In this unpublished opinion, the California Court of Appeal (Fifth District) affirmed a $15 million punitive damages award and held that the defendant forfeited some of its arguments by failing to respond to the plaintiff’s demands for financial information.

The underlying facts of the case involve a patient in a memory care facility. A staffer at the facility escorted the patient to the dining area and discovered about 90 minutes later that the patient was missing from the facility. He was found lying outside the facility with injuries to knees and elbow. He ultimately underwent multiple surgeries for his injuries and died about five months after the incident.

His heirs sued the facility for negligence and elder abuse and obtained a jury verdict for $149,000 in economic damages, $8 million in noneconomic damages, and $15 million in punitive damages. Half of the noneconomic damages—$4 million—represented the decedent’s own pain and suffering. The trial court reduced that amount to $250,000 under the applicable MICRA cap, Civil Code section 3333.2, subdivision (b).

The defendant appealed and argued, among other things, that the punitive damages award should be vacated because the plaintiffs failed to introduce meaningful evidence of the defendant’s financial condition, as required under California law. The Court of Appeal rejected this argument, finding that the defendant forfeited its right to raise this issue because the defendant failed to respond adequately to the plaintiff’s request for financial information.

Prior to trial, the plaintiff served two notices on the defendant under Code of Civil Procedure section 1987, requesting that a corporate representative appear at trial and produce financial records. The defendant objected to the first notice but did not object to the second. If the defendant had objected, then the defendant would have been excused from complying with the notice unless the plaintiff filed a motion to compel and obtained a court order for the production of the records. But because the defendant failed to object, the defendant was obligated to produce the documents at trial and, having failed to make an adequate production, forfeited its right to complain that the financial condition evidence was insufficient, or that the award was excessive in relation to the evidence presented.

The defendant also argued that the $15 million award was excessive. The defendant argued that the award was 37.6 times greater than the compensatory damages as reduced by the trial court. The Court of Appeal rejected this argument too, concluding that the award should be compared to the jury’s verdict, not to the net compensatory damages award after application of the MICRA cap, because the jury’s award represented the actual harm caused by the defendant’s conduct, even if some of that harm is legally noncompensable.

This unpublished opinion provides guidance about the evidentiary showing that a plaintiff must make when seeking punitive damages as part of a default judgment.

As often discussed on this blog, plaintiffs seeking punitive damages in California must present meaningful evidence of the defendant’s financial condition, so that the court can ensure that the amount of punitive damages is not disproportionate to the defendant’s ability to pay.  In this case, the plaintiff obtained a judgment by default, including an award of punitive damages.  To meet his burden of presenting evidence of the defendant’s financial condition, he submitted a declaration stating that the defendant owns revenue-generating websites, owns two Porsches, and lives in a house owned by his parents and therefore has no housing expenses.  However, the plaintiff’s declaration did not explain how he knew any of these facts.

On appeal, the Court of Appeal (Fourth District, Division Three) struck the amount of punitive damages on the ground that the plaintiff’s declaration was not based on personal knowledge, as required by Code of Civil Procedure section 585, subdivision (d).  Ordinarily, when a court reverses a punitive damages award due to insufficient evidence of the defendant’s financial condition, the court simply vacates the award and does not allow the plaintiff to try again.  But in this case, because judgment was entered by default and the plaintiff did not have an opportunity to conduct discovery on the defendant’s financial condition, the court remanded the case to permit the plaintiff to conduct such discovery “should he chose to expend the fees necessary to acquire this information.”

Just two days ago we noted that California appellate courts often reverse punitive damages awards because the plaintiff failed to introduce meaningful evidence of the defendant’s financial condition.  Here’s a case in which the trial court vacated a jury’s punitive damages award on the same ground, and the Court of Appeal affirmed.

In this defamation case, the jury ruled for the plaintiffs and awarded $44,500 in compensatory damages and $55,000 in punitive damages.  The trial court vacated the punitive damages award because the plaintiff failed to present evidence of the defendants’ financial condition.

The plaintiffs appealed, arguing their evidence of financial condition was sufficient.  The Court of Appeal (Fourth District, Division Three) disagreed.  It noted that plaintiffs presented evidence that one defendant was a Mercedes-Benz dealership, and the other defendant was a salesman who sold 9,000 vehicles a year.  But the plaintiffs presented no evidence of the defendants’ expenses or liabilities: ” ‘we 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.’ “

We have reported many times on cases in which the Court of Appeal reversed a punitive damages award because the plaintiff failed to introduce meaningful evidence of the defendant’s financial condition.  That appears to be what happened in this opinion, which was issued on May 13 but published on June 6.  But the court’s analysis is a bit unusual.

The case involves a lawsuit for invasion of privacy.  After a bench trial, the trial court awarded plaintiffs over $800,000 in compensatory damages.  The court further concluded that the defendant acted with malice and should pay an additional $230,000 in punitive damages.   The defendant appealed, challenging the punitive damages award as unwarranted and excessive.

The Court of Appeal concluded that the record contained evidence of one asset owned by the defendant (an asset worth $230,000), but no evidence of the defendant’s liabilities or expenses, other than the fact that the defendant owes $800,000 in compensatory damages.  Prior cases have held that a plaintiff seeking punitive damages cannot simply introduce evidence of the defendant’s assets and income, without providing any evidence of the defendant’s liabilities and expenses.  That information is necessary to meet the plaintiff’s burden of introducing “meaningful” financial condition evidence under Adams v. Murakami.

So it wouldn’t have been surprising if the Court of Appeal had stated that award should be reversed because the plaintiffs here failed to carry their burden under Adams.  But what’s unusual about this opinion is that it spends time setting forth the standards for reviewing a punitive damages award for excessiveness.  It’s not clear why the court included that discussion, because there is no need to consider whether the amount of a punitive damages award is excessive if the court concludes that the plaintiffs aren’t entitled to any award at all because they failed to carry their burden of presenting meaningful financial condition evidence.  The remedy is quite different for those two different issues.  If the award is excessive, the appropriate remedy is to reduce the award or order a new trial.  But if there’s a failure of proof on the financial condition issue, the appropriate remedy is to vacate the punitive damages award altogether.

Here, after a few pages of discussion about excessiveness, the court ultimately decides to vacate the award altogether due to insufficiency of the evidence.  As noted, that result is well supported by existing law.  But it remains unclear why the opinion contains the discussion of excessiveness, when the court didn’t actually decide whether the amount was excessive.  Perhaps the court just wanted to provide some guidance about how it would have viewed the question of excessiveness if it had decided the case on that basis.

Read here for additional commentary on this opinion from The California Appellate Report.

Here is another installment in the long line of unpublished California opinions reversing a punitive damages award on the grounds that the plaintiff failed to present evidence of the defendant’s financial condition.  This opinion addresses a recurring sub-issue in this area: if the defendant has no current balance sheets or other financial documents, does that excuse the plaintiff from presenting evidence of the defendant’s current finances?  The answer is no.

The plaintiff sued his former employer for discrimination and harassment.  Shortly before trial, he served the defendant with a notice to produce documents at trial, including the defendant’s financial records.  The defendant objected and the plaintiff filed a motion to compel production of the documents.  The trial court granted the motion and ordered the defendant to produce its tax returns, income statements, and balance sheets. 

On the first day of trial, the defendant provided the plaintiff with its documents through 2015, but did not produce any documents for 2016 or 2017.  (The trial took place in 2018.)  The company had apparently stopped operating in 2017.  When the plaintiff asked the defendant to produce records for 2016 and 2017, the defendant argued that it had “produced what existed” and was not required to “go create things.”  The trial court agreed, and informed the plaintiff that he still needed to carry his burden of proof on the financial condition issue.

The case proceeded to trial and the plaintiff won a jury verdict for $72,000 in compensatory damages and $750,000 in punitive damages.  The defendant appealed, arguing that the plaintiff had failed to present evidence of the defendant’s financial condition at the time of trial.

The Court of Appeal (Second District, Division Four) agreed and reversed the punitive damages award. The court held that the record contained evidence of the defendant’s finances in 2016, but absolutely no evidence of the defendant’s finances in 2018.  The record showed that the defendant ceased operations in 2017, and there was no evidence that it maintained the same assets or equity in 2017 or 2018 that it had in 2016. 

The plaintiff argued that the defendant should be estopped from complaining about the lack of  evidence of its current finances because the defendant failed to produce financial records for 2017 or 2018.  The Court of Appeal rejected that argument, citing the trial court’s finding that the defendant produced all the information in its possession, and was not required to create non-existent documents in order to comply with the court’s discovery order.  The court also rejected the plaintiff’s request to consider new evidence that the plaintiff obtained while the appeal was pending.  The plaintiff bore the burden of presenting financial condition evidence at trial, and that failure could not be cured by supplementing the record after the fact.

In this unpublished opinion, the California Court of Appeal (Second District, Division Seven) once again reversed a punitive damages award because the plaintiff failed to present evidence of the defendant’s financial condition.

The plaintiff presented evidence that the defendant owned four pieces of real property, but presented no evidence of the defendant’s liabilities, including the encumbrances on those properties.  That was insufficient to support a punitive damages award, under the well-established rule that “evidence of liabilities should accompany evidence of assets.”  Accordingly, the court directed the trial court to enter judgment for the defendant on the issue of punitive damages.

This case is a reminder that California law requires plaintiffs to present evidence of the defendant’s financial condition as a prerequisite to obtaining punitive damages, even in default judgments.

In this case, the plaintiffs argued on appeal that their default judgment should be affirmed, including $57,000 in punitive damages, even though they presented no evidence of the defendant’s finances.  They argued that the defendant’s failure to respond to their complaint deprived them of the opportunity to obtain information about the defendant’s finances. 

The Court of Appeal (Second District, Division Two) rejected that argument in an unpublished opinion.  The court noted that plaintiffs failed to show that they even tried to meet their burden: “our review of the record reveals no showing of what efforts, if any, were undertaken by plaintiffs to obtain information regarding defendant’s financial condition.”  The Court of Appeal reversed the punitive damages portion of the judgment and directed the trial court to enter judgment for the defendant on that issue.

Often you can tell how a case is going to turn out when you read the  summary of the facts.  That’s certainly true in this case involving claims against a landlord for negligent failure to provide habitable premises.  Here’s how the court describes the condition of the defendant’s apartment building in this published opinion:

     Only two units in the [12-unit] Building had kitchens, and there were only two community rest rooms. There was evidence that human waste had been thrown out of the Building and had collected on the back. There were openings that permitted rodents and vermin to enter. Steps to the Building were infected with dry rot and were close to collapsing. The Building contained illegal electrical work. An inspection by Plaintiffs’ expert revealed dead and live cockroaches throughout the Building and dirty bathrooms.

        As discussed further below, each of the Plaintiffs testified about his or her experiences in the building, which included cockroaches, bed bugs and other vermin; mold; and filthy conditions in common areas. Tenants were forced to wash their dishes outside the Building. There were several months when the Building had no power or water and residents had to purchase buckets of water from Myllyla’s daughter. One tenant had a cockroach removed from her ear.

After reading that summary, you’re probably not surprised to learn that the court affirmed the award of punitive damages against the landlord (the jury awarded $95,000 in punitive damages to each of the nine plaintiffs).

The defendant’s main argument on appeal was that the plaintiff failed to present any evidence of the defendant’s financial condition.  As our readers know, that argument often succeeds because many California plaintiffs apparently don’t realize it is their burden to present such evidence.  In this case, however, the plaintiffs attempted to obtain financial information from the defendant, who stonewalled their efforts.

The plaintiffs served two notices on the defendant pursuant to Code of Civil Procedure section 1987, which provides a procedure to compel a party to attend trial and produce documents at trial.  Notices under section 1987 have the same effect as service of a subpoena. The notices in this case asked the defendant to appear at trial to testify about his financial condition, and to produce documents relating to his financial condition.

The defendant could have objected to the notices because they did not provide sufficient time to respond.  If the defendant had objected, he would have been excused from complying with the notices unless the plaintiffs moved to compel his compliance.  But instead of objecting, the defendant simply ignored the notices, refused to testify at trial, and refused to produce any financial documents.  As a result, the Court of Appeal (Second District, Division Two) holds that the defendant forfeited the right to complain about the lack of evidence of his finances.