No. B121917, Supreme Court of California (filed October 8, 2004)

In this case plaintiff made an offer to buy a building worth $1.5 million for $1.1 million. While working out the details, the seller secretly contracted with another buyer, depriving the plaintiff of a $400,000 gain. The buyer sued the seller for fraud. The jury award for compensatory damages was limited by statute to out-of-pocket expenses, $5,000, however, the jury also awarded $1.7 million in punitive damages. The court of appeal affirmed this award and rejected the defense's argument that the ratio to compensatory damages under State Farm was an excessively high 340 to 1. Rather, the court looked to “the nature and degree of the actual harm suffered by the plaintiff.” The appropriate ratio was therefore about 4 to 1.

This case raises the question: Under State Farm, “should the ratio between compensatory and punitive damages be based solely on the actual compensatory damages awarded or on the plaintiff’s uncompensated loss due to statutory limitations?”

AAJ’s brief argues that courts historically required that punitives bear some relation to actual harm, not just the compensatory award. Because compensatories often do not reflect actual harm (because of damage caps, limits on wrongful death damages, etc.) the policy served by punitives requires courts to focus on actual harm.