Over the years, we’ve reported on quite a few unpublished opinions in which the California Court of Appeal has reversed a punitive damages award because the plaintiff failed to introduce meaningful evidence of the defendant’s financial condition. This unpublished opinion from the California Court of Appeal (Second Appellate District, Division Two) is just the latest example.

The plaintiff in this case was a law professor at Whittier Law School.  He claimed the school fraudulently induced him to accept an early retirement package.  His lawyers persuaded a jury to award $350,000 in compensatory damages and $500,000 in punitive damages, but they neglected to present any evidence regarding the law school’s financial condition.  On appeal, they tried to save the award by arguing that financial condition evidence is unnecessary when the record contains evidence that the defendant profited from its tortious conduct.

The Court of Appeal held that there is a conflict in authority on this issue, but concluded that under the better reasoned authority, evidence of the profits from the wrongful conduct is not an adequate substitute for evidence of financial condition.  As a result, the court reversed the punitive damages award in its entirety.  I have no quibbles with the court’s analysis, but I’m a little surprised the court didn’t publish the opinion.  Ordinarily I would expect the court to publish an opinion that takes sides on an issue that has divided published opinions.

The defendant in this case challenged a $500,000 punitive damages award as excessive in relation to his net worth. Documentary evidence showed the defendant had a net worth of $8 million in 2008.  But this case was tried in 2009, and it’s net worth at the time of trial that counts.  (See, e.g., Washington v. Farlice (1991) 1 Cal.App.4th 766, 777.)   The defendant argued at trial that his net worth dropped to $500,000 in 2009, mostly due to a decline in the value of his real estate holdings.  But he provided no evidence to substantiate his statements about his reduced property value.

The California Court of Appeal (Fourth Appellate District, Division One) didn’t buy it.  In this unpublished opinion, the court said the jury could have properly rejected the defendant’s self-appraisal of his real estate assets, and concluded that his net worth was at least $5 million, even considering the evidence of the defendant’s increased liabilities as of 2009.  Accordingly, the court concluded the $500,000 was not excessive in relation to the defendant’s net worth.

Related posts:

Las Vegas Jury Awards $500 Million in Punitive Damages

On Sept. 23 the California Court of Appeal issued two unpublished opinions addressing whether a plaintiff had presented sufficient evidence of the defendant’s financial condition to sustain an award of punitive damages.

In Sylester Flowers v. Hillyer, the First Appellate District, Division Five, reversed a $4.8 million punitive damages award because the plaintiff’s presentation on the defendant’s financial condition was insufficient.  Interestingly, the defendant in that case had repeatedly refused the plaintiff’s requests for financial documents, and failed to comply with an initial court order requiring disclosure of financial information.  Other cases have found that a defendant who fails to comply with such an order cannot later complain about the absence of financial condition evidence. (See, e.g., Mike Davidov v. Issod.)  But the court here found no waiver, in part because it was not clear whether the defendant ultimately complied with the trial court’s final order compelling discovery of financial records, and also because the plaintiff failed to request the financial condition evidence for the purpose of obtaining punitive damages.  The court noted, “There is no indication that plaintiffs sought — or that the trial court ordered — pretrial discovery of [defendant’s] financial condition pursuant to Civil Code section 3295, subdivision (c),” and there was no indication that plaintiffs served a trial subpoena to bring financial records to court, or sought a court order for discovery regarding finances after the liability finding.  In other words, just asking for the info is not enough; the plaintiff has to explain that the info is needed in connection with punitive damages.

In Madriz v. Ochoa, the Sixth Appellate District affirms $30,000 in punitive damages, finding that the plaintiff’s evidence on financial condition, although not perfect, was good enough.  The evidence established that the defendant earned at least $100,000 per year, owned some real property, had at least $26,000 in cash, and had a history of making large cash deposits to various accounts.  Although the evidence didn’t establish the defendant’s liabilities, the court said the evidence of income and assets was sufficient to sustain the jury’s relatively modest punitive award.

We’ve blogged many times about the saga of the Bullock v. Philip Morris case, which has bounced up and down through the California trial and appellate court system for a while now. Most recently, we reported on the second jury verdict (on remand after the judgment on the first jury verdict was reversed). That 2009 verdict reflected the finding that $13.8 million was the appropriate amount of punitive damages to award on account of harm to a plaintiff who, a prior jury had found, suffered $850,000 in actual damages. As we noted, the resulting judgment allows for a greater than 16:1 ratio between punitive and compensatory damages.

The Court of Appeal (Second District, Division Three) yesterday affirmed the judgment in a divided opinion. Justice Croskey, writing for the majority, acknowledged that, when “substantial” compensatory damages are awarded, there is a presumption of unconstitutionality as to punitive awards exceeding a single-digit ratio (in comparison to the compensatory damages) to a significant degree. (See opn., fn. 18.) However, he concluded that a departure from a single-digit ratio was acceptable because, in his view, an $850,000 compensatory award is not “substantial” within the meaning of United States Supreme Court jurisprudence, when the award is viewed in light of the defendant’s financial condition.

Justice Kitching, dissenting, pointed out that those two concepts have not previously been linked. In fact, in many cases around the country, considerably smaller compensatory awards against very well-heeled companies have been deemed “substantial” within the meaning of the due process principles set out by the United States Supreme Court, and have triggered reversal or reduction of punitive awards that exceed single-digit ratios. It will be interesting to see what happens with the Bullock opinion, and whether other courts will similarly veer off in this new direction for punitive damages jurisprudence.

In this unpublished opinion, the California Court of Appeal (Second District, Division Four) affirmed a punitive damages award against an individual defendant (Sanford Gaum) and a corporate defendant (Bluenose Trading, Inc.) based on evidence that Gaum used Bluenose to conceal assets from creditors such as the plaintiff investment company, which had made a loan guaranteed by Guam. The trial court found Gaum had diverted his own earnings to another company, “making it impossible for [creditors] to learn about, attach or garnish the monies that were due Gaum. At the same time, Gaum held himself out to the plaintiff (and the community he lived in) as having title to all the assets that he had transferred to [the other company], creating the impression that he was a sound investment partner.”

The court awarded $318,551 in compensatory damages on a fraudulent conveyance theory and the same amount in punitive damages, awarded jointly and severally against the defendants. The court found that Gaum had acted with malice, oppression and fraud, and added that defendant Bluenose “possesses sufficient assets . . . and derives sufficient income to support punitive damages in an amount equal to the actual damages and that a multiplier of 1 to 1 is entirely appropriate and reasonable.”

On appeal, the defendants argued there was insufficient evidence of defendants’ financial condition, which plaintiffs bear the burden of producing. The Court of Appeal dispensed with this argument in one sentence. After briefly quoting the trial court’s summary of income evidence, the court stated simply, “Defendants cite no authority to suggest that evidence of Bluenose’s income and of the value of real property it owns is insufficient to support a punitive damages award.”

Of course, plenty of authority indicates that net worth is the best measure of financial condition, and evidence of income and property value alone is not meaningful evidence of a defendant’s financial condition without taking into account liabilities as well as assets. (E.g., Baxter v. Peterson (2007) 150 Cal.App.4th 673, 680 [“Normally, evidence of liabilities should accompany evidence of assets, and evidence of expenses should accompany evidence of income”]; Kenly v. Ukegawa (1993) 16 Cal.App.4th 49, 58 [“Without evidence of the actual total financial status of the defendants, it is impossible to say that any specific award of punitive damages is appropriate”]; see Adams v. Murakami (1991) 54 Cal.3d 105, 109-110, 114 [jury must not be left to “speculate” on the extent of the defendant’s ability to pay a punitive damages award, and appellate court has a duty to independently evaluate the evidence to ensure plaintiff introduced meaningful evidence of financial condition relating to ability to pay].)

Recent related posts:

Nguyen v. Do: $50,000 punitive damages award reversed for lack of meaningful financial condition evidence

Tran v. Lecong: $100,000 in punitive damages vacated due to lack of meaningful financial condition evidence

LeFlore v. MTA: $150,000 in punitive damages vacated due to lack of meaningful financial condition evidence

We haven’t seen one of these for a few months, but here’s the latest unpublished opinion in which the California Court of Appeal (Sixth District) reverses a punitive damages award because the plaintiff failed to introduce meaningful evidence of the defendant’s financial condition. Here’s the court’s description of the evidence that proved to be inadequate:

The evidence . . .  showed only that Tam had a net income of $29,072 in 2008, no assets other than a 2004 Porsche Cayenne, and liabilities consisting of $34,000 owed to vendors and employees of SaigonUSA and a annual loss of $20,000 in operating SaigonUSA. No evidence was presented with regard to Tam’s income in years other than 2008, or as to the existence of any bank accounts, retirement accounts, or investments. Thus, the evidence showed only that Tam’s current liabilities exceeded his 2008 income and he has no assets other than a 2004 Porsche Cayenne of unknown value.

Here we go again: this unpublished opinion from the California Court of Appeal (Second Appellate District, Division Five) reverses a punitive damages award because the plaintiff failed to introduce meaningful evidence of the defendant’s financial condition. “There is little evidence of [defendant]’s actual assets or income and no evidence of his liabilities. . . . Accordingly, the punitive damage award is reversed and retrial is unnecessary.” 

Here’s yet another California appellate opinion reversing a punitive damages award because the plaintiff failed to introduce meaningful evidence of the defendant’s financial condition.

The trial proceedings in this case began as an employment discrimination lawsuit against the Los Angeles County Metropolitan Transit Agency by a former employee.  The trial ended with a damages award against the ex-employee, as a result of the MTA’s cross-complaint for misappropriation and fraudulent inducement.  The MTA’s cross-complaint alleged that the ex-exmployee misrepresented his employment history in his employment application and retained confidential documents belonging to MTA after he was fired.  A jury agreed and awarded the MTA $600,000 in compensatory damages and $150,000 in punitive damages.

On appeal, the California Court of Appeal (Second Appellate District, Division Three) issued an unpublished opinion affirming the liability findings but reversing the punitive damages because the record contained no meaningful evidence of the ex-employee’s financial condition.  The record contained evidence of his income after he was fired, but no evidence of his assets or liabilities.

The MTA tried to get around that problem by arguing that the ex-employee provided evasive and inadequate responses to questions regarding his financial condition in discovery and at trial, and thereby waived his right to complain that the record lacked information about his finances.  The Court of Appeal rejected this argument on two grounds.  First, it observed that unlike other cases where a waiver was found (e.g., Mike Davidov v. Issod), this case did not involve a defendant’s failure to comply with a court order; the MTA did not request any such order and the trial court never issued one.  Second, the MTA had only requested information about income and tax returns, which even if produced would not have sufficent to establish the ex-employee’s financial condition and ability to pay.

This blog has reported on many decisions in which the California Court of Appeal reversed a punitive damages award because the plaintiff failed to introduce meaningful evidence of the defendant’s financial condition.  The appellant in this unpublished opinion from the Fourth Appellate District, Division Three, was hoping to add another decision to that list, but the court concluded that the plaintiff’s evidence, although imperfect, was enough to constitute “meaningful” evidence.   

The interesting twist here is that the defendant had a negative net worth, but the court affirmed anyway.  The record showed that the defendant had $120,000 in net annual income, but had no significant assets (his home is underwater and proceeding to foreclosure) and a tax liability approaching $2 million.  Nevertheless, the court affirmed the punitive damages award because the defendant waived any argument that the punitive damages were excessive.  It seems that the defendant argued only that the record lacked meaningful financial condition evidence, but did not argue that the award was excessive in relation to the defendant’s financial condition evidence. 

UPDATE:  Odds are good that, if the defendant had raised an excessiveness argument, the court would have reversed the punitive damages, based on what the same court did in another case last year.