February 28, 2019

Court of Appeal reverses $3.25 million punitive damages award (F&M Trust v. Vanetik)

Here's yet another unpublished opinion reversing a punitive damages award because the plaintiff failed to present meaningful evidence of the defendants' financial condition.

This case involves breach of contract and fraud claims against two individuals who own companies involved in oil exploration in Russia.  The plaintiff entered into an agreement to invest in those companies, but later found out the defendants used the investment to pay off their debts.  The plaintiff won a jury verdict for $750,000 in compensatory damages, plus $2 million in punitive damages  against one defendant and $1.25 million in punitive damages against another defendant.

The Court of Appeal (Fourth District, Division Three) reversed both punitive damages awards because the plaintiff failed to present evidence of the defendants' net worth.  The plaintiff had an expert witness who testified to the net worth of the defendants, but the Court of Appeal concluded that the expert's opinions were not based on reliable information.  Although the expert purported to consider the defendants' net worth, in reality he considered only their assets, without taking into account their liabilities.  The expert also relied on information from four years before trial, which failed to satisfy the plaintiff's burden of proving the defendants' net worth at the time of trial.

The court rejected the plaintiff's attempt to blame the defendants for the lack of financial evidence.  The plaintiff never filed a motion under Code of Civil Procedure section 3295(c) for pretrial discovery of the defendant's financial condition.  Nor did the plaintiff file any discovery requests in the second phase of trial, after the jury found that the defendants acted with malice, oppression, or fraud.  Thus, the plaintiff had only himself to blame for the lack of evidence on this issue.

The Court of Appeal reversed the punitive damages award without giving the plaintiffs a new trial on that issue.  That's the correct result under California law, because a plaintiff who fails to present evidence is not entitled to a do-over.  But as we have seen, California courts sometimes overlook that rule (this court did a few years ago.)