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Plaintiffs’ Burden to Establish Punitive Damages: Farmers & Merchants Trust Co. v. Vanetik

Posted on: April 18th, 2019

By: Jennifer Weatherup

A recent decision from the California Court of Appeal has outlined the requirements for establishing a defendant’s financial condition as a prerequisite to an award of punitive damages, and has further emphasized that it is the plaintiff’s burden to provide a comprehensive picture of the defendant’s financial condition in support of a punitive damages award.

In Farmers & Merchants Trust Co. v. Vanetik, Plaintiff F&M Trust, who was the trustee and administrator of a pension plan, sued Defendants Yuri and Tony Vanetik[1] for breach of contract and fraud. F&M Trust claimed that the Vanetiks made several false statements and representations, which induced it to acquire stock in their company. At trial, the jury found the Vanetiks’ liable, and F&M Trust was awarded over $3 million dollars in punitive damages from the Vanetiks.

The Court of Appeal struck down this award because F&M Trust failed to present sufficient evidence of the Vanetiks’ financial condition. Because punitive damages are intended to punish wrongdoing and deter future misconduct, juries must consider three elements when determining an appropriate punitive damages award: (1) the wrongfulness of a defendant’s conduct, (2) the amount of compensatory damages, and (3) the defendant’s wealth. Wealth must be considered in order to determine whether a particular award is significant enough to punish that particular defendant.

As the Vanetik Court observed, a plaintiff wishing to impose punitive damages on a defendant must present evidence that provides a “balanced overview” of their financial condition. Thus, a plaintiff cannot cherry pick details relating to a defendant’s assets while failing to present evidence of liabilities or encumbrances on their property. Because F&M Trust only presented circumstantial evidence of the Vanetiks’ income, failed to determine whether Tony Vanetik’s home was subject to a lien or even owned by Tony, and failed to consider the Vanetiks’ liabilities, the Court found that there was insufficient admissible evidence to support a punitive damages award.

The Court further rejected F&M Trust’s claim that they should be excused from their failure to present evidence of the Vanetiks’ financial conditions because Defendants did not produce that evidence. Prior caselaw does provide that punitive damages may be awarded without evidence of a financial condition if a plaintiff’s failure to produce evidence is the result of the defendant’s failure to comply with discovery obligations. However, the plaintiff bears the burden of showing that the lack of evidence was the defendant’s fault, and F&M Trust failed to satisfy this burden.

As the Court noted, F&M Trust never filed a motion for pretrial discovery into the Vanetiks’ financial condition, even though a plaintiff must obtain a court order before conducting discovery into a defendant’s financial condition. Similarly, the trial court did not order the Vanetiks’ financial condition before the punitive damages portion of the trial. Thus F&M Trust’s failure to produce sufficient evidence of the Vanetiks’ financial condition is not excused, and the punitive damages award must be stricken.

The Vanetik case provides useful authority for professionals and other defendants who are facing a substantial punitive damages award, as it demonstrates the extent to which plaintiffs bear the burden of establishing defendants’ financial condition, and emphasizes the need for plaintiffs to present a complete picture of defendants’ finances, rather than relying on selective, incomplete, or circumstantial evidence.

If you have any questions or would like more information, please contact Jennifer Weatherup at [email protected].

[1] Plaintiff also sued the Vanetiks’ attorney. The Court separately found that the attorney could not be found liable for conspiracy.

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