Court Issues Significant Verdict Reduction Based in Part on Jury Error of Finding Intentional Misrepresentation and Fraudulent Concealment

In a case previously reported on in ACT, a California jury found for the plaintiffs, Louis Tyler and Elizabeth Tyler and against defendant American Optical Corporation (AOC), the lone defendant remaining at trial, with an award of $22.8 million. This award consisted of $1.8 million in economic damages (medical expenses, lost income, household services, etc.) and $21 million in non-economic damages. The jury also found that AOC acted with malice, oppression and fraud, and awarded $10 million in punitive damages. The overall verdict totaled $32.8 million.

The jury made several findings as to liability. Although AOC was 70 percent liable for the plaintiffs’ losses, it assessed responsibility to other actors as well. The jury found that 3M Company (maker of a mask that Mr. Tyler used for three years) was 5 percent liable; Foundry Service (Mr. Tyler’s employer during the years of alleged exposure) was 20 percent liable; and Mr. Tyler was himself 5 percent responsible. Under California Law, Proposition 51, Cal. Civ. Code Sec. 1431.2, a negligent tortfeasor is only responsible for its liability share of the total verdict. However, because the jury had found that AOC had committed the intentional torts of fraud and concealment, the court did not reduce the amount of non-economic damages to AOC’s liability share as Proposition 51 does not apply in favor of an intentional tortfeasor as against the plaintiffs or negligent tortfeasors [Citation Omitted].

Post-verdict, AOC moved for judgment notwithstanding the verdict on all claims including excessive damages and claims of intentional misrepresentation and fraudulent concealment.

On July 18, 2016, the Superior Court of California, Los Angeles County, granted AOC’s motion for judgment notwithstanding the verdict with respect to claims for intentional misrepresentation and fraudulent concealment. The motions for judgment notwithstanding the verdict as to all other causes of action were denied. The court supported this holding as follows.

The court agreed with AOC’s arguments that the jury erred with respect to claims of intentional misrepresentation and fraudulent concealment against AOC. The jury was instructed in this case that a plaintiff seeking to prove fraud bears a heavy burden, and must establish, among other elements, the intent to defraud and justifiable reliance of the same. Going against the jury’s determination, the court ultimately found that the circumstantial evidence in this case “may be sufficient to support a failure to adequately warn a foreseeable misuse, but there is no substantial evidence that AOC intentionally sought to defraud consumers, or that Mr. Tyler acted as the result of such fraud.” The court’s ruling required the reduction of the verdict to reflect the proportion of responsibility for non-economic damages as assigned by the jury (AOC is ordered to file a proposed judgment making these reductions within ten court days. The plaintiffs will have ten court days to object to such a judgment). The court’s reduction would essentially reduce the non-economic damages from $21 million to approximately $14.7 million. The economic damages of $1.8 million would go not be reduced. If accepted, the reduced total for compensatory damages would be $16.5 million.

AOC also moved for a new trial or remittitur based on (1) irregularity in proceedings; (2) jury misconduct; (3) excessive damages; (4) insufficient evidence; and (5) legal errors. Upon review, the court found the compensatory damages of $22.8 million was not out of proportion to the evidence of the losses suffered by the plaintiffs. It was noted that while this award appeared high in relation to other personal injury awards in that same judicial district, a court’s own opinion of whether a particular verdict is high or low for a given injury is highly subjective, and anecdotal. The California Court of Appeals has cautioned courts against giving too much weight to this type of comparison and advised “for a reviewing court to upset a jury’s factual determination on the basis of what other juries awarded to other the plaintiffs for other injuries in other cases based up different evidence would constitute a serious invasion into the realm of fact finding.” This judge further noted he has the experience of one lifetime, not twelve, and is not inclined to second-guess the jury on this question. Thus, the court found the amount awarded for compensatory damages was not disproportionate to the damages suffered.

With respect to the jury’s award of $10 million for punitive damages, the court found that it was excessive and not reasonably related to the purposes for imposing punitive damages. When considering whether a given award is excessive when measured against the purposes of punitive damages, routs often consider the percentage of net worth represented by the award, allowing awards up to 10 percent of the defendant’s net worth. California courts have routinely upheld punitive damage awards which amounted to a percentage of net worth from .005 percent to 5 percent, and not exceeding 10 percent. [Citation Omitted]. In this matter, AOC has essentially gone out of business. AOC has no operations, does not make or sell products and has no income from patents or licenses, and has a negative net worth of $9.6 million. It continues to exist largely as an administrative convenience to the insurance companies that are paying the claims. AOC’s only substantial asset was $1 million in cash in its accounts (details of which were never explained to the jury). However, at trial, the court allowed the plaintiff’s expert to testify that the evidence indicated that AOC paid its obligations when they came due because that is the recognized indication of solvency. It was also elicited that AOC paid its liabilities through insurance. Due to this fact, the jury believed AOC could pay the punitive damage award of $10 million. Through various calculations, the court ruled that the jury could have found that $1.5 million constituted AOC’s available “wealth” despite the negative net worth previously stated. Ten percent of this “wealth” amount is $150,000.

Based on the above, the court issued an order conditionally granting the motion for a new trial on the issue of punitive damages and the new trial will be granted unless the plaintiffs (within 30 days of service of the order), file their consent to a reduction in the amount of punitive damages in the amount of $9,850,000. This reduced the punitive damages from $10 million to $150,000.

Read the full decision here.