Punitive Damages: Ratio to Compensatory Damages

Roby v. McKesson Corporation, (Supreme Court of California, November 30, 2009) 47 Cal. 4th 686, 219 P.3d 749, 101 Cal.Rptr.3d 773, 22 A.D. Cases 1041, 09 Cal. Daily Op. Serv. 14,189, 2009 Daily Journal D.A.R. 16,712

A woman who alleged she was wrongfully discharged from her employment because of her medical condition and related disability, filed an action against her employer seeking damages for harassment and discrimination. Following a jury verdict in favor of the plaintiff which included over $3 million in compensatory damages and $15 million in punitive damages, the court of appeal reduced the award of compensatory damages to $1.4 million and the punitive award to $2 million.

The plaintiff petitioned for review in the California Supreme Court, asserting that the jury’s entire $15 million award fell within constitutional limits and should be reinstated. However, the Supreme Court reversed the judgment of the court of appeal and reduced the award of compensatory damages to $1.9 million, concluding that due the relatively low degree of reprehensibility on the part of the employer, a one-to-one ratio between compensatory and punitive damages was the constitutional limit:

“With respect to the discrimination claim, employer McKesson’s wrongdoing was limited to its one-time decision to adopt a strict attendance policy that, in requiring 24-hour advance notice before an absence, did not reasonably accommodate employees who had disabilities or medical conditions that might require several unexpected absences in close succession. McKesson’s act of discharging Roby (including the perfunctory investigation that accompanied it) was simply an application of this attendance policy in accordance with its terms. The jury found that McKesson’s adoption of this flawed attendance policy constituted “oppression” or “malice,” justifying an award of punitive damages. (Civ.Code, § 3294, subd. (a).) Nevertheless, McKesson’s adoption of this attendance policy was a single corporate decision.
. . .
With respect to the harassment claim, McKesson’s corporate wrongdoing was also a single event. In considering this issue, it is important to keep in mind that a corporate defendant cannot be punished for harassment merely because one of its employees has harassed another employee in the workplace; rather, the focus of the punitive damages inquiry must be on the corporation’s institutional responsibility, if any, for that harassment.
. . .
That McKesson thereafter continued to employ Schoener as Roby’s supervisor without taking any corrective measures indicates “conscious disregard of the rights or safety of others” (Civ.Code, § 3294, subd. (b)), thus warranting punitive damages.
Nevertheless, the evidence establishing corporate wrongdoing in regard to supervisor Schoener’s unlawful harassment of Roby does not indicate any repeated corporate misconduct. There is no evidence, for example, that Schoener’s actions toward Roby were the product of a corporate culture that encouraged similar supervisorial conduct. Rather, they appear to be the isolated actions of a single supervisor, combined with the one-time failure on the part of employer McKesson to take prompt responsive action when these events came to its attention.
. . .
In applying the federal Constitution here, we have taken McKesson’s wealth into consideration, and more to the point we have taken into consideration the deterrent effect that is appropriate in light of McKesson’s wrongdoing. We nevertheless conclude that punitive damages in an amount equal to compensatory damages marks the constitutional limit in this case and still provides the appropriate deterrence.”