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Financial Discovery in Federal Court

Last edited 138 days ago by Ted Broomfield

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Summary. This blog post aimed at litigation attorneys compares and contrasts the standard for punitive and exemplary damages to be upheld on appeal in the context of whether financial discovery can be had.

The key takeaway is that in Federal Court one of the factors is the comparability of the punitive award in the instant case to other similar case, which will require research.

In California, a plaintiff needs to prove proportionality of the award relative to the defendant’s wealth or financial position, which is like a goldilocks analysis, as follows. In California, the punitive must be sufficiently high, relative to the defendant’s wealth to serve as a punishment, but, not so high as to be excessive. Interestingly, even though this is not the standard in Federal Court, one Federal authority has held that a punitive damage based on violation of a state law must meet the state’s standards.

Details follow.

DETAILS

It is unclear, if financial discovery is available pre adjudication in Federal Court, and if so, what is the procedure. My best guess is that a request for financial discovery will result in a discovery battle, with an expected cost in time and effort of meet & confer and maybe a disfavored discovery motion.

Federal case law and

manual of model jury instructions 5.5 jury instructions for punitive damages⁠

in federal court do not have any consideration of punitive damages relative to the defendant's financial position. The standard for punitive damages under Federal Law is: (a) reprehensibility; (b) relationship to compensatory & punitive damages; and (c) how punitive damages compare to similar cases.

BMW of North America, Inc. v. Gore, 517 U.S. 559⁠

, 575 (1996). Note, there is no mention of proportionality of punitive to defendant's wealth.

According to one publicly available

order overruling an objection to financial discovery⁠

by the US District Court for Kansas, it appears that financial discovery of a defendant's net worth is relevant, as long as the allegations of entitlement to punitive damages is not spurious. It is worth noting that that DC decision cites only other District Court cases, and not, Court of Appeals Cases. Those district court cases are: (i) 4 Gust v. Wireless Vision, L.L.C., No. 15-2646-KHV, 2015 WL 9462078, at 5 (D. Kan. Dec. 24, 2015); (ii) Mid Continent Cabinetry, Inc. v. George Koch Sons, Inc., 130 F.R.D. 149, 152 (D. Kan. 1990); (iii) Aerotech Res., Inc. v. Dodson Aviation, Inc., No. 00-2099-CM, 2001 WL 395397, at 2 (D. Kan. Apr. 11, 2001).

Whether proportionality of a punitive award to the defendant’s wealth is a factor in Federal cases is not clear, because punitive damages arising under state law are subject to state law standards for recovery which should be reflected in a modified jury instruction. See, e.g.,

Coughlin v. Tailhook Ass’n, 112 F.3d 1052⁠

, 1056 (9th Cir. 1997).

Under California law, the Neal Factors, which are explained by the

CACI 3490 jury instruction on punitive and exemplary damages⁠

, are (a) Reprehensibility; (b) Reasonable Relationship to punitive damages to actual harm, or defendant's reasonable knowledge of potential harm; and (c) within the context of the defendant's specific financial condition, the amount necessary to punish defendant - amount of punitive damages not so low relative to defendant's wealth as to be insignificant, amount of punitive damages not so high as to be to excessive.

Neal v. Farmers Ins. Exchange⁠

(1978) 21 Cal.3d 910, 929.

The general rule in California is that prior to adjudication, financial discovery is prohibited as an invasion of the California Constitutional right to privacy. The general rule is that after a judgment for punitive damages, in a bifurcated trial, the plaintiff has a limited opportunity for financial discovery.

California Statute,

Civil Code section 3295⁠

expressly allows for financial discovery to alleviate the potential prejudice of a plaintiff of having to prove punitive are proportionate to financial position by expressly allowing for financial discovery during the discovery phase and before adjudication, where good cause exists. Good cause is defined as upon motion supported by evidence that the court finds that it is "very likely," that the plaintiff will be awarded punitive damages.

Jabro⁠

v. Superior Court (2002) 95 Cal.App.4th 754, 755.

Is it reasonable to assume that the Federal Court does not accept 3295 Motions Requesting Financial Discovery?

United States Supreme Court held in

State Farm Mut. Automobile Ins. Co. v. Campbell⁠

that it "...instructed courts reviewing punitive damages to consider three guideposts: (1) the degree of reprehensibility of the defendant's misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.

BMW of North America, Inc. v. Gore⁠

, 517 U.S. 559, 575 (1996) as quoted in

State Farm Mut. Automobile Ins. Co. v. Campbell⁠

, 538 U.S. 408 (2003).

Note that the proportionality of the punitive to defendant's wealth or financial position is not a factor.

Other sources on Federal cases on punitive damages include:

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Association of Defense Counsel Article on Punitives⁠

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Case of

State Farm Mut. Automobile Ins. Co. v. Campbell⁠

, 538 U.S. 408 (2003)

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National Law Review on Review of Large Jury Awards of Punitives⁠

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Cornell University's Lex Legal Website article on punitives⁠

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US District Court Model Jury Instruction Forms 5.5 Punitives⁠

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Blog Comparing California to Federal Law on Punitive⁠

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