(March 17, 2011) Legislation to protect businesses that comply with government standards from excessive punitive damage awards failed to pass an Assembly committee on March 15.

AB 158 (Halderman; R-Fresno), supported by the California Chamber of Commerce, would have helped improve California’s rock-bottom legal climate by protecting manufacturers, distributors and sellers of products from punitive damages if that product meets government requirements, unless there is sufficient evidence that the individual or entity intentionally withheld or misrepresented information from the regulating agency.

In addition to helping control runaway punitive damage awards, the bill would have provided more certainty for businesses and preserved resources for better uses, such as hiring new employees and improving benefits for existing ones.

Protecting Honest Employers

Existing punitive damage law authorizes plaintiffs to sue for damages for the sake of example and by way of punishing the defendant, in addition to actual damages if it is proven that the defendant has been guilty of oppression, fraud or malice.

CalChamber Policy Advocate Mira Guertin (left) and Assemblymember Linda Halderman (R-Fresno) (at podium). Photo by Megan Wood

While AB 158 provides a degree of protection from punitive damage litigation, it does not protect businesses that commit fraud, or intentionally withhold and/or misrepresent information required by regulating government entities.

During the Assembly Judiciary Committee hearing, CalChamber Policy Advocate Mira Guertin pointed out that AB 158 in no way undermines consumer protections. Rather, it aims to protect those businesses that have made every effort to comply with product laws and regulations.

“Punitive damages are designed to punish a defendant above and beyond all of the things needed to help make a plaintiff whole,” Guertin told the committee. “. . . how, if you have followed the standards, if you have met the guidelines, could you have engaged in fraud, oppression, or malice? You’ve tried to meet the rules, you’ve done everything that you were supposed to do, you’ve turned over information you needed to [give] to the government and you’ve done what [the government] said you needed to do to be safe. . .  that is a good faith effort to protect consumers. And many manufacturers go above and beyond that.”

Providing Certainty

Guertin stressed that regardless of the prevalence of cases filed for punitive damages, the awards are extremely volatile, and prevent businesses from being able to predict costs and liability.

“[Awards] can show up for a $100,000 or they can show up for a $100 million,” Guertin said. Because of this unpredictability, businesses have no idea how big their liability will be and have no way of taking it into consideration, Guertin said.

AB 158 balances the need to protect consumers with the need to control ever-increasing litigation costs that harm California’s economy and drive employers to other states. Excessive damage awards use resources that could be better spent putting more Californians back to work, drive up the costs of goods and services for struggling consumers, and do little to further individual protections.

Key Vote

AB 158 failed to pass Assembly Judiciary on a party-line vote of 3-7 on March 15.

Ayes: Gorell (R-Camarillo); Jones (R-Santee); Wagner (R-Irvine).

Noes: Atkins (D-South Park/Golden Hill); Dickinson (D-Sacramento); Feuer (D-Los Angeles); Huber (D-El Dorado Hills); Huffman (D-San Rafael); Monning (D-Carmel); Wieckowski (D-Fremont).

Staff Contact: Mira Guertin