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"Punitive Demages in Nursing Home Litigation"

December 1, 2001

Avoiding or Mitigating the Risk of
Punitive Damages in Nursing Home Litigation



INTRODUCTION

Punitive damages are the greatest exposure in nursing home tort litigation. Historically, punitive damages are returned by juries against unpopular defendants, such as insurance companies, railroads, and governments. In today’s society, nursing homes unfortunately are in the upper percentage of such “unpopular” defendants, increasing the risk of punitive exposure in tort cases. Witness the recent $100 million punitive damage verdict against a California HMO! There are societal reasons to explain this phenomenon: While many nursing homes are small, there are huge national organizations (corporate conglomerates) and their size causes them to be unsympathetic in the eyes of a jury; nursing homes are in business to make a profit, profits are increasingly tough to obtain in the healthcare field, and the concern for profits will therefore sometime result in less sympathetic treatment for the patient, the patient himself/herself is often elderly, vulnerable, and fragile – increasing the sympathy in front of a jury.

From a defense perspective, the problem with punitive damages is that, unlike compensatory damages, juries are given virtually no concrete, definite guidelines to assist them in deciding whether and how much should be awarded in punitive damages. Therefore juries are largely turned loose, and astounding high awards frequently result from a jury “gone amuck”. Fortunately many of these awards are reduced or reversed on appeal, but the real task for the nursing home, claim representative, risk manager, and defense trial lawyer is to eliminate or reduce the punitive damage exposure at the trial court level.

Attached to this paper is an outline of several important “lessons” that the nursing home and its attorney can utilize to get jury sympathy on the side of the defense and to reduce or eliminate the punitive damage exposure. It is very important to have a game plan in such a trial, and we believe that these suggestions can be very helpful in reducing exposure.

THE LAW THAT APPLIES

The subject of punitive damages is largely governed by the law in each individual state. Each state has its own distinct law, although there are important common threads among most of the states.

Therefore, when examining exposure to punitive damages, the practitioner must consult the law of the state where the trial is taking place. Any award of punitive damages rendered in a state court trial must pass the “constitutionality” test set forth in the U.S. Supreme Court case of BMW v. Gore, 517 U.S. 559 (1996). This provides an additional potential weapon for judging and attacking punitive damages. Because the law of each state varies, we shall use for illustrative purposes the law of the state of California when discussing punitive damages. California law is consistent with the majority view in the United States.


PURPOSE OF PUNITIVE DAMAGES

Punitive damages as a matter of public policy are meant to punish a defendant for especially egregious conduct and to deter the defendant from committing such conduct in the future. [See Stevens v. Owens-Corning Fiberglass Corp., (1996) 43 Cal.App.4th 1525.]

THE KIND OF CONDUCT NECESSARY TO JUSTIFY PUNITIVE DAMAGES

In California, for example, there is a statute (Civil Code Section 3294) which sets forth the kind of conduct that a defendant must be found guilty of before punitive damages can be awarded.

The statute allows punitive damages if the defendant acts with “malice, fraud, or oppression.” The statute has been around for many years, but was amended about ten years ago to “tighten up” the definition of malice (the most frequent basis for a jury’s award of punitive damages). Malice is now defined to mean vile, despicable conduct, beneath all standards of human decency. [See College Hospital v. Superior Court, (1994) 8 Cal.4th 704, 725.] Punitive damages may also be awarded for simple fraud or deception – a wrong that is sometimes seen in commercial settings. Nursing home defendants will have to be concerned with claims of “fraud” in connection with the financial arrangements that they make with patients, how the assets or property of patients are handled, etc., and alleged misrepresentations made to patients or relatives concerning the nature and scope of care and the condition of the patient.

THE REASONABLE RELATIONSHIP REQUIREMENT

Some states, such as Texas, have a ceiling or cap on punitive damages (no more than two times the amount of the compensatory damages). Most states do not, and the question then arises as to what is the permissible limit on the size of punitive damages is.

Most courts state that the punitive damage award must bear a “reasonable relationship” to the size of the compensatory award. [See Torres v. Automobile Club of Southern California, (1997) 15 Cal.4th 771.] It is difficult, if not impossible, however, to develop a mathematical formula which sets the outer limits for punitive awards based upon this concept. Awards have been upheld which are hundreds of times greater than compensatory awards, and awards have been stricken which are ten times the compensatory award. [See TXO Production Corp. v. Alliance Resources Corp., (1993) 509 U.S. 443 (United States Supreme Court upheld a punitive damage award of $10 million where compensatory damages were $19,000); Neal v. Farmers Insurance Exchange, (1978) 21 Cal.3d 910 (California Supreme Court upheld punitive damages award that was 74 times greater than compensatory damages); Weeks v. Baker & McKenzie, (1998) 63 Cal.App.4th 1128 (punitive damages award that was five times compensatory damage award upheld).

This is illustrative of the central problem with respect to punitive damages, namely, the lack of meaningful guidelines to assist the jury in working its way through the punitive damage question. As a result, shocking awards are often returned which are then reduced or stricken by higher courts or by the trial judge in post-trial motions.

SPECIAL ISSUES ASSOCIATED WITH PUNITIVE DAMAGE CLAIMS AGAINST CORPORATION

It is generally true that a corporation is not automatically vicariously liable for punitive damages because of the malicious conduct of a lower level employee. [See 6 Witkin, Summary of California Law, (9th Ed. 1988) Torts, §§ 1134-1346.] Instead, a corporation is only liable if a “managing agent” or high corporate official commits the malicious act, or if the corporation directs or authorizes the malicious act or, after the act has been committed, ratifies the act (for example by retaining the bad employee after knowledge of the act without disciplining the employee). [California Civil Code §3294(b); Stephens v. Coldwell Banker Commercial Group, Inc., (1980) 199 Cal.App.3d 1394; Kelly-Zurian v. Wohl Shoe Company, Inc., (1994) 22 Cal.App.4th 397; Weeks v. Baker & McKenzie, (1998) 63 Cal.App.4th 1128.]

THE EFFECT OF THE U.S. SUPREME COURT DECISION IN BMW V. GORE

In 1996 the U.S. Supreme Court handed down the important decision of BMW v. Gore, 517 U.S. 559. Because of the huge uncertainty in the state courts of the country concerning the limits on punitive damages, the business community waited with great interest for guidance from the Supreme Court on this subject. Of course, the Supreme Court only hears cases concerning the “constitutionality” of certain issues, and that indeed was the question before the court in the Gore case: Did the punitive damage verdict rendered in an Alabama state court satisfy constitutional standards of due process, or was the Constitution violated?

The Court did hand down some verbal guidelines which will be helpful to the defense. These guidelines will assist defendants and their counsel in arguing to trial judges that the punitive damage question should not go to the jury at all, or, after trial, arguing to trial judges that the jury verdict is too high, too severe, and violates constitutional standards. BMW v. Gore will also give ammunition to the defense in appellate attacks on excessive punitive damage awards.

A review of the “standards” set forth in BMW v. Gore is helpful in understanding the new advantages provided by that decision to the defense.

Gore mandates that trial judges should examine the degree of “reprehensibility” of the defendant’s conduct and the ratio of the punitive damages to the compensatory harm suffered. These are the two principle tests. If, after applying these test, the award is deemed to be grossly excessive, it should be set aside or reduced.

The Importance of the “Reprehensibility” Test

The defense will get more mileage from arguing that the defendant’s conduct was not sufficiently reprehensible than the defense will in arguing that the punitive award does not bear a reasonable relationship to the compensatory award. With respect to the latter standard, the Supreme Court gives us no mathematical guide, and there is little to be found in the decisions of the separate states.

Conveniently, the BMW court created a hierarchy of “bad acts” in terms of what is most reprehensible down to what is the least reprehensible. These are as follows:

Did the defendant act violently or threaten bodily harm?
Was the defendant indifferent or reckless with regard to the health and safety of individuals?
Did the defendant act maliciously?
Did the defendant engage in fraud or deceit?
Was the defendant guilty of other bad acts (i.e. was there a pattern or practice involved or recidivism)?
Did the plaintiff suffer mental distress?
When bodily harm is not involved, but only economic harm, was the victim in a vulnerable position?

Turning specifically to the exposure of nursing homes, various of these factors may be implicated:

1. Violence: If patients are uncooperative, and attendants threaten bodily harm, punitive exposure may be high, especially if the corporate nursing home learns of the inappropriate conduct and fails to discipline the employee.

2. Indifference to Safety Violations: We sometimes read press reports about the deplorable health and safety conditions of nursing homes and healthcare facilities. If this results in misery or injury to patients, punitive exposure could be significant.

3. Fraud or Deceit: This factor may be implicated in numerous ways: The initial contractual relationships between patients and their family may be challenged, with charges of misrepresentation and deceit; once the nursing home commences caring for the patient, misrepresentations may be made to the patient’s family or friends in the face of inquiries concerning the patient’s health or condition – lulling the family into a false sense of security, even though the facts are quite to the contrary; some nursing homes may have custody or control over the patient’s assets and may abuse this position of “trust”.

4. Mental Suffering: This will frequently be present in cases of abuse.

5. Vulnerability of the Patient: Almost always present, creating significant sympathy factors.

6. Pattern and Practice and Recidivism: Many courts, including California, are much more likely to sustain a punitive damage award if the defendant is guilty of a pattern and practice (i.e. similar acts). The reason is that a pattern or practice demonstrates a necessity to punish the defendant so that such conduct is not committed in the future. An isolated single incident is not in the same category. In nursing home litigation, one may therefore expect onerous and potentially embarrassing discovery requests concerning all past similar complaints, disciplinary actions taken by government authorities, and discovery of all information designed to show a pattern and practice on the part of the defendant that has not been remedied. These discovery efforts can be resisted successfully, but the effort in doing so is a heavy one. The evidence can obviously be inflammatory. It may be useful for a nursing home defendant to show the absence of a pattern and practice in order to diffuse punitive exposure.

THE RELATIONSHIP BETWEEN THE DEGREE OF REPREHENSIBILITY AND THE AMOUNT OF THE PUNITIVE AWARD

Counsel for the defense can argue that the nursing home’s conduct, while reprehensible to some degree, is not nearly as bad as that found in other decisions and that accordingly, any punitive damage award should be reduced substantially. In other words, the defense should attack the “degree” of reprehensibility in an effort to reduce a large punitive award. This will probably be a more effective tactic than arguing that the punitive award does not bear a “reasonable relationship” to the compensatory award. The latter still remains a fuzzy standard, and the Supreme Court has given us little additional concrete ammunition to attack punitive verdicts.

GOING ON THE OFFENSIVE

Attached to this paper is a practical outline of numerous steps which the defense can take to ingratiate itself with the jury and to eliminate or mitigate punitive exposure. These steps require great pretrial effort and preparation and development of important trial strategy techniques.