Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County No. 30-2008-00104379, Robert J. Moss, Judge.
John K. Saur for Defendant and Appellant.
Foley & Mansfield, Stephen C. Chuck, and Carley G. Mak for Plaintiff and Respondent.
OPINION
IKOLA, J.
A jury awarded $37,606.41 in compensatory damages and $85,000 in punitive damages to plaintiff Kristie Halsey Holmes. Defendant Gerald W. Burke appeals the judgment only as to the punitive damages award. Burke claims there is a lack of meaningful evidence pertaining to his financial condition in the record, and this court therefore must reverse the punitive award in its entirety. We affirm the judgment, as there is meaningful evidence of Burke’s financial condition in the record. The evidence suggests Burke’s financial condition was unenviable at the time of trial. But Burke argues only that the record lacks meaningful evidence of his financial condition; Burke does not ask this court to review whether the award was excessive given all of the evidence presented at trial. We decline to review the appropriateness of the precise amount of punitive damages awarded by the jury.
The notice of appeal and briefs in this matter indicate this is an appeal by three defendants, Gerald W. Burke, Jason Burke, and G.W. Burke & Associates. But only Gerald Burke is named in the judgment. We therefore dismiss the purported appeals of the judgment by one non-aggrieved party (Jason Burke) and one non-aggrieved nonentity (G.W. Burke & Associates), a “doing business as” name utilized by Gerald Burke.
FACTS
In January 2007, two adjacent residential properties owned by Holmes suffered fire damage. Following the fire, Holmes entered into “public adjuster” contracts with G.W. Burke & Associates, the name of Burke’s unincorporated sole proprietorship. The contracts stated Burke’s role was “to advise and assist in the preparation and adjustment of [Holmes’s] loss....” According to Holmes, Burke wrongfully retained a portion of the insurance payments from Holmes’s insurer, even though Burke was not entitled to a fee because he did not actually negotiate a higher payment over the amount already offered by the insurance company.
Holmes’s complaint included causes of action for breach of contract, fraud, and breach of fiduciary duty. The jury found Burke liable on all three causes of action, awarded damages of $37,606.41, and found Burke acted with malice, oppression, or fraud. The jury then awarded $85,000 in punitive damages in a bifurcated proceeding.
The totality of the evidence introduced in the punitive damages phase of the trial consisted of approximately eight transcript pages of testimony by Burke. At the time of trial in April 2009, Burke operated a sole proprietorship in Irvine, California with five public adjusters (including himself) and 12 other employees. Burke’s firm adjusted approximately 45 insurance claims in 2008, 65 in 2007, and 70 to 75 in 2006. Burke estimated his 2008 gross revenue as $700,000 and his 2008 net income as negative $500,000. Burke paid himself compensation of $50,000 in 2008. Burke estimated his 2007 gross revenues as $700,000, his 2007 net income as $30,000, and his 2007 compensation as $50,000. Burke’s estimates for 2006 were similar to those for 2007. Burke’s business did not have a line of credit. When asked about business liabilities, Burke identified rent for office space and taxes. There was no testimony in the record in terms of the specific amounts paid annually for payroll, rent, or taxes. There was no documentary evidence introduced in the record with regard to Burke’s financial condition.
Burke leased a Mercedes CL 65 “through [his] business.” Burke also paid his $4,000 monthly mortgage “through [his] business.” Burke testified he received no additional compensation from the running of his business. As one might expect given his treatment of a Mercedes and a residential mortgage as business expenses, Burke testified to difficulties with the Internal Revenue Service - Burke estimated a tax liability “approaching almost $2 million dollars.”
Burke did not own any real estate other than his residence (he did not own his office building or any vacation homes). Burke paid $369,000 for his house in 1989, but the house is now mortgaged for $730,000 and appraised at $515,000 - Burke claimed he is “about to go into foreclosure.” Burke did not own any securities. Burke did not own any other businesses. When asked about bank accounts, Burke identified only a personal bank account containing approximately $500. His only other assets were “clothes” and office furniture.
DISCUSSION
“In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.” (Civ. Code, § 3294, subd. (a).)
“An award of punitive damages hinges on three factors: the reprehensibility of the defendant’s conduct; the reasonableness of the relationship between the award and the plaintiff’s harm; and, in view of the defendant’s financial condition, the amount necessary to punish him or her and discourage future wrongful conduct.” (Kelly v. Haag (2006) 145 Cal.App.4th 910, 914 (Kelly).) “[W]e review a trial court’s determination of punitive damages under the substantial evidence standard.” (County of San Bernardino v. Walsh (2007) 158 Cal.App.4th 533, 545 (Walsh).)
Burke does not claim that the award violates his due process rights under the Fourteenth Amendment to the United States Constitution. (See, e.g., State Farm Mut. Automobile Ins. Co. v. Campbell (2003) 538 U.S. 408.) Thus, there is no need to discuss federal constitutional law in this appeal.
Burke states in his opening brief: “This is a one issue appeal. [Reversal of the punitive damages award] is mandated because of the lack of adequate evidence concerning Appellant’s financial condition and ability to pay a punitive damages award.” Given the limited nature of his appeal, Burke opted not to submit a complete record of the trial. The record on appeal consists of the complaint, the judgment, and a reporter’s transcript evidencing the bifurcated punitive damage trial. None of the testimony or exhibits from the liability portion of the trial was provided to this court.
Meaningful Evidence of Financial Condition Required For Punitive Award
Typically, “an award of punitive damages cannot be sustained on appeal unless the trial record contains meaningful evidence of the defendant’s financial condition” at the time of trial. (Adams v. Murakami (1991) 54 Cal.3d 105, 109 (Adams); Kelly, supra, 145 Cal.App.4th at p. 915.) Plaintiffs have the burden of proof as to a defendant’s financial condition. (Adams, supra, 54 Cal.3d at p. 109.) “The absence of this evidence thwarts effective appellate review of a claim that punitive damages are excessive.” (Ibid.)
One exception to the Adams rule is that a plaintiff’s burden may be excused if the defendant violates an order compelling production of financial information at trial. (Caira v. Offner (2005) 126 Cal.App.4th 12, 37-38, 41; Mike Davidov Co. v. Issod (2000) 78 Cal.App.4th 597, 609 (Issod) [by ignoring court order to produce financial documents, “defendant improperly deprived plaintiff of the opportunity to meet his burden of proof on the issue”].) Nothing in the record or briefs suggests this exception applies to the case before us.
A second exception to the Adams rule is stated in Cummings Medical Corp. v. Occupational Medical Corp. (1992) 10 Cal.App.4th 1291 (Cummings). In Cummings, the court held that evidence of a defendant’s profit from the wrongdoing at issue in a fraud action can provide a basis for punitive damages up to the amount of the wrongful profits, even absent evidence of the defendant’s net worth or other meaningful financial condition indicators at the time of the default judgment prove-up hearing. (Cummings, at pp. 1298-1301.) The Cummings court affirmed $598,300 of a $1 million punitive damages award, reducing the award because most of the defendant’s profits had already been recovered as compensatory damages. (Id. at pp. 1300-1301.) As there is no suggestion in the record or the briefs that Holmes did not recover all of Burke’s wrongly obtained profits in her compensatory damages award, the Cummings exception is inapplicable.
Cummings has been criticized. (See, e.g., Robert L. Cloud & Associates, Inc. v. Mikesell (1999) 69 Cal.App.4th 1141, 1152 (Mikesell); Kenly v. Ukegawa (1993) 16 Cal.App.4th 49, 56-58 (Kenly).) But other courts have explained that Cummings, properly understood, is both correct and circumscribed in its potential applicability. (See Issod, supra, 78 Cal.App.4th at p. 608, fn. 6; Lara v. Cadag (1993) 13 Cal.App.4th 1061, 1065 (Lara).)
Query whether there should be a third exception to the Adams rule: a token or nominal amount of punitive damages awarded without any evidence of defendant’s financial condition. (Cf. Kenly, supra, 16 Cal.App.4th at p. 57, fn. 7 [discussing whether a “lengthy presentation of the company’s net worth” would be necessary in the hypothetical case of a $10,000 punitive damage award against a “Fortune 500 company”].) The Adams analysis seems to leave no room for such an exception to the rule, but the punitive damages award under consideration in Adams was $750,000. (Adams, supra, 54 Cal.3d at p. 109.) Regardless, the punitive damage award in this case could not qualify for such an exception.
Thus, given the inapplicability in the instant case of exceptions to the rule requiring meaningful evidence of financial condition, we turn to a discussion of cases in which appellate courts have applied Adams, supra, 54 Cal.3d 105.
Sufficiency of Financial Condition Evidence to Allow Meaningful Appellate Review
What quantum of financial condition evidence is sufficient to allow for meaningful appellate review of a punitive award? Clearly, if there were no evidence presented of Burke’s financial condition, the punitive damages award could not stand. (Adams, supra, 54 Cal.3d at pp. 108-109, 111 [rejecting argument that proof of other punitive damage factors was sufficient to support $750,000 punitive damage award].) But Holmes did elicit testimony from Burke regarding assets, revenues, and liabilities.
Therefore, the question presented is whether Holmes presented enough evidence to constitute a “meaningful” picture of Burke’s financial condition at the time of trial. There is no checklist to satisfy for evidence of financial condition to be considered meaningful. The Adams court declined “to prescribe any rigid standard for measuring a defendant’s ability to pay.... We cannot conclude on the record before us that any particular measure of ability to pay is superior to all others or that a single standard is appropriate in all cases.” (Adams, supra, 54 Cal.3d at p. 116, fn. 7.) Net worth is often “the critical determinant of financial condition, but there is no rigid formula and other factors may be dispositive especially when net worth is manipulated and fails to reflect actual wealth.” (Walsh, supra, 158 Cal.App.4th at p. 546.)
One truism has emerged from post-Adams cases: a selective, cherry-picked presentation of financial condition evidence by plaintiff will not survive scrutiny under Adams. Appellate courts have interpreted Adams to require plaintiffs to provide a balanced overview of defendant’s financial condition. Courts may not infer sufficient wealth to pay a punitive award from a narrow set of data points (such as ownership of valuable assets or a substantial annual income). The burden of proof does not “shift” to defendant to prove he or she is not as wealthy as plaintiff’s evidence would suggest.
To wit, one appellate court reversed a $75,000 punitive damages award because the only evidence of financial condition was the defendant’s admissions to a witness years earlier that he held title to valuable real property assets and that he enjoyed hundreds of thousands of dollars in equity in such properties. (Kelly, supra, 145 Cal.App.4th at pp. 916-917.) The Kelly court pointed to the lack of evidence pertaining to defendant’s ownership interests at the time of trial and defendant’s liabilities at the time of trial. (Id. at p. 917.) “Perhaps [defendant] has sufficient wealth that $75,000 would serve the deterrent purpose of punitive damages without bankrupting him, but there was simply a failure of proof and thus the award cannot stand.” (Ibid.)
Taking Kelly a step further, an appellate court reversed a punitive damage award of $75,000 because the record demonstrated only current ownership of substantial assets (about 10 residential rental properties, at least two of which were valued at more than $700,000), without any evidence of whether there were mortgages on such assets or whether the rental properties at issue were profitable. (Baxter v. Peterson (2007) 150 Cal.App.4th 673, 676, 681.) Although it was shown defendant was employed as a Los Angeles prosecutor, no evidence of her compensation was entered into evidence. (Id. at p. 681.) “In sum, although the record shows that [defendant] owns substantial assets, it is silent with respect to her liabilities. The record is thus insufficient for a reviewing court to evaluate [defendant]’s ability to pay $75,000 in punitive damages.” (Ibid.)
Another court reversed a $70,000 punitive damages award because the only evidence of financial condition was testimony by defendant indicating his annual income was approximately $96,000 to $108,000. (Lara, supra, 13 Cal.App.4th at p. 1063.) The Lara court found it impossible to weigh the appropriateness of the award, noting that without information as to the defendant’s assets or liabilities the award might be either insufficient or excessive. (Id. at p. 1064.) Lara purports to stand for a bright line rule: evidence of “earnings” or “income, ” by itself, is not “meaningful” evidence and therefore cannot support an award of punitive damages. (Id. at p. 1065 & fn. 3.)
Following Lara, a court reversed a $115,250 punitive damage award in a trade secret case for lack of evidence of net worth. (Mikesell, supra, 69 Cal.App.4th at pp. 1148, 1151-1153.) “Here, there was no evidence of [defendant]’s financial condition. Of course there was significant evidence of [the defendant’s new company]’s income” but “that evidence provides only one side of the financial picture.” (Id. at p. 1152.)
Thus, only a balanced picture of a defendant’s financial condition can satisfy a plaintiff’s obligation to present meaningful evidence of financial condition. The appellate courts must be able to evaluate whether the award “‘exceeds the level necessary to properly punish and deter.’” (Adams, supra, 54 Cal.3d at p. 110.) A lack of clarity in the evidence can be forgiven if the evidence supports an inference of financial chicanery on the part of the defendant. (Walsh, supra, 158 Cal.App.4th at p. 547 [“Mays and Walsh intentionally concealed their assets, testified falsely regarding many factual issues, and were, at best, evasive and nonresponsive in answering questions as to their financial condition. This conduct gave the court wide latitude to make inferences from the evidence unfavorable to Mays and Walsh”].)
Having reviewed Burke’s testimony and all pertinent authorities, we conclude the record in this case provides meaningful evidence of Burke’s financial condition. We certainly agree with Burke that the evidence of his financial condition is imperfect. Holmes did not obtain Burke’s financial documents, which could have added precision to the financial numbers in play. Moreover, there are several gaps in Burke’s testimony (e.g., whether Burke had any figures for his business operation in early 2009; whether Burke had an explanation for the poor year his business suffered in 2008; whether Burke had liabilities other than those mentioned in his testimony, such as other civil judgments or family support obligations).
But California law does not require a perfect record, only a “meaningful” record. Holmes elicited enough information to intelligently assess Burke’s ability to pay a punitive damage award (here, $85,000). On one side of the ledger, Burke owned a business that generated $700,000 in gross revenues and approximately $120,000 in net income ($50,000 in salary, $48,000 to pay Burke’s residential mortgage, and $30,000 in other net income) for himself as the sole proprietor in 2006 and 2007. Even though Burke claims to have lost money in 2008, such claim is belied by similar gross revenue numbers and his taking an identical salary for that year. Ideally, Holmes would have presented evidence (through an expert) of the business’s present value as an asset to Burke, but we are not prepared to say such testimony is required to support a finding of meaningful evidence under the circumstances of this case.
Besides his ownership of the business, Burke did not have any significant assets (his home is underwater and proceeding to foreclosure). His tax liabilities are apparently significant (up to $2 million). This is not a one-sided, cherry-picked record. The evidence in the record allows for informed review of the award.
Punitive Damages Award Cannot Be “Excessive”
The introduction of meaningful evidence of current financial condition is a necessary, but not sufficient, condition to establishing a legitimate punitive damage award. (Adams, supra, 54 Cal.3d at pp. 108-109 [“evidence of a defendant’s financial condition” is a “prerequisite to an award of punitive damages”].) An appellate court may not affirm an “excessive” award. (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 927-928, 929.) “[T]he 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.” (Id. at p. 928.) “[T]he purpose of punitive damages is not served by financially destroying a defendant. The purpose is to deter, not to destroy.” (Adams, at p. 112.) “We may reverse the award as excessive only if the entire record, viewed most favorably to the judgment, indicates the award was the result of passion and prejudice.” (Stevens v. Owens-Corning Fiberglas Corp. (1996) 49 Cal.App.4th 1645, 1658.)
“Traditionally, ‘net worth’ was the criterion against which an award of punitive damages was measured to decide whether the award was excessive.” (Kenly, supra, 16 Cal.App.4th at p. 56.) But attempts by various courts to “discover a formula for determining whether a given percentage of net worth is excessive ultimately [have led to a conclusion that] there is no formula, and that each case must be decided on its own facts, considering all three [punitive damage] factors and various indicators of wealth.” (Rufo v. Simpson (2001) 86 Cal.App.4th 573, 625 (Rufo), italics added.) Under the unique facts presented here, Burke’s net worth is likely negative, but it can be inferred from the record that Burke’s negative net worth was caused by tax evasion and aggressive use of home equity loans, rather than a lack of ability to generate business profits.
Several cases illustrate the Rufo court’s observation. (Zaxis Wireless Communications, Inc. v. Motor Sound Corp. (2001) 89 Cal.App.4th 577, 580-583 [affirmed $300,000 punitive award despite negative net worth, in part because evidence suggested accounting gimmicks explained negative net worth and company still had ability to pay judgment]; Rufo, supra, 86 Cal.App.4th at pp. 581-582, 616-619, 625 [affirming $25 million punitive damage award exceeding net worth of defendant found liable for killing two individuals, in part because defendant was wealthy man including present value of future earnings and $4.1 million pension fund exempt from execution]; Vallbona v. Springer (1996) 43 Cal.App.4th 1525, 1539-1540 [affirming $200,000 punitive award amounting to more than 20 percent of couple’s net worth].)
We decline to reach the issue of whether the $85,000 awarded by the jury in this case is excessive. Burke failed to meet his duty to “affirmatively show error by an adequate record.” (9 Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 625, p. 704.)
First, in his briefs, Burke conflates the separate questions of: (1) whether there is meaningful evidence of financial condition in the record; and (2) whether the punitive damage award is excessive, given all of the evidence in the record pertaining to all three punitive damage factors. Burke argues throughout his brief that the record lacks meaningful evidence of financial condition. Burke cites and discusses Adams, supra, 54 Cal.3d 105, and its progeny - cases discussing whether a plaintiff succeeded in presenting meaningful evidence of a defendant’s financial condition. Without any discussion of excessive damages jurisprudence, Burke claims at the end of his opening brief that the evidence conclusively established he had no ability to pay any punitive damage award and the punitive award should therefore be reversed. Such a conclusory statement is insufficient to raise the issue of the excessiveness of the award in light of the entire record.
Second, Burke only submitted to this court the narrow portion of the record pertinent to his financial condition (i.e., Burke’s testimony at the bifurcated punitive damage hearing). There is no way to review the rest of the evidence ascertained at trial, which would logically pertain to the first two factors of the punitive damage analysis (reprehensibility of Burke’s conduct and reasonable relationship between Holmes’s harm and the punitive award). It is therefore impossible for this court to consider all three punitive damage factors in an analysis of whether the punitive award is excessive.
Third and finally, the record submitted to this court does not reveal the filing of a motion for new trial on the ground of excessive damages. (See Code Civ. Proc., § 657, subd. (5).) An appellant is not entitled to review of whether a jury awarded excessive punitive damages unless the issue has been properly preserved by a motion for new trial. (Compare Schroeder v. Auto Driveaway Co. (1974) 11 Cal.3d 908, 918-919 [failure to move for new trial for excessive damages ordinarily precludes contention on appeal that compensatory and punitive damages are excessive]; with Adams, supra, 54 Cal.3d at p. 115, fn. 5 [despite argument that issue was not properly preserved, reviewing issue of whether punitive damages could be awarded without any evidence of financial condition in the record].)
DISPOSITION
The judgment is affirmed. The appeal is dismissed as to defendants Jason Burke and G.W. Burke & Associates. Holmes shall recover costs incurred on appeal.
WE CONCUR: MOORE, ACTING P. J., FYBEL, J.