January 4, 2010

Everest Properties II v. Diller: Punitive Damages Claim Barred by Collateral Estoppel

We don't see many opinions involving the intersection of punitive damages and collateral estoppel. But in this unpublished opinion, the California Court of Appeal (First Appellate District, Division One), holds that the collateral estoppel doctrine bars a plaintiff from seeking punitive damages.

The plaintiffs, investors in a partnership, sued the corporate general partner for breach of fiduciary duty. They won $23 million in compensatory damages, but the trial court ruled that the plaintiffs could not recover punitive damages because they failed to prove by clear and convincing evidence that the corporation acted with malice, oppression, or fraud.

The plaintiffs then pursued a separate action against the individual who controlled the corporation, trying to get punitive damages for the same misconduct at issue in the first action. The trial court dismissed the action and the Court of Appeal affirmed, ruling that the plaintiffs were collaterally estopped from seeking punitive damages. The court determined that the two actions involved identical allegations of misconduct. Because the trial court in the first action determined that the conduct did not support punitive damages against the corporation, the plaintiffs could not use the same conduct to support a punitive damages claim against the individual.

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