California's Governor Wants State to Pocket Punitives

California Gov. Arnold Schwarzenegger has shocked the legal community with a proposal that the state take 75 percent of all punitive damage awards -- much like the split-award system already used by eight other states. The governor's office estimates the proposal will raise $450 million, which would go into a trust fund to be used for "public good purposes." The governor also wants only one punitive damage award available for a given act.

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California Gov. Arnold Schwarzenegger shocked the legal community Thursday with a proposal to have the state take 75 percent of all punitive damage awards. The proposal, buried in the governor’s 97-page summary of revisions to the state’s annual budget, would raise an estimated $450 million for the state’s general fund. Schwarzenegger is also seeking language that would make only one punitive damage award available for a given act. According to the governor’s proposal, “The award of the punitive damages, as intended to punish the defendant and set an example, should more appropriately be awarded to the state where it can be used for public good purposes that are consistent with the nature of the award.” The money collected would go into a special Public Benefit Trust Fund to be used to pay for “state programs and purposes consistent with the award.” According to the budget document, eight other states — Alaska, Georgia, Illinois, Indiana, Utah, Iowa, Missouri and Oregon — already have split-award statutes. The proposal was met with applause from business interests. “We see it as a win-win across the board except for the trial lawyers, who have made billions on punitive damages,” said John Sullivan, president of the Civil Justice Association. Plaintiffs lawyers expressed alarm. “The governor’s proposal, would, in my judgment, significantly immunize the type of conduct juries find to be despicable, and which should result in significant awards not only to punish the defendant for engaging in the conduct, but to deter that defendant and others who would engage in similar conduct,” said James Sturdevant, president of the Consumer Attorneys of California. He added that there may also be “significant constitutional barriers” to the governor’s plan. Sturdevant questioned the governor’s estimate of a $450 million take. That presupposes that California plaintiffs are awarded $600 million in punitives a year — a tough haul, he said, given that the national average per plaintiffs award is only $43,000. Gary Gwilliam, of Oakland-based Gwilliam, Ivary, Chiosso, Cavalli & Brewer, said he was especially disturbed that such a sweeping change would be introduced as a single page in the state budget revision. “It’s something that should be very carefully brought out in legislative hearings,” said Gwilliam. He added that “the mere fact that someone comes up with some cockamamie idea about something they do in Utah” does not mean that California should follow suit. Even defense attorneys questioned the policy behind the proposal. Theodore Boutrous Jr., a Gibson, Dunn & Crutcher partner who represents Ford Motor Co. in a rollover case where a California jury originally awarded $290 million, said he didn’t think the governor’s proposal would eliminate unreasonable punitive damages because it wouldn’t limit the total dollar amount that a plaintiff can collect. “Unless there are limits on the amount that can be imposed in a particular case � this type of system will still leave unresolved some of the biggest problems in the system,” he said. Boutrous added that juries might be encouraged to award even larger amounts if they know most of the money will go to the state. John Burris, a plaintiffs attorney in Oakland, said it would be a travesty for victims of corporate misconduct. It could also alter settlement strategy, he said, predicting that plaintiffs attorneys would begin asking for larger compensatory awards. Another plaintiffs lawyer, Stephen Purtill of San Mateo’s O’Reilly, Collins & Danko, noted that punitive damage awards are already heavily taxed by the government. Purtill and other attorneys said that while record-breaking punitive awards grab headlines, they are rare, with even fewer withstanding appeal. Several lawyers doubted the state could net $450 million. Laurence Drivon, a Stockton plaintiffs attorney who was co-counsel in Romo v. Ford Motor Co., the $290 million rollover case, said the idea of diverting punitives to public use is an old idea. Drivon said plaintiffs attorneys have suggested legislation in the past to give the government or charities a cut. He said the defense bar has been opposed. “I wouldn’t necessarily be opposed to it,” he said. Peter Glaessner, the second vice president of the Association of Northern California Defense Counsel, couldn’t say if his group had opposed previous proposals. But Glaessner said that in other states, defense lawyers have worried that juries would be more likely to hand out large punitive awards if they know the money will help boost government services. Still, he said, “I’m not sure that has happened.” Glaessner, who wasn’t aware of the proposal until Thursday, said his group hasn’t taken a position on it. “The proposal has a certain logic to it,” the Lombardi, Loper & Conant partner said. “Punitive damage awards are designed to deter conduct, not to provide a monetary windfall to any single plaintiff.”

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