September 25, 2012

Unpublished opinion reduces $750,000 punitive damages award as excessive in relation to defendants' financial condition (Stuckert v. Pyke)

There are so many unpublished California opinions that reverse punitive damages awards because the plaintiff failed to introduce sufficient evidence of the defendant's financial condition, we don't bother to report them all.  But this unpublished opinion from the Fourth Appellate District, Division Two, merits a little discussion.

In a dispute between former business partners, the jury awarded the plaintiff $2.15 million in compensatory damages and $750,000 in punitive damages.  As far as I can tell from the opinion, the punitive damages were awarded jointly against both defendants. That's not how it usually works in California (or elsewhere), but at least one appellate court has endorsed the idea of joint and several liability for punitive damages, and the defendants didn't make an issue of it in this appeal.

Both defendants attacked the punitive damages as excessive in relation to their financial condition. Defendant #1 claimed at trial that he had a negative net worth and zero income.  On appeal, he took the position that, viewing the evidence in the light most favorable to the plaintiff, the record could support a finding that his net worth was $1.8 million.  The Court of Appeal concluded that the defendant gave the plaintiff's evidence too much credit:

We also believe that [Defendant #1] is too generous in accepting all of [Plaintiff’s] evidence. Although the substantial evidence standard is deferential to the factfinder, “this does not mean we must blindly seize any evidence in support of [Plaintiff] in order to affirm the judgment. . . . ‘[I]f the word “substantial” [is to mean] anything at all, it clearly implies that such evidence must be of ponderable legal significance. Obviously the word cannot be deemed synonymous with “any” evidence. It must be reasonable . . . , credible, and of solid value . . . .’ [Citation.]” (Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1633.)
Looking only at the "credible" evidence, the Court of Appeal concluded that Defendant #1's net worth was $961,218, and that the $750,000 punitive damages award was therefore disproportionately excessive.  The court acknowledged that, according to published case law, courts generally do not allow punitive damages to exceed 10 percent of the defendant's net worth.  That would suggest a maximum award of $96,000 in this case.  Instead the court adopted a maximum of $175,000, roughly 18 percent of the defendant's net worth.  The court did not explain why it departed from the traditional 10 percent rule.  And the court did not simply order a reduction of the punitive damages to $175,000.   It gave the plaintiff the option between that reduced amount or a new trial on punitive damages.  It's hard to imagine why the plaintiff would choose a new trial, unless he thinks Defendant #1's financial condition will have improved by the time of a second trial.

As for Defendant #2, the Court of Appeal agreed that the plaintiff had failed to establish that Defendant #2 had the ability to pay any punitive damages award.  The court said that Defendant #2 had a negative net worth, no income, and less than $5,000 in cash.  Accordingly, the court vacated Defendant #2's liability for punitive damages altogether.