Opinion
NOT TO BE PUBLISHED
APPEALS from an order and a judgment of the Superior Court of Los Angeles County No. VC039590, Chris R. Conway, Judge.
Bienert & Miller, Thomas H. Bienert, Jr., Louis P. Feuchtbaum; David Wiechert; and Erwin Chemerinsky for Plaintiff and Appellant.
Gibson, Dunn & Crutcher, William D. Claster, T. Kevin Roosevelt, Daniel M. Kolkey and Perlette M. Jura for Defendants and Appellants.
MALLANO, Acting P. J.
This wrongful termination case was tried to the jury, which found in favor of the employee. The jury awarded $748,600 in compensatory damages and $20 million in punitive damages. The employer filed a motion for judgment notwithstanding the verdict (JNOV) or, in the alternative, for a new trial.
The trial court denied JNOV but granted a new trial unless the employee agreed to accept $3.5 million in punitive damages. The employee consented to the reduction, and the trial court modified the judgment accordingly. Both sides appealed from the order on the motion and the modified judgment.
On appeal, the employer argues that punitive damages are not permitted in any amount. The employee seeks to reinstate the jury’s award of punitive damages. We conclude that, because the employee did not introduce evidence of the employer’s financial condition as of the time of trial, the punitive damages award was improper. We therefore reverse and direct the trial court to enter a new judgment deleting the award of punitive damages.
I
BACKGROUND
On March 26, 2003, Michael Gnesda filed this action against his former employers, United Parcel Service, Inc., and UPS General Services (collectively UPS), and his former supervisor, Stanley Jones, alleging causes of action for wrongful termination in violation of public policy, breach of contract, and defamation.
A first amended complaint was filed on January 29, 2004, asserting the same claims. It alleged as follows. In January 1986, Gnesda entered into an employment contract with UPS that was “partially oral, partially written, and partially implied.” Under the contract, UPS agreed that Gnesda would be terminated only for good cause. In 1999 or 2000, Gnesda learned that UPS was overcharging customers, contrary to the price guidelines it made available to the public. The guidelines were based on the size and shape of the customers’ shipping containers. Gnesda informed senior management of the overcharges. UPS retaliated against Gnesda for complaining about its “illegal billing practices” by transferring him to the graveyard shift, falsely criticizing his work performance, and placing him on probation. When those efforts failed to force Gnesda to resign, UPS discharged him without good cause, wrongfully accusing him of falsifying an employee’s time card. That accusation was a pretext. Gnesda was actually discharged in retaliation for his reports about UPS’s illegal billing of customers.
On March 15, 2004, UPS filed a motion for summary adjudication, contending that Gnesda had failed to state a claim for wrongful termination in violation of public policy. In particular, UPS argued that its alleged failure to comply with its own price guidelines did not violate a statute or constitutional provision and constituted, at most, a potential contract dispute between it and its customers. Gnesda filed opposition, asserting that UPS’s “fraudulent overcharging” violated several state and federal statutes. The trial court denied the motion.
On June 25, 2004, UPS filed a petition for a writ of mandate with this court, challenging the trial court’s ruling on the public policy claim. We issued an order to show cause, established a briefing schedule, and set the matter for oral argument. On December 15, 2004, we issued a split decision, denying the petition because “‘[Gnesda’s] allegations that he was terminated for complaining about and refusing to engage in fraudulent billing practices are sufficient to state a claim for retaliatory discharge in violation of public policy.’” (United Parcel Service, Inc. v. Superior Court (B176183) [nonpub. opn.] maj. opn. p. 6, italics added, quoting Haney v. Aramark Uniform Services, Inc. (2004) 121 Cal.App.4th 623, 643.)
The case proceeded to trial by jury. The parties presented evidence and argument on liability, compensatory damages, and the criteria for awarding punitive damages —oppression, fraud, or malice (see Civ. Code, § 3294) — as well as the amount, if any, of punitive damages to be awarded. On August 18, 2005, the jury returned a special verdict, finding that UPS had discharged Gnesda without good cause and that “Gnesda’s challenging UPS’s alleged fraudulent billing practices [was] a motivating reason for UPS’s decision to discharge [him].” UPS prevailed on the defamation claim. (Jones was not found liable on any theory and is not a party to this appeal.) The jury awarded Gnesda $748,600 in compensatory damages and $20 million in punitive damages. Judgment was entered on August 22, 2005.
UPS filed a motion for JNOV or, in the alternative, for a new trial. The motion raised several arguments challenging the sufficiency of the evidence on the public policy claim and the award of punitive damages. UPS specifically argued, among other things, that Gnesda had not presented sufficient evidence of its financial condition as of the time of trial. Gnesda filed opposition. By order dated October 12, 2005, the trial court denied JNOV but conditionally granted a new trial unless Gnesda agreed to accept $3.5 million in punitive damages. On October 21, 2005, Gnesda filed a “Notice of Consent to Remittitur,” reserving the right to appeal “[i]n the event that defendants appeal any portion of the verdict or judgment.” By order dated October 28, 2005, the judgment was modified to award $3.5 million in punitive damages.
On November 10, 2005, UPS appealed from the modified judgment and the order denying its posttrial motion, challenging only the award of punitive damages. On November 21, 2005, Gnesda filed a cross-appeal from the “order for remittitur” and the modified judgment. Gnesda’s notice of appeal stated that he sought “reinstatement of the judgment originally entered on the jury’s award for [$20 million] in punitive damages.”
The award of compensatory damages included $3,600 for emotional distress. UPS does not attack any portion of that award.
II
DISCUSSION
UPS finds fault with the award of punitive damages on several grounds: (1) the evidence did not support a claim for wrongful termination in violation of public policy; (2) an officer, director, or managing agent of UPS did not commit, authorize, or ratify the alleged wrongful conduct; (3) there was no clear and convincing evidence of malice, oppression, or fraud; (4) the evidence of UPS’s financial condition at the time of trial was insufficient; and (5) the award of punitive damages was constitutionally excessive.
In his appellate brief, Gnesda counters that “UPS introduced no evidence as to its financial condition.” (Italics added.) He also states that the jury awarded less than “one percent of UPS’s annual revenues.” (Italics added.)
We conclude that, based on the evidence presented at trial, the jury had no basis for determining UPS’s financial condition — a prerequisite to awarding punitive damages. As discussed below, Gnesda had the burden of establishing UPS’s financial condition. He failed to do so. Evidence of revenues is inadequate. The jury must also hear evidence about UPS’s expenses. And a gut feeling about the wealth of a large, publicly traded company is not evidence. Nor does the ease of obtaining such evidence — available in UPS’s annual report or on the Internet — lessen the importance of making it available to the jury. Accordingly, because the evidence of UPS’s financial condition was insufficient as a matter of law, the trial court should have granted the motion for JNOV.
We review the award of punitive damages under the substantial evidence test, reviewing the record in the light most favorable to the judgment and indulging in all presumptions that support the jury’s findings. (See Kelly v. Haag (2006) 145 Cal.App.4th 910, 916.)
As recently stated by the Fourth District, Division One: “An award of punitive damages hinges on three factors: [(1)] the reprehensibility of the defendant’s conduct; [(2)] the reasonableness of the relationship between the award and the plaintiff’s harm; and [(3)] in view of the defendant’s financial condition, the amount necessary to punish him or her and discourage future wrongful conduct. . . . Only the third prong is at issue here.
“‘[O]bviously, the function of deterrence . . . 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 . . . exceeds the level necessary to properly punish and deter.’ . . . The ‘most important question is whether the amount of the punitive damages award will have [a] deterrent effect — without being excessive. . . .’
“The California Supreme Court has declined to prescribe any particular standard for assessing a defendant’s ability to pay punitive damages (Adams [v. Murakami (1991)] 54 Cal.3d [105,] 116, fn. 7), but it has held that actual evidence of the defendant’s financial condition is essential. (Id. at p. 119.) A punitive damages award is based on the defendant’s financial condition at the time of trial. . . .
“In Kenly v. Ukegawa (1993) 16 Cal.App.4th 49, 57 [], this court held ‘that in most cases there must be evidence of the defendant’s net worth to support the punitive damage award.’ We explained that in examining assets without examining liabilities, or without ‘evidence of the entire financial picture,’ there was a risk of ‘crippling or destroying the defendant.’ (Ibid.) We further noted we could surmise the defendants had millions in assets, but we could also assume their debts were equally high. ‘Without evidence of the actual total financial status of the defendants, it is impossible to say that any specific award of punitive damage is appropriate.’ (Id. at p. 58.)
“In Lara v. Cadag (1993) 13 Cal.App.4th 1061, 1065, footnote 3 [], the court concluded that ‘“[n]et worth” is subject to easy manipulation and, in our view, it should not be the only permissible standard. Indeed, it is likely that blind adherence to any one standard could sometimes result in awards which neither deter nor punish or which deter or punish too much.’ The court there found that a consideration of income alone does not permit meaningful review and ‘something more is required.’ (Ibid.)
“As the court explained in Lara v. Cadag, supra, 13 Cal.App.4th at page 1064, because punitive damages are intended to deter wrongful conduct and not destroy the defendant, ‘the Supreme Court articulated a standard calling for meaningful evidence of a defendant’s financial condition . . . . [T]he high court consistently speaks in terms of “financial condition” . . . or “net worth” . . . or the “defendant’s ability to pay.”’” (Kelly v. Haag, supra, 145 Cal.App.4th at pp. 914–916, some citations omitted, some italics added.)
“Accordingly, ‘an award of punitive damages cannot be sustained on appeal unless the trial record contains meaningful evidence of the defendant’s financial condition.’ . . . ‘Without such evidence, a reviewing court can only speculate as to whether the award is appropriate or excessive.’ . . . Plaintiff bears the burden of proof. . . .
“. . . In most cases, evidence of earnings or profit alone are not sufficient ‘without examining the liabilities side of the balance sheet.’ . . . Thus, there should be some evidence of the defendant’s actual wealth. Normally, evidence of liabilities should accompany evidence of assets, and evidence of expenses should accompany evidence of income.” (Baxter v. Peterson (2007) 150 Cal.App.4th 673, 680, citations omitted, italics added.) Similarly, a punitive damages award cannot be based on the income made from the unlawful conduct: “[E]vidence of the [income] wrongfully gained by the defendant is inadequate as it gives only the assets without the liabilities.” (Robert L. Cloud & Associates, Inc. v. Mikesell (1999) 69 Cal.App.4th 1141, 1152; accord, Kenly v. Ukegawa, supra, 16 Cal.App.4th at pp. 56–58; City and County of San Francisco v. Sainez (2000) 77 Cal.App.4th 1302, 1316–1320.)
At trial, Gnesda read from a March 2000 letter he had received from the chairman of UPS, thanking him for helping “make United Parcel Service the successful business it is today.” Gnesda also discussed the “revenue” obtained through UPS’s “revenue recovery” program — a program instituted to inspect customers’ shipping containers more carefully because some customers were paying less than UPS’s guideline prices, and UPS wanted to stop the underpayments. Gnesda said that in 1999, UPS recovered “around $200 million” in “revenues” through the program.
Defendant Jones testified that in 2000, the “South California District” of UPS “got over $1 billion in revenue,” in part as a result of the revenue recovery program. Another UPS employee confirmed that figure. When Jones was asked to estimate “how many billions in revenue UPS brought back in the 2000, 2001, 2002 time frame,” he responded, “The number 40 billion sticks in my mind, but I’m not sure of the time frame or if that could be high or low on either side.” At that point, Gnesda’s counsel attempted to refresh Jones’s recollection with exhibit 145 (marked for identification), which contained annual income figures for 2002–2004. UPS’s counsel objected to the question posed — not the exhibit — as vague and ambiguous. The objection was overruled. Jones then answered that exhibit 145 did not refresh his recollection because he had never seen it and was not familiar with its contents. Gnesda did not seek to admit the exhibit into evidence. Jones eventually testified that $40 billion was the “best number that comes to mind.”
Further, under questioning by Gnesda’s counsel, Jones testified that when he left UPS in 2003, he exercised three stock options worth around $500,000. At the time of trial, Jones owned UPS stock valued at approximately $2 million. Jones was also asked to place a value on his other, non-UPS assets, such as his home. Nevertheless, the record makes clear that Gnesda’s counsel was attempting through these questions to establish Jones’s net worth, not UPS’s.
Jones’s individual stock valuations did not establish the company’s financial condition. Nor did Gnesda think so. During closing argument, Gnesda’s counsel used the $40 billion and the $1 billion figures in explaining to the jury how to calculate punitive damages against UPS. Initially, counsel commented that the jury could “punish” UPS by awarding 1 percent of $40 billion, or $400 million. But he quickly added, “Let’s try to be more reasonable.” He then used the $1 billion figure, stating: “$10 million would be one percent of the billion-dollar program that they were pushing which led to all the improper actions against Mike Gnesda. Another barometer, if you want others, two percent is the amount of money they expected to make just on the revenue recovery component. That, of course, would be $20 million.” In other words, Gnesda urged the jury to determine punitive damages based on the income UPS derived from its alleged fraudulent billing practices. And the jury awarded $20 million. Yet, as noted, an award of punitive damages cannot be based on ill-gotten gains because it does not take liabilities into account. (See Robert L. Cloud & Associates, Inc. v. Mikesell, supra, 69 Cal.App.4th at p. 1152; Kenly v. Ukegawa, supra, 16 Cal.App.4th at pp. 56–58; City and County of San Francisco v. Sainez, supra, 77 Cal.App.4th at pp. 1316–1320.)
In short, Gnesda provided sparse data about UPS’s income for 2000–2002. Second, that information did not have any bearing on UPS’s income at the time of trial (August 2005), which is the critical point in time. (See Kelly v. Haag, supra, 145 Cal.App.4th at p. 915.) And Gnesda provided no evidence of UPS’s expenses or liabilities as to any period of time. Finally, although we could surmise that UPS had “millions in assets,” the company’s debts could also have been equally high. (See Kenly v. Ukegawa, supra, 16 Cal.App.4th at p. 58.) For that reason, the courts require the plaintiff to introduce “evidence of the actual total financial status of the defendants.” (Ibid., italics added.)
In holding that the plaintiff has the burden of introducing evidence of the defendant’s financial condition, the Supreme Court observed: “[O]ne side or the other must bear the burden of produc[tion]. [T]he burden is properly placed on the plaintiff.” (Adams v. Murakami, supra, 54 Cal.3d at p. 119.) “[T]he orthodox practice [has] long been for plaintiffs, not defendants, to prove a defendant’s financial condition.” (Id. at pp. 122–123.) It would be “simply unfair and unnecessary to put the [burden on the] defendant.” (Id. at p. 121.)
Gnesda, like plaintiffs in other cases, had the means to obtain accurate information about UPS’s financial condition. “Under Civil Code section 3295, subdivision (c), a plaintiff seeking punitive damages may move for a pretrial discovery order pertaining to the defendant’s financial condition. Further, even without such an order the plaintiff may subpoena documents or witnesses to be available at trial to establish the defendant’s financial condition.” (Kelly v. Haag, supra, 145 Cal.App.4th at p. 919.)
Last, we consider whether Gnesda should be allowed a retrial on the issue of punitive damages. That question has been thoroughly analyzed by other courts, and it warrants no further analysis here. The answer is no. (See Kelly v. Haag, supra, 145 Cal.App.4th at pp. 919–920.) “[Gnesda] had ‘a full and fair opportunity to present his case for punitive damages, and he does not contend otherwise.’ . . . When a punitive damage award is reversed based on the insufficiency of the evidence, no retrial of the issue is required. . . . Accordingly, on remand, the issue of punitive damages shall not be retried.” (Baxter v. Peterson, supra, 150 Cal.App.4th at p. 681.)
III
DISPOSITION
The October 12, 2005 order denying defendants’ motion for judgment notwithstanding the verdict or, in the alternative, for a new trial is reversed to the extent it conditionally reduced the jury’s award of punitive damages to $3.5 million, and, on remand, the trial court shall enter a new order granting defendants’ motion to set aside the award of punitive damages in its entirety. The October 28, 2005 modified judgment is reversed to the extent it awarded punitive damages, and, on remand, the trial court shall enter a new judgment deleting the award of punitive damages. Defendants are entitled to costs on appeal.
We concur: VOGEL, J. JACKSON, J.
Judge of the Los Angeles Superior Court assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.