January 18, 2014

Court of Appeal affirms order vacating $200,000 in punitive damages against defendants with negative net worth (Gelhar v. Baldwin)

This unpublished opinion addresses a scenario that seems to be arising more frequently in California punitive damages litigation: the award of punitive damages against defendants with a negative net worth.

The jury in this fraud and elder abuse case ordered two defendants to pay a total of $200,000 in punitive damages.  The trial court, however, granted the defendants' motion for a new trial and vacated the punitive damages award as excessive in relation to the defendants' financial condition.  The court noted that at the time of trial the defendants had a combined net worth of negative $350,000 to $400,000.  The court concluded that the jury's $200,000 punitive damages award was so disproportionate to the defendant's wealth "that it [wa]s presumptively based on passion and prejudice."

The California Court of Appeal (Fourth Appellate District, Division Three) affirmed.  It held that "[e]vidence of a negative net worth was a valid reason for the court to hold the punitive damages award was excessive."  That is not exactly a novel holding, but it is notable in light of several recent decisions that have affirmed punitive damages awards notwithstanding the defendant's claimed negative net worth.  (For example, Pfeifer v. John Crane, Miracle v. Mehrban, and Bankhead v. ArvinMeritor.)