Tesla Race Bias Damages Award Sets Up Another Post-Trial Fight

A California federal jury’s decision giving $3.2 million to a former Tesla Inc. contractor in a long-running racial discrimination case opened a new legal question over whether the amount awarded for punitive damages in the case is in line with judicial precedent.

The verdict reached earlier this week in the US District Court for the Northern District of California has cleared the stage for a post-trial battle over the award—98% less than the “staggering” $137 million a different jury awarded to Owen Diaz two years ago.

Diaz, who is Black, sought a retrial on damages after the trial judge in April 2022 reduced the initial award because it was excessive and out of sync with what the evidence in the case and Supreme Court precedent would allow. The judge slashed the original $6.9 million compensatory damages payout for emotional distress to $1.5 million and the $130 million punitive damages award to $13.5 million.

The high court’s 2004 decision in State Farm v. Campbell held that a punitive damages award should have a single-digit ratio to the compensatory damages award. Punitive damages that are more than 10 times compensatory damages would violate due process requirements, it said.

But the Diaz jury came back with $175,000 for compensatory damages and $3 million in punitive damages. Employment attorneys said the latest verdict may once again invite legal scrutiny because it’s not in line with State Farm. A ruling on this issue could potentially offer more clarity on the standard for awarding punitive damages, some said.

“There are constitutional limits to how much a punitive award can be a multiple of compensatory damages,” said Anthony J. Oncidi, co-chair of Proskauer Rose LLP’s labor and employment law department. “So I would say there’s still more reduction that may need to be made by either the trial court or by an appeals court.”

Oncidi noted that the punitive damages awarded this week are 17 times the amount for compensatory damages.

Eric Amdursky, co-chair of O’Melveny & Myers LLP’s labor & employment practice group, agreed that the ratio between both damages may need to fall within the Supreme Court’s limits set out in State Farm.

The award that Diaz won in 2021 was among the highest ever for an individual suing over discrimination in the US. When the trial judge reduced it, he kept with a nine-to-one ratio by setting aside $1.5 million for compensatory damages and $13.5 million for punitive damages.

“I suspect he will do the same thing here,” Amdursky said.

Damage Guidance Needed?

Diaz sued under the federal Civil Rights Act of 1866, also known as Section 1981, alleging that he endured widespread use of the N-word and other racist conduct by co-workers at the electric carmaker’s plant in Fremont, Calif. Section 1981 provides remedies for people who have been subjected to racial harassment and discrimination but the statute doesn’t have a cap for monetary damages.

But the US Court of Appeals for the Ninth Circuit’s 2003 Zhang v. American Gem Seafoods Inc. decision held that the $300,000 statutory limit on punitive damages in Title VII cases was an appropriate benchmark for reviewing damages awards in litigation under Section 1981.

If Diaz’s case goes to the Ninth Circuit, it could signal how trial courts should weigh the legal standard governing punitive damages, said Ting Cheung of Sanford Heisler Sharp LLP.

State Farm neither explicitly held that an award for punitive damages “can never” exceed the single-digit ratio “nor did it spell out when or by how much you can go beyond the single digital ratio,” Cheung said.

“That’s the legal question that has been left opened,” she added. “What I’ve seen over the past few years is that courts have been reluctant to pinpoint a particular ratio or provide more clarity on this.”

But Oncidi said State Farm is already clear. The real “problem” is jurors not being instructed on the constitutional limitations governing punitive damages, he argued.

“Everyone in the courtroom, including the lawyers on both sides and the judge, know about these constitutional limits. The jury, which is the most important decider in the room, is being asked to award a huge amount in punitive damages based on relatively small amounts of compensatory damages that are way out of whack from a constitutional standpoint,” Oncidi said, adding that the Supreme Court doesn’t write jury instructions, so the State Bar of California, and both the plaintiff and the defense bars, may have to reach an agreement on this issue.

That would be a hard sell.

A plaintiff “would much rather have the ratio be far in excess of the constitutional limits. It strengthens their hand” on appeal and in settlements, he said.

Meanwhile, the defense “doesn’t want to put in the minds of the jury some ratio that they might not otherwise be thinking,” Oncidi added. “But I think it’s becoming too chaotic” and jurors “really deserved to be told what the law is about this.”

Employers Beware

Despite the massive reduction in damages, "$3.4 million is still a big victory for someone who worked at Tesla for nine months,” Amdursky said.

This case also serves as another wake-up call for Tesla and other employers to properly probe and weed out discriminatory behavior inside the workplace, legal observers said.

Elon Musk’s company has faced years of complaints from Black workers that factory managers ignored the use of racial slurs on the assembly line and were slow to clean up graffiti with swastikas and other hate symbols scrawled in common areas.

“The headlines send a big message to employers that this can have serious ramifications,” Amdursky said.

Both juries found that Tesla’s conduct was “reprehensible” and that it shouldn’t happen, he noted. “They were clearly sending a message that the conduct shouldn’t have been condoned.”

Jennifer Schwartz, a partner at Outten & Golden LLP, said employers also must be “careful about not minimizing what might have appeared to managers, human resources, and investigators as de minimus conduct.”

But counsel for Tesla did just that during the second trial, Diaz’s legal team said.

The plaintiff’s credibility was wrongly attacked by the defense to undermine the jury’s perception of him, Diaz’s attorney J. Bernard Alexander of Alexander Morrison & Fehr LLP said in a statement earlier this week through a representative. The attorney filed a request last week for a new trial, citing “misconduct” by Tesla’s team.

“We’ll let the dust settle and get the court’s rulings on the defense misconduct while we determine next steps,” he said.

Tesla’s attorney Alex Spiro of Quinn Emanuel Urquhart & Sullivan LLP declined to comment.