COURT OF APPEAL APPLIES FEDERAL DUE PROCESS LIMITS TO EXCLUDE EVIDENCE OF HARM TO OTHERS TO PROVE LIABILITY FOR PUNITIVE DAMAGES

In Holdgrafer v. Unocal Corp. (2008) ___ Cal.App.4th ___ (March 4, 2008, Case No. B175953), the California Court of Appeal reversed a $5 million punitive damage award because (1) evidence of defendant's dissimilar acts toward others was improperly introduced to show entitlement to punitive damages and (2) the jury was not instructed that it could only consider evidence of similar harm to others in determining the amount of punitive damages. Click here to read a copy of the Court of Appeal's opinion.

Unocal owned and operated a series of subterranean oil pipelines in Central California. At some point, a leak occurred and plaintiffs' commercial property was contaminated. As soon as the leak was discovered, Unocal admitted it was responsible and worked with local officials and the plaintiffs to monitor the site and ensure there was no danger from the contamination. Unocal also provided plaintiffs with financial assistance necessitated by the contamination. Plaintiffs ultimately sued Unocal for negligence, nuisance and trespass. Plaintiffs also sought punitive damages. To support their claim for punitive damages, plaintiffs introduced evidence of Unocal's response to other oil spills in the same geographic area. Unocal objected on the basis that its conduct in response to the other spills was dissimilar to its conduct toward the plaintiffs and proposed a jury instruction informing the jury that Unocal should not be punished for its conduct toward non-parties. The trial court permitted the evidence and rejected the instruction. The jury ruled in plaintiffs' favor and awarded roughly $2.5 million in compensatory damages and $10,000,000.76 in punitive damages, which the trial court remitted to $5,000,000.

The Court of Appeal reversed the punitive damage award and ordered a new trial on both liability for punitive damages (i.e., whether Unocal acted with malice, fraud, or oppression toward plaintiffs) and the amount, if any, of punitive damages. The Court of Appeal found that the evidence of Unocal's response to the other two oil spills was "too dissimilar to the evidence presented regarding Unocal's conduct in causing and responding to the contamination of plaintiff's property and therefore should have been excluded." The court reasoned that "State Farm [v Campbell's] proscription of dissimilar conduct to prove the amount of a punitive damages award also applies to evidence offered to prove that the defendant is guilty of malice, fraud, or oppression and is therefore subject to such an award."

The Court of Appeal also held that the trial court erroneously denied "Unocal's request to instruct the jury, in accordance with State Farm, that it should not consider conduct it deemed too dissimilar to that which harmed plaintiffs in deciding whether to award punitive damages." The Court held this error required reversal because such an instruction "would have properly informed the jury that Unocal could not be punished for the impact its alleged misconduct had on others who were not parties to the litigation."

Horvitz & Levy LLP represented Unocal on appeal. For additional information, contact Jeremy Rosen at jrosen@horvitzlevy.com or at 818-995-0800.

Click here to visit Horvitz & Levy's punitive damages blog, http://www.calpunitives.com/.

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