Attorney Fees Awarded by Courts after Jury Verdicts Should be Included in Gore Analyses

In Nickerson v. Stonebridge Life Ins. Co., No. S213873, 2016 Cal. LEXIS 3757 (June 9, 2016), the California Supreme Court recently addressed the effects of the U.S. Supreme Court’s now 20-year-old ruling in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996). In Gore, the Court held that the 14th Amendment’s due process clause prohibited courts from imposing grossly excessive punitive damages awards and subsequent California decisions based on Gore have suggested that a ratio of somewhere around 9:1 or 10:1, passes constitutional muster. In Nickerson the California Supreme Court held that when reviewing the proportionality of punitive damages awarded by a jury, attorney fees awarded by the court after the jury’s verdict, should be included in the calculation.

Nickerson was covered under an indemnity policy issued by Stonebridge that provided coverage for hospital confinement, intensive care confinement and emergency room visits. Pertinent to this case, the policy paid $150 for emergency room visits and $350 per day for hospital confinements. Nickerson, a quadriplegic, fell from the wheelchair lift of his van and suffered a broken tibia and fibula. He spent 109 days in a VA hospital as a result of the injury and a significant part of that seemed to be based on his treating physician’s reluctance to discharge him to his home because a part for his wheelchair had not yet been repaired. After reviewing the claim, apparently without consulting Nickerson’s treating physician, Stonebridge determined, based on the policy’s definition of “necessary treatment,” that only 18 of the 109 days constituted necessary treatment and issued a check for $6,450, which included payment for the emergency room visit. Nickerson sued Stonebridge and the trial court granted Nickerson’s motion for a directed verdict on his breach of contract claim, ruled the “Necessary Treatment” provision was unenforceable because it was not conspicuous, plain and clear and awarded an additional $31,500 in policy benefits.

In the punitive damages phase of the trial, the jury found that Stonebridge breached the implied covenant of good faith and fair dealing and awarded $35,000 in compensatory damages for emotional distress and $19 million in punitive damages under section 3294 of the California Civil Code. Subsequent to the jury’s award, the court awarded Nickerson $12,500 in attorney fees, as permitted by Brandt v. Superior Court, 37 Cal.3d 813, 817 (1985), an amount stipulated to by the parties.

Stonebridge moved for a new trial seeking a reduction of the punitive damages, arguing that the award was unconstitutionally excessive. The court granted Stonebridge’s motion unless Nickerson agreed to a reduction of the punitive damages award to $350,000, that is, a 10:1 ratio based on the compensatory bad faith damages award. The court did not take into account the $12,500 in Brandt fees. Nickerson rejected the reduction and appealed the new trial order. The appeals court affirmed the trial court’s remittitur of the punitive damage award from $19 million to $350,000, based on a ratio of punitive to compensatory damages of 10 to 1, holding that such a ratio comported with due process. It also upheld the trial court’s exclusion of the Brandt fees in the calculation, reasoning that the fees were granted by the court, not the jury, after the jury had already awarded punitive damages.

The California Supreme Court granted limited review solely on the question of whether it is proper to include Brandt fees in the proportionality review when those fees are awarded by a jury and exclude them when they are awarded by the court after the jury has made its punitive damages award. In support of its argument for exclusion if the fees are granted by the court post-verdict, Stonebridge alleged that because Gore’s purpose is “to permit courts to identify punitive damages awards that are tainted by irrational or arbitrary jury decisionmaking” only the evidence presented to the jury should be used in the inquiry. However, the court stated that the three-part Gore guideposts are not meant to regulate the jury’s decision making process but instead are in place to assist the reviewing court to “make an independent determination whether the amount of the award exceeds the state’s power to punish.” In holding that the Brandt fees should have been used in calculating the reduction in damages, the court stated that to exclude the Brandt fees simply because they were awarded by the court rather than the jury, especially here where the amount of the fees was stipulated to by the parties, would “skew the proper calculation of the punitive-compensatory ratio, and thus [] impair reviewing courts’ full consideration of whether, and to what extent, the punitive damages award exceeds constitutional bounds.” The court then remanded the case back to the appeals court for further proceedings.

While Brandt fees are unique to California, it is certainly not unusual in other jurisdictions for a court to grant attorney fees on its own after the jury’s verdict. A such, the parties should understand that these fees may be taken into account in a reviewing court’s proportionality review, despite not being based on any evidence presented to the jury.