Petition for Writ of Certiorari — San Paolo U.S. Holding Co. v. Simon
Supreme Court brief2001
Ask Donna
What actually matters in this document.
Text
(| Supreme Court,
oo FILED
No. 001467MAR 1 2 2001
In the Supreme Coifit"*™
OF THE
United States
SAN PAOLO U.S. HOLDING COMPANY, INC.,
Petitioner,
V.
LIONEL SIMON, DBA LIBERTY PAPER COMPANY,
Respondent.
On Petition For a Writ of Certiorari to the
Supreme Court of California
oe ae
————— ——
PETITION FOR A WRIT OF CERTIORARI
Epport & RICHMAN, LLP
LAWRENCE ALLEN ABELSON
Counsel of Record
STEVEN N. RICHMAN
LAWRENCE ALLEN ABELSON
10100 Santa Monica Boulevard,
Suite 1450
Los Angeles, CA 90067
(310) 785-0885
Counsel for Petitioner
Bowne of Los Angeles, Inc., Law Printers (213) 627-2200
i
QUESTIONS PRESENTED
(i) Whether an award of punitive damages which is 340
times greater than the attendant award of compensatory
damages ($1,700,000.00: $5,000.00) is violative of a
defendant’s right to due process under the Fourteenth
Amendment to the United States Constitution, especially
where the conduct involves a single commercial transaction
and the harm suffered is purely economic.
(ii) Whether the standard of review on a challenge to the
constitutionality of a punitive damage award is
(a) “independent and de novo,” or (b) only an “abuse of
discretion.”
(iii) In determining the reasonableness of the
relationship between an award of punitive damages and the
plaintiffs actual harm, whether it is proper to consider
_ Claims for compensatory damages which have previously
been rejected.
PARTIES TO THE PROCEEDINGS
The parties to the proceedings are LIONEL SIMON,
doing business as LIBERTY PAPER COMPANY, the
Plaintiff in the underlying action, and Defendant SAN
PAOLO U.S. HOLDING CO., INC., the Petitioner
herein. SAN PAOLO U.S. HOLDING CO., INCG., is a
corporation formed and existing under me laws of the State
of Delaware, and is a subsidiary of SANPAOLO IMI
S.p.A., a corporation organized under the laws of the
Republic of Italy. Also a party to this litigation (but not this
Petition) is Defendant SAN PAOLO BANK (formally
known as Istituto Bancario San Paolo Di Torino), an
affiliate of SAN PAOLO U.S. HOLDING CO., INC.
_—
il
TABLE OF CONTENTS
Page
QUESTIONS PRESENTED ..............+++5: i
PARTIES TO THE PROCEEDINGS ........... i
OPINIONS BELOW . ....... cscs cccscccveess l
JURISDICTION « oocs cs nnkassadavhaeesaionsess |
CONSTITUTIONAL PROVISION INVOLVED .. 2
STATEMENT . o.040<cdus nd estacpreneenbewieses 2
A. Factual Background..............eseeeeees 2
B. Procedural Background and Presentation of
the Federal Question... .........scsceceess
REASONS FOR GRANTING THE PETITION ie. We
A. State Courts Require Guidance Regarding the
Standard of Appellate Review of the
Constitutional Excessiveness of Punitive -
Damage Awards... .....csscescseccsescess 1]
B. An Award of Punitive Damages in a Sum 340
Times Greater Than an Accompanying Award
of Compensatory Damages is Violative of a
Defendant’s Fundamental Right to Due Process
and is Excessive as a Matter of Law ......... 19
C. The Assessment of Punitive Damages Under
California Law Constitutes an Imposition of a
Criminal Punishment Without Adequate
Srondiantt. ... . s ixaskabuceeenee seeueaeat es 25
D. Compensatory Damages Based On a Claim
Expressly Rejected by the Factfinder Should
Not Be Considered in Determining the
Reasonableness of an Award of Punitive
DeAOS . oo 5 cis vn ns CARR eS on 27
CONCLUSION occ ca uscsuccupatss eeeersears 30
Sn SE nde aie Sy RU Re at Dail: BML oh en
i i ce ita a Bs
iil
TABLE OF AUTHORITIES
Cases
Page
_ A.B. Small Co. v. American Sugar Refining Co.,
ee Dh ov on oka da kha xe eaed ona 26
Ace v. Aetna Life Ins. Co., 139 F.3d 1241 (9th Cir.
1998), cert. denied, 67 U.S.L.W. 3257 ......... 21, 22
Allsup’s Convenience Stores, Inc. v. North River Ins.
Ua sR ae eo, | en 13
Auerbach v. Great Western Bank, 74 Cal. eit 4th
CL ea io oh Wk aa WR Keak b ARO oe 22
BMW of North America v. Gore, 517 U.S. 559
iy ay pela NR ie ai ee aa passim
Bordenkircher v. Haves, 434 U.S. 357 (1978) ..... 1]
Bose Corp. v. Consumers Union of United States,
we RS |) 16
_ Continental Trend Resources v. OXY USA, 101
De) ie) 22
Cooper Industries Inc. v. Leatherman Tool Group,
Inc., United States Supreme Court No. 99-2035 .. 19
Crawford v. Southern Pacific Co., 3 Cal.2d 427
ed ek oa sia eye cbs 6c GND Sea ee 8
Devlin v. Kearny Mesa AMC/Jeep/Renaull, Inc.,
155 Cal.App.3d 381 (1984) ............0..00.. 12, 24
Federal Deposit Ins. Corp. v. Hamilton, 122 F.3d
EI, WED ga picasa dsucceuncens« 21, 22
Fortman v. Hemco, Inc., 211 Cal.App.3d 241
ae ian Laika eh add ee bi da kad ans 12
Gagnon v. Continental Casualty Co., 211
ee eG Sk. . | re 28
Gamble v. Stevenson, 305 S.C. 104, 406 S.E.2d 350
ore a hig ean ce WS ssh 4 ads Ka 4s < 13
Gertz v. Robert Welch, Inc., 481 U.S. 323 €1974) ... 25
Giaccio v. Pennsylvania, 382 U.S. 399 (1966) ..... 25
aa tangle
wo <P atee
1V
CASES
Page
Haynes v. Washington, 373 U.S. 503 (1963) ...... 12, 16
Honda Motor Co. v. Oberg, 512 U.S. 415
SR cas G's dace we he ae aw ae wee 13, 20, 21
Hundley v. Rite Aid of South Carolina Inc., 339
DA. Zed, Dae cee BS CIO) ona sce ceewencss 13
In Re Paris Air Crash, 622 F.2d 1315 (9th Cir.
1980), cert. denied, 449 U.S. 976 (1980) ....... 26
Lane v. Hughes Aircraft Co., 22 Cal.App.4th 405
CE Gad ovat ee eka ee eebee hens a aime 17,18
Miller v. Fenton, 474 U.S. 104 (1985) ........... 16
Neal v. Farmers Ins. Exchange, 2\ Cal.3d 910
CUMOE ku aetwak ss ekieke rehash akan 12
Neibel v. Trans World Assurance Co., 108 F.3d
get Ck me. 2g Seem yr. Pt aenery ae 21, 24
Ornelas v. United States, 517 U.S. 690 (1996) .... 12, 16
Owens-Corning Fiberglass Corp. v. Ballard, 739
30.24 G03 (Fin. CtAgp. 1996) .......:.00c04 13
Pacific Mutual Life Ins. Co. v. Haslip,
ee Re 8 RE nk Ne Veen eae. 7, 15, 19, 20, 22
Parrott v. Carr Chevrolet Inc., 331 Or. 537, 2001
ee OE is ss % ina ee are 14
Pulla v. Amoco Oil Co., 72 F.3d 648 (8th Cir.
FO Kasi dikes Acs Wd en a oa a eRe ed ee 20
Rosenbloom v. Metromed.a, Inc., 403 U.S. 29
CREE habe bs don ee RAE tan ee Reet 25
Salve Regina College v. Russell, 499 U.S. 225
COED £5ivs ke Cees phe ahs eee eens 16
Seely v. Seymour, 190 Cal.App.3d 844 (1987)..... 22
Smith v. Wade, 461 U.S. 30 (1983) ............. 25
Solem v. Helm, 463 U.S. 277 (1983) ............ 26
Southwestern Tel. & Tel. Co. v. Danaher, 238 U.S.
ONO sikks Fi cease wh bb Rtas A eee an 26
State of Ohio v. Barron, 52 Cal.App.4th 62 (1997)... 12
‘
LSE MOE aie NW le Mt A ee oO
Vv
CASES
Page
St. Louis, Iron, Mountain & S. Ry. Co. v. Williams,
ok SO. Oe COE ws Fins te eon ee eee 26
Stranahan y. Fred Meyer, Inc., 153 Or.App. 442,
O58 F.2G. BSG Gs 085s kerbs cede ees 14
Thompson v. Keohane, 516 U.S. 99 (1995) ....... 16
TXO Production Corp. v. Alliance Res. Corp.,
See Ua Ae CTO i neko ccc tia 15, 20, 22, 23, 29
United States v. Bajakajian, 524 U.S. 321 (1998) .... 26
United States v. First City Nat'l Bank, 386 U.S. 361
URGE Po od see teehee ch teehee ea 16
Wisconsin v. Constantineau, 400 U.S. 433 (1971).... 25
Statutes
United States Constitution, Fourteenth Amendment,
WOOO oink has dean beet eee 2
ce UB. Bee: ABTA sis pink ciwesvnnes l
Miscellaneous
Cass R. Sunstein, et al., Assessing Punitive Damages
(with Notes on Cognition and Valuation in Law),
SG? YAGE 4.5. Bert Cees $6055 5e Anes 16
vi
Appendix
Reporter’s Transcript for Trial Court Hearing on
Motion for New Tnial, or Alternatively for
Remittitur of Excessive Damages ......... A-1 - A-13
Opinion of California Court of Appeal,
Second Appellate District, Division
2 Fe rr hg er A-15 - A-49
Denial of Petition for Rehearing by California
Court of Appeal, Second Appellate District,
EOOVI FE oak son k ck bac a es uceeeveanevan A-51
Order of California Supreme Court extending
time for granting or denying review............. A-53
Denial of Petition for Review by California
Ge rer rrr rey errs er errr rs A-55
Order of California Court of Appeal, Second
Appellate District, Division Four, recalling
and staying issuance of Remittitur pending
filing of Petition for a Wnt of Certiorari .. A-57 - A-58
antate
_
SAN PAOLO U.S. HOLDING CO.,_ INC.
(“SAN PAOLO”) respectfully petitions for a Writ of
Certiorari to review the Order of the California Supreme
Court in this case.
OPINIONS BELOW
The decision of the California Court of Appeal affirming
the judgment of the Superior Court of Los Angeles County
(App., infra, A-15 - A-49) is unreported. The denial of the
Petition for Rehearing by the California Court of Appeal
(App., infra, A-51) is unreported. The denial of the Petition
for Review by the California Supreme Court (App., infra,
A-55) is unreported.
JURISDICTION
On August 28, 2000, the California Court of Appeal,
Second Appellate District, Division Four, filed its
unpublished Opinion. On September 21, 2000, the Court of
Appeal denied a timely Petition for Rehearing filed by SAN
PAOLO. On December 13, 2000, the California Supreme
Court, en banc, issued its Order denying SAN PAOLO’S
Petition for Review. The jurisdiction of this Court is invoked
under 28 U.S.C. § 1257(a).
2
CONSTITUTIONAL PROVISION INVOLVED
The Fourteenth Amendment, Section 1, of the United
States Constitution provides in relevant part:
‘*... No state shall make or enforce any law which shall
abridge the privileges or immunities of citizens of the
United States; nor shall any State deprive any person of
life, liberty, or property, without due process of law; nor
deny to any person within its jurisdiction the equal
protection of the laws.”
STATEMENT
A. Factual Background
This lawsuit has its genesis in the failed efforts of
LIONEL SIMON dba LIBERTY PAPER COMPANY
(“SIMON”) to purchase real property containing a
commercial office building (the “Property”), from SAN
PAOLO U.S. HOLDING COMPANY, INC. (“SAN
PAOLO”). The Property was first acquired by SAN
PAOLO on January 17, 1996, through a foreclosure sale.
(Reporter's Transcript [“R.T.”], p. 1469, 1. 19-20')
Shortly thereafter, SIMON made his first inquiry relating to
the purchase of the Property. Throughout the next
six months, the parties engaged in three different sets of
negotiations relating to SIMON’S attempts to purchase the
Property. Ultimately, those efforts failed, and the Property
was sold by SAN PAOLO to a third party in August, 1996.
(R.T., p. 1596, 1. 14-21; Joint Appendix in Lieu of Clerk’s
Transcript [“‘App.’], Vol. III, p. 1901-1908; p. 1925.)
In total, SIMON engaged in three different unsuccessful
sets of negotiations for the purchase of the Property. (R.T.,
'The Joint Appendix in Lieu of Clerk’s Transcript and the Reporter’s
Transcripts referenced herein are part of the record on appeal below.
3
p. 1336, 1. 20-28; R.T., p. 1472, 1. 24-p. 1473, 1. 3.) Two
sets of negotiations occurred in April, 1996. (R.T., p. 1340,
1. 21-26; p. 1473, 1. 5-p. 1474, 1. 4.) The third set of
negotiations occurred in June, 1996. (App. Vol. VII,
pp. 1864-1871; pp. 1899-1900.) The closest that SIMON
ever came to purchasing the Property was in June 1996,
when the parties prepared a written Letter of Intent. (App.
Vol. III, 1864-1871.) Although the Letter of Intent was
eventually signed, the transaction ultimately failed, as the
parties did not take the following steps contemplated in the
Letter of Intent: the execution of a Deposit Receipt and
Escrow Instructions and the opening and closing of Escrow.
As the jury recognized, the Letter of Intent clearly
provided that it was nonbinding. (R.T., pp. 1475, 1. 3-25.)
The Letter of Intent contained several conditions which
confirmed that it was not a binding agreement, including:
(i) approval of San Paolo Bank’s Los Angeles and New
York offices; (11) further negotiations between the parties;
(iii) preparation of a Deposit Receipt Form (i.e., formal
documentation); and (iv) approval by SIMON’S legal
counsel. (App. Vol. VII, 1864-1871.)
Immediately after signing the Letter of Intent, SIMON
and SAN PAOLO continued to negotiate the terms of the
proposed sale of the Property. (App. Vol. VII,
pp. 1872-1898.) These negotiations occurred during a period
of less than 24 hours. However, the parties still could not
reach an agreement on numerous issues. After further
unsuccessful negotiations, SAN PAOLO came to believe ~
that SIMON would never purchase the Property. (R.T.,
p. 1035, 1. 28-p. 1636, 1. 12; p. 1637, 1. 16-21; p. 1639,
1. 11-23.) SAN PAOLO therefore canceled the
negotiations in writing and sold the Property to a third
person for $100,000.00 less than SIMON’S offer. (App.
Vol. VII, p. 1899-1900; R.T., p. 1569, 1. 14-21.)
4
After SAN PAOLO agreed to sell the Property to a third
party, SIMON filed this lawsuit and recorded a lis pendens
against the Property, which was expunged on July 23, 1996.
The sale of the Property to the third party closed
immediately thereafter. (App. Vol. III, p. 1925.)
B. Procedural Background and Presentation of the
Federal Question
On June 21, 1996, SIMON filed his Complaint against
SAN PAOLO. (App. Vol. I, pp. 1-18.) The Complaint
included causes of action for Breach of Contract, Specific
Performance, Breach of the Implied Covenant of Good
Faith and Fair Dealing, and False Promise, all founded upon
an alleged promise by SAN PAOLO to sell the Property to
SIMON.
On April 30, 1997, the trial court granted SAN
PAOLO’S Motion for Summary Adjudication of Issues on
the causes of action for Specific Performance and Breach of
the Implied Covenant of Good Faith and Fair Dealing.
(App. Vol. II, pp. 585.)” This ruling left only two causes of
action remaining against SAN PAOLO: for Breach of
Contract and for False Promise.
On August 4, 1997, the case went to trial on the
remaining causes of action, and the jury returned a verdict
in favor of SAN PAOLO on the cause of action for Breach
of Contract, finding that neither the Letter of Intent nor any
other document constituted a binding, enforceable
agreement between the parties. (App. Vol. III, pp. 613-
617.) On the remaining cause of action for False Promise,
the jury returned a verdict in favor of SIMON, and awarded
?Co-Defendant San Paolo Bank filed its own Motion for Summary
Judgment at this same tire. The Motion was granted by the trial court
and affirmed on appeal by the California Court of Appeal, 2nd Civil
No. B113208 (Opinion filed May 21, 1998).
aes
pep ee a .
5
the sum of $5,000.00 as actual damages. In the punitive
damage phase, SIMON was awaraed the sum of
$2.5 million. (App. Vol. III, pp. 618.)
SAN PAOLO then filed its Motions for (a) Judgment
Notwithstanding the Verdict (which the trial court denied);
and (b) New Tnial or, Alternatively, For Remittitur of
Excessive Damages. In these Motions, among other things,
SAN PAOLO asserted that the punitive damage award,
which was 500 times the award of actual damages, was
grossly excessive as a matter of law and violative of SAN
PAOLO’S due process rights pursuant to this Court’s
decision in BMW of North America v. Gore, 517 U.S. 559
(1996) and related authorities. (App. Vol. III, pp. 634-635,
646-647; Vol. IV, pp. 1040-1044.) The trial court ruled that
it would grant the Motion for New Trial unless SIMON
accepted the reduced punitive damage’ award of
$250,000.00. (App. Vol. IV, p. 1050; Vol. V, p. 1228.)
SIMON rejected the reduced award and elected to proceed
with a new trial.
On March 9, 1998, the new trial went forward on the
limited issue of the amount of the punitive damages, if any,
to be awarded to SIMON (the “Second Trial”). Although
advised of the first jury’s findings that: (1) there was no
binding and enforceable contract (thus defeating SIMON’S
claim for breach of contract); and (ii) the only damages
sustained by SIMON on the claim of false promise was the
sum of $5,000.00, the second jury returned a verdict in favor
of SIMON for punitive damages of $1.7 million. (App. Vol.
VII, pp. 1808-1815.)
6
At the Second Trial, SIMON’S counsel argued that the
jury could consider SIMON as having suffered other
damages which the first jury previously denied him:°
“But it is harm that was suffered by LIONEL
SIMON, nonetheless, and that harm is at least
$400,000.00, the difference between the price he had
and he should have purchased the property at,
$1.1 million, and the price the property is really worth.”
(R.T. p. 1915, 1. 7-12.)4
In addition to the foregoing, SIMON’S counsel made
inflammatory statements to the jury which were
inappropriate and designed to arise passion and prejudice,
such as the following:
1. The punishment has to fit the “crime” (R.T.
p. 1918, 1. 3);
2. SAN PAOLO was a “criminal” (R.T. p. 1922, 1.
18-21; R.T. 1980, 1. 9-12);
3. SAN PAOLO’S conduct was nothing less than
attempted murder, assault or battery (akin to “shooting
a gun into a crowd”). (R.T. p. 1974, 1. 17-p. 1975,
‘20
> At the First Trial, SIMON sought damages for not only the alleged
lost value in the Property, but also the consequential damages incurred
in retaining an attorney to review the transaction. (R.T. p. 1915, 1. 7-12;
p. 1916, 1. 3-6; p. 1927, 1. 15-16.) The first jury specifically awarded
SIMON nothing for the alleged lost value in the Property, yet SIMON
still argued to the second jury that his lost value in the Property was
$400,000.00. (SAN PAOLO’S Motion in Limine on this issue was
denied. )
“The trial court denied the Motion in Limine of SAN PAOLO which
requested that SIMON be prohibited from introducing evidence on
claims of damages which had already been rejected. (App. Vol. V,
pp. 1323-1334.)
7
4. “They didn’t think anybody would find out. And
there would never be a criminal caught if they were all
perfect. And this one wasn’t.” (R.T. p. 1980, 1. 9-12.)
After the verdict in the Second Trial, SAN PAOLO filed
a Motion for New Trial, or Alternatively for Remittitur of
Excessive Damages. (App. Vol. VI, pp. 1518-1520;
Vol. VII, pp. 2010-2029.) Again, SAN PAOLO posited
that the award of punitive damages in an amount 340 times
the actual damages awarded was excessive as a matter of
law and violative of its federal due process rights. (App.
Vol. VI, p. 1519; Vol. VII, pp. 2021-2023.) The trial court
denied the Motion.
In its perfunctory treatment of SAN PAOLO’S challenge
to the excessiveness of the award under the standards set
forth in BMW and Pacific Mutual Life Ins. Co. v. Haslip,
499 U.S. 1 (1991), the court found that an award of
punitive damages “boils down to about the same sort of
analysis that the jury gives to emotional distress damages.
It’s not done with any particular precision. And the cases
have not required that it be done with particular precision. ~
[{.] I have analyzed it from the standpoint of each of the
three tests, and I have concluded that in all the facts in this
case and the two trials, the two verdicts and everything that
I heard in the case, the Motion is denied.” (App., infra,
A-11; App. Vol. VII, pp. 1826-1828; R.T., p. 1997, 1. 12-p.
1998. 1. 12, 2001, 1.19-p. 2002, 11. 1-12.)
Judgment was then entered on April 8, 1998, finding in
favor of SAN PAOLO on the claim of Breach of Contract;
finding in favor of SIMON in the amount of $ 5,000.00 on
the claim of False Promise; and awarding SIMON punitive
damages of $1,700,000.00. (App. Vol. VII, p. 1808-1815.)
On or about April 20, 1998, SAN PAOLO filed its
Notice of Appeal with regard to the entry of Judgment in
favor of SIMON on the False Promise cause of action, the
8
amount of the Judgment in favor of SIMON, and the
rulings upon which the Judgment was based. (App., Vol.
VII, pp. 1829-1834.) Respondent SIMON then filed a
Notice of Cross-Appeal as to the first jury verdict regarding
the Breach of Contract claim and the trial court’s ruling on
the (first) Motion for New Trial or, Alternatively, For
Remittitur of Excessive Punitive Damages following the first
trial. (App., Vol. VII, pp. 1851-1853.) On appeal, SAN
PAOLO contended, among other things, that any injury
suffered by SIMON was purely economic and that the
punitive-to-actual damages ratio of 340 to 1 was
constitutionally excessive and disproportionately penalized
SAN PAOLO. (Appellant’s Opening Brief, pp. 29-34,
Appellants’ Reply Brief and Cross-Respondent’s Brief,
pp. 18-21.)
On August 28, 2000, the California Court of Appeal,
Second Appellate District, Division Four, filed its
unpublished Opinion in this matter, affirming the Judgment
in its entirety and rejecting the appeals of SAN PAOLO
and SIMON. (App., infra, A-15 - A-49.) In sustaining the
award of punitive damages, the Court of Appeal employed a
deferential “substantial evidence” standard of review, which
“begins and ends with a determination as to whether there is
any substantial evidence, contradicted or uncontradicted,
which will support the conclusion reached by the jury.”
(App., infra, A-31, A-35- A-36, quoting Crawford v.
Southern Pacific Co., 3 Cal.2d 427, 429 (1935).) The Court
of Appeal prefaced its Opinion with the statement that: “We
summarize the evidence in the light most favorable to
Simon, as the prevailing party, and we give Simon the
benefit of every reasonable inference and resolving conflicts
in support of the verdict.” (App., infra, A-19 - A-20.)
Throughout the Opinion, the Court of Appeal acknowledged
the highly deferential nature of its review and repeatedly
refused to engage in an independent, de novo review of the
constitutionality of the punitive damages award.
9
In analyzing the reasonableness of the relationship of the
punitive damages awarded and harm actually suffered, the
Court of Appeal also posited that it could consider as a
factor the $400,000.00 benefit of the bargain damages
sought by SIMON in his claim for breach of contract,
which was expressly rejected by the jury. (App., infra,
A-30.) The Court concluded that, in this light, the ratio of
actual harm to punitive damages was “not 340 to 1, but just
over 4 to 1,” which was “not grossly disproportionate.”
(App., infra, A-31.) The authorities relied upon by the
Court, however, did not consider damages for alleged
potential harm which were never awarded.
On September 12, 2000, SAN PAOLO filed its Petition
for Rehearing with the Court of Appeal, pointing out several
omissions and misstatements of material facts and issues
presented on appeal. On September 21, 2000, the Petition
for Rehearing was denied. (App., infra, A-51.) On
October 6, 2000, SAN PAOLO filed a Petition for Review
with the California Supreme Court, presenting the following
issues for review:
1. Is an award of punitive damages in a sum 340 times
greater than the attendant award of compensatory
damages violative of a defendant’s right to due process
under the Fourteenth Amendment to the United States
Constitution or Article 1, Section 7, of the California
Constitution, especially where the conduct involves a
single transaction and the harm suffered is purely
economic?
2. Is a ratio of 340:1 in punitive damages to
compensatory damages ($1,700,000:$5,000.00)
presumptively the result of passion and prejudice and
therefore excessive as a matter of law, where the
conduct involves a single commercial transaction and
the harm suffered is purely economic?
10
3. In determining the reasonableness of the
relationship between an award of punitive damages and
the plaintiffs actual harm, is it proper to take into
account a claim of compensatory damages which has
already been adjudicated in favor of the defendant (and
against the plaintiff)?
4. Can a defendant be found liable for a false promise
following an adjudication by the fact finder that there is
no binding and enforceable agreement between the
parties?
5. Is there a void in California law regarding the
method for determining a plaintiffs actual harm in
assessing the reasonableness of an award of punitive
damages?
On November 27, 2000, the California Supreme Court
extended the time for granting or denying review in this
matter to and including January 4, 2001, or the date upon
which review was either granted or denied. (App., infra,
A-53.) On December 13, 2000, the California Supreme
Court, en banc, issued its Order denying SAN PAOLO’S
Petition for Review. (App., infra, A-55.)
On December 18, 2000, the Clerk of the Court of Appeal
issued a Remittitur. On December 26, 2000, SAN PAOLO
filed a Motion for Recall and Stay of Issuance of Remittitur
with the Court of Appeal to stay any efforts by SIMON to
collect on his Judgment pending the filing of the instant
Petition by SAN PAOLO. On January 10, 2001, the Court
of Appeal filed its Order recalling the Remittitur and staying
its issuance for 90 days and advising that SAN PAOLO
could apply to this Court-for a further stay. (App., infra,
A-57 - A-58.)
11
REASONS FOR GRANTING THE PETITION
A. State Courts Require Guidance Regarding the
Standard of Appellate Review of the Constitutional
Excessiveness of Punitive Damage Awards.
The subject award of punitive damages presents
unsettled, federal questions of law that affect the public at
large. The award of punitive damages in this case (a sum
340 times greater than the attendant award of compensatory
damages) is but one example of the excessive punitive
damage awards by both state and federal court juries in
violation of defendants’ due process rights under the
Fourteenth Amendment which continue to plague the
American judicial system. Notwithstanding the fact that
this Court has set certain legal guideposts” for determining
whether an award of punitive damages is grossly excessive,
and therefore violative of the due process protections set
forth in the Constitution, no clear standard has been set for
the review of such an award on appeal.
This Court has already held that the determination of
whether a punitive damage award is grossly excessive is of
constitutional significance. Due process requires that a
person receive “fair notice not only of the conduct that will
subject him to punishment, but also of the severity of the
penalty that a State may impose.” BMW, 517 US. at 574.
“To punish a person because he has done what the law
plainly allows him to do is a due process violation of the
most basic sort.” Jd. at 573, citing Bordenkircher v. Haves,
434 U.S. 357, 363 (1978). Further, generally, appellate
‘These guideposts include the relative reprehensibility of the
defendant’s conduct, the relationship between the jury’s actual
compensatory and punitive damage awards, and a comparison of the
award to analogous civil and criminal penalties. The Court has also
identified other comparative factors, such as whether the tort was purely
economic, intentional, and/or repeated. BMW, 517 U.S. at 575-584.
12
court review of constitutional claims based upon the Bill of
Rights is conducted de novo. See, e.g., Haynes v.
Washington, 373 U.S. 503, 515 (1963) (appellate review of
Due Process Clause claims is a “duty of constitutional
adjudication”). Such independent review is necessary “‘if-
appellate courts are to maintain control of, and to clarify, the
legal principles.” Ornelas v. United States, 517 U.S. 690,
698 (1996). This Court, however, has not firmly established
that this standard of review is to be applied by state or
federal courts when assessing the constitutional propriety of
an award of punitive damages.
In the absence of a clear standard of review from this
Court, undue deference can be (and has been) accorded to
the discretion of ‘rial courts, thereby inviting divergent
development of the law in this arena, leading to conflicting
constitutional standards throughout the United States.
Notably, when reviewing the propriety of an award of
punitive damages, California courts determine if “the entire
record viewed most favorably to the judgment indicates the
award was rendered as the result of passion and prejudice.”
Devlin v. Kearny Mesa AMC/Jeep/Renault, Inc.,
155 Cal.App.3d 381, 388 (1984); internal citation omitted;
see also Neal v. Farmers Ins. Exchange, 21 Cal.3d 910,
927 (1978). This “passion and prejudice” inquiry is a
species of the deferential substantial evidence standard of
review. Fortman v. Hemco, Inc., 211 Cal.App.3d 241, 259
(1989). This standard conflicts with the de novo standard
generally employed by California courts when reviewing
constitutional issues. See State of Ohio v. Barron,
52 Cal.App.4th '62, 67 (1997).
Other state courts throughout the country have employed
divergent appellate standards of review when conducting a
constitutional inquiry into claims of grossly excessive
13
punitive damage awards.° The New Mexico Supreme Court
has adopted a deferential “substantial evidence” standard
similar to that employed by the California courts. See
Allsup’s Convenience Stores, Inc. v. North River Ins. Co.,
127 N.M. 1, 18, 19, 976 P.2d 1 (1998) (“the amount of
[punitive] damages is left to the sound discretion of the
jury;” “there was substantial evidence in the record to
support the jury’s award of punitive damages”). The Court
of Appeals of South Carolina has adopted the even more
deferential “abuse of discretion” standard when reviewing
constitutional challenges to punitive damage awards. See
Hundley v. Rite Aid of South Carolina, Inc., 339 S.C. 285,
314, 319, 529 S.E.2d 45 (2000) (“[w]e find no abuse of
discretion in the trial court’s conclusions following its review
of the jury verdict’); Gamble v. Stevenson, 305 S.C. 104,
112, 406 S.E.2d 350 (1991) (“[t]he amount of damages,
actual and punitive, remains largely within the discretion of
the jury, as reviewed by the trial court”). This standard has
also been adopted by the District Court of Appeal of
Florida. See Owens-Corning Fiberglass Corp. v. Ballard,
739 So.2d 603, 607 (Fla.Ct.App. 1998) (“the punitive
damages award, while facially disproportionate to the
amount of compensatory damages awarded, is not against
the manifest weight of the evidence on this ground;” “we do
not find that the trial court’s failure to reduce the award was
an abuse of discretion’).
The Oregon courts employ yet a different standard when
considering a challenge to an award of punitive damages as
constitutionally excessive. On remand from Honda Motor
Co. v. Oberg, 512 U.S. 415 (1994)’, the Oregon Supreme
*Notably, in every state court opinion discussed below, the application
of a deferential standard of review resulted in the affirmance of the
challenged punitive damage award.
"In Honda Motor Co. v. Oberg, 512 U.S. 415 (1994), the Court held
that the Due Process Clause requires the availability of post-verdict
14
Court established the following criterion to be applied in
such cases: “A jury’s award of punitive damages shall not be
disturbed when it is within the range that a rational juror
would be entitled to award in the light of the record as a
whole; the range that a rational juror would be entitled to
award depends, in turn, on the statutory and common law
factors that allow an award of punitive damages for the
specific kind of claim at issue.” Oberg v. Honda Motor Co.,
Ltd., 320 Or. 544, 549 (1995).° In reliance upon Oberg, the
Oregon Supreme Court recently held that “when reviewing
a punitive damages award for excessiveness, the reviewing
court must view the facts in the light most favorable to the
jury’s verdict if there is evidence in the record to support
them” and that “the reviewing court must resolve all
disputes regarding facts and factual inferences in favor of
the jury’s verdict and then determine, on the facts as the
jury was entitled to fund them, whether the award violates
the legal standard of gross excessiveness.” Parrott v. Carr
Chevrolet Inc., 331 Or. 537, 2001 WL 25789, *10 (2001);
emphasis added.
This sampling of the decisions of various states
demonstrates the following:
1. State appellate courts across the nation are
employing different standards when _ reviewing
challenges to awards of punitive damages as grossly
judicial review of punitive damage awards, however, the Court did not
“address the more difficult question of what standard of review is
constitutionally required.” (/d. at 432, n. 10.)
In Stranahan vy. Fred Meyer, Inc., 153 Or. App. 442, 467 & n. 21, 958
P.2d 854 (1998), the Oregon Supreme Court rejected the defendant’s
request for an abuse of discretion standard of review and instead applied
its “rational juror” standard, holding that it was unable to say that the
jury’s punitive damage award of 16 times the compensatory damage
award “was not ‘within the range that a rational juror would be entitled
to award in the light of the record as a whole.’” Jd. at 471, quoting
Oberg, 320 Or. at 551.
15
excessive under the Due Process Clause of the
Fourteenth Amendment.
2. State appellate courts are not engaging in an
independent, de novo review of constitutional
challenges to punitive damage awards, but are instead
applying deferential standards of review.
3. The absence of independent appellate review of
punitive damage awards by state court juries is
deteriorating the constitutional constraints on grossly
excessive punitive damage awards announced by this
Court in BMW and is yielding conflicting standards of
review of such awards among the states.
4. Unless a uniform standard of independent, de novo
review is imposed by this Court, the constitutional
safeguards against grossly excessive punitive damage
awards will be rendered meaningless.
Only through the explicit requirement of an independent
appellate review of punitive damage awards can this Court’s
substantive due process limitation on grossly excessive
punitive damage awards be meaningfully enforced and
protected. See BMW, 517 U.S. 559; TXO Production
Corp. v. Alliance Res. Corp., 509 U.S. 443(1993); Pacific
Mut. Life Ins. Co. v. Haslip, 499 U.S. 1. Nonetheless, these
constitutional protections are being eroded by divergent
appellate standards of review. In the instant case, the Court
of Appeal employed a highly deferential standard in
upholding an award of punitive damages 340 times greater
than the actual damages awarded. Such review effectively
deprives the defendant of any rationality or predictability to
the constitutional analysis and prevents any true adherence
to the due process limitations on excessive punitive damage
awards developed by this Court. Without an appellate
court’s independent assessment of the excessiveness of a
punitive damage award according to fixed, objective criteria,
Seema sentertoce
16
a defendant’s constitutional protections are rendered
meaningless. See BMW, 509 U.S. at 466 (Kennedy, J.,
concurring). Because punitive damage awards are mapped
“onto an unbounded scale of dollars,” they continue to be
arbitrary and unpredictable. Cass R. Sunstein, et al.,
Assessing Punitive Damages (with Notes on Cognition and
Valuation in Law), 107 Yale L.J. 2071, 2074 (1998).
Deferential standards of review in this context serve only to
sanction a jury’s irrational verdict instead of subjecting it to
the rigors of constitutional review, as required.
This Court has repeatedly held that legal issues, including
the scope of fundamental constitutional rights, are reviewed
de novo. See Salve Regina College v. Russell, 499 U.S. 225,
231-232 (1991); United States v. First City Nat'l Bank,
386 U.S. 361, 368 (1967); Haynes v. Washington, 373 U.S.
at 515; Bose Corp. v. Consumers Union of United States,
Inc., 466 U.S. 485, 502-503 (1984); Ornelas v. United
States, 517 at 697-698; Miller v. Fenton, 474 U.S. 104, 114
(1985). Only through this standard of review can precedent
be established, the risk of confusion and arbitrariness
minimized, predictability and reasonableness restored, and
constitutional limits on awards of punitive damages
enforced. See Thompson v. Keohane, 516 U.S. 99, 109-100,
115-116 (1995); Bose Corp., 466 U.S. at 502. De novo
review is necessary to guard against punitive damage awards
exceeding the constitutional limits established by this Court.
Only through ‘a detailed examination” of such awards,
constrained by the guideposts established by this Court, can
the nationwide trend of grossly excessive punitive damage
awards be curtailed. BMW, 517 US. at 595 (Breyer, J.,
concurring).
The issues raised in this Petition are of nationwide
jurisprudential significance. Recently, California Supreme
Court Justice Janice R. Brown issued a concurring opinion
(in which California Supreme Court Justice Ming W. Chin
17
concurred) discussing at some length her concerns
regarding the punitive damages system and highlighting the
need for clearer standards to be employed in assessing
whether punitive damages are excessive. Among other
things, Justice Brown observed that the Court was obligated:
“to give meaning to the term ‘excessive’ in relation to
punitive damages. Otherwise, the deferezitial standards
of review that we affirm today will inhibit us in
providing guidance to trial courts as to how their broad
discretion should be exercised... [W]ithout clear
guidance, judicial oversight of punitive damage awards
will not be uniform, and the resulting gross variability
in awards will ultimately implicate the rights of
defendants to due process and the equal protection of
the laws... Without a beginning point of reference,
punitive damage awards tend to vary widely, depending
“as much on the vicissitudes of jury decision making as
on the facts of the case. This variability can result in
disparate and fundamentally unfair treatment of
similarly situated defendants, a possibility we should
not ignore.”
Lane v. Hughes Aircraft Co., 22 Cal.4th 405, 421-422
(2000).”
Justice Brown posited that “[i]n the case of large awards,
punitive damages should rarely exceed compensatory
damages by more than a factor of three, and then only in the
most egregious circumstance clearly evident in the record,”
noting that “while deterrence and retribution are part of the
equation, fundamental notions of justice require some
*In Lane, the California Supreme Court was not called upon to
address the propriety of the amount of the punitive damage award but
instead considered the standard to be applied in reviewing an order
granting a motion for a new trial based upon the gross disproportion
between the damages awarded and the plaintiffs’ actual injuries.
18
correlation between punishment and harm.” Jd. at 423, 424.
She observed that “our sister states have most frequently
selected two or three times compensatory damages as the
appropriate limitation on punitive damages. These
jurisdictions include Connecticut, Delaware, Florida,
Illinois, Indiana, Nevada, North Dakota, Oklahoma and
Texas.” Id. at 426, citing BMW, 571 US. at 615-616
(Ginsburg, J., dissenting [appendix]). Both federal and
state courts remain without clear guidance from this Court
as to the proper standard to be applied when reviewing an
award of punitive damages subject to a federal constitutional
challenge.
Emphasizing the strong societal interest in setting further
standards for the assessment of punitive damages, Justice
Brown wrote that “arbitrariness in punitive damage awards,
even if only occasional, does not affect jury verdicts alone; it
distorts settlements by adding disproportionate leverage to a
plaintiff's demands, as well as uncertainty.” Lane, 22 Cal.
4th at 427. As a result, courts have “the responsibility to
define and restrain excessive damages, :ncluding punitive
damages. Lane, 22 Cal. 4th at 428. The instant case has
been tried to two juries and fully developed on appeal. It
serves as the perfect vehicle for this Court’s review of the
standards to be employed in assessing excessive punitive
damage awards.
In reviewing SAN PAOLO’S challenge to the
constitutionality of this award, the Court of Appeal applied
a substantial evidence (deferential) standard of review and
not the de novo standard requested in SAN PAOLO’S
Opening Brief. (App., infra, A-31, A-35-A-36; Appellant’s
Opening Brief, p. 14.) Notably, this Court has granted a
Petition for Writ of Certiorari on the issue of whether, under
the Due Process Clause of the Fifth Amendment to the
. United States Constitution, the standard of review of a
federal trial court’s ruling on a challenge to the
19
constitutionality of a punitive damage award is abuse of
discretion or de novo. Cooper Industries. Inc. v. Leatherman
Tool Group, Inc., United States Supreme Court
No. 99-2035 (punitive damage award of 90 times the |
amount of purely economic compensatory damages). Oral
argument on this appeal was scheduled to be heard on
February 26, 2001. As of the filing of this Petition, a
decision has not yet been issued.
As in the instant case, in Cooper Industries, the Ninth
Circuit Court of Appeal applied a deferential standard of
review and determined that the federal district court did not
abuse its discretion in refusing to reduce the punitive
damage award. The thrust of this appeal is that federal
constitutional due process limitations on excessive punitive
damage awards under the Fifth Amendment can be
enforced only through an independent, de novo review and
not a deferential standard which renders the constitutional
limitations illusory. SAN PAOLO’S Petition raises -this
substantial issue of federal constitutional jurisprudence
under the Fourteenth Amendment to the United States
Constitution as applied by state courts.
B. An Award of Punitive Damages in a Sum 34u Times
Greater Than an Accompanying Award of Compensa-
tory Damages is Violative of a Defendant’s Fundamen-
tal Right to Due Process and is Excessive as a Matter
of Law
The punitive damages award of $1,700,000.00 must be set
aside as grossly excessive under the Due Process Clause of
the Fourteenth Amendment. In this case, a gross disparity
exists between the award of actual damages ($5,000.00) and
punitive damages ($1,700,000.00), creating a punitive-to-
actual damages ratio of 340 to 1. This Court has already
ruled that a punitive-to-actual damages ratio of 4 to 1 1s
“close to the line” and that one of 500 to | is clearly
20
excessive, when the actual harm suffered is nominal and
purely economic. Pacific Mutual Life Insurance v. Haslip,
499 U.S. 1; BMW, 517 U.S. 559. Notably, the instant case
was not based on personal injury, nor was there any claim
for bodily injury, emotional distress, wrongful death or any
other injury traditionally warranting punitive damages.
Rather, the jury found SIMON’S damages to be only the
legal fees which he expended in connection with his attempt
to purchase the Property.
The Due Process clause imposes a substantive limit on
the size of punitive damage awards. Honda Motor Co. v.
Oberg, 512 US. 415, 114 S.Ct. 2331, 2335 (1994).
Although this Court has not established a bright line rule for
identifying unconstitutionally excessive awards, it has
indicated that “general concerns of reasonableness” should
guide the inquiry and, more specifically, that punitive
exactions should not be “greater than reasonably necessary
to punish and deter.” Pacific Mutual Life Insurance v.
Haslip, 499 U.S. at 18, 22. Implicit within this “reasonably
necessary” standard is the premise that over-deterrence and
over-punishment are deemed to be unconstitutional. 7X¥O
Production Corp. v. Alliance Resources Corp., 509 U.S. at
463.
Simply put, punitive damages are punishment and, in
many cases, severe punishment. Procedural due process
requires the imposition of additional trial protections to
establish sufficient confidence in the outcome in these
situations. Indeed, many courts (including this Court) have
addressed this issue, and all conclude that the following
factors must be considered in determining an appropriate
amount of punitive damages:
1. Whether the defendant has engaged in repeated
misconduct (which is deemed more reprehensible than
an individual instance of malfeasance), or whether it is
21
an isolated and rare incident. Pulla v. Amoco Oil Co.,
72 F.3d 648 (8th Cir. 1995);
2. Whether the harm suffered involves only economic
harm, rather than harm to the health or safety of
individuals. Federal Deposit Ins. Corp. v. Hamilton,
122 F.3d 854, 862 (10th Cir. 1997);
3. Whether all three criteria for assessing punitive
damages were properly applied (amount of actual
damages; magnitude «; the offense, and the defendant’s
wealth). Ace v. Aetna Life Ins. Co., 139 F.3d 1241 (9th
Cir. 1998), cert. denied, 67 U.S.L.W. 3257;
4. Whether there is a reasonable relationship between
the punitive damages award and the harm likely to
result from the defendant’s conduct, as well as the
harm that actually has occurred. Neibel v. Trans World
Assurance Co., 108 F.3d 1123, 1132 (9th Cir. 1997);
and |
5. Whether the punitive-to-actual-damages ratio is
“unconstitutionally excessive.” Jd.
This Court has also observed that the Due Process Clause
imposes a limit on punitive damages awards which are
grossly excessive. Honda Motor Co., Ltd. v. Oberg, 512 U.S.
at 420. Judicial review of the size of punitive damages
awards has been a safeguard against excessive awards for as
long as punitive damages have been awarded. Jd. at 421. A
critical criterion in evaluating a punitive damages award
involves a comparison of the actual damages with the
punitive damages. An award of punitive damages must bear
a reasonable relationship to the amount of actual damages
awarded. BMW, 517 U.S. at 580. This “reasonable
relationship” rule exists to guard against clear excess. Jd. at
581.
The punitive damage award of $1,700,000.00 here bears
no réasonable relationship to SIMON’S actual damages of
22
$5,000.00. Federal courts have repeatedly held that punitive
damages are excessive when the ratio between punitive and
actual damages is much closer than in the present case. See,
e.g., Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. at 23 (4 to
1 is “close to the line’); Federal Deposit Ins. Corp. v.
Hamilton, 122 F.3d at 861 (10 to 1 ratio is
“unconstitutionally excessive in a broad range of cases;” a
ratio of 27 to | is unconstitutionally excessive under the
Supreme Court’s decision in BMW and the 10th Circuit’s
subsequent decision in Continental Trend Resources v. OXY
USA, 101 F.3d 634, 639 (10th Cir. 1996)); Ace v. Aetna
Life Ins. Co., 139 F.3d at 1248-1249 (130 to 1 is far beyond
any amount approved by the Alaska courts); and BMW, 517
U.S. 559, citing TXO Production Corp. v. Alliance
Resources Corp., 509 U.S. at 482 (a breathtaking 500 to |
ratio must surely “raise a suspicious judicial eyebrow.”’)
Indeed, common experience itself suggests that punitive-to-
actual damage ratios in excess of 5 to | are excessive. See
Pacific Mutual Life Ins. Co. v. Haslip, 499 U.S. at 23.'°
A punitive damages ratio of 340 to 1 awarded to SIMON
for purely economic injury is clearly excessive in light of the
above-outlined standards. The purpose and function of
punitive damages is to punish wrongdoing and thereby
protect the public from future misconduct, either by the
same defendant or by other potential wrongdoers. BMW,
517 U.S. at 568. That function of punitive damages is not
served by an award which, in light of the defendant’s wealth
and the gravity of the conduct, exceeds the level necessary
to properly punish and deter.
‘California courts have also found excessive punitive to actual
damage award ratios closer than that awarded to SIMON herein. See,
e.g., Auerbach v. Great Western Bank, 74 Cal.App.4th 1172, 1190
(1999) (385 to | found “out of proportion to the actual damages
suffered”); Seeley v. Seymour, 190 CalsApp.3d 844, 866-869 (1987)
(13.3 to 1 is clearly excessive).
23
While reiterating the well-established principle that there
is no bright-line mathematical formula for determining an
acceptable relationship between punitive and actual
damages, this Court has nevertheless recognized: “When
the ratio [of punitive to actual damages] is a breathtaking
500 to 1, however, the award must surely “raise a suspicious
judicial eyebrow.” BMW, 517 US. at 583, citing TXO
Production Corp., 509 U.S. at 482. In BMW, an individual
brought suit against an automobile manufacturer seeking
damages on the grounds that his new car had been re-
painted to conceal damaged paint before he purchased the
car, and that the value of the car had thus been diminished
without his knowledge. The result at trial, almost identical
to the result here, was an award of actual damages in the
amount of $4,000.00, and a punitive damages award of
$2,000,000.00. This Court held that the punitive damages
were grossly excessive and violative of due process, stating:
To be sure, infliction of economic injury, especially
when done intentionally through affirmative acts of
misconduct, ...can warrant a substantial penalty. But
this observation does not...justify a significant
sanction in addition to compensatory damages.
(BMW, 517 USS. at 576.)
In rejecting a punitive damages ratio of 500:1, this Court
held that infliction of economic injury, even when done
intentionally, does not justify significant sanctions on top c”
compensatory damages. Here, SIMON suffered only
economic injury. Wherever the “line of impropriety” is
drawn, punitive damages which are 340 times greater than
the actual damages is well past it, warranting a substantial
reduction (if not complete reversal) of the award. Very few
cases involve ratios of punitive to compensatory damages
anywhere close to the 340:1 ratio in the instant case.
Further, these authorities pre-date the BMW decision,
which sets forth the modern standard for determining
24
whether a punitive damages award passes constitutional
muster.
In Neibel v. Trans World Assurance Co., 108 F.3d at
1132, the Ninth Circuit held that, in economic injury cases,
if the damages are significant and the injury not hard to
detect, the ratio of punitive damages to the harm generally
cannot exceed a 10 to | ratio. Jd. The jury here was left to
impose punitive damages upon SAN PAOLO based upon
inflammatory, prejudicial, and unsupported argument and
wealth. The verdict was based upon bias and visceral
reactions, and was therefore arbitrary and discriminatory. As
one Court has noted:
The process through which a fact finder finds punitive
damages is somewhat contradictory ... The channeling
of just the correct quantum of bile to reach the correct
level of punitive damages is, to put it mildly, an
unscientific process complicated by personality
differences. Conduct which one person may view as
outrageous another may accept without feeling,
depending on such diverse characteristics as an
individual’s background, temperament and _ societal
concerns. The process is further complicated by the
lack of objective criteria from either the Legislature or
the courts as to ‘how much’ is necessary to punish and
deter.
(Devlin v. Kearny Mesa AMC/Jeep/Renault, Inc., 155
Cal.App.3d at 388.)
It is this same arbitrary process which resulted in the
award of punitive damages of over 340 times the actual
harm suffered by SIMON in this case.
25
C. The Assessment of Punitive Damages Under California
Law Constitutes an Imposition of a Criminal
Punishment Without Adequate Standards
Punitive damages are punishment and, in this case, an
excessive punishment. Under the test to determine the
requirements of procedural due process, additional
protections are required. This is especially true when
punishment is involved. In such situations, the safeguards of
criminal law are necessary.
Generally, punishment is the domain of criminal law. The
fact that states have chosen to enforce punishment through
civil action does not affect constitutional requirements. In
Giaccio v. Pennsylvania, 382 U.S. 399, 402 (1966), the
United States Supreme Court held that the placement of a
civil label on a statute did not affect the application of due
process principles. While economic regulations may be
subject to a less strict vagueness standard, punitive damages
require a heightened level of scrutiny, as they constitute
punishment. Punitive damage awards are “quasi-
criminal,”'' “serve the same function as_ criminal
penalties,”'? and are private fines imposed to punish and
deter conduct.'? Close scrutiny is appropriate because of the
stigma and loss of reputation which attaches to a punitive
damages award. See Wisconsin v. Constantineau, 400 U.S.
433 (1971).
State action is present where punitive damages are
awarded. This is due to the fact that the punitive damages
are being awarded through a_ government-sanctioned
function (namely, the judicial system). In a sense, plaintiffs
'' Smith v. Wade, 461 U.S. 30, 59 (1983) (Rehnquist, J. dissenting).
'2Rosenbloom v. Metromedia, Inc., 403 U.S. 29, 82-84 (1971)
(Marshall, J. dissenting).
"Gertz v. Robert Welch, Inc., 481 U.S. 323, 350 (1974).
26
are acting as private attorneys general in seeking to enforce
California law. See In Re Paris Air Crash, 622 F.2d 1315,
1320 (9th Cir. 1980), cert. denied, 449 U.S. 976(1980). The
fact that the punishment is imposed in a civil action does not
insulate the matter from due process scrutiny. A.B. Small
Co. v. American Sugar Refining Co., 267 U.S. 233, 239
(1925).
Notwithstanding the foregoing, standards relating to the
review of punitive damage awards remain vague. New
standards are needed in order to assure that punishment is
fair. Notably, as discussed above, the Court has recognized
the need for independent appellate review on virtually all
issues involving the scope of fundamental constitutional
rights. Recently, in United States v. Bajakajian, 524 US.
_ 321 (1998), the Court confronted the issue of whether a
criminal forfeiture contravened the Excessive Fines Clause
of the Eighth Amendment, which involves consideration of
many of the same factors outlined in BMW for determining
whether a punitive damage award is unconstitutionally
excessive. The Court expressly rejected abuse of discretion
review therein, holding that “the question of whether a fine
is constitutionally excessive calls for the application of a
constitutional standard to the facts of a particular case, and
in this context de novo review of that question is
appropriate.” Jd. at 337-337, n. 10.
In other cases, the Court has repeatedly implicitly
acknowledged that constitutional “excessiveness”’ challenges
to civil penalties under the Excessive Fines Clause and
criminal sentences under the Cruel and Unusual
Punishment Clause of the Eighth Amendment are to be
reviewed de novo. See St. Louis, Iron, Mountain & S. Ry.
Co. v. Williams, 251 U.S. 63, 66-67 (1919); Southwestern
Tel. & Tel. Co. v. Danaher, 238 U.S. 482, 490-491 (1915);
Solem v. Helm, 463 U.S. 277, 290-303 & n. 16 (1983). In
light of this Court’s recognition of the need for independent,
27
de novo appellate review when constitutional rights are
invoked, the deferential “substantial evidence” standard
employed by California and other state courts across the
nation when confronted with challenges to punitive damage
awards under the Due Process Clause of the Fourteenth
Amendment must be rejected if there is to be any
meaningful enforcement of the standards set forth in BMW.
D. Compensatory Damages Based On a Claim Expressly
Rejected by the Factfinder Should Not be Considered
in Determining the Reasonableness of an Award of
Punitive Damages
in holding that SIMON’S punitive damage award can be
based upon his alleged benefit of the bargain (or lost
profits), the Court of Appeal improperly drew an
implication directly contrary to the express factual
determinations of the first jury. After being properly
instructed as to the requirements for finding a breach of
contract, the first jury determined that there was none,
specially finding that there was no binding and enforceable
agreement between SAN PAOLO and SIMON
whatsoever. (App. Vol. III, 613.) Notably, the bulk of the
jury instructions regarding SIMON’S claim for breach of
contract were agreed upon by the parties prior to trial. (App.
Vol. II, pp. 502, 504-517.)
Because, as the first jury correctly decided, there was no
binding, enforceable contract between the parties, SIMON
was never entitled to purchase the Property. Therefore, his
alleged lost profits simply are not within the range of harm
for which punitive damages are available. SIMON’S
compensatory damages of $5,000.00 represent the only
legally recognizable actual harm which SIMON suffered in
this transaction.
In response to the claim of SAN PAOLO that the
punitive damages awarded ($1,700,000) were grossly
rans
28
disproportionate to the compensatory damages awarded
($5,000) to SIMON, the Court of Appeal determined that
the ratio was not 340:1, but was “just over 4 to 1,” based
upon its belief that “Simon’s loss was at least the $400,000
difference between the appraised value and the price at
which King falsely promised to sell the building.” (App.,
infra, A-30 - A-31.) This portion of the Opinion, however,
does not take into account the salient fact that these
damages were never even awarded. (App. Vol. III,
613-614.)
At the first trial, SIMON sought not only consequential
damages incurred in retaining an attorney to review the
transaction, but also damages for his lost “benefit of the
bargain” under his claim for breach of contract. (R.T.,
Vol. 10, 1915: 7-12, 1916: 3-6, 1927: 15-16.) The first jury
however refused to award SIMON anything for the alleged
lost value in the Property. (App. Vol. III, 613-614.) Despite
the fact that this claim was rejected, SIMON still argued to
the second jury that his lost value in the Property was
$400,000.00. The first jury had already rejected this
argument and awarded only the sum of $5,000.00,
representing attorneys’ fees incurred by SIMON in
connection with this transaction. (App. Vol. III, 616.)
Further, the amount of compensatory damages was not re-
litigated in the second trial. (R.T., Vol. 7, 1204:2-
1205:22.)
In its Opinion, the Court of Appeal posits that an analysis
of “the actual harm the plaintiff has suffered” can take into
account compensatory damages not legally available to a
plaintiff. (App., infra, A-30 - A-31.) Such is not the case
when a jury has already found against the plaintiff on his
claim for “actual harm.” The authorities cited by the Court
do not involve a prior adjudication of the actual harm
suffered by the plaintiff, as in the instant case, and do not
29
hold that a plaintiff may rely on alleged damages sought on
a dismissed claim to enhance his punitive damages award.'*
Further, the Court of Appeal’s reliance upon TXO
Production Corp., 509 U.S. 443, for the contention that the
punitive damage award should be based upon SIMON’S
alleged (but rejected) actual harm of $400,000.00 was
misplaced. (App., infra, A-31, n.9.) TXO involved an action
for slander of title, where it was shown that TXO had
engaged in a pattern of fraud nationwide and, in this case,
attempted to renegotiate an oil and gas royalty arrangement
with Alliance by deceiving it into believing that Alliance did
not have good title to oil and gas rights when they were
conveyed to TXO. Beyond the fact that the repeated
wrongful conduct by TXO soars far beyond the isolated
incident at issue herein, the Court in TXO was not
confronted with a jury verdict which awarded punitive
damages based upon alleged harm which had already been
rejected by a prior jury.
SIMON should not have been allowed to request punitive
damages based upon $400,000.00 in alleged lost profits since
(a) there was no such award, and (b) this claim had already
been rejected. The prejudice is obvious, as the jury’s
consideration of this claim improperly inflated the punitive
damages by an excessive (and unconstitutional) amount.
'*For example, in Gagnon v. Continental Casualty Co. 211
Cal.App.3d 1598 (1989), the California Court of Appeal upheld the
plaintiffs right to recover punitive damages notwithstanding the fact that
she did not have standing to recover compensatory damages arising out
of an insurer’s termination of her husband’s (the decedent’s) benefits
under a disability insurance policy. The Court did not address the
enhancement of a punitive damages recovery based upon damages
sought pursuant to a claim on which the plaintiff had already lost.
30
CONCLUSION
The petition for a writ of certiorari should be granted.
Date: March 12, 2001 Respectfully submitted,
EPPoRT & RICHMAN, LLP
LAWRENCE ALLEN ABELSON
Counsel of Record
STEVEN N. RICHMAN
LAWRENCE ALLEN ABELSON
10100 Santa Monica Boulevard,
Suite 1450
Los Angeles, CA 90067
(310) 785-0885
Counsel for Petitioner
APPENDIX 1
A-l
SUPERIOR COURT OF
THE STATE OF CALIFORNIA
FOR THE COUNTY OF LOS ANGELES
DEPARTMENT NO. 17
HON. RICHARD P. KALUSTIAN, JUDGE
LIONEL SIMON, ET AL.,
PLAINTIFFS,
VS.
SAN PAOLO BANK, ET AL.,
DEFENDANTS.
NO. BC 152431
REPORTERS’ TRANSCRIPT OF PROCEEDINGS
AUGUST 1, 4, 5, 6, 7, 8, 11, 12, 1997
OCTOBER 3, 8, 1997; DECEMBER 9, 1997
FEBRUARY 20, 1998; MARCH 6, 9, 10, 1998
MARCH 11, 12, 13, 1998; APRIL 8, 1998
APPEARANCES:
FOR THE PLAINTIFFS:
ANDRE E. JARDINI, ESQ.
MITCHELL B. LUDWIG, ESQ.
ATTORNEYS AT LAW
500 NORTH BRAND BOULEVARD
TWENTIETH FLOOR
GLENDALE, CALIFORNIA 91203
A-2
FOR THE DEFENDANTS:
STEVEN N. RICHMAN, ESQ.
BETH ANN R. YOUNG, ESQ.
ATTORNEYS AT LAW
10100 SANTA MONICA BOULEVARD
SUITE 1450
LOS ANGELES, CALIFORNIA 90067
VOLUME 10 OF 10 VOLUMES.
PAGES 1828 THROUGH 2003, INCL.
ELIZABETH GARCIA, ERM.
GLORIA J. HALL, CSR #4165
OFFICIAL REPORTER
LOS ANGELES, CALIFORNIA;
WEDNESDAY, APRIL 8, 1998
8:45 A.M.
DEPARTMENT NO. 17
HON. RICHARD P. KALUSTIAN, JUDGE
THE COURT: SIMON VERSUS SAN PAOLO
BANK.
MR. JARDINI: GOOD MORNING, YOUR HONOR.
ANDY JARDINI FOR LIONEL SIMON.
MR. LUDWIG: GOOD MORNING, YOUR HONOR.
MITCHELL LUDWIG ALSO FOR PLAINTIFF
LIONEL SIMON.
MR. RICHMAN: GOOD MORNING, YOUR) |
HONOR. STEVEN RICHMAN- FOR’ THE |
DEFENDANT. a:
I HAVE READ THE TENTATIVE RULING. I WILL
RESTRICT MY RESPONSE TO THE OPPOSITION
FILED BY MR. SIMON TO OUR MOTIONS. BEFORE
DOING THAT, HOWEVER, I WOULD LIKE TO
INQUIRE OF THE COURT. WE DID FILE
A-3
OBJECTIONS AND REQUESTS TO STRIKE
PORTIONS OF MR. LUDWIG’S —
THE COURT: I DIDN’T READ _ THE
DECLARATION AT ALL.
MR. RICHMAN: SO I ASSUME IT’S BEEN
REJECTED?
THE COURT: I DIDN’T READ IT, SO YOUR
OBJECTION IS SUSTAINED. WHEN I SAW THAT
IT WAS GOING TO BE A RECAP OF THE TRIAL, I
JUST DIDN’T READ IT.
MR. RICHMAN: THERE ARE JUST A FEW
COMMENTS I'D LIKE TO MAKE WITH REGARD
TO THE OPPOSITION FILED BY MR. SIMON’S
COUNSEL.
FIRST IS THAT COUNSEL DOES
ACKNOWLEDGE THE STATEMENTS MADE
DURING CLOSING WHICH WE BELIEVE TO BE
INFLAMMATORY. -THEY OBVIOUSLY DENY
THAT THEY ARE INFLAMMATORY, BUT THE
WORDS SPEAK FOR THEMSELVES.
TO ACCUSE SAN PAOLO OF COMMITTING A
CRIME THREE TIMES, TO USE AN ANALOGY OF
ATTEMPTED MURDER OF SOMEONE SHOOTING
A GUN INTO A CROWD, AND NOT JUST ANYONE,
BUT THE PRESIDENT OF SAN PAOLO BANK, IS
CLEARLY INAPPROPRIATE.
AND TO ACCUSE SAN PAOLO OF CRIMES AND
BRIBES WHERE THERE IS NO EVIDENCE OF IT,
AND TO USE STATEMENTS SUCH AS LUNCH
MONEY AND PARKING TICKETS WITH REGARD
TO COMPARISON TO PUNITIVE DAMAGES IS
CLEARLY INFLAMMATORY AND HAS NO PLACE
IN FRONT OF A JURY.
A-4
AND THOSE TYPES OF COMMENTS ARE MADE
FOR ONE PURPOSE ONLY, AND THAT’S TO
INFLAME THE JURY. AND THOSE COMMENTS
SHOULD NEVER BE MADE. COUNSEL SAYS
THEY ARE NOT INFLAMMATORY, BUT THEY
HAVE NO BUSINESS BEING MADE, ESPECIALLY
THE SECOND TIME AROUND.
THE COURT: I DON’T RECALL THERE BEING
AN OBJECTION.
MR. RICHMAN: THE COURT INSTRUCTED US
NOT TO MAKE ANY OBJECTIONS DURING
CLOSING. AND IT IS IN THE TRANSCRIPT AND I
CAN QUOTE IT. 1 HAVE —
THE COURT: I THINK WHAT I SAID WAS DON’T
MAKE OBJECTIONS BASED UPON~ THE
OBJECTION “MISSTATES THE EVIDENCE”
BECAUSE EACH SIDE — UNLESS IT’S A GROSS
MISSTATEMENT, SO GROSS THAT I HAVE TO
CORRECT IT. BUT EACH SIDE HAS A DIFFERENT
VIEW OF THE EVIDENCE. THAT’S WHY WE HAVE
TRIALS.
AND IF LAWYERS ARE CONTINUALLY
MAKING THE OBJECTION “MISSTATES THE
EVIDENCE,” ALL WE END UP WITH IS A
TOTALLY DISJOINTED ARGUMENT. AND THAT’S
WHY I SAID THAT. I THINK I ADMONISHED THE
JURY IN THE BEGINNING THAT THiS WAS THE
CASE, AND THEIR VIEW OF THE EVIDENCE
SHOULD PREVAIL. BUT THAT DOES NOT HAVE
ANYTHING TO DO WITH STATEMENTS YOU
CONSIDER INFLAMMATORY AND NOT PART OF —
THE EVIDENCE. SO YOU SHOULD HAVE
OBJECTED.
A-5
MR. RICHMAN, I READ THE STATEMENTS. I
DON’T FIND THEM SO INFLAMMATORY THAT
IT’S GOING TO CHANGE THE JURORS’ MINDS.
LAWYERS ARE GIVEN WIDE LATITUDE IN
ARGUMENT TO MAKE THE ARGUMENTS THAT
THEY WANT TO UNLESS THEY JUST GET WAY
OUT OF HAND. AND I DON’T SECOND GUESS
THE WAY ARGUMENTS ARE CONDUCTED. IT
DOESN’T MAKE ANY SENSE TO DO THAT.
MR. RICHMAN: I JUST DON’T SEE HOW ONE
CAN RECONCILE THE ACCUSATIONS OF
CRIMINAL CONDUCT AND - ATTEMPTED
MURDER, A GUN SHOOTING INTO THE CROWD.
THAT HAS NO BASIS IN THE CASE AT ALL.
THE COURT: BUT MR. RICHMAN, I THINK THE
JURORS COMPLETELY UNDERSTOOD WHAT MR.
JARDINI WAS SAYING. I DID. I DIDN’T ASSUME
THIS WAS CRIMINAL CONDUCT. JUST BECAUSE
SOMEBODY SAYS SOMETHING DOESN’T MEAN
THAT THE PERSON - RECEIVING’- THE
INFORMATION IS GOING TO ASSUME IT THAT
WAY. FRANKLY, I DIDN’T TAKE IT THAT WAY
AN) | DON’T THINK —
MR. RICHMAN: IT HAS NO BASIS FOR EVEN
BEING SAID. IT SHOULD NOT BE SAID IN FRONT
OF A JURY. THIS IS A CIVIL CASE. TO ACCUSE
SOMEONE OF A_ CRIME, ESPECIALLY
ATTEMPTED MURDER OR BRIBERY WHERE
THERE IS NO EVIDENCE IS TOTALLY
INAPPROPRIATE. AND WE SHOULDN’T HAVE
BEEN PUT IN A_ POSITION TODAY OF
SPECULATING WHETHER OR OT. THE JURY
TOOK THAT INTO CONSIDERATION. I WOULD
THINK THEY DID.
lh a
— - a ” —
A-6
BUT THE POINT IS COUNSEL PUT IT INTO
PLAY AND SHOULDN’T HAVE. AND I THINK IT’S
UNDISPUTED THAT THOSE TYPE - OF
ALLEGATIONS HAVE NO BASIS IN THIS TYPE OF
COURT, ESPECIALLY IN A CIVIL CASE.
THE COURT: I DISAGREE.
MR. RICHMAN: THE SECOND POINT I’D LIKE
TO MAKE IS THE OPPOSITION IGNORES THE
BMW AND HASLIT CASES. IT IGNORES THE
FACT THAT THOSE CASES SEEM TO INDICATE
THAT ANY RATIO GREATER THAN 4 TO 1 RAISES
EYEBROWS OF SUSPICION. AND ONE HAS TO
QUESTION WHETHER OR NOT IT’S’ AN
APPROPRIATE ORDER.
THIS IS FAR IN EXCESS OF THE CLEAR
MAJORITY OF THE CASES. THERE ARE ALWAYS
EXCEPTIONS CITED BY THE PLAINTIFF. BUT IN
THIS CASE, THE CONDUCT DOESN’T JUSTIFY AN
AWARD OF $1.7 MILLION DOLLARS FOR A $5,000
COMPENSATORY AWARD.
AND THOSE CASES, ESPECIALLY THE HASLIT
AND BMW CASES WHICH ARE 1990 SUPREME
COURT CASES DECIDED WITHIN THE LAST TWO
TO FOUR YEARS, HAS TO BE TAKEN IN
CONSIDERATION BY THIS COURT. AND THEY
DON’T JUSTIFY THE TYPE OF AWARD IN THIS
CASE.
I WOULD AGAIN ASK THE COURT TO
INDEPENDENTLY WEIGH THE EVIDENCE. THE
COURT HAS AN OBLIGATION TO REWEIGH THE
_ EVIDENCE. THAT IS THE DOMAIN OF THE
JUDGE. BUT THE FACT THAT WE HAVE HAD A
SECOND TRIAL OF THIS DOESN’T MEAN THAT
TWO WRONGS MAKE A RIGHT.
A-7
THE COURT PREVIOUSLY REDUCED THE
AWARD. I WOULD SUBMIT IT SHOULD DO SO
AGAIN. AT SOME POINT IT WILL BE CITED ON
APPEAL AS TO WHAT THE REASONABLENESS IS.
BUT THE POINT IS THE COURT HAS AN
INDEPENDENT DUTY TO WEIGH THE EVIDENCE
AND NOT TO ACCEPT THE JURY AT FACE
VALUE, ESPECIALLY IN LIGHT OF CONDUCT OF
COUNSEL IN CLOSING AND IN LIGHT OF THE
EVIDENCE.
COUNSEL ALSO MISSTATED THE EVIDENCE
AND THE LAW WITH REGARD TO THE ISSUE OF
HARM. WE BROUGHT A MOTION IN LIMINE TO
PREVENT ANY APPRAISALS COMING IN THE
SECOND TIME SINCE THE FIRST JURY
AWARDED $5,000. BUT YET, PLAINTIFF WAS
ALLOWED TO INTRODUCE NEW TESTIMONY
FROM A NEW EXPERT IN WHICH HE TESTIFIED
THAT IT WAS $400,000 IN HARM.
BUT THE LAW IS CLEAR THE HARM WAS
CALCULATED AT THE FIRST TRIAL AND THAT
WAS $5,000. AND IT WAS WRONG TO ALLOW
NEW EVIDENCE TO COME IN ON HARM FOR
HARM TO EVEN BE DISCUSSED BECAUSE THE
JURY HAD ALREADY ISSUED THAT AWARD.
THE COURT: WELL, THAT’S A KNOTTY LITTLE
AREA, MR. RICHMAN. I HAVE READ THE CASES
AND THAT’S A KNOTTY LITTLE AREA. AND IF
THERE IS A DAMAGE AWARD, CAN YOU STILL
CONSIDER IT THE SAME WAY YOU’D CONSIDER
IF THERE WERE NO DAMAGE AWARD, BUT THE
AWARD FOR THE PLAINTIFF WERE FOR AN
INJUNCTION OR SOME OTHER EQUITABLE
RELIEF? I AM JUST NOT SURE.
Dathse Ss O49
" ee ROT
A-8
I THINK I UNDERSTAND YOUR ARGUMENT.
AND I GUESS AT THIS POINT, LET ME MAKE
THESE COMMENTS SO YOU UNDERSTAND WHY
I AM DOING WHAT I AM DOING AND THE
COURT OF APPEAL WILL UNDERSTAND
BECAUSE I AM SURE IT WILL LAND THERE.
PROBABLY IT OUGHT TO LAND THERE, I GUESS.
LET ME TELL YOU WHAT I THINK HAPPENED.
I THINK THE JURY CONSIDERED MR. KING’S
CONDUCT REPREHENSIBLE. I KNOW YOU HAVE
A DIFFERENT VIEW OF WHAT HE DID. BUT I
JUST THINK’ THAT THE JURY CONSIDERED,
THEY LOOKED AT MR. KING, THEY LISTENED
TO MR. KING, THEY EVALUATED MR. KING. IN
FACT, BOTH JURIES DID. AND I HAVE COME TO
THE CONCLUSION AFTER TWO JURY TRIALS
THAT THEY THOUGHT KING WAS LYING. I
KNOW YOU DON’T THINK SO, AND IT MAY NOT
BE TRUE. I SIMPLY DON’T KNOW AS A MATTER
OF FACT. BUT I CAN TELL YOU THAT’S THE WAY
I READ IT.
AND THE WITNESSES WHO SUPPORTED KING,
I THINK THE JURY BELIEVED THEY LIED, TOO.
LYING IS VERY POWERFUL IN COURT IF THE
JURY BELIEVES THAT SOMEBODY LIES.
WE CAN DISCUSS WHETHER MR. KING LIED
FOREVER AND PROBABLY NEVER COME TO A
CONCLUSION, MR. RICHMAN. AND I DO NOT
PASS JUDGMENT ON WHETHER HE LIED OR
DIDN’T LIE. BUT I THINK THAT’S WHERE THE
JURY DID IT. I THINK THEY THOUGHT HIS
CONDUCT WAS TOTALLY UNCALLED FOR AND
REPREHENSIBLE. AND I THINK THAT’S WHY
THEY LEVELED THE PUNITIVE DAMAGES. A
A-9
DIFFERENT JURY HEARING ABOUT THE SAME
EVIDENCE DID IT AGAIN.
I WOULD CONSIDER $1.75 MILLION DOLLARS
VERY CLOSE TO $2.5 MILLION DOLLARS WHEN
YOU CONSIDER IT IN RELATIONSHIP TO THE
$5,000 IN COMPENSATORY DAMAGES.
MR. RICHMAN: I AM NOT HERE TO ARGUE
ABOUT MR. KING. MY POINT IS THAT THE
AWARD OF PUNITIVE DAMAGES, NO MATTER
WHAT THE JURY FELT ABOUT MR. KING IS
DISPROPORTIONATE TO THE AWARD OF
COMPENSATORY DAMAGES.
IT’S UNDISPUTED THE FIRST JURY AWARDED
$5,000 IN COMPENSATORY DAMAGES DESPITE A
REQUEST FOR OVER A MILLION DOLLARS IN
DAMAGES. I THINK THAT IS THE POINT THAT
HAS TO BE FOCUSED UPON. ONCE THAT AWARD
COMES IN AT $5,000, ANY PUNITIVE DAMAGE
AWARD HAS TO BE LIMITED TO A RATIO THAT
IS IN COMPLIANCE WITH HASLIT AND BMW.
AND REGARDLESS OF MR. KING’S CONDUCT,
NO MATTER HOW REPREHENSIBLE OR NOT, IT
HAS TO BEAR SOME RELATION TO THAT. IT’S
MY FEELING THAT THE JURY, WHEN SEEING
THE FINANCIAL STATEMENT WITH $50
MILLION DOLLARS ON IT AND HAVING NO
GUIDANCE WITH REGARD TO WHAT IS
REASONABLE IS GOING TO LOOK AT THE
FINANCIAL STATEMENT OF $50 MILLION
DOLLARS AND LISTEN TO THE - CLOSING
ARGUMENT OF COUNSEL WITH’ THE
ALLEGATIONS OF CRIMINAL CONDUCT AND
ATTEMPTED MURDER AND SAYING THAT A
$15,000 AWARD IS A PARKING TICKET OR LUNCH
A-10
MONEY AND WITHOUT ANY GUIDANCE, THEY
ARE GOING TO GO AHEAD AND AWARD A
MILLION OR $2 OR $3 MILLION DOLLARS
BECAUSE WHEN COMPARED TO A FINANCIAL
STATEMENT, IT’S INCONSEQUENTIAL.
BUT IT TOTALLY IGNORES ONE OF THE
THREE CRITICAL ELEMENTS OF AN AWARD OF
PUNITIVE DAMAGES, AND THAT IS SOME
REASONABLE RELATIONSHIP TO THE
COMPENSATORY AWARD. AND IT JUST SHOCKS
ME. AND I AM SURE ANYONE READING OR
REVIEWING THIS CASE WILL BE SHOCKED TO
SEE A COMPENSATORY AWARD OF $5,000
FOLLOWED UP BY A PUNITIVE DAMAGE AWARD
OF $1.75 MILLION DOLLARS.
THE COURT: IF THAT’S ALL YOU KNEW ABOUT
THE CASE, THOSE TWO FACTS, IT PROBABLY
WOULD SHOCK MOST PEOPLE, I AGREE. BUT
THAT ISN’T WHERE IT BEGINS NOR WHERE IT
ENDS. THERE IS A WHOLE CASE IN BETWEEN
THOSE TWO BOOKENDS.
MR. RICHMAN, I UNDERSTAND YOUR
ARGUMENT. I HAVE FULLY READ YOUR BRIEF.
IN FACT, IT’S WELL DONE. YOU MADE YOUR
POINT VERY CLEARLY.
‘MR. RICHMAN: ONE LAST POINT I’D LIKE TO
MAKE IS THAT THERE IS ALWAYS ANOTHER
STORY TO THE CASE. AND THE SAME IS TRUE
WITH THE BMW. BUT THE SUPREME COURT HAS
STATED ON MORE THAN ONE OCCASION THAT
WHEN THE RATIO EXCEEDS 4 TO 1, IT HAS TO BE
LOOKED AT WITH A CRITICAL EYE. AND SOME
CASES SAY IT SHOULD BE PRESUMPTIVELY
SUBJECT TO OBJECTION AND OVERTURNED IF
A-11
IT’S GREATER THAN THOSE RATIOS. AND 4 TO 1
IS FAR IN EXCESS OF THOSE CASES AND DOES
NOT BEAR A SUPPORT OR AFFIRMATION BY
THIS COURT.
THE COURT: WELL, THERE ARE MANY CASES
ON PUNITIVE DAMAGES. AND THERE IS A
THREE PART TEST FOR PUNITIVE DAMAGES.
BUT AS A PRACTICAL MATTER, IT BOILS DOWN
TO ABOUT THE SAME SORT OF ANALYSIS THAT
THE JURY GIVES TO EMOTIONAL DISTRESS
DAMAGES. IT’S NOT DONE WITH ANY
PARTICULAR PRECISION. AND THE CASES
HAVE NOT REQUIRED THAT IT BE DONE WITH
PARTICULAR PRECISION.
I HAVE ANALYZED IT FROM~ THE
STANDPOINT OF EACH OF THE THREE TESTS,
AND I HAVE CONCLUDED THAT IN ALL THE
FACTS IN THIS CASE AND THE TWO TRIALS,
THE TWO VERDICTS AND EVERYTHING THAT I
HEARD IN THE CASE, THE MOTION IS DENIED.
MR. JARDINI: THANK YOU, YOUR HONOR.
THE COURT: I WILL PROBABLY BE SEEING
YOUR FIRST PAPERS FAIRLY SOON.
MR. RICHMAN: I WILL seeeeinaaa NOTICE OF
THE RULING.
THE COURT: MR. JARDINI, YOU WANT TO
GIV’! NOTICE?
MR. JARDINI: WELL, YOUR HONOR —
MR. RICHMAN: THERE IS A JUDGMENT. I’D
LIKE TO REVIEW IT. AND I WILL CALL COUNSEL
TODAY. I DON’T THINK WE HAVE ANY
OBJECTIONS TO IT.
oe:
i itliasol
A-12
MR. JARDINI: I WILL ADVISE THE COURT.
MR. LUDWIG: I SERVED THE JUDGMENT A
WHILE AGO ON THEIR OFFICES. IT’S BEEN WITH
THE COURT.
THE COURT: HAVE YOU TAKEN A LOOK AT IT?
MR. RICHMAN: I HAVE NOT, BUT I WILL LOOK
AT IT EITHER NOW OR WHEN I GET BACK TO
THE OFFICE AND CALL COUNSEL UP.
MR. LUDWIG: I FILED IT THE MONDAY AFTER
THE TRIAL.
THE COURT: WELL, WHY DON’T YOU GIVE US
A CALL IF THERE IS ANYTHING GLARING
ABOUT IT. GIVE US A CALL THIS AFTERNOON. IT
LOOKS LIKE IT’S IN ORDER TO ME.
ESSENTIALLY, IT’S JUST A RECITATION OF
THE JURY VERDICT, AND THAT’S WHAT THE,
NUDGMENT IS. BUT IF I DON’T HEAR ANYTHING
FROM ANYBODY, I WILL SIGN IT.
MR. RICHMAN: VERY WELL.
THE COURT: THANK YOU, GENTLEMEN. IT’S
BEEN A PLEASURE SEEING YOU TWICE.
(WHEREUPON, PROCEEDINGS WERE
CONCLUDED)
A-13
SUPERIOR COURT OF
THE STATE OF CALIFORNIA
FOR THE COUNTY OF LOS ANGELES
DEPARTMENT NO. 17
HON. RICHARD P. KALUSTIAN, JUDGE
LIONEL SIMON, ET AL.,
PLAINTIFFS,
VS.
SAN PAOLO BANK, ET AL.,
DEFENDANTS.
BC 152431
REPORTER’S CERTIFICATE
STATE OF CALIFORNIA Ss
COUNTY OF LOS ANGELES
I, GLORIA J. HALL, OFFICIAL REPORTER OF
THE SUPERIOR COURT OF THE STATE OF
CALIFORNIA FOR THE COUNTY OF LOS
ANGELES, DO HEREBY CERTIFY THAT THE
FOREGOING PAGES 1 THROUGH _ 2003,
COMPRISES A FULL, TRUE AND CORRECT
TRANSCRIPT OF THE PROCEEDINGS HELD ON
AUGUST 1, 1997; AUGUST 4, 5, 6, 7, 8, 1997; AUGUST
11, 12, 1997; OCTOBER 3, 1997; OCTOBER 22, 1997;
DECEMBER 9, 1997; FEBRUARY 20, 1998; MARCH 6,
1998; MARCH 9, 10, 11, 12, 13; 1998 AND APRIL 8,
1998 IN THE MATTER OF THE ABOVE-ENTITLED
CAUSE.
DATED THIS 11TH DAY OF AUGUST, 1998.
/s/ GLORIA J. HALL
OFFICIAL REPORTER #4165
14
APPENDIX 2
A-15
NOT TO BE PUBLISHED
IN THE COURT OF APPEAL OF THE STATE OF
CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FOUR
LIONEL SIMON, DBA LIBERTY PAPER
COMPANY,
Plaintiff; Respondent and Cross-Appellant,
v.
SAN PAOLO U.S. HOLDING
COMPANY, INC.,
Defendant, Appellant and Cross-Respondent.
B121917
(Super. Ct. No. BC152431)
COURT OF APPEAL SECOND DISTRICT
FILED
AUGUST 28, 2000
JOSEPH A. LANE CLERK
APPEAL from a judgment of the Superior Court of Los
Angeles County, Richard P. Kalustian, Judge. Affirmed.
Epport & Richman, Lawrence A. Abelson, Beth Ann R.
Young and Steven N. Richman for Defendant, Appellant
and Cross-Respondent.
Knapp, Petersen & Clarke, Andre E. Jardini, Mitchell B.
Ludwig and Kevin J. Stack for Plaintiff, Respondent and
Cross-Appellant.
a SY ee ee ET i
A-16
BACKGROUND
On June 21, 1996, cross-appellant, Lionel Simon,
commenced this action against San Paolo Bank (hereinafter
“the bank’) and appellant, San Paolo U.S. Holding
Company, Inc. (“San Paolo”).' Simon sought specific
performance of an alleged contract to purchase real
property, located at 816 Figueroa Street in Los Angeles. He
also sought damages for breach of the contract, as well as
damages for fraud, consisting of a false promise to sell the
property to Simon under certain terms and conditions.
The issues of liability and punitive damages were tried
separately by jury, beginning on August 1, 1997.’ By special
verdict rendered on August 12, 1997, the jury found that
there had been no enforceable contract between the parties.
However, the jury found in favor of Simon on the fraud
cause of action, awarded him $5000 in compensatory
damages, and $2,500,000 in punitive damages.
San Paolo brought motions for a new trial, a reduction in
punitive damages, and judgment notwithstanding the
verdict. Simon brought a motion for new trial as to damages.
The trial court denied Simon’s motion, as well as San
Paolo’s motion for judgment notwithstanding the verdict.
The trial court granted San Paolo’s motion for new trial,
subject to Simon’s acceptance of a reduction in punitive
damages to $250,000. Simon refused to accept the
'San Paolo Bank, the parent company of San Paolo U.S. Holding
Company, was eliminated as a defendant after its motion for summary
judgment was granted. We affirmed the judgment entered in its favor in
case No. B 113208, filed May 21, 1998.
*San Paolo states in its opening brief that a pretrial summary
adjudication eliminated the specific performance count and one of two
contract counts. Simon responds that the summary judgment eliminated
a cause of action for tortious breach of the covenant of good faith and
fair dealing, not a contract claim. However, neither the motion nor the
order granting it has been made a part of the record on appeal.
A-17
remittitur, and the issue of punitive damages was tried to a
new jury, beginning March 6, 1998.
The second jury assessed punitive damages in the amount
of $1,700,000, and San Paolo’s motion for new trial was
denied. On April 8; 1998, judgment was entered against San
Paolo in the amount of $1,705,000. San Paolo filed a timely
notice of appeal from the judgment, and Simon filed a
timely notice of cross-appeal.
DISCUSSION
I. San Paolo’s Appeal
A. The First Trial
We leave our summary of the evidence adduced at the
first trial to our discussion of Simon’s cross-appeal because,
although San Paolo contends that there was no substantial
evidence to support any of the elements of fraud, it refers
only to evidence presented during the second trial, which
involved just the issue of punitive damages. San Paolo’s
opening brief and reply brief have set forth none of the
evidence presented at that first trial.
It is presumed that the record contains evidence to sustain
every finding of fact, and it is the appellant’s burden to
demonstrate the absence of substantial evidence to support a
challenged finding, by setting forth all the material evidence
on the point. (Foreman & Clark Corp. v. Fallon (1971)
3 Cal.3d 875, 881; Cal. Rules of Court, rule 13.) Since San
Paolo has failed to do so, we presume the evidence was
sufficient to support the verdict, and deem the point waived.
(See Foreman & Clark Corp. v. Fallon, supra, 3 Cal.3d at
p. 881.)
San Paolo also contends that there was no liability for
fraud as a matter of law, because the jury found there was
no contract. San Paolo’s contention appears to be based
A-18
entirely upon its interpretation of the special verdict finding
that there was no “binding and enforceable agreement”
between the parties. San Paolo infers that the jury found
that no contract had been formed in the first instance. Thus,
it reasons, Simon was not induced to enter into a
transaction, and cannot be said to have relied upon the false
promise.
However, the jury was never asked to determine whether
a contract had been formed. Instead, it was asked to make
the legal conclusion as to whether an enforceable contract
existed. Further, the use of “and” instead of “or’’ to connect
“binding” and “enforceable” indicates the jury may have
found that a contract had been formed, but was not
enforceable, or that no contract had been formed at all. It is
impossible to discern from the special verdict which
conclusion the jury made.
A special verdict must call for ultimate facts, not
conclusions of law. (Code Civ. Proc., § 624; see 7 Witkin,
Cal. Procedure (4th ed. 1997) Trial, § 355, p. 404.) And it
must state those facts directly, not by implication. (Breeze v.
Doyle (1861) 19 Cal. 101, 103.) The special verdict in this
case was defective, in that it called for a conclusion of law,
which merely implied the facts upon which it was based.
The jury’s finding of fraud implies that it found that the
parties did enter into a contract, but the contract was
unenforceable. We cannot conclude that the jury found that
no contract was formed in the first instance.
San Paolo is, in effect, inviting us to infer a contradictory
finding, while rejecting a reasonable interpretation which
would support the judgment. However, San Paolo has
waived any error in the form of the special verdict, by failing
to object. (Brokaw vy. Black-Foxe Military Institute (1951)
37 Cal.2d 274, 280.) We therefore reject San Paolo’s
invitation.
A-19
A cause of action for promissory fraud requires proof of
an unperformed promise, made about a material fact,
without any intention of performing it, and with the intent to
deceive the plaintiff or to induce him to enter into a
transaction; and upon which the plaintiff justifiably relies to
his injury. (Muraoka v. Budget Rent-A-Car, Inc. (1984) 160
Cal.App.3d 107, 119; Civ. Code, §§ 1572, subd. 4, 1709,
1710.) Liability does not depend upon whether the promise
is ultimately enforceable as a contract. (Lazar v. Superior
Court (1996) 12 Cal.4th 631, 638.) ““‘If it is enforceable,
the [plaintiff] ...has a cause of action in tort as an
alternative at least, and perhaps in some instances in
addition to his cause of action on the contract.’ [ Citation. ]”
(/d.at p. 638, quoting Rest.2d Torts, § £30, subd. (1),
com. c, p. 65; and citing Tenzer v. Superscope, Inc.
(1985) 39 Cal.3d 18, 29.)
San Paolo relies upon Maynes v. Angeles Mesa Land Co.
(1938) 10 Cal.2d 587, 589, and Justice Clark’s dissent in
Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809,
832. Neither case touches upon the requirement, or lack of
requirement, of an enforceable contract as an element of
promissory fraud.’ We therefore reject San Paolo’s
contention that there was no liability for fraud as a matter of
law.
B. The Second Trial
We summarize the evidence in the light most favorable to
Simon, as the prevailing party, and we give Simon the
benefit of every reasonable inference and resolving conflicts
Indeed, Egan does not even involve a claim of promissory fraud.
That portion of Justice Clarke’s dissent to which San Paolo refers states
merely that a careless mistake resulting from poor investigation is not
malice, and does not support an award of punitive damages. (See 24
Cal.3d at p. 832.)
A-20
in support of the verdict. (Crawford v. Southern Pacific Co.
(1935) 3 Cal.2d 427, 429.)*
When Simon agreed to purchase from San Paolo the
building located at 816 South Figueroa in Los Angeles for
$1,100,000, he objected to a term in the seller’s offer which
would make the purchase agreement non-binding until close
of escrow. San Paolo’s broker, William Atha, agreed that
the term was not normal, and prepared a draft letter of
intent which stated that it would be binding. Although the
draft letter of intent stated that it was binding, it also called
for approval of the transaction by San Paolo’s Los Angeles
and New York offices, which was to be given no later than
3:00 p.m. on June 12, 1996.
In all, the draft letter of intent contained thirteen terms
lettered A through M, including the price, terms of the
financing to be provided, and deadlines for various acts.
Simon agreed to Atha’s suggestion to include a requirement
that San Paolo negotiate only with Simon, so that “the rug
didn’t get pullec out again at the end,” as it had been several
times during the negotiations by Duane King, San Paolo’s
vice-president in charge of the se u of the building.’
“Our summary differs significantly from San Paolo’s, because San
Paolo has chosen to draw all reasonable inferences in favor of its own
position, and to disregard its obligation to set forth in its brief all the
material evidence, not merely its own. (See Foreman & Clark Corp. v.
Fallon, supra, 3 Cal.3d at p. 881.)
*On several occasions, King changed the terms of his offer after
Simon had verbally accepted them. In April 1996, Simon asked King
what it would take to buy the building, and King told him that if he
offered $1,290,000, the bank would finance the property for him, and
give him $40,000 improvement allowance. As soon as Simon agreed,
King demanded $1,350,000, and offered a $75,000 allowance. When
Simon agreed to those terms, King said he would take the offer to New
York, but Simon never heard back from him. Later that month, Simon
learned that the prior owners had a right of redemption in the property,
with eight or nine more months to run. Simon was very concerned about
A-21
Atha worded the requirement as follows: “Seller and Buyer
agree to exclusively negotiate upon execution of this letter.”
Simon was told that minor “housekeeping terms” would be
worked out in escrow.
The next day, June 12, 1996, Atha sent the final letter of
intent for Simon’s signature. It contained a few additional
terms, now lettered A through P, and the word “binding”
had been removed. However, the last paragraph stated:
“These terms and conditions are the essential elements of
this transaction and any minor modifications or further
instructions shall be identified and reflected in escrow in the
escrow instructions.” A new term requiring a deposit receipt
had been added. Concerned that the deposit receipt would
not conform to the terms of the letter of intent, Simon added
a provision to allow his attorney to approve the deposit
receipt and escrow instructions.
The final letter of intent moved back the deadline for
approval by the Los Angeles and New York offices of San
Paolo Bank, to June 13, 1996. Upon receipt of such approval
in writing, Simon was to deposit $50,000 to open escrow. He
was to make his financial statements available within
twenty-four hours after execution of the letter of intent.
Simon signed the final letter of intent, and it was sent to
King for signature. Shortly past noon on June 12, Atha told
Simon that King had signed it, and added, “We have a
deal.” Atha faxed the fully executed letter of intent to
Simon that evening (although he dated the fax cover sheet,
6-11-96”), and in the subject line of the cover sheet, after
the possibility of redemption, so he offered $1.1 million conditioned
upon a six-month escrow. Atha told him King would agree to the long
escrow, if he agreed to pay $1.2 million. However, when they met to
close the deal, King changed his offer again, demanding to close escrow
by June 28, 1996, unless Simon paid $1.35 million. Negotiations broke
off until June 10, 1996.
A-22 .
the words, “Signed Letter of Intent,” he wrote in
parentheses the word, “nonbinding.”
The very savae day that he signed the letter of intent,
King told Atha that the bank had refused to agree to allow
Simon until June 26 to finish his inspections, but would
approve it if he completed them by June 21. In fact, he had
not talked to New York before making this new demand,
and never sought approval of Simon’s purchase from anyone
with authority to give it in New York. When Simon did not
agree to move the date up earlier than June 24, King
instructed Atha to refuse to accept Simon’s financial
statements and deposit. King told his supervisor that Simon
had failed to perform, but he did not disclose to him that he
had refused to accept Simon’s documents and deposit.
On June 12, 13, and 14, without Simon’s knowledge, King
had been in frequent telephone communication concerning
the subject property, with Robert Devogelaere, a business
acquaintance of King’s, and a mutual client of San Paolo’s
outside counsel, Richard Scott, with whom King also had
several telephone conversations during the same period. On
June 13, King told Atha not to disclose to Simon that he
had another offer, or that he was negotiating with another
buyer.
Also on June 13, Simon retained attorney Donald
Mitchell, who spoke to Atha and King in a conference call
the same day, demanding that San Paolo comply wiih the
agreement. That evening, King faxed Simon a letter stating
that he was terminating negotiations with him. Simon found
the fax the next morning, June 14, when he arrived at his
office. Also on June 14, King obtained formal approval for a
sale to Devogelaere, and escrow opened same day.
On June 17, 1996, without disclosing the Devogelaere
deal, King agreed to accept June 26 as the deadline for
Simon to complete his inspections, as called for in the letter
A-23
of intent, and offered to discount the purchase price by
$5000, to defray Simon’s inspection costs. However, later
that day, he said he would need approval from Italy, and
that he would accept only $1,500,000. Soon after that, both
King and Atha stopped taking Simon’s calls.
I. San Paolo has failed to show an abuse of discretion in
denying its motions in limine to exclude evidence.
San Paolo contends that the trial court should have
granted its motions in limine to exclude evidence of certain
trust deeds and liens recorded after the sale of the property,
as well as all testimony by Simon’s expert, and any
testimony relating to compensatory damages which were not
awarded in the first trial. The trial court should have
excluded the evidence, San Paolo reasons, because it “was
inadmissible and likely misled or confused the jury as to the
real issues in the case.”
The only authorities cited in support of this assignment of
error relate generally to a trial court’s discretion under
Evidence Code section 352. (See e.g. Wagner v. Benson
(1980) 101 Cal.App.3d 27, 36 [“The trial court is vested
with the discretion to exclude evidence which may unduly
consume time or confuse the jury” ]; Chyten v. Lawrence &
Howell Investments (1993) 23 Cal.App.4th 607, 619 [“The
court could... properly conclude that... probative value
was outweighed by factors supporting exclusion.” }.)
We infer from the cited authorities that San Paolo’s
contention is not really that the evidence was inadmissible
per se, but that the trial court abused its discretion under
Evidence Code section 352, in refusing to exclude it. The
burden is on a party complaining of the trial court’s exercise
of discretion to show a clear case of abuse. (Denham v.
Superior Court (1970) 2 Cal.3d 557, 566.) An appellant
may not carry this burden simply by inviting the appellate
court to have a different opinion of the relevance of the
A-24
disputed evidence, as San Paolo has done here. (Fontana
Paving, Inc. v. Knecht, Garrison & Tait Associates, Inc.
(1965) 238 Cal.App.2d 724, 726.)
Not only is San Paolo required to demonstrate
affirmatively an abuse of discretion, it is required to show
that such abuse was “ ‘sufficiently grave to amount to a
manifest miscarriage of justice....’ [Citation.]” (Mission
Imports, Inc. v. Superior Court (1982) 31 Cal.3d 921, 932.)
In making such a showing, it is the duty of a party to support
its arguments with appropriate references to the record.
(Cal. Rules of Court, rule 15(a).) San Paolo’s references to
the record are limited to the pages where its motions in
limine are reproduced.
San Paolo fails to identify the exhibits or even to refer to
the page numbers where we might find the evidence that it
claims was admitted over its objection. Further, it fails to
refer to the trial court’s ruling on its objections, and it fails to
refer to or discuss any testimony or other evidence to show
how it was prejudiced by the unidentified trust deed and
liens and unidentified testimony; and it fails to support its
contention with applicable authority. We therefore deem
this point abandoned. (See Troensegaard v. Silvercrest
Industries, Inc. (1985) 175 Cal.App.3d 218, 228.)
2. Malice, oppression, or fraud was established in the
first trial
Referring only to evidence adduced in the second trial,
San Paolo complains Simon failed to establish fraud,
oppression, or malice by clear and convincing evidence. San
Paolo has apparently forgotten that by special verdict, the
jury in the first trial expressly found, by clear and convincing
evidence, that San Paolo had accomplished its fraud by
means of fraud, oppression, or malice. The only issue in the
second trial was the amount of punitive damages to be
awarded.
A-25
3. San Paolo has not preserved misconduct issues for
appeal
With no citation to authority, and very little argument,
San Paolo contends that Simon’s counsel made an improper
closing argument, and provides six examples of comments
which it contends to have been inflammatory, incorrect,
misleading, or baseless.
Except in extreme cases, a claim of misconduct is entitled
‘2 no consideration on appeal unless the récord shows a
timely and proper objection and a request that the jwry be
admonished. (Horn v. Atchison, T. & S.F. Ry. Co.
(1964) 61 Cal.2d 602, 610.) San Paolo does not contend
that it made any such objection or request, and our review of
counsel’s argument has turned up none. ,
A party is deemed to have waived misconduct unless “‘it
was of such an egregious nature that it could not have been
cured by a corrective instruction to the jury. [{] ... Only
misconduct so prejudicial that an admonishment would be
ineffective excuses the failure to request such
admonishment. [Citation.]” (Whitfield v. Roth (1974) 10
Cal.3d 874, 892.)
San Paolo contends that it refrained from objecting or
requesting an admonition because “the trial court
specifically instructed the parties not to object or otherwise
interrupt the other side’s closing argument.” Thus, San
Paolo reasons, it “did not have the opportunity to
challenge ...inappropriate argument at the time it
occurred.” The trial court gave no such instruction. In
reality, the court admonished counsel that it did not want to
hear objections based upon a claim that the evidence does
not support the argument.
San Paolo suggests that because the statements by
Simon’s counsel were outrageous on their face, prejudice is
obvious. Error is not presumed; it is the appe!lant’s burden
A-26
to show that the error complained of has resulted in a
miscarriage of justice. (Waller v. TJD, Inc. (1993) 12
Cal.App.4th 830, 833.) “No judgment shall be set aside, or
new trial granted, in any cause, ... or for any error as to any
matter of procedure, unless, after an examination of the
entire cause, including the evidence, the court shall be of the
opinion that the error complained of has resulted in a
miscarriage of justice.” (Cal. Const., art.6, §13.) A
miscarriage of justice is shown only when it appears
reasonably probable that a result more favorable to the
appellant would have been obtained, were it not for the
error. (People v. Watson (1956) 46 Cal.2d 818, 834-838.)
San Paolo has made no showing that a proper objection or
request for admonishment would not have been effective. It
has taken the alleged misconduct out of context, and not
discussed the evidence in relation to counsel’s argument.
Indeed, the only references to the record are to counsel’s
statements. Thus, even if the failure to object or to request
admonishment were excused due to the nature of the
comments, San Paolo has utterly failed to demonstrate any
prejudice from the comments.
4. Substantial evidence established that a corporate
officer committed the act of oppression, fraud, or
malice
San Paolo contends that because the fraud was
committed by its employee, Simon was required to present
some evidence relating to ratification, authorization, or
advance knowledg« of the employee’s unfitness. In support
of this contention, San Paolo relies upon the first sentence of
Civil Code section 3294, subdivision (b): “An employer
shall not be liable for [punitive] damages... based upon
acts of an employee of the employer, unless the employer
had advance knowledge of the unfitness of the employee and
employed him or her with a conscious disregard of the rights
A-27
or safety of others or authorized or ratified the wrongful
conduct for which the damages are awarded or was
personally guilty of oppression, fraud, or malice.”’ San Paolo
ignores the second sentence of subdivision (b) of Civil Code
section 3294: “With respect to a corporate employer, the
advance knowledge and conscious disregard, authorization,
ratification or act of oppression, fraud, or malice must be on
the part of an officer, director, or managing agent of the
corporation.”
The evidence established that San Paolo is a corporation,
and King was an officer of the corporation, with authority to
sell property on behalf of the corporation. Thus, the “act of
oppression, fraud, or malice [was] on the part of an officer,”
satisfying the requirements of the statute.
5. The award did not violate due process
San Paolo contends that the punitive-damage award was
SO excessive as to violate its right of due process under the
federal constitution. San Paolo also contends the award was
so disproportionate as to be presumptively the result of
passion and prejudice, when analyzed under the criteria
established under California law.
Punitive damage awards which are grossly excessive in
relation to a State’s legitimate interests in punishing
unlawful conduct and deterring its repetition, violate a
defendant’s right to due process, guaranteed under the
Fourteenth Amendment. (BMW of North America v. Gore
(1996) 517 U.S. 559, 568.)° The Supreme Court has
* Supreme Court decisions prior to BMW concerned the propriety of
state procedures and the review necessary to ensure due process, but
stopped short of formulating a test. (E.g., TXO Production Corp. v.
Alliance Resources Co, (1993) 509 U.S. 443, 454-456; Pacific Mutual
Life Insurance Co. v. Haslip (1991) 499 U.S. 1, 22.) California law
affords the degree of procedural due-process protection required under
Haslip. (See Las Palmas Associates v. Las Palmas Center Associates
A-28
suggested some “guideposts” in determining whether an
award is grossly excessive: the degree of reprehensibility of
the nondisclosure; the disparity between the harm or
potential harm and the punitive damages award; and the
difference between the punitive damages remedy and the
civil penalties authorized or imposed in comparable cases.
(Id. at p. 574.)
Under California law, the essential question is whether
the amount of damages awarded substantially serves the
societal interest in punishing the wrongdoer and deterring
similar misconduct; and the answer to that question is
obtained by considering three factors: the reprehensibility of
the defendant’s conduct; the relationship between the
punitive damage award and the harm done; and the amount
of the punitive damage award in proportion to the
defendant’s wealth. (Adams v. Murakami (1991) 54 Cal.3d
105, 110, citing Neal v. Farmers Ins. Exchange (1978) 21
Cal.3d 910, 928.)
The BMW guidelines are nearly identical, and serve the
same purpose as California’s criteria; thus, an award which
passes muster under California’s rules will satisfy the
requirements for federal due process. (See Sierra Club
Foundation v. Graham, supra, 72 Cal.App.4th at pp. 1160-
1163.) Since San Paolo has not addressed BMW's third
guideline, which suggests a review of civil penalties
authorized or imposed in comparable cases, we shall analyze
both contentions under the factors first set forth by the
California Supreme Court in Neal v. Farmers Ins.
Exchange, supra, 21 Cal.3d at page 928.’
(1991) 235 Cal.App.3d 1220, 1257, 1258, fn. 8.) TXO did not add to
those requirements. (Sierra Club Foundation v. Graham (1999) 72
Cal.App.4th 1135, 1162, fn. 15.) Thus, California’s procedures are
constitutionally sufficient after 7XO, as well.
"Indeed, San Paolo has objected to Simon’s attempt to compare the
award to civil penalties provided for deceptive trade practices and
A-29
Awarding punitive damages in fraud cases furthers
California public policy of punishing the defendant and
making an example, in order to discourage the defendant
and others from perpetrating fraud in the future. (Las
Palmas Associates v. Las Palmas Center Associates, supra,
235 Cal.App.3d at p. 1258; Civ. Code, § 3294, subd.(a).) If
the award exceeds the amount needed to accomplish that
goal, an appellate court can infer that the jury acted out of
passion and prejudice. (/d. at p. 1259.) When the award is
grossly disproportionate to the statutory objective, a
presumption arises that it resulted from passion and
prejudice. (Neal v. Farmers Ins. Exchange, supra, 21 Cal.3d
at p. 928.) To make that determination, we are guided by
the three Neal factors which we have already enumerated.
(See id. at p. 928.)
San Paolo calculates the proportion of punitive damages
awarded to actual harm as 340/1. It contends that with a
ratio of more than five to one, the award should be deemed
excessive, requiring reversal. There is no fixed ratio of
punitive damages to harm which results in a presumption of
passion and prejudice; however, “even an act of considerable
reprehensibility will not be seen to justify a proportionally
high amount of punitive damages if the actual harm suffered
thereby is small. [Citation.]” (Neal v. Farmers Ins.
’ Exchange, supra, 21 Cal.3d at p. 928.)
San Paolo’s calculation of 340/1 is the proportion of
punitive damages, $1,700,000, to Simon’s out-of-pocket
expenses of $5000, awarded pursuant to Civil Code
section 3343, subdivision (a)(1). In calculating this ratio,
San Paolo relies upon its own assumption that the law
requires a comparison of the actual amount awarded by the
jury as compensatory damages, with the amount of the
perjury, on the ground that it has not been charged with such offenses,
although there is nothing in BMW which would limit consideration of
comparable civil and criminal penalties to charged offenses.
A-30
punitive damage award. As we shall explain, San Paolo’s
assumption is unfounded.
Ordinarily, one who has been fraudulently induced to
enter into an unenforceable contract may recover the benefit
of the bargain, as well as out-of-pocket expenses. (Lazar v.
Superior Court, supra, 12 Cal.4th at p. 638.) However, a
defrauded purchaser of real property, who does not succeed
in acquiring the property, may recover only his or her out-of-
pocket losses, not benefit-of-the- bargain damages. (Kenly
v. Ukegawa (1993) 16 Cal.App.4th 49, 54; Civ. Code,
§ 3343.)
That does not mean that Simon did not suffer injury due
to the loss of his bargain. Simon agreed to purchase the
building for $1,100,000. His expert appraised the building’s
value as $1,500,000, as had San Paolo’s expert before the
action was filed. Simon’s loss was at least the $400,000
difference between the appraised value and the price at
which King falsely promised to sell the building.®
Although the compensatory damage award is usually a
convenient measure of the injury or damages suffered by a
plaintiff, it may or may not reflect the actual harm the
plaintiff has suffered. (Gagnon v. Continental Casualty Co.
(1989) 211 Cal.App.3d 1598, 1603-1604.) “Thus, to
meaningfully apply the ‘reasonable relation’ rule, the trier of
fact (and reviewing court) should not focus on some
*Simon also lost a unique opportunity. Small office buildings rarely
come on the market in the location of the subject five-story office
building, and Simon found it to be perfect for his paper and printing
business, partly because it would enable him to compete better with the
large suppliers like Staples, Office Depot, and Xerox. The building itself
was also ideal, because it had a finished basement with a large,
industrial-size freight elevator, which he found to be perfect for his
warehouse. He planned to use the second floor, and lease out the top
three floors, which had fancy improvements, making them attractive to
potential tenants.
A-31
bottom-line amount of an award of compensatory damages
but on the nature and degree of the actual harm suffered by
the plaintiff....” (/d. at p. 1604; Carr v. Progressive
Casualty Ins. Co. (1984) 152 Cal.App.3d 881, 892; cf,
Palmer v. Ted Stevens Honda, Inc. (1987) 193 Cal.App.3d
530, 541; but see Auerbach v. Great Western Bank (1999)
74 Cal.App.4th 1172, 1190 [expenditures required by law
are not damages, and may not be considered in awarding
punitive damages].)°
When the actual harm to Simon is considered, its ratio to
punitive damages is not 340 to 1, but just over 4 to 1, not
grossly disproportionate, without consideration of other
factors, as to suggest passion or prejudice. Thus, we measure
the reprehensibility of San Paolo’s conduct against a ratio of
4 to 1, not 340 to 1.
Discussing only evidence favorable to its position, San
Paolo contends that its conduct was not “particularly
reprehensible,” because it caused only nominal economic
harm and was a single act. Further, since King is no longer
employed by San Paolo, it contends that such conduct was
unlikely to recur.
San Paolo misapprehends the scope of review. We must
view the entire record for substantial evidence from which
the jury could reasonably conclude that the acts of San
Paolo reached the level of reprehensibility to justify the
award. (Neal v. Farmers Ins. Exchange, supra, 21 Cal.3d at
pp. 922, 927.) An appellate court’s task is not to find
*Nor does the Due Process Clause of the Fourteenth Amendment
require comparison with a fixed ratio based upon the compensatory-
damage award. “It is appropriate to consider the magnitude of the
potential harm that the defendant’s conduct would have caused to its
intended victim if the wrongful plan had succeeded, as well as . the
possible harm to other victims that might have resulted if similar future
behavior were not deterred.” (7XO Production Corp. v. Alliance
Resources Corp., supra, 509 U.S. at p. 460.)
A-32
evidence from which inferences may be drawn in the
appellant’s favor, as San Paolo has done, but “begins and
ends with a determination as to whether there is any
substantial evidence, contradicted or uncontradicted, which
will support the conclusion reached by the jury.”
(Crawford v. Southern Pacific Co., supra, 3 Cal.2d at
p. 429.)
Substantial evidence not only supports the verdict, but
also contradicts San Paolo’s conclusion that the fraud was
an isolated incident. King engaged not in one act of
deception, as San Paolo urges, but in a pattern of deceit that
continued into his trial testimony. He deceived not only
Simon, but also Atha, concealing the Devogelaere deal, and
leading Atha to believe he was still negotiating in good faith
after the Devogelaere deal had already gone into escrow.
Further, King never disclosed his agreement with Simon to
Devogelaere. King deceived his own supervisor, as weil,
telling him that Simon had failed to produce financial
records, without disclosing that he had refused to accept
them.
San Paolo seeks to draw an analogy with the facts of
FDIC v. Hamilton (10th Cir.1997) 122 F.3d 854, where a
mitigating factor considered by the federal court was the
fact that the fraud was a “single contractual event,” even
though the scheme took some time. (122 F.3d at p. 862.)'°
While we do not disagree with San Paolo’s assertion that
such facts are relevant to determining the degree of
reprehensibility, we must consider all the relevant facts.
(Adams v. Murakami, supra, 54. Cal.3d at p. 110.)
'°San Paolo also relies upon an unpublished California case, without
compliance with California Rules of Court, rule 977. (See e.g., Cates
Construction, Inc. v. Talbot Partners (1997) previously published at 53
Cal.App.4th 1420, superseded by Cates Construction, Inc. v. Talbot
Partners (1999) 21 Cal.4th 28.) We will disregard the reference.
A-33
King’s deceit is not so easily dismissed as an isolated
incident. It was continuous and intricate. After this action
was filed, King filed two false declarations claiming to have
had no communication with Devogelaere concerning the
property until the evening of June 13. At trial, faced with his
own telephone records, King claimed the declarations were
true, although he should not have used the word,”
communicate,” because what he really meant was that he
did not negotiate with Devogelaere.
King then came up with a palpably unbelievable story to
support his claim that he did not negotiate with Devogelaere
prior to the evening of June 13. King testified that
Devogelaere dropped his offer off at his home that evening,
and he signed it the morning of June 14 at 8:00 a.m.’
However, the offer, made on a pre-printed deposit-receipt
form, was filled out in purple ink, dated June 12, 1996, in
purple ink, and signed by both King and Devogelaere in
purple ink, although King’s signature was written in both
blue ink and purple ink, one signature directly over the
other. King initialed each page in blue ink. The date was
changed from June 12, 1996 to June 14, 1996, by writing
“14” over the “12.” King claimed that the original date had
been recorded wrong, and had to be changed; and that
because the document had multiple copies, it was necessary
to write over his signature to make it show on all of them.
He also claimed that Devogelaere had left his purple pen
with the document.
King testified that after he signed the document at 8:00
a.m., he drove four miles to Devogelaere’s home in Pacific
Palisades, dropped it in the mailbox, then drove to his office
‘'King testified in deposition that he did not see the offer until
June 14, but he changed that testimony by writing on the transcript that
Devogelaere dropped it off at his home the evening of June 13, and that
he did not look at it until the next day. In deposition, he testified he
signed it at home on his dining-room table, but at trial, it was in his car.
A-34
in downtown Los Angeles, arriving by 8:34 a.m.,'? when he
had a telephone conversation in his office, before preparing a
memorandum regarding the sale to his supervisor, Who then
prepared another memorandum, dated June 13, 1996, which
was faxed to New York at 9:15 a.m. that morning,
June 14, 1996.
We reject San Paolo’s suggestion that the jury was not
permitted to consider King’s apparently false testimony,
because it would amount to a sanction for litigation
misconduct, instead of punishment for the conduct which
precipitated the lawsuit. We agree that the defendant’s
behavior at trial may not be the basis of the jury’s award.
(Cf., Zhadan v. Downtown L.A. Motors (1976) 66
Cal.App.3d 481, 500-501.) However, King’s false testimony
was more than litigation misconduct. It showed how he
manipulated the parties and documents at the time of the
events in mid-June 1996 in order to support his false claim
that he complied with the terms of the letter of intent, and
its claim that it was Simon who failed to perform. King’s
deception at trial showed how false he was prior to trial, and
thus, how reprehensible his conduct was.
Substantial evidence also contradicts San Paolo’s
assertion that it is unlikely to engage in similar wrongdoing
in the future. hecause King is no longer employed by San
Paolo. San P&vlo did not terminate Kings employment, or
distance itself in any way from King’s conduct. King was
never reprimanded, warned, or counseled; he suffered no job
or salary action whatsoever, and even got a bonus that year.
The jury could reasonably have concluded that it is unlikely
that San Paolo will change its policies to discourage similar
conduct in the future.
'?Simon had King’s telephone records, showing that he made a call
from his office at 8:34 a.m. Devogelaere testified that it takes at least 35
minutes to reach downtown Los Angeles from his home, when there is
no traffic, and up to 1% hours with traffic. June 14, 1996, was a Friday.
A-35
“Trickery and deceit’ are reprehensible wrongs,
especially when done intentionally through affirmative acts
of misconduct. (7XO Production Corp. v. Alliance
Resources Corp., supra, 509 U.S. at p. 462.) Our review of
the entire record does not compel a conclusion that the
- award was so grossly disproportionate to the degree of
reprehensibility or to the harm done, as to raise the
presumption that it was the result of passion and prejudice.
Having so concluded, we turn to San Paolo’s contentions
regarding wealth.
** “Also to be considered is the wealth of the particular
defendant; obviously, the function of deterrence .. . , will not
be served if the wealth of the defendant allows him to absorb
the award with little or no discomfort....By the same
token, of course, the function of punitive damages is not
served by an award which, in light of the defendant’s wealth
and the gravity of the particular act, exceeds the level
necessary to properly punish and deter.’ [Citation.]”
(Adams v. Murakami, supra, 54 Cal.3d at p. 110, citing
Neal v. Farmers Ins. Exchange, supra, 21 Cal.3d at p. 928.)
San Paolo contends that Simon’s counsel “invited error”
in his closing argument by ignoring the first two “prongs of
the test” and arguing “‘almost exclusively on the wealth of
San Paolo.”'? Its reasoning is somewhat difficult to follow,
but appears to be a contention that Simon was required to
include a discussion of all three Nea/ factors in his closing
argument, without emphasizing one over the other, and that
he was prohibited from suggesting a particular amount that
the jury should award.
The doctrine of invited error estops an appellant who has induced
the commission of error, from asserting it as a ground for reversal. (See
9 Witkin, Cal. Proc. (4th ed. 1997) Appeal, § 383, p. 434) It is not a
ground for reversal. (See 2 Cal. Evidence (3d ed. 1986) § 1371,
p. 1335.)
A-36
San Paolo has cited no authority for its assertions, not
even general authority concerning the limitations placed on
argument. Even if we assume that it was misconduct for
counsel to suggest an amount or to fail to emphasize all
three Neal factors equally, San Paolo does not claim to have
objected to the argument or to have requested an
admonishment. We therefore pass on these contentions
without consideration. (See Horn v. Atchison, T. & S.F. Ry.
Co., supra, 61 Cal.2d at p. 610.)
Substantial evidence supports a finding that San Paolo’s
net worth was between $40,000,000 and $50,000,000. Bob
Wurster, an officer of both San Paolo and its parent and sole
shareholder, San Paolo Bank, testified that at the end of
1996, the net assets of San Paolo were approximately
$46,000,000; and that at the end of the first trial the net
assets of San Paolo were approximately $55,000,000. At less
than five percent of San Paolo’s net worth, the punitive
damage award was not excessive on its face, without
evidence that such a sum would cause such undue hardship
as to render the punishment unreasonably disproportionate
to San Paolo’s ability to pay. (See Adams v. Murakami,
supra, 54 Cal.3d at pp. 111-112.) It was San Paolo’s burden
to make such a showing. (Weeks v. Baker & McKenzie
(1998) 63 Cal.App.4th 1128, 1167.)
San Paolo did not make such a showing, and does not
contend here that the amount is _ unreasonably
disproportionate to its ability to pay. It contends in its reply
brief, for the first time, that the trial court should have
excluded evidence that after the first trial, San Paolo
transferred $40,000,000 to the bank.'* Without such
evidence, it reasons, its net worth was shown at the time of
'*Wurster admitted that the transfer had been made after the first jury
awarded punitive damages. He also admitted that he had attended the
first trial, and knew that punitive damages would be the issue in the
second trial.
A-37
the second trial to be only $4,875,000, which would not
justify an award of $1,700,000, since punitive damages
awards are generally limited to 10 percent or less of the
defendant’s net worth. (See Weeks v. Baker & McKenzie,
supra, 63 Cal.App.4th at p. 1166.)
Ordinarily, a contention made for the first time in an
appellant’s reply brief may be disregarded, unless some
meritorious reason is shown why it was not made in the
opening brief. (Monk v. Ehret (1923) 192 Cal. 186, 190.)
That rule is inapplicable if the new point is raised in order to
address a contention in respondent’s brief. (See Fratessa v.
Roffy (1919) 40 Cal.App. 179, 188) In his respondent’s
brief, Simon discussed the guidelines set forth in BMW of
North America v. Gore, supra, 517 U.S. at page 574,
including the issue of the wealth of the defendant. The Burn
of Simon’s statement on the subject was as follows: “The
wealth of a defendant must also be considered. [ Citation. }
San Paolo’s wealth was appropriately considered to be
$40,000,000 to $50,000,000. The jury could rightfully reject
San Paolo’s poverty plea based on its substantial liquid net
worth and the questionable riming of the transfer of that net
worth to the parent company.”
We need not consider whether Simon’s statement opens
the door to a contention that the trial court should have
excluded evidence of the transfer of assets, because once
again, San Paolo fails to refer to its objection to the
evidence, fails to refer to the trial court’s ruling on its
objections, and fails to refer to or discuss any testimony or
other evidence to show how it was prejudiced by the
evidence; and it fails to support its contention with
applicable authority. We therefore deem the point
abandoned. (See Troensegaard v. Silvercrest Industries, Inc,
supra, 175 Cal.App.3d at p. 228.)
meee eee:
a. eee ee
A-38
4. San Paolo waived any error with respect to BAJI
No. 14.72.2
San Paolo contends that the jury instruction in BAJI
No. 14.72.2 is so vague that its right to due process was
infringed by the use of it. San Paolo does not refer to its
objection to the instruction, if any, in the trial-court record,
or to any clarifying instruction it may have proposed. Our
review of the record reveals that the parties jointly requested
BAJI No. 14.72.2.
It is a long-established rule that one may not complain of
instructions given to a jury at his own request. (Emerson v.
County of Santa Clara (1871) 40 Cal. 543.) Further, a
party may not complain on appeal about an instruction
which was correct, but incomplete or vague, unless he
requested an additional or clarifying instruction in the trial
court. (Suman v. BMW of North America, Inc. (1994) 23
Cal.App.4th 1, 9.) Since San Paolo does not contend that it
requested an additional or clarifying instruction in the trial
court, and we have found none in the record, San Paolo has
not preserved this points for appeal, and we pass it without
further consideration.
5. San Paolo’s contentions regarding California law and
criminal standards are too vague to address
San Paolo’s final contention appears to be that all
California law relating to punitive damages is
“constitutionally vague,” and the imposition of punitive
damages should be governed by the same standards which
apply to criminal penalties.
A challenge to a statute as vague in its entirety usually
involves a review of the words of the enactment, its
application in the particular case of the party challenging it,
and finally, hypothetical applications of the law. (See
Village of Hoffman Estates v. Flipside, Hoffman Estates
(1982) 455 U.S. 489, 494-495, fn. 5.) San Paolo has made
wat
A-39
no effort to make such an analysis, and has not even
identified the specific “California law” to which it objects, or
which criminal standards should apply.
Simon has understandably made no attempt to address
this contention in his respondent’s brief, and we decline San
Paolo’s -apparent invitation to address the subject of
vagueness and constitutionality in the abstract, except to
point out that in general, California’s procedures for the
imposition of punitive damages have been held to comply
with constitutional requirements of due process.'> (See
Sierra Club Foundation v. Graham, supra, 72 Cal.App.4th
at pp. 1160-1163; Las Palmas Associates v. Las Palmas
Center Associates, supra, 235 Cal.App.3d at p. 1258, fn. 8.)
II. Simon's Cross-Appeal
A. Simon's proposed special verdict form was properly
refused
The letter of intent signed by both parties provides, in
part: “Seller and Buyer agree to exclusively negotiate upon
execution of this letter.” King admitted that San Paolo was
bound by that term of the letter of intent, which prohibited
him from negotiating, at least for 24 hours, with any other
potential buyers.
Simon proposed a special verdict form which asked, “Did
the defendant and plaintiff agree to exclusively negotiate
with each other to complete the sale of the real property
located at 816 South Figueroa Street, Los Angeles,
California?” Simon contends that the trial court erred in
refusing this question in favor of the special verdict as given,
which asked, “Was there a binding and enforceable
agreement between [San Paolo] and [Simon]?”
'SSee footnote 6, above.
A-40
As we have discussed in relation to San Paolo’s appeal,
the special verdict form used was ambiguous, and called for
a legal conclusion. Simon did not object to it on either of
those grounds, and does not object to it here on those
grounds, and we consider them waived. (See Brokaw v.
Black-Foxe Military Institute, supra, 37 Cal.2d at p. 280.)
Whether to allow a more or less detailed special verdict
form was within the trial court’s discretion. (See
Valentine v. Baxter Healthcare Corp. (1999) 68
Cal.App.4th 1467, 1487.) A trial court abuses its discretion
if the special verdict form fails to dispose of all elements of
the cause of action. (Falls v. Superior Court (1987) 194
Cal.App.3d 851, 854-855.) As ambiguous as it was, the
form which was used did not fail to dispose of the contract
cause of action, and the proposed question regarding
negotiation was subsumed in it. Had the jury found an
enforceable agreement to negotiate exclusively with Simon,
it would have properly answered that there was, in fact, an
enforceable agreement.
The burden is on a party complaining of the trial court’s
exercise of discretion to show a clear case of abuse.
(Denham v. Superior Court, supra, 2 Cal.3d at p. 566.)
Further, Simon was required to show that any abuse was
“sufficiently grave to amount to a manifest miscarriage of
justice. ...”” [Citation.]” (Mission Imports, Inc. v. Superior
Court, supra, 3\ Cal.3d at p. 932.) The jury found there was
no enforceable contract. Simon has not suggested how the
result would have been different if the jury had been asked
more specifically whether there was a contract to negotiate
exclusively. Nor has Simon provided any authority for his
contentions. We therefore deem the point waived. (See
Troensegaard v. Silvercrest Industries, Inc., supra,
175 Cal.App.3d at p. 228.)
A-41
B. Jury Instructions
Simon contends that if several jury instructions had not
been refused by the trial court, the jury might have found
the letter of intent, or at least part of it, to be an enforceable
contract. A letter of intent which contains all essential terms
may constitute an enforceable contract, depending on the
parties’ intent and their expectations. (See California Food
Service Corp. v. Great American Ins. Co. (1982)
130 Cal.App.3d 892, 897.) Also depending upon the intent
of the parties, a detailed letter of intent may be an
agreement to negotiate in good faith. (See Racine &
Laramie, Ltd. v. Department of Parks & Recreation (1992)
11 Cal.App.4th 1026, 1033.)
“A party is entitled upon request to correct,
nonargumentative instructions on every theory of the case
advanced by him which is supported by substantial
evidence. The trial court may not force the litigant to rely on
abstract generalities, but must instruct in specific terms that
relate the party’s theory to the particular case. [ Citations. ]”
(Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 572.)
To determine whether a theory is supported by substantial
evidence we reverse the usual rule of appellate review, and
review the evidence in the light most favorable to the
appellant, in this case, the cross-appellant, Simon. (See
Henderson v. Harnischfeger Corp. (1974) 12 Cal.3d 663,
674.) Applying that standard, we agree that substantial
evidence supports the formation of a contract.'®
'°San Paolo devotes substantial energy to arguing that there was
substantial evidence showing that the letter of intent was merely an
agreement to agree (see Autry v. Republic Productions, Inc. (1947)
30 Cal.2d 144, 151), and that the parties did not intend to be bound
until they signed a deposit receipt. (See Gavina v. Smith (1944)
25 Cal.2d 501, 504.) Whether substantial evidence supports the
judgment is not, however, our inquiry; rather, it is whether substantial
A-42
After several months of on-again, off-again negotiation,
San Paolo agreed to sell Simon the property located at 816
South Figueroa, for $1.1 million. Atha drafted a two-page
letter of intent, which set forth all the terms which the
parties had negotiated regarding the sale of the building.
The first sentence of the draft letter of intent stated, “Due to
the motivation of both parties and the anticipated short
escrow, the following shall serve as a binding Letter of
Intent for purpose of entering escrow... .”
On June 12, 1996, after the parties agreed to a few
changes, Atha faxed to Simon a final version of the letter of
intent, containing more than sixteen terms, with King’s
signature already affixed. One of the changes was made
without Simon’s knowledge: King had instructed Atha to
remove the word, “binding,” from the first sentence.
However, it was still Simon’s understanding that the letter
of intent would be a binding contract, and that it contained
all the essential terms of their contract. He was told that the
only terms left tc negotiate were “housekeeping” terms,
which would be addressed in the escrow.'”
Atha testified that he also thought the letter of intent was
to be a binding contract, once it was approved by New York
and escrow was opened, and he thought that it reflected all
the essential terms of the parties’ agreement.'® Even though
he took the word, “binding,” out of the final draft at King’s
request, and described it on the cover sheet as “nonbinding”
when he faxed Simon a copy of the fully executed letter of
intent, he interpreted “nonbinding” as meaning only that the
agreement was subject to approval by San Paolo’s New
evidence supports the requested instruction. (O'Meara v. Swortfiguer
(1923) 191 Cal. 12, 15.)
"He did not say who told him.
'* Atha changed this testimony in the second trial, claiming to have
discussed the change to a non-binding letter of intent with Simon.
A-43
York office, and the opening of escrow.'” The letter of intent
stipulated that escrow was to open upon approval of the
terms and conditions of the letter of intent by San Paolo’s
Los Angeles and New York offices, which would be given no
later than 3:00 p.m. the next day. The evening of the day
that the letter of intent was signed by both Simon and King,
Atha told Simon, “We have a deal. Go home, sleep like a
baby.” King testified that although he did not intend the
letter of intent to be binding, he considered himself bound
by the promise not to negotiate with others.
We turn first to Simon’s contention that since all parties
intended to be bound by the letter of intent’s exclusive-
negotiation term, substantial evidence supports the existence
of an agreement to negotiate in good faith, and the court
should have given his proposed instruction on that issue.
That proposed instruction reads as follows: “A duty of
good faith and fair dealing may exist even in an agreement
that is not binding. Even if you determine that the letter of
intent was not binding on the defendant to sell the subject
property, you are not precluded from finding that the letter
of intent was an agreement to use best efforts or to negotiate
in good faith. If you determine that the letter of intent was
an agreement to use best efforts or to negotiate in good faith
to complete a sale of the property, and you further
determine defendant failed to negotiate in good faith or to
use best efforts to complete the sale or that the defendant
breached the term of the agreement to exclusively negotiate
with plaintiff, you may determine that here was breach of
the implied covenant of good faith and fair dealing resulting
in a breach of contract.”
''Simon received that fax after the letter of intent was fully executed,
and did not read the cover sheet or notice that it contained the word,
“nonbinding.”
A-44
The determination of whether there existed an agreement
to negotiate in good faith is made according to the ordinary
rules of contract. (See Racine & Laramie, Lid. v.
Department of Parks & Recreation, supra, 11 Cal.App.4th at
pp. 1033-1035.) The jury in this case was properly
instructed on the rules of contract formation. Instructions
which are cumulative or merely amplifications of other
instructions should not be given. (Hicks v. Ocean Shore
Railroad, Inc. (1941) 18 Cal.2d 773, 783.)
“Formula instructions,” such as that proposed by Simon,
are properly refused, unless they are reasonably brief and
concise, and are accurate statements of the law,
understandable to the average juror. (See Dodge v. San
Diego Electric Ry. Co. (1949) 92 Cal.App.2d 759, 763-
764.) The proposed instruction is neither brief nor concise,
and contains the misleading statement that “[a] duty of
good faith and fair dealing may exist even in an agreement
that is not binding,” implying that a duty to negotiate in
good faith may exist in the absence of one or more elements
of contract. In fact, an agreement to negotiate in good faith
must meet the requisites of an enforceable contract. (Racine
& Laramie, Lid. v. Department of Parks & Recreation,
supra, 11 Cal.App.4th at p. 1033.) The trial court properly
refused the instruction, and was not obligated to modify it or
propose another in its place. (Fibreboard Paper Products
Corp. v. East Bay Union of Machinists (1964) 227
Cal.App.2d 675, 717.)
Relying on Jacobs v. Tenneco West, Inc. (1986) 186
Cal.App.3d 1413, and Jacobs v. Freeman (1980) 104
Cal.App.3d 177, Simon also contends that since substantial
evidence supported the formation of a contract, subject to
the approval of San Paolo’s senior management in Los
Angeles and New York, the jury should have been
instructed as to San Paolo’s obligation to seek such approval
in good faith. Simon contends that if the jury had been
A-45
instructed as to San Paolo’s obligation to exercise good faith
in seeking approval, it might have found the letter of intent
to be an enforceable contract.
In Jacobs v. Freeman, the parties’ contract contained an
express provision similar to one in the letter of intent,
conditioning the opening of escrow upon approval by the
seller’s board of directors. The court of appeal reversed a
nonsuit, holding that the provision was intended to be a
condition precedent to the seller’s duty to convey title to the
land rather than a condition precedent to the formation of a
contract. (104 Cal.App.3d at p. 189) The implied covenant
of good faith and fair dealing required the seller’s officers to
submit the contract to the board of directors, and their
failure to do so was a breach of contract. (Jd. at
pp. 189-190.)
Jacobs v. Tenneco West involved the same parties as in
Jacobs v. Freeman. The seller appealed an adverse judgment
upon retrial, contending that the buyer had failed to prove
that it had acted in bad faith in failing to submit the contract
to the board. (Jacobs v. Tenneco West, Inc., supra,
186 Cal.App.3d at p. 1415, 1418.) The court held that since
the buyers did not assume the risk of lack of cooperation,
and the lack of cooperation was not shown to be justifiable,
the seller bore the burden to establish that its failure did not
contribute materially to the nonoccurrence of the condition.
(/d. at p. 1418) When seller then responded that the board
would not have approved the contract in any case, the court
held that such an excuse for nonperformance is an
affirmative defense, upon which the seller had the burden of
proof. (/d. at p. 1419.)
Here, San Paolo interposed no such affirmative defense.
However, in his closing statement, its counsel argued that
even if the parties intended the letter of intent to be a
binding ‘contract, it was unenforceable because conditions
were not met, including the requirement of approval from
A-46
New York, and the opening of escrow, which was, in turn,
conditioned upon approval from New York. Nevertheless,
King admitted that he never submitted the letter of intent or
Simon’s offer for approval. Further, although San Paolo’s
approval procedure required the recommendation of King’s
supervisor, William Schack, then the submission of a
written memorandum to one of two officers in New York,
King never submitted anything to them, and never asked for
Schack’s recommendation.
Simon contends that under the rationale of the two
Jacobs holdings, San Paolo was estopped to argue that the
sale was not or would not have been approved by New York.
However, Simon did not object to counsel’s argument; nor
did he seek a ruling from the trial court on his estoppel
theory. Instead, he proposed four lengthy, rambling,
argumentative, and confusing instructions, and an
instruction on the implied covenant of good faith and fair
dealing.” The form of the proposed instructions alone
*° Proposed instruction number 4 reads in part: “In this case, the
agreement between plaintiff and defendant gave defendant the right to
seek written approval of the... New York offices. ... If you determine
that (1) the defendant sought written approval...and (2) that the
senior Officers rejected the terms and conditions of the contract
reasonably and in good faith, you may determine that the contract is not
enforceable. However, if you determine that the defendant failed to seek
written approval..., the condition is excused...and may be
determined by you not to prevent the formation of a binding
contract....” Number 5 states: “If you determine that the individuals
negotiating with the plaintiff... had an obligation to seek approval
from ... New York... , you must determine that such individuals had a
duty to submit the contract with a recommendation of approval. If you
find that they did not recommend approval of the terms of the
contract..., you may determine that their failure was an unreasonable
prevention of the performance of the condition which excused the
condition if you also determine that the failure to recommend the terms
and conditions of the Letter of Intent contributed materially to the
failure to obtain such approvals, you may conclude that there was a
A-47
justified their refusal. (See Dodge v. San Diego Electric Ry.
Co., supra, 92 Cal.App.2d at pp. 763-764.)
The proposed instructions are also ambiguous. On the one
hand, they appear to assume that New York’s approval was
a condition precedent to the formation of a contract. At the
same time, the proposed instructions appear to instruct the
jury to assume that a contract had been formed, and San
Paolo’s performance was conditioned upon New York
approval.
A covenant of good faith and fair dealing is implied in all
contracts. (See Universal Sales Corp. v. California etc. Mfg.
Co. (1942) 20 Cal.2d 751, 771.) However, it is not implied
if no contract has been Armed, and does not require a party
to enter into a contract. (Racine & Laramie, Lid. v.
Department of Parks & Recreation, supra, 11 Cal.App.4th at
p. 1032.) Neither Jacobs v. Freeman, nor Jacobs v. Tenneco
breach of the contract.” Number 6 reads: “Under the terms of the
contract, defendant was obligated to open escrow and attempt to
complete the sale of the property only if the terms and conditions of the
letter of intent were approved, in writing, by...New York....
However, the implied covenant of good faith and fair dealing also
required defendant to make reasonable efforts to obtain the
approval ..., and if it failed to do so, the law does not permit it to take
advantage of that failure to avoid an obligation to sell the property.
Consequently, if the failure to obtain written approval . . . was caused by
defendant’s failure to make reasonable efforts to obtain such approval,
then the defendant is obligated to plaintiff in the same manner as if the
senior officers had approved .. . the letter of intent.” Number 7 states:
“If you find that the defendant made reasonable efforts to obtain such
approval, you may find that[it]had no obligation under the contract to
sell the property. On the other hand, if you find that the defendant failed
to make reasonable efforts to obtain the approval . . . , you must find that
[it] is obligated to plaintiff in the same manner as if they obtained such
approval. Unless defendant proves, by a preponderance of the evidence,
that the senior officers would not have given its approval, even if they
had made reasonable efforts to obtain such approval, you may determine
that defendant is deemed to have approved the terms and conditions of
the letter of intent.”
A-48
West held otherwise. In those cases, there was no issue
concerning the formation of a contract. There, an executory
bilateral contract to sell the land had been created,
obligating the seller to convey land upon board approval.
(Jacobs v. Freeman, supra, 104 Cal.App.3d at p. 187.)
Board approval was not a condition precedent to the
formation of the contract. (Jacobs v. Tenneco West, Inc.,
supra, 186 Cal.App.3d at p. 1415) Thus, to the extent the
instructions suggest that San Paolo was required by the
covenant of good faith and fair dealing to bring about a
condition precedent to the formation of the contract, they
are not supported by those authorities, and they were
incorrect.
Further, since San Paolo did not interpose the affirmative
defense of excuse of a condition precedent to its
performance, the court was not required to instruct as to the
burden of proof discussed in Jacobs v. Tenneco West, Inc.,
supra, 186 Cal.App.3d at pages 1418-1419. Thus, the trial
court properly refused the entirety of the instructions, and
had no duty to cull out what was proper, modify them, or
give others in lieu of them. (See Fibreboard Paper Products
Corp. v. East Bay Union of Machinists, supra, 227
Cal.App.2d at p. 717.)
A-49
DISPOSITION
The judgment is affirmed. Each party shall bear its own
costs on appeal.
Not to be Published
HASTINGS, J.
We concur:
EPSTEIN, Acting P.J.
CURRY, J.
aa
Sar. aa
gtr c” ‘oh
ye
Ci atthe : cron aha
i.e 4 a es ae r 5 os Pe «a 7 : oy ) ee waa ae 7 eae Sy 7
‘ aw bys : = 2 es ; : iio =
=
é
wes
aL.
a han eee ee eee A!
é eo ease Stay (oar ih ae i> Prey ie aot hy
_ 9 ; 7 - ee — - ae - : a se > Pe ates — i a
: a; ie ed = oe ener Pie Uae eat oo
i : te); -¥)) Peay ant i, Prin [At ae ty t a pe Red oe. om
> o. a _ _ rae aro Akos Bor tes ! wy a : : che Reel i
ah eee ee Ae ees ae hal hea eee a
: oe os a " an! 7 uae or — on 7 : ss ‘
wo ag Ss
Poe .) fe, aie - r
'
% a0 Leet
i
dy
re os oa 7 a aa j as
=. ae i La ie a ai a a c. —_, o f >
ne a ee ese hn Sp,
Seer ais PS ds 0 et Pee 2) Ad Po 9 2
Ae ae! ome n ae Vs al - — y os on)
Te OOP RCI tee Cah eras ©?)
Hi ore. a 7 5 & i "hip 7 =
en Ne lie ee ae : eee ~ : i=
7 oe a , by ~
2 i) 7
50
APPENDIX 3
A-51
IN THE COURT OF APPEAL OF THE
STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION: 4
DATE: September 21, 2000
Beth Ann R. Young
Epport & Richman, LLP
10100 Santa Monica Blvd.
Suite 1450
Los Angeles, CA 90067-4118
SIMON, LIONEL
Plaintiff-Respondent-Appellant
Vv
SAN PAOLO BANK
Defendant-Appellant-Respondent
B121917
Los Angeles County No. BE152431
THE COURT:
Petition for Rehearing is denied.
52
APPENDIX 4
A-53
SUPREME COURT
FILED
NOVEMBER 27, 2000
FREDERICK K. OHLRICH, CLERK
DEPUTY
Court of Appeal, Second Appellate District,
Division Four - No. B121917
S092092
IN THE SUPREME COURT OF CALIFORNIA
LIONEL SIMON,
Plaintiff and Respondent,
v.
SAN PAOLO U.S. HOLDING COMPANY
INCORPORATED,
Defendant and Appellant.
ee Re PT NST RT
The time for granting or denying review in the above-
entitled matter is hereby extended to and _ including
January 4, 2001, or the date upon which review is either
granted or denied.
/s/ GEORGE
Chief Justice
Se ee ae ee ee ee -
QO ODI OT I SSO ONTOS PUN 9 EO GE
APPENDIX 5
A-55
SUPREME COURT
FILED
DECEMBER 13, 2000
FREDERICK K. OHLRICH, CLERK
DEPUTY
Court of Appeal, Second Appellate District,
Division Four - No. B121917
S092092
IN THE SUPREME COURT OF CALIFORNIA
En Banc
LIONEL SIMON,
Plaintiff and Respondent,
wi
SAN PAOLO U.S. HOLDING COMPANY
INCORPORATED,
Defendant and Appellant.
Petition for review DENIED.
/s/ GEORGE
Chief Justice
s
Fe
FS
>
4
56
APPENDIX 6 |
A-57
IN THE COURT OF APPEAL OF THE
STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FOUR
LIONEL SIMON,
Plaintiff, Respondent and Cross-Appellant,
Vv.
SAN PAOLO U.S. HOLDING COMPANY, INC.,
Defendant, Appellant and Cross-Respondent.
B121917
(Super. Ct. No. BC152431)
ORDER
COURT OF APPEAL — SECOND DIST.
FILED
JANUARY 10, 2001
JOSEPH A. LANE, CLERK
J. GUZMAN, DEPUTY CLERK
THE COURT:*
The court has received and considered the motion to
recall the remittitur issued December 18, 2000, and that
issuance be stayed pending the filing of a petition for a writ
of certiorari with the United States Supreme Court filed by
defendant San Paolo U.S. Holding Company, Inc., on
December 26, 2000. The court has also received and
considered the opposition to defendant’s motion filed on
January 5, 2001, by plaintiff Lionel Simon, doing business as
Liberty Paper-Company.
Good cause appearing, it is ordered that the remittitur
issued on December 18, 2000, is recalled and shall be stayed
for 90 days from the date of this order at which time it will
terminate and the matter will be remanded to the trial court.
A-58
The bond filed pursuant to Code of Civil Procedure in the
amount of $2,557,500 may be deficient to pay the principal
amount of the judgment and the accrued interest. Therefore,
defendant may apply to the United States Supreme Court
for any further stay. This order is made without prejudice to
plaintiff to apply for additional security on a showing that -
the present bond is substantially inadequate to protect his
interest pending the 90-day stay granted to defendant,
inadequate to protect his interest pending the 90-day stay
granted to defendant.
/s/_ CS. VOGEL
“VOGEL (CS.), P.J.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.