Q: We loaned money to a group who promised good returns. It now turns out the financials were grossly exaggerated. We never got money back, and there are major questions about the bookkeeping. Can we sue not just to recover our money but also to get punitive damages?
S.B., Long Beach
Ron Sokol
A: Punitive damages are often referred to as exemplary damages. This is because they are imposed, in any given instance, to “set an example,” as well as to deter insidious misconduct.
To seek punitive damages, there must be an underlying legal claim that legally (and factually) can support them. Breach of contract and negligence claims, for example, will not suffice. There must be conduct of such an egregious nature that it offends the very conscience of the community.
Under Civil Code Section 3294, the conduct must rise to the level of fraud, oppression or malice. In sum, it has be very severe misconduct, and the burden of proof is by clear and convincing evidence. As such, if you can seek punitive damages, that does not necessarily mean you will succeed in getting them. Going over with your lawyer what it will take and the likelihood of obtaining punitive damages is well advised.
Q: Is there a cap on how much can be awarded in punitive damages? Also, how does a jury know how much to award?
B.G., Chino Hills
A: The Supreme Court of the United States held in State Farm v. Campbell that “grossly excessive or arbitrary punishments” are forbidden under the Due Process Clause of the 14th Amendment of the Constitution.
As to what amount may be awarded, the net worth of the party typically is in play. There is a court process by which the net worth details can be sought and obtained, to then be presented to the trier of fact. The financial condition of the wrongdoer is indeed relevant to the amount of punitive damages allowed. Keep in mind, however, that to get to a point where punitive damages may be awarded, the severe misconduct as discussed in the first response above must be very well demonstrated.
Ron Sokol has been a practicing attorney for over 40 years, and has also served many times as a judge pro tem, mediator, and arbitrator. It is important to keep in mind that this column presents a summary of the law, and is not to be treated or considered legal advice, let alone a substitute for actual consultation with a qualified professional.
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