Wallis v. PHL Associates Inc.
220 Cal. App. 4th 814
| Cal. Ct. App. | 2013Background
- Wallis, PHL employee and director of laboratories, developed the J-5 TC antigen as part of her PHL duties; dispute arose over ownership and compensation for the antigen after PHL sold a vaccine incorporating it to Upjohn.
- Wallis paid $20,000 in 1989 to acquire 20 PHL shares (15 to PHL, 5 to individual shareholders) and later was removed from the board; PHL refunded the buy-in money which Wallis refused to accept.
- A jury found Wallis owned the antigen (she developed it within the scope of employment), found no fraud related to the antigen, but found fraud and conversion by PHL and certain individual defendants relating to Wallis’s money and awarded roughly $1.945 million in compensatory damages plus $500,000 punitive against PHL.
- The trial court (bench) later imposed equitable relief (constructive trust) against PHL for royalties and noncompetition consideration totaling about $1.42 million; PHL timely requested a statement of decision which the trial court denied as untimely.
- On appeal the Court of Appeal (Third District) reduced the fraud compensatory damages to amounts reflecting out‑of‑pocket loss for the money fraud, reduced punitive damages, held the denial of the statement of decision reversible as to equitable relief, and remanded for recalculation of prejudgment interest and for retrial of equitable claims.
Issues
| Issue | Plaintiff's Argument (Wallis) | Defendant's Argument (PHL) | Held |
|---|---|---|---|
| Whether fraud damages awarded ($1.944M) can be sustained where jury found fraud only as to Wallis’s money and not as to the antigen | Fraud about the buy‑in money induced Wallis to give PHL access to the antigen, so damages can reflect value of antigen and profits PHL obtained | Damages for fraud are limited to out‑of‑pocket loss from the money fraud (i.e., the $15,000 paid to PHL) | Held: Fraud damages measured by out‑of‑pocket loss; reduced to $15,000 (and corresponding small sums against individuals) because jury found no fraud as to the antigen |
| Whether $500,000 punitive award is constitutional given reduced compensatory damages | Reprehensibility of PHL’s conduct justifies full punitive award despite reduced compensatory damages | $500,000 is grossly disproportionate to $15,000 compensatory; due process limits punitive award | Held: Punitive award excessive; modified to $150,000 (court accepted defendant’s stipulation to tenfold multiplier rather than ordering new trial) |
| Whether trial court’s denial of statement of decision on equitable relief was proper | Equitable ruling (constructive trust) was supportable and statement of decision unnecessary | Request for statement of decision was timely/required; denial prejudiced PHL | Held: Denial was reversible error; because trial judge who decided equity issues is disqualified, equitable remedies reversed and remanded for new trial |
| Whether prejudgment interest computation may be offset by PHL’s cross‑complaint settlement | Interest should be computed on net recovery after offsetting cross‑complaint settlement | Settlement (cross‑complaint) properly offsets plaintiff’s recovery for interest calculation | Held: Offset by settlement was improper for fraud damages; prejudgment interest must be recomputed on modified verdict amounts from date of jury verdicts |
Key Cases Cited
- State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (U.S. 2003) (guideposts for reviewing punitive damages under due process)
- Roby v. McKesson Corp., 47 Cal.4th 686 (Cal. 2009) (application of State Farm guideposts in California punitive damages review)
- Simon v. San Paolo U.S. Holding Co., Inc., 35 Cal.4th 1159 (Cal. 2005) (de novo review of punitive damages, independent assessment)
- Bullock v. Philip Morris USA, Inc., 198 Cal.App.4th 543 (Cal. Ct. App. 2011) (extreme reprehensibility and large punitive ratio upheld)
- Singh v. Southland Stone, U.S.A., Inc., 186 Cal.App.4th 338 (Cal. Ct. App. 2010) (inconsistent special verdicts and proper appellate approach)
- Myers Bldg. Indus., Ltd. v. Interface Tech., Inc., 13 Cal.App.4th 949 (Cal. Ct. App. 1993) (modifying judgment to conform damages to liability findings)
- Espinoza v. Calva, 169 Cal.App.4th 1393 (Cal. Ct. App. 2008) (failure to issue statement of decision after timely request is per se reversible error)