Record $250 Million Punitive Damages Award Entered In Gender Discrimination Class Action Trial In Velez v. Novartis

On May 17, 2010, a jury found against Novartis Pharmaceuticals Corporation and entered a verdict of $250 million in punitive damages in one of the largest employment discrimination class actions in the nation—Velez v. Novartis Pharmaceuticals Corp., No. 04 Civ. 9194 (S.D.N.Y.). The verdict is noteworthy for numerous reasons, not the least of which is trials of class actions are uncommon. Given the stakes in class actions and the enormous costs for trying such complex litigation, such verdicts are extremely rare.

The $250 million verdict stemmed from a month-long trial and four days of deliberations. The jury found for Plaintiffs—who represent a class of approximately 5,600 women who have held sales-related job positions with Novartis in the United States since 2002—as to liability, and awarded approximately $3.3 million in compensatory damages to the named Plaintiffs, and $250 million in punitive damages to the entire class. The verdict represents the largest punitive damages award in history in any class action employment discrimination case. It is expected that post-trial proceedings will focus on challenges to the propriety of allowing a class action over punitive damages, as well as the basis for the verdict. Those issues include the subsidiary question of whether Title VII cases that predominantly involve individual claims for damages based on distinct factual scenarios should be certified as class actions. Where, as in this case, the 13 plaintiffs were deemed to represent a class of over 5,600 female sales representatives, and plaintiffs' attorneys used their testimony to secure a huge class damages award, the key issue is whether a Title VII defendant can receive a fair trial under that procedure or whether it compromises the ability to raise available defenses.

The punitive damages award in Velez raises the stakes for employers in employment discrimination class actions.  It is likely that corporate defendants will continue to see inflated settlement demands from plaintiffs touting the possibility of extremely large punitive damages awards. It also could lend support to the “punitive damages only” class certification theory, recently rejected in part by the Ninth Circuit’s en banc decision in Dukes v. Wal-Mart, Inc., Nos. 04-16688 & 04-16720, 2010 U.S. App. LEXIS 8576 (9th Cir. April 26, 2010), currently the largest pending gender discrimination class action in the nation. For more information on the Dukes case and the Ninth Circuit’s April 26, 2010 en banc ruling, see Seyfarth Shaw’s earlier Management Alert.

Plaintiffs in Velez were nineteen women presently or formerly employed by Novartis in sales-related positions, who claimed that Novartis discriminated against them in various ways, in violation of Title VII of the Civil Rights Act of 1964, including by disadvantaging them in compensation and promotional opportunities, as well as giving them negative performance appraisals, and otherwise subjecting them to adverse treatment for taking pregnancy-related leaves. The Court granted class certification of Plaintiffs' claims on July 31, 2007, including claims for back pay and punitive damages. After discovery closed, and the case proceeded to trial.

Following a finding for Plaintiffs on liability, the verdict sheet asked the jury to answer “Yes” or “No” to a question regarding the propriety of an award of punitive damages. Once the jury answered “Yes,” it considered evidence concerning the amount to be awarded, including Novartis’s financial condition. Plaintiffs’ counsel argued that the jury should award 2% to 3% of Novartis’s stipulated $9.5 billion U.S. revenue for 2009 (or between $190 and $285 million). As a result of orders the Court entered earlier in the litigation, members of the class can apply for compensatory damages in a post-verdict process that will likely include a magistrate or special master who will decide each woman’s claim.

The punitive damages verdict is also significant because it further highlights the uncertainty in this area of the law. It has been unclear whether certification of a "punitive damages only" class is appropriate, and the Velez verdict is inconsistent with the majority of cases which say that liability for punitive damages and assessment of the amount is not an issue capable of determination on a class-wide basis. The leading case analyzing this issue and not allowing certification of a punitive damages class is Colindres, et al. v. Quietflex Mfg., et al., 235 F.R.D. 347, 368, 376-80 (S.D. Tex. 2006).

Courts have rejected imposition of punitive damages on a class-wide basis before a showing of individual harm to a class member because the Supreme Court has determined that an award of punitive damages must be related to the monetary harm suffered by individual plaintiffs. There is significant academic commentary on this issue, which is also inconsistent with the Velez verdict. See, e.g., Sheila Scheuerman, Two Worlds Collide: How The Supreme Court’s Recent Punitive Damages Decisions Affect Class Actions, 60 Baylor L. Rev. 880, 908 (2008) (a punitive damages claim should be treated as an individual issue where compensatory damages involve individual issues; the requirement of individual assessments of compensatory and punitive damages should defeat class certification).

The Ninth Circuit in the Dukes class action, on the other hand, overturned a lower court's decision allowing certification of a punitive damages class. It held that the district court abused its discretion in certifying plaintiffs’ punitive damages claims under Rule 23(b)(2), and remanded the punitive damages claim for a further hearing. In doing so, and without expressing an opinion about whether the claims at issue met the requirements of Rule 23(b)(3), the Ninth Circuit determined that the lower court also should consider whether class certification of the punitive damages claims is appropriate under Rule 23(b)(3). Although it is unclear whether the "punitive damages only" class certification order will fare in Dukes on remand, the Velez verdict lends further credence to plaintiffs’ theory, i.e., that certification of a class for punitive damages is appropriate.

Finally, this case, and the threat of large punitive damages awards, also underlines the importance of proper planning and critical self-remediation of potential human resources problems. For example, the Judge hearing the Velez case instructed the jury to consider their punitive damages award in light of the offensiveness of the company’s behavior, the nature and extent of the harm, the length of time the class endured the behavior, the extent to which the company knew about the discrimination, and how it reacted once on notice. Evidence of robust administration of human resources policies and zero tolerance towards discrimination undoubtedly impacts this issue, and serve as hedges for employers subject to these types of litigation exposures.

For more information, contact the Seyfarth attorney with whom you work or any Labor & Employment attorney on our website.