Case Nos.

11-16284 and 11-16416

_____________________________ IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT ______________________________ BRIAN DAWE and FLAT IRON MOUNTAIN ASSOCIATES, LLC, FKA Flat Iron Mountain Associates, a Partnership, et al.; Plaintiffs and Appellees/Cross-Appellants, vs. CORRECTIONS USA, a California Corporation, et al., Defendants and Appellants/Cross-Appellees. ______________________________ Appeal from the United States District Court for the Eastern District of California Hon. Lawrence K. Karlton District Court Case No. 2:07-CV-01790 LKK EFB (Consol. Master Case No.) ______________________________

Fourth Cross-Appeal Brief: Cross-Appeal Reply Brief of Appellees/CrossAppellants Brian Dawe, Flat Iron Mountain Associates, LLC, and Gary Harkins
______________________________ Daniel L. Baxter (SBN 203862) Stacy M. Hunter (SBN 272712) WILKE, FLEURY, HOFFELT, GOULD & BIRNEY, LLP 400 Capitol Mall, Twenty-Second Floor Sacramento, CA 95814 Telephone: (916) 441-2420; Facsimile (916) 442-6664 Attorneys for Appellees/Cross-Appellants Brian Dawe, Flat Iron Mountain Associates, LLC, and Gary Harkins

TABLE OF CONTENTS Page I. II. INTRODUCTION ......................................................................................... 1 GARY HARKINS PUNITIVE DAMAGE AWARD AGAINST CUSA SHOULD BE RESTORED ............................................................... 2 A. B. III. Harkins Claim Was Not Extremely Weak, Nor Was Liability Questionable. .................................................................... 2 Planned Parenthood Supports Restoring the Jurys Punitive Damage Award to Harkins. ................................................................. 5

THE JURY WAS NOT REQUIRED TO APPLY A 1:1 RATIO TO PLAINTIFFS PUNITIVE DAMAGE AWARDS AGAINST CCPOA .......................................................................................................... 7 APPLICATION OF STATE FARMS REPREHENSIBILITY FACTORS WARRANT A HIGHER DAMAGE AWARD RATIO .......... 12 A. B. C. D. The Health or Safety Subfactor Favors Plaintiffs.......................... 12 The Financial Vulnerability Subfactor Favors Plaintiffs............... 15 The Pattern and Practice Subfactor Favors Plaintiffs. ................... 17 The Malice, Trickery, and Deceit Subfactor Favors Plaintiffs. ........................................................................................... 19

IV.

V.

THE PERMISSIBILITY OF THE JURYS PUNITIVE DAMAGE AWARD AGAINST CCPOA IS NOT DETERMINED BY CCPOAS NET WORTH ........................................................................ 21 A. Net Worth is Not the Overarching Analytical Touchstone, and a Jurys Award May Permissibly Exceed Ten Percent of Net Worth. ..................................................................................... 21

B. VI.

CCPOAs Stated Net Worth Is Not Legitimately Indicative of Its Financial Condition. ................................................................. 23

CONCLUSION............................................................................................ 28

CERTIFICATE OF COMPLIANCE ..................................................................... 29

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TABLE OF AUTHORITIES Page CASES Abner v. Kan. City S. R.R., 513 F.3d 154 (5th Cir. 2008) ......................................................................... 9 Adams v. Murakami, 54 Cal.3d 105 (1991) .................................................................................. 22 Bardis v. Oates, 119 Cal.App.4th 1 (2004) ............................................................... 17, 18, 20 BMW of North America v. Gore, 517 U.S. 559 (1996).................................................................................... 11 Carr v. Progressive Casualty Ins. Co., 152 Cal.App.3d 881 (1984) .......................................................................... 9 Century Surety Co. v. Polisso, 139 Cal.App.4th 922 (2006) ............................................................ 13, 14, 15 Deters v. Equifax Credit th Info. Servs., 202 F.3d 1262 (10 Cir. 2000) ................................................................... 11 Finney v. Lockhart, 35 Cal.2d 161 (1950) .................................................................................... 8 Gagnon v. Continental Casualty Co., 211 Cal.App.3d 1598 (1989) ........................................................................ 9 Hamlin v. Hampton Lumber Mills, Inc., 246 P.3d 1121 (Ore. Sup. Ct. 2011) ............................................................. 9 Kemp v. Am. Tel. & Tel. Co., 393 F.3d 1354 (11th Cir. 2004) ............................................................ 10, 11 Lara v. Cadag, 13 Cal.App.4th 1061 (1993) ........................................................................ 22 Lee v. Edwards, 101 F.3d 805 (2nd Cir. 1996) ....................................................................... 10 Mathias v. Accor Econ. Lodging, Inc., 347 F.3d 672 (7th Cir. 2003) ........................................................... 10, 11, 22

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Michelson v. Hamada, 29 Cal.App.4th 1566 (1994) ........................................................................ 22 Orange Blossom Ltd. Pship v. S. Cal. Sunbelt Developers, Inc., 608 F.3d 456 (9th Cir. 2010) ......................................................... 8, 9, 10, 11 Park v. Mobil Oil Guam, 2004 WL 2595897, at *13 (2004) .............................................................. 17 Planned Parenthood v. American Coalition of Life Activists, 422 F.3d 949 (9th Cir. 2005) ............................................................... passim Roby v. McKesson Corporation, 47 Cal.4th 686 (2009) ............................................................................ 13, 14 Rufo v. Simpson, th 86 Cal.App.4 573 (2001) .......................................................................... 22 Simon v. San Pablo U.S. Holding Co., Inc., 35 Cal.4th 1159 (2005) ............................................................................... 17 State Farm Mutual Auto Ins. Co. v. Campbell, 538 U.S. 408 (2003)............................................................................. passim Swinton v. Potomac Corp., 270 F.3d 794 (9th Cir. 2001) ....................................................................... 10 United States EEOC v. th W&O Inc., 213 F.3d 600 (11 Cir. 2000) ..................................................................... 11 Walker v. Farmers Ins. Exchange, 153 Cal.App.4th 965 (2007) .................................................................. 17, 18 Zaxis Wireless Communications, Inc. v. Motor Sound Corp., 89 Cal.App.4th 577 (2001) .................................................................... 21, 22

TREATISES Levy, Golden and Sacks, California Torts, 45.10[3], at p. 45-50.1 (Matthew Bender 2009) ...................................... 20 Weil, Wagner & Frank, Litigation Services Handbook: The Role of the Accountant as Expert (2nd ed.), 36.5, at pp. 36-9 36-10) ......................................................................... 23

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I.

INTRODUCTION Dismissing the gravity of their misconduct in this case as the product of a

garden-variety business dispute (Third Brief on Cross Appeal [Third Brief or TB] 61), Defendants maintain that the district court properly remitted the punitive damage awards on both Gary Harkins false imprisonment claim against CUSA and Plaintiffs assorted claims against CCPOA. (Id. at 44-64.) Specifically, Defendants argue that: 1. Gary Harkins false imprisonment claim against CUSA was extremely weak, with questionable liability. 2. The decision in Planned Parenthood v. American Coalition of Life Activists, 422 F.3d 949 (9th Cir. 2005) requires courts to review the reasonableness of punitive damage awards on a claim-by-claim basis; 2. A 1:1 ratio of punitive to compensatory damages is the maximum award available for Plaintiffs claims against CCPOA; 3. The reprehensibility factors set forth in State Farm Mutual Auto Ins. Co. v. Campbell, 538 U.S. 408 (2003) support remittitur of the punitive damages against CCPOA; and 4. The remitted punitive damages against CCPOA should stand because the jurys original award greatly exceeded CCPOAs net worth.

Defendants arguments should be rejected, and the jurys original punitive damage awards should be reinstated. II. GARY HARKINS PUNITIVE DAMAGE AWARD AGAINST CUSA SHOULD BE RESTORED Defendants arguments in support of the district courts remittitur of Gary Harkins punitive damage award against CUSA are based on (a) a startlingly partisan characterization of the facts undergirding Harkins false imprisonment claim, and (b) confusion over the import of the holding in the aforementioned Planned Parenthood case. Consequently, Harkins award should be restored. A. Harkins Claim Was Not Extremely Weak, Nor Was Liability Questionable.

As was the case with their Opening Brief, Defendants Third Brief glosses over of the severity of Defendants misconduct. This time, Defendants describe Harkins false imprisonment claim as being premised on the following facts: In essence, CUSA believed that Harkins had possession of a CUSA laptop that he refused to relinquish to CUSA after his termination. Accordingly, two CUSA representatives stopped Mr. Harkins in a hotel lobby and asked to look in his luggage for the laptop. Mr. Harkins let them, they did not find the laptop, and Mr. Harkins left the hotel. (TB 46.) Based on this recitation, Defendants conclude that Harkins claim was extremely weak, with questionable liability. (Id. at 48-49.)

The true facts are different. When Harkins attempted to leave the lobby of the Silver Legacy hotel in Reno, Nevada on September 7, 2006 after a CUSA board meeting, two CUSA Sergeants-at-Arms approached him, stepped toe-to-toe with him, and demanded to look for Mr. Harkins computer. (2 AER 337.)1 The following then ensued: I said, What? I said, I told Robert Dean I did not have it, because earlier in the meeting Robert Dean wanted my computer. I said I didnt have it with me. At that pointthese guys are a whole lot bigger than I am. I saw what they did to Brian and Richard. I thought, can I leave this area? I kind of backed up a little bit. They came up closer and got toe-to-toe with me again. Behind me there was some people standing behind me which were blocking the door. Basically I had nowhere to go. If I wanted to leave, I suppose I could have ran and left my luggage, but I wasnt going to do that. So they went through my luggage looking for my computer. They did not find it. I walked out to the taxi stand. Two of the people who were standing behind me came up to me and said, What was that about? I said, Thats what happens when you piss off Mike Jimenez. They said, Yeah. We understand that. Those same Sergeants-at-Arms had thrown Brian Dawe and Richard Loud out of the CUSA board meeting shortly before accosting Mr. Harkins. (Ibid; see, also, 2 AER 270.)
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(Ibid.) In response to later questioning, Mr. Harkins reiterated that the Sergeants-atArms were standing very, very close in front of him, and that the only way he would have been able to disengage from them was to r[u]n through the hotel lobby by f[i]ght[ing] through the people standing behind [him] because they were standing in the doorway. (Additional Supplemental Excerpts of Record [ASER] 14-15.) Elsewhere in his testimony, Harkins described the intimidation he felt during the episode: Basically, its intimidation. Thats what were running up against. Q. Let me ask you this, you described the event. Were you intimidated when this happened? A. Yes. These guys are a lot bigger than I am. Sandy Cadeemus (sic, should be Sandy Cadeem is), hes really into weight lifting. Hes very muscular. Scott Hoover is also very big. I saw how they were manhandling Brian out of the room. I know I wasnt going to be a match for them. (2 AER 338-339.) Harkins later reiterated that intimidation in response to defense counsels questioning:

Q. Mr. Harkins, how did Mr. Hasans appearance threaten you? A. His physical size. The close proximity. He was within what they call your space. He was really crowding me. The same thing with Mr. Hoover. Just the physical intimidation that was there. (ASER 16.)2 The above facts, which were undisputed at trial (Defendants called neither of the Sergeants-at-Arms nor any other witnesses to rebut Harkins testimony), stand in contrast to Defendants above-mentioned indication that the interchange was some sort of consensual, unremarkable event, or one for which liability was questionable. And, the jurys verdict shows that Defendants efforts to write revisionist history have already been rejected. B. Planned Parenthood Supports Restoring the Jurys Punitive Damage Award to Harkins.

In their Second Cross-Appeal Brief (Second Brief or SB), Plaintiffs detailed how this Courts decision in Planned Parenthood supports restoration of the jurys punitive damage award on Harkins false imprisonment claim because Harkins damage awards should have been compared on a defendant-by-defendant The surrounding testimony makes clear that the references in the excerpts to Mr. Hasan and Mr. Cadeem are to the same personthere appeared to be confusion by defense counsel and/or Harkins as to Sandys last name. (See, e.g., AER 337; ASER 11-13.)
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basis, rather than a claim-by-claim basis. (SB 67-70.) Under a defendant-bydefendant assessment, the ratio between Harkins punitive and compensatory awards against CUSA stood at .97:1 prior to remittitur (SB 65, 70; 1 ER 6), which was well within the proportional tolerances set forth in cases like State Farm. 538 U.S. at 435. In response, Defendants contend that because Planned Parenthood rejected both sides arguments to aggregate the awards in different ways, the decision supports an evaluation of punitive damage ratios on a claim-by-claim basis. (TB 48.) Defendants contention is incorrect, and is belied by a review of the arguments that were actually rejected by this Court. In that regard, the defendants in Planned Parenthood argued that the total compensatory damages recoverable by each plaintiff should be compared with the total punitive damages awarded to that plaintiff for the same alleged course of conduct by all defendants, while the plaintiffs argued that the punitive damage ratio should be calculated by comparing the total joint and several liability of each defendant for compensatory damages with that defendants liability for punitive damages. 42 F.3d at 960-61. The Court rejected the defendants argument because it failed to allow for the possibility that the reprehensibility of individual defendants can differ, then rejected the plaintiffs argument because it did not differentiate between the harm inflicted upon a particular plaintiff by a particular defendant. Ibid. Ultimately, the Court adopted a third approach, holding that in a

multi-plaintiff, multi-defendant action, an approach that compares each plaintiffs individual compensatory damages with the punitive damages awards against each defendant more accurately reflects the true relationship between the harm for which a particular defendant is responsible, and the punitive damages assessed against that defendant. Id. at 961. The Court also noted that it makes sense to compare each plaintiffs individual compensatory damages and punitive damages awards as to each defendant because this approach simplifies the task of assessing constitutional reasonableness. Id. at 962. The Courts holding is clear. Contrary to Defendants assertion that the Court compared the awards on a defendant-by-defendant basis because there was only one punitive damage claim against each defendant (TB 47), it actually did so because by the Courts own indicationsuch an approach more accurately reflects each defendants responsibility for the harm inflicted on each plaintiff. Here, because a defendant-by-defendant calculation of Harkins damages reveals a punitive-tocompensatory ratio of .97:1, the pre-remitted punitive damages against CUSA (totaling $10,000) should be restored. III. THE JURY WAS NOT REQUIRED TO APPLY A 1:1 RATIO TO PLAINTIFFS PUNITIVE DAMAGE AWARDS AGAINST CCPOA As discussed in Plaintiffs Second Brief (SB 68, 70-71), State Farm contemplates a soft ceiling for punitive damages, consisting of a single-digit ratio
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between punitive and compensatory awards. 538 U.S. at 435. However, where a defendants conduct is particularly reprehensible, or the compensatory damages are particularly difficult to detect or measure, a larger proportion of punitive damages may be awarded. (SB 71, and authorities cited therein.) Despite these principles, Defendants argue that no more than a 1:1 ratio could be utilized for Plaintiffs claims herein. (TB 49-53.) For four reasons, Defendants are mistaken. First, Defendants assert that because Flat Iron Mountain Associates was awarded $1 on its claims for intentional interference with prospective economic relations, it must have failed to prove any actual damage, and the jurys punitive damage award was per se excessive. (TB 50-51.) Defendants are incorrect. As a foundational matter, the fact that a jury awards only nominal damages in the compensatory class does not necessarily imply a finding that no more actual damage was sustained. Finney v. Lockhart, 35 Cal.2d 161, 164 (1950). Consistent with that principle, it is well established that a punitive damage award may permissibly accompany an award of nominal compensatory damages. In fact, punitive damages may be awarded in appropriate cases even if the injured party is not awarded any compensatory damages. Orange Blossom Ltd. Pship v. S. Cal. Sunbelt Developers, Inc., 608 F.3d 456, 465-466 (9th Cir. 2010) (no compensatory award, $130,000 in punitive damages); see, also, authorities cited at SB 72; Gagnon v. Continental

Casualty Co., 211 Cal.App.3d 1598, 1604-05 (1989); Carr v. Progressive Casualty Ins. Co., 152 Cal.App.3d 881, 892 (1984). Second, and relatedly, the fact that the jury awarded Plaintiffs nominal damages actually supports the contrary of Defendants arguments relative to appropriate punitive damage ratios in this caseto wit, that neither a 1:1 ratio nor a single-digit ratio must apply. [W]hen a jury only awards nominal damages or a small amount of compensatory damages, a punitive damages award may exceed the normal single digit ratio because a smaller amount would utterly fail to serve the traditional purposes underlying an award of punitive damages, which are to punish and deter. Hamlin v. Hampton Lumber Mills, Inc., 246 P.3d 1121, 1127 (Ore. Sup. Ct. 2011). This principle has been applied in cases throughout the country. In addition to the decisions cited in Plaintiffs Second Brief (SB 72), there are many other examples of courtsincluding this Courtdetermining that when nominal (or no) damages are awarded, adhering to a single digit ratio would frustrate the purpose of punitive damages. See, e.g., Orange Blossom, 608 F.3d at 465-466; Abner v. Kan. City S. R.R., 513 F.3d 154, 165 (5th Cir. 2008) ($1 in compensatory damages, $125,000 in punitive damages); Kemp v. Am. Tel. & Tel. Co., 393 F.3d 1354, 136465 (11th Cir. 2004) (allowing punitive damages award of $250,000 accompanying compensatory damages of $115.05 and holding that a single-digit multiplier ratio

would utterly fail to punish and deter). As this Court stated in Orange Blossom, [t]he due process inquiry compares the punitive damages awarded to the harm caused by the wrongful act, not merely to the actual damages awarded. 608 F.3d at 466 (emphasis in original); see, also, Lee v. Edwards, 101 F.3d 805, 811 (2nd Cir. 1996) (rejecting ratio analysis because the compensatory award here was nominal, [so] any appreciable exemplary award would produce a ratio that would appear excessive by this measure). Third, even when the compensatory award is more than nominal, the jury is not confined to a single-digit or 1:1 calculation. As stated by the Seventh Circuit with respect to punitive damage awards in general, the Supreme Court did not . . . lay down a 4-to-1 or single digit ratio ruleit said merely that there is a presumption against an award that has a 145-to-1 ratioand that it would be unreasonable to do so. Mathias v. Accor Econ. Lodging, Inc., 347 F.3d 672, 676 (7th Cir. 2003), citing State Farm. This is further evidence that the single-digit construct (which Defendants continue to bootstrap into a 1:1 rule hereTB 49-51) is not held nearly so dear as Defendants urge. And, once again, numerous cases bear this out. Swinton v. Potomac Corp., 270 F.3d 794, 817-820 (9th Cir. 2001) ($35,600 in compensatory damages, $1,000,000 in punitive damages); Mathias, 347 F.3d at 674-78 ($5,000 in compensatory damages, $186,000 in punitive damages); United

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States EEOC v. W&O Inc., 213 F.3d 600, 616 (11th Cir. 2000) (multiple awards, including one award of $3,800.24 in back pay and $100,000 in punitive damages, and another of $6,255.46 in back pay and $100,000 in punitive damages); Deters v. Equifax Credit Info. Servs., 202 F.3d 1262, 1273 (10th Cir. 2000) ($5,000 in compensatory damages, $295,000 in punitive damages).3 Finally, Defendants also err in suggesting that the above principles somehow have no application to a business tort, and instead are reserved for civil rights cases. (TB 53.) For example, the punitive damages in Mathias accompanied a finding of gross negligence by a hotel chain in relation to a bedbug infestation in one of its hotels (347 F.3d at 672), Orange Blossom involved an award against petitioning creditors in a bankruptcy case who filed their petition in bad faith (608 F.3d at 461), and the award in Kemp flowed from a finding of fraudulent billing and collection practices by a telephone company. 393 F.3d at 1357. Given the above, the jury was not restricted to applying either a 1:1 or single-digit ratio to Plaintiffs punitive damages against CCPOA, and Defendants

Nearly all of the cases cited in the above three paragraphs postdate the Supreme Courts decision in BMW of North America v. Gore, 517 U.S. 559 (1996), and many of them also postdate State Farm, thus (a) blunting Defendants complaint that three of the cases cited in Plaintiffs Second Brief predate those decisions, and (b) belying the n that those decisions somehow changed the relevant playing field. (TB 52.)

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arguments to the contrary do not withstand scrutiny. IV. APPLICATION OF STATE FARMS REPREHENSIBILITY FACTORS WARRANT A HIGHER DAMAGE AWARD RATIO In their Second Brief, Plaintiffs discussed the reprehensibility factors identified in State Farm for determining an appropriate measure of punitive damages. (SB 72-76; State Farm, 538 U.S. at 419.) In response, Defendants claim that at most, only one of the reprehensibility factors applies. (TB 54.) Once again, Defendants are incorrect. Even putting aside the fact that the State Farm subfactors are not an exclusive roster of the circumstances the jury may consider (SB 75-76), Defendants analysis of the subfactors themselves falls flat. A. The Health or Safety Subfactor Favors Plaintiffs.

In addressing the health or safety subfactor, Defendants raze a straw man, asserting that the fact that Defendants actions may have caused Plaintiffs to feel anger, sadness or other negative emotions does not satisfy [the health or safety] subfactor. If it did, the factor would be meaningless. (TB 55) After string citing several cases, Defendants conclude: Plaintiffs cite nothing to the contrary. In fact, Plaintiffs cite nothing at all on this point. (Id. at 54-55.) Plaintiffs cited nothing at all because Defendants statement is not an accurate formulation of Plaintiffs position. In fact, it has never been Plaintiffs contention that the actual harm suffered by a plaintiff (whether minor or severe) may
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be used by itself to fulfill the health or safety subfactor. Plaintiffs made that point clear in its Second Brief, as well as in the proceedings below. (SB 73 [Additionally, even if that harm had not occurred, the health or safety factor goes not to the actual harm caused, but to the nature and character of the conduct itself, and whether that conduct was done with disregard toward the plaintiffs health or safety]; 5 ER 1074.) It is unclear why Defendants continue to misconstrue Plaintiffs position. In any event, relevant case law establishes that the health or safety subfactor encompasses conduct that could be reasonably expected to disturb ones emotional state. In Roby v. McKesson Corporation, 47 Cal.4th 686 (2009), the plaintiff employee was subjected to rude and belittling comments by her supervisor, and was ultimately terminated for having a panic disorder. In discussing the health or safety subfactor, the Court wrote as follows: With respect to the second reprehensibility factor, it was objectively reasonable to assume that employer McKessons acts of discrimination and harassment toward Roby would affect her emotional well-being, and therefore McKessons conduct evinced an indifference to or a reckless disregard of the health or safety of others. Id. at 713, citing State Farm. Similarly, in Century Surety Co. v. Polisso, 139 Cal.App.4th 922 (2006), an insurance company was found to have acted with reckless indifference to [the plaintiffs] health and peace of mind in denying policy benefits, thus tilting the
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health or safety subfactor in the plaintiffs favor. Id. at 965. In addressing the above authorities in a footnote, Defendants continue to miss the point, distinguishing the cases by focusing on the harm caused by the conduct, rather than the conduct itself. (TB 56.) At the risk of repetition, the health or safety subfactor turns on an assessment of the latter, not the former. In that vein, both Roby and Century Surety stand for the proposition that one does not need to subject a plaintiff to physical harm in order to act in disregard of the plaintiffs health or safety; instead, conduct that can reasonably be anticipated to have a detrimental effect on the plaintiffs emotional well-being will suffice. Certainly, the totality of the evidence in this case shows not only that Defendants conduct did have an adverse effect on Plaintiffs emotional and mental health (see, e.g., 2 AER 313315, 352-355), but thatfor purposes of the health or safety subfactorit was objectively reasonable to assume that Defendants acts would have such an effect. Roby, 47 Cal.4th at 713. Moreover, it is important to stress that the health or safety subfactor is disjunctive. State Farm, 538 U.S. at 419. Thus, conduct that is not necessarily calculated to threaten a persons safety can nonetheless be designed to haveand actually havean impact on that same persons health and well being. The Century Surety court drove that point home by highlighting the defendants indifference to

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the plaintiffs peace of mind. 139 Cal.App.4th at 965. Here, Defendants charges of fraud, embezzlement, and the like constituted not only an attack on Plaintiffs business reputations, but their personal reputations as well, and the actual harm produced went well beyond pure economics. (SB 18.) B. The Financial Vulnerability Subfactor Favors Plaintiffs.

With respect to Plaintiffs financial vulnerability, Defendants tender an argument borne from the playgroundthey started it. (TB 56-57.) In addition to the fact that the argument is based on a faulty factual premise (SB 8, 12; see, ASER 5-6, 8-9), it is unreflective of any legitimate legal defense. As the district court stated during trial regarding the defense of you defamed me, therefore I can defame you: You know thats not law. (ASER 4; see, also, ASER 10 [court tells defense counsel that theres only a libel action against your clients, and they cant justify their libel even assuming that there was libel on the other side.].) And, regarding the timing of the January 10 email exchange in which Joseph Baumann and Roy Pinto committed to smashing these people (1 AER 195), that exchange took place right in the middle of the worst of Defendants defamatory communicationsone week after the January 3 hit piece transmitted by Baumann on Defendants behalf (Exh. 16D [4 ER, Tab 55]; 2 AER 382-384), ten days before CUSAs Operation Kill ACO meeting (Exh. 16V [1 AER, p. 207]), and two weeks before Mike

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Jimenezs PLEASE BEWARE letter to correctional officers and organizations throughout the country. (Exh. 1038 [1 AER, pp. 199-200].) The timing and content of the January 10 email exchange serve as powerful evidence of a concerted effort to cause Plaintiffs financial ruin by any means necessary.4 Defendants attempt to paint the exchange as merely a discussion of how best to defend Plaintiffs lawsuit blows through all bounds of credibility, and the jury was not required to accept such a milquetoast characterization in conducting its analysis. Furthermore, as to Defendants indiction that Plaintiffs cite to just one exhibit on the subject of financial vulnerability (TB 56), that one exhibit was cited to highlight Defendants knowledge of that vulnerability. However, the financial vulnerability subfactor does not focus merely on the bad actors knowledge, but on the more basic question of whetherthe target of the conduct had financial vulnerability. State Farm, 538 U.S. at 419 (emphasis added). Plaintiffs presented plenty of evidence at trial that established the fact of that vulnerability, and cited it in their Second Brief. (SB 18, citing 2 AER 308-315, 325-328, 353-355.) Defendants knowledge of that vulnerability is just another brick in the wall.
4

By contrast, the email from Dawe to Harkins cited by Defendants (TB 56-57) which dealt with discovery requests to be propounded to Defendantswas written in May of 2007, months after Defendants had administered the coup de grace to Plaintiffs new business efforts. (1 SER 9, p. 67, third paragraph.)

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C.

The Pattern and Practice Subfactor Favors Plaintiffs.

In regards to the pattern and practice subfactor, Defendants argue that their sustained campaign of defamation should be viewed as a singular act. Invoking several decisions, including Simon v. San Pablo U.S. Holding Co., Inc., 35 Cal.4th 1159 (2005) and Amerigraphics v. Mercury Cas. Co., 182 Cal.App.4th 1538 (2010), Defendants contend that the subfactor only applies where a defendant has engaged in similar misconduct, against the same or different parties, outside the context of the dispute at issue. (TB 58 [emphasis in original].) That argument is also misguided. Indeed, Simon, Amerigraphics, and the other two cases cited by Defendants in which recidivism was not found (Walker v. Farmers Ins. Exchange, 153 Cal.App.4th 965, 975 (2007) and Park v. Mobil Oil Guam, 2004 WL 2595897, at *13 (2004)) are easily dismissed because they involve either (a) a single breach of contract and/or (b) repeated performance of the same act over an extended period of time. A more instructive analysis is found in Bardis v. Oates, 119 Cal.App.4th 1 (2004). There, the defendant formed a partnership with the plaintiffs and

subsequently engaged in a series of unsavory business practices, including charging an unauthorized fee for managing the partnership, marking up vendor invoices and retaining the marked-up amounts, and misappropriating commissions due the

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partnership. (Id. at 6-9.) In evaluating the reprehensibility of the defendants conduct, the court found repeat offender status because the kickbacks, markups and concealed commissions were part of a systematic pattern by [the defendant] of bilking his partners out of funds legitimately belonging to the partnership. He repeatedly fleeced the partnership to line his own pockets. Id. at 22. Bardis bears a far closer resemblance to this case than the decisions cited by Defendants. Like the defendant in Bardis, Defendants also engaged in a systematic pattern of misconduct; here, that conduct was designed to undercut, defame, and financially wreck Plaintiffs. Defendants are every bit the repeat offender of the Bardis defendant, and, to paraphrase Defendants, all of the conduct at issue in both cases came inside, not outside, the context of the dispute at issue. Defendants close their discussion of the pattern and practice subfactor with the indication that [f]ollowing Plaintiffs logic, any time there is more than one publication of a defamatory statement, the defendant would automatically become a recidivist. (TB 60.) That is an alarmist indication, at best. Certainly, if one defamatory publication was thereafter republished, that circumstance would likely not establish a pattern and practice. (Nor would an insurers persistent denial of a defenseWalker, 153 at 975.) Of course, that is not the circumstance presented

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here; instead, this case involves multiple publications of several different defamatory communications to a variety of recipients over a period of months. D. The Malice, Trickery, and Deceit Subfactor Favors Plaintiffs.

As to malice, trickery, and deceit, Defendants argue that despite the jurys acknowledged finding of malice, a punitive damage award exceeding a 1:1 ratio is not justified because [t]his was a garden variety business dispute where the talk (by both sides) was macho-tough and colorful. (TB 61.) That argument is triply inapt. First, as stated above, Defendants cannot escape the consequences of their conduct by referring back to Plaintiffs statements, and the district properly rejected the proposition that you defamed me, therefore I can defame you. (ASER 4.) Second, Defendants publications went far beyond macho-tough talk. To be sure, it is not macho to accuse another person of embezzlement, fraud, conversion, using organization funds to fall off the wagon,5 and being a conit is defamatory.

Defendants state that Mr. Dawe admitted that he was not bringing a defamation claim on the falling off the wagon statement. (TB 11.) While the statement is correct as far as it goes (because Mr. Dawe was a recovering alcoholic who would occasionally have a drink while on the road recruitingthus falling off the wagon), the clear gist or sting of the statementespecially when read in conjunction with the remainder of the January 3, 2007 emailis that Dawe was using CUSA funds as his own personal mad money, including as a personal booze fund. Thus, the communication, including the on and off the wagon phrase, is
(footnote continued) 19

Finally, with regard to the notion that their conduct was merely the product of a garden variety business dispute, Defendants give no explanation of why that matters. Under Defendants apparent worldview, Bardis would also be

characterized as a garden variety business dispute. However, the court in that case held that [t]he record...overwhelmingly supports a finding that the harm was caused as the result of intentional fraud, malice and deceit so as to justify a punitive damage ratio of 9:1. Id. at 22, and generally at 22-27.) Therefore, even if

Defendants labeling of this dispute were accurate (a proposition with which Plaintiffs disagree), that label would have no impact whatsoever on the degree of malice, trickery, and deceit that imbued Defendants actions.

actionable. As stated by a leading commentator: Proof that part of a defamatory publication is true does not bar liability completely. The plaintiff is entitled to recover damages for any material part of a defamatory publication that is not true. Nor does merely proving the literal accuracy of every fact in a publication necessarily bar liability. The defamatory implications of statements must be true as well as the statements themselves. Levy, Golden and Sacks, California Torts, 45.10[3], at p. 45-50.1 (Matthew Bender 2009) (emphasis added, internal citations omitted).

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V.

THE PERMISSIBILITY OF THE JURYS PUNITIVE DAMAGE AWARD AGAINST CCPOA IS NOT DETERMINED BY CCPOAS NET WORTH Defendants finish their brief by arguing that the district courts remittitur of

the punitive damage award against CCPOA was proper because punitive damages generally do not exceed ten percent of a defendants net worth, while the award in this case represented almost one-and-a-half times [CCPOAs] net worth obviously a financially devastating amount. (TB 63 [emphasis in original].) Here again, Defendants are mistaken. A. Net Worth is Not the Overarching Analytical Touchstone, and a Jurys Award May Permissibly Exceed Ten Percent of Net Worth.

To begin with, the ten percent of net worth rule for which Defendants advocate is no rule at all. Indeed, case law makes clear that a proper punitive

damages analysis does not turn on defendants net worth, but on whether the amount of damages exceeds the level necessary to properly punish and deter. Zaxis Wireless Communications, Inc. v. Motor Sound Corp., 89 Cal.App.4th 577 (2001) (emphasis added). In Zaxis, a punitive damage award of $300,000 against a corporation was upheld despite the fact that the corporation technically had a net worth of negative $6.3 million. Id. at 579-580. In reaching its decision, the court noted that the

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California Supreme Court has expressly declined to adopt net worth as the standard for determining a defendants ability to pay in any given situation (citing Adams v. Murakami, 54 Cal.3d 105, 116 (1991)), and itself concluded that [n]et worth is too easily subject to manipulation to be the sole standard for measuring a defendants ability to pay. Zaxis, 89 Cal.App.4th at 582; see, also, Lara v. Cadag, 13 Cal.App.4th 1061, 1064-1065 & fn. 3 (1993) (Net worth is subject to easy manipulation and, in our view, it should not be the only permissible standard. Indeed, it is likely that blind adherence to any one standard could sometimes result in awards which neither deter nor punish or which deter or punish too much.); Michelson v. Hamada, 29 Cal.App.4th 1566, 1596 (1994); Rufo v. Simpson, 86 Cal.App.4th 573, 624-625 (2001). Therefore, in the words of the Zaxis court, it was appropriate for the jury to consider[] net worth and a variety of other factors included on the financial documents presented by Zaxis to conclude Motor Sound had the ability to pay a punitive damage award of $300,000. 89 Cal.App.4th at 583 (emphasis added). Among other things, those documents showed Motor Sound earned hundreds of millions of dollars in 1997 and 1998 but had a net loss. Ibid. see, also, Rufo, 86 Cal.App.4th at 624-625 (punitive damage award exceeding defendants net worth upheld based on other evidence of financial condition); Mathias, 347 F.3d at 677-678 (net worth is not the correct measure of a corporations resources, but an

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accounting artifact). These tenets are borne out by the accounting literature, which makes clear that a myopic focus on net worth is not appropriate: In addition to evaluating the venture profits and the relevant entitys net worth, the ability of an individual, division, or company to generate cash flows may be relevant to the analysis of punitive damages. [] In evaluating an entitys ability to generate cash, one should focus on the future ability, not the past. As a result of past success, some companies have generated a large net worth, but due to changes in competition or demand for their products or services now earn little. There are also start-up companies that incur large development expenses to get started and have a large negative net worth, but currently or in the future have the ability to earn substantial profits. If the decision maker ignores cash flow and focuses on the entitys net worth, the former entity may be overdeterred and the latter company will be underdeterred. Weil, Wagner & Frank, Litigation Services Handbook: The Role of the Accountant as Expert (2nd ed.), 36.5, at pp. 36-9 36-10). B. CCPOAs Stated Net Worth Is Not Legitimately Indicative of Its Financial Condition.

The above considerations come home to roost in the captioned matter, and demonstrate the malleability (and unreliability) of net worth in this case. First, even looking at CCPOAs ascribed net worth in isolation, that net worth according to Chief Financial Officer Jeff Nicolaysen and the financial statement he

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preparedswung from $6,992,199 during the week of October 11, 2010 to $4,704,794 the very next week. (ASER 20-21, 25-26; Exh. 1182, p. 1 [ASER 46] [heading entitled Total Net Assets].) And, that one-third decline was solely attributable to the $2,287,405 compensatory judgment in this case. (ASER 26; Exh. 1182, p. 1 [ASER 46] [heading entitled Accounts Payable-Court Decision: Dawe v. CUSA].) Unless CCPOA has plans to get hit with various other multi-million dollar verdicts on a yearly basis, we are faced with a situation where Defendants would severely limit the jurys punitive damage award based on a unique event. Second, the additional evidence and testimony brought out through Mr. Nicolaysen (who was designated by CCPOA as its person most knowledgeable regarding financial conditionASER 18-19) is telling, and shows exactly why net worth cannot be viewed as an analytical panacea. Among other things, the following information was elicited from Mr. Nicolaysen: CCPOA depressed its cash balance from $3.47 million on August 31, 2010 to $1.87 million by the time of Mr. Nicolaysens October 22, 2010 trial testimony. (ASER 27-28.) Of the $2.5 million in CCPOAs accounts payable owing at the time of Mr. Nicolaysens testimony, approximately $1.5 million was attributable to attorneys fees owed by CCPOA for services rendered in

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this case to two firms (for the services of approximately ten lawyers). (ASER 22-23.) Mr. Nicolaysen acknowledged that such was not an expenditure that was going to be repeated on an ongoing annual basis. (ASER 24-25.) CCPOA budgeted approximately $4.5 million in legal expenses for fiscal year 2010-2011. That estimate, in turn, was based on

expenditures incurred the prior yeari.e., while this litigation was in full stride. (ASER 32-33; Exh. 1183, p. 2, Item 28 [ASER 49].) CCPOAs fiscal year 2010-2011 budget saw CCPOAs 90 or so employees being paid a total of $7.74 million, for an annual average of approximately $86,000 per employee. (ASER 31; Exh. 1183, p. 3, Item 56 [ASER 50].) That did not include the budgeting of an additional $3.37 million for employee benefits. (ASER 33; Exh. 1183, p. 1, Item 18 [ASER 48].) CCPOA budgeted approximately $3.6 million for political action committee expenditures for fiscal year 2010-2011. (ASER 33; Exh. 1183, p. 2, Item 40 [ASER 49].) CCPOAs four largest budget items for fiscal year 2010-2011legal expenses, employee salaries, employee benefits, and political action
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committee fundingtotaled approximately $19.2 million, or more than four times CCPOAs claimed net worth. (ASER 33-34; Exh. 1183, Items 18, 28, 40, and 56 [ASER 48-50].) Other budgeted items for fiscal year 2010-2011 included $1.8 million for advertising and public relations, $409,510 for lobbyist expenses (in addition to the above-referenced PAC costs), $258,000 for political coordination, $350,000 for executive board expenses, $380,000 for travel, food, and lodging, and $525,000 for legal defense (in addition to the above-referenced $4.5 million in legal fees). All told, the total amount of CCPOAs budgeted expenditures for fiscal year 2010-2011 was over $29.9 million, or approximately 6.4 times CCPOAs claimed net worth. Critically, none of those figures played any role in Mr. Nicolaysens analysis of CCPOAs net worth. (ASER 34-37; Exh. 1183, Items 22, 27, 31, 45, 64, and Total [ASER 48-51].) CCPOA owned (a) its West Sacramento headquarters for which it paid $4,000,000; (b) a piece of land in Rancho Cucamonga for which it paid $700,000; and (c) two houses in Natomas for which it paid $600,000, and which were used as the weekday residences of CCPOA Executive Council members Chuck Helton and Perry Speth. All of these pieces of

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real property were owned free and clear. (ASER 37-40.) CCPOA also paid for an apartment for the individual who, among other apparent duties, operated as President Mike Jimenezs driver. (ASER 40-41.) In 2010, CCPOA purchased eight vehicles at a total cost of approximately $160,000-$176,000. CCPOA purchases between five and eight new vehicles each year. (ASER 42.) CCPOA annually purchases half a box for Sacramento Kings games, costing approximately $230,000 per year. (ASER 43-44.) CCPOA annually purchases a box for Sacramento River Cats games, costing approximately $23,000 per year. (ASER 45.) Most importantly, CCPOA has approximately 31,300 members, which number has stayed roughly the same over the years. Monthly revenues from CCPOA members total approximately $2.49 million, or about $29.88 million per year. (ASER 29-30.) In light of the above considerations (similar considerations attend to the analysis of the financial condition of CUSA, which was bringing in approximately

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$800,000 per year when Plaintiffs were kicked outASER 26), it would be the height of form over substance to accord any significant weight to CCPOAs net worth numbers, much less to conclude that the jury was somehow restricted to a mere ten percent of those already meaningless numbers in arriving at an appropriate punitive damage figure. VI. CONCLUSION Given the above, as well as the discussion set forth in Plaintiffs Second Brief, Plaintiffs request that the punitive damage awards in this case be restored to the amounts set forth on pages 64 and 65 of Plaintiffs Second Brief. Respectfully submitted, DATED: May 18, 2012 WILKE, FLEURY, HOFFELT, GOULD & BIRNEY, LLP

By:

/s/ Daniel L. Baxter DANIEL L. BAXTER Attorneys for Appellees/Cross-Appellants BRIAN DAWE; FLAT IRON MOUNTAIN ASSOCIATES, LLC; and GARY HARKINS

Plaintiffs note this fact in light of Defendants passing argument that remittitur of Gary Harkins punitive damage award against CUSA was appropriate because of CUSAs very limited net worth. (TB 49.)

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CERTIFICATE OF COMPLIANCE Pursuant to Federal Rule of Appellate Procedure 32(a)(7)(C) and Ninth Circuit Rule 32-1, I certify that the text of this brief (including footnotes) is proportionately spaced, has a typeface of 14 points, and consists of 6,124 words, as counted by the MicroSoft Word word processing program used to generate the brief. DATED: May 18, 2012

/s/ Daniel L. Baxter DANIEL L. BAXTER

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CERTIFICATE OF SERVICE United States Court of Appeals for the Ninth Circuit, Case Nos. 11-16284 and 1116416 I hereby certify that on May 18, 2012, I electronically filed the Fourth CrossAppeal Brief: Cross-Appeal Reply Brief of Appellees/Cross-Appellants Brian Dawe, Flat Iron Mountain Associates, LLC, and Gary Harkins with the Clerk of the Court for the United States Court of Appeals for the Ninth Circuit by using the appellate CM/ECF system. I certify that all participants in the case are registered CM/ECF users and that service will be accomplished by the CM/ECF system. I further certify that on May 18, 2012, I filed via overnight delivery four copies of Additional Supplemental Excerpts of Record, Volume 1 with the Clerk of the Court for the United States Court of Appeals for the Ninth Circuit, and additionally served one copy of those Excerpts via overnight delivery to the following recipients: Michael M. Berger Thomas J. Umberg Manatt, Phelps & Phillips, LLP 11355 West Olympic Boulevard Los Angeles, CA 90064 DATED: May 18, 2012

/s/ Daniel L. Baxter DANIEL L. BAXTER

794898.1

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