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california legislation > AB 158

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Date of Hearing: March 15, 2011

ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 158 (Halderman) - As Amended: February 23, 2011

SUBJECT
: CIVIL ACTIONS: LIMITATIONS ON DAMAGES

KEY ISSUE : Should the legislature create a NEW defense for
manufacturers, distributOrs and sellers THAT SEEKS TO exempt
them from punitive damages liability, with A narrow exception,
SO LONG AS they COMPLY with federal or state agency regulations?


FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.

SYNOPSIS

This remedies restriction proposal continues a longstanding
effort by business groups in California to try to create a new
"government standards defense" for manufacturers, distributors
and sellers of products. In support of the measure, the author
explains that the bill is designed to improve California's
competitive economic appeal for businesses by limiting the scope
of damages provided in civil litigation proceedings and by
prescribing strict guidelines to the courts and juries when
evaluating damages.

The bill seeks to establish the so-called "government standards
defense" in California product liability cases, providing that
the manufacturer, distributor, or seller of a product shall be
shielded from potential punitive damages liability so long as
its product was in compliance with the regulations set forth by
a state or federal agency, unless the defendant intentionally
withheld or misrepresented material information to that agency.
Under California case law, courts traditionally recognize
regulatory compliance as a means of comporting to a minimum
standard of care, but regulatory compliance does not in any way
fulfill a maximum standard of care.

It is important to note that various versions of this measure
have been proposed, and rejected, many times before in the
Legislature; for example, AB 2740 (Niello) in 2009-10 sought to
establish a similar "government standards defense." It was







AB 158
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defeated in this Committee. Likewise, SB 1429 (Morrow) in 2006
sought to enact a similar "government standards defense," but
the author chose not to present the measure in the Senate
Judiciary Committee.

The bill is supported by the California Chamber of Commerce and
a broad coalition of other business entities as a pro-business,
pro-jobs measure. It is opposed by the Consumer Attorneys of
California, the Congress of California Seniors, and Consumer
Watchdog because they assert the proposal will "both limit the
rights of injured Californians and reduce accountability for
negligent companies."

SUMMARY : Seeks to create a new "government standards defense"
in tort actions for manufacturers, distributors and sellers.
Specifically, this bill :

1)Provides for the so-called "government standards defense,"
meaning that in a case involving injury or harm allegedly
caused by a product, the manufacturer, distributor, or seller
of the product shall be shielded from potential punitive
damages if, at the time of manufacture, distribution, or sale,
the cause of the alleged harm was either approved by, or in
material compliance with, a statute or the standards, rules,
regulations, requirements, or specifications of, a federal or
state agency responsible for regulating, evaluating, or
approving the product, except as specified.

2)Provides that this "government standards defense" shall not
apply if it is proven by clear and convincing evidence that
the defendant intentionally withheld or intentionally
misrepresented information that the defendant was required to
submit to the agency at any time and the withholding or
misrepresentation of that information was causally related to
the injury or harm alleged.

3)Provides that the government standards defense shall apply to
every case pending on or after the date of enactment
regardless of when the case was filed.

EXISTING LAW :

1)Provides for the award of punitive damages in addition to
actual damages in cases not arising in contract (i.e., tort
cases) for the sake of example and by way of punishing the







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defendant: (a) when it is proven by clear and convincing
evidence; and (b) where the defendant is guilty of oppression,
fraud, or malice. (Civil Code Section 3294(a). All further
statutory references are to this code unless otherwise
stated.)

2)Provides for the bifurcation of a civil action in which
punitive damages are claimed. On application of any
defendant, the court shall preclude the admission of evidence
of that defendant's profits or financial condition until after
the trier of fact returns a verdict for plaintiff awarding
actual damages and finds that defendant guilty of malice,
oppression, or fraud for purposes of punitive damages.
(Section 3295, as amended by SB 241 (Lockyer) Ch. 1498 of
1987, otherwise known as the Willie L. Brown Jr.-Bill Lockyer
Civil Liability Reform Act of 1987.)

3)Provides that an employer shall not be liable for damages for
the acts of an employee unless the employer had advance
knowledge of the unfitness of the employee and employed him or
her with a conscious disregard of the rights or safety of
others, or authorized or ratified the wrongful conduct for
which the damages are awarded, or was personally guilty of
oppression, fraud, or malice. With respect to a corporate
employer, advance knowledge and conscious disregard,
authorization, or ratification must be on the part of an
officer, director, or managing agent of the corporation.
(Section 3294(b).)

4)Defines, for the purpose of determining punitive damages, the
following key terms:

a) "Malice" means conduct which is intended to cause injury
or despicable conduct with a willful and conscious
disregard of the rights or safety of others.

b) "Oppression" means despicable conduct that subjects a
person to cruel and unjust hardship in conscious disregard
of that person's rights.

c) "Fraud" means an intentional misrepresentation, deceit,
or concealment of a material fact known to the defendant
with the intention of depriving a person of property or
legal rights or otherwise causing injury. (Section
3294(c).)







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COMMENTS : This far reaching remedies restriction measure seeks
to create a new "government standards defense" for
manufacturers, distributors and sellers. In support of the
measure, the author explains that the bill is designed to
improve California's competitive economic appeal for businesses
by limiting the scope of damages provided in civil litigation
proceedings and prescribing strict damages guidelines to the
courts and juries.

The bill seeks to establish the so-called "government standards
defense" in California product liability cases, providing that
the manufacturer, distributor, or seller of a product shall be
shielded from potential punitive damages liability so long as
its product was in compliance with the regulations set forth by
a state or federal agency, unless the defendant intentionally
withheld or misrepresented material information to that agency.
Under California case law, courts traditionally recognize
regulatory compliance as a means of comporting to a minimum
standard of care, but regulatory compliance does not in any way
fulfill a maximum standard of care.

It is important to note that various versions of the proposals
in this measure have been proposed many times before in the
Legislature, and all have failed passage. For example, AB 2740
(Niello) in 2009-10 sought to establish a similar "government
standards defense." It was defeated in the Assembly Judiciary
Committee. Likewise, SB 1429 (Morrow) in 2006 sought to enact a
similar "government standards defense," but the author chose not
to present it in the Senate Judiciary Committee.

Author's Statement in Support : In support of this measure, the
author states that the government standards defense to punitive
damages will reward businesses that act in good faith and comply
with federal and state regulations. The author believes that
California is overly litigious, and the courts and juries are
ill-equipped to determine appropriate damages. The author
believes that the lack of guidelines for determining damages
places California at a competitive disadvantage when it comes to
luring businesses and generating jobs. The author asserts that
this legislation is not intended to diminish a plaintiff's right
to damages. The author contends the bill does not protect bad
actors, as the bill's exception to the government standards
defense for companies who lie, misrepresent, or withhold
information that relates to the injury to the regulatory body is







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sufficient to ensure that conduct warranting punishment in
excess of actual damages will still be subject to punitive
damages.

The World's Shortest Damages Primer: In civil law, the term
"damages" refers to the monetary sum assessed by a court against
a wrongdoer. The primary objective of an award of damages in a
civil action is just compensation for the actual loss or injury
sustained by the plaintiff. These are called "actual damages,"
or "compensatory damages." "Punitive damages," also referred to
as "exemplary damages," may be awarded in addition to
compensatory damages for the sake of example and to punish a
defendant who has been guilty of outrageous conduct.
Traditionally, punitive damages are required to bear a
reasonable relationship to the damage actually sustained by the
plaintiff. There currently is no statutory ratio in California
limiting a jury's right to decide the proper proportion between
compensatory and exemplary damages.

Overview of California and Federal Case Law Regarding Punitive
Damages:
The purpose of punitive damages is to punish
wrongdoers and thereby deter the commission of similar wrongful
acts. However, there is no right to punitive damages. ( Hannon
Engineering v. Reim
, (1981) 126 Cal.App.3d 415.) Punitive
damages are merely incident to the underlying cause of action.
( James v. Public Finance , (1975) 47 Cal.App.3d 995.) Punitive
damages may not be awarded unless actual damages are suffered.
( A. Esparza v. Specht , (1976) 55 Cal.App.3d 1.)

The Proposed Creation of a "Government Standards Defense :" As
noted above, this measure proposes to create a new so-called
"government standards defense" in California product liability
cases, providing that the manufacturer, distributor, or seller
of a product shall be shielded from potential punitive damages
liability so long as its product was in compliance with the
regulations set forth by a state or federal agency, unless the
defendant intentionally withheld or misrepresented material
information to that agency. This proposal is similar to a
provision in AB 2740 (Niello) that was introduced in 2009-10 but
failed in the Assembly Judiciary Committee. It is also similar
to SB 1429 (Morrow), that was introduced in 2006 but the author
chose not to present that measure in the Senate Judiciary
Committee.

As noted by the Consumer Attorneys of California (CAOC) in their







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letter of opposition, California courts have consistently
refused to recognize a regulatory compliance defense. For
example, in Ramirez v. Plough, Inc. , (1993) 6 Cal.4th 539,
547-547, our Supreme Court explained almost two decades ago
that:

Courts have generally not looked with favor upon the
use of statutory compliance as a defense to tort
liability. The Restatement Second of Torts summarizes
the prevailing view in these terms: 'Where a statute,
ordinance or regulation is found to define a standard
of conduct for the purposes of negligence actions, the
standard defined is normally a minimum standard,
applicable to the ordinary situations contemplated by
the legislation. This legislative or administrative
minimum does not prevent a finding that a reasonable
Ęperson] would have taken additional precautions where
the situation is such as to call for them.' (emphasis
added.)

CAOC has long contended that this reasoning should apply with
even greater force to punitive damages, which are only available
where the defendant is guilty of acting with conscious
disregard. If a defendant who complies with a safety standard,
but who has simply acted unreasonably, can be liable for
negligence, then, CAOC has contended, "it certainly follows that
a defendant who acts with 'willful and conscious disregard of
the rights or safety of others' should not be able to use the
government standards defense to provide themselves with absolute
immunity from punitive damages."

The author responds to these points by suggesting that
businesses that act in good faith and comply with the
regulations set before them should be rewarded. The author
notes the bill does not protect bad actors-as it provides an
exception for companies who withhold or misrepresent information
that relates to the injury from the regulatory body- rendering
them still liable for punitive damages. The author contends
that failure to prescribe these guidelines to the courts and
juries will leave California, "at an economic disadvantage when
competing to bring business and jobs to our state."

ARGUMENTS IN SUPPORT : In support of a previous attempt to enact
a virtually identical "government standards defense" in AB 2740
(Niello) 2009-10, the California Chamber of Commerce wrote the







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Committee on behalf of a broad coalition of California
businesses and trade associations in strong support of the
measure, which the organization stated would, "make a number of
changes to bring clarity and objectivity to California's civil
damages system, safeguarding against excessive, runaway damage
awards that unnecessarily harm California employers, drive up
the costs of goods and services, while doing little to further
individual protections."

The Chamber of Commerce concluded by noting that, "We believe
the legislature should take proactive steps to improve
California's legal climate by adopting the common sense civil
damages reforms contained in Ęthis measure.] The current system
is consistently found to be unfair in national comparisons.
Erratic and unpredictable damage awards in civil actions
encourage frivolous lawsuits, drive up the cost of doing
business in the state, and encourage employers from expanding in
California, all without adding any meaningful protection for
individuals."

ARGUMENTS IN OPPOSITION
: As noted above, the Consumer Attorneys
of California (CAOC) wrote the Committee in strong opposition.
Amongst others things, CAOC stated that California should retain
its current tort system to protect all Californians. It wrote
in part that:

AB 158 says that even when a manufacturer is guilty of
oppression, fraud or malice in selling a product to a
consumer, if the product is in material compliance
with any government rule or regulation, the
corporation cannot be punished. While this language
appears somewhat reasonable, it is, in fact, designed
to make it nearly impossible for California courts to
punish and deter corporations that manufacture,
distribute or sell dangerous and harmful products.
Many government rules and regulations are poorly
written or outdated because of technology changes and
do not adequately protect the public. For example:
Government rules on auto roof safety haven't changed
in 20 years and are believed by many experts to be
outdated. If this bill passes, an auto manufacturer
cannot be punished even if it knows that death often
results when vehicles meeting this standard roll over
and even if it knows how to make the roof safer but
does not do so.







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The California Employment Lawyers Association ("CELA") also
opposed an earlier identical version of the bill, writing in
part earlier that:

Numerous violations of the California Labor Code are
misdemeanors. With prosecutorial budgets stretched
thin, those crimes are prosecuted rarely or never.
This leaves civil actions as the lone enforcement
mechanism. The caps in AB 2740 are soft-on-crime
measures that will weaken that enforcement and weaken
the disincentive to engage in despicable and criminal
acts. There is no reason why we as a society should
be protecting and subsidizing wrongdoers. It is
unfair to their victims, unfair to their law-abiding
competitors, and unfair to the taxpayers?

Consumer Watchdog, a consumer rights organization, also opposed
the prior year's version of the bill because they contended it
"both limits the rights of injured Californians and reduces
accountability for negligent companies." The Congress of
California Seniors continues to oppose the measure on similar
grounds.

Prior Related Legislation : AB 2740 (Niello) in 2009-10 would
have similarly established a "government standards defense"
which bars punitive damages from being recovered from a
manufacturer, distributor or seller if the product is compliant
with government standards. The bill failed passage in the
Assembly Judiciary Committee.

SB 423 (Harman) in 2007-8 would have limited punitive damages to
three times actual damages. The bill failed passage in the
Senate Judiciary Committee.

AB 1863 (Harman) in 2006 would have allowed the jury to decide
if punitive damages were warranted, but would have a judge
determine the amount. The bill failed in the Assembly Judiciary
Committee.

SB 1429 (Morrow) in 2006 would have similarly provided for the
"government standards defense." The author chose not to present
the bill in the Senate Judiciary Committee.

AB 1934 (Honda) of 1997 would have capped non-economic damages







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to $250,000 in all actions for damages resulting from a computer
date failure, as defined. The bill failed in the Assembly
Judiciary Committee.

AB 1862 (Morrow) of 1995 would have limited punitive damages to
three times actual damages. The bill failed passage in the
Senate Judiciary Committee.

SB 241 (Lockyer, Ch. 1498 of 1987) required, among other things,
proof of punitive damages by clear and convincing evidence,
required the court, upon application of any defendant, to
bifurcate the trial on the issue of punitive damages, and revise
the definitions of "malice" and "oppression" to require
"despicable" conduct for a finding of punitive damages
liability.

REGISTERED SUPPORT / OPPOSITION :

Support (based on earlier measure proposing identical approach)

California Chamber of Commerce
Associated General Contractors (AGC)
Association of California Insurance Companies
Association of California Life and Health Insurance Companies
California Association of Health Facilities
California Chapter of the American Fence Association
California Citizens Against Lawsuit Abuse
California Civil Justice Association
California Fence Contractors Association
California Independent Grocers Association
California Retailers Association
Citizens Against Lawsuit Abuse
Engineering Contractors Association
Flasher/Barricade Association
Marin Builders Association
Pharmaceutical Research and Manufacturers of America (PhRMA)

Opposition (based on earlier measure proposing identical
approach)

Congress of California Seniors
Consumer Attorneys of California (CAOC)
Consumer Watchdog
California Employment Lawyers Association (CELA)








AB 158
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Analysis Prepared by : Drew Liebert and Erik Martin / JUD. /
(916) 319-2334