21st Century Insurance v. Superior Court

The trial judge presiding over this case was also presiding over several similar Northridge earthquake insurance lawsuits. In one such suit, Basurco v. 20th Century Insurance Company, Los Angeles Superior Court, No. BC 212224, defendant 21st Century moved for summary adjudication of the claim for punitive damages, on the basis that the revival of such a claim violated the ex post facto clause of the United States Constitution. The trial court denied the motion in the Basurco action, concluding that the statutory revival of punitive damages was not an ex post facto law.

The parties in this action then agreed that the decision in Basurco would apply to this case, and stipulated to entry of an order denying summary adjudication of the issue. 21st Century sought writ relief.^[1]

CONTENTIONS OF THE PARTIES

The sole question presented is whether section 340.9 violates the federal Constitution’s prohibition against ex post facto laws^[2] to the extent it revives previously time-barred claims for punitive damages incident to causes of action for bad faith. 21st Century argues that it is unconstitutional, on the basis that revival of a criminal prosecution is an ex post facto violation, and punitive damages are akin to criminal penalties for purposes of ex post facto analysis. Alternatively, 21st Century argues we should avoid the constitutional issue by simply construing section 340.9 as not reviving liability for punitive damages. Plaintiffs argue that section 340.9 does not violate the prohibition against ex post facto laws, because that prohibition applies exclusively to penal legislation, while this statute is entirely civil in nature.

DISCUSSION

1. General Principles of Ex Post Facto Analysis

Article I, section 10 of the United States Constitution prohibits states from enacting “any ... ex post facto law.” “[0]ur best knowledge of the original understanding of the Ex Post Facto Clause [is that] Legislatures may

not retroactively alter the definition of crimes or increase the punishment for criminal acts.” (Collins v. Youngblood (1990) 497 U.S. 37 , 43 [ 111 L.Ed.2d 30 , 110 S.Ct. 2715 ].) A statute which revives an otherwise time-barred criminal prosecution violates the ex post facto clause. (Stogner v. California (2003) 539 U.S. 607 , 609 [ 156 L.Ed.2d 544 , 123 S.Ct. 2446 ].) The ex post facto clause “has been interpreted to pertain exclusively to penal statutes.”^[3] (Kansas v. Hendricks (1997) 521 U.S. 346 , 370 [ 138 L.Ed.2d 501 , 117 S.Ct. 2072 ].)

Many other constitutional provisions also apply only to penal laws, such as the prohibition against double jeopardy (e.g., Hudson v. United States (1997) 522 U.S. 93 , 96 [ 139 L.Ed.2d 450 , 118 S.Ct. 488 ]) and the Fifth and Sixth Amendment rights granted criminal defendants (e.g., Kennedy v. Mendoza-Martinez (1963) 372 U.S. 144 , 163-164 [ 9 L.Ed.2d 644 , 83 S.Ct. 554 ] (Mendoza-Martinez)). While it is well established that only penal laws are subject to the restrictions of the ex post facto clause, the prohibition against double jeopardy, and the procedural protections afforded criminal defendants, the United States Supreme Court has acknowledged the possibility that a statute which is facially civil may in fact be penal enough in effect to trigger these constitutional protections. (Mendoza-Martinez, supra, 372 U.S. at pp. 168-169.)

It is on this narrow ground that 21st Century bases its challenge to section 340.9. 21st Century argues that, to the extent that section 340.9 revives a claim for punitive damages incident to a bad faith cause of action, the statute is penal and therefore violates the ex post facto clause.

The United States Supreme Court has never directly addressed the issue of whether punitive damages are penal for the purposes of ex post facto analysis. It has, however, acknowledged that the retroactive application of punitive damages would “raise a serious constitutional question,” without answering that question. (Landgrafv. USI Film Products (1994) 511 U.S. 244 , 281 [ 128 L.Ed.2d 229 , 114 S.Ct. 1483 ].) The Landgraf court was concerned with whether to interpret a statute, allowing for punitive damages, retroactively. In the absence of a clear congressional intent that the statute be applied retroactively, and the presence of a serious constitutional question if the statute were so interpreted, the Supreme Court chose to interpret the

defendant to liability for conduct which, at the time it occurred, was immunized. In the absence of clear legislative intent to apply the repealing statute retroactively, the court gave it prospective application only. (Id. at pp. 840-845.) Additionally, the court, citing Landgraf, noted that the retroactive imposition of punitive damages “might violate the constitutional prohibition against ex post facto laws” and considered avoidance of the constitutional issue to be an additional reason to construe the statute prospectively only. (Id. at pp. 846-847.) Myers did not consider or overrule Peterson, and we therefore still follow that decision. Nonetheless, Myers's citation of Landgraf suggests our Supreme Court might not consider Peterson to be wholly dispositive in light of intervening United States Supreme Court authority.^[4] Thus, while we follow Peterson, we will proceed to consider the issue as though Peterson were not controlling.

3. Section 3294 Is a Civil Statute and Is Not Penal in Nature

a. The Intent-effects Test

The ex post facto clause prohibits only ex post facto penal legislation. In determining whether a facially civil statute is penal for these purposes, there is a “well established” framework for our inquiry. (Smith v. Doe (2003) 538 U.S. 84 , 92 [ 155 L.Ed.2d 164 , 123 S.Ct. 1140 ].) This framework is applicable not only to ex post facto analysis, but also to whether a statute is penal for purposes of double jeopardy (see United States v. Ursery (1996) 518 U.S. 267 , 288 [ 135 L.Ed.2d 549 , 116 S.Ct. 2135 ]) and Fifth and Sixth Amendment rights (see United States, v. Ward (1980) 448 U.S. 242 , 248-249 [ 65 L.Ed.2d 742 , 100 S.Ct. 2636 ]), among others (Smith v. Doe, supra, 538 U.S. at p. 97 [noting the test’s origins are in Sixth and Eighth Amendment jurisprudence, as well as bill of attainder and ex post facto cases]).

“[T]he question whether a particular statutorily defined penalty is civil or criminal is a matter of statutory construction. [Citations.] Our inquiry in this regard has traditionally proceeded on two levels. First, we have set out to determine whether [the legislature], in establishing the penalizing mechanism, indicated either expressly or impliedly a preference for one label or the other. [Citation.] Second, where [the legislature] has indicated an intention to establish a civil penalty, we have inquired further whether the statutory scheme was so punitive either in purpose or effect as to negate that intention.

[Citation.] In regard to this latter inquiry, we have noted that ‘only the clearest proof could suffice to establish the unconstitutionality of a statute on such a ground.’ [Citations.]” (United States v. Ward, supra, 448 U.S. at pp. 248-249; see also Kansas v. Hendricks, supra, 521 U.S. at p. 361.)

The language used by the Supreme Court in describing the intent-effects test is, by necessity, somewhat imprecise. For example, Smith describes the “intent” portion of the test by saying, “If the intention of the legislature was to impose punishment,” the statute is to be considered penal for constitutional purposes. (Smith v. Doe, supra, 538 U.S. at p. 92, italics added.) Yet the Supreme Court has “long recognized that the Double Jeopardy Clause does not prohibit the imposition of all additional sanctions that could, ‘ “in common parlance,” ’ be described as punishment. [Citations.] The Clause protects only against the imposition of multiple criminal punishments for the same offense.” (Hudson v. United States, supra, 522 U.S. at pp. 98-99.) As made clear in Ward, the “intent” inquiry is whether the statute was intended to establish a civil penalty or a criminal one. (United States v. Ward, supra, 448 U.S. at p. 248.) Similarly, while the Supreme Court has sometimes used the shorthand phrase of determining whether a facially civil statute “constitute^] punishment,” (United States v. Ursery, supra, 518 U.S. at 287 ), the court has recognized that the true inquiry is whether the statute is “so punitive in form and effect as to render [it] criminal.” (Id. at p. 290.)^[5]

Any suggestion, therefore, that punitive damages must fail the intent-effects test simply because they are “punitive,” is an oversimplification. We must determine whether they are so punitive in form and effect as be considered criminal for constitutional purposes.

b. The Legislative Intent Was That the Statute Be Civil

The first step of the inquiry is to determine whether the Legislature intended to establish civil proceedings. In considering the Legislature’s intent, we are to give “considerable deference” to the stated intent of the Legislature. (Smith v. Doe, supra, 538 U.S. at p. 93.) We should also consider the procedural mechanisms established by the statute for enforcing the alleged penalty. (United States v. Ursery, supra, 518 U.S. at pp. 288-289.) We may also consider the manner of the statute’s codification. (Smith v. Doe, supra, 538 U.S. at p. 94.)

of this factor is mandated by case law. The 14 cases on which Mendoza-Martinez relied in compiling its list of factors all involved government action;^[6] thus, the issue of whether the absence of government enforcement was significant was not before the Mendoza-Martinez court. However, when the Supreme Court has considered statutes implicating private litigation, it has been quick to note that the absence of government action prevents the statute from being held “criminal” for constitutional purposes.^[7] “The protections of the Double Jeopardy Clause are not triggered by litigation

accorded the protections applicable in a criminal proceeding.” (State Farm Mut. Automobile Ins. Co. v. Campbell (2003) 538 U.S. 408 , 417 [ 155 L.Ed.2d 585 , 123 S.Ct. 1513 ].) Punitive damages have not been held to trigger the protection against double jeopardy (Shore v. Gurnett (2004) 122 Cal.App.4th 166 , 171-172 [ 18 Cal.Rptr.3d 583 ]; Hansen v. Johns-Manville Products (5th Cir. 1984) 734 F.2d 1036 , 1042) nor have they been held subject to excessive fines analysis (Browning-Ferris Industries v. Kelco Disposal, Inc., supra, 492 U.S. at pp. 259-260). Section 3294, therefore, does not impose a sanction historically regarded as punishment.

Third, does the sanction come into play only on a finding of scienter? Punitive damages can be recovered only upon proof of oppression, fraud, or malice. (Civ. Code, § 3294, subd. (a).) As such, the imposition of punitive damages occurs only on a finding of scienter.

Fourth, does the sanction promote the traditional aims of punishment— retribution and deterrence? Punitive damages do promote retribution and deterrence. (Civ. Code, § 3294, subd. (a); State Farm Mut. Automobile Ins. Co. v. Campbell, supra, 538 U.S. at p. 416.) It must be said, therefore, that punitive damages do promote the traditional aims of punishment.

Fifth, is the behavior to which the sanction applies already a crime? While criminal acts may subject a person to liability for punitive damages, there is no general requirement that section 3294 applies only to criminal acts. When the statute does not make criminal conduct a prerequisite for the application of the sanction, “[a]n absence of the necessary criminal responsibility suggests that the State is not seeking retribution for a past misdeed.” (Kansas v. Hendricks, supra, 521 U.S. at p. 362.) This factor therefore weighs against considering punitive damages penal.

Sixth and seventh, we consider whether an alternative purpose to which it may rationally be connected is assignable to the sanction, and whether the sanction is excessive when compared to that purpose. Section 3294 allows the recovery of punitive damages “for the sake of example and by way of punishing the defendant.” There is no alternative purpose assigned to punitive damages in California.^[8]

Finally, we consider our eighth factor, whether the statute is enforced by government action or private litigation. Punitive damages are not a remedy enforceable only by the government. Instead, they are enforced in private litigation brought by any plaintiff.^[9] This factor, therefore, suggests the statute is not penal.^[10]

In sum, punitive damages are imposed only on a finding of scienter, and they serve the goals of punishment and no others. In contrast, they: (1) do not impose an affirmative restraint or disability; (2) are not historically regarded as penal; (3) do not apply to behavior which is already a crime; and (4) are only imposed in private litigation in which the government is not a necessary party. As only the clearest proof can override the Legislature’s express designation of such damages as civil, we conclude that this balance of the factors is clearly insufficient.

As we conclude that the imposition of punitive damages is not a penal sanction, their revival under section 340.9 does not violate the ex post facto clause.

4. Whether a Civil Revival Statute Can Violate the Ex Post Facto Clause Is an Open Question

In Stogner v. California, supra, 539 U.S. at page 609, the Supreme Court held that a statute reviving an otherwise time-barred criminal prosecution violated the ex post facto clause. The court’s opinion was expressly not directed toward civil revival statutes. (Id. at p. 631.) As we have concluded punitive damages are not penal in effect for the purpose of ex post facto analysis, we need not address the extent to which Stogner may extend to civil revival statutes which implicate civil sanctions that are penal in effect.