Jurisdictional Statement — Sears, Roebuck & Co. v. Rosener

| ee ee ee ee ee ee ee

8021545 = || wr 20001

ALEXANDER L. STEVAS,

CLERK

NO.

IN THE SUPREME COURT

OF THE

UNITED STATES

October Term, 1980

SEARS, ROEBUCK & COMPANY,

Appellant,

vs.

ROSENER, et al.,

Appellees.

ON APPEAL FROM

THE SUPREME COURT OF CALIFORNIA

JURISDICTIONAL STATEMENT

RICHARD L. GOFF

Counsel of Record

44 Montgomery Street,

Suite 3000

San Francisco, CA 94104

Telephone: (415) 772-6000

Attorney for Appellant

KATHERINE H. CROCKER

Of Counsel

i

QUESTIONS PRESENTED

(1) Does California Civil

Code section 3294, authorizing the award

of exemplary damages once the defendant

has been found "guilty of oppression,

fraud, or malice," violate the Due Pro-

cess Clause of the Fourteenth Amendment

by failing to provide adequate objective

standards for determining the amount of

punitive damages to be awarded?12/

(2) Does section 3294, as

applied, deny due process by allowing

the jury to impose punitive damages upon

a defendant shown guilty of punishable

conduct by a mere ponderance of the

evidence, rather than by clear and

convincing proof?

la/ 28 U.S.C. § 2403(b) may be

applicable.

ii

PARTIES TO THE PROCEEDING BELOW

In the proceeding before the

Court of Appeal, Sears, Roebuck and

Company was the appellant.* Appellees

were Peter F. Elkind, Sue N. Elkind,

Joseph F. Hartman, Jean E. Hartman,

David W. Hartmangruber, Joann Hartman-

gruber, William W. West, Jeanne M. West,

Edwin Finkes, Linda J. Finkes, Richard

H. Miller, Sarah Miller, Ralph C.

Flewelling, and Hildegard Flewelling.

A listing of appellant's affiliated

companies, as required by Rule 28.1

of the Supreme Court Rules, has

been provided as a separate document.

«

iii

TABLE OF CONTENTS

Questions prepented . . . « 8s « e's 6 «

Parties to the proceeding below... .

Opinions below . . > ” * . . . e e 'e -

Jurisdiction > ° es. e« e e -e o * ~ e ° e

Constitutional and statutory

SROMLGIONSG. «© & se eo th eh ee ee)

Statement Of the case «. 6 © te tw sw te eo

The questions presented are

substantial o & ° . J om e s es oo o - e .

This

This

s

Court should note probable juris-

diction in order to consider

whether a state may constitu-

tionally authorize imposition of

punitive damages pursuant to a

statute virtually lacking in

standards for determining the

amount of the award .....«. -»

II

Court should note probable juris-

diction to consider whether Cali-

fornia Civil Code section 3294, as

applied, violates due process by

allowing imposition of punitive

damages based on the ordinary

Civil “preponderance of the evi-

dence" standard of proof .....

Conclusion e e e e e e 7 e ° e e ° e .

ii

14

17

23

iv

TABLE OF AUTHORITIES

Cases

Addington v. Texas, 441 U.S. 418

TST Paes wed eceeenees éebe bo eeoses 16,24,25-

30,32,34

Brewer v. Second Baptist Church,

32 Cal. 24 791, 197 P.2d 713

CTSSS acco ceseseseesesecestececes 31

Giaccio v. Pennsylvania, 382 U.S.

399 CTSSS do cdcceecvsecbeseevecse 16,22

In re Winship, 397 U.S. 358

Bi gi SRT OUR CTE TTECULTLCE CLT TCTTas YY TY

Liodas v. Sahadi, 19 Cal. 3d 278,

562 P.2d 316, 137 Cal. Rptr. 635

UOT 016 6646.6 8 60054 US 6 06800 e a eee se te

Holmes v. United States, 267 F.

529 (5th Cir.), cert. denied, 254

U.S. 640 CFPSO do she eeceeseteeoes 15,19

Roginsky v. Richardson-Merrell, Inc.,

378 F.2d 832 (2d Cir. 1967). .e006233

Rosener v. Sears, Roebuck & Co.,

110 Cal. App. 3d 740 (1980)......passim,

App.A

Smith v. United States, 145 F.2d

643 (10th Cir. 1944), cert. denied,

323 U.S. 803 C3PGS tose cvsésctatestasts

Spokane Truck & Dray Co. v. Hoefer,

25 P. 1072 (Wash. 1891) ccccccccctdy 33

Walker v. Signal Companies, Inc.,

84 Cal. App. 3d 982, 149 Cal.

Rptr. 119 4, OES ree ©

Wolfsen v. Hathaway, 32 Cal. 2d

as see wamee § £UPER cc cceccccecad

Constitution

U.S. Const., amend. 14, §1...... passim

Statutes

California Civil Code § 3294 ... passim

California Evidence Code

§ ee ce ecee 24

EEE SE a ee

Commentaries

Comment, Criminal Safeguards and the

Punitive Damages Defendant, 34

Univ. Chi. L. Rev. 408

PPP PPOAR SEER Mee seeeeeoceececee 24,33

Mallor & Roberts, Punitive Damages:

Toward a Principled Approach,

31 Hastings L.J. 639 (1980)... 14

NO.

IN THE SUPREME COURT

OF THE

UNITED STATES

October Term, 1980

SEARS, ROEBUCK & COMPANY,

Appellant,

vs.

ROSENER, et al.,

Appellees.

ON APPEAL FROM

THE SUPREME COURT OF CALIFORNIA

%

JURISDICTIONAL STATEMENT

Sears; Roebuck & Company

appeals from that portion of the final

judgment of the Court of Appeal of

California, dated December 12, 1980,

which affirmed, as modified, an award of

punitive damages over appellant's

objection that the California punitive

damages statute, California Civil Code

Section 3294, as applied in this case,

violates appellant's due process rights

guaranteed by the Fourteenth Amendment

of the Constitution of the United

States.

OPINIONS BELOW

The opinion of the California

Court of Appeal (App. A, infra) is

reported at 110 Cal. App. 3d 740 (1980).

That Court's order denying appellant's

Petition for Rehearing (App. B, infra)

was filed on October 29, 1980, and is

not reported. The order of the Cali-

fornia Supreme Court denying appellant's

and appellees' respective Petitions for

Hearing (App. C, infra) was filed on

December 10, 1980, and is not reported.

JURISDICTION

The judgment of the California

Court of Appeal, First Appellate District,

affirming, as modified, the award of

punitive damages of $2,500,000 in favor

of appellees and against appellant, was

entered on December 12, 1980. (App. D,

infra.) The Supreme Court of California

denied appellant's Petition for Hearing

by order dated December 10, 1980. (App.

C, infra.)

A notice of appeal to this Court

was duly filed in the California Court

of Appeal, First Appellate District, on

February 25, 1981. (App. E, infra.)

This appeal is being docketed

in this Court within 90 days after the

California Supreme Court denied hearing.

The jurisdiction of this Court is invoked

under 28 U.S.C. §1257(2).

«Je

CONSTITUTIONAL PROVISIONS AND STATUTES

The relevant constitutional

provisions and statutes are: U.S.

Const. amend. XIV, §1; Calif. Civ. Code

§3294; Calif. Evid. Code §115, all of

which are reproduced in Appendix F.

STATEMENT OF THE CASE

This case involves the consti-

tutionality of a massive punitive damages

award arising out of the unforeseen

financial collapse of a home remodeling

contractor licensed by the defendant,

Sears, Roebuck & Company ("Sears"), and

the resulting frustration, discomfort,

and emotional distress of certain

affected homeowners. A jury awarded the

eight plaintiff couples $158,000 in

compensatory damages, largely for

emotional distress caused by delays and

deficiencies in performance of the home

remodeling contracts, and $19 million in

punitive damages, based on a special

verdict finding Sears guilty of fraud in

connection with the advertising and sale

of those contracts.1/

Sears appealed, challenging,

inter alia, the sufficiency of the

evidence to support an award of punitive

damages, the exclusion of expert testi-

mony on the purpose of 100% performance

bonds, and the refusal to give certain

1/ The gist of plaintiffs’ fraud claim

was that, by looking to 100% per-

formance bonds as the primary means

for effecting completion of the

contracts in the event of unforeseen

default by the contractor, Sears

demonstrated its intent not to per-

form its promise to assure satis-

factory performance.

key instructions on punitive damages ./

In its brief submitted to the Court of

Appeal, Sears raised the objections that

California's punitive damages statute,

for lack of any standards to determine

the amount of the award, violates the Due

Process Clause of the Fourteenth Amend-

ment, and that the “preponderance of the

evidence" standard is fundamentally unfair

when applied to proof of the elements of

fraud and malice or oppression necessary

to justify punitive damages.

The Court of Appeal affirmed

the award of compensatory damages and

2/ Sears objected in the trial court to the

judge's refusal to instruct the jury,

as requested by Sears, (1) that the

punitive damages must bear some reason-

able relationship to the amount of

compensatory damages awarded; and

(2) that they could not award punitive

damages unless they found that Sears'

alleged fraud had been proved by "clear

and convincing" evidence.

ate

the propriety of awarding punitive

damages in the case, but concluded that

the amount of exemplary damages awarded

was "not reasonably related to either

the compensatory damages or the nature

of appellant's conduct, and so grossly

disproportionate as to be indicative of

its being rooted in passion and pre-

judice." (App. A, p. 31.) The court

ruled that the case would be remanded

for a new trial on the amount of puni-

tive damages unless plaintiffs consented

to a reduction of the award to $2,500,000.2/

The Court dismissed appellant's

due process claim regarding the requisite

burden of proof for an award of punitive

3/ The court did not explain how or by

what standards it arrived at the

particular figure of $2,500,000 as

the amount of reduced punitive

award to be imposed on Sears.

~ =

damages with the correct observation

that in California "fraud need [only] be

proved by a ‘preponderance of the evi-

dence' rather than ‘clear and convincing

evidence.'" (App. A, p. 37.) The

Court did not, however, address appel-

lant's contention on this issue, which

is that a jury may not constitutionally

impose punitive, as distinct from compen-

Satory, damages unless it is satisfied

that the elements of fraud and malice

necessary to justify such a sanction

have been established by "clear and

convincing proof." Appellant's objec-

tion that section 3294 violates the

"void for vagueness" doctrine of the Due

Process Clause was likewise essentially

ignored by the Court of Appeal. Although

the Court did grant appellant's point that

"(w])ithout the reasonable relationship

-8-

instruction the discretion of the

jury becomes simply limitless" (App. A,

p. 28), the opinion necessarily rejected

appellant's contention on appeal that due

process also requires more useful quan-

titative guides, such as the requirement

that the jury consider the economic

benefit derived from the wrongful

conduct in question in addition to the

defendant's overall wealth.4/

The Court of Appeal denied

appellant's Petition for Rehearing, in

4/ Sears' gross income from the entire

Add-A-Room Program was $559,000.

Its estimated expenses prior to the

default of URS were $209,000.

Thereafter, it expended $110,000 in

payments to Add-A-Room customers

and $47,000 in repairs for Add-A-

Room customers. Thus its total net

income from the program was less

than $200,000, a profit virtually

wiped out by the compensatory

verdict alone.

which appellant again raised the consti-

tutionality of imposing punitive

damages using a mere "preponderance of

the evidence" standard. (App. B, infra).

Appellant reiterated both due process

claims in its Petition f.r Hearing in the

Supreme Court of California, which was

denied by order dated December 10, 1980.

(App. C, infra).

The circumstances that led up

to the instant lawsuit and resulting

punitive damages award, though contested

in various respects, may be fairly

summarized as follows.

In June, 1970 Sears began

promotion of a residential room addition

program called "Sears Add-A-Room" under

a license agreement with an improvement

contractor, United Remodeling Systems,

Inc. ("URS"). Each homeowner contract

~109—

sold and performed by URS was backed by

a 100% performance bond issued by a

licensed surety company, Commercial

Standard Insurance Co. ("CSI"). (App.

A, pp. 1-2).

During 1972, U. S. Financial

Corporation, a large conglomerate with

approximately fifty million dollars in

financial statement net worth and other

construction subsidiaries, announced it

vas acquiring URS and, with Sears'

approval, assumed management of the Add-

A-Room program operations. In January,

1973, U. S. Financial abandoned its

acquisition plan and URS ceased business

operations, leaving some two hundred

Outstanding improvement contracts in

various stages of completion. (App. A,

p. 3). Thereafter Sears, together with

-11-

CSI, made arrangements for completion of

the unfinished work.

Sears' corrective efforts did

not occur without difficulties, nor

without resulting frustration and

distress for some affected homeowners.

First, for approximately two weeks after

URS defaulted, CSI took the position

that Sears spouse complete the work and

hold the sureties harmless, or at least

contribute substantially to the sureties’

performance. Sears, based on advice of

counsel and the undisputed fact that CSI

had the resources and ability to per-

form, rejected CSI's demands. Secondly,

CSI encountered unexpected delays in

getting a new contractor started on the

jobs in Northern California, and in some

areas there were serious delays and

deficiencies in that contractor's work.

-12=

These delays and deficiencies were

responsible for all or most of plaintiffs'

serious damages claims.

At the trial Sears took the

position that since the Add-A-Room

contracts bore its name and were backed

by its guarantee of satisfaction, Sears

remained contractually liable to plain-

tiffs for any properly compensable damages

they had sustained as a result of any

failure to build or complete the room addi-

tions in the time and manner required by

their contracts. Plaintiffs, however,

sought punitive damages on the theory that

their injuries stemmed not only from breach

of contract and negligence, but from delib-

erate fraud and malice on the part of Sears.2/

5/ Plaintiffs argued that Sears' reli-

ance on surety bonds as a completion

[FCOTNOTE CONTINUED ON FOLLOWING PAGE]

4 Fu

THE QUESTIONS PRESENTED ARE SUBSTANTIAL

Appellant submits that this

case raises two important due process

questions implicated by the widespread

use Of punitive damages awards to punish

6/

and deter socially undesirable conduct.

In particular, the Court should note

[FOOTNOTE CONTINUED FROM PREVIOUS PAGE]

remedy was the "key to the fraud"

and the means by which Sears mani-

fested its intent not to perform

its promise to assure satisfactory

performance. Sears argued,

however, that bonds were required

in part to reduce the risk of loss

to Sears in the event of a default

by URS, but also because Sears

believed that performance under

such bonds would be a reasonable

and effective way to assure comple-

tion in the event of default by

URS.

6/ At present all but five jurisdic-

tions allow punitive damages. See

Mallor & Roberts, Punitive Damages:

Toward a Principled Approach, 31

Hastings L. J. 639 (1980).

-~14-

probable jurisdiction of this appeal for

the following reasons:

1. It is an established rule

of constitutional law that a statute

cannot be so vague and standardless

that the public is left uncertain as to

the conduct prohibited, or the judge or

jury left with unlimited power in

imposing punishment. California's

punitive damages statute is standardless

on its face and virtually so in applica-

tion, and this appeal thus presents a

substantial federal question as to the

validity of Civil Code section 3294

under the Due Process Clause. The

judgment below, insofar as it upholds

this statute's validity, is in square

conflict with prior federal decisions,

Smith v. United States, 145 F.2d

643 (10th Cir. 1944) and Holmes v. United

-15-

States, 267 F. 529 (5th Cir. 1920),

and is dubious as a matter of constitu-

tional law given this Court's decision

in Giaccio v. Pennsylvania,

382 U.S. 399 (1966).

Ze Despite the undeniably

penal purpose of California's punitive

damages statute and the potential

seriousness of the penalties imposed

thereunder, California permits imposi-

tion of civil punishment in reliance on

the ordinary standard of proof applied

in civil cases. This approach raises

serious due process considerations

implicated but not yet reached in recent

decisions by this Court, such as Adding-

ton v. Texas, 441 U.S. 418 (1979) and In

re Winship, 397 U.S. 358 (1970).

~16<

-%

I.

THIS COURT SHOULD NOTE PROBABLE

JURISDICTION TO CONSIDER WHETHER A

STATE MAY CONSTITUTIONALLY AUTHORIZE

IMPOSITION OF PUNITIVE DAMAGES

PURSUANT TO A STATUTE VIRTUALLY

LACKING IN STANDARDS FOR DETERMINING

THE AMOUNT OF THE AWARD

The decision below states that a

jury may assess the amount of a punitive

damages award with reference to three

factors: the defendant's wealth, the

amount of the compensatory award, and

the nature of the defendant's conduct.

None of these factors serves as an

7/

objective guideline cor the jury,—

7/ The courts emphasize that "[al]

rigid formula is not involved [but]

rather, a fluid process of adding

or subtracting depending on the

nature of the acts and the effect

on the parties and the worth of the

defendants." Walker v. Signal

Companies, Inc., 84 Cal. App. 3d

982, 998, 149 Cal. Rptr. 119 (1978).

[FOOTNOTE CONTINUED ON FOLLOWING PAGE]

oj Jo

particularly since in California the jury

is instructed that the "reasonable re-

lationship” requirement provides no

fixed ratio or standard for computation.

Liodas v. Sahadi, 19 Cal. 3d 278, 284,

562 P.2d 316, 137 Cal. Rptr. 635 (1977).

As a result, there are no minimum or

maximum penalties, even as a function of

the compensatory award, to guide the

jury. The consequence is a statute void

for vagueness as to the punishment it

imposes.

[FOOTNOTE CONTINUED FROM PREVIOUS PAGE]

See also the discussion in the con-

curring opinion below (App. A,

pp. 51-7) concerning the tremendous

range of ratios of punitive to

actual damages that have been

approved in California, and the

explosion in the types of conduct

for which punitive damages are

allowed.

-18-

By upholding the constitu-

tionality of section 3294, the state

courts are in conflict with lower

federal court decisions respecting

criminal statutes. A criminal statute

must be definite and certain as to the

punishment it is intended to impose.

Smith v. United States, 145 F.2d 643,

644-5 (10th Cir. 1944), cert. denied,

323 U.S. 803 (1945). In Smith the Court

of Appeals held that a statute which, by

reference to another, leaves the senten-

cing court in doubt as to the punishment

it may impose for the described offense

is void and inoperative. See also

Holmes v. United States, 267 F. 529

(5th Cir.) cert. denied, 254 U.S.

640 (1920).

-19-

Although section 3294 is not a

criminal statute, an award imposed there-

under has, as the concurrence to the

opinion below notes; "the nature of a

public fine imposed to punish and deter

evil intent and acts. "8/ (App. A, p. 47.)

But whether section 3294 is labeled

penal or not, it must nevertheless meet

the due process requirements of the

Fourteenth Amendment. Giaccio v. Penn-

sylvania, 382 U.S. 399, 402 (1966). In

Giaccio this Court addressed the consti-

tutionality of a Pennsylvania statute

permitting jurors to determine whether

an acquitted defendant should be assessed

8/ The California courts charac-

terize punitive damages as "a sort

of hybrid between a display of

ethical indignation and the imposi-

tion of a criminal fine." Wolfsen

v. Hathaway, 32 Cal. 2d 632, 647,

198 P.2d 1 (1948).

-20-

the costs

held that

operation

vagueness

of his prosecution. The Court

the act in question, in

since 1860, was void for

under the Due Process Clause

because it lacked standards that would

prevent the arbitrary imposition of

costs. In so holding the Court noted

the immateriality of the statute's civil

character:

Both liberty and property are

specifically protected by the

Fourteenth Amendment against

any state deprivation which

does not meet the standards of

due process, and this protec-

tion is not to be voided by

the simple label a State

chooses to fasten upon its

conduct or its statute. So

here this state Act whether

=-21-

labeled "penal" or not must

meet the challenge that it

is unconstitutionally vague.

Giaccio v. Pennsylvania, 382 U.S. at 402.

As the concurrence to the

opinion below concluded, "[p]lacing

unrestricted power in a jury to direct

punishment for ‘evil intent' by compelling

the '‘evildoer' to pay money to another

without right thereto" is foreign to

concepts of due process, particularly

when "compounded by the permitted

procedures, such as the preponderance of

evidence test, and compulsory self-

incrimination." (App. A, p. 48.)2/

9/ See Spokane Truck & Dray Co. v. Hoefer,

25 P. 1072, 1074 (Wash. 1891), in which

the court's perception that, by means

of a punitive damages award, "a person

can be convicted of a crime, the penalty

[FOOTNOTE CONTINUED ON FOLLOWING PAGE]

>

This Court should note probable juris-

diction to consider the contitutionality

of California's "fluid" procedure under

Civil Code section 3294 for imposing

punitive awards in civil cases.

II

THIS COURT SHOULD NOTE PROBABLE JURIS~-

DICTION TO CONSIDER WHETHER CALIFORNIA

CIVIL CODE SECTION 3294, AS APPLIED,

VIOLATES DUE PROCESS BY ALLOWING IMPOSI-

TION OF PUNITIVE DAMAGES BASED ON THE

ORDINARY "PREPONDERANCE OF THE EVIDENCE

CIVIL STANDARD OF PROOF

A jury may impose punitive

damages pursuant to section 3294 in

reliance on the ordinary civil standard

[FOOTNOTE CONTINUED FROM PREVIOUS PAGE]

for which is unlimited, save in the

uncertain judgment of the jury, and

fined to this unlimited extent for the

benefit of an individual who has al-

ready been fully compensated in

damages," was cited as one reason for

rejecting the concept of punitive

damages entirely.

-23-

10/

of proof.— An award of punitive

damages, however, the purpose of which

is to punish and deter, is as Judge

Elkington stated in his concurrence

below, “logically indistinguishable"

from a criminal sanction. (App. A, p.

47.) Indeed, the severity of the

punishment often far exceeds that of

criminal penalties for the same conduct .-//

In light of this Court's recognition in

Addington v. Texas, 441 U.S. 418 (1979),

that, even in civil proceedings, due

process requires an examination of the

10/ Section 115 of the California Evi-

dence Code lists the three tradi-

tional standards of proof, and

specifies that the "preponderance

of the evidence" standard applies

unless otherwise provided for by

law. (See App. F.)

11/ See Comment, Criminal Safeguards

and the Punitive Damages Defendant,

34 Univ. Chi. L. Rev. 408, 411

(1967).

oie

type and magnitude of interests involved

and a standard of proof that is chosen

accordingly, the judgment below raises a

serious constitutional question with

respect to the standard of proof required

for a punitive damages award. In

assigning the same risk of error to the

punitive damages defendant that he bears

with respect to the compensatory award,

the California courts ignore the sub-

Stantially different interests of both

plaintiff and defendant in the imposi-

tion of civil punishment.

In Addington v. Texas, 441 U.S.

418 (1979), this Court held that due

process requires a "clear and convincing"

standard of proof in a civil proceeding

brought under state law to commit an

individual involuntarily to a state

mental hospital. The constitutional

-25-

stature of the reasonable-douBt standard

in criminal cases had already been

explicitly upheld in In re Winship, 397

U.S. 358, 364 (1970). In Addington v.

Texas, this Court proceeded from the

recognition that the standard of

proof concept is one "embodied in the

Due Process Clause," the function of

which is "to ‘instruct the fact finder

col.cerning the degree of confidence our

society thinks he should have in the

correctness of factual conclusions for a

particular type of adjudication.'"

Addington v. Texas, 441 U.S. at 423

(quoting In re Winship, 397 U.S. 358,

370 (1970) (Harlan, J., concurring). The

question of the appropriate standard of

proof in awarding punitive damages is,

therefore, Of constitutional stature and

presented squarely by the instant case.

y) oe

In Addington this Court

evaluated the three general levels of

proof as they have evolved in this area

of the law:

At one end of the spectrum is

the typical civil case invol-

ving a monetary dispute

between private parties.

Since society has a minimal

concern with the outcome of

such private suits, plaintiff's

burden of proof is a mere

preponderance of the evidence.

The litigants thus share the

risk of error in roughly equal

fashion.

In a criminal case, on the

other hand, the interests of

the defendant are of such

magnitude that historically

me

and without any explicit

constitutional requirement

they have been protected by

standards of proof designed to

exclude as nearly as possible

the likelihood of an erroneous

judgment. In the administra-

tion of criminal justice, our

society imposes almost the

entire risk of error upon

itself. This is accomplished

by requiring under the Due

Process Clause that the state

prove the guilt of an accused

beyond a reasonable doubt. In

re Winship, supra.

Addington v. Texas, 441 U.S. at 423-4.

Noting that the intermediate standard,

often denoted by the phrase "clear and

convincing," is typically used in civil

a2Qa

cases involving allegations of "fraud or

some other quasi-criminal wrongdoing by

the defendant," this Court observed

that

[t]he interests at stake in

those cases are deemed to be

more substantial than mere

loss of money and some juris-

dictions accordingly reduce

the risk to the defendant

of having his reputation

tarnished erroneously by

increasing the plaintiff's

burden of proof. Similarly,

this Court has used the "clear

unequivocal and convincing"

Standard of proof to protect

particularly important indivi-

dual interests in various

civil cases. See, e.g.,

-29-

Woodby v. INS, supra, at 285

(deportation); Chaunt v.

United States, 364 U.S. 350,

353 (1960) (denaturalization) ;

Schneiderman v. United States,

320 U.S. 118, 125, 159 (1943)

) (denaturalization).

Id. at 424. The court concluded that

"the individual's interest in the outcome

of a civil commitment proceeding is of

such weight and gravity that due

process requires the state to justify

confinement by proof more substantial

than a mere preponderance of the

evidence." Addington v. Texas, 441

U.S. at 427.

As the concurrence to the

opinion below points out, "[{n]o person,

regardless of how grievous the circum-

stances, has a 'right' to punitive

-30-

damages. Such ‘right’ as there may be,

will be vindicated by the compensatory

award designed to cover his entire

loss." (App. A, p. 45, citing Brewer

v. Second Baptist Church, 32 Cal. 2d

791, 800-i, 197 P.2d 713 (1948).)

The interest of the private

plaintiff in exacting the penalty is,

therefore, nil, and what is at stake

is rather the state's interest in

2/

punishment and deterrence.2 The puni-

tive damages defendant, on the other

12/7 Unlike in a criminal or civil

penalty action, however, a punitive

damages claim is prosecuted by a

private plaintiff with monetary

incentive. The possibility of huge

punitive damages awards provides

great incentive to file and pursue

cases of highly questionable merit,

disincentive to accept reasonable

offers of settlement, and the risk

of forcing defendants to pay

unjustified or exorbitant settle-

ment demands.

-31-

hand, faces a substantial deprivation of

property as well as injury to reputation

and social stigma. Thus, to the extent

punitive damages are involved, the

lawsuit is not a “typical civil case" in

which society's "minimal concern with

the outcome" justifies allowing plaintiff

and defendant to share the risk of error

"in roughly equal fashion." See

Addington v. Texas, 441 U.S. at 423.

Although the interests of the punitive

damages defendant may not be of the

same order of magnitude as those of the

criminal defendant, due process demands

that society allocate to itself, via

its private prosecutor, the substantially

greater portion of the risk of error by

requiring proof of the elements of

-32-

fraud, malice, or oppression by "clear

J . . 13

and convincing" evidence._2/

13/

For these reasons, some jurisdic-

tions have decided that punitive

damages awards require a standard

of proof higher than a “preponder-

ance of the evidence." See Roginsky

v. Richardson-Merrell, Inc., 378

F.2d 832, 850 (2d Cir. 1967)

("Moreover, New York demands, as it

might have to before punishing a

defendant with fines similar to

those imposed on a criminal charge,

that the quality of conduct neces-

Sary to justify punitive damages

must be ‘clearly established.'");

Colo. Rev. Stats. § 13-25-127

(1973) (requiring that elements of

a Claim of punitive damages be

proven "beyond a reasonable doubt").

Cf. Spokane Truck & Dray Co. v.

Hoefer, 25 P. 1072, 1074 (Wash.

1891) (the assumed absence of a

requirement of proof beyond a

reasonable doubt was cited as a

reason for rejecting availability

of punitive damages altogether).

See, also, Comment, Criminal

Safeguards and the Punitive Damages

Defendant, 34 U. Chi. L. Rev. 408,

417-18, 434 (1967) (justice requires

increasing burden of persuasion on

plaintiff in punitive damages

action).

-33-

Appellant submits that the

Californi. punitive damages statute, as

applied, is contrary to the due process

principles articulated in Addington v.

Texas, and that, in light of the ever-

increasing size and frequency of punitive

damages awards (see App. A, pp. 51-7),

this Court should note probable juris-

diction of this appeal in order to

consider the constitutionality of the

California statute.

-34-

CONCLUSION

For the foregoing reasons, the

Court should note probable jurisdiction

of this appeal.

Dated: March 8, 1981

Respectfully submitted,

RICHARD L. GOFF

Attorney for Appellant

KATHERINE H. CROCKER

Of Counsel

(Appendices Follow)

=3Sa

APPENDIX A

IN THE COURT OF APPEAL OF THE STATE OF

CALIFORNIA

FIRST APPELLATE DISTRICT - DIVISION ONE

FREDERICK A. ROSENER,

HELEN J. ROSENER,

PETER F. ELKIND and 1 Civil

SUE N. ELKIND, 41334

Plaintiffs and

Respondents, Super. Ct.

vs. No. 136224

SEARS ROEBUCK and

COMPANY,

Defendant and

Appellant.

JOSEPH F. HARTMAN, et al.,

Intervenors and

Respondents.

ee

The present appeal is from

judgments after jury trial in favor of

respondents and against appellant Sears,

Roebuck and Company aggregating $158,000

in compensatory and $10 million in

punitive damages.

It is unnecessary to engage in

an exhaustive analysis of the voluminous

evidentiary record compiled during the

36-day trial. Viewing that record in a

light favorable to the judgment below,

the following salient facts are dis-

closed.

In June 1970, Sears Roebuck

actively promoted a national campaign

called "Sears Add-A-Room," using license

agreements with improvement contractors

under which Sears received payment based

upon 10 percent of the gross contract

price between the licensed contractor

and the homeowner. United Remodeling

Systems, Inc. (URS) was licensed by

Sears to provide such services in

California, utilizing the nationally-

recognized Sears logo, together with a

performance bond guaranty under a

collateral suretyship arrangement with

Commercial Standard Insurance Co.

} During 1972, United States

Financial Corporation (USFC) initiated

efforts to acquire URS, and, with Sears'

approval, assumed active management of

its Add-A-Room program operations.

In January 1973, following

USFCS's decision to abandon the acquisi-

tion plan, the undercapitalized and

financially shakey URS operation failed,

with some 200 outstanding improvement

contracts, mainly in California, in

various stages of completion. Thereafter,

Sears, together with CSI, reluctantly

undertook to complete the unfinished

work under the contract terms including

a

the written guarantees. Rejecting CSI's

adamant insistence that Sears bear equal

if not full responsibility for costs

of completion as a "de facto principal"

on the surety bond, Sears initiated

independent action by notifying program

customers of URS's "bankruptcy" and

advising them to press their claims

for full petforeaaenl against CSI without

mention of the latter's liability

disclaimer. Sears did, however, advise

its customers that it would "cooperate

in resolving this matter," while direct-

ing customer inquiries to designated

Sears' executives.

By early spring, CSI had, with

Sears' knowledge, begun corrective and

completion work on outstanding contracts

in Northern California through Neway

Construction, an independent entity

Organized by Robert Freeman, former

manager of USR's regional operations.

Evidence at trial established

convincingly that respondents entered

into Add-A-Room contracts principally in

reliance on Sears' national reputation,

as well as past satisfactory relations

with the company. In every instance, it

appears, Sears' promotional campaign,

including its standard assurance of

satisfactory service, was a factor in

respondents' decisions to enter into

the program. Each respondent paid the

full amount of the contract price

immediately upon execution of the

contract; six of the eight couples took

out second mortgages on their residences

in order to finance the improvements.

Respondents! individual

experiences with URS, Sears, CSI and

Neway, though widely varied, reflected a

pattern of nonfeasance, shoddy workman-

ship, inconvenience, unreasonable

delay, utter indifference, and, ulti-

mately, attempted avoidance of responsi-

bility.

The damages inflicted by this

callous and negligent course of conduct

included physical and emotional distress,

unconscionable invasions of privacy,

property damage, financial disruption

and attendant frustration and despair.

The record is replete with saddening

examples of the injuries thus inflicted,

varying from the loss of a family Bible

caused by leaks in an unrepaired roof,

to the total loss of privacy suffered by

an entire family forced to sleep in the

same room when the interior walls of

their home were left unrepaired.

Justifiable refunds were sought and

consistently refused, and promises were

regularly made and broken.

Withal, it is no exaggeration

to describe Sears' treatment of respon-

dents as arrogant, high-handed, and

characterized by indifference to clear

contractual obligations and an exclusive

preoccupation with wasleiee.” It was

on this general state of the evidence

that punitive damages were assessed, as

noted, in the amount of $10 million.

1/ Indeed, not only did Sears resolutely

deny requested refunds while continuing

to accept its 10 percent commission

license, but it steadfastly maintained

its nonliability in relation to the

designated surety.

On appeal, Sears advances

several arguments supporting reversal:

(1) that the punitive damage award is

improper and excessive; (2) that

the compensatory damage awards were

unsubstantiated and excessive; and (3)

that certain procedural and instructional

errors were committed.

I

Appellant challenges the $10

million punitive damage award on the

grounds that it is not based upon

sufficient evidence of fraud or malice,

and that it is excessive as a matter of

law. For reasons we now state, we

conclude that the award is based upon

substantial evidence, but find merit in

appellant's claim that the amount is

excessive, and accordingly vacate the

amount and remand with directions.

-§-

The jury returned special

verdicts finding that Sears committed

fraud by misrepresenting itself as a

party to the Add-A-Room contracts, and

by promising to guarantee -performance of

those contracts without intending to

honor the promise.

Appellant correctly notes that

a punitive damage award must be based

upon a finding of malice as well as

fraud. (Ebaugh v. Rabkin (1972) 22

Cal.App.3d 891, 894 [99 Cal. Rptr.

706).) Even without a showing of

personal animus, however, "malice in

fact" may be established. As explained

in Schroeder v. Auto Driveaway Co.

(1974) 11 Cal.3d 908 at page 922 [114

Cal.Rptr. 622, 523, P.2d 662]: "..

‘intent,' in the law of torts, denotes

not only those results the actor desires,

but also those consequences which he

knows are substantially certain to

result from his conduct. (Rest. 2d

Torts, § 8a; Prosser, Torts (4th ed.

1971) pp. 31-32) The jury in the

present case could reasonably infer that

defendants acted in callous disregard of

plaintiffs' rights, knowing that their

conduct was substantially certain to

vex, annoy, and injure plaintiffs. Such

behavior justifies the award of punitive

damages. As stated in Toole v. Richard-

son-Merrell Inc. (1967) 251 Cal.App.2d

689, 713 ...: "malice in fact, suffi-

cient to support an award of punitive

damages ... may be established by a

showing that the defendant's wrongful

conduct was willful, intentional, and

done in reckless disregard of its

=40-

possible results." (Accord: Black v.

Shearson, Hammill & Co. (1968) 266 Cal.

App.2d 362, 369 ...)" Further, "When

there is express fraud there is evil

motive [malice]." (Walton v. Anderson

(1970) 6 Cal.App.3d 1003, 1010 [86

Cal.Rptr. 345).) And it is well

established that a promise made without

an intention of performing it consti-

tutes actionable fraud. (Fowler v.

Fowler (1964) 227 Cal.App.2d 741, 748

[39 Cal.Rpt. 101); Shyvers v. Mitchell

(1955) 133 Cal.App.2d 569, 574 [284

P.2d 826].) "... it has been repeatedly

stated that '[w]ithout the consideration

of other evidence, subsequent failure to

perform [a promise] warrants the infer-

ence that [the promisor] did not intend

to perform when [he] promised." [Cita-

tions.]" (Kuffel v. Seaside Oil Co.

= t1-

(1970) 11 Cal. App.3d 354, 360 [90

Cal.Rptr. 290]).)

Appellant's conduct both

prior to and following the default of

URS evidenced an unwillingness to act in

accordance with its promises and repre-

sentations, and belied its insis-

tence that its conduct merely estab-

lishes the negligent performance of its

remedial program, rather than an intent

to ignore its promises at the time they

were made. Sears' contractual arrange-

ments with URS and its bonding company,

its entirely inadequate responses to

legitimate customer complaints, its

dilatory and evasive referral of those

problems to URS and the bonding company,

and its stubborn insistence that it had

no remedial obligations, all support the

a1 %-

conclusion that - contrary to its

earlier representations - from the first

Sears intended to divorce itself from

responsibility for the Add-A-Room program.

We therefore pane ore in

light of the entire record, that the

findings of fraud and malice which

justify imposition of punitive damages

are supported by substantial evidence.

(Beck v. State Farm Mut. Auto. Ins. Co.

(1976) 54 Cal.App.3d 347, 354 [126

Cal.Rptr. 602]).)

We agree with appellant,

however, that even though the evidence

justified some award of punitive damages,

the amount fixed by the jury was exces-

Sive as a matter of law. In making this

argument, appellant has primarily

focused on the lack of relationship

-13-

between the punitive and compensatory

damages; the punitive damage award is 63

times greater than the total compen-

_ satory verdict. Our conclusion, how-

ever, is based only in part on the

disproportion between compensatory and

punitive damages: other factors support

it as well.

We recognize that our review

of punitive damage awards is guided by

the "historically honored standard of

reversing as excessive only those

judgments which the entire record, when

viewed most favorably to the judg-

ment, indicates were rendered as the

result of passion and prejudice ...."

{[(Citation.]" (Neal v. Farmers Ins.

Exchange (1978) 21 Cal.3d 910, 927 [148

Cal.Rptr. 389, 582 P.2d 1980); Bertero

-14-

v. National General Corp. (1974) 13

Cal.3d 43, 65, fn. 12 [118 Cal.Rptr.

184, 529 P.2d 608, 65 A.L.R.3d 878].)

We are also, however, “charged with the

responsibility to act if it appears that

'"the recovery is so grossly dispropor-

tionate as to raise a presumption that

it is the result of passion or preju-

dice. "'" (Zhadan v. Downtown L.A.

Motors (1976) 66 Cal.App.3d 481; 496

{136 Cal.Rptr. 132]; see also Neal v.

Farmers Ins. Exchange, supra, at p.

928.)

Moreover, we must be guided by

the well-established principle that

punitive damages are not favored in law.

(Henderson v. Security Nat. Bank (1977)

72 Cal.App.3d 764, 771 [140 Cal.

Rptr. 388]; Beck v. State Farm Mut.

~}S=

Auto. Ins. Co., supra, 54 Cal.App.3d

347, 355.) Such damages constitute a

windfall, which, though supported

by law in proper cases (Ferraro v.

Pacific Fin. Corp. (1970)-8 Cal.App.3d

339, 355 [87 Cal. Rptr. 226])), creates

the anomaly of excessive compensation

which makes the remedy an unappealing

one. (Cf. Wolfsen v. Hathaway (1948) 32

Cal.2d 632, 647 [198 P.2d 1].)

An examination of the entire

record convinces us that the $10 million

punitive damage award was so improperly

excessive as to demonstrate that it

resulted from passion and prejudice.

Since the principal purpose of

punitive damages is to deter and punish,

the wealth of the defendant is always a

proper consideration. (See Roemer v.

aI6=

Retail Credit Co. (1975) 44 Cal.App.3d

926, 937 [119 Cal.Rptr.82].) In

Zhadan v. Downtown L.A. Motors, supra,

66 Cal. App.3d at page 496, the court

explained; "Likewise applicable is the

principle that, the purpose of punitive

damages being to punish the defendant

and make an example of him, "the wealth-

ier the wrongdoing defendant, the larger

the award of exemplary damages need be

wee ee therefore, appellant's wealth

were the only guiding factor in this

case, the $10 million award might be

justified, for it represents less than

one-fourth of one percent of Sears' net

assets, and only three and one-half days

2/

of its net income. However,

2/ Appellant complains that its net

assets and income do not accurately

reflect the much smaller profit it

(cont. on next page)

=17e=

additional factors ought to have been,

and were not, given the weight due

them.

In Neal v. Farmers Ins. Ex-

change, supra, 21 Cal.3d 910 at page

928, the California Supreme Court

delineated these applicable factors

as follows: "In making the indicated

assessment we are afforded guidance by

certain established principles, all of

which are grounded in the purpose and

function of punitive damages. One

factor is the particular nature of the

defendant's acts in light of the whole

(cont.)

received from the Add-A-Room program.

This contention ignores the obvious;

punitive damages must be based upon

total wealth, rather than profit from

Single enterprise, if they are to

achieve the desired deterrent effect.

=18<

record; clearly, different acts may be

of varying degrees of reprehensibility,

and the more reprehensible the act, the

greater the appropriate punishment,

assuming all other factors are equal.

(See Bertero v. National General Corp.,

Supra, 13 Cal. 3d 43, 65; Fletcher

v. Western National Life Ins. Co.,

supra, 10 Cal.App.3d 376, 408-409 [89

Cal.Rptr. 78, 47 A.L.R.3d 286]; Ferraro

v. Pacific Fin. Corp. (1970) 8 Cal.App.

3d 339, 352-353 ...-) Another relevant

yardstick is the amount of compensatory

damages awarded; in general, even an act

of considerable reprehensibility will

not be seen to justify a proportionally

high amount of punitive damages if the

actual harm suffered thereby is small.

(But cf. Finney v. Lockhart (1950) 35

Cal. 2d 161, 164 ....) Also to be

~19-

considered is the wealth of the particu-

lar defendant; obviously, 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. (See Bertero, supra, at p.

65; Roemer v. Retail Credit Co. (1976)

44 Cal. App.3d 926, 937. ...; Wetherbee

v. United Ins. Co. of America (1971) 18

Cal.App.3d 266, 270-271 ...; Ferraro v.

Pacific Fin. Corp., supra, 8 Cal.App.3d

339, 353; MacDonald v. Joslyn (1969) 275

Cal.App.2d 282, 293-294 ....) By the

same token, of course, the function of

punitive diainwe is not served by an

award which, in light of the defendant's

wealth and the gravity of the particular

act, exceeds the level necessary to

properly punish and deter."

-20-

"A rigid formula is not

involved but rather, a fluid process of

adding or substracting depending on the

nature of the acts and the effect on the

parties and the worth of the defendants."

(Walker v. Signal Companies, Inc. (1978)

84 Cal.App.3d 982, 998 [149 Cal.Rptr.

119).)

A legitimate and often-reiter-

ated factor, according to our high court

in Neal v. Farmers Ins. Exchange,

supra, 21 Cal.3d 910, is the principle

that exemplary damages should bear

a reasonable pakie ian to actual damages,

even though no fixed ratio exists to

determine the proper proportion. (See

Liodas v. Sahadi (1977) 19 Cal.3d 278,

284 [137 Cal.Rptr. 635, 562 P.2d

316]; Schroeder v. Auto Driveaway Co.,

aZt<

Supra, 11 Cal.3d 908, 922; Forte v.

Nolfi (1972) 25 Cal.App.3d 656, 689

[102 Cal.Rptr. 455]; Kuffel v. Seaside

Oil Co., supra, 11 Cal. App.3d 354,

367.) "A general limitation has been

followed that ordinarily the punitive

damages must be in some reasonable

proportion to the actual damages

suffered." (Weisenburg v. Molina (1976)

58 Cal.App.3d 478, 490, 129 Cal.Rptr.

813.)

When the entire record of the

instant proceedings is reviewed, the

requisite reasonable relationship

between compensatory and punitive

damages is found to be absent. Such,

indeed, was the finding made by the

trial court in ruling upon appellant's

motion for new trial. The court,

at 2e

however, denied the motion for the

somewhat gratuitous reason that, while

perhaps excessive, the award might be

allocated to the "unclass" of adversely

affected Sears' Add-A-Room customers not

3/

before the court.

3/ The effect of this finding upon the

scope of appellate review is unclear.

In Wetherbee v. United Ins. Co. of

America (1971) 18 Cal.App.3d 266, 270 95

Cal.Rptr. 678 , the court noted: "It has

been repeatedly held that after a jury

award of exemplary damages, it becomes

the province of the trial court on a

motion for a new trial to determine

whether the amount is excessive. After

an award has been approved by the trial

court, the reviewing court will hesitate

to declare the amount excessive unless,

upon a consideration of the entire

record, including the evidence, it must

be said that the award was excessive."

Here, the findings of the jury and

trial court as to the reasonableness of

the punitive damage award actually

conflict. Of course, this court is

Still bound by the rule that the award

must be overturned only upon a finding.

that it was the result of "passion and

prejudice." The finding of the trial

court lends support to such a con-

clusion on appeal.

«2 3m

The trial court's finding was proper,

although its speculation was not.

The disproportionate relation-

ship here is palpable: The ratio of

punitive to compensatory damages, as

noted, is approximately 63 to 1; the

difference in the awards is $9.85

million. Such a grossly disproportion-

ate recovery raises a presumption that

it was the result of passion or preju-

dice. (Cunningham v. Simpson (1969)

1 Cal.3d 301, 308 [81 Cal.Rptr. 855,

461 P.2d 39].) Thus, in Little v. Stuyve-

sant Life Ins. Co. (1977) 67 Cal.App.3d

451 [136 Cal.Rptr. 653], where the court

reduced a punitive damage award from

$2.5 million to $250,000 - based upon a

compensatory verdict of $172,325, it was

concluded that: "... although there is

atin

no fixed ratio by which to determine the

propriety of a punitive damage award,

punitive damages should bear a reason-

able relationship to the compensatory

damages award. (E.g., Wilkinson v.

Forte v. Nolfi, supra, 25 Cal.App.3d at

p. 689; see also Schroeder v. Auto

Driveway Co., supra, 11 Cal.3d at

p. 922; Oakes v. McCarthy Co., 267 Cal.

App.2d 231, 263 ...; 4 Witkin, Summary

of Cal. Law (8th ed.) p. 3156.) Here,

the ratio of punitive damages to compen-

satory damages is in excess of 14 to 1

and in dollar amount the punitive damage

award exceeds the compensatory award by

almost two and a third million dollars.

[¥]We conclude that the punitive damage

award is so excessive and grossly

disproportionate to the wealth of

~. o

defendant and to the compensatory

damages awarded that it is suggestive of

passion and prejudice." (Id., at pp.

469-470.)

Similarly, in Allard v. Church

of Scientology (1976) 58 Cal.App.3d 439

[129 Cal.Rptr. 797], the reasonable

relationship rule was employed to modify

an excessive award. The court held:

"In our view the disparity between

the compensatory damages ($50,000) and

the punitive damages ($250,000) suggests

that animosity was the deciding factor.

Our reading of the decisional authority

compels us to conclude that we should

reduce the punitive damages. We find

$50,000 to be a reasonable amount to

which the punitive damages should be

reduced. We perceive this duty, and

«26=—

have so modified the punitive damages

award not with any belief that a review-

ing court more ably may perform it.

Simply stated the decisional authority

seems to indicate that the reviewing

court should examine punitive damages

and where necessary modify the amount in

order to do justice. (Cunningham v.

Simpson), 1 Cal.3d 301 ...; Forte v.

Nolfi, 25 Cal.App.3d 656 ...; Schroeder

v. Auto Driveaway Company, 11 Cal.3d 908

~--; Livesey v. Stock, 208 Cal. 315, 322

were be (Id., at Pp- 453.)

The likelihood that the

instant award was the result of improper

considerations is heightened by the

trial court's failure to submit the

proposed instruction on the reasonable

relationship test to which appellant was

=) Fun

entitled. (See Silberg v. California

Life Ins. Co. (1974) 11 Cal.3d 452,

463, fn. 4 [113 Cal.Rptr. 711, 521

P.2d 1103]; Wetherbee v. United Insur-

ance Co. of America (1968) 265 Cal.App.2d

921, 934 [71 Cal.Rptr. 764]) In Wether-

bee, supra, the court found that, "the

disparity between the actual damages of

$1,050 and the punitive damages of

$500,000 is suggestive of passion or

prejudice." (Id., at p. 933.) On that

basis, the punitive damage award was

reversed and remanded for a new trial on

that issue.

Without the reasonable rela-

tionship instruction, the discretion of

the jury becomes simply limitless.

(Wetherbee v. United Insurance Co. of

America, Supra, 265 Cal.App.2d at

p.934.)

a2Qq

Moreover, Neal v. Farmers Ins.

Exchange, supra, 21 Cal.3d 910, mandates

close consideration of the nature and

reprehensibility of the defendant's act.

While important public policy consi-

derations are embodied in respondents'

claims - e.g., the protection of vulner-

able and unwary consumers (Zhadan v.

Downtown L.A. Motors, supra, 66 Cal.

App.3d 481, 497; Wetherbee v. United

Ins. Co. of America, supra, 18 Cal.App.

3d 266, 271) - mitigating factors are

likewise present. Some of the financial

problems of Sears' agent/contractor,

URS, could not easily have been anti-

cipated; neither could the delay and

resistance of the bonding company in

performing its obligations. Further,

some of appellant's actions were based

upon the advice - however desultory -

-29-

of counsel, and while such advice does

not immunize appellant from liability,

it is one factor in the overall assess-

ment of the nature of Sears' conduct.

(Beck v. State Farm Mut. Auto. Ins. Co.,

supra, 54 Cal.App.3d 347, 355-356.)

And, finally, the evidence indicates

that appellant made some post-hoc

(though feeble) efforts to rectify the

Situation. 4/ (Ferraro v. Pacific Fin.

Corp., supra, 8 Cal.App.3d 339, 354;

4/ The cases cited and relied upon by

respondents (Neal v. Farmers Ins.

Exchange, supra, 21 Cal.3d 919; and

Walker v. Signal Companies, Inc., supra,

84 Cal.App.3d 982), are not controlling

here. The defendant's conduct in Neal,

was, On any objective standard, far more

reprehensible, and the limited compensa-

tory award was the fortuitous result of

the death of the insured claimant.

Similarly, the reprehensibility of the

defendant's conduct and the lack of

mitigating factors distinguish Walker v.

Signal Companies, Inc., supra, 84

Cal.App.3d 982, from the present case.

~30=

Luke v. Mercantile Acceptance Corp.

(1952) 111 Cal.App.2d 431 [244 P.2d

764).)

"The object of exemplary

damages is to make the example as well as

the punishment fit the offense...."

(Wetherbee v. United Ins. Co. of

America (1971) 18 Cal.App.3d 266, 270

[95 Cal.Rptr. 678]; see also Browand

v. Scott Lumber Co. (1954) 125 Cal.App.

2d 68, 74 [269 P.2d 891].) The $10

million verdict against appellant does

not comport with that statutory objec-

tive. It is clearly excessive, not

reasonably related to either the compen-

satory damages or the nature of appel-

lant's conduct, and so grossly dispropor-

tionate as to be indicative of its being

rooted in passion and prejudice.

=3}<

(Little v. Stuyvesant Life Ins. Co.,

supra, 67 Cal.App.3d 452, 470; Zhadan v.

Downtown L.A. Motors, supra, 66 Cal.

App.3d 5, 18 [130 Cal.Rptr. 416]; Allard

v. Church of Scientology,.supra, 58

Cal.App.3d 439, 453; Wetherbee v. United

Insurance Co. of America, supra, 265

Cal.App.2d 921, 933.)

II

We proceed now to a considera-

tion of appellant's contention that the

compensatory damages awarded to respon-

dents were improper, excessive, and not

supported by the evidence.

Respondents' action for fraud

and breach of contract did not limit

them to out-of-pocket or benefit-of-the-

bargain losses. Pursuant to section

3333 of the Civil Code, respondents‘

-32-

tort claims entitled them to compensa-

tion for all detriment proximately

caused by appellant's breach of obliga-

tion. (Seaboard Music Co. v. Germano

(1972) 24 Cal.App.3d 618, .622 [101

Cal.Rptr. 255]).) Emotional distress and

mental suffering were proper elements of

the compensatory damage awards under

this test, as appellant's wrongdoing

clearly contained elements of inten-

tional malfeasance and bad faith. (Cf.

Gruenberg v. Aetna Ins. Co. (1973) 9

Cal.3d 566 [108 Cal.Rptr. 480, 510 P.2d

1032]; Quezada v. Hart (1977) 67 Cal.

App.3d 754 [136 Cal.Rptr. 815];

Kendall Yacht Corp. v. United California

Bank (1975) 50 Cal.App.3d 949 [123

Cal.Rptr. 848]; Jarchow v. Transamerica

Title Ins. Co. (1975) 48 Cal.App.3d

917, 122 Cal.Rptr. 470 ; Windeler v.

-—33-

Scheers Jewelers (1970) 8 Cal.App.3d

844 [88 Cal.Rptr. 39].)

The verdict awarding damages

based upon a finding that appellant

fraudulently represented and promised to

correct deficiencies and satisfy

its Add-A-Room customers was proper. As

stated recently in Allen v. Jones (1980)

104 Cal.App.3d 207, 215 [163 Cal.Rptr.

445]: "(T]here is authority for the

proposition that mental distress damages

may be recovered in an action for

deceit." (See also Schroeder v. Auto

Driveaway Co., supra, 11 Cal.3d 908,

921; Murphy v. Allstate Ins. Co. (1978)

83 Cal.App.3d 38, 51 [147 Cal.Rptr.

565].)

Here the evidence of mental

suffering and other compensable injury

«Rhea

apart from strictly out-of-pocket losses

is considerable, and convincing;

the awards were based on proof that

Sears' conduct caused domestic disrup-

tion, frustration, anger and anxiety.

The amount awarded by the jury, while

substantial, does not "shock the con-

science" of this court; it was well

within the jury's discretion and will

not be disturbed on appeal. (Cf.

Wilson v. Gilbert (1972) 25 Cal.App.3d

607, 611-612 [102 Cal.Rptr. 31]; Sher-

wood v. Rossini (1968) 264 Cal.App.2d

926, 931-932 [71 Cal.Rptr. 1]; Haskins

v. Holmes (1967) 252 Cal.App.2d 580, 584

[60 Cal.Rptr. 659].)

II!

Appellant's remaining conten-

tions focus upon claimed errors in

-35-

certain evidentiary rulings and in other

jury instructions.

The trial court's refusal to

allow testimony from expert witnesses

regarding appellant's reasons for

securing performance by way of perfor-

mance bonds was based upon Evidence Code

section 352. It is the exclusive

province of the trial court to determine

whether the probative value of proffered

evidence is outweighed by its possible

prejudicial effect, or the undue con-

sumption of time necessary to admit it.

(People v. Demond (1976) 59 Cal.App.3d

574, 586 [130 Cal.Rptr. 590].)

Clearly, the trial court did not

abuse its discretion in excluding such

expert testimony, which was only margin-

ally relevant, and at best repetitive

-36-

and unduly time consuming. The trial

court committed no error in rejecting

such testimony. (Hyatt v. Sierra Boat

Co. (1978) 79 Cal.App.3d 325, 339 [145

Cal.Rptr. 47].)

Appellant's contention with

regard to the one alleged instructional

error-.on the subject of fraud is simply

not supported by existing case law. In

Liodas v. Sahadi, supra, 19 Cal.3d 278,

the California Supreme Court squarely

decided, contrary to appellant's conten-

tion and requested instruction, that

fraud need be proved by a "preponderance

of the evidence" rather than "clear

and convincing evidence." (Id., at pp.

291-292.)

Additional claimed instruc-

tional errors are likewise unsupported

by the evidence.

d37=

"As a general rule, it is im-

proper to give an instruction which

lacks support in the evidence, even if

the instruction correctly states the

law." (LeMons v. Regents of University

of California (1978) 21 Cal.3d 869, 875

[148 Cal.Rptr. 355, 582 P.2d 946]; see

also Solgaard v. Guy F. Atkinson Co.

(1971) 6 Cal.3d 361, 370 [99 Cal.Rptr.

29, 491 P.2d 821]).) Sears' requested

instructions that punitive damages are

improper when conduct was based upon the

advice of counsel or the unratified acts

of employees, were not supported by the

evidence and, therefore, were properly

refused. 5/ Similarly, it was not error

5/7 Any advice of counsel upon which

Sears based its conduct was not indepen-

dent counsel, but rather officers of the

corporation involved in appellant's

wrongful conduct. Moreover, the

(cont. On next page)

=38~

(Cont'd)

alleged fraud occurred independent of the

advice of counsel, thereby making Sears'

requested instruction inapplicable.

Appellant's fraud consisted of

making a promise and guarantee of

satisfaction to its prospective Add-A-

Room customers without an intention

of honoring it. Nothing in the record

indicates that appellant relied on the

advice of counsel in engaging in such

fraudulent conduct or in attempting to

insulate itself from the responsibility

of performance which it had guaran-

teed to its customers. Rather, the

advice of counsel was relevant only to

Sears' conduct upon default of URS and

the bonding company; conduct which was

consistent with its fraudulent

scheme previously devised without the

assistance of counsel.

The cases relied upon by appellant -

Fox v. Aced (1957) 49 Cal.2d 381, 385

{317 P.2d 608]; Wolfsen v. Hathaway

(1948) 32 Cal.2d 632, 649 [198 P.2d 1] -

involved fraudulent conduct which was

directly based upon the advice of

counsel. While, as previously noted,

appellant's reliance upon the advice of

its attorneys tends to mitigate the

reprehensibility of its overall conduct,

and for that reason constitutes a factor

which favors a reduction of the punitive

damage award, it was not sufficiently

related to the fraud to require the jury

instruction requested by appellant.

=39=

for tthe trial court to instruct the jury

that Sears was a party to the Add-A-Room

contracts, because such a legal rela-

tionship was a vital issue in the

action and was conclusively established

by evidence. (Newman v. First Cali-

fornia Co. (1975) 47 Cal.App.3d 60, 67

[120 Cal.Rptr. 494]; Self v. General

Motors Corp. (1974) 42 Cal.App.3d 1, 10

[116 Cal.Rptr. 575].)

Appellant also requested

additional instructions - rejected by

the court - first, that punitive damages

could not be awarded on the basis of

improper workmanship; and, second, that

promissory fraud must be based upon an

intent not to perform at the time the

promise was made. The jury, however,

was informed that punitive damages could

only be assessed for conduct amounting

-40-

to fraud, malice or oppression as

defined by additional instructions, and

was also instructed that "at the time it

[Sears] made the promise, Sears must

have intended not to perform it." We

thus find no error in the trial court's

refusal to give instructions, which were

merely redundant and argumentative.

(Stevens v. Parke, Davis & Co. (1973) 9

Cal.3d 51, 73 [107 Cal.Rptr. 45, 507

P.2d 653, 94 A.L.R.3d 1059).) Moreover,

in light of the instructions given and

the convincing nature of the evidence,

the failure to give appellant's proposed

instructions, if error, was not prej-

udicial. (Cal. Const., art. VI,

§ 13; Thornton v. Luce (1962) 209

Cal.App.2d 542, 556 [26 Cal.Rptr. 393];

Smith v. Sugich Co. (1960) 179 Cal.

App.2d 299, 313 [3 Cal.Rptr. 718].)

=41<-

Having concluded that the

special verdicts should be affirmed, but

that the amount of the punitive damage

award is excessive, we may properly

avail ourselves of one of .several

alternate dispositions. (See Cunningham

v. Simpson (1969) 1 Cal.3d 301, 310 [81

Cal.Rptr. 855, 461 P.2d 39].) It appears

that justice will be best served

by vacating the amount of the punitive

damages award, and remanding the case

for a new trial on that issue only,

unless respondents shall, within 30 days

from the date of the remittitur, file

with the clerk of this court, and serve

upon appellant, a written consent to a

reduction of the punitive damages award

to the sum of $2.5 million, in which

event the judgment will be modified to

award respondents punitive damages in

=42=

that amount, and as so modified affirmed

in its entirety (Little v. Stuyvesant

Life Ins. Co., supra, 67 Cal.App.3d

451, 471), respondents to bear the

costs of this appeal.

Racanelli, P. J., concurred.

ELKINGTON, J. - I concur in

the opinion of my respected colleagues

for I find in it no error. I, as they,

believe that the reduced $2.5 million

punitive damage award is authorized by

existing law.

I likewise concur in their view

that the reprehensible conduct of

defendant Sears, Roebuck & Company in

this case is deserving of stern retribu-

tion. But I do not believe California's

legislative and judicial authority to be

~43-

so barren of remedial resources that

retribution may be accomplished only by

giving to plaintiffs a windfall, to

which they concededly have no right, of

more than 15 times their total compensa-

tory damages as found by the jury.

I am fearful that the law of

punitive damages as it has developed in

this state no longer serves any public

policy, or the legitimate interest of

the unentitled recipients of its con-

stantly accelerating largess.

I therefore express my views

on the subject because of the state's

announced policy that this court's

criticism of existing law be brought to

the attention of the public, and of

-44-

legislative and higher judicial author-

ity empowered to change it. (See rule

976(b), Cal. Rules of Court.)

No person, regardless of how

grievous the circumstances, has a

"right" to punitive damages. Such

"right" as there may be, will be vindi-

cated by the compensatory damage

award designed to cover his entire loss.

(Brewer v. Second Baptist Church (1948)

32 Cal.2d 791, 800-801 [197 P.2d 713].)

Punitive damages are assessed

only "to punish the defendant and not to

compensate for any loss suffered by the

plaintiff." (Brewer v. Second Baptist

Church, supra, 32 Cal.2d 791, 801;

italics added.) They "are inflicted in

the nature of a penalty for the evil

-45-

intent." (Fidelity etc. Co. v. Federal

etc. Co. (1933) 217 Cal. 3075 are see

P.2d 950]; italics added.)

Trial courts and juries,

within the broad areas presently to be

discussed have "free" and “untrammeled"

discretion whether, or not, to punish a

defendant found by them to have such an

"evil intent." (Brewer v. Second Baptist

Church, supra, 32 Cal.2d 791, 800-801.)

In order to determine how

great a punishment to inflict upon a

defendant he will be judicially com-

dicate to expose ric the plaintiff, to

the court and ales and to courtroom

spectators, the private details of his

financial holdings and affairs. (4

Witkin, Summary of Cal. Law (8th ed.

-46-

In determining whether the

defendant possessed an "evil intent," or

should be punished therefor and if SO,

the severity of the punishment, the

court or jury will be guided by a mere

preponderance of the evidence, no matter

how close to balance it may be.

And, the plaintiff having no

right to punitive damages, the award has

the nature of a public fine imposed to

punish and deter evil intent and acts.

It becomes logically indistinguishable

from the fine imposed as punishment for

a misdemeanor (see Pen. Code, §§ 17,

19), or for a felony where the punitive

damages exceed $500 (see Pen. Code, §§

18, 672).

Were it not for Toole v.

Richardson-Merrell Inc. (1967) 251

=4 Jin

Cal.App.2d 689, 716-718 [60 Cal.Rptr.

398, 29 A.L.R.3d 988], and companion

authority, holding punitive damages as

permitted by our state to be constitu-

tionally flawless, I would entertain

doubt as to their due process surviva-

bility. Placing unrestricted power in a

jury to direct punishment for "evil

intent" by compelling the "evildoer" to

pay money to another without right

thereto, seems foreign to any concept of

due process known to me. And such

implications seem compounded by the

permitted procedures, such as the

preponderance of evidence test, and

compulsory self-incrimination, etc.

Moreover, any judicial pro-

cedure compelling one to respond to a

plaintiff's demand for full and detailed

~48<-

disclosure of intimate financial affairs

unrelated to the action seems manifestly

a contravention of article I, section 1,

of the state's Constitution: "All

people are by nature free and indepen-

dent and have bablienabte rights. Among

these are enjoying and defending life

and liberty, acquiring, possessing, and

protecting property, and pursuing and

obtaining safety, happiness, and privacy."

(Italics added.)

But, granting the constitu-

tionality of the doctrine, I believe it

to be contrary to the interest of the

people of this state.

In California's history it

had long been the rule that punitive

damages were recoverable only where the

defendant entertained "the wrongful

-49-

personal intention to injure" the

Plaintiff (Roth v. Shell Oil Co. (1960)

185 Cal.App.2d 676, 682 [8 Cal.Rptr.

514]; italics added), and that the

essential element of malice must be

"actual malice [denoting] ill will on

the part of the defendant, or his desire

to do harm for the mere Satisfaction of

doing it'" (Gombos v. Ashe (1958) 158

Cal.App.2d 517, 527 [322 P.2a4 933];

(italics added). The penalty was

inflicted, as noted, only because of the

actual "evil intent." (Fidelity etc,

Co. v. Federal etc. Co., supra, 217 Cal.

307, 319.) Such damages might not be

awarded under any "contract" theory

(Civ. Code, § 3294); (Macmorris Sales

Corp. v. Kozak (1968) 263 Cal.App.2d

430, 438 [69 Cal.Rptr. 719)), or under

a "negligence" theory, no matter

-50-

how "gross" or "reckless" the negligent

act (Gombos v. Ashe, supra, p. 527).

When properly awarded, punitive damages

then had a modest relation to actual

damages; "the granting of them [was]

done with the greatest of caution [and

they were] only allowed in the clearest

of cases." (Gombos v. Ashe, supra, p.

526.)

But notwithstanding those

restrictive and cautionary dicta, the

bases, and frequency, and measure, of

punitive damages have expanded far

beyond the original legislative and

judical intent and, in my respectful

Opinion, far beyond reason and sound

public policy.

Comparison of damage awards is

often idle but here, I think, it will

~ te

illustrate a point. During a selected

period, 1951-1958, I find the following

ratios of actual to punitive damages to

have been judicially approved in this

state: $2,500 to $1,000 - Ingram

v. Higgins (1951) 103 Cal.App.2d 287

[229 P.2d 385]; $3,525 to $1,000 --

Sheward v. Magit (1951) 106 Cal.App.2d

163 [234 P.2d 708]; $10,000 to $10,000

-- Sullivan v. Matt (1955) 130 Cal.App.2d

134 [278 P.2d 499]; $2,250 to $2,000 --

Guillory v. Godfrey (1955) 134 Cal.App.2d

628 [286 P.2d 474]; $740.54 to $1,500 -

Austin v. Duggan (1958) 162 Cal.App.2d

580 [328 P.2d 224]. During those years

where actual damages of $600 were

awarded, a punitive damage award of

$2,500 was set aside as unreasonable.

(Luke v. Mercantile Acceptance Corp.

(1952) 111 Cal.App.2d 431 [244 P.2d

at.

764).) It will be noted that the

highest acceptable proportionate puni-

tive damage award was in Austin v.

Duggan where it was approximately twice

as large as the actual damages found.

It was following those awards

that, in December 1959, an actual damage

award of $400 and punitive damages of

$10,000 were judicially approved.

(Larrick v. Gilloon (1959) 176 Cal.App.

2d 408 [1 Cal.Rptr. 360].) Since then

the proportionate relationship of

punitive to actual damages has continued

to escalate, culminating perhaps in the

actual damage award of $1,050 and puni-

tive damage award of $200,000 (a ratio

of 1 to 190) approved by Wetherbee v.

United Ins. Co. of America (1971) 18

Cal.App.3d 266 [95 Cal.Rptr. 678) (hg.

by Supreme Ct. den.).

-53-

In much the same way, the

circumstances under which punitive

damages may be awarded have been widely

expanded. Although originally such

damages were forbidden in actions

"arising out of contract" (Civ.

Code, § 3294), they are now "appropri-

ate" and "authorized" where a "breach of

contract is the basis for tort liability."

(Mayes v. Sturdy Northern Sales, Inc.

(1979) 91 Cal.App.3d 69, 82 [154 Cal.

Rptr. 43].) "The same act may be both a

breach of contract and a tort," and it

will be such a tort where there is "an

intentional act causing injury to an

interest created by the contract." (4

Witkins, Summary of Cal. Law (8th ed.

1974) Torts, § 3, p.2305.) Such an act

""is independent of the contract and

attaches over and above the terms of the

-54-

contract. This being so, the plaintiffs

may treat the injury as a tort or as a

breach of contract at their election.'"

(2 Witkin, Cal. Procedure (2d ed. 1970)

Actions, § 90, pp. 960-962.) Thus,

punitive damages become available,

despite Civil Code section 3294, in an

action "arising from contract" if its

complaint "contains a count ex delicto."

(Walton v. Anderson (1970) 6 Cal.App.3d

1003, 1009 [86 Cal.Rptr. 345].)

In much the same fashion

punitive damages are now awardable

generally in negligence actions. Where

Once, aS pointed out, there must have

been actual "ill will" against the

plaintiff "on the part of the defendant,

or his desire to do harm for the

mere satisfaction of doing it," those

-55~-

stern requirements no longer apply. It

is sufficient if there shall be found

"an intention to perform an act that the

actor knows, or should know [italics

added], will very probably cause harm."

(Donnelly v. Southern Pacific Co. (1941)

18 Cal.2d 863, 869 [118 P.2d 465];

Nolin v. National Convenience Stores,

Inc. (1979) 95 Cal. App. 3d 279, 286

(157 Cal.Rptr. 32].) Since it is the

essence of actionable negligence that

the risk of danger to the plaintiff

"would have been foreseen [italics

added] by a reasonable person" (4

Witkin, Summary of Cal. Law (8th ed.

1974) Torts, § 496, p. 2761), it

logically follows that punitive damages >

are now permissible in all negligence

actions where counsel's awareness has

-56-

7

brought about the joinder of a "count in

fore.”

These and perhaps other

reasons, I think, have brought about the

present-day practice of seeking punitive

damages in substantially all damage

actions, and what will reasonably be

termed the explosion of punitive damage

awards. And such punitive damage awards

are observed not to be generally con-

fined to large corporations such as

defendant Sears Roebuck and Company, or

so-called "wealthy" defendants. They

are regularly returned also, against the

"average" defendants of damage actions.

As we have seen, the amount of

punitive damages has been entrusted to

the discretion of the trial jury or

court. And, as noted, that discretion

=

has sometimes fixed the actual ratio of

punitive to actual damages at 190 to 1,

as in Wetherbee v. United Ins. Co. of

America, supra, 18 Cal.App.3d 266, and

63 to 1, as by the jury in the case at

bench. Punitive awards against less

"wealthy" or "average" defendants will

generally be of a narrower proportion,

but often they are observed to be many

times the actual damages.

Were it the effect of punitive

damages to reasonably punish only the

"evil" malefactor, or those "'who desire

to do harm for the mere satisfaction of

doing it'" (see Gombos v. Ashe, supra,

158 Cal.App.2d 517, 527), few would

complain of the current rules. But in

today's society it is a rare and for-

tunate person who is not at one time

-§§-

or another exposed to a debatably valid

claim of tortious negligence, or con-

tractual breach. In the past, where one

was found in such a case to have erred,

the actual damages had generally been

covered by insurance and even where not,

the amount was closely and foreseeably

attuned to the claimant's actual monetary

injury.

Insurance protects us against

most of the catastrophic hazards of our

existence and most important, as Justice

Peters has said, it brings "peace of

mind and security" into our lives. (See

Crisci v. Security Ins. Co. (1967) 66

Cal.2d 425, 434 [58 Cal.Rptr. 13, 426

P.2d 173).) But insurance can give no

"peace of mind and security" against the

ever present threat of punitive damages

-59-

against any of us who, rightly or

wrongly, may be found to have tortiousiy

"breached" a contract or “negligently"

injured another. Such insurance against

punitive damage liability is unobtaina-

ble; it is not written by insurance

companies, and it is forbidden by law.

(See Taylor v. Superior Court (1979) 24

Cal.3d 890, 904-905, fn. 3 [157 Cal.Rptr.

693, 598 P.2d 854]; City Products Corp.

v. Globe Indemnity Co. (1979) 88 Cal.

App.3d 31, 42 [151 Cal.Rptr. 494]; 4

Witkin, Summary of Cal. Law (8th ed.

1980 supp.) Torts, § 858A, p. 375.)

Nor may a judgment for puni-

tive damages be discharged by bank-

ruptcy. (11 U.S.C.A. § 523(a) (6);

Tinker v. Colwell (1904) 193 U.S. 473,

passim [48 L.Ed. 754, 24 S.Ct. 505].)

-60-

Thus in a sense we, even

the most prudent among us, are con-

stantly threatened by an immovable and

treacherous Sword of Damocles. For a

misguided act or perhaps the misguided

verdict of a jury any of us, denied the

right of indemnification by insurance,

is subject to possible visitation of

disaster.

Such a threat in my opinion is

logically intolerable, and bad public

policy. The law's usual regard for the

people's welfare, as emphasized by

Justice Peters' concern for their "peace

of mind and security," is seemingly

abandoned.

The doctrine of punitive

damages has never found favor in equity,

the repository of the law's conscience.

~61-

4

""As a general rule, courts of equity

will not award exemplary damages.'"

(Rivero v. Thomas (1948) 86 Cal.App.2d

225, 239 [194 P.2d 533].) They "cannot

be awarded in a suit in equity."

(Murphy v. American Motors Sales Corp.

(N.D.Ga. 1976) 410 F.Supp. 1403,

1405.) "To permit a decree for such

damages would be at variance with

general principles of equity juris-

prudence." (Given v. United Fuel Gas Co.

(1919) 84 W.Va. 301 [99 S.E. 476,

478].)

It will also be observed that

the doctrine has been repudiated by many

of our sister states. I cite authority

of some of them:

Connecticut. "In this state

the common-law doctrine of punitive

-62-

damages..., if it ever did prevail,

prevails no longer." (Hanna v. Sweeney

(1906) 78 Conn. 492 [62 A. 785].)

‘Massachusetts. "Recovery of

[punitive] damages [is] not permitted in

Massachusetts." (O'Reilly v. Curtis

Publishing Co. (D.Mass. 1940) 31

F.Supp. 364.)

New Hampshire. "Elements of

damage do not include impositions in the

nature of penalties." (Burton v.

Leavitt Stores Corp. (1935) 87 N.H. 304,

305 [179 A. 185].)

Colorado. "The jury may not

in its verdict punish a defendant for

wrongdoing." (Larson v. Lindahl (1968)

167 Colo. 409 [450 P.2d 77, 78].)

"Civil actions are instituted for the

purpose of redressing private ‘wrongs; it

=63-

is the aim of civil jurisprudence to

mete out as nearly exact justice as

possible between contending litigants.

There ought to be no disposition to take

from the defendant or give to the

plaintiff more than equity and justice

require. Yet under this rule of damages

these principles are forgotten, and

judidical machinery is used for the

avowed purpose of giving plaintiff that

to which he has no shadow of right. He

recovers full compensation for the

injury to his person or property; for

all direct and proximate losses occa-

sioned by the tort; ... and then, in

addition to the foregoing, he is allowed

damages which are awarded as a punish-

ment of defendant and example to

others. Who will undertake to give a

valid reason why plaintiff, after being

=64-

fully paid for all the injury inflicted

upon his property, body, reputation, and

feelings, should still be compensated,

above and beyond, for a wrong committed

against the public at large? The idea

is inconsistent with sound legal princi-

ples, and should never have found a

lodgment in the law." (Murphy v. Hobbs

(1884) 7 Colo. 541 [5 P. 119, 121=-122).)

Louisiana. "It has long been

the settled law in Louisiana that only

compensatory damages, and not punitive

damages, may be recovered in an action

for tort." (Breaux v. Simon (1958)

235 La. 453 104 So. 2d 168 ; and see

Janssen Catering Co. v. Abadie (1924)

157 La. 357 [102 So. 428, 429]; Trenchard

v. Central Laundry Co. (1923) 154 La.

1003 [98 So. 558]; Baggett v. Richardson

-65-

(5th Cir. 1973) 473 F.2d 863, 865;

Bacharach v. F.W. Woolworth Company

(E.D. La. 1963) 212 F.Supp. 83, 85.)

Washington. "No citation of

authority is required for the principle

that Washington does not allow punitive

damages." (Conrad v. Lakewood General

Hospital (1966) 67 Wn.2d 934 [410 P.2d

785, 789, 10 A.L.R. 341 )) *(T)he

doctrine of punitive damages is unsound

in principle." (Maki v. Aluminum

Building Products (1968) 73 Wn.2d 23

[436 P.2d 186, 187].) The state's rule

is based upon the following long-

established rationale: "(O]ther courts

have frankly stated their repugnance to .

the doctrine, yet considered themselves

bound, by former decisions in their

respective states, to still maintain

=£6—

it.... In this state it is a new

question, and the court approaches its

investigation untrammeled by former

decisions, free to accept the reasoning

which most strongly appeals to its

judgment.... And this desired ultimatum,

we think, will best be attained by

adopting the rule laid down by Mr.

Greenleaf (volume 2, § 253) that

"damages are given as a compensation or

Satisfaction to the plaintiff for an

injury actually sustained by him from

the defendant. They should be precisely

commensurate with the injury, neither

more nor less; and this whether it be to

his person or his estate, ... [The

doctrine] permits the jury to give what

it terms "punitive," "vindictive," or

"exemplary" damages; in other words,

blends together the interests of

-67=

society and of the aggrieved individual,

and gives damages not only to recom-

pense the sufferer, but to punish the

offender.... It seems to us that

there are many valid objections to

interjecting into a purely civil action

the elements of a criminal trial. While

the defendant is tried for a crime, and

damages awarded on the theory that he

has been proven guilty of a crime, many

of the time-honored rules governing the

trial of criminal actions, and of the

rights that have been secured to

defendants in criminal actions 'from the

time whereof the memory of man runneth

not to the contrary,' are absolutely

ignored. Under this procedure the

doctrine of presumption of innocence,

until proven cuilty beyond a reasonable

doubt, finds no lodgment in the charge

-68-

of the court, but is supplanted by the

rule in civil actions of a preponderance

of testimony. The fallacy and unfair-

ness of the position is made manifest

when it is noted that a person can be

convicted of a crime, the penalty

for which is unlimited, save in the

uncertain judgment of the jury, and

fined to this unlimited extent for the

benefit of an individual who has already

been fully compensated in damages, on a

smaller weight of testimony than he can

be in a criminal action proper, brought

for the benefit or protection of the

state, where the amount of the fine is

fixed and limited by law; ... The party

is fully compensated for all the injury

done his person or his property, and for

all losses which he may sustain by

reason of the injury, in addition

-69-

to recompense for physical pain, if any

has been inflicted.... The plainciff is

made entirely whole. The bond has been

paid in full. Surely the public can

have no interest in exacting the pound

of flesh. [4%] ([W]hile Susure should

be the judges of the character and

weight of testimony, that judgment

should be exercised under some rule, and

be amenable to some law, so that an

abuse of discretion could be ascertained

and corrected; but, under the doctrine

of punitive damages,... the whole

question is left to the unguided judg-

ment of the jury.... It seems to us that

a practice which leads to so much

confusion and uncertainty in the

administration of the law, and that is

always liable to lead to injustice, the

correction of which is impracticable,

=70@=

can not be too speedily eradicated from

our system of jurisprudence." (Spokane

Truck & Dray Co. v. Hoefer (1891) 2

Wash. 45 [25 P. 1072, 1073-1074].)

=F Pa

APPENDIX B

COURT OF APPEAL OF THE STATE OF CALIFORNIA

IN AND FOR THE

FIRST APPELLATE DISTRICT

DIVISION ONE

Frederick A. Rosener,

et al., =

Plaintiffs and Respondents,

No. 41334

vs.

Sears, Roebuck & Company, Superior

Defendant and Appellant. Court No. __

BY THE COURT:

The petition for rehearing

filed in the above entitled cause is

hereby denied.

Dated: October 29, 1980

RACANELLI, P.J.

APPENDIX C

ORDER DENYING HEARING

AFTER JUDGMENT BY THE COURT OF APPEAL

Ist District, Div. 1, Civil No. 41334

IN THE SUPREME COURT OF THE STATE OF

CALIFORNIA

IN BANK

ROSENER et al., Plaintiffs and Respondents,

v.

SEARS ROEBUCK AND COMPANY, Defendant and

Appellant; HARTMAN et al., Intervenors

and Respondents.

Petitions of plaintiffs and respon-

dents and defendant and appellant for

hearing DENIED.

Bird, C.J., is of the opinion that

the petitions should be granted.

Mosk, J., is of the opinion that

the Plaintiffs' petition should be

granted.

/s/ Bird

—_——

hief Justice

APPENDIX D

SUPERIOR COURT OF CALIFORNIA, COUNTY OF

CONTRA COSTA

FREDERICK A. ROSENER,

et al. CASE NUMBER

PLAINTIFF(S) 136224

vs NOTICE OF ENTRY

OF REMITTITUR

SEARS ROEBUCK and

COMPANY,

DEFENDANT (S)

To the above named parties

and to their attorneys of

record: You are notified

that the Remittitur in

this cause was entered on

Microfilm.

Date: December 12, 1980

JAMES R. OLSSON, County

Clerk and Clerk of the

Superior Court of the

State of California for

the County of Contra

Costa.

NOTICE OF ENTRY OF JUDGMENT

APPENDIX E

RICHARD L. GOFF

HELLER, EHRMAN, WHITE & McCAULIFFE

44 Montgomery Street

San Francisco, CA 94104

Telephone: (415) 772-6000

Attorneys for Appellant

IN THE COURT OF APPEAL

OF THE

STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION ONE

FREDERICK A. ROSENER,

et al.,

No. 1 Civil 41334

Plaintiffs and

Respondents,

SEARS, ROEBUCK & CO.,

Defendant and

)

)

)

)

)

)

vs )

)

)

)

)

Appellant. )

)

NOTICE OF APPEAL TO THE SUPREME COURT

OF THE UNITED STATES

Notice is hereby given that

Sears, Roebuck & Company, the defendant

and appellant above-named, hereby

appeals to the Supreme Court of the

United States from that portion of the

final judgment entered in this action

by the Court of Appeal of the State of

California on December 12, 1980, which

affirmed, as modified, the portion of

the Judgment in the Superior Court,

Contra Costa County, Action No. 136224,

which awards punitive damages of

$2,500,000 in favor of plaintiffs, and

against appellant, Sears, Roebuck &

Company, appellant's petition for

hearing in the Supreme Court of Cali-

fornia having been denied by order

of that Court on December 10, 1980.

This appeal is taken pursuant

to 28 U.S.C. § 1257(2).

DATED: February 25, 1981

HELLER, EHRMAN, WHITE

& MCAULIFFE

By

Richard L. Goff >

Attorney for Appellant

Sears, Roebuck & Company

APPENDIX F

United States Constitution, Amendment

Fourteen, Section 1.

- « « No State shall make or enforce

any law which shall abridge the privi-

leges or immunities of citizens of

the United States; nor shall any State

deprive any person of life, liberty, or

property, without due process of law;

nor deny to any person within its

jurisdiction the equal protection of

the laws.

Calif. Civ. Code § 3294.

(a) In an action for the breach of

an obligation not arising from contract,

where the defendant has been guilty of

oppression, fraud or malice, [1] the

plaintiff, in addition to the actual

damages, may recover damages for the

sake of example and by way of punishing

the defendant.

(b) An employer shall not be

liable for damages pursuant to sub-

division (a), based upon acts of an

employee of the employer, unless the

employer had advance knowledge of the

unfitness of the employee and employed

him or her with a conscious disregard of

the rights or safety of others or

authorized or ratified the wrongful

conduct for which the damages are

awarded or was personally guilty of

oppression, fraud, or malice. With

respect to a corporate employer, the

advance knowledge, ratification, or act

of oppression, fraud, or malice must be

on the part of an officer, director, or

managing agent of the corporation.

(c) As used in this section, the

following definitions shall apply:

(1) "Malice" means conduct which

is intended by the defendant to cause

injury to the plaintiff or conduct

which is carried on by the defendant

with a conscious disregard of the rights

or safety of others.

(2) “Oppression" means subjecting

a person to cruel and unjust hardship

in conscious disregard of that person's

rights.

(3) "Fraud" means an intentional

misrepresentation, deceit, or conceal-

ment of a material fact known to the

defendant with the intention on the part

of the defendant of thereby depriving a

person of property or legal rights or

otherwise causing injury.

Calif. Evid. Code § 115.

"Burden of proof" means the obligation

of a party to establish by evidence

a requisite degree of belief concerning

a fact in the mind of the trier of fact

or the court. The burden of proof may

require a party to raise a reasonable

doubt concerning the existence or

nonexistence of a fact or that he

establish the existence or nonexistence

of a fact by a preponderance of the

evidence, by clear and convincing

proof, or by proof beyond a reasonable

doubt.

Except as otherwise provided by

law, the burden of proof requires proof

by a preponderance of the evidence.