Opinion ID: 2570320
Heading Depth: 2
Heading Rank: 2

Heading: Disgorgement of Aggregate Profits from Repeated Conduct

Text: To recognize that recidivism remains relevant is not to approve plaintiffs' aggregate disgorgement theory of punitive damages. We must consider directly the basis and fairness of plaintiffs' approach. Plaintiffs' aggregate disgorgement theory should be distinguished from simple return of ill-gotten gains earned from an individual plaintiff. Removal of any profits the defendant has earned by a wrongful act is a logical step toward deterring its repetition or imitation. A gain-based measure of this sort sends a clear signal to defendants that such misconduct does not pay and, thus, serves the deterrent function of punitive damages. ( Cummings Medical Corp. v. Occupational Medical Corp. (1992) 10 Cal.App.4th 1291, 1300, 13 Cal.Rptr.2d 585.) [8] But an approach calculating punitive damages in an individual tort case by the profits made through similar torts against hundreds or thousands of other individuals creates possibilities for unfairnessto the defendant and other possible claimants both which may be of constitutional dimension. The high court has observed that an award punishing the defendant for dissimilar hypothetical claims of others creates the possibility of multiple punitive damages awards for the same conduct; for in the usual case nonparties are not bound by the judgment some other plaintiff obtains. ( State Farm, supra, 538 U.S. at p. 423, 123 S.Ct. 1513) [9] Critics of aggregate disgorgement or aggregate harm as theories of punitive damages argue the same danger exists when the hypothetical claims by others are for conduct similar to that which injured the individual plaintiff. (See, e.g., Owens-Corning Fiberglas Corp. v. Malone (Tex.1998) 972 S.W.2d 35, 50 [concluding that repeatedly imposing punitive damages on the same defendant for the same course of wrongful conduct may implicate substantive due process constraints].) [10] Plaintiffs argue that over-punishment may be avoided by permitting a defendant to present evidence of past punitive damages awards for the same conduct, which might be considered either by the jury or by courts reviewing the jury's award. [11] But the exact basis for a prior punitive damages award will not always be clear, and even where it is proven that the defendant has already been punished severely for a course of conduct that included harm to the current plaintiff, there is no guarantee the jury or court will agree to deny the plaintiff before them recovery of punitive damages simply because another plaintiff, in another court, has already recovered. (See Roginsky v. Richardson-Merrell, Inc. (2d Cir.1967) 378 F.2d 832, 840.) Permitting an aggregate recovery followed by credits in future cases could, moreover, unfairly deprive subsequent claimants of their own recoveries, as well as present a problem of successive prosecution in which a defendant that loses a single case would also lose the benefit of all previous victories against the same claim of misconduct. ( Beyond the Multiple Punishment Problem, supra, 87 Minn. L.Rev. at pp. 594-597.) Nor does an aggregate disgorgement theory fit easily within the BMW/ State Farm guideposts. Although the scale and profitability of a corporate practice are related to its reprehensibility, gains made over some period of time and the harm or potential harm to an individual plaintiff are not necessarily related. An award of disgorgement of all profits from a group of transactions similar to that which harmed the plaintiff (but not defined through the procedural limits of a class action) is therefore likely to be disproportionate to the individual plaintiff's compensatory award. Finally, and most pertinent to this case, an individual plaintiff resting his or her claim for a large punitive damages award on profits earned from transactions with a large class of similar claimants, but proceeding without the formalities of a class action, can hope to recover without ever proving the specifics of those hypothetical claims. ( State Farm, supra, 538 U.S. at p. 423, 123 S.Ct. 1513.) In a class action, once the issues common to the class have been tried, and assuming some individual issues remain, each plaintiff must still by some means prove up his or her claim, allowing the defendant an opportunity to contest each individual claim on any ground not resolved in the trial of common issues. (See Sav-on Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 334-335, 339-340, 17 Cal.Rptr.3d 906, 96 P.3d 194.) Here, the Johnsons, as individual plaintiffs, proved only the facts of Ford's tortious transaction with them, yet they sought and obtained disgorgement of Ford's estimated earnings on a thousand or more other transactions without proof that each of the others was also tortious. Plaintiffs claim to have justified the punitive damages award by proving that [i]n the years 2000-2001, Ford issued about 1,300 ... OACs per year in California, that each OAC transaction represents a potentially dangerous, defective and unrepaired vehicle which is resold to an unsuspecting consumer without disclosure of material facts, and that by issuing OAC's instead of replacing or repurchasing these vehicles Ford saves $6,000 to $10,000 per vehicle. Plaintiffs' proof, however, suffers from several major deficiencies. First, plaintiffs nowhere explain the pertinence of the two-year period, 2000-2001, they use to estimate profits. Ford issued an OAC to the McGills for their Taurus in 1997, and plaintiffs bought that vehicle in 1998. Plaintiffs apparently assume, but do not point the court to any evidence, that Ford's OAC and reacquired vehicle policies and practices were uniform in nature and number from 1997 to 2001. Nor do plaintiffs explain why Ford's profits should be estimated over a two-year period. More important, plaintiffs offered no proof that all OAC transactionsin any periodinvolved defective vehicles subject to California's Lemon Law, much less that all such vehicles were dangerous or unrepaired. [12] To the contrary, Ford introduced evidence that OAC's were used to address a variety of customer dissatisfactions. According to Ford's former policy manager for reacquired vehicles, we have customers that are concerned about a lot of things that aren't defects. They could be concerned about a normal attribute of the vehicle ... and in their perception that's a concern or problem. It's not necessarily a defect. For a vehicle reacquired through use of an OAC for reasons other than defect, our law demands no notice to a subsequent purchaser. (§ 1793.23, subds.(c)-(e).) Even a vehicle with a defect is not necessarily a lemon. A nonconformity requiring the vehicle's refund or replacement under our law must substantially impair[ ] the use, value, or safety of the new motor vehicle. (§ 1793.22, subd. (e)(1).) Not every customer complaint about a new car, or even every valid customer complaint, rises to that level. And customers and manufacturers frequently disagree about whether a defect has been repaired or a reasonable number of attempts have been made. A Ford manager testified such a disagreement was a good opportunity to use an owner appreciation certificate. Plaintiffs, seemingly, would have us assume the customer is always right in such disputes, an assumption we cannot make. A vehicle that is not a lemon but that is reacquired in response to customer warranty complaints must carry a warranty buyback notice (§ 1793.23, subds.(d), (e)), but its reacquisition under the Lemon Law is not required. Plaintiffs' $6,000 to $10,000 savings estimate, which is derived from comparison of lemon buyback costs with OAC face values, is therefore inapplicable to such a vehicle. Plaintiffs introduced no evidence as to how many unrepaired, defective OAC trade-ins fell into this category. Nor can we assume that in every other case in which a vehicle traded in with an OAC was resold, the new buyer was kept entirely in the dark regarding previous repairs and repair attempts. In plaintiffs' case, Ford's own fraudulent concealmentits failure to provide the required historical noticeswas successful because Decker's salesman also concealed, and affirmatively misrepresented, the Taurus's repair history. But plaintiffs did not show that California Ford dealers always, or generally, conceal and lie about the repair history of used cars they sell. We do not mean to suggest Ford's fraud on plaintiffs was unique. Ford's reacquired vehicle manual stated that the principal use for OAC's was to satisfy customers ... who have lost confidence in a repaired vehicle. A large number of OAC's therefore probably involved vehicles with serious defects. When taken in conjunction with the evidence that Ford maintained its OAC's did not assist dealers to reacquire vehicles and interpreted other Lemon Law requirements narrowly, this stated use supports an inference that in some number of cases in addition to plaintiffs' own, perhaps a large number of other cases, OAC's were used to evade Lemon Law requirements, and sales of OAC-traded vehicles were made without the proper historical disclosures, resulting in significant savings to Ford. [13] In some subset of those cases, a dealer may also have concealed and lied about the vehicle's history, preventing the new buyer from learning the truth. But one cannot infer that this fraudulent practice occurred in all cases of OAC-traded vehicles. As plaintiffs' estimate of Ford's savings on each OAC transaction depends on assumptions that each such transaction was for a vehicle that should have been reacquired as a lemon and thus should have carried with it a statutory notice, and that each subsequent buyer of an OAC-traded vehicle was defrauded, predicates plaintiffs failed to prove, their attempt to estimate aggregate profits from fraudulent transactions similar to theirs also fails. We need not decide whether a plaintiff could ever, consistent with due process, justify the size of an award on a total profits basis. Our independent, de novo review of the record, required by due process ( State Farm, supra, 538 U.S. at p. 418, 123 S.Ct. 1513; Cooper Industries, Inc. v. Leatherman Tool Group, Inc., supra, 532 U.S. at pp. 436-443, 121 S.Ct. 1678; Simon, supra, 35 Cal.4th at p. 1172, 29 Cal.Rptr.3d 379, 113 P.3d 63), demonstrates that these plaintiffs' attempt to calculate punitive damages on this basis was fatally deficient. The Court of Appeal correctly determined the award here could not be upheld on a disgorgement theory.