May 19, 2009

L.A. Jury Awards $50 Million In Punitive Damages Against CEO of iPayment

The Los Angeles and San Francisco Daily Journal (subscription required) reports today that a jury in Los Angeles County Superior Court has awarded $50 million in punitive damages against Greg Daily, chairman and CEO of Nashville-based credit card processing company iPayment.

According to the Daily Journal story, the trial judge granted the parties' joint request to temporarily seal the amount of the punitive damages award. But the Daily Journal cites anonymous sources for the $50 million figure.

Ordinarily, a punitive damages award of this size against an individual would be excessive under California's "rule of thumb" that punitive damages cannot exceed more than 10 percent of a defendant's net worth. In this case, however, the defendant is worth $1 billion, according to the plaintiff's expert witness.

The plaintiff is L.A.-based venture capitalist Douglas Shooker. Shooker claimed at trial that he spent months conducting research to develop a business plan for iPayment, and in exchange he received an option to purchase a 57 percent share of iPayment for $26 million. According to Shooker, Daily stole his business plan, installed himself as CEO, and blocked Shooker from exercising his option. Last week the jury awarded $300 million in compensatory damages. Daily promptly declared bankruptcy, so it remains to be seen whether any of the damages are collectible (assuming they survive post-trial motions and appeal).