Karen Kidd Jul. 8, 2016, 7:54pm

SACRAMENTO – The state Supreme Court's recent ruling that certain attorneys’ fees be included when a trial court calculates a jury’s penalty damage award likely won't have much impact, a class-action specialist said during a recent interview.

"I think that the consequences of this decision are likely to be fairly limited," Evan M. Tager, a partner with Mayer Brown in Washington, D.C., part of the firm's Supreme Court & Appellate and Class Action practices division, said in a Northern California Record email interview. "First of all, it is directly relevant only if a jury both finds bad faith and imposes punitive damages in an amount that the insurer believes is unconstitutionally excessive. Second, insofar as the insurer believes that the jury would be more likely to impose a lower amount of punitive damages if it is aware that the plaintiff will receive attorneys’ fees, nothing stops it from seeking an instruction about that and introducing evidence about the likely amount. If the trial is bifurcated (with liability for the tort, compensatory damages, and punitive liability tried in Phase I and amount of punitive damages, if necessary, tried in Phase II), as is generally the practice in California, this approach should have minimal downside for the defendant."

In the case Nickerson v. Stonebridge Life Insurance Co., the California Supreme Court reversed an appeals court's affirmation of a trial court’s decision that attorneys’ fees awarded after a jury award of compensatory and punitive damages should not be included when calculating whether that award is constitutional. High on the minds of the appeals court and Supreme Court justices is the 1985 case Brandt v. Superior Court, from which this type of attorney fees gets its name.

In that case, the California Supreme Court held that a plaintiff who proves that an insurer denied insurance benefits in bad faith is entitled to recover as tort damages the attorneys’ fees incurred in obtaining the contract benefits, Tager said.

"These fees are not available merely if the plaintiff prevails on the claim for breach of contract, he or she must also prevail on the claim for bad faith," he said. "And the fees are limited to the amount incurred to prevail on the contract claim, or, if the insurance company already agreed to pay the claim, the amount expended in persuading it to do so. In other words, the fees incurred in pursuing the bad-faith claim and/or punitive damages are not recoverable."

The Nickerson case was not the first time California courts have considered Brandt fees, Tager said.

"Brandt fees could be awarded either by the jury at trial or by the court post-trial," he said. "The California courts have expressed a preference for the latter, on the theory that the amount of fees is not entirely known until the trial has concluded. As a consequence, parties typically stipulate to defer the issue until after trial. The problem is that the jury is therefore unaware of that element of damages when setting punitive damages."

The most recent California Supreme Court ruling about Brandt fees has its roots in 2011, when the Claremont law firm Shernoff Bidart Echeverria Bentley won a $19 million verdict against Stonebridge Life Insurance Co. on behalf of its client, Thomas Nickerson. Nickerson had been hospitalized for 109 days but Stonebridge paid for only 19 days, leaving the handicapped military veteran with more than $38,000 in unpaid hospital bills. The jury in the case deliberated only about two hours to find Stonebridge fraudulently denied benefits to Nickerson and awarded him the eight-figure amount in punitive damages.

Stonebridge sought a new trial and a reduction in the award amount. The trial court agreed to reduce the punitive damage award at a ratio of 10-to-1. In making its calculation for permissible punitive damages, the trial court the $35,000 in compensatory damages awarded by the jury, in addition to considerations for emotional distress caused by Stonebridge’s breach of implied covenant of good faith. However, the trial court did not consider the $12,500 Nickerson had been awarded in Brandt fees.

Nickerson appealed the trial court's order granting a new trial. In August 2013, the California Court of Appeals for the 2nd District, Division Three, affirmed the trial court’s ruling and found the trial court had properly reduced the jury’s award. The appeals rejected Nickerson’s claim that the $12,500 in Brandt fees should have been included in the calculation.

Nickerson appealed. On June 9, the California Supreme Court issued its ruling that reversed the appeals' court ruling.

"To the extent Stonebridge is concerned about the jury‘s ability to render a rational punitive damages verdict without having heard evidence of the Brandt fees, the rule Stonebridge urges us to adopt seems a rather roundabout way of getting at the problem," Justice Leondra R. Kruger wrote in the unanimous ruling. "But although Stonebridge does raise a more direct argument that the jury‘s verdict was invalid from the moment it was rendered because the jury was unaware of a substantial component of the harm that plaintiff had suffered, Stonebridge gives this argument little more than a passing nod. That is presumably because Stonebridge itself invited this state of affairs when it stipulated to a post-verdict determination of Brandt fees and raised no objection to the jury returning a punitive damages verdict in the absence of evidence about the fees. Having thus consented to, or at least acquiesced in, this procedure, Stonebridge has forfeited any argument that the procedure itself was legally impermissible."

The difference between the appeals' court ruling and that of the state Supreme Court has to do with whether Brandt fees need to be considered by the jury or the court, Tager said.

"The court of appeal in this case held that, because the jury wasn’t presented with evidence of the amount of attorneys’ fees, that element of tort damages should not be included in the ratio of punitive to compensatory damages for purposes of the constitutional excessiveness inquiry," Tager said. The California Supreme Court reversed, ruling that the ratio inquiry is one for the court not the jury, so there is nothing wrong with the court taking into account an element of tort damages that the jury was not aware of."

Tager hesitated to predict whether this case will be appealed.

"I don’t have any sense of whether the insurer will seek certiorari in the Supreme Court," he said. "The cost of doing so might exceed the amount at stake, so it would have to be willing to do so on principle. I hesitate to offer any views on whether the Supreme Court would grant review, beyond observing that the court has become even more parsimonious about granting certiorari since the death of Justice Scalia than it was before. I think that most members of the court have tired of punitive damages, so the odds would be long even if the court had a full complement of justices."

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