October 12, 2009

Fariba v. Dealer Services: No Punitive Damages Where Liability Depends on Issue of First Impression

Here's a case defendants can cite whenever a plaintiff seeks punitive damages in a case involving a novel legal theory.

In this published opinion, the California Court of Appeal (Fourth Appellate District, Division One) affirmed a judgment that raised a liability issue of first impression in California.

(It has nothing to do with the topic of this blog, but in case you're curious, the issue of first impression was: Where a secured creditor of a business has actual knowledge that the business is substantially engaged in consignment sales, are the rights of the consignor superior to the secured creditor? Answer: yes.)

Although the Court of Appeal affirmed the award of compensatory damages based on this previously unresolved issue, the court also affirmed an order granting a directed verdict on the plaintiff's claim for punitive damages. Among other things, the court concluded that the plaintiff could not prove by clear and convincing evidence that the defendant acted with conscious disregard of the plaintiff's rights when the scope of the plaintiff's rights turned on an unsettled legal issue.