Appealing Punitive Damage Calculations before Trial | Practical Law

Appealing Punitive Damage Calculations before Trial | Practical Law

An aggrieved party typically cannot appeal adverse rulings or orders in federal court until after entry of final judgment. For example, in cases involving punitive damages, defendants rarely, if ever, obtain appellate review of how punitive damages are calculated until after the court enters judgment on the jury’s verdict. But as demonstrated by a recent Second Circuit decision, an interlocutory appeal of a district court’s class certification order may offer parties a narrow but significant opportunity to obtain appellate review of how punitive damage awards are calculated, even before the case goes to trial.

Appealing Punitive Damage Calculations before Trial

Practical Law Legal Update 3-604-7165 (Approx. 4 pages)

Appealing Punitive Damage Calculations before Trial

by Practical Law Litigation
Published on 17 Mar 2015 • USA (National/Federal)
An aggrieved party typically cannot appeal adverse rulings or orders in federal court until after entry of final judgment. For example, in cases involving punitive damages, defendants rarely, if ever, obtain appellate review of how punitive damages are calculated until after the court enters judgment on the jury’s verdict. But as demonstrated by a recent Second Circuit decision, an interlocutory appeal of a district court’s class certification order may offer parties a narrow but significant opportunity to obtain appellate review of how punitive damage awards are calculated, even before the case goes to trial.
An aggrieved party typically cannot appeal adverse rulings or orders in federal court until after entry of final judgment (28 U.S.C. § 1291). For example, in cases involving punitive damages, defendants rarely, if ever, obtain appellate review of how such damages are calculated until after the court enters judgment on the jury's verdict.
Federal Rule of Civil Procedure (FRCP) 23(f) offers one exception to this so-called "final judgment rule" by allowing parties to request permission to immediately appeal an order granting or denying class action certification. When permitted, these appeals typically focus on whether class certification is warranted. But as demonstrated by a recent Second Circuit decision, an interlocutory appeal of a district court's certification order also may offer parties a narrow but significant opportunity to challenge other rulings, including prospective rulings regarding how punitive damage awards are calculated.
In Johnson v. Nextel Communications Inc., the district court certified a class under FRCP 23(b)(3) based on ten common issues (No. 14-454, (2d Cir. Mar. 4, 2015)). The court's certification order also approved the plaintiffs' proposed trifurcated trial plan, which called for the determination of punitive damages on a classwide basis before any assessment of compensatory damages:
  • In Phase I, a jury would decide common liability issues.
  • In Phase II, the same jury would determine:
    • compensatory damages for the named plaintiffs;
    • whether punitive damages were warranted; and
    • a punitive-to-compensatory damages "ratio" to be applied to every class member if it found that punitive damages were warranted.
  • In Phase III, a different jury would calculate compensatory damages for each class member. Those damages would then be multiplied by the ratio established in Phase II to determine a punitive award, and the sum of both would produce each class member’s total damages.
Nextel appealed the court's certification order under FRCP 23(f), arguing that the case was not suitable for class treatment. It also challenged the district court's trial plan on the grounds that the district court could not constitutionally adopt a classwide punitive damages ratio before the total amount of compensatory damages has been determined.
The Second Circuit agreed that certification was improper. It concluded that common issues did not predominate over individual ones, and that a class action was not a superior method of litigating the case.
Significantly, because the court remanded the case for further proceedings, it also chose to address the district court's trial plan and punitive damages ratio, even though no jury had yet considered the question of punitive damages. The Second Circuit observed that determining a punitive damages ratio absent a compensatory damages award is impracticable and fails to give the jury an adequate basis for determining what measure of punitive damages is appropriate. Rather, the propriety of a punitive award can only be assessed in light of the actual damages awarded. In violation of this principle, the district court's trial plan required the Phase II jury to determine a punitive damages ratio for the entire class based solely on the damages suffered by the named plaintiffs, rather than every class member.
Although dicta, the Second Circuit's rejection of the district court's trial plan is significant for class action defendants, given that a punitive damages ratio deemed permissible in an individual case could be viewed as excessive when viewed in light of the total amount of compensatory damages awarded to the class.
The decision also demonstrates how an interlocutory appeal of a district court's certification order can be strategically used to obtain advisory rulings on other issues. Such an approach allows counsel to obtain clarity on how trial will proceed and avoid the time and expense of a later appeal. Practitioners should keep Johnson in mind when deciding whether to appeal a class certification order, as an appeal may have the added benefit of inducing the court to review a punitive damages calculation before the case goes to trial.
Practical Law has numerous resources to help counsel navigate every stage of litigation, including class certification motions and interlocutory appeals: