February 13, 2009

La Baw v. Campbell: Court of Appeal Vacates $100,000 Punitive Damages Award Against Defendant With Negative Net Worth

In this unpublished opinion, the California Court of Appeal (Fourth District, Division Two) vacated a punitive damages award of $100,000 because the defendant could not afford to pay.

We have previously blogged about California's rather unique rule that plaintiffs seeking punitive damages must present evidence of the defendant's financial condition. As we observed, California plaintiffs routinely overlook this rule and end up losing their punitive damages awards on appeal.

Even when plaintiffs do meet their burden, California courts will reduce punitive damages awards that are disproportionate to the defendant's ability to pay. For individual defendants, the courts have adopted a rule of thumb that any award that exceeds 10 percent of the defendant's net worth is excessive. (See Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1596.)

This case is a little unusual because the evidence showed that the defendant had a negative net worth. He testified that his debts exceeded his assets, and the plaintiff presented no evidence to the contrary. The court therefore concluded that the defendant is unable to pay any punitive damages award. It vacated the award in its entirety and did not afford the plaintiff a new trial on this issue, because she had a full and fair opportunity to present her evidence in the first trial. (See Kelly v. Haag (2006) 145 Cal.App.4th 910, 914.) That aspect of the opinion conflicts with this recent unpublished decision, in which the Court of Appeal inexplicably gave the plaintiff a second chance to present evidence of the defendant's financial condition after failing to do so the first time around.