In Gober et al v. Ralphs Grocery Company (Cal. Ct. of Appeal 3/1/06), the California Court of Appeal, for the first time, set a standard for determining the appropriate amount of punitive damages in a sexual harassment case. In this case, the Court held that the maximum permissible ratio between the punitive damages and compensatory damages awarded was 6 to 1.
In Ralphs, six female employees sued Ralphs for sexual harassment based on misconduct by their supervisor, Roger Misiolek, a Store Director. According to the facts determined by the jury at the sexual harassment trial, Misiolek had, before being transferred to the store at which the employees worked, engaged in significant abusive behavior towards women he supervised. This misconduct included throwing telephones and sharp objects at women, using profanity and vulgarity, keeping female employees in his office alone for prolonged periods of time, and placing his arms around female employees. He also berated and mistreated female employees, and used profanity in front of customers. The jury also found that Misiolek's management was aware of this conduct before Misiolek was transferred to the store at which he supervised the aggrieved employees.
At the new store, Misiolek would grab the aggrieved employees by their waists or faces and would touch or try to touch their breasts. He used profanity, inappropriately commented on their sex lives, and threw various objects at them. A husband of one of the employees, who also worked for Ralphs, ultimately complained after his wife told him that Misiolek had physically grabbed her and forcibly threw her into a chair in his office.
Upon receiving the complaint, Ralphs immediately conducted an investigation, in which Misiolek denied the allegations. Ralphs' management concluded that some of the complaints had merit, and Misiolek was counseled and advised to obtain professional counseling. Ralphs then transferred Misiolek to another store, in the same position of Store Director. The fact that Misiolek's commute was longer was intended to be Misiolek's punishment. Ralphs did not, however, advise anyone at the new store of Misiolek's prior conduct.
At the new store, employees complained about Misiolek's temper, use of profanity and habit of throwing things. There were no complaints about inappropriate touching. A customer also complained, which led to Misiolek being counseled again, and being warned again that future conduct would lead to his removal from management. After more complaints were received, Misiolek was demoted to food clerk and reassigned to work in a warehouse at a different store. Misiolek ultimately resigned.
The jury awarded each of the six women different amounts of compensatory damages for emotional distress. Those amounts ranged from $50,000 to $200,000. Additionally, the jury awarded the women a total of $3.3 million in punitive damages based on its determination that there was clear and convincing evidence that Ralphs knew of Misiolek's conduct and employed him in conscious disregard of the rights and safety of others. Due to jury misconduct during the punitive damages phase of the trial, the judge vacated the punitive damages portion of the verdict and ordered a new trial on punitive damages only.
After multiple appeals, the case went to trial a second time. After a several week retrial, the jury awarded a total of $30 million in punitive damages, awarding $5 million to each aggrieved employee. Finding the verdict to be excessive and the result of passion or prejudice caused by the misconduct of the employees' counsel throughout the trial, the trial court ordered a new trial as to any employee who would not agree to a reduction of her punitive damages amount to a ratio equal to 15 times her compensatory damages award. Two of the employees accepted the reduced amounts and four did not.
Multiple appeals followed. The most significant issues in the most recent appeal were: (a) whether a judge can determine that a jury's punitive damages verdict is constitutionally excessive and enter a judgment as a matter of law (notwithstanding the jury's verdict) in a specific Constitutionally permissible amount of damages; and (b) if so, what would be the appropriate amount of punitive damages under the facts of this case. The California Supreme Court recently addressed this issue in a different context in the case of Simon v. San Paolo U.S. Holding Co., in which it held that, except in egregious circumstances or where there is only a nominal compensatory award, the Constitutionally permissible ratio of punitive damages to compensatory damages should not exceed single digits (that is, 9 to 1).
Analyzing all of the facts of this case, and applying the various guideposts promulgated by the California and federal courts, the Court of Appeal determined that Ralphs' reprehensibility was only "modest," and that a ratio of 6-to-1 was appropriate based on the facts of this case.
Employers' Bottom Line:
This case could have a far-reaching impact on employment litigation, especially in jurisdictions in which exorbitant punitive damages awards have become an issue. The California Court of Appeal relied heavily on U.S. Supreme Court case law and decisions from lower federal courts in determining the Constitutionally permissible damages ratio in this case. Because of that, courts in other jurisdictions may rely on this decision in determining the permissible damages ratio in pending cases.
Frequently, in California and other jurisdictions, plaintiffs may elect to take a case to trial even though they are not particularly damaged, believing that the "brass ring" of punitive damages is unlimited, particularly where the employer is perceived as being a "deep pocket." By following the reasoning of the California court, which requires a reasonable correlation between the actual damages suffered and the punitive damages awarded and evaluates the reprehensibility of the employer's conduct, courts in other jurisdictions may be able to control runaway jury verdicts which are based primarily on the employer's perceived deep pockets.
The author of this Alert, Helene Wasserman, is a partner in Ford & Harrison's Los Angeles office and represented Ralphs during the second jury trial and on the numerous appeals filed in this case. If you have any questions regarding this decision, please contact Ms. Wasserman at 213-237-2403, hwasserman@fordharrison.com.