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On appeal, the California Court of Appeal (Second Appellate District, Division Three) issued an unpublished opinion affirming the liability findings but reversing the punitive damages because the record contained no meaningful evidence of the ex-employee’s financial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  The appellant in this unpublished opinion from the Fourth Appellate District, Division Three, was hoping to add another decision to that list, but the court concluded that the plaintiff’s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.

In this published opinion, the California Court of Appeal (Second Appellate District, Division Eight), affirms a punitive damages award of $1.2 million. There was only one appellate issue regarding the punitive damages award: whether the plaintiff met her burden of presenting meaningful evidence of the defendant’s financial condition. The plaintiff presented evidence that the defendant earned a profit of $670,000 in the most recent 12-month period, and was “in the black” (although the actual amount of net worth was unspecified). The court said this evidence was sufficient to sustain the award, considering that the defendant had delayed in responding to discovery requests for financial information, and the defendant’s CEO was unable to personally calculate the defendant’s actual net worth.

Full disclosure: Horvitz & Levy represents the defendant in this appeal, and we will not comment on the opinion because the litigation is ongoing.

In this unpublished opinion, the California Court of Appeal (Third Appellate District) affirms $300,000 in punitive damages against three defendants.

The court rejects the defendants’ argument that the evidence was insufficient to support a finding of malice, fraud or oppression.  The court also rejects one defendant’s argument that the record contained insufficient evidence of his financial condition.  As we have observed, California defendants often get punitive damages reversed on this basis.  But not this time.  Here, the defendant in question did not appear for trial.  Plaintiff served him with a notice to appear, and he moved to quash the subpoena on the ground that he was not subject to the court’s jurisdiction because he now resides in Germany.  The trial court disagreed and upheld the validity of the subpoena.  But the defendant still refused to appear for trial.

The Court of Appeal concluded that the defendant’s failure to appear deprived the plaintiff of a meaningful opportunity to meet her burden of proof on the issue of the defendant’s financial condition.  And because the defendant’s failure to appear was a violation of a court order, the defendant forfeited his right to complain about the lack of such evidence on appeal.  (See Mike Davidov v. Issod (2000) 78 Cal.App.4th 597, 608-609 [defendant who disobeys a valid court order to produce information on his financial condition waives the right to object to a punitive damages award for lack of such evidence].)

The defendants in this unpublished opinion asked the California Court of Appeal to reverse a $1.75 million punitive damages award on the ground that the plaintiff had failed to introduce meaningful evidence of the defendants’ financial condition. The Second Appellate District, Division Five, wasn’t buying it.

The court put the blame on the defendant for failing to respond to a valid court order to produce its financial information after the jury found that the defendant had acted with malice. Citing Mike Davidov Co. v. Issod (2000) 78 Cal.App.4th 597, the Court of Appeal concluded that the defendant waived its right to complain that the award was not supported by financial condition evidence:

Johnson was not entitled to escape punitive damages by the simple expedient of refusing to produce financial information needed to fix such an award, as doing so would have allowed him to flout a court order with impunity and undermine the legal process. In view of Johnson’s failure to produce evidence of his financial condition, he may not complain the amount of punitive damages is excessive.

We have blogged quite a bit about the frequency with which California Court of Appeal reverses punitive damages awards on the ground that the plaintiff failed to introduce meaningful evidence of the defendant’s financial condition. But here’s an unpublished opinion from the Second Appellate District, Division Five, rejecting a challenge to a punitive damages award on that basis.

The plaintiff here presented audited financial statements showing that the two defendants had net worths of $3.6 million and $246,000 shortly before trial. The Court of Appeal said that evidence was more than enough to support punitive damages awards of $2,500 and $5,000 against the two defendants, nothwithstanding the “self-serving” testimony by the defendants’ CEO that the defendants had a negative net worth at the time of trial.

In this unpublished opinion, the Court of Appeal (Fourth Appellate District, Division Three) vacated a $100,000 punitive damages award because the defendant had a negative net worth.

The opinion recites the evidence regarding the defendant’s financial condition in some detail and concludes that, although the defendant owned multiple properties, he had a negative net worth at the time of trial because of his significant debt. Quoting the Supreme Court’s statement that the purpose of punitive damages “is to deter, not to destroy” (Adams v. Murakami (1991) 54 Cal.3d 105, 112), the court ordered the punitive damages award stricken from the judgment.

Contrast this opinion with Zaxis Wireless Communications, Inc. v. Motor Sound Corp. (2001) 89 Cal.App.4th 577, 582-583, which upheld a $300,000 punitive damages award against a defendant with a negative net worth.

Here’s another unpublished opinion that reverses a punitive damages award because a plaintiff failed to present meaningful evidence of the defendant’s financial condition.

The plaintiff argued that he met his burden because he introduced evidence about the profitability of the defendant’s misconduct. The California Court of Appeal (Second District, Division Four) said that’s not good enough; a plaintiff must provide evidence of the defendant’s overall financial condition, including assets and liabilities. Because the plaintiff here didn’t do that, he gets no punitive damages. He doesn’t get a new trial because he failed to prove his case the first time around, and is not entitled to a second bite at the apple.

I’ve lost track of how many times we seen punitive damages get reversed for this reason since we started this blog. Without a doubt, this is most frequent basis for reversal of punitive damages in California.

Here’s another case in which a plaintiff forfeited his right to punitive damages because he failed to present meaningful evidence of the defendant’s financial condition.

The plaintiff won a verdict for $288,000 in compensatory damages and $160,000 in punitive damages. The trial court granted the defendant’s motion for partial JNOV and eliminated the punitive damages award, on the ground that the plaintiff had failed to introduce meaningful evidence of the defendant’s financial condition.

The California Court of Appeal (Fourth District, Division One) affirmed. The plaintiff apparently conceded on appeal that he presented no direct evidence of the defendant’s financial condition, but he tried to prop up the punitive damages award by pointing to expert testimony regarding the value of a business partly owned by the defendant. The Court of Appeal determined that the expert never directly opined about the value of the business, and was not even qualified to do so.

The plaintiff also tried to rely on Cummings Medical Corp. v. Occupational Medical Corp. (1992) 10 Cal.App.4th 1292 for the proposition that a plaintiff need not introduce evidence of the defendant’s financial condition, and can rely instead on the amount of profit the defendant gained from the misconduct at issue. The Court of Appeal noted that it had previously rejected that reasoning in Kenly v. Ukegawa (1993) 16 Cal.App.4th 49, which held that an award cannot be based solely on the alleged “profit” gained by the defendant, “without examining the liabilities side of the balance sheet.”

Regular readers of this blog are well aware that California appellate courts frequently reverse punitive damages awards if the plaintiff failed to introduce meaningful evidence of the defendant’s financial condition. In this unpublished opinion, the Sixth Appellate District reverses another judgment on that basis, with a bit of a twist.

The trial court made a highly unorthodox damages award after a bench trial; the court awarded a lump sum amount of damages, without differentiating between compensatory damages and punitive damages. The Court of Appeal criticizes that practice, and then goes on to point out flaws in both the compensatory and punitive elements of the undifferentiated award.

First, the court concludes that the trial court used the wrong measure of compensatory damages. Then the court concludes that the trial court should have decided whether the plaintiff presented sufficient evidence of the defendant’s financial condition to permit an award of punitive damages. The trial court had expressed doubt about the sufficiency of the plaintiff’s evidence, but never actually decided the issue. The plaintiff tried to argue on appeal that California law does not require plaintiffs to introduce financial condition evidence, but the Court of Appeal summarily rejected that contention as a misreading of the law. So the case goes back to the trial court to make evaluate the sufficiency of the plaintiff’s evidence. (And consistent with California law, the plaintiff should not be permitted to introduce new financial condidtion evidence on remand – – see Kelly v. Haag (2006) 145 Cal.App.4th 910, 914.)