January 19, 2012

Unpublished opinion affirms $750,000 punitive damages award against two doctors (Taheri v. Khadavi)

This unpublished opinion from the California Court of Appeal (Second Appellate District, Division Seven) affirms a judgment awarding $8 million in compensatory damages and $750,000 in punitive damages in a case involving claims of fraud and breach of fiduciary duty by two doctors.

The defendants did not challenge the amount of the punitive damages award as excessive, but they argued that the Court of Appeal should vacate the award because the plaintiff failed to prove that the defendants acted with malice, oppression, or fraud within the meaning of Civil Code section 3294.  The court rejected that argument, reasoning that the defendants are subject to punitive damages because the jury found them guilty of fraud:  

The jury found the defendants committed fraud.  As discussed above, that finding was supported by substantial evidence . . . Accordingly the punitive damages must be upheld. 
 The court's analysis seems to assume that, if a plaintiff proves a cause of action for fraud, then punitive damages are automatically available under the fraud prong of section 3294.  But California law defines the tort of fraud differently from the sort of fraud needed to obtain punitive damages.  The difference is the sort of "intent" required.  To prove the tort of fraud, the plaintiff must prove that the defendant acted with an intent to induce reliance.  But to obtain punitive damages for fraud, the plaintiff must prove that the defendant actually intended to cause harm.  Thus, a defendant who commits fraud with intent to induce reliance, but no intent to cause harm, is not liable for punitive damages.  It's not possible to tell from this opinion whether it would have made any difference if the Court of Appeal had considered this distinction.