To Win Punitive Damages for Pervasive Conduct in California, Plaintiff Must Specify Wrongdoer

February 3, 2021

In a recent unpublished opinion, California’s 2nd District Court of Appeal handed down a potentially significant opinion on the application of punitive damages.

In Morgan v. J-M Manufacturing Co. (Case. No. B297393), the court reversed an award of punitive damages because plaintiffs had failed to identify any particular officer, director or managing agent responsible for any of the alleged wrongs, sufficient to sustain a punitive damage award. Although the Morgan decision does not change the state of the law per se, it is a win for corporate or organizational defendants in that it highlights that plaintiffs must do more than simply show that it is possible that pervasive conduct existed, giving rise to the punitive damages claims.

The background of the litigation is straightforward: A married couple sued a host of defendants for damages based on the husband’s alleged exposure to asbestos. When the trial date arrived, only defendant J-M Manufacturing and one other defendant remained. Before closing argument, plaintiffs settled with the other defendant. The jury eventually awarded over $15 million in compensatory damages, attributing 45 percent to J-M, and an additional $15 million in punitive damages, finding that J-M had acted with malice, oppression or fraud. On appeal, the court upheld the liability findings, but reversed the punitive damages award.

At issue was whether plaintiffs had put forward sufficient evidence to demonstrate that an officer, director or managing agent of J-M acted with the requisite mens rea to support a punitive damages award. Plaintiffs contended that they need not identify particular actions by any particular officer, director or managing agent to hold J-M liable for punitive damages because the “entire organization was involved in the acts giving rise to malice.” Instead, plaintiffs contended that they need only show that the actions pervaded the entire company.

The Court of Appeal held that was not the case. Supporting its decision, the court pointed to plaintiffs’ utter failure to address J-M’s corporate and governance structure, lumping all J-M affiliates and employees together, and referring to those affiliates and individuals only in the plural — as “they” — throughout trial. The Court of Appeal clearly stated that the decision was not that plaintiffs could never put forward sufficient evidence supporting a punitive damages award, but rather that plaintiffs had not done so in this case.

Despite being unpublished and (ostensibly) staying the course with relevant legal standards, the opinion does offer a positive outlook for the application of punitive damages awards in California. Plaintiffs must do more than simply demonstrate that an entire organization was involved in the actions giving rise to punitive damages, but also must somehow connect those actions to specific individuals or structures demonstrating corporate knowledge. This makes sense. The point of punitive damages is to punish the wrongdoer. Absent specific evidence, a company or organization could be punished for simply being a company or organization.