Johnson v. Ford Motor Co.

BAXTER, J,,

Concurring and Dissenting.—I concur in the rationale and holding of the majority opinion. However, I disagree with two aspects of the majority’s characterization of the opinion of the Court of Appeal below.

First, I do not agree that the Court of Appeal failed to properly consider the evidence of Ford Motor Company’s policies and practices, and their scale and profitability, in reaching its determination that a punitive damages award of three times the compensatory damages is the maximum constitutionally permissible award under the three-pronged test of State Farm Mut. Auto Ins. Co. v. Campbell (2003) 538 U.S. 408 [155 L.Ed.2d 585, 123 S.Ct. 1513] (State Farm). Nor do I agree that the Court of Appeal gave no express weight *1215to the scale and profitability of Ford’s conduct in its analysis of reprehensibility under the first prong of that test. (Maj. opn., ante, at p. 1213.)

In discussing the sufficiency of the evidence to support the award of punitive damages in this case, the Court of Appeal wrote, “Compelling evidence . . . supports an inference that the present transaction was typical of owner appreciation certificate transactions, which numbered over 1,000 per year, and that the use of such certificates was intended, as a matter of policy, to short-circuit lemon law claims . . . .” The court concluded that “the evidence clearly supports an inference that defendant’s entire customer response program was structured precisely to short-circuit lemon law claims whenever defendant plausibly could.”

Then, in specifically discussing the reprehensibility of Ford’s conduct under the first prong of the State Farm three-pronged test, the Court of Appeal opined, “it is reprehensible for a regulated manufacturer to implement a scheme that intentionally undermines the protections granted consumers by state law. If the manufacturer believes the law is too vague to implement or requires of it inconsistent actions, the courts are available to the manufacturer to challenge the law. If it simply does not like the law or thinks it practically unworkable, the manufacturer has the right to petition the Legislature. It should go without saying, however, that the manufacturer does not have the right simply to ignore the parts of the law it finds objectionable. [][] Yet that is exactly what the evidence shows defendant did in the present case. Defendant declared the ‘reasonable attempts’ standard of the lemon law ‘not definable’ and ignored it. It implemented through formal policies a practice of resolving all ‘reasonable attempts’ claims through a ‘stair-step’ series of inducements that permitted defendant to avoid reacquiring vehicles and notifying subsequent buyers of the claims concerning such vehicles. While this program provided some relief to defendant’s new-car buyers, it entirely frustrated the additional goal of the lemon law to protect subsequent purchasers of such vehicles. Such intentional conduct is highly reprehensible.”

These passages in the opinion of the Court of Appeal, which was ordered not to be published by that court, to my mind plainly reflect that the appellate court did consider and weigh Ford’s general policies and practices of issuing “owner appreciation certificates” as an alternative to strict compliance with this state’s lemon law. Moreover, the court expressly found such widespread pattern of conduct “highly reprehensible” under the first prong of the State Farm test when it set the maximum constitutionally permissible punitive damages award at three times the compensatory damages. The Court of Appeal’s understanding that deterrence is a valid purpose to be served by punitive damage awards was further reflected in the court’s conclusion on the matter: “Applying the three guideposts in the present case, we determine that punitive damages in the amount of $53,435, three times the compensatory *1216damages, is not constitutionally excessive and satisfies the state’s legitimate interest in punishing the conduct that harmed the plaintiffs, thereby deterring similar conduct by defendant or others in the future.” (Italics added.)

Second, I do not agree with the majority’s characterization of the Court of Appeal’s conclusions reached under the third prong of the State Farm test—the “comparable civil penalties” guidepost. The majority suggests the Court of Appeal’s discussion of this guidepost fails to “explain the drastic reduction ordered” and “lacks a justification for restricting punitive damages to three times the compensatory award.” (Maj. opn., ante, p. 1213.)

In the companion case of Simon v. San Paolo U.S. Holding Company, Inc. (2005) 35 Cal.4th 1159, we explained that “The third guidepost is less useful in a case like this one, where plaintiff prevailed only on a cause of action involving ‘common law tort duties that do not lend themselves to a comparison with statutory penalties’ (Continental Trend Resources v. OXY USA, Inc. [(10th Cir. 1996)] 101 F.3d [634,] 641), than in a case where the tort duty closely parallels a statutory duty for breach of which a penalty is provided.” (Id. pp. 1183-1184.) Accordingly, we concluded in Simon that “While comparison to these statutory penalties cannot tell us precisely how large an award would be constitutional, it clearly does not tend to support the present award of $1.7 million in punitive damages, a sum 340 times the financial harm defendant’s fraud caused plaintiff.” (Id. at p. 1184.)

In contrast to cases like Simon, which involve common law tort duties that do not lend themselves to a comparison with statutory penalties, the Court of Appeal below expressly recognized that this case does implicate legislatively prescribed statutory penalties for the very conduct that established the basis for an award of compensatory damages to plainitiffs. As the Court of Appeal explained, “where a defendant has ‘willfully’ violated the Song-Beverly Consumer Warranty Act, the Legislature has determined that the punitive interests of the state are satisfied by a civil penalty equal to twice the damages award. ([Civ. Code,] § 1794, subd. (c).)”

I find the Court of Appeal’s discussion of comparable civil penalties under the third guidepost of State Farm right on the money. As the court observed, “the jury expressly concluded that the car, when reacquired from the McGills, was in fact a lemon under the [Song-Beverly Consumer Warranty Act] statutory definition,” and that “defendant acted with intent to defraud plaintiffs when it failed to designate the car as a lemon and disclose that status to plaintiffs.” In other words, unlike the tortious conduct at issue in Simon, here the jury found for plaintiffs on statutory causes of action for which the Legislature has specifically authorized the doubling of compensatory damages as the appropriate statutory penalty in furtherance of the goal of deterrence under California law.

*1217The Court of Appeal found the Legislature’s determination that double-damages is the appropriate civil penalty for violations of the Song-Beverly Consumer Warranty Act “significant” under the third guidepost of State Farm. I agree. The majority suggests the Court of Appeal’s conclusion in this regard fails to explain the “drastic reduction ordered.” (Maj. opn., ante, p. 1213.) But the necessity of a “drastic reduction” in the punitive damages award in this case is not the result of the Court of Appeal’s whim or caprice—it is a direct consequence of the jury’s having erroneously awarded plaintiffs $10 million in punitive damages on the basis of disgorgement of profits earned by Ford through its entire course of wrongful conduct toward other consumers. The Court of Appeal, in contrast, was simply striving to follow the high court’s three guideposts set forth in State Farm, and under the third guidepost, the appellate court concluded the existence of legislatively prescribed civil penalties for the very conduct that formed the basis of the compensatory damages award against Ford is relevant in setting the maximum constitutionally permissible punitive damages award. I would therefore not fault the Court of Appeal for supposedly failing to explain in its discussion of relevant comparable civil penalties the necessity for the drastic reduction of the $10 million punitive damages award in this case.

In its discussion of the third State Farm guidepost, the Court of Appeal went on to reason that, “In the present case, the punitive damages award arises from a fraud cause of action which, although based on the failure to make Song-Beverly disclosures, goes beyond Song-Beverly’s requirements of a ‘willful’ violation. In the present case, the jury found defendant intentionally concealed the information with the intent to defraud plaintiffs. Accordingly, while the double damages penalty of [Civil Code] section 1794, subdivision (c) is significant, it does not establish a legislative intent to limit punishment of the present, intentional misconduct.”

In short, the Court of Appeal concluded that tripling the compensatory damages award was justifiable under State Farm and the facts of this case because Ford’s conduct was “highly reprehensible” and willfully intended to defraud plaintiffs, and because such egregious conduct went well beyond that minimally required to establish a violation of the Song-Beverly Consumer Warranty Act.

I therefore conclude the Court of Appeal did properly discuss and consider Ford’s pattern of wrongful conduct toward other consumers in assessing the “reprehensibility” of Ford’s conduct under the first prong of the State Farm test, and did validly discuss and consider the civil penalties authorized under the Song-Beverly Consumer Warranty Act in assessing comparable civil penalties under the third prong of the high court’s test.

*1218Like Justice Chin, I conclude that nothing in today’s majority opinion precludes the Court of Appeal on remand from reconsidering all relevant factors in determining de novo the maximum permissible constitutional punitive damages award in this case. Nor is the Court of Appeal precluded from reaching the same result on remand after reconsidering all relevant factors if the court believes that result is correct under the law. (Conc. opn. of Chin, J., ante, p. 1214.)

Brown, J., concurred.