California Court Of Appeal Affirms Punitive Damages Finding Against A Defendant With Negative Net Worth

April 24, 2012
Paul Schrieffer, Esq.
P. K. SCHRIEFFER LLP

Dear Clients and Colleagues,

The Court of Appeal, in Bankhead v. Arvinmeritor, has affirmed a jury’s punitive damages award against a brake pad manufacturer, Arvinmeritor, in an asbestos personal injury case. The appellate court held that, although the amount indisputably exceeded Arvinmeritor’s entire net worth, the sum in fact represented a small percentage of the company’s immediately available funds which it could use to pay the judgment.  The Court of Appeal held a jury or judge is entitled to consider the defendant’s actual ability to pay, and may consider the defendant’s cash on hand or liquid assets separate and apart from “net worth.” On the other hand, it recognized that the purpose of punitive damages awards are to punish and deter reprehensible behavior, not to completely destroy a company or completely ruin an individual.

In the fiscal year 2010, Arvinmeritor reported a negative net worth of $1.023 billion.  It therefore argued that only nominal punitive damages could be assessed against it.  However, the plaintiff proved Arvinmeritor still had approximately $343 million in cash at the time the case was being tried.  The jury’s $4.5 million punitive damage award therefore represented only 1.3% of Arvinmeritor’s $343 million cash on hand, and therefore did not violate the “due process” rights of life, liberty or property under the California and Federal Constitutions.  The Court of Appeal also rejected a separate “due process” argument from Arvinmeritor that because the jury held it only 15% responsible for plaintiff’s injuries, the $4.5 million in punitive damages was excessive as a matter of constitutional law.  The appellate court held that Arvinmeritor’s conduct in producing asbestos-laden products was reprehensible and therefore justified punitive damages against Arvinmeritor–even if other defendants were collectively more culpable.  

Overall, the Court of Appeals has reminded businesses and individuals in California that a defendant cannot  challenge the propriety of a punitive damages award merely because that defendant has a negative net worth. Instead, California courts will more deeply analyze the defendant’s actual financial condition and consider the reprehensibility of the defendant’s conduct in determining whether or not a punitive damages award is improper or proper.