Petition for Writ of Certiorari — Pacific Lighting Corp. v. MGW, Inc.

IN THE

Supreme Court of the Anited States

OCTOBER TERM, 1990

PACIFIC LIGHTING CORPORATION,

FREDRICKS DEVELOPMENT CORPORATION, and

DUNN PROPERTIES CORPORATION,

Petitioners,

Vv.

- MGW, INc.

Respondent.

PETITION FOR WRIT OF CERTIORARI

TG THE COURT OF APPEAL OF CALIFORNIA,

FOURTH APPELLATE DISTRICT

*THEODORE B. OLSON

LARRY L. SIMMS

GIBSON, DUNN & CRUTCHER

Of Counsel: 1050 Connecticut Avenue, N.W. |

Washington, D.C. 20036-5303

THEODORE J. BOUTROUS, JR. (202) 955-8500

JOSEPH AVANZATO

GIBSON, DUNN & CRUTCHER JOHN J. SWENSON

1050 Connecticut Avenue, N.W. GIBSON, DUNN & CRUTCHER

Washington, D.C. 20036-5303 2029 Century Park East

Suite 400

KIMBERLY D. REED Los Angeles, California 90067

GIBSON, DUNN & CRUTCHER (213) 552-8500

2029 Century Park East

Suite 4000 Attorneys for Petitioners

Los Angeles, California 90067

*Counsel of Record

PRESS OF BYRON 8. ADAMS, WASHINGTON, D.C. (202) 347-8203

QUESTION PRESENTED

Whether the Due Process Clause of the Fourteenth

Amendment is violated by state laws that permit lim-

itless jury discretion to impose financial punishments

in the absence of explicit statutory or common law

standards and limits establishing in advance the con-

duct that may be punished and the amount of pun-

ishment that may be inflicted for engaging in such

conduct, and, if so, whether the $2,000,000 punitive

damage award imposed in this case violates that

Clause.

ii

STATEMENT OF INTERESTED PARTIES

In addition to the parties named in the caption,

defendants Pacific Lighting Real Estate Group, for-

merly “Pacific Real Estate Projects, Inc.” (““PREP’’),

Home Capital Corporation and Humboldt Financial

Services Corporation were parties in the court below.

Pursuant to Rule 29.1 of the Rules of this Court, the

following constitutes a list of all parent companies

and non-wholly owned subsidiaries of petitioners:

Pacific Enterprises Corporation (‘‘Pacific Enter-

prises’), formerly ‘‘Pacific Lighting Corporation,” was

the parent corporation of Fredricks Development Cor-

poration (“Fredricks”), Dunn Properties Corporation

(‘Dunn’), and PREP, until 1987, when Fredricks,

Dunn, and another Pacific Lighting Corporation sub-

sidiary (The Presley Companies) were sold and re-

organized.

Pacific Enterprises presently owns 93.29% of

Southern California Gas Company, which in turn owns

4% of the Coalition Undertaking Remedial Efforts,

Inc. Pacific Enterprises also owns 100% of The

Thrifty Corporation, which owns 62.5% of FTM Sports

Corporation (‘‘FTM’’). FTM owns 40% of Cactus Golf,

Inc. and 80% of American Diversified Sports, Inc.

The Thrifty Cornoration also owns 100% of Gart

Brothers Sporting Company, which owns 89% of

Sports Castle Travels, Inc.

ill

TABLE OF CONTENTS

Erol eines rcacbhsenshannkangtsnes@inninhenascnce 5

REASONS FOR GRANTING THE WRIT .................. 7

A. The Court Should Grant Review to Decide

the Extent to Which the Due Process Clause

of the Fourteenth Amendment Limits the .

Otherwise Unfettered Discretion of Juries to

Inflict Punitive Damages in Civil Actions In-

PEE RUM BMC cc scesnccscsssscsesccsesneseess 9

B. Only this Court Can Resolve the Question

Presented in the Petition ................ eee 17

ENN “Sct hnahacsinicedsausontuncssncessvcesssceasnssnsscensesss 24

TABLE OF AUTHORITIES

Cases Page

Advanced Medical, Inc. v. Arden Medical System,

Inc., Civ. Action No. 87-3059 (E.D. Pa. Sept.

Di BURIED satis ncsceonassacincnskicceabbaiinonsiabaneeelbeadentactia 22

Aetna Life Insurance Co. v. Lavoie, 475 U.S. 813

FRIED -\clinsescnabindslscnsedaicadanadpeissithinstasneeiabetanalabdebinetiiininis 7

Ay You Man v. Raymark Industries, Nos. 87-14524,

87-14470 (D. Hawaii Nov. 16, 1989) ............... 22

Bankers Life and Casualty Co. v. Crenshaw, 486

Ss We CIEE rks cidineeasubesedininntbcalansvesinionenes 8,16,20

Berra v. United States, 351 U.S. 131 (1956) ........ 14

Bertero v. National General Corp., 13 Cal. 3d 43,

529 P.2d 608, 118 Cal. Rptr. 184 (1974) ....... 6

Brooks v. Hilton Casinos, Inc., No. CV S-84-436

(RDF) (D. Nev. Feb. 1, 1990) .................00eseees 22

Browning-Ferris Industries of Vermont, Inc. v.

Kelco Disposal, Inc., 109 S. Ct. 2909 (1989) .. passim

Buckley v. Ellis, 790 P.2d 875 (Colo. Ct. App. 1989),

cert. pending (NO. 90-191) ...............cccocsssessseees

City of Newport v. Fact Concerts, Inc., 453 U.S.

__ | RIRION SI ioe ORE See 11,12

Danvels v. Williams, 474 U.S. 327 (19886) ............. 16

Davis v. Merrill Lynch, Pierce, Fenner & Smith,

906 F.2d 1206 (8th Cir. 1990) ........................ 21

Day v. Woodworth, 54 U.S. (13 How.) 363

f | RSRRENDRSEI Wes, FINE EIST =o SE ae 19

Dent v. West Virginia, 129 U.S. 114 (18839) ......... 16

Devlin v. Kearney Mesa AMC/Jeep/Renault, Inc.,

155 Cal. App. 3d 381, 202 Cal. Rptr. 208

GEE atinetsadaniaaietehccnadacendiaiideiaieasiniiptaneintiiinenscenis 10,11

Douglas v. Bank of New England/Old Colony, N.A.,

SEG A.2d GES (R.1. TDGCD) ....ccccceccccrcscessesscsesseee 20

Table of Authorities Continued

Page

Downey Savings and Loan Association v. The Ohio

Casualty Insurance Co., 189 Cal. App. 3d 1072,

234 Cal. Rptr. 835 (1987), cert. denied, 486

Em. SUE MII tinsitnsadiseialpniuisiaibanielsiabenuababdecnvicaiis 11,17

Dyna-Med, Inc. v. Fair Emp t & Housing

Commission, 43 Cal. 3d 13 9, 743 P.2d 1323,

241 Cal. Rptr. Bet NED iesstbivnndatnevetctsntnnisecenne 16

Eaton Corp. v. PKL Cos., cert. denied, 109 S.

IED destibicabediesinbianenctinainnaehanienhabcanidbaueneenen 13,18

Eichenseer v. Reserve Life Insurance Co., 881 F.2d

1355 (5th Cir. 1989), stay granted, 110 S. Ct.

1468 (1990), cert. pending (No. 89-1308) ....... 8,13,21

Eichenseer v. Reserve Life Insurance Co., 894 F.2d

1414 (5th Cir. 1990) (dissenting opinion from

denial of rehearing en banc) .............cccsesseeeeees 13

Electrical Workers v. Foust, 442 U.S. 42 (1979) .. 11

Falk v. McNamara, No. 88 C 7293 (N.D. Ill. Mar.

Uk, CU Scikchdastdeiiieandatibadehenidnianbidaashulabcabuiterasses 23

Farazpour v. University of Southern California, 221

Cal. App. 3d 19, 270 Cal. Rptr. 356 (1990) ... 17

Gagnon v. Continental Casualty Co., 211 Cal. App.

3d 1598, 260 Cal. Rptr. 305 (1989) ...........0.... 10

George v. International Society for Krishna_Con-

sciousness of California, 213 Cal. App. 3d 729,

262 Cal. Rotr. 217 bg. stay granted, 110

S. Ct. 1804 itdtteocdasin . pending (No. 89-

STE ssecuicinasinacnbicheanacenisthidiiakaiahiaiindbhediiiancsabene 8,18

General American Li e Insurance Co. v. Simmons,

562 So. 2d 140 (Ala. 1989), stay granted, June

4, 1990 (A-845), cert. pending (No. 90-738) ..... 8,13,19

Germanio v. The Goodyear Tire & Rubber Co., 732

F. Supp. 1297 (D.N.J. 1990) c.ccccssccccssscessceeeese 23

Gertz v. Robert Welch, Inc., 418 U.S. 323 (1974) . 11,21

Giaccio v. Pennsylvania, 382 U.S. 399 (1966) ....... 15

Table of Authorities Continued

Page

Gray v. Armstrong Worid Industries, No. 88-2509

ER Us Me TINIE cxancchenetinncosarnccscsscicvensces 23

“Grayned v. City of Rockford, 408 U.S. 104

SITE sclliaeahacihdnsidabaindhanakbndibeintiaingsineidsanesatiameress 15

Greenwood & Company Real Estate Co. v. C-D In-

vestment Co., No. 523-923 (Super. Ct., Los An-

geles Co., Cal. Mar. I cdeaiahiicinetscunnnneniniee 12

Guarino v. Armstrong World Industries, Inc., No.

88-1087 (S.D. Fla. Oct. 18, 1989) ........ 23

Hart v. Armstrong Cork Co., No. $79-0033 (S.D.

Miss. Sept. 13. II bald nars ot seittichininnithibidibtiessaun 23

Hospital Authority of Gwinnett County v. Jones,

386 S.E.2d 120 (Ga. 1989), cert. pending (No.

III dil hctiashsisdencall Ri candandincnhiddcndastinnttatieatesens 8

In re Joint Eastern and Southern District Asbestos

Litigation, No. 87 Civ. 4483 (E.D. & S.D.N.Y.

RIE TIE ntti sinahiancenndtesshanbtidiinassnsninendionenones 23

Jenkins v. Georgia, 418 U.S. 153 (1974) ............. 5

Juzwin v. Amtorg Trading — 718 F. Supp. 1233

IE indi nud¥ stsleiinindstsbnineblalanasinatanniensces 23

Kraus v. Santa Fe titties Pacific Corp., 878 F.2d

1193 (9th Cir. 1989), cert. dism’d, 110 S. Ct.

SITIES iikicndsis Cohcchseh icschinnnlheincinianinekbunapahicsnndsiicens 21

Lazarus Department Store v. Sutherlin, 544 N.E.2d

III, SIRI. cannes scadnnastnnsansgnanndisenneies 20

Leonardint v. Shell Oil Co., 216 Cal. App. 3d 547,

264 Cal. Rptr. 883 (1989), cert. dism’d, Oct.

By I, MPIIIED sncccschncncscccccenssccnencesescens 18

Leonen v. Johns-Manville Corp., 717 F. Supp 272

IEE siidshiesiahibesilsinnhsisanncihnssibvanbuiannaneienn 23

Massachusetts Mutual Life Ins. Co. v. Collins, No.

No. 88-949 (Ala. 1990), cert. — (No. 90-

DOU Seastreesccsscnsscassconcavensasnanpancgseceanssnsasnencssssneces 8

vii

Table of Authorities Continued

Metromedia, Inc. v. April Enterprises, Inc., cert.

denied,-109 S. Ct. 3242 (1989) .............ccccseeeee

Miller v. Elite Insurance Co., 100 Cal. App. 3d 739,

BR Gi SS CED ccthcticesnintscieiceniseenecee

Missouri Pacific R. Co. v. Humes, 115 U.S. 512

IIIT sill ils scticniciachsed iaaantenaeaindbaimensaaiiaiasapnnennnn

Moradi-Shalal v. Fireman’s Fund Insurance Com-

panies, 46 Cal. 3d 287, 758 P.2d 58, 250 Cal.

SE, BID CR BIID sensericncsvennsenseserennencinsecnsscecssnnee

New Jersey v. Portash, 440 U.S. 450 (1979) .........

Olson v. Walker, 781 P.2d 1015 (Ariz. App.

SIE <cdinhencalasekicseosnsiacicaineieistieeaiiliatiglipacdnniianigbahannenies

Pacific Mutual Life Insurance Co. v. Haslip, sta

granted, 110 S. Ct. 710 (1990), cert. granted,

110 S. Ct. 1780 (1990) (argued Oct. 3,

UTE siaissiesnicinaccehncneeisiainiianiannkaimininieiniaaiinaaeuakanse

Potomac Electric Power Co. v. Smith, 79 Md. App.

3980) A.2d 768 (Md. Ct. Spec. App.

RIS ENC IT Foe

Raley v. Ohio, 360 U.S. 428 (1959) ..cce.scessseesseees

Ramona Manor Convalescent Hospital v. Care En-

terprises, 177 Cal. App. 3d 1120, 225 Cal. Rptr.

Se CE vininictniiinniannsincethihdiieemnsibiisaicepiannisentio’

Roginsky v. Richardson Merrell, Inc., 378 F.2d 832

SI SE: TINUED scensnenvtinnntileusnnicmssianingnaiioeeteennias

Rosenbloom v. Metromedia; Inc., 403 U.S. 29

SIT ists sins casaihiapbceneeiannetimie cai inieiielantaiahatasnie

Security Pacific National Bank v. Williams, 213

Cal. App. 3d 927, 262 Cal. Rptr. 260 (1989) .

Shamblin v. Berge, 166 Cal. App. 3d 118, 212 Cal.

BE, SRD CEE eencincctettcincecuicsnsensensnboniinnnnnstann

12

viii

Table of Authorities Continued

Page

Shapoff v. Scull, 222 Cal. App. 3d 1457, 272 Cal.

Be, te GR enncseietaeistinecininsnemuiitianinn 12

Simpson v. Pittsburgh Corning Corp., 901 F.2d 277

(2d Cir. 1990), cert. dism’d (No. 90-121) ........ 24

Smith v. Wade, 461 U.S. 30 (1963) .........0.000002...... 23

Stoner v. Nash Finch, Inc., 446 N.W.2d 747 (N.D.

ai 20

The Ohio Casualty Insurance Co. v. G. Amador

Corp., cert. dism’d, (No. 89-1986) ................0. 18

The Post Office v. Portec, Inc., Nos. 88-2836, 89-

1034 (10th Cir. Aug. 27, 1990) ............ 21

United States v. Batchelder, 442 U.S. 114 (1979) . 14

United States v. Halper, 109 S. Ct. 1892 (1989) .. 15

Walker v. Signal Companies, Inc., 84 Cal. App. 3d

982, 149 Cal. Rptr. 119 (1978) ..................0008 11

Waters-Pierce Oil Co. v. Texas, 212 U.S. 86

SEIU sinkaindcliadvaisidilphiicionsaiiaaamnamathatesuieesensninese 14

Wollersheim v. Church of Scientology, 212 Cal. App.

3d 872, 260 Cal. Rptr. 331 (1989), cert. pending

SA, MEI Wonihiecsccrd caaciicliialel atilleamienadiinenimantins 8

Zhadan v. Downtown L.A. Motors, 66 Cal. App. 3d

481, 136 Cal. Rptr. 132 (1976) ....................06 6,7

Federal Constitution and Statutes

ee I I ao astabentiinnsabaaee 15

8 RC passim

a a lal i cirencisisssininssctinsemeiniinainns 2

State Statutes and Rules

Cal. Civ. Code § 3294 (Deering Supp. 1990) .... 6,8,9,15,18

Cal. Civ. Code § 3295 (Deering Supp. 1990) ........... 19

California Rules of Court, Rule 977 ..............0000000 5,8,18

IN THE

Supreme Court of the United States

OCTOBER TERM, 1990

No. 90-

PaciIFIC LIGHTING CORPORATION,

FREDRICKS DEVELOPMENT CORPORATION, and

DUNN PROPERTIES CORPORATION,

Petitioners,

V.

MGW, INc.,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE COURT OF APPEAL OF CALIFORNIA,

FOURTH APPELLATE DISTRICT

Pacific Lighting Corporation (‘Pacific Lighting’’),

Fredricks Development Corporation (‘‘Fredricks’’),

and Dunn Properties Corporation (‘‘Dunn’’) respect-

fully petition for a writ of certiorari to review the

judgment of the California Court cf Appeal, Fourth

Appellate District. That court affirmed a jury verdict

of $2,000,000 in punitive and $558,000 in compen-

satory damages, plus interest, against petitioners for

alleged tortious conduct in connection with an alleged

oral contract. The court below expressly rejected fed-

eral constitutional objections to the punitive damage

award.

OPINIONS AND ORDERS BELOW

The April 30, 1990 opinion of the California Court

of Appeal was ordered by that court not to be pub-

lished, see note 11, infra, and accompanying text, and

is reproduced in App. A, infra, la-14a. That court’s

May 29,.1990 order denying rehearing is unreported

and reproduced in App. B, infra, 15a. The July 18,

1990 order of the Supreme Court of California de-

nying discretionary review of this case is unreported

and reproduced in App. C, infra, 16a.

JURISDICTION

In its April 30, 1990 opinion, the California Court

of Appeal expressly rejected the federal due process

question presented in the Petition. On July 18, 1990,

the Supreme Court of California declined to review

this case, and this Petition is being filed within ninety

days of that date. This Court has jurisdiction over

this case pursuant to 28 U.S.C. § 1257(a).

CONSTITUTIONAL PROVISION INVOLVED

The Due Process Clause of the Fourteenth Amend-

ment provides, in pertinent part:

‘“(NJor shall any State deprive any person

of... property, without due process of

Pe Pas

STATEMENT OF THE CASE

A. Statement of Facts

This case involves a $2,000,000 punitive damage

award imposed by a jury against Pacific Lighting and

its two former subsidiaries, Fredricks, a developer of

residential real estate, and Dunn, a developer of com-

mercial real estate, for “tortious interference with

prospective economic advantage’ and tortious con-

spiracy. Respondent MGW, a commercial real estate

brokerage and investment company, alleged that Mr.

Malcolm Waitt, Jr., the owner and sole employee of

MGW, entered into an oral broker’s agreement with

Fredricks under which Fredricks ‘‘would see [that

Waitt] was fairly compensated”’ if Mr. Waitt brought

a real estate opportunity to Fredricks for which a

broker’s fee was not paid by the seller. App. A, infra,

2a.

In February 1983, Mr. Waitt brought a newspaper

article to Fredricks’ attention that discussed an im-

pending sale of interests in a real estate development

project known as Rancho Carmel. Fredricks informed

Mr. Waitt that neither it nor its parent company,

Pacific Lighting, were aware of the opportunity. App.

A, infra, 3a. Fredricks and Dunn ultimately entered

into a joint venture in the Rancho Carmel develop-

ment with two other companies. The joint venture

interest was purchased on their behalf by Pacific Real

Estate Projects, Inc. (‘“PREP’’), another Pacific

Lighting subsidiary in the business of land develop-

ment.

Fredricks refused to pay Mr. Waitt a broker’s fee,

asserting that, unbeknownst to Fredricks, its sister

corporation and partner in the joint venture, Dunn,

had learned of the opportunity before Mr. Waitt

brought it to Fredricks, see App. A, infra, 4a, and

thus Fredricks was not obligated to pay a broker’s

fee under the terms of the oral agreement.

Based upon Fredricks’ refusal to pay Mr. Waitt a

broker’s fee, MGW brought suit against Pacific Light-

ing, Fredricks, Dunn, and PREP alleging, inter alia,

breach of an oral contract, ‘‘tortious breach of the

covenant of good faith and fair dealing, conspiracy

and tortious interference with prospective economic

advantage.”! App. A, infra, 4a. The trial court dis-

missed all of MGW’s contract-related claims because

the oral contract violated the statute of frauds. How-

ever, the jury returned a verdict of $558,000 in com-

pensatory damages and $2,000,000 in punitive

damages on the remaining claims.’

The trial court granted Pacific Lighting’s motion

for judgment notwithstanding the verdict and its mo-

tion for a new trial on state law grounds. See App.

A, infra, 5a. MGW appealed that ruling, and Fred-

ricks, Dunn and PREP appealed the trial court’s judg-

ment against them. ois

1 MGW claimed that Pacific Lighting and Dunn “‘interfered”’

with the oral agreement between Fredricks and MGW by telling

Fredricks that they had already known about the Rancho Carmel

opportunity, and that Fredricks conspired with them when it

refused to pay the commission.

2 App. A, infra, 4a. The jury apportioned the $2,000,000 pu-

nitive damage award as follows: Pacific Lighting, $800,000;

Dunn, $800,000; and Fredricks, $400,000. Under California law,

all of the petitioners, as well as PREP, are jointly and severally

liable for the compensatory damage award. The compensatory

damage award was paid in full on September 21, 1990.

The trial court granted a nonsuit in favor of PREP on the

tortious interference claim; the jury found PREP liable for con-

spiracy, but did not assess punitive damages against PREP. The

trial court also granted a nonsuit on all claims in favor of

defendants Home Capital Corporation and Humboldt Financial

Services Corporation, the other two participants in the Rancho

Carmel project. App. A, infra, 4a-5a.

B. Presentation and Decision of the Federal Question

In the Court of Appeal, Pacific Lighting argued,

inter alia, that the imposition of punitive damages in

this case violated the Due Process Clause of the Four-

teenth Amendment because California law permits

“uncontrolled” juries to impose “unlimited punish-

ments in which the amount imposed is calculated on

an ad hoc basis in each case.” App. D, infra, 20a. It

also contended that the “unspecified, nebulous, and

ultimately meaningless” standards governing punitive

damages “‘only serve[ ] to multiply a defendant’s un-

certainty as to the punishment,” resulting in “‘capri-

cious awards” and ‘“‘nulliff[ying] the very concepts of

fair play and justice embodied in the Due Process

Clause....’’ App. D, infra, 20a-21a.

On April 30, 1990, in an opinion ordered not to be

published pursuant to Rule 977 of the California Rules

of Court, the Court of Appeal reversed the grant of

a new trial and judgment notwithstanding the verdict

in favor of Pacific Lighting, reinstated the punitive

damage judgment against Pacific Lighting, and af-

firmed the trial court’s judgment in all other respects.

App. A, infra, 14a. The Court of Appeal expressly

rejected Pacific Lighting’s federal constitutional chal-

lenges to the punitive damage award. Although the

3 “There can be no question as to the proper presentation of

a federal claim when [the court below] passes on it.’ Raley v.

Ohio, 360 U.S. 423, 436 (1959). Accord New Jersey v. Portash,

440 U.S. 450, 455 (1979); Jenkins v. Georgia, 418 U.S. 153, 157

(1974). Although petitioners Dunn and Fredricks did not raise

a federal due process challenge to the punitive damage award

in the Court of Appeal, Pacific Lighting’s challenge necessarily

placed the entire punitive damage award in constitutional jeop-

ardy. Furthermore, as indicated by the Court of Appeal’s opinion

court below took note of this Court’s grant of

certiorari in Pacific Mutual Life Insurance Co. v. Has-

lip, stay granted, 110 S. Ct. 710 (1990), cert. granted,

110 S. Ct. 1780 (1990) (argued Oct. 3, 1990), it stated

simply that “‘punitive damages are constitutional un-

der... the due process provisions of the Fourteenth

Amendment,” App. A, infra, 12a, relying upon two

California cases, Bertero v. National General Corp.,

13 Cal. 3d 48, 66 n.13, 529 P.2d 608, 118 Cal. Rptr.

184 (1974), and Zhadan v. Downtown L.A. Motors, 66

Cal. App. 3d 481, 501-02, 136 Cal. Rptr. 132 (1976).

Both Bertero and Zhadan concluded that California’s

punitive damage statute sufficiently defined the pros-

cribed conduct and the potential punishment for pur-

poses of due process.‘

in this case, see App. A, infra, 12a, the Supreme Court of

California unequivocally has rejected both federal and state due

process attacks on that State’s vague and open-ended punitive

damage system. Under these circumstances, it was not necessary

for Dunn and Fredricks to raise such issues in the trial court

or Court of Appeal as a matter of state law. See, e.g., Moradi-

Shalal v. Fireman’s Fund Insurance Companies, 46 Cal. 3d 287,

292, 758 P.2d 58, 250 Cal. Rptr. 116 (1988) (defendant was not

required to raise issue in the lower courts because ‘“‘clearly it

would have been pointless for defendant to urge either the trial

or appellate court to overrule one of our decisions’’).

‘In Bertero, the Supreme Court of California rejected an at-

tack on Cal. Civ. Code § 3294 as “‘unconstitutionally vague be-

cause it fails to provide sufficient guidance for the trial courts

charged with implementing it.’’ 13 Cal. 3d, at 66 n.13. The court

noted that the statute “‘merely codifies’’ the common law ‘“‘prin-

ciples’ for determining whether punitive damages may be im-

posed and ‘‘how the amount shall be determined,” id., and

concluded that therefore the statute was not subject to a due

process challenge on vagueness grounds. The court also observed

that § 3294 previously had been upheld against constitutional

Petitioners sought review of the Court of Appeal’s

judgment in the Supreme Court of California, con-

tending, inter alia, that the Due Process Clause pro-

hibits the ‘‘essentially unrestrained discretion” of

juries to impose punitive damages in unlimited

amounts. Petitioners argued that this case “‘raises the

same federal constitutional objections to punitive dam-

age awards” as are before this Court in Pacific Mu-

tual and urged the Supreme Court of California to

grant review or, alternatively, to hold the case with-

out briefing until this Court decided Pacific Mutual.

The Supreme Court of California, without opinion,

denied review on July 18, 1990. See App. C, infra,

16a.5

REASONS FOR GRANTING THE WRIT

On four occasions in the past five years this Court

has accepted for review cases that involved the ques-

tion whether the ‘‘lack of sufficient standards gov-

erning punitive damage awards... violates the Due

Process Clause of the Fourteenth Amendment.” Aetna

Life Insurance Co. v. Lavoie, 475 U.S. 818, 828-29

(1986); see also Pacific Mutual Life Insurance Co. v.

Haslip, cert. granted, 110 S. Ct. 1780 (1990); Brown-

ing-Ferris Industries of Vermont, Inc. v. Kelco Dis-

—

challenge ‘‘on several occasions.” Jd. The Court of Appeal in

Zhadan, relying upon Bertero, also rejected the argument that

Cal. Civ. Code § 3294 violates due process principles ‘‘because

of its lack of a ‘precise standard by which to fix the quantum

of property... to be deprived....’”’ 66 Cal. App. 3d, at 501.

>On August 30, 1990, Justice Kennedy granted petitioners’

application for a stay of the punitive damage portion.of the

judgment (A-156). On September 21, 1990, Justice Kennedy de-

nied respondent’s motion to vacate the stay.

posal, Inc., 109 S. Ct. 2909 (1989); Bankers Life and

Casualty Co. v. Crenshaw, 486 U.S. 71 (1988).

Petitioners’ Due Process Clause objections to punitive

damages are indisputably substantial and worthy of

review by this Court.®

As exemplified by this case, the California system

of state-imposed punitive fines is particularly incon-

sistent with due process. By express statute, California

assesses punitive damages only in cases ‘‘not arising

from contract.’ Cal. Civ. Code § 3294(a) (Deering Supp.

1990) (emphasis added). Yet in this case, a California

appellate tribunal, in an opinion that by law may not

“be cited or relied upon...in any other action or

proceeding,” California Rules of Court, Rule 977,

* Similar issues are before the Court in Pacific Mutual, as well

as a number of other cases. See, e.g., Hichenseer v. Reserve Life

Ins. Co., 881 F.2d 1355 (5th Cir. 1989) ($500,000 punitive dam-

age award), stay granted, 110 S. Ct. 1468 (1990), cert. pending

(No. 89-1303); George v. International Society for Krishna Con-

sciousness of California, 213 Cal. App. 3d 729, 262 Cal. Rptr.

217 (1989) (subsequently ordered to be depublished) ($2,500,000

punitive damage award), stay granted, 110 S. Ct. 1804 (1990),

cert. pending (No. 89-1399); Wollersheim v. Church of Scientol-

ogy, 212 Cal. App. 3d 872, 260 Cal. Rptr. 331 (1989) ($2,000,000

punitive damage award), cert. pending (No. 89-1361); Hospital

Authority of Gwinnett County v. Jones, 386 S.E.2d 120 (Ga.

1989) ($1,300,000 punitive damage award), cert. pending (No. 89-

1315); General American Life Insurance Company v. Simmons,

562 So. 2d 140 (Ala. 1989) ($600,000 punitive damage award),

stay granted, June 4, 1990 (A-845) (Kennedy, Circuit Justice),

cert. pending (No. 90-73); Massachusetts Mutual Life Insurance

Co. v. Collins, No. 88-949 (Ala. 1990) ($750,000 punitive damage

award), cert. pending (No. 90-244); Buckley v. Ellis, 790 P.2d

875 (Colo. Ct. App. 1989) ($125,000 punitive damage award),

cert. pending (No. 90-191).

reinstated the portion of the jury’s punitive damage

verdict that had been overturned by the trial court,

and affirmed the jury’s original $2,000,000 punish-

ment for failure to pay a commission “pursuant to

an oral broker’s agreement,”’ App. A, infra, 2a, an

alleged contract that is explicitly made unenforceable

by California’s statute of frauds. App. A, infra, 4a,

13a. The Court of Appeal did not engage in any ap-

parent analysis of the amount of the award.

The California courts have repeatedly rejected fed-

eral (and state) constitutional challenges to this in-

creasingly erratic system. Only this Court can resolve

the due process question presented in the Petition.

A. The Court Should Grant Review to Decide the Ex-

tent to Which the Due Process Clause of the Four-

teenth Amendment Limits the Otherwise Unfettered

Discretion of Juries to Inflict Punitive Damages in

Civil Actions Involving Private Parties

In California, as in most jurisdictions, the law of

punitive damages allows punishment for deviation

from vague, elastic and evolving ‘‘standards’’ of con-

duct and affords substantially unfettered discretion to

juries to render a punishment in virtually any amount.

Indeed, California Civil Code § 3294, which purports

to define the cireumstances and manner in which pu-

nitive damages may be imposed, articulates neither

limits nor objective factors for determining the level

of punishment necessary to achieve the State’s goals

of retribution and deterrence in a particular case. See

Cal. Civ. Code § 3294 (Deering Supp. 1999).

Nor does the common law provide any meaningful

guidance. The California Court of Appeal has deter-

mined that no limits or formulae exist for calculating

10

punitive damages and that that is precisely the way

it should be in California:

The channeling of just the correct quantum

of bile to reach the correct level of punitive

damages is, to put it mildly, an unscientific

process complicated by personality differ-

ences. Conduct which one person may view

as outrageous another may accept without

feeling, depending on such diverse charac-

teristics as an individual’s background, tem-

perament and societal concerns. The process

is further complicated by the lack of objective

criteria from either the Legislature or the

courts as to “how much” is necessary to pun-

ish and deter.

We have examined a number of appellate de-

cisions in an effort to determine whether we

could discern from the cases a single formula

for calculating punitive damages....

Frankly, we are unable to find that formula.

Instead of making a mathematical break-

through we discovered what everyone prob-

ably already knows: the formula does not

exist. And, we have concluded, that is prop-

erly so. ;

Devlin v. Kearny Mesa AMC/Jeep/Renault, Inc., 155

Cal. App. 3d 381, 388, 202 Cal. Rptr. 204 (1984)

(emphasis added) (footnote omitted); see also Gagnon

v. Continental Casualty Co., 211 Cal. App. 3d 1598,

1604-05, 260 Cal. Rptr. 305 (1989) (‘‘In the final anal-

ysis ...the propriety and amount of punitive dam-

ages depends entirely upon the particular facts of a

case.’’).

11

Appellate review of punitive verdicts in California

is both standardless and highly deferential. The Court

of Appeal has explained:

The calculation of punitive damages _in-

volves, ... ‘‘a fluid process of adding or sub-

tracting depending on the nature of the acts

and the effect on the parties and the worth

of the defendants,” and in this regard juries

have a wide discretion in determining what

is proper.... “The purpose of punitive dam-

ages is to punish wrongdoers and thereby

deter the commission of wrongful acts....”

The more reprehensible the act, the greater

the appropriate punishment.

Downey Savings & Loan Ass’n v. The Ohio Casualty

Insurance Co., 189 Cal. App. 3d 1072, 234 Cal. Rptr.

835 (1987), cert. denied, 486 U.S. 1036 (1988) (cita-

tions omitted). Thus, on appeal, “‘[ajll presumptions

favor the correctness of the verdict and judgment,”’

Devlin, 155 Cal. App. 3d, at 388, and a punitive dam-

age award will not be disturbed unless ‘‘the entire

record viewed most favorably to the judgment indi-

cates the award was rendered as a result of passion

and prejudice.”’ Walker v. Signal Companies Inc., 84

Cal. App. 38d 982, 997, 149 Cal. Rptr. 119 (1978).

The impact of this wholly unlimited and “‘fluid proc-

ess’ of punishment is, as this Court has recognized,

manifestly ‘“‘unpredictable and potentially substan-

tial.’ Electrical Workers v. Foust, 442 U.S. 42, 50

(1979); see also Gertz v. Robert Welch, Inc., 418 U.S.

323, 350 (1974) (‘juries assess punitive damages in

wholly unpredictable amounts bearing no necessary

relation to the actual harm caused’’); City of Newport

I eetaieiaetiiieaceiaasincemiaiaaiaiitine eile

12

v. Fact Concerts, Inc., 453 U.S. 247, 270-71 (1981)

(‘‘the impact of such a windfall recovery is likely to

be both unpredictable and, at times, substantial’’); Ro-

senbloom v. Metromedia, Inc., 403 U.S. 29, 82-83, 84

(1971) (Marshall, J., dissenting) (“the essence of [un-

limited] discretion is unpredictability and uncertainty”’

and it “allows juries to penalize heavily the unortho-

dox and the unpopular and exact little from others’’).

California juries have imposed punitive damages in

radically varying amounts for the same kind of con-

duct—tortious interference with commerical relation-

ships—involved in this case. See, e.g., Shamblin v.

Berge, 166 Cal. App. 3d 118, 212 Cal. Rptr. 313 (1985)

(affirming $2,500 punitive damage award against real

estate agents for tortious interference with a con-

tractual relationship of real estate developer); Shapoff

v. Scull, 222 Cal. App. 3d 1457, 272 Cal. Rptr. 480

(1990) (affirming a $300,000 punitive damage award

against three defendants for intentional interference

with contractual relations in connection with real es-

tate development transaction); Ramona Manor Con-

valescent Hospital v. Care Enterprises, 177 Cal. App.

3d 1120, 225 Cal. Rptr. 120 (1986) (reversing

$2,500,000 punitive damage award for tortious inter-

ference in connection with real estate lease dispute

because, inter alia, the award was “unsupported by

the verdict’); Greenwood & Co. Real Estate v. C-D

Investment Co., Nos. C 523-923, C 560-824 (Super.

Ct., Los Angeles Co., Cal. Mar. 5, 1990) ($30,000,000

punitive damage verdict for tortious interference and

tortious conspiracy in connection with breach of an

oral real estate broker’s agreement) (notice of appeal

filed).’

7 In cases involving the related contract-based tort of ‘breach

13

The punitive damage systems of other jurisdictions

likewise produce random and wholly unpredictable

verdicts. For example, in Eichenseer v. Reserve Life

Insurance Co., 881 F.2d 1355 (5th Cir. 1989), stay

granted, 110 S. Ct. 1468 (1990), cert. pending (89-

1303), Judge Jones “‘review[ed] the range of punitive

damages that have been awarded under Mississippi's

bad faith refusal [to pay an insurance claim] law,”

894 F.2d 1414, 1420-21 (5th Cir. 1990) (dissenting

from denial of rehearing en banc), and found ‘‘a nearly

hundred fold variation in the range of punishments

assessed.’’ Jd. Judge Jones concluded that this ‘‘pun-

ishment without moorings,” id., at 1421, ‘‘mocks our

notions of fundamental fairness embodied in the Due

Process Clause....” Jd., at 1415. See also General

American Life Insurance Co. v. Simmons, 562 So. 2d

140, 151 (Ala. 1989) (Houston, J., concurring) (criti-

cizing the procedural defects of the Alabama punitive

damage system because ‘‘for the same conduct, within

a five-year period, under the same jury instruction,

one jury punishes one insurance company and its spe-

cial agent in the amount of $21,130.86, and another

jury punishes another insurance company and its spe-

cial agent in the amount of $2,490,000’’), cert. pending

(No. 90-73).

The Petition should be granted so that this Court

can finally resolve the question whether a system that

imposes completely unpredictable punishments rang-

of the convenant of good faith and fair dealing,’’ the California

appellate courts have affirmed awards ranging from $150,000,

Miller v. Elite Ins. Co., 100 Cal. App. 3d 739, 161 Cal. Rptr.

322 (1980), to $15,000,000. See Eaton Corp. v. PKL Cos., cert.

denied, 109 S. Ct. 1933 (1989) (Court of Appeal’s opinion un-

published).

14

ing up to tens of millions of dollars for deviation from

undefined or vaguely defined standards comports with

the Due Process Clause. Indeed, this Court should

consider why due process is not violated by the im-

position of any punitive damages in the absence of

an established “range of penalties as to which re-

sponsible officials had deliberated and then agreed.”

Browning-Ferris Industries of Vermont, Inc. v. Kelco

Disposal, Inc., 109 S. Ct. 2909, 2923 (1989) (Brennan,

J., concurring). No ‘responsible officials’’ established

a range of penalties in this case. Moreover, as Justice

Brennan, joined by Justice Marshall, noted in Brown-

ing-Ferris, ‘‘even where a statute sets a range of

possible civil damages . . . the Due Process Clause for-

bids damages awards that are ‘grossly excessive.’”’

Id., quoting Waters-Pierce Oil Co. v. Texas, 212 U.S.

86, 111 (1909). The award in this case is clearly un-

constitutional under the standard articulated by Jus-

tice Brennan.

A criminal fine imposed by a jury against petitioners

in the absence of any statutory limits would surely

be forbidden by the Due Process Clause. See United

States v. Batchelder, 442 U.S. 114, 123 (1979) (‘vague

sentencing provisions may pose constitutional ques-

tions if they do not state with sufficient clarity the

consequences of violating a given criminal statute’’).

In administering punishment in criminal cases, there

is simply no credible argument against the principle

that the law must “fairly and clearly define... the

punishment which can be administered.’”’ Berra v.

United States, 351 U.S. 181, 139 (1956) (Black, J.,

dissenting). Vague penal laws not only fail to provide

“fair warning,” but also ‘impermissibly delegate[ ]

basic policy matters to ...judges... and juries for

15

resolution on an ad hoc and subjective basis, with the

attendant dangers of arbitrary and discriminatory ap-

plication.” Grayned v. City of Rockford, 408 U.S. 104,

108-09 (1972).

In California, the vagueness of the standards for

imposing punitive damages is compounded by the se-

cret system of review practiced by that State in which

appellate courts revise, reinstate, modify or affirm

punitive damage awards in staggering amounts in

“‘unpublished”’ or “‘depublished’’ opinions.®

These same due process principles would prohibit

the imposition of a limitless civil fine payable to the

State.® Indeed, it seems inconceivable that this Court

would uphold a statute enforced by a State that ex-

pressly left with a jury or a judge the right, after

determining liability based upon an elastic standard

such as “despicable conduct,’’© or some other wholly

subjective yardstick, to impose a fine solely in their

discretion. See Giaccio v. Pennsylvania, 382 U.S. 399

(1966). As this Court stated in United States v. Hal-

per, 109 S. Ct. 1892 (1989), in applying the Double

Jeopardy Clause to the punitive component of an os-

tensibly “civil” fine, ‘‘a civil as well as a criminal

sanction constitutes punishment when the sanction as

applied in the individual case serves the goals of pun-

ishment.”’ Jd., at 1901-02. See Browning-Ferris, 109

S. Ct., at 2920 n.21. Under Halper, punishment is

constitutionally distinct from damages constituting

compensation and necessarily implicates due process

* See infra note 11 and accompanying text.

* Moreover, the excessiveness of any such fine seemingly would be

subject to scrutiny under the Eighth Amendment. See Browning-Ferris,

109 S. Ct., at 2914, 2916, 2918 & 2920.

© See Cal. Civ. Code § 3294(c).

16

concerns quite discrete from those invoked by purely

compensatory damages.

In fact, punitive “damages” is a misnomer. Such

awards are state-imposed punishments that serve no

compensatory function but, rather, seek to fulfill the

State’s retributive and deterrent objectives. See, e.g.,

Dyna-Med, Inc. v. Fair Employment & Housing Com-

mission, 43 Cal. 3d 1379, 1387, 743 P.2d 1323, 241

Cal. Rptr. 67 (1987) (‘Punitive damages ... are nei-

ther equitable nor corrective; punitive damages serve

but one purpose—to punish and through punishment,

to deter.””). Punitive damages are therefore generi-

cally in the class of criminal punishments and civil

fines—society’s remedies for public wrongs—and not

at all within the genus “‘damages.”’

As stated by Justice O’Connor, the “grant [to a

jury] of wholly standardless discretion to determine

the severity of punishment appears inconsistent with

due process.”’ Bankers Life, 486 U.S., at 88 (O’Con-

nor, J., concurring in part and concurring in the judg-

ment). ‘‘The touchstone of due process is protection

of the individual against arbitrary action of govern-

ment,” Daniels v. Williams, 474 U.S. 327, 331 (1986),

quoting Dent v. West Virginia, 129 U.S. 114, 123

(1889), and it demands that juries be confined in their

ability to administer punishment by the deliberative

judgments of legislatures regarding: (1) the amount

of punishment necessary to secure society’s interests

in retribution and deterrence; and (2) the standards

under which the jury is to arrive at an appropriate

punishment in a particular case. This question is im-

portant, implicates a broad spectrum of civil litigation

in which punitive damages are available, and should

be decided in this case.

17

B. Only this Court Can Resolve the Question Presented

in the Petition

The fundamental due process defects in the punitive

damage system discussed above can only be cured by

a decision of this Court. The Supreme Court of Cal-

ifornia has turned a deaf ear to repeated constitu-

tional objections to that system, as have the California

lower courts. See, e.g., Faraypour v. University of

Southern California, 221 Cal. App. 3d 19, 39-40, 270

Cal. Rptr. 356 (1990) (citing decisions of ‘‘the Cali.

fornia Supreme Court. ..summarily rejecting consti-

tutional challenges’’ to punitive damages and

concluding that such challenges ‘‘cannot properly be

addressed to any court subordinate to the California

Supreme Court’’) (subsequently ordered to be depub-

lished).

As noted above, such is the antipathy of the Cal-

ifornia courts towards these important constitutional

issues that they routinely affirm seven- and eight-digit

punitive damage awards in ‘‘unpublished’”’ opinions

that simultaneously perpetuate and shield from scru-

tiny the capriciousness of the punitive damage sys-

tem. For example, after noting that the due process

question had been left open in Browning-Ferris, on

August 30, 1989, a California Court of Appeal re-

jected a federal due process challenge to a $2,500,000

punitive damage award, stating that although the

“thrust of defendants’ contentions is not without some

persuasive force,” ‘‘we think it appropriate to rely on

Downey Savings [and Loan Association v. The Ohio

Casualty Insurance Co., 189 Cal. App. 3d 1072, 234

Cal. Rptr. 835 (1987), cert. denied, 486 U.S. 1036

(1988)] pending further action by the United States

i}

18

or California Supreme Courts.’’! The California leg-

islature also has declined to intervene, making only

minor adjustments to California’s law of punitive

damages since this Court’s 1986 decision in Aetna.'*

" George v. International Society for Krishna Consciousness of Cal-

ifornia, 213 Cal. App. 3d 729, 798, 262 Cal. Rptr. 217 (1989) (subse-

quently ordered to be depublished), stay granted, 110 S. Ct. 1804 (1990),

cert. pending (No. 89-1399); see also Eaton Corp. v. The PKL Cos.,

cert. denied, 109 S. Ct. 1933 (1989) ($15,000,000 punitive damage award

affirmed in an unpublished opinion); Metromedia, Inc. v. April Enter-

prises, Inc., cert. denied, 109 S. Ct. 3242 (1989) ($14,000,000 punitive

damage award affirmed in an unpublished opinion); Security Pacific

National Bank v. Williams, 213 Cal. App. 3d 927, 262 Cal. Rptr. 260

(1989) (affirming $2,500,000 punitive damage award) (subsequently or-

dered not to be published); Leonardini v. Shell Oil Co., 216 Cal. App.

3d 547, 264 Cal. Rptr. 883 (1989) (affirming $5,000,000 punitive damage

award) (punitive damage portion of opinion ordered to be depublished),

cert. denied, October 15, 1990 (No. 89-2029); The Ohio Casualty In-

surance Co. v. G. Amador Corp., cert. dism’d (No. 89-1986) (affirming

$10,000,000 punitive damage award in an unpublished opinion). Because

such decisions are “‘unpublished,”’ it is entirely possible that there are

other similar awards affirmed by the California Court of Appeal that

are inaccessible to the public and the bar because of California’s peculiar

official censorship policy. As illustrated by cases like George v. Inter-

national Society for Krishna Consciousness, this censorship policy is

sometimes enforced by the Supreme Court of California by overriding

a Court of Appeal decision ordering its opinion to be published. Under

Rule 977 of the California Rules of Court, such unpublished or depub-

lished opinions generally may not even be cited or relied upon by

litigants. This practice screens from public scrutiny the effects of the

punitive damage system and aggravates the ad hoc and utterly unpre-

dictable nature of punitive damages.

%In 1987, the California legislature enacted a comprehensive ‘‘tort

reform” package, which, inter alia, amended in a number of respects

Cal. Civ. Code § 3294, the statute pursuant to which punitive damages

were and continue to be generally authorized in civil actions without

limit. Prior to its amendment, § 3294 allowed punitive damages in

unlimited amounts to be imposed where a preponderance of the evidence

showed that the defendant had “been guilty of oppression, fraud, or

malice.”” As amended, it now requires proof “‘by clear and convincing

evidence.”’ The definitions of ‘‘malice” and “oppression” also were re-

19

The courts of the other States continue to enter

and affirm punitive damage awards as if this Court’s

concerns had never been articulated. As expressed by

a Maryland appellate court on June 9, 1989, after

citing cases such as Day v. Woodworth, 54 U.S. (13

How.) 363 (1851), for this Court’s “‘approval’’ of the

punitive damage system, ‘‘[w]hat the Supreme Court

has declared constitutional we may not put asun-

der....’’ Potomac Electric Power Co. v. Smith, 79

Md. App. 591, 558 A.2d 768, 792 (Md. Ct. Spec. App.

1989) (affirming $7,500,000 punitive damage award).

In General American Life Insurance Co. v. Simmons,

562 So. 2d 140 (Ala. 1989), stay granted, June 4, 1990

(A-845) (Kennedy, Circuit Justice), cert. pending (No.

90-73), the Supreme Court of Alabama affirmed a

$600,000 punitive damage award, disposing of Due

Process Clause challenges to the award on the basis

of its own previous decisions in which it “has con-

sistently rejected the same arguments ... and has

upheld the constitutionality of punitive damages.” Id.,

at 149.'%

vised to require that the conduct be found “despicable” in certain

circumstances. More broadly, the 1987 legisiation provided that evidence

of a defendant’s financial condition not be admitted prior to a finding

of liability and a finding of ‘‘malice, oppression or fraud’’ warranting

punitive damages, and further provided that complaints for punitive

damages not state an amount. See Cal. Civ. Code § 3295 (Deering Supp.

1990).

18 Similarly, on October 4, 1989, an Indiana appellate court, affirming

a $1,000,000 punitive damage award for false imprisonment and ma-

licious prosecution, observed:

[PJunitive damages have long been recognized as comporting

with the Fundamental Fairness Doctrine of the due process

clause. Missouri Pacific and R. Co. v. Humes (1885), 115

U.S. 512. It is true ... that Justice O’Connor recently com-

mented in a recent opinion about punitive damages and due

20

The federal courts of appeals likewise seem to be

in a state of paralysis in dealing with the constitu-

tional implications of punitive damages. This paralysis

manifests itself in two ways. First, courts of appeals

cling to their own precedents, decided decades before

serious federal constitutional objections to arbitrary

and excessive punitive damage awards were advanced

in and legitimated by this Court in Aetna, Bankers

Life, and Browning Ferris. Thus, in Racich v. Celotex

Corp., 887 F.2d 393, 399 (2d Cir. 1989), the Second

Circuit could not “write upon a clean slate’ on the

due process issue because a twenty-two year-old de-

process protections. See Bankers Life, supra. However, the

Supreme Court in that case and in a subsequent decision

explicitly refused to consider the question. See Browning-

Ferris, supra. Thus, we cannot conclude that the punitive

damage award here violated the fourteenth amendment of

the United States Constitution.

Lazarus Department Store v. Sutherlin, 544 N.E.2d 513, 529-30 (Ind.

App. 1989); see also Olson v. Walker, 781 P.2d 1015, 1022-23 (Ariz.

App. 1989) (‘‘neither the U.S. Supreme Court nor any Arizona court

has decided whether more stringent procedures are necessary in private

civil punitive damages actions to satisfy due process .... The punitive

damage award does not violate due process.’’); Stoner v. Nash Finch,

Inc., 446 N.W.2d 747, 755-56 (N.D. 1989) (discussing Browning-Ferris

and rejecting due process challenges to punitive damages because

“courts which have recently addressed arguments ... that various pu-

nitive damages schemes are unconstitutionally vague in defining conduct

giving rise to liability and in providing standards for assessing the

amount, have found no due process violation’’); Douglas v. Bank of New

England/Old Colony, N.A., 566 A.2d 939, 942 (R.I. 1989) (due process

challenge to punitive damages is “‘not persuasive in light of the fact

that there is no showing that the trial justice’s award ... constituted

an abuse of ... the due process clause of the Federal Constitution

.... See Browning-Ferris Industries of Vermont, Inc. v. Kelco Disposal,

Inc. ...,.”’) (affirming $225,000 punitive damage award).

21

cision of that court had considered and implicitly re-

jected an apparently similar claim."

Second, no Court of Appeals appears to want to

be the first to decide these substantial due process

questions. As the Fifth Circuit has put it, “‘no circuit

court has yet ruled on this issue’ and “we need not

become the first court to resolve this challenging in-

quiry.’’ Eichenseer v. Reserve Life Insurance Co., 881

F.2d 1355, 1365 (5th Cir. 1989) (affirming $500,000

punitive damage award), stay granted, 110 S. Ct. 1468

(1990), cert. pending (No. 89-1303); see also Davis v.

Merrill Lynch, Pierce, Fenner & Smith, 906 F.2d

1206, 1226 (8th Cir. 1990) (‘Assuming without decid-

ing that punitive damages awards must comply with

due process,” and affirming $2,000,000 punitive dam-

age award). The Ninth Circuit brushed off a due proc-

ess challenge with the observation that, ‘“[uJnder

current constitutional standards, the jury’s discretion

regarding punitive damages is not subject to strict

fetters. ‘Jury discretion over the amounts awarded is

limited only by the gentle rule that [punitive damages]

not be excessive.’ ’’!® See also The Post Office v. Por-

tec, Inc., Nos. 88-2836, 89-1034 (10th Cir. Aug. 27,

1990), slip op., at 13 (“Defendant points to no

Supreme Court action that requires us to question

our prior holding’’ that the ‘Colorado [punitive dam-

age] statute did not violate the due process clausef[ ]

of the federal . . . constitution’’) (remitting $1,500,000

punitive damage award to $500,000).

4 Roginsky v. Richardson-Merrell, Inc., 378 F.2d 832, 835, 841-42

(2d Cir. 1967).

Kraus v. Santa Fe Southern Pacific Corp., 878 F.2d 1193, 1200

(9th Cir. 1989) (emphasis added) (quoting Gertz v. Robert Welch, Inc.,

418 U.S. 323, 350 (1974)), cert. dism’d, 110 S. Ct. 1329 (1990).

22

The federal district courts are in comparable dis-

array. On February 1, 1990, a federal district court—

after full briefing of these constitutional issues in the

post-trial motions—entered judgment on a $30,000,000

punitive damage award without any reference to these

issues other than the statement that ‘“[tJhis court has

carefully considered each post judgment motion .

Brooks v. Hilton Casinos, Inc., No. CV S-84-436 (RDF)

(D. Nev. Feb. 1, 1990); see ‘also Advanced Medical,

Inc. v. Arden Medical Systems, Inc., Civ. Action No.

87-3059 (E.D. Pa. Sept. 6, 1990), slip op., at 10

(Defendants’ “‘contention ... that an award of pu-

nitive damages acts as a deprivation of their property

without due process of law . . . provides an interesting

academic argument. It is not, however, the long line

of punitive damages law which this court must fol-

low.’’) (denying post-trial motions challenging jury

verdict of $7,150,000 in punitive damages for ‘“‘tor-

tious interference with existing contractual relation-

ships’).

Other federal district courts have expressly found

Browning-Ferris *o be dispositive authority against

applying the Due Process Clause to punitive damage

awards. For example, in Ay You Man v. Raymark

Industries, Nos. 87-14524, 87-14470 (D. Hawaii Nov.

16, 1989), the District Court rejected a broad due

process challenge to the standardless imposition of

punitive damages, stating that it did ‘‘not find that

the [United States] Supreme Court has given any in-

dication that punitive damages are unconstitutional as

a matter of law and this court will not extract such

a doctrine from defendants’ inaccurate interpretation

en nee eee et eee

leat ee ea ed

23

of Court dicta.’’ Slip op., at 4. Similar post-Browning-

Ferris federal cases abound.’®

Perhaps the Second Circuit has captured as well as

possible the reluctance of the lower state and federal

courts to march into this new constitutional terrain.

16 See Falk v. McNamara, No. 88 C 7293 (N.D. Ill. Mar. 30, 1990),

slip op., at 4 (although ‘“‘Browning-Ferris ... declined to address the

issue herein, the Supreme Court decisions in the area imply that pu-

nitive damage awards do not violate due process as a matter of law’’);

Germanio v. The Goodyear Tire & Rubber Co., 732 F. Supp. 12$7,

1304 (D.N.J. 1990) (“It will take a less skeptical and more adventurous

court than this one to conclude that the Fourteenth Amendment re-

quires higher standards of procedural protection for civil defendants in

[punitive damage] cases than those that have obtained for decades, if

not centuries.”); Gray v. Armstrong World Industries, No. 88-2509

(D.D.C. Feb. 22, 1990), slip op., at 6 (noting a lack of ‘substantial

supporting authority”’ for the argument that ‘‘punitive damages are per

se unconstitutional” and suggesting that this Court rejected ‘‘similar

constitutional challenges” in Browning-Ferris); In re Joint Eastern and

Southern District Asbestos Litigation, No. 87 Civ. 4483 (E.D. & S.D.N.Y.

Oct. 24, 1989), slip op., at 2 (‘‘Celotex’s challenges to the punitive

damages award are also unavailing .... [T]he constitutionality of pu-

nitive damages awards has recently been affirmed” in Browning-Fer-

ris); Guarino v. Armstrong World Industries, Inc., No. 88-1087 (S.D.

Fla. Oct. 13, 1989), slip op., at 4 & n.3 (rejecting due process challenges

to punitive damages because, inter alia, “the Supreme Court has long

held state regulation in the economic realm to be immune from due

process invalidation, where the state has presented a valid basis for

its regulation”); Hart v. Armstrong Cork Co., No. S79-0033 (S.D. Miss.

Sept. 13, 1989) (consolidated cases), slip op., at 9 (“The defendant’s

challenge [to Mississippi's punitive damage standards] appears partic-

ularly unpersuasive in light of the United States Supreme Court’s de-

cision in Smith v. Wade, 461 U.S. 30 (1983).’’); Juzwin v. Amtorg

Trading Corp., 718 F. Supp. 1233, 1235 (D.N.J. 1989) (lower courts

are “powerless to fashion a remedy”’ that will protect the due process

rights of defendants subject to multiple punitive awards until “there

is uniformity either through [United States] Supreme Court decision or

national legislation’’); Leonen v. Johns-Manville Corp., 717 F. Supp.

272, 280 (D.N.J. 1989) (‘‘the United States Supreme Court’s decision

in Smith v. Wade ... puts to rest any question regarding the vague-

ness’ of punitive damage standards).

24

More than three months after this Court’s decision

in Browning-Ferris, that court refused to tread into

what is so obviously this Court’s domain:

[W]e are here asked to hold, in effect, that

the common-law standards applied by the

[state] courts ... for imposition of punitive

damages are unconstitutional .... Under all

the circumstances, we believe that such a

step, if it is to be taken ... is best left for

... higher judicial authority.

Racich v. Celotex Corp., 887 F.2d, at 399. Accord

Simpson v. Pittsburgh Corning Corp., 901 F.2d 277

(2d Cir. 1990), cert. dism’d (No. 90-121).

Based upon the foregoing, petitioners respectfully

submit that the need for this Court’s intervention is

manifest.

CONCLUSION

The California courts have firmly rejected

petitioners’ arguments that the United States Con-

stitution regulates the manner in which punitive dam-

ages may be imposed. This Court’s resolution of the

question presented by petitioners will have a sub-

stantial impact on matters that are arising daily in

the courts of this Nation and are dramatically chang-

ing the character of litigation conducted throughout

the United States. Petitioners respectfully pray that

the Petition be granted and that this question be set

for plenary consideration.

ay es

URSA) wits ~ ~

Canny Mee BLO

lly We PASI ten bd ape DR Bn BA BL OR Go Sa Ba HR

25

October 16, 1990

Of Counsel:

THEODORE J. BOUTROUS, JR.

JOSEPH AVANZATO

GIBSON, DUNN & CRUTCHER

1050 Connecticut Avenue, N.W.

Washington, D.C. 20036-5303

KIMBERLY D. REED

GIBSON, DUNN & CRUTCHER

2029 Century Park East

Suite 4000

Los Angeles, California 90067

Respectfully submitted,

*THEODORE B. OLSON

LARRY L. SIMMS

GIBSON, DUNN & CRUTCHER

1050 Connecticut Avenue, N.W.

Washington, D.C. 20036-5303

(202) 955-8500

JOHN J. SWENSON

GIBSON, DUNN & CRUTCHER

2029 Century Park East

Suite 400

Los Angeles, California 90067

(213) 552-8500

Attorneys for Petitioners

*Counsel of Record

APPENDIX

SEE VO Ce of Oa ie eg ee 7

la

APPENDIX A

NOT TO BE PUBLISHED

IN THE COURT OF APPEAL

OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

G006654

(Super. Ct. No. 416196)

MGW, INC.,

Plaintiff and Appellant,

Ws

FREDRICKS DEVELOPMENT CORPORATION et al.,

Defendants and Appellants.

COURT OF APPEAL-4TH DIST. DIV. 3

FILED

APR 30 1990

Deputy Clerk

OPINION

APPEAL from a judgment of the Superior Court of

Orange County, Samuel B. Taylor, Jr., Judge. Affirmed

in part and reversed in part.

Perez & McNabb and Richard L. Perez for Plaintiff and

Appellant.

Irell & Manella, Scott D. Baskin, Andra Barmash

Greene, Gibson, Dunn & Crutcher, John J. Swenson, Rob-

2a

ert F. Serio, Higgs, Fletcher & Mack, Woodrow D. Smith,

John M. Morris, Melvin King, Drummy, Garrett, King &

Harrison, Howard F. Harrison and Kathleen Carothers

Paone for Defendants and Appellants.

A jury awarded plaintiff real estate broker damages against

defendant real estate developers for interference with pro-

spective economic advantage and conspiracy after

defendant developers refused to pay plaintiff a commission

pursuant to an oral broker’s agreement. Defendant de-

velopers appeal from the judgment, and plaintiff broker

appeals from orders of dismissal and nonsuit as to other

defendants. We reverse as to defendant Pacific Lighting,

but affirm the judgment in al! other respects.

FACTS

Plaintiff MGW is a commercial real estate brokerage

and investment firm owned and operated by Malcolm

Waitt, Jr., a licensed real estate broker. Waitt is MGW’s

only employee.

Defendant Fredricks Development Corporation is 2 real

estate developer involved in the construction of large-scale

residential tracts. Fredricks is a wholly-owned subsidiary

of Pacific Lighting Corporation.

In 1982 Fredricks made known to Waitt and other local

brokers that it was interested in acquiring a large resi-

dential project along the I-15 corridor in the southern Or-

ange County or northern San Diego County area. Waitt

was told that if he brought in an opportunity Fredricks

undertook and was not paid a broker’s fee by the seller,

Fredricks would see he was fairly compensated. This was

Fredricks’ standard arrangement, and on at least one pre-

vious occasion Waitt was paid for his efforts under this

arrangement. Waitt had no written broker’s contract with

Fredricks.

> od ae se

Bak EE el hah eal ORI el hee RN re eed

ee ee ee

3a

On or about February 14, 1983, Waitt read a newspaper

article which said that Home Capital, which was in the

business of financing developments, had bought out its

prior partner and was looking for an experienced developer

and joint venturer to help build out a 1500-acre mixed

residential/commercial project known as Rancho Carmel.’

The project was located along the I-15 corridor in northern

San Diego County. Waitt, believing this was just the op-

portunity Fredricks was looking for, called Home Capital

and told them Fredricks might be interested in the project.

Home Capital told Waitt that if they struck a deal with

Fredricks they would not pay a broker’s fee and he would

have to look to Fredricks for any commission.

Waitt showed the article to Fredricks. They told him

that neither they nor Pacific Lighting were aware of the

Rancho Carmel opportunity, and on being advised Home

Capital would not pay a broker’s commission, Fredricks

assured Waitt that if they went ahead with the deal he

would be fairly compensated.

On March 21, 1983, Fredricks, Home Capital, and Dunn

Properties Corporation, a wholly-owned subsidiary of Pa-

cific Lighting which builds out commercial tracts, signed

a letter of intent to enter into a joint venture to build the

Rancho Carmel project. The purpose of the letter was to

tie up the property for a period of time in order to allow

Fredricks and Dunn to determine the project’s feasibility.

One of its provisions was that: ‘[Dunn and Fredricks] and

Home [Capital] each hereby represent to one another that

no broker or finders fee will be payable as a result of D

& F and Home entering into the proposed venture and

each indemnifies the other against any such broker or

finders fee.’”’ Dunn became involved because Fredricks

could not handle the commercial end of the project.

‘Humboldt Financial Services Corporation also owned a small part

of the project.

4a

Waitt frequently asked about the project and was led

to believe the deal was progressing smoothly and that

Fredricks intended to compensate him. He was never told

he would not be paid a commission.

The joint venture interest was ultimately purchased on

behalf of Fredricks and Dunn in the name of Pacific Real

Estate Projects (PREP), another wholly-owned subsidiary

of Pacific Lighting. Fredricks, however, refused to pay

Waitt a broker’s commission, claiming the Pacific Lighting

corporations knew of the opportunity before Waitt brought

the newspaper clipping to them. Waitt was told that in

late 1982 there had been rumors the Rancho Carmel proj-

ect might-soon become available, that Dunn had inquired

(through a different broker) whether Home Capital would

sell off just the commercial use, that Home Capital said

it was unwilling to discuss sale of the project until it

bought out its joint venturer, and that Home Capital was

unwilling to sell off just the commercial part of the project

since it viewed the entire development as an integrated

plan. Dunn, however, did not pursue the commercial part

of the project at any time after it became available and

before Waitt brought Fredricks the article.

Waitt filed an action for breach of oral agreement, quan-

tum meruit, tortious breach of the covenant of good faith

and fair dealing, conspiracy and tortious interference with

prospective economic advantage. The complaint named

Fredricks, Dunn, Pacific Lighting, PREP, Home Capital

and Humboldt as defendants.

At trial the court dismissed all of MGW’s contractual

claims on the ground they were unenforceable under the

statute of frauds. A nonsuit was granted in favor of Home

Capital and Humboldt, and a nonsuit was granted to PREP

on the interference with prospective advantage claim. The

jury returned a verdict of $558,000 in damages against

Fredricks, Pacific Lighting, Dunn and PREP, and $2 mil-

lion in punitives against all defendants but PREP. Pacific

5a

Lighting’s motions for judgment notwithstanding the ver-

dict and a new trial were granted. Fredricks, Dunn and

PREP appeal from the judgment. MGW appeals from the

orders of nonsuit, new trial, 2nd judgment notwithstanding

the verdict.

DISCUSSION

I

Fredricks and Dunn Appeal

A

Fredricks and Dunn argue that no cause of action can

be stated for interference with prospective economic ad-

vantage when the underlying agreement violates public

policy. While recognizing that Buckaloo v. Johnson (1975)

14 Cal.3d 815 holds that a broker may state a cause of

action for interference with prospective economic advan-

tage even when the agreement violates the statute of

frauds (id. at pp. 829-830), Fredricks and Dunn argue the

Supreme Court has signalled a change in this rule in its

recent opinion in Phillippe v. Shapell Industries (1987) 43

Cal.3d 1247. We disagree.”

In Buckaloo the court held a purchaser may not, “with

full knowledge of the economic relationship between broker

and seller, intentionally induce[ ] the latter to violate the

terms of the relationship and seek refuge in the unen-

forceability of the contract.” (Buckaloo v. Johnson, supra,

14 Cal.3d at p. 827.) The court explained: ‘‘There is no

2 The five elements for interference with prospective economic ad-

vantage are: “(1) an economic relationship between the plaintiff and

some third party, with the probability of future economic benefit to

the plaintiff; (2) the defendant’s knowledge of the relationship; (3) in-

tentional acts on the part of the defendant designed to disrupt the

relationship; (4) actual disruption of the relationship; and (5) economic

harm to the plaintiff proximately caused by the acts of the defendant.

[Citations.]’’ (Youst v. Longo (1987) 43 Cal.3d 64, 71, fn. 6.)

6a

public policy to be served by encouraging such devious

dealings; on the contrary, such an intrusion into a pro-

tected economic relationship is precisely the conduct con-

demned by the traditional tort of interference with

contract.”’ (Id. at p. 828.) In Phillippe the court reempha-

sized its commitment to the principle that a contractual

claim for a real estate commission is dependent on com-

pliance with the statute of frauds (Phillippe v. Shapell

Industries, supra, 43 Cal.3d at p. 1267), and held a broker

may not avoid the statute of frauds by asserting that he

reasonably relied on an oral agreement. (Jd. at p. 1270.)

Nothing in Phillippe suggests that Buckaloo has been

overruled; indeed, it cites Buckaloo approvingly. If Fred-

ricks and Dunn are correct and the Supreme Court wishes

to repudiate Buckaloo, then that is a matter for its review.

Meanwhile, we are constrained to follow the law as it has

been laid down by the Supreme Court. (Auto Equity Sales,

Inc. v. Superior Court (1962) 57 Cal.2d 450, 455.)

Next, Fredricks and Dunn argue the judgment must be

reversed because Dunn as an agent and wholly-owned sub-

sidiary of Pacific Lighting could not interfere with the

relationship, there was no evidence Fredricks refused to

pay the commission because of what Dunn told it, and

there could be no conspiracy because there was no un-

derlying tort. We disagree.

Although the arguments appear to raise issues of law,

on closer review it is clear they are based on the notion

that there is no substantial evidence to support the jury’s

finding Dunn conspired or could conspire with Fredricks.

In reviewing » claim of insufficiency of the evidence we

‘““*must accept as true all evidence tending to establish

the correctness of the finding as made, taking into account,

as well, all inferences which might reasonably have been

thought.by the trial court to lead to the same conclusion.

—

deere te ih od ak a enn eit alerts See

Ta

Every substantial conflict in the testimony is ... to be

resolved in favor of the finding.’ [Citation.]’’ (County of

Mariposa v. Yosemite West Associates (1988) 202

Cal.App.3d 791, 807; 9 Witkin, Cal. Procedure (3d ed.

1985) Appeal, § 282, p. 293.)

Fredricks and Dunn initially assert Dunn could not in-

terfere with MGW’s prospective economic relationship be-

cause it was not a malicious interloper or stranger to the

disrupted relationship. Relying on selected language in

Buckaloo v. Johnson, supra, 14 Cal.3d at p. 827 and Zim-

merman v. Bank of America (1961) 191 Cal.App.2d 55,

61, they contend Dunn, as a wholly-owned subsidiary in

the Pacific Lighting family, could not interfere with a re-

lationship to which it was a party. The argument is subtly

deceptive. Although Fredricks and Dunn are subsidiaries

of Pacific Lighting, that does not mean they are ‘‘the same

party” and cannot interfere with the other’s economic re-

lationships. Indeed, evidence adduced at trial was that the

two subsidiaries worked independently in different parts

of the development world: Fredricks was involved in the

residential arena while Dunn was involved in the com-

mercial; the two were competitors and had never, up until

Rancho Carmel, worked on a project together; and Pacific

Lighting does not guarantee the obligations of its subsi-

diaries. From this evidence the jury could reasonably con-

clude Fredricks and Dunn were independent entities.

In that same vein, Fredricks and Dunn contend Dunn

could not interfere because it was Fredricks’ agent. While

the complaint alleged the defendants were agents of each

other, the evidence was to the contrary. Moreover, MGW’s

motion to amend the complaint to conform to proof and

delete the allegations of agency was properly granted. (5

Witkin, Cal. Procedure (3d ed. 1985) Pleading, § 1137, pp.

551-552.)

Next, they argue MGW disproved causation because the

evidence showed Fredricks decided not to pay the com-

8a

mission for reasons other than what Dunn said. But the

jury concluded that it was precisely because of what Dunn

said that the commission was not paid. There may be

evidence which could be interpreted differently, but we

must resolve all conflicts in the evidence in favor of the

finding.

Finally, they argue that there could be no actionable

conspiracy because there was no tort. (Manor Iavestment

Co. v. F. W. Woolworth Co. (1984) 159 Cal.App.3d 586,

595.) Here, of course, there was an actionable on and

thus there could be a conspiracy.

C

Finally, Fredricks and Dunn contend the trial court im-

properly instructed the jury.

They argue the court erred in failing to define who

constituted an employee or agent of a party, and improp-

erly used the term parties, rather than interloper, when

describing the one who interferes. This argument cannot

be sustained as no request for a proper instruction was

made below. (Null v. City of Los Angeles, (1988) 206

Cal.App.3d 1528, 1535.)

Next they argue the court improperly instructed the jury

that, ‘‘a broker may have a reasonable expectation of com-

pensation when he is the procuring cause of a buyer’s

purchase, even though the underlying oral agreement, if

any, with the buyer is unenforceable. [{] Now, it is for

you the jury to determine the circumstances and whether

or not the plaintiff's expectation was reasonable in the

light of those circumstances.” Under Phiilippe, it is clear

a broker cannot have a reasonable expectation of payment

when the agreement is oral. (Phillippe v. Shapell Indus-

tries, supra, 43 Cal.3d at p. 1262.) But an element of the

tort is the probability of future economic benefit. (Buckaloo

v. Johnson, supra, 14 Cal.3d at p. 827.) The instruction

given here was the trial court’s effort to incorporate that

Rants oe

nen RRR a i ARE ta A A RR AE A

| me

Sa

element in its instructions. Perhaps the wording could have

been better, but the instruction did not reduce plaintiff's

burden nor unreasonably focus the jury’s inquiry on the

subjective intent of MGW. The instruction was proper.

Il

PREP Appeal

PREP was held liable on the theory it conspired to

prevent MGW from receiving a broker’s commission. It

asserts the judgment must be reversed because Pacific

Lighting cannot conspire with its wholly-owned subsidi-

aries, the judgment is not supported by substantial evi-

dence, and MGW “has disproved interference.” We

disagree.

In support of its argument that a parent corporation

cannot conspire with its wholly-owned subsidiaries, PREP

relies on Copperweld Corp. v. Independence Tube Corp.

(1984) 467 U.S. 752. In that case, the issue was whether

the coordinated acts of a parent corporation and a wholly-

owned subsidiary could constitute 4 “combination or con-

spiracy” under section 1 of the Sherman Antitrust Act.

(Id. at p. 759.) In holding it could not, the United States

Supreme Court noted that “The officers of a single firm

are not separate economic actors pursuing separate eco-

nomic interests, so agreements among them do not sud-

denly bring together economic power that was previously

pursuing divergent goals.... For these reasons, officers

or employees of the same firm do not provide the plurality

of actors imperative for a §1 conspiracy.” (Jd. at p. 769;

see also Klein v. Oakland Raiders, Ltd. (1989) 211

Cal.App.3d 67, 76.)

Copperweld’s analysis, which is well suited to the anti-

trust field, is ill suited to the civil conspiracy arena where

the focus is not on whether there is a ‘‘combination’”’ of

economic power, but on whether an individual has joined

with another to perpetrate a civil wrong. No California

10a

case has applied Copperweld or its reasoning in this con-

text (MacManus v. A. E. Realty Partners (1987) 195

Cal.App.3d 1106, 1110; see also Pinhas v. Summit Health,

Ltd. (9th Cir. 1989) 894 F.2d 1024, 1033), and we are

unwilling to do so when the evidence showed PREP was

a separate entity wholly responsible for its own obligations.

It purchased the project in its own name and assumed a

large debt without a guarantee by its parent corporation.

It participated, through its officers, in the decision not to

pay MGW a commission. Under the facts adduced at trial,

there is substantial evidence to support the judgment and

to prove PREP interfered with MGW’s economic relation-

ship with Fredricks.

III

MGW Appeal

A

MGW asserts the trial court erred in granting Pacific

Lighting’s motion for judgment notwithstanding the ver-

dict. We agree.

‘“‘*A motion for judgment notwithstanding the verdict

of a jury may properly be granted only if it appears from

the evidence, viewed in the light most favorable to the

party securing the verdict, that there is no substantial

evidence to support the verdict. If there is any substantial

evidence, or reasonable inferences to be drawn therefrom,

in support of the verdict, the motion should be denied.’

[Citation.]’’ (Hauter v. Zogarts (1975) 14 Cal.3d 104, 110.)

The issue, then, is whether there is any substantial evi-

dence which supports the jury’s conclusion Pacific Lighting

interfered, or conspired to interfere with, MGW’s pro-

spective economic advantage. Jim Hunter testified he was

an employee of Pacific Lighting and was responsible for

supervising its real estate subsidiaries, including Fredricks

and Dunn. He was chairman of the board of the subsi-

lla

diaries and was responsible for overseeing their real estate

activities and sales. Hunter was involved in the decision

as to whether MGW should be paid and he counseled

against paying a commission on the ground the Rancho

Carmel project was previously known to the Pacific Light-

ing group. From this testimony, the jury could reasonably

conclude that Pacific Lighting participated in the decision

to refuse to pay the real estate commission, and thus the

motion for judgment notwithstanding the verdict should

have been denied.

MGW also contends the trial court improperly granted

Pacific Lighting’s motion for new trial. Under Code of

Civil Procedure section 657, an order grariting a new trial

“shall be affirmed if it should have been granted upon

any ground stated in the motion, whether or not specified

in the order... .’’ Although Pacific Lighting offers several

reasons why the motion was properly granted, none have

merit.

Pacific Lighting argues the court failed to properly in-

struct the jury as to the prerequisites for awarding pu-

nitive damages. But Pacific Lighting never asked for such

instruction and thus any error on this point was waived.

(Null v. City of Los Angeles, supra, 206 Cal.App.3d at p.

1535.) It then argues that, as a matter of law, a parent

corporation cannot conspire with its wholly-owned subsi-

diaries. We rejected that argument above, however, when

we affirmed the judgment against PREP for conspiracy

to interfere. (MacManus v. A. E. Realty Partners, supra,

195 Cal.App.3d at p.'1110.) Next, Pacific Lighting argues

the judgment was not supported by the evidence. That

argument is meritless because Hunter’s testimony estab-

lished that Pacific Lighting participated in the decision to

not pay MGW its commission. (See Hauter v. Zogarts,

supra, 14 Cal.3d at p. 110.) Pacific Lighting contends the

jury failed to reach a consensus on the issue of damages

in violation of the “‘nine-juror rule,” but it fails to dem-

onstrate that less than nine jurors made the required find-

12a

ing here. (Juarez v. Superior Court (1982) 31 Cal.3d 759,

766; Earl v. Times-Mirror Co. (1921) 185 Cal. 165, 182-

186.) Finally, it argues the award of punitive damages is

supported by insufficient evidence, and punitive damages

are unconstitutional. However, there is sufficient evidence

in the record to support the award, and punitive damages

are constitutional under the Eighth Amendment (Brown-

ing-Ferris v. Kelco Disposal (1989) 109 S.Ct. 2909, 2912),

and the due process provisions of the Fourteenth Amend-

ment (Bertero v. National General Corp. (1974) 13 Cal.3d

43, 66, fn. 18, Zhadan v. Downtown L.A. Motors (1976)

66 Cal.App.3d 481, 501-502; but see Pacific Mut. Life Ins.

Co. v. Haslip (Ala. 1989) 553 So.2d 537, 543, cert. granted

April 2, 1990, 1990 U.S.L.W. 15078, No. 89-1279).

B

Home Capital and Humboldt, sellers of the property,

escaped liability when the trial court granted their motion

for nonsuit. MGW argues the motion should not have been

granted because the evidence demonstrated the sellers par-

ticipated in the conspiracy to interfere with payment of

the commission. We disagree.

“A motion for nonsuit is tantamount to a demurrer to

the evidence and presents a question of law: whether the

evidence offered in support of the plaintiffs’ case could

justify a judgment in the plaintiffs’ favor. [Citation.] In

reviewing the propriety of the trial court’s order granting

the ... motion ..., we must accept plaintiffs’ evidence as

true ... and resolve all conflicts and reasonable inferences

in their favor. [Citations.]’”’ (Lussier v. San Lorenzo Valley

Water Dist. (1988) 206 Cal.App.3d 92, 98.)

Waitt was told at the outset that Home Capital would

not pay him a broker’s fee on sale of the project and that

he would have to look to the buyer for any commission.

While Home Capital entered into a letter of intent with

Fredricks’ which provided it would not pay any broker’s

13a

commission, that was but a restatement of its consistent

position that the buyer would be responsible for any com-

mission. There was no evidence Home Capital signed the

letter of intent to help Fredricks avoid paying a commis-

sion. Indeed, there was testimony Home Capital did not

know Fredricks would refuse to pay a commission for lo-

cating the project. Since there was no evidence Home

Capital and Humboldt conspired to interfere with MGW’s

prospective economic advantage, the motion was correctly

granted.

C

The trial court granted judgment on the pleadings on

the contract causes of action finding they were barred by

the statute of frauds. (Civ. Code, § 1624.) MGW contends

the statute of frauds does not apply because it was asked

to locate a ‘‘business opportunity” and not real property.

The contention is without merit.

A business opportunity is ‘‘the sale or lease of the busi-

ness and goodwill of an existing business enterprise or

opportunity.”’ (Bus. & Prof. Code, § 10030.) However one

may try to portray the “project” Fredricks was seeking

when it told Waitt and other local brokers it was interested

in acquiring a large residential project, Fredricks was not

seeking a “‘business opportunity” as that term is defined

in the Business and Professions Code. Waitt was asked to

locate real property on which Fredricks could build homes.

Since the basic purpose of the agreement was to locate

real estate, the statute of frauds was applicable and re-

quired the broker’s agreement to be in writing. (See Phil-

lippe v. Shapell Industries, supra, 43 Cal.3d at p. 1255;

Tenzer v. Superscope, Inc. (1985) 39 Cal.8d 18, 25-27.)

Thus, the trial court properly granted the motion for judg-

ment on the pleadings as to the contract causes of action.

(See Beck v. American Health Group Internat., Inc. (1989)

211 Cal.App.3d 1555, 1565.)

l4a

DISPOSITION

The judgment is reversed as to Pacific Lighting, and is

affirmed in all other respects. MGW to recover costs from

Fredricks, Dunn, PREP and Pacific Lighting; Home and

Humboldt to recover costs from MGW.

NOT TO BE PUBLISHED

SCOVILLE, J.*

WE CONCUR:

SONENSHINE, Acting P. J.

WALLIN, J.

* Retired Presiding Justice of the Court of Appeal sitting under as-

signment by the Chairperson of the Judicial Council.

15a

APPENDIX B

COURT OF APPEAL - STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

Division Three

G006654

Orange County No. 416196

MGW, INC.

V.

FREDRICKS DEVELOPMENT CORPORATION

COURT OF APPEAL-4TH DIST. DIV. 3

FILED

MAY 2 1990

Deputy Clerk

THE COURT:

The petition for rehearing is DENIED.

/s/ SCOVILLE, P.J.

Presiding Justice

We Concur:

/s/ SONENSHINE, J.

Justice

/s/ WALLIN, J.

Justice

ce: Orange County Clerk

All Counsel

16a

APPENDIX C

ORDER DENYING REVIEW

AFTER JUDGMENT BY THE COURT OF APPEAL

Fourth Appellate District, Division Three, No. G006654

$015966

IN THE SUPREME COURT OF THE

STATE OF CALIFORNIA

IN BANK

SUPREME COURT

FILED

JUL 18 1990

Robert Wendorf Clark

DEPUTY

MGW INCORPORATED,

Appellant

v.

FREDRICKS DEVELOPMENT CORPORATION Et AL.,

Appellants

Petitions for review DENIED.

/s/ PANELLI

Acting Chief Justice

—

17a

APPENDIX D

IN THE COURT OF APPEALS

FOURTH APPELLATE DISTRICT

STATE OF CALIFORNIA

DIVISION THREE

MGW, INC.,

Plaintiff and Appellant,

vs.

PACIFIC LIGHTING CORPORATION, et al.,

Defendant and Respondent.

APPEAL FROM THE SUPERIOR COURT

OF ORANGE COUNTY

HONORABLE SAMUEL B. TAYLOR, JR.

Superior Court Case No. 416196

BRIEF OF RESPONDENT

PACIFIC LIGHTING CORPORATION

WOODROW D. SMITH GIBSON, DUNN & CRUTCHER

MELVIN KING JOHN J. SWENSON

801 South Grand Avenue ROBERT F. SERIO

Suite 1000 2029 Century Park East

P.O. Box 60043, Terminal Annex Suite 4000

Los Angeles, California 90060 Los Angeles, California 90067

(213) 895-5126 (213) 552-8500

Attorneys for Defendant and Respondent

PACIFIC LIGHTING CORPORATION

endowed with power to control corporate policy. Notwith-

standing MGW’s assertions to the contrary, none of which

are supported by citation to the record, Hunter never tes-

tified, nor was he asked about, his ability to formulate

18a

Pacific Lighting policy. Although MGW places great weight

on Hunter’s statement that “by and large I have always

been an employee of Pacific Lighting”, as already dis-

cussed, this statement was made in a colloquial manner

after a specific factual description of Hunter’s employment

history, which indicated a long affiliation with Pacific

Lighting subsidiaries only. In fact, the statement directly

conflicted with all other factual statements regarding

Hunter’s employment history, and as recognized by the

trial court, ‘‘it is clear this statement was a characteri-

zation, not a statement of actual fact.’’ Order, p. 4.

In fact, even assuming, arguendo, that Hunter’s state-

ment regarding his status as a Pacific Lighting employee

was true, there was no evidence presented as to his job

title, the scope of his employment or authority, or the

nature of his duties or responsibilities with Pacific Light-

ing. Without such additional evidence, it was impossible

for the jury to determine whether Hunter was, indeed, an

officer, director, or managing agent of Pacific Lighting as

required under California Civil Code Section 3294(b). Thus,

the trial court properly reversed the punitive damage

award for lack of substantial evidence in support thereof.

B. The Jury’s Unlimited Discretion To Mete Out Pun-

ishment In The Form Of Punitive Damages Violates

The Due Process Clause Of The Fourteenth Amend-

ment And The Excessive Fines Clause Of The Eighth

Amendment.

Not only was the jury’s punitive damage award unsup-

ported by the record, but it was clearly unconstitutional

as well. In the past few months, the Supreme Court of

the United States has made exceedingly clear its opinion

that the essentially unrestrained discretion vested in juries

to award “‘unlimited’’ punitive damages ‘‘may violate the

due process clause’ and that “the grant of wholly stand-

ardless discretion to determine the severity of [such] pun-

ishment appears inconsistent with due process.” See

19a

Banker’s Life & Casualty Co. v. Crenshaw, __ U.S. —_,

108 S.Ct. 1645, 1656, 100 L.Ed. 2d 62 (1988) (O’Connor,

J. and Scalia, J. concurring). Moreover, the Court has

indicated that such unfettered discretion may result in im-

position of civil fines which greatly exceed the amount of

fines imposed to punish comparable criminal conduct, a

result which violates the Excessive Fines Clause of the

Eighth Amendment to the United States Constitution. 108

S.Ct. at 1651 (noting that “‘whether the Eighth Amend-

ment’s Excessive Fines Clause serves to limit punitive

damages in state civil cases... is a question of some mo-

ment and difficulty’). Although the Supreme Court has

yet to definitively rule upon these issues, it has expressed

the intent to resolve such questions in the context of a

proper procedural challenge. This Court need not await

such action, however, as the present case is one wherein

the award of punitive damages clearly violates Pacific

Lighting’s rights under both the Due Process and Exces-

sive Fines Clauses of the United States Constitution.

1. The Punitive Damage Award Flies In The Face Of

Fundamental Concepts Of Due Process.

It is well-accepted in the present judicial system that

the concept of “‘due process’, as embodied in the Four-

teenth Amendment to the Constitution, prohibits imposi-

tion of either civil or criminal punitive measures in the

absence of clear guidelines limiting such awards.® In fact,

the functional equivalents of modern day punitive damage

awards, amercements and fines, have always been imposed

within a system under which the maximum potential pen-

* The complete rejection in this country of the potential for unlimited,

jury-imposed criminal] fines supports a similar rejection under the Due

Process Clause of unlimited, jury-imposed punitive fines in civil cases.

No principled constitutional distinction can be drawn between criminal

or civil fines as both are imposed to punish and deter. The Due Process

Clause “is not to be avoided by the simpie label the state chooses to

fasten on its conduct or its statute.”’ Giaccio v. Pennsylvania, 383 U.S.

399, 402, 86 S. Ct. 518, 15 L.Ed. 2d 447 (1966).

20a

alty was known in advance by local rule, custom, or stat-

ute.®

Thus, although due process clearly permits sentencing

authorities, whether judges or juries, considerable leeway

in determining the appropriate level of punishment to be

imposed in a particular case, such discretion is exercised

only where its outer limits previously have been circum-

scribed and publicized. Once such limitation has been es-

tablished, the maximum potential punishment for any given

offense is readily ascertainable, and the amount of pun-

ishment actually imposed may be constrained by the Eighth

Amendment. The Due Process Clause therefore funda-

mentally prohibits a system of unlimited punishments in

which the amount imposed is calculated on an ad hoc basis

in each case, even if the maximum amount is limited in

some unspecified, nebulous, and ultimately meaningless

fashion by the amount which the defendant is financially

capable of paying.

Despite this prohibition, however, the parameters for

awarding punitive damages have not yet been statutorily

enunciated, an omission which, perforce, has resulted in a

violation of Pacific Lighting’s due process rights. In the

present case, the jury did not receive one iota of guidance

as to the standards for determining the amount of punitive

damages imposed. As a result, Pacific Lighting essentially

was at the mercy of an uncontrolled jury which could

impose any amount of punitive damages, no matter how

outrageous, without the threat of judicial censure. To allow

such capricious awards not only serves to multiply a

defendant’s uncertainty as to the punishment which may

* The fundamental principle that limits on punishments must be pre-

scribed in advance of their imposition and that such limits may not be

set by juries on an ad hoc basis is traced to the ancient latin canon,

“Nullum Crimen, Nulla Poena, Sine Lege,’”’ the modern translation of

which is: “There can be no crime, and no punishments, except as the

law prescribes it.’’ M. Frankel, Criminal Sentences 3 (1972).

"

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accompany his “‘crime’’, but it nullifies the very concepts

of fair play and justice embodied in the Due Process Clause

itself.

2. The Jury’s Capricious Punitive Damage Award

Constitutes An Excessive Fine Imposed In Viola-

tion Of The Eighth Amendment To The United

States Constitution.

Moreover, to allow a jury the unfettered discretion to

impose a “‘fine’”’ in a civil case which greatly exceeds the

monetary penalty imposed for a comparable crime violates

both the letter and the spirit of the Excessive Fines Clause

of the Eighth Amendment. The Eighth Amendment spe-

cifically provides that ‘“‘Excessive bail shall not be required,

nor excessive fines imposed, nor cruel and unusual pun-

ishment inflicted.” U.S. Const. amend. VIII. The theory

underlying this prohibition is that a punishment must “‘fit”’

the crime and that crimes of equal magnitude should be

punished similarly. Solem v. Helm, 463 U.S. 277, 284-85,

103 S.Ct. 300, 77 L.Ed. 2d 637 (1983). To the extent a

civil jury, such as the one empanelled in the present case,

has the power to impose an $800,000 fine for commission

of a tort, intentional interference, which is a penalty

amounting to roughly 800 times the penalty imposed for

a comparable crime, fraud, such unrestrained punitive

power leaves wide open the possibility that juries will

‘“‘punish”’ civil defendants not in accordance with the mag-

nitude of their “crime,’’ but solely based upon their public

image or the size of their bank accounts. Such a result

completely defeats the purpose and protections of the

© Such uncontrolled jury awards also violate the due process rights

guaranteed by the California State Constitution. Article I, Section 13

of the California Constitution provides that ‘‘no person shall be deprived

of property without due process of law,” a stricture which is to be

construed identically in scope and purpose with the Due Process Clause

of the federal constitution. Cal. Const. Art. I, §3; Gray v. Whitmore,

17 Cal. App. 3d 1, 94 Cal. Rptr. 904 (1971).

| ciiiiaiiiamaiaiatsaiciesiii

22a

Eighth Amendment, thereby rendering the verdict against

Pacific Lighting herein clearly unconstitutional.

This conclusion is not altered by the fact that Pacific Light-

ing’s “punishment” is meted out in the form of civil punitive

damages rather than in the form of a jail sentence or a

criminal fine. Although punitive damages are not labeled

“criminal’’, they are completely analogous to criminal pun-

ishments. But for the fact that the Excessive Fines Clause

appears in an amendment which, on its face, addresses sub-

jects such as “bail” and “cruel and unusual punishments”,

topics commonly associated with criminal rather than civil

cases, the plain language of the Excessive Fines Clause rea-

sonably could be interpreted to fully apply to any monetary

“fine” imposed in any civil or criminal proceeding, regardless

of whether the purpose of such a “fine” is limited to pun-

ishment and deterence. The Court therefore properly may

conclude that a monetary fine imposed exclusively for pur-

poses of punishment and deterence, the classic objectives of

criminal penalties (Trop v. Dulles, 356 U.S. 86, 96, 78 S.Ct.

590, 2 L.Ed. 630 (1958)), was intended by the framers of

the Constitution to fall within the rubric of the Excessive

Fines Clause. Thus, any punitive damage award should be

imposed only pursuant to clearly articulated standards and

limitations. As the jury’s punitive damage verdict against

Pacific Lighting was rendered in the absence of such guide-

lines, its award cannot withstand the scrutiny of constitutional

review and must be reversed.

DATED: February 28, 1989 Respectfully submitted,

_ GIBSON, DUNN & CRUTCHER

JOHN J. SWENSON

ROBERT F. SERIO

/s/ Robert F. Serio

Attorneys for Respondent

PACIFIC LIGHTING

CORPORATION