January 12, 2016

Court of Appeal holds that compensatory damages award does not impact defendant's financial condition (O'Brien v. AMBS Diagnostics)

This unpublished opinion from the California Court of Appeal (Second Appellate District, Division Two) affirms a $125,000 punitive damages award. In the process, the court makes a peculiar statement that seems contrary to published authority.

The defendant argued on appeal that the award was excessive under state law because it was disproportionate to his ability to pay.  According to the defendant, the $427,926 compensatory damages award completely wiped out his net worth, leaving him with no ability to pay an additional award of punitive damages.

The court refused to consider the compensatory damages award when evaluating the defendant's financial condition.  The court cited cases stating that the defendant's financial condition should be measured "at the time of trial."  Thus, the court concluded that a judgment entered after trial cannot be considered.

That doesn't seem quite right.  Under California law, the purpose of considering the defendant's financial condition is to ensure that a punitive damages award does not destroy the defendant financially.  To figure out whether the defendant will be destroyed, the court needs to consider the impact of the entire judgment.  For example, the Court of Appeal in Washington v. Farlice, in deciding whether a $125,000 punitive damages award was excessive, evaluated the defendant's financial condition by taking into account the value of the defendant’s interest in real property after the jury found during the first phase of trial that the defendant's interest should be cut in half.

The court here was correct to consider the finances "at the time of trial," but there is no reason why that should not include the verdict that was rendered during the trial.  In any event, this opinion is unpublished and unciteable, leaving Washington v. Farlice as the law of the land on this issue.