Adams v. Murakami

• Decision Date: 15 August 1991
• Citation: 54 Cal.3d 105,284 Cal.Rptr. 318,813 P.2d 1348
• Court: California Supreme Court
• Parties: , 813 P.2d 1348, 60 USLW 2154 Myretta ADAMS, as Conservator, etc., Plaintiff and Respondent, v. Clifford MURAKAMI, Defendant and Appellant. S003530.

Page 318

284 Cal.Rptr. 318

54 Cal.3d 105, 813 P.2d 1348, 60 USLW 2154

Myretta ADAMS, as Conservator, etc., Plaintiff and Respondent, v. Clifford MURAKAMI, Defendant and Appellant.

S003530.

Supreme Court of California,

In Bank.

Aug. 15, 1991.

Kirtland & Packard, Los Angeles, Horvitz, Levy & American, Horvitz & Levy, Barry R. Levy, Ellis J. Horvitz, S. Thomas Todd, Encino, Loren Homer Kraus, Greines, Martin, Stein & Richland, Irving H. Greines, Alan G. Martin, Beverly Hills, J. Richard Jennings, Thelen, Marrin, Johnson & Bridges, Curtis A. Cole, Patricia H. Wirth and Steven J. Bernheim, Los Angeles, for defendant and appellant.

Fred J. Hiestand, Sacramento, Haight, Brown & Bonesteel and Roy G. Weatherup, Santa Monica, amici curiae on behalf of defendant and appellant.

Kaufler & Scott, Kaufler, Bailey & Scott, Philip Kaufler, Lawrence W. Scott and Gary H. Amsterdam, Beverly Hills, for plaintiff and respondent.

Ian Herzog, Santa Monica, Douglas Devries, Sacramento, Leonard Sachs, Encino, Bruce Broillet, David Harney, Los Angeles, Laurence Drivon, Sacramento, Robert Steinberg, Los Angeles, Roland Wrinkle, North Hollywood, Harvey R. Levine, San Diego, Leonard Esquina, Sacramento and Evan D. Marshall, Corona, amici curiae on behalf of plaintiff and respondent.

BAXTER, Associate Justice.

The question in this personal injury action is twofold: (1) Is evidence of a defendant's financial condition a prerequisite to an award of punitive damages? (2) If so, is the burden on the plaintiff rather than on the defendant to introduce evidence of the defendant's financial condition? We answer both questions in the affirmative. Our prior decisions, constitutional considerations, and the importance of appellate review indicate that an award of punitive damages cannot be sustained on appeal unless the trial record contains meaningful evidence of the defendant's financial condition. The absence of this evidence thwarts effective appellate review of a claim that punitive damages are excessive. As to the second question, we conclude that Evidence Code section 500, the traditional allocation of burden of proof, and fundamental fairness require the plaintiff rather than the defendant to introduce this evidence.

FACTS

Lonetta Ree Adams, a diagnosed chronic schizophrenic of low intelligence, was a resident of View Heights Convalescent Hospital. Clifford Murakami, M.D., was her attending physician. Through her conservator, Adams brought this action against the hospital and Dr. Murakami for medical malpractice, battery, and intentional infliction of emotional distress. Adams alleged that, as a result of wrongful acts and omissions of the hospital and Dr. Murakami, she became pregnant by another patient while she was hospitalized and gave birth to a son who was diagnosed as mentally retarded and autistic. Adams's claims against the hospital were settled.

Adams's claims against Dr. Murakami proceeded to a jury trial. Neither Adams nor Dr. Murakami introduced at trial any evidence of Dr. Murakami's financial condition. The jury returned a verdict for Adams on her causes of action for medical malpractice and intentional infliction of emotional distress. After adjustments by the trial court, she was awarded a total of $1,024,266, including $750,000 in punitive damages.

Dr. Murakami appealed, contending in part that the punitive damages award was improper because Adams had not introduced evidence of Dr. Murakami's financial condition. The Court of Appeal rejected the argument without discussion and affirmed the judgment.

DISCUSSION

I. Necessity of evidence of defendant's finances

A. Prior California decisions

When faced with a challenge to the amount of a punitive damages award, our traditional function has been to determine whether the award is excessive as a matter of law or raises a presumption that it is the product of passion or prejudice. (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 928, 148 Cal.Rptr. 389, 582 P.2d 980 (Neal ).) We set forth three criteria in Neal for making that determination, "all of which are grounded in the purpose and function of punitive damages." (Id., at p. 928, 148 Cal.Rptr. 389, 582 P.2d 980.) That purpose is a purely public one. The public's goal is to punish wrongdoing and thereby to protect itself from future misconduct, either by the same defendant or other potential wrongdoers. (Id., at p. 928, fn. 13, 148 Cal.Rptr. 389, 582 P.2d 980.) ¹ The essential question therefore in every case must be whether the amount of damages awarded substantially serves the societal interest. In answering that question in Neal, we first explained the importance of the nature of the defendant's wrongdoing and the amount of compensatory damages. We then observed, "Also to be considered is the wealth of the particular defendant; obviously, the function of deterrence (see fn. 13, ante ), will not be served if the wealth of the defendant allows him to absorb the award with little or no discomfort.... By the same token, of course, the function of punitive damages is not served by an award which, in light of the defendant's wealth and the gravity of the particular act, exceeds the level necessary to properly punish and deter." (21 Cal.3d at p. 928, 148 Cal.Rptr. 389, 582 P.2d 980.) This was a reiteration of our prior observation that, "It follows that the wealthier the wrongdoing defendant, the larger the award of exemplary damages need be in order to accomplish the statutory objective." (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 65, 118 Cal.Rptr. 184, 529 P.2d 608.)

Because the quintessence of punitive damages is to deter future misconduct by the defendant, the key question before the reviewing court is whether the amount of damages "exceeds the level necessary to properly punish and deter." (Neal, supra, 21 Cal.3d at p. 928, 148 Cal.Rptr. 389, 582 P.2d 980; Merlo v. Standard Life & Acc. Ins. Co. (1976) 59 Cal.App.3d 5, 18, 130 Cal.Rptr. 416.) The question cannot be answered in the abstract. The reviewing court must consider the amount of the award in light of the relevant facts. The nature of the inquiry is a comparative one. Deciding in the abstract whether an award is "excessive" is like deciding whether it is "bigger," without asking "Bigger than what?"

A reviewing court cannot make a fully informed determination of whether an award of punitive damages is excessive unless the record contains evidence of the defendant's financial condition. Since Neal, supra, 21 Cal.3d 910, 148 Cal.Rptr. 389, 582 P.2d 980, we have repeatedly examined punitive damage awards in light of the defendant's financial condition. (Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 790-791, 157 Cal.Rptr. 392, 598 P.2d 45; Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 823-824, 169 Cal.Rptr. 691, 620 P.2d 141.) This simple principle is well understood by the bench. The standard jury instruction on punitive damages given in this case expressly directed the jury to consider the "defendant's financial condition." (BAJI No. 14.71 (7th ed. 1986 bound vol.) p. 205.) The Use Note to this instruction explained that consideration of this factor was necessary under Neal, supra, 21 Cal.3d 910, 148 Cal.Rptr. 389, 582 P.2d 980. (BAJI No. 14.71, supra, at p. 207.) The principle is also axiomatic to the bar. For example, a recent practice guide for attorneys lists "The Ten Essential Steps To A Proper Punitive Damage Award." (Riley, Proving Punitive Damages: The Complete Handbook (1981) p. 6.) The guide states, "RULE 9: Show the defendant's wealth. " (Id., at p. 7, emphasis in original.)

Plaintiff would dispense with the need for evidence of a defendant's financial condition because such evidence was only one of the three factors set forth in Neal, supra, 21 Cal.3d 910, 928, 148 Cal.Rptr. 389, 582 P.2d 980. Apparently, plaintiff contends that, because the Neal court listed three criteria, less than three are sufficient. We find no logical premise for this conclusion. The effect of such approach would be to eliminate a three-pronged analysis in favor of a two-pronged analysis. The Neal court set forth three factors, explaining the importance of each. Nothing in Neal suggests that any of the three is dispensable. ²

To the contrary, the most important question is whether the amount of the punitive damages award will have deterrent effect--without being excessive. Even if an award is entirely reasonable in light of the other two factors in Neal, supra, 21 Cal.3d 910, 148 Cal.Rptr. 389, 582 P.2d 980 (nature of the misconduct and amount of compensatory damages), the award can be so disproportionate to the defendant's ability to pay that the award is excessive for that reason alone. For example, in Burnett v. National Enquirer, Inc. (1983) 144 Cal.App.3d 991, 193 Cal.Rptr. 206, the court reiterated the Neal factors (supra, 21 Cal.3d 910, 148 Cal.Rptr. 389, 582 P.2d 980) and concluded that, although the defendant's misconduct was "reprehensible," the punitive damages award had to be reduced solely because it constituted too great a portion of the defendant's net worth and income. (Burnett v. National Enquirer, Inc., supra, 144 Cal.App.3d at p. 1012, 193 Cal.Rptr. 206.) The court explained that it could "find acceptable only that balance between the gravity of a defendant's illegal act and a penalty necessary to properly punish and deter...." (Ibid.) This balance cannot be made absent evidence of the defendant's financial condition. Similarly, in Zhadan v. Downtown L.A. Motors (1976) 66 Cal.App.3d 481, 136 Cal.Rptr. 132, the court concluded that substantial punitive damages were warranted in light of the defendant's serious misconduct (id., at p. 497, 136 Cal.Rptr. 132) and that the ratio between compensatory and punitive damages was not objectionable (id., at p. 499, 136 Cal.Rptr. 132), but nevertheless reversed the judgment because the punitive damages were excessive in light of the defendant's financial condition. (Id.,...