What Are Punitive Damages?

Punitive damages are awarded to punish the defendant and to deter others from similar misconduct.

These differ from economic and non-economic damages, which attempt to compensate a plaintiff for their injuries.

Punitive Damages in California

Under California law, punitive damages may be available when the “defendant has been guilty of oppression, fraud, or malice.” 

These three terms are defined as:

  • Malice. Conduct intended to harm a person or other despicable conduct that is carried out with a conscious disregard to others’ safety.
  • Oppression. Despicable conduct in conscious disregard of a person’s rights that subjects them to cruel and unjust hardship.
  • Fraud. The “intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention [to deprive] a person of property or legal rights or otherwise causing injury.”

Punitive damages must be proven by clear and convincing evidence in California. 

Actions Limiting or Prohibiting the Award of Punitive Damages

These damages generally are not available in breach of contract causes of action. Nor can they be sought against the government. In wrongful death cases, they are only available in cases where the death “resulted from a homicide for which the defendant has been convicted of a felony.”

Defendant’s Ability to Pay

Unlike many states, California also requires proof that the defendant has the ability to pay the award to justify punitive damages. This is based on the following common law rationale that “punitive damages are intended to deter wrongful conduct and not destroy the defendant.”

Are Punitive Damages Available Under Federal Law?

In federal claims, punitive damages may be awarded if “the defendant’s conduct that harmed the plaintiff was malicious, oppressive or in reckless disregard of the plaintiff’s rights.” Depending on the type of action, they must be proved either by a preponderance of the evidence or clear and convincing evidence. For example, maritime cases require a preponderance of the evidence. 

With a few statutory exceptions, the courts determine which standard applies for each type of claim on a case-by-case basis.

Constitutional Limitations

Where punitive damages are available, the U.S. Constitution places constraints upon the amount that may be awarded.

Due process prohibits the punishment of a defendant in a grossly excessive or arbitrary manner. 

The constitutionality of the amount awarded is determined by considering three factors:

“(1) the degree of reprehensibility of the defendant’s misconduct, (2) the disparity between the actual or potential harm suffered by the plaintiff and the size of the award, and (3) the difference between the award and the civil penalties authorized or imposed in comparable cases.”

The following case provides an example of how a court applies these factors. In Simon v. San Paolo U.S. Holding Co., Inc., plaintiff Lionel Simon owned a paper supply company, which he operated in a leased building. 

Defendant San Paolo U.S. Holding Company, Inc. (San Paolo Company) owned an office building in Los Angeles. Simon became interested in the building for his business and negotiated with the defendant to purchase it. He offered Duane King, a San Paolo vice-president, $1.2 million. After this oral offer, King twice raised the asking price, but the parties finally reached a tentative written agreement of $1.1 million. This agreement letter stated that the parties would negotiate exclusively with each other to complete the purchase. 

Simon hired a lawyer to help him and paid the lawyer a non-refundable $5,000 retainer.

Despite the agreement letter, King continued to negotiate the sale of the building with other prospective buyers and told the real estate broker not to disclose this to Simon. King eventually reached an agreement with one of these buyers and opened escrow. Nevertheless, while escrow with this other buyer was open, King continued to negotiate further with the plaintiff.

Simon found out about the pending sale to another buyer and sued San Paolo for breach of contract and promissory fraud. At trial, the jury found the defendant had acted with fraud, malice, or oppression. It awarded Simon $5,000 in compensatory damages and $1.7 million in punitive damages.

The San Paolo Company appealed, claiming the punitive damages award amount was unconstitutionally excessive. Ultimately, the California Supreme Court reviewed the case.

It applied the three factors. With respect to the first factor, reprehensibility, the court looked at the defendant’s misconduct and found that its single failed promise had “to be regarded as of relatively low culpability.” It noted the lack of conscious disregard of the plaintiff’s rights and only moderate economic harm.

For the second factor, the ratio of punitive damages to compensatory damages, the court noted that the United States Supreme Court has held that “‘few awards exceeding a single-digit ratio … to a significant degree, will satisfy due process.’” Here, the ratio was $1.7 million to $5,000, or 340:1. The California Supreme Court found this to be grossly excessive.

Under the third factor, the court compared $1.7 million with relevant California statutes for unfair competition ($2,500 penalty) and criminal fraud ($10,000 fine). It found the comparisons “clearly [did] not tend to support the present award of $1.7 million.”

Punitive damages are not available in all types of cases. When they are, they often require proof by clear and convincing evidence. An experienced injury lawyer at Mission Personal Injury Lawyers can help navigate the complexities of the law and help maximize your chances of being awarded punitive damages. Don’t hesitate to contact our San Diego office, or call us at (619) 777-5555 to get started with your case.