The Issue
California's Civil Code section 3294 governs the question of when punitive damages may be recoverable. The two substantive provisions of Civil Code section 3294 separately address liability for punitive damages individually and on behalf of a corporate employer. While subdivision (a), which addresses individual liability, clearly requires proof by clear and convincing evidence, subdivision (b), which addresses corporate liability for punitive damages, is silent on the standard of proof required for the imposition of punitive damages.
California's model jury instructions provide no further guidance of the standard of proof required to impose punitive damages upon a corporate defendant. The existing Book of Approved Jury Instructions ("BAJI") and the new California Judicial Council's Civil Jury Instructions, which take effect September 1, 2003, both state in their Use Notes that no California case has determined whether a plaintiff must prove managing agency or corporate ratification for purposes of imposing punitive damages against a corporation by a preponderance of the evidence or the higher clear and convincing standard.
Barton v. Alexander Hamilton Life Insurance Company of America
In Barton v. Alexander Hamilton Life Insurance Company of America (2003) E030085 (Citation Pending), Thelen Reid & Priest LLP attorneys James Moak and Kenneth Pedroza argued to the Court of Appeal that the higher clear and convincing evidentiary standard should apply to proof of managing agency or corporate ratification in order for a plaintiff to recover punitive damages from a corporate defendant. In a published decision, the Court of Appeal for the Fourth Appellate District, Division 2, agreed and held that a plaintiff seeking an award of punitive damages against a corporate defendant must prove, by clear and convincing evidence, that the offending conduct was performed by a managing agent or that the corporation knowingly ratified the offending conduct.
The decision from the Court of Appeal created new law that is the first to address the standard of proof required to prove managing agency and corporate ratification. Plaintiffs will no longer be able to avoid summary judgment or nonsuit by making reference to evidence that would satisfy the preponderance of the evidence standard, but fail to meet the clear and convincing evidentiary standard. For corporate defendants, future claims of punitive damages sought on the basis of a managing agents' conduct, or conduct that was arguably ratified by the corporation, will be more easily susceptible to pre-trial resolution, thus avoiding the necessity of paying an inflated settlement to avoid the risk of punitive damages. The higher standard created by Barton will benefit corporate defendants facing punitive damage claims at trial as well.
Finally, the Barton decision is expected to have a collateral impact. Other California statutes incorporate the proof requirement of Civil Code section 3294. (See, e.g., California Elder Abuse and Dependent Adult Civil Protection Act.) Corporate defendants will also benefit from the higher burden of proof required to establish managing agency or corporate ratification under the statutes that incorporate Civil Code section 3294.