished decision was in Johnson v. Ford Motor Co. But in December, the Second District Court of Appeal upheld $1.7 million in punitive damages in a real estate fraud case where compensatory damages were only $5,000 — a ratio of 340-to-1 — in Simon v. San Paolo U.S. Holding Co., 03 C.D.O.S. 10376. Seven justices voted to grant review in Simon, S121933, on Wednesday, and six — all but Justice Marvin Baxter — in Johnson, S121723. Andre Jardini, a partner at Knapp, Petersen & Clarke in Glendale who represented plaintiff Lionel Simon, said the decision to review two interpretations of State Farm makes the outcome hard to predict. “I cannot read those tea leaves with any particular perspicacity,” he said. The Second District said the award in Simon was fine under State Farm standards, based on the reprehensibility of the act and the ratio of the damages to the actual harm. Simon had sued San Paolo seeking damages for breach of contract and fraud for an allegedly false promise to sell him property in downtown Los Angeles. “ State Farm was not intended to dispossess the states of their discretion over the imposition of punitive damages,” Justice J. Gary Hastings wrote in the Second District opinion. “We do not construe State Farm‘s suggested ratios as limiting the reviewing court to a comparison of punitive damages to an award of out-of-pocket expenses that does not reflect the full effect of the defendant’s conduct upon the plaintiff.” Although a jury awarded just $5,000, the plaintiff argued that the harm was actually $400,000 — the difference between the appraised value of a building and a falsely agreed upon sale price. The ratio between the harm and the $1.7 million punitive award, under the Second District’s analysis, would be 4-to-1. Conflicting California appellate decisions following State Farm have left the Judicial Council of California at a loss when it comes to civil jury instructions, according to draft instructions circulated for public comment last month. “Because of the recent and rapidly developing state of California law,” the draft says, the council’s Advisory Committee on Civil Jury Instructions has elected not to make substantive modifications to instructions on punitive damages for now.

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