Judge: Jon R. Takasugi, Case: BC676901, Date: 2022-09-29 Tentative Ruling

Case Number: BC676901    Hearing Date: September 29, 2022    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

 Defendants’ motion for new trial is DENIED in its entirety. 

On 09/21/17, Plaintiff Ronald Andrew Both filed a Complaint against Jeffrey Scott Liolios and Liolios Group, setting forth claims for 1) breach of fiduciary duty; 2) oppression of minority member; 3) unjust enrichment; 4) violation of Business & Professions Code §§ 17200 et seq.; 5) accounting. 

On 10/25/17, Liolios Group filed a XC against Both, Geoffrey Plank, Grant Stude, and Capital Market Access, LLC (Capital), setting forth claims for 1) breach of contract; 2) misappropriation of trade secrets; 3) intentional interference with contract; and 4) intentional interference with prospective economic advantage. 

On 12/13/17, Both, Plank, and Stude filed a XXC against Liolios and Liolios Group, setting forth claims for 1) breach of contract; 2) quantum meruit; 3) unpaid wages in violation of Labor Code §§ 200, 201; 4) waiting-time penalties pursuant to Labor Code § 203; and 5) violation of Business & Professions Code §§ 17200 et seq. 

Jury trial commenced on May 24, 2022 and continued through June 15, 2022.

            On 9/8/2022, the Court denied Defendants’ motion for JNOV. While the Court denied in part Defendants’ motion for a new trial, the Court continued the motion for supplemental briefing as to the punitive damages issue.

            Now, the Court considers Defendants’ motion for new trial as to the issue of punitive damages alone.

Discussion 

Defendants argue they are entitled to a new trial because the punitive damages award was excessive, there was insufficient evidence to justify the verdict, and the verdict is against the law.

In awarding punitive damages, three factors are considered: (1) the reprehensibility of the defendants’ conduct; (2) the amount of compensatory damages; and (3) the wealth of the defendant. (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 933.)

Defendants argue that Both did not meet his burden to prove Defendants’ net worth and that the award is excessive because punitive damages are not permitted to exceed 10 percent of the defendant’s net worth.” (Weeks v. Baker & McKenzie (1998) 63 Cal.App.4th 1128, 1166 (citing Storage Services v. Oosterbaan (1989) 214 Cal.App.3d 498, 515) However, Defendants overstate the standard for the third Neal factor. In Weeks, while the Court did, in fact, affirm that punitive damages are generally capped at 10% of a defendant’s net worth, the Court explained that the rationale for this cap is to prevent punitive damage awards which could “bankrupt [a defendant] or cause [a defendant] such undue hardship as to render his punishment unreasonably disproportionate to his ability to pay.” (Weeks, supra, 63 Cal.App.4^th 1128, 1167.) As such, net worth is not the hard-and-fast rule for evaluating what amount of punitive damages are excessive, though it can be a reliable guide. Rather, the ultimate standard is whether or not the award is unreasonably disproportionate to his ability to pay.  That there is no formula for determining whether a given percentage of net worth is excessive has been confirmed by a number of Courts. For example, the California Supreme Court in Adams v. Murakami (1991) 54 Cal.3d 105, 110 wrote:

Various measures of a defendant’s ability to pay a punitive damages award have been suggested. Defendant in this case contends the best measure of his ability to pay is his net worth.... We decline at present, however, to prescribe any rigid standard for measuring a defendant’s ability to pay.

            (Adams, supra, 54 Cal.3d at p. 116, fn. 7, emphasis.)

            Similarly, in Bankhead v. ArvinMeritor, Inc. (2012) 205 Cal.App.4th 68, the Court wrote:

ArvinMeritor argues these cases establish, as a matter of law, that punitive damages may not exceed 10 percent of the defendant's net worth, which represents a “cap” on allowable punitive damages awards. However, as shown by our summaries in the preceding paragraphs, none of the cited cases actually held that punitive damages exceeding 10 percent of the defendant’s net worth are per se impermissible. . . . Johnson’s caveat about the perils of relying solely on a net worth valuation standard echoed the same concerns expressed by the courts in the relatively more recent Zaxis, Rufo, Lara, and Devlin cases. (Zaxis, supra, 89 Cal.App.4th at p. 582; Rufo, supra, 86 Cal.App.4th at p. 621; Lara, supra, 13 Cal.App.4th at pp. 1064-1065 & fn. 3; Devlin, supra, 155 Cal.App.3d at pp. 391-392.) Thus, we reject the argument that 10 percent of net worth constitutes a ceiling above which juries may not go in setting the amount of punitive damages. The issue before us on review is not whether the award exceeds some specified percentage of the company’s net worth. Rather, it is whether the trial court abused its discretion in determining that the amount of punitive damages awarded by the jury was not the result of passion or prejudice. Our task simply is to determine whether, “[c]onsidering all the factors, the punitive damages award, ‘in light of the defendant’s wealth and the gravity of the particular act,’ ... exceed[s] ‘the level necessary to properly punish and deter.’ [Citation.]” (Rufo, supra, 86 Cal.App.4th at p. 625.)

            (Bankhead, supra, 205 Cal.App.4th at p. 68, 82-83.)

            As such, 10% of net-worth is not the legal standard for punitive damages award. Rather, the Court must determine whether, after reviewing the entire record in the light most favorably to the judgment, the punitive damages award could “bankrupt [a defendant] or cause [a defendant] such undue hardship as to render his punishment unreasonably disproportionate to his ability to pay.” (Weeks, supra, 63 Cal.App.4^th 1128, 1167; Neal, supra, 21 Cal.3d 910, 933.)

Here, Defendants argue that the $2 million dollar award is inadequately supported by evidence because the estimated value of LGI is $2,812,047. As such, a $2 million punitive damage would wipe out the entire value of the company, forcing its liquidation. Moreover, Defendants cited extensive case law to show that evidence of assets and income, alone, is insufficient without evidence of corresponding expenses and liabilities. (Kenly v. Ukegawa (1993) 16 Cal.App.4th 49, 57 (error to use evidence of assets without examining liabilities); Lara v. Cadag (1993) 13 Cal.App.4th 1061, 1062 (where “the evidence is limited to proof of the defendant’s annual income, there is insufficient evidence to support an award of punitive damages.”) As stated in Robert L. Cloud & Associates, Inc. v. Mikesell (1999) 69 Cal.App.4th 1141, 1152: “[C]ourts have clarified that evidence of the defendant’s annual income, standing alone, is not ‘meaningful evidence’” of a defendant’s ability to pay an award. Nor is evidence of profits or assets sufficient without evidence of liabilities. (Id.) (citations omitted.) There, the court found “no evidence” of defendant’s financial condition despite “significant evidence” of his income, concluding this evidence “provides only one side of the financial picture.” (Id.)

However, in opposition, Both argues that he sought comprehensive information about Defendants’ financial condition, and identifies a number of ways in which Defendants interfered with this investigation, thereby precluding a comprehensive determination of Defendants’ income, assets, and liabilities.

For example, Both noted that Defendants failed to comply with a Court order compelling LGI to provide further responses to Both’s special interrogatories regarding Liolio’s and his wife’s income for the 2021 calendar year.

Moreover, Defendants admit they did not produce any documents in response to the trial subpoena seeking personal tax returns for Jeffrey Scott Liolios for tax years 2003 to the present, and all 1099s issued to Jeffrey Scott Liolios for tax years 2003 to the present. As noted by Both, although these tax returns show income, they also show liabilities. (“Defendants also erroneously argue that these documents only relate to income. But that is false. Although tax returns would show income, they also show liabilities. (Supp. Mazda Decl., ¶ 9.) E.g., they could show debts the interest of which is being deducted and/or they could show losses. (Id.) So these responsive documents don’t just show income or assets, they also show liabilities. (Id.) And if there is an absence of liabilities in these tax documents, then that shows the absence of liabilities. (Id.)”, Both’s Opp., 5: 5-9.)

In their supplemental briefing, Defendants argue that their failure to produce was justified because it was untimely and because Both failed to timely compel the production of those documents during discovery.

However, as noted by Both, the trial subpoena was personally served on 5/16/2022, and the punitive-damages phase of the trial occurred on 6/15/2022—30 days later. (See CCP § 1987(c).) Moreover, “[A] court may order a defendant to produce evidence of his or her financial condition following a determination of liability for punitive damages even if the plaintiff has not attempted to obtain that information prior to trial.” (StreetScenes v. ITC Entertainment Group, Inc. (2002) 103 Cal.App.4th 233, 243-244.)

In Corenbaum v. Lampkin, the defendant Lampkin drove drunk, hit the plaintiffs with his car, fled the scene, and then later lied and said his car had been stolen. (215 Cal.App.4th at 1319-1322.) The jury found Lampkin liable for punitive damages. (215 Cal.App.4th at 1322.) The plaintiffs served a trial subpoena on Lampkin to produce at trial all records in his possession, custody, or control evidencing his current wealth, assets, and liabilities. (Ibid.) He produced no documents in response to that trial subpoena. (Ibid.) The jury returned a punitive-damages verdict against Lampkin. (Ibid.) Like Defendants in this case, Lampkin then filed a motion for new trial that argued, among other things, that the punitive damages award was excessive and unsupported by the evidence because there was insufficient evidence of his financial condition at the time of trial. (215 Cal.App.4th at 1323.) The trial court denied the motion. (Ibid.) On appeal, the appellate court held that Lampkin was estopped from arguing that the punitive-damages award was excessive because he failed to comply with the trial subpoena, and further held that a trial subpoena, for purposes of producing documents, is equivalent to a court order:

Lampkin failed to comply with a subpoena requiring him to produce at trial records of his financial condition . . . A subpoena “is a writ or order directed to a person and requiring the person’s attendance at a particular time and place to testify as a witness.” (Code Civ. Proc., § 1985, subd. (a)), and may also require the production of documents in that person’s control (ibid.). Thus, for purposes of requiring attendance and the production of documents at trial, a subpoena is equivalent to a court order. In light of Lampkin’s failure to comply with the subpoena for records, we conclude that he is estopped from challenging the punitive damage awards based on lack of evidence of his financial condition or insufficiency of the evidence to establish his ability to pay the amount awarded.

(Lampkin, supra, 215 Cal.App.4th at p. 1338.)

Here, similarly, Defendants failed to comply with a Court order to provide further responses to special interrogatories related to Defendants’ financial condition, and failed to comply with a trial subpoena seeking documents related to Defendants’ financial condition. While Defendants may contend that these documents, even if they had been produced, would only speak to income, not only has Both advanced a persuasive argument as to why this is untrue, but Defendants cannot simultaneously refuse to produce financial documents and argue that those financial documents would be insufficient to support the punitive damages award anyway. Put another way, Defendants cannot withhold financial documents and then argue that the punitive damages award is inadequately supported by comprehensive financial evidence.

            Based on the foregoing, Defendants’ motion for new trial is denied in its entirety. 

It is so ordered.

Dated:  September    , 2022

   Hon. Jon R. Takasugi
   Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court at smcdept17@lacourt.org by 4 p.m. the day prior as directed by the instructions provided on the court website at www.lacourt.org.  If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative.  If all parties to a motion submit, the court will adopt this tentative as the final order.  If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar. 

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