Proposal to Tap Punitive Damage Awards Has Many Agendas

Gov. Arnold Schwarzenegger promised to rid Sacramento of the “old politics” and “be creative.” A surprise proposal in his revised state budget keeps half his word.

In attempting to seize 75% of punitive damages that juries award plaintiffs, the governor:

* Continued the old politics of smacking an enemy’s allies -- in this case, some of the Democratic Party’s principal bankrollers, the trial lawyers.

* Practiced creative budget writing, by “plugging” -- that’s what they call it in Sacramento -- an imaginary number into a deficit hole. Schwarzenegger winked and said he’d pick up $450 million annually from the awards grab.

On second thought, call this old-fashioned creative budget-writing. Its aim is to create the fiction of a balanced spending plan. But these tales always end the same, with a deeper deficit.

The background: Civil courts can award two types of damages. One is “compensatory,” to make up for a victim’s financial loss, plus pain and suffering. The other is “punitive,” to punish the defendant and deter future misbehavior.

Buried near the back of the governor’s May 13 budget revision was this argument: “Since the award of compensatory damages compensates the complaining party for their loss or injury, the award of punitive damages ... should more appropriately be awarded to the state where it can be used for public good purposes that are consistent with the nature of the award.”

Exactly how the money would be spent by Sacramento wasn’t spelled out. In reality, it would help plug a multibillion-dollar deficit that lingers as far as any neutral eye can see.

But that phrase “public good purposes” does sound a bit too “big brother” for a Republican administration. Last time I heard, the GOP believed private citizens could spend their money better than the government, and that income redistribution weakened America.

This, of course, is less about public good than corporate good. The idea is to discourage lawsuits and reduce payouts.

“We believe it would reduce the incentive for speculative lawsuits and for lawyers and clients to look for huge jackpot verdicts,” says John H. Sullivan, president of the Civil Justice Assn. of California, a business-backed tort reform lobby.

A key provision of the governor’s proposal would free a defendant from having to pay more than one punitive judgment. So if an automaker sold cars with defective brakes that crippled hundreds of people, only one victim could collect punitive damages on top of a compensatory award.

“Unconscionable,” says Jim Sturdevant of San Francisco, president of the Consumer Attorneys of California, the trial lawyers lobby. Would this discourage attorneys from filing suits? “To be sure,” he says.

Political fun and games also are in play here. It’s traditional to slap around your adversary’s friend -- maybe also try to drive a wedge between them. Among the Democrats’ best friends are trial lawyers. The consumer attorneys lobby reported $2.2 million in political contributions during the 2002 election year.

But more than anything, this is about Schwarzenegger desperately trying to fill a budget hole -- at least on paper -- without raising taxes. (Neither he nor most Sacramento politicians regard confiscating court awards or raising college tuitions as increasing taxes.)

Problem is, the $450-million figure is a pipe dream. It was based on a statistical study by a McGeorge law school professor. He looked at a 10-year sample of punitive damage verdicts and totaled $6.4 billion in jury awards. But the sample contained an aberration, a $4.2 billion award that was reduced to $1.2 billion. Budget writers counted the larger amount anyway in calculating the annual state take.

The nonpartisan legislative analyst has “scored” -- another Capitol term -- the governor’s idea at only $200 million, and thinks that even may be too high.

These big numbers ignore that jury verdicts are appealed and awards lowered. In fact, says Sen. Joe Dunn (D-Santa Ana), a trial lawyer, punitive payments have become rare because defendants settle by paying larger compensatory awards. A corporation will strive to avoid punitive damages, he says, because they aren’t insured and can hurt stock prices.

But I suspect there’ll be a Capitol co-conspiracy. The governor and legislators will wink at each other and plug in a creative budget number. This will spare them deeper spending cuts or having nightmares about a tax hike.

Then they’ll pass a compromise bill. Several Democrats and lawyers told me they could support some version of the governor’s proposal. They’re not opposed to the concept. But they object to the state taking 75% off the top, leaving only 25% for attorneys and plaintiffs. (Try it reversed: 25% for the state.) And they’ll never go for the one-plaintiff-only punitive awards.

Next, wait for the law of unintended consequences to take effect.

Jurors would know -- whether told in court or not -- that they could force a corporate wrongdoer to help taxpayers pay for, say, law enforcement. So they’d jack up the punitive award.

Also, it’s a good bet that Schwarzenegger’s poke at trial lawyers will rile them into donating even more money to Democrats.

That’s called an old-fashioned political backfire.

George Skelton writes Monday and Thursday. Reach him at george.skelton@latimes.com.