This is yet another unpublished opinion reversing a punitive damages award because the plaintiff failed to present meaningful evidence of the defendant’s financial condition.

According to the Court of Appeal (Second Appellate District, Division Seven), the plaintiff presented evidence of the defendant’s assets, but not her liabilities.  Also, most of plaintiff’s evidence dated from the 2003-2007 time period, even though the trial took place in March 2010.  Thus, the plaintiff failed to provide a complete picture of the defendant’s ability to pay punitive damages at the time of trial.  Due to the plaintiff’s failure of proof, the Court of Appeal directed the trial court to vacate the punitive damages award and enter judgment for the defendant on that issue.

This case involves a species of waiver we haven’t seen before.

A jury found that several defendants acted with malice in committing various torts, including trespass and intentional infliction of emotional distress.  But the jury declined to award any punitive damages.

On appeal, the plaintiffs sought a new trial on the amount of punitive damages.  They argued that one of the defendants failed to disclose sufficient information about his financial condition, and thereby prevented plaintiffs’ financial expert from offering evidence of his net worth.

The Court of Appeal (Second Appellate District, Division Seven) held in an unpublished opinion that plaintiffs waived their right to seek a new trial because they failed to make a timely objection to the adequacy of the defendant’s disclosures.  The court noted that the plaintiffs’ expert opined about the defendant’s net worth, gave a specific dollar amount, and never mentioned that the information provided to him was insufficient to allow him to render an opinion.

We’ve seen a lot of cases finding waiver because plaintiffs failed to present meaningful evidence of the defendant’s financial condition, or because the defendant failed to comply with a court order compelling disclosure of financial information, but this is the first time we have seen a case imposing a waiver because plaintiffs failed to object to the defendant’s disclosure.

This unpublished opinion contains a rather unusual twist on an issue that frequently arises in punitive damages cases in California, namely, whether a punitive damages award is disproportionate to the defendant’s ability to pay.

In an appeal from a $15,000 punitive damages award, the defendant argued the award was excessive in light of her negative net worth.  The plaintiff disagreed with the defendant’s interpretation of the evidence, and argued that the defendant’s net worth was worth at least $350,000.  The Court of Appeal (Fourth Appellate District, Division One) affirmed the award.  The court could have just adopted the plaintiff’s view of the evidence and left it at that.  But instead, the court cited the defendant’s failure to fully utilize her financial assets, and said the jury could have concluded defendant was “failing to maximize her net worth or improve her financial condition.”

That’s a new one on me.  I don’t recall ever seeing any other opinion suggesting that an award could be upheld on the theory that the defendant’s inability to pay was the result of the defendant’s failure to maximize his or her own net worth.    

There are so many unpublished California opinions that reverse punitive damages awards because the plaintiff failed to introduce sufficient evidence of the defendant’s financial condition, we don’t bother to report them all.  But this unpublished opinion from the Fourth Appellate District, Division Two, merits a little discussion.

In a dispute between former business partners, the jury awarded the plaintiff $2.15 million in compensatory damages and $750,000 in punitive damages.  As far as I can tell from the opinion, the punitive damages were awarded jointly against both defendants. That’s not how it usually works in California (or elsewhere), but at least one appellate court has endorsed the idea of joint and several liability for punitive damages, and the defendants didn’t make an issue of it in this appeal.

Both defendants attacked the punitive damages as excessive in relation to their financial condition. Defendant #1 claimed at trial that he had a negative net worth and zero income.  On appeal, he took the position that, viewing the evidence in the light most favorable to the plaintiff, the record could support a finding that his net worth was $1.8 million.  The Court of Appeal concluded that the defendant gave the plaintiff’s evidence too much credit:

We also believe that [Defendant #1] is too generous in accepting all of [Plaintiff’s] evidence. Although the substantial evidence standard is deferential to the factfinder, “this does not mean we must blindly seize any evidence in support of [Plaintiff] in order to affirm the judgment. . . . ‘[I]f the word “substantial” [is to mean] anything at all, it clearly implies that such evidence must be of ponderable legal significance. Obviously the word cannot be deemed synonymous with “any” evidence. It must be reasonable . . . , credible, and of solid value . . . .’ [Citation.]” (Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1633.)

Looking only at the “credible” evidence, the Court of Appeal concluded that Defendant #1’s net worth was $961,218, and that the $750,000 punitive damages award was therefore disproportionately excessive.  The court acknowledged that, according to published case law, courts generally do not allow punitive damages to exceed 10 percent of the defendant’s net worth.  That would suggest a maximum award of $96,000 in this case.  Instead the court adopted a maximum of $175,000, roughly 18 percent of the defendant’s net worth.  The court did not explain why it departed from the traditional 10 percent rule.  And the court did not simply order a reduction of the punitive damages to $175,000.   It gave the plaintiff the option between that reduced amount or a new trial on punitive damages.  It’s hard to imagine why the plaintiff would choose a new trial, unless he thinks Defendant #1’s financial condition will have improved by the time of a second trial.

As for Defendant #2, the Court of Appeal agreed that the plaintiff had failed to establish that Defendant #2 had the ability to pay any punitive damages award.  The court said that Defendant #2 had a negative net worth, no income, and less than $5,000 in cash.  Accordingly, the court vacated Defendant #2’s liability for punitive damages altogether.

We frequently report on California appellate decisions that reverse or reduce punitive damages because the plaintiff failed to produce meaningful evidence of the defendant’s financial condition.  A few weeks ago we reported on the Bankhead decision, which bucked that trend and affirmed a large punitive damages award against a company with a negative net worth.  This week brought two more decisions bucking the same trend:

In Miracle v. Mehrban, Second Appellate District, Division Seven, affirmed a $30,000 punitive damages award against an individual who claimed a negative net worth.  The trial court didn’t believe the defendant’s testimony about her net worth and the Court of Appeal declined to revisit that credibility determination on appeal.

In Landeros v. Torres, the Fifth Appellate District affirmed $14,000 in punitive damages based on evidence that the defendant, who owned no assets, had $7,000 in a retirement account, a home with no equity, and a job that paid $8 an hour.  The court said this was a “close case,” but that the evidence demonstrated the defendant’s ability to pay the punitive damages award.  The court partially certified the opinion for publication, but did not certify the part containing the punitive damages analysis.

Disclosure: Horvitz & Levy represents the defendant in Landeros.

In this asbestos personal injury action, the jury awarded $1.85 million in compensatory damages and $4.5 million in punitive damages (a ratio of 2.4 to one).  Defendant ArvinMeritor appealed, challenging only the amount of the punitive damages.  ArvinMeritor raised two arguments: (1) the punitive damages are excessive under state law in light of ArvinMeritor’s negative net worth, and (2) the ratio of punitive to compensatory damages is unconstitutionally excessive.

In this published opinion, the California Court of Appeal (First Appellate District, Division Four) rejected both arguments and affirmed the award in full.

On the first issue, the court observed that despite ArvinMeritor’s negative net worth, the record showed it could afford to pay the punitive damages award.  At the time of trial, it had annual sales revenue of $3.6 billion and cash reserves exceeding $343 million.

On the second issue, the court held that the 2.4 ratio was “well within the range for comparable cases.”  Curiously, the opinion never addresses the U.S. Supreme Court’s statement in State Farm v. Campbell, repeated by the California Supreme Court in Roby v. McKesson, that “When compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee.”  The $1.85 million punitive damages award in this case would seem to qualify as “substantial,” but the court never discussed that aspect of State Farm. 

Here’s yet another unpublished opinion in which the California Court of Appeal (Second District, Division Four) reversed a punitive damages award because the plaintiff failed to introduce meaningful evidence of the defendant’s financial condition.

The defendant in this case did not file a new trial motion in the trial court challenging the damages award.  Ordinarily, defendants must file a new trial motion in order to preserve the right to attack the amount of damages on appeal.  But the Court of Appeal permitted the defendant to challenge the punitive damages for the first time on appeal, citing footnote five of Adams v. Murakami, which held that defendants cannot waive a challenge to the sufficiency of the evidence regarding their financial condition, because such arguments are rooted in public policy.

Turning to the merits, the court described the evidence of the defendant’s financial condition as follows:

• he had an annual income of $201,600
• he had a tenant, but there was no evidence of the amount of his rental income
• he was licensed as a real estate agent, but there was no evidence regarding his ability to operate a profitable real estate practice
• he owned a condominium, but there was no evidence of his equity
• he had recently purchased several pieces of real property, but there was no evidence of whether he still owned these properties at the time of trial and, if so, whether they were encumbered by debts
• his liabilities were unknown

The court concluded this evidence was not sufficient to establish that he could pay a $1 million punitive damages award without being financially destroyed.  Accordingly, the court vacated the punitive damages award.