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Business interests and plaintiffs attorneys both claimed victory Thursday in a pair of California Supreme Court decisions testing the limits of punitive damages. It’s the first time the state Supreme Court has interpreted a 2003 landmark U.S. Supreme Court ruling, State Farm Mutual Automobile Insurance v. Campbell, 538 U.S. 408, that curtailed large awards. Both opinions — one unanimous, the other 5-2 — were authored by Justice Kathryn Mickle Werdegar. In most cases, the high court said in State Farm, punitives should be no more than nine times compensatory damages. But the Supremes left room for exceptions, and plaintiffs and defendants have been sparring over when to go beyond the “single-digit” range. With Thursday’s rulings, the state justices tried to resolve a discrepancy between lower courts’ interpretations of State Farm. The 5th District Court of Appeal had used State Farm to reduce a $10 million punitive award against Ford Motor Co. to $53,435. The 2nd District took a broader approach, upholding $1.7 million in punitives in a real estate fraud case in which the trial court determined actual loss to be only $5,000. State Supreme Court justices “are taking a more narrow, restrictive interpretation on damage awards,” said Lawrence Abelson, a partner at Los Angeles’ Epport, Richman & Robbins, which represented the defendant on the hook for $1.7 million. Now, Abelson’s client in Simon v. San Paolo U.S. Holding, 05 C.D.O.S. 5207, will likely only have to pay $50,000 in punitives. Although the unanimous ruling leaves plenty of wiggle room in figuring out punitives, the dollar amount is in line with the U.S. Supreme Court’s guideposts. “Obviously, we’re thrilled by the decision,” Abelson said. Daniel Smith of Kentfield, Calif., who filed an amicus curiae brief on behalf of Consumer Attorneys of California, was also pleased. Some state appeal courts have used State Farm as a springboard to further limit punitives, he said. But now the state Supreme Court “has restored California law to the condition that State Farm dictates,” Smith said. Smith also said the new ruling is a signal to plaintiffs lawyers to recast their strategies to avoid Lionel Simon’s trouble — his punitive claims were sunk because he didn’t prove a $400,000 loss. Simon’s counsel, Andr� Jardini, a partner at Glendale, Calif’s Knapp, Petersen & Clarke, wasn’t quite as optimistic and read the opinion as a hit on the idea of punitives. “We’ve lost sight of the purpose of punitives — to deter conduct in favor of what is a restricting kind of approach,” Jardini said. “You can’t have a one-size-fits-all punishment. Courts want flexibility.” In the companion case, Johnson v. Ford Motor, 05 C.D.O.S. 5215, justices rejected a $10 million jury award. But they also weren’t satisfied with the 5th District’s reduction to $53,435 and ordered appellate judges to take another look. More importantly, said Erwin Chemerinsky, the Duke University School of Law professor who argued on behalf of plaintiff Greg Johnson, justices also rejected defendants’ arguments that punitives should only be used to punish behavior within the four corners of the case at issue. Johnson had sued over his purchase of a Ford Taurus with a faulty transmission, and the high punitive award was an attempt to recover profits reaped by Ford in similar sales throughout California. “California law has long endorsed the use of punitive damages to deter continuation or imitation of a corporation’s course of wrongful conduct, and hence allowed consideration of that conduct’s scale and profitability,” Werdegar wrote. “We do not read the high court’s decisions, which specifically acknowledge that states may use punitive damages for punishment and deterrence, as mandating the abandonment of that principle.” Justices Marvin Baxter and Janice Rogers Brown dissented. Although they agreed it’s OK to use broad behavior in figuring out punitives, they believe the appeal court had properly considered the issue. Chemerinsky is confident his client will do better than $53,435 on the remand. “The California Supreme Court made it clear that punitive damages exist to punish and to deter an overall course of wrongful conduct in the state,” Chemerinsky said. “I’m thus very confident that we’ll get an increase in punitive damages in the Johnson case.” Gibson, Dunn & Crutcher partner Theodore Boutrous Jr., who argued on behalf of Ford, is likewise certain the redo will go in his client’s favor. “We believe that the court did perform an analysis,” Boutrous said. “On remand, it’s just really a matter of spelling it out better. All this case was about was this one vehicle.”

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