Party Must Attack Punitives Proof At Trial Or Waives Right to Do It Later

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Defense practitioners navigating California's state courts are familiar with the California Supreme Court's holding in Adams v. Murakami, 54 Cal.3d 10 (1991), which gives defendants a non-waivable right to post-verdict judicial review of a punitive damages award. In a recent decision with constitutional implications, however, a divided 9th U.S. Circuit Court of Appeals panel undercut the Adam rule's viability in federal court by holding that it must yield to Rule 50 of the Federal Rules of Civil Procedure. See Freund v. Nycomed Amersham, 2003 DJDAR 4258 (9th Cir. April 22, 2003).

The 2-1 majority in Freund held that failure to bring a Rule 50(a) motion challenging the sufficiency of the evidence to support punitive damages at trial waives the right to bring a renewed Rule 50(b) motion after entry of judgment. In so doing, the Freund court reinstated a punitive damages award that the District Court previously had struck under Rule 50(b) on the grounds that the plaintiff failed to establish malicious intent.

Jeff Freund alleged that he had been discharged in violation of public policy for complaining about safety conditions at a nuclear pharmacy specializing in radiopharmaceuticals. At the conclusion of the evidentiary phase of trial, Freund's former employer, Nycomed, moved for judgment as a matter of law under Rule 50(a) exclusively on the grounds that the complaint did not implicate any public policy that would support the wrongful termination claim.

After the court denied the motion, the jury returned a verdict in favor of Freund, awarding $1,150,000 in compensatory damages and $1,150,000 in punitive damages.

Nycomed subsequently moved for judgment as a matter of law under Rule 50(b), restating its prior argument under Rule 50(a) and asserting for the first time that the punitive damages award should be overturned because Freund had failed to establish that Nycomed's officers acted with malicious intent. Agreeing with Nycomed only on this latter point, the District Court overturned the punitive damages award while upholding the compensatory damages verdict. Both parties appealed.

Before turning to the waiver issue, the 9th Circuit provided a sound overview of the law of wrongful discharge in violation of public policy by first addressing Nycomed's argument that Freund's wrongful discharge claim was precluded as a matter of law.

The court noted that in California, employment relationships are "at will," which generally means that, short of a contractual agreement, the employee and the employer can terminate the employment at any time. In Tameny v. Atlantic Richfield Co., 27 Cal.3d 167 (1980), however, the California Supreme Court created an exception to this rule by recognizing a cause of action for wrongful discharge in violation of public policy.

Nycomed argued that Freund's claim was barred because Labor Code Section 6310, which prohibits the discharge of an employee based on complaints about workplace safety or health, did not embody a "fundamental" public policy.

The 9th Circuit rejected this argument, noting that the California Courts of Appeal previously had held in Hentzel v. Singer Co., 138 Cal.App.2d 290 (1982), that Section 6310 embodies a public policy against retaliatory firings sufficient to support a wrongful termination charge. The 9th Circuit also rejected Nycomed's argument that intervening decisions had undermined Hentzel.

The court similarly discarded Nycomed's suggestion that Freund was required to prove an underlying violation of a health or safety rule, instead holding that a claimant need only establish that termination resulted from a good faith complaint about a health or safety hazard. See Cabesuela v. Browning-Ferris Indus., 68 Cal.App.4th 101 (1998).

Finally, relying on Rojo v. Kliger, 52 Cal.3d 65 (1990), as well as Hentzel, the 9th Circuit held that damages for wrongful discharge in violation of public policy are not limited to those specified in the predicate statute (in this case back pay and reinstatement), but also include front pay and punitive damages.

Turning to the waiver issue, the court next addressed Freund's argument that the District Court erred in granting Nycomed's post-trial motion for judgment as a matter of law.

Writing for the majority and relying on the plain language of Rules 50(a) and 50(b), Justice William Canby reiterated the longstanding principle that a party cannot raise arguments in its post-trial Rule 50(b) motion for judgment as a matter of law that it failed to assert in its pre-verdict Rule 50(a) motion. See Advisory Committee Notes to the 1991 Amendments, Federal Rule of Civil Procedure 50.

Canby then explained the two-fold purpose of this requirement: "First it preserves the sufficiency of the evidence as a question of law, allowing the district court to review its initial denial of judgment as a matter of law instead of forcing it to 'engage in impermissible reexamination of facts found by the jury.' Second, it calls to the court's and the parties' attention any alleged deficiencies in the evidence at the time when the opposing party still has an opportunity to correct them."

The majority reasoned that the District Court's judgment as a matter of law defeated both of these purposes. First, inasmuch as the judgment was based on an insufficient showing of malice, the ruling necessarily redetermined a fact found by the jury. Moreover, Nycomed's failure to raise the issue at the close of the evidence deprived Freund of the opportunity to remedy the deficiency by introducing further evidence.

The District Court had reasoned that Nycomed's failure to raise the absence-of-malice issue at the close of the evidence was not fatal because, under Adams, the appealability of punitive damages awards is not waivable. See Adams ("[T]he primary interest that must be protected is the public interest in punitive damage awards in appropriate amounts. We cannot allow the public interest to be thwarted by a defendant's oversight or trial tactics.").

The majority held that the District Court erred in applying Adams, reasoning instead that under Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), "federal courts sitting in diversity jurisdiction apply state substantive law and federal procedural law." Moreover, a Federal Rule of Civil Procedure must be applied so long as it does not "abridge, enlarge, or modify any substantive right" in violation of the Rules Enabling Act. See 28 U.S.C. Section 2702; Hanna v. Plumer, 380 U.S. 460 (1965).

Relying on Burlington N.R. Co. v. Woods, 480 U.S. 1 (1987), the majority concluded that the Adams no-waiver rule did not create any substantive rights that could be modified by Rule 50 but merely establishes when and how pre-existing rights can be reviewed: "Thus, in overriding the California no-waiver rule, Federal Rule 50 does not run afoul of the Rules Enabling Act, because its application 'affects only the process of enforcing litigant's rights, and not the rights themselves.'"

In reaching this conclusion, the 9th Circuit created an apparent circuit split by declining to follow Simmons v. City of Philadelphia, 947 F.2d 1042 (3rd Cir. 1991), in which the 3rd Circuit held that a state rule against waiver of governmental immunity was substantive and trumped Rule 50 because it could affect the outcome of an appeal.

Relying on Hanna, the majority rejected the Simmons rationale by explaining that: "The fact that a procedural rule may affect the outcome of an appeal does not make the rule substantive; most procedural rules may affect outcome, but they remain procedural because they govern the process of litigation."

Justice Ronald Gould heavily criticized the majority's opinion. He posited in dissent that the majority improperly had expanded the scope of a federal court's power in a diversity action. In examining Erie and its progeny, Gould opined that the majority's application of Rule 50 "frustrates a substantive right granted by California because it permits punitive damages to stand without post-verdict judicial review of the validity of the punitive damages award." Gould explained that, as applied, Rule 50 transgressed the authority granted by Congress under the Rules Enabling Act by abridging the substantive policies enunciated in Adams.

Gould concluded that the majority's application of Rule 50 also violated the Due Process Clause of the 14th Amendment by depriving Nycomed of meaningful post-verdict judicial review of punitive damages. In so doing, the dissent relied on Honda v. Oberg, 512 U.S. 415 (1994), in which the Supreme Court held that Oregon's system for awarding punitive damages violated procedural due process because it lacked meaningful judicial review.

In a brief retort to Gould's objections, the majority pointed out that its decision was consistent with Honda because it was not a categorical prohibition of judicial review of punitive damages: "We merely hold that Rule 50 governs the means of securing such post-verdict review. To the extent that the right to such review is protected by the Constitution, it may be waived or forfeited."

Freund imposed a harsh result on Nycomed, particularly given the arguable absence at trial of any evidence of malice. Indeed, this decision can be particularly onerous because failure to bring a Rule 50(a) motion not only waives the right to bring a Rule 50(b) motion, but also waives the right to appellate review on the ground of insufficiency of the evidence. See Desrosiers v. Flight Int'l of Florida Inc., 156 F.3d 952 (9th Cir. 1998).

Yet while Freund entails potentially disastrous results, it also provides practitioners with a sure-fire method of avoiding its pitfalls. Lawyers defending allegations of malice, oppression or fraud at trial must preserve the right to post-verdict review of a punitive damages award by challenging the sufficiency of the evidence by way of a Rule 50(a) motion before the evidence is submitted to the jury.

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