Opinion ID: 2662
Heading Depth: 2
Heading Rank: 1

Heading: Challenge To The Punitive Damages Award Under State Law

Text: Under Illinois law, punitive damages are not favored, but are validly imposed when torts are committed with fraud, actual malice, deliberate violence or oppression, or when the defendant acts willfully or with such gross negligence as to indicate a wanton disregard of the rights of others. Kelsay v. Motorola Inc., 74 Ill.2d 172, 186, 189, 23 Ill.Dec. 559, 384 N.E.2d 353 (1978). According to the Illinois Supreme Court, the purpose of a punitive award is to punish the wrongdoer and to deter that party, and others, from committing similar acts in the future. Deal v. Byford, 127 Ill.2d 192, 203, 130 Ill.Dec. 200, 537 N.E.2d 267 (1989). The Deal court identified three factors to be considered in evaluating the size of a punitive damages award: Relevant circumstances . . . include [(1)] the nature and enormity of the wrong, [(2)] the financial status of the defendant, and [(3)] the potential liability of the defendant. Those circumstances are not, however, exhaustive. It is vital that each case be carefully assessed in light of the specific facts involved, and the ultimate determination should be governed by the circumstances of each particular case. Id. at 204, 130 Ill.Dec. 200, 537 N.E.2d 267 (internal citation omitted). It is beyond cavil that, under the first Deal factor, the nature and enormity of the wrong in this case justify a punitive damages award. The district court imposed punitive damages based on (a) its extensive findings of the Uzans' fraudulent scheme to bilk Motorola of over $2 billion, and (b) the Uzans' obstruction, in the face of a bevy of court orders, of all attempts to redress these actual damages. Uzan V, 413 F.Supp.2d at 349. The court concluded that it was obvious . . . that defendants' conduct was fraudulent, willful, and malicious, evincing a wanton and deliberate disregard for Motorola's rights and well warranting punitive damages under Illinois law.  Id. (emphasis added). The court also found it beyond question that the defendants' fraud was enormous, both in amount and in the defendants' brazen resort to all kinds of reprehensible misconduct to achieve their ends. Id. at 350. Indeed, in Uzan III we expressly agree[d] with the District Court that, on this record, some punitive damages award is appropriate, 388 F.3d at 63, but we remanded to the district court for reconsideration of the size of the award, according to the factors relevant in Illinois law and our due process analysis. Id. Our concern was with the district court's consideration of defendants' ability to pay, pursuant to the second Deal factor, and it is on this factor that appellants focus, in the Illinois law part of their appeal. Appellants' principal argument is that the punitive damage award of $1 billion . . . far exceeds the total assets of the Appellants [and][f]or that reason alone, the award must be vacated. Or, as they elsewhere put it: the punitive award violates Illinois law because it exceeds appellants' net worth. Their contention relies on a decision of the Illinois Appellate Court which, construing the second Deal factor, stated: [A]n award which bankrupts the defendant is excessive. Punitive damages should be large enough to provide retribution and deterrence but should not be so large that the award destroys the defendant. Thus, before a court can gauge the award, it must first gauge the financial position of the wrongdoer. . . . Simply stated, the amount of the award should send a message loud enough to be heard but not so loud as to deafen the listener. A deafening award is excessive. Hazelwood v. Ill. Cent. Gulf R.R., 114 Ill. App.3d 703, 713, 71 Ill.Dec. 320, 450 N.E.2d 1199 (App.Ct.1983) (internal citations omitted) (emphasis added). Invoking Hazelwood, the Uzans dispute any award of punitive damages. They assert that [i]t is now abundantly clear from the record that the Appellants lack the assets to pay any punitive damages award, which makes an award of any punitive damages improper under Illinois law. Motorola, however, asserts that there is no valid evidence that the Uzans will suffer financial destruction as a result of the punitive award. It notes that the [d]efendants . . . have refused to produce a single iota of evidence regarding their net worth despite every accommodation by the district court. Motorola further argues that, in Illinois, defendantsnot plaintiffs  bear the burden of providing evidence of their financial status. In Uzan III, we resolved this issue of Illinois law. [7] We rejected the plaintiffs' contention that defendants' failure to meet their burden necessarily validates any amount of punitive damages. 388 F.3d at 64 (Plaintiffs would have this Court conclude that, once defendants failed to establish their net worth in the District Court, any punitive damages award could be assessed against them under Illinois law. We reject this view.). We stated, however, that while the financial position of the wrongdoer must be considered, [p]laintiffs are correct that, under Illinois law, defendants bear `the burden of putting on' relevant evidence of net worth in objecting to a punitive damage assessment. Id. (quoting Ford v. Herman, 316 Ill.App.3d 726, 734, 249 Ill.Dec. 942, 737 N.E.2d 332 (App.Ct.2000)). As a result, the only question of Illinois law before us today is whether the district court, on remand, gave proper consideration [to the] defendants' ability to pay such a hefty sum.  Uzan III, 388 F.3d at 64 (emphasis added). And, while the Uzans' failure to establish their net worth does not render the punitive damages award limitless, neither we nor the Illinois courts have found that a defendant's financial condition can provide a dispositive basis for precluding any punitive award at all. Rather, as the Illinois Supreme Court has held: Contrary to the defendant's assertion, the absence of any evidence regarding their financial status does not mean that the [fact-finder's] award must be set aside. Evidence regarding the financial status of a defendant is simply one relevant consideration to be weighed by the judge or jury in determining an appropriate award of punitive damages. . . . Defendants made no attempt to [present such evidence, and they] cannot now complain of its absence. Deal, 127 Ill.2d at 204-05, 130 Ill.Dec. 200, 537 N.E.2d 267 (emphasis added). The district court made every effort to determine defendants' financial condition based on all available sources. It did so in the face of the Uzans' refusal to help in any meaningful way. The court found that a reasonable estimate of appellants' net worth was at least $5 billion. See Uzan V, 413 F.Supp.2d at 350-51. It began with a Forbes estimate that the Uzans' net worth was $1.5 billion in 2004. The court noted that while the Forbes figure reflected rough estimates at best, [they] were made by a disinterested third party and were almost certainly under-estimates because they did not take account of the evidence that subsequently came to light of the defendants' huge embezzlements. Id. at 350 (citing Forbes Billionaires List, Assoc. Press, Feb. 27, 2004). In this respect, the court referred to its earlier finding in Uzan II, based on the undisputed conclusions of the Samuel Report, see Uzan II, 274 F.Supp.2d at 559 (citing Report of Antony B. Samuel, Forensic Services Practice, Pricewaterhouse Coopers, January 2003, at 4), that the individual defendants had converted to their own use a substantial part of the $2 billion stolen from Motorola, that is, at least $1.135 billion. Uzan V, 413 F.Supp.2d at 350-51. In addition, the court, relying on a wide range of news sources, found that the Uzans also possessed or jointly controlled between $5 billion and $6 billion in assets allegedly stolen from the Turkish bank Imar. [8] It then observed that the Turkish government had seized certain of the Uzans' Turkish assets, the value of which was unascertainable in light of the absence of information from the Uzans. But the court concluded that the secretive and labyrinthine manner in which the individual defendants operated their complex financial empire makes it likely that they retain access to substantial assets even while some of them are occupying fugitive status. Id. at 351 (citing Press Scanner, Turkish Daily News, Jan. 17, 2006 (summarizing reports that the Uzans are currently living like kings in Jordan, where a Vatan reporter says he has uncovered evidence of six new companies formed by the Uzan family) (internal citation omitted)). Under the circumstances, we cannot say that the court's estimate that the Uzans' net worth was at least $5 billion, Uzan V, 413 F.Supp.2d at 351, was erroneous. Nor can we fault its additional conclusion: All of this suggests that the individual defendants, jointly and severally, remain billionaires and should be able to satisfy a very substantial punitive damages award. Given the reprehensibility of the individual defendants' concerted conduct, the size of their fraud, and their seeming ability to pay, and taking account the goals of punishment and deterrence, the Court finds that an award of $1 billion in punitive damages is necessary and permissible under Illinois law. Id. Appellants contest the district court's estimate of their net worth and particularly the court's treatment (a) of their access to funds embezzled from the Imar bank, and (b) of their liabilities to the Turkish government. But, in doing the best it could to determine the relevant figures, the court properly considered the Uzans' refusal to provide any evidence that the Turkish government froze Uzan assets or the value of such possibly frozen assets. Defendants' counsel conceded that defendants would never comply with deposition or document production orders that sought such information. He stated: [T]he individual defendants are not and will not be responding substantively to the interrogatories. . . . The same will hold true with regard to the deposition. Moreover, in the punitive damages hearing on remand, when pressed by the court to provide evidence demonstrating the Turkish government's seizure of assets or evidence rebutting the court's estimate of assets embezzled by the Uzans from the Imar bank fraud, defendants' counsel said: [T]he bottom line is that I know that because the defendants have not produced any evidence of their net worth that your Honor can look at various indicia and say I think that this is an appropriate indication of their net worth and we will have nothing to rebut it because we have nothing in the record. The court also reasonably rejected the Uzans' assertion that they simply could not state the amount of [their] net worth because the term net worth is open to multiple interpretations. As the court observed, there was a whole cavil over the meaning of the net worth which is really about as plain vanilla and straightforward a term as one could imagine in this context. The court offered every accommodation, including a videotape deposition for any individual defendants legitimately prohibited from leaving Turkey, and warned that if they refused this option the adverse inference should arise and they should know up front that that would be the price that they would be paying. We have deemed such adverse inferences to be proper in similar contexts. See Fed.R.Civ.P. 37(d); Smith v. Lightning Bolt Prods., 861 F.2d 363, 373 (2d Cir.1988) (The incompleteness of the record as to [defendant's] net worth is not a basis for reducing the punitive damages award against him, for it is the defendant's burden to show that his financial circumstances warrant a limitation of the award.); Zarcone v. Perry, 572 F.2d 52, 56 (2d Cir.1978) (It is true that without . . . evidence [of defendant's net worth] no one can be sure of the severity of the monetary sanction that the jury imposed. A $60,000 award may bankrupt one person and be a minor annoyance to another. But the decided cases and sound principle require that a defendant carry the burden of showing his modest meansfacts peculiarly within his powerif he wants this considered in mitigation of damages.). Adverse inferences are also in complete accord with Illinois law that, where defendants refuse to present evidence of net worth, they must take the consequences. See Deal, 127 Ill.2d at 204-05, 130 Ill.Dec. 200, 537 N.E.2d 267. Having found the Uzans' net worth to be at least $5 billion, the court observed that an award [of] 20% of their net worth [is] considerably less than Illinois courts have approved. Uzan V, 413 F.Supp.2d at 351; see also Motsch v. Pine Roofing Co., 178 Ill.App.3d 169, 177-78, 127 Ill.Dec. 383, 533 N.E.2d 1 (App.Ct.1989) (upholding punitive award that was 37% of net worth); Nat'l Bank of Monticello v. Doss, 141 Ill. App.3d 1065, 1074, 96 Ill.Dec. 292, 491 N.E.2d 106 (App.Ct.1986) (imposing punitive award that was 71% of net worth); cf. In re New Orleans Train Car Leakage Fire Litig., 795 So.2d 364, 388 (La.Ct.App. 2001) (The $850 million punitive damages award is about 18% of CSX's net worth. We do not find that percentage to be an abuse of discretion in this case because we cannot say that 18% is indisputably more than necessary. . . .). The court further noted that the $1 billion punitive award, being less than half of the compensatory damages awarded, was entirely consistent with Illinois holdings in this respect as well. Uzan V, 413 F.Supp.2d at 352 (citing Ford, 316 Ill.App.3d at 733-35, 249 Ill.Dec. 942, 737 N.E.2d 332 (affirming punitive damages 75 times greater than compensatory damages); Ciampi v. Ogden Chrysler Plymouth, Inc., 262 Ill.App.3d 94, 112-13, 199 Ill.Dec. 609, 634 N.E.2d 448 (App.Ct. 1994) (upholding punitive damages 20 times greater than compensatory damages)).