This published opinion departs from California’s usual rule that a plaintiff seeking punitive damages must present meaningful evidence of the defendant’s financial condition, including not just evidence of income and assets, but also evidence of liabilities and expenses.
A rather unique feature of California punitive damages law, discussed on this blog many times, is that a plaintiff seeking punitive damages bears the burden of presenting meaningful evidence of the defendant’s financial condition. Our appellate courts have repeatedly held that evidence of financial condition is not meaningful if it is incomplete. For example, Baxter v. Peterson explained that “[n]ormally, evidence of liabilities should accompany evidence of assets, and evidence of exposures should accompany evidence of income.” Similarly, Lara v. Cadag stated that where “the evidence is limited to proof of the defendant’s annual income, there is insufficient evidence to support an award of punitive damages.” And Farmers & Merchants Trust Co. v. Vanetik stated that “[w]e may not infer sufficient wealth to pay a punitive damages award from a narrow set of data points, such as ownership of valuable assets or a substantial annual income.”
The Court of Appeal in this case (Second District, Division Eight) cited all of these authorities but declined to follow them. Instead, the court upheld punitive damages awards of $500,000 and $1 million against two individual defendants based on evidence of their income, without any evidence of their liabilities or expenses. The court explained that because the defendants earned millions of dollars in revenues from their business, and because they made efforts to funnel these revenues through shell companies without accounting records, the evidence was sufficient to uphold the “relatively modest” awards of punitive damages.
In my opinion, this case is a prime candidate for depublication. The result of the case is not particularly outrageous, but the court’s departure from well-settled law threatens to create confusion and uncertainty in future litigation.