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A Los Angeles appeals court has upheld $1.7 million in punitive damages in a real estate fraud case, saying a recent U.S. Supreme Court ruling does not prevent state courts from issuing — or upholding — awards they find fair. The 2nd District Court of Appeal’s opinion — which affirmed the award despite only $5,000 in compensatory damages — was based on its interpretation of the high court’s April ruling in State Farm Mutual Automobile Insurance Co. v. Campbell. That case held that punitive damages must bear some reasonable relationship to compensatory damages and the individual injury involved, but the 2nd District held late Tuesday that didn’t render state courts powerless. “State Farm was not intended to dispossess the states of their discretion over the imposition of punitive damages,” Justice Gary Hastings wrote in Simon v. San Paolo U.S. Holding Co. Inc. “And we do not construe State Farm’s suggested ratios as limiting the reviewing court to a comparison of punitive damages to an award of out-of-pocket expenses that does not reflect the full effect of the defendant’s conduct upon the plaintiff.” Justices Norman Epstein and Daniel Curry concurred in the 48-page ruling. In the case before them, Lionel Simon had sued San Paolo seeking damages for breach of contract and fraud for an allegedly false promise to sell him property in downtown Los Angeles. Following a second trial, jurors hit San Paolo with $5,000 in compensatory damages and $1.7 million in punitives. The U.S. Supreme Court remanded the case back twice for further evaluation of the punitive damages award, the last time for review under the standards of State Farm. The appeals court said the award was fine, based on State Farm standards on the reprehensibility of the act and the ratio of the damages to the actual harm. Justice Hastings said there was no doubt that the behavior of Duane King, San Paolo’s vice president in charge of the building’s sale, was reprehensible. His “deceit was continuous and intricate,” Hastings wrote, and his supervisors didn’t do a thing about it. “King was never reprimanded, warned or counseled,” the court held. “He suffered no job or salary action whatsoever, and even got a bonus that year.” As for the amount of punitive damages, $1.7 million is only a 4-1 ratio for the $400,000 difference between the appraised value of the building and the price that King falsely promised to sell it. “Our interpretation,” the court said, “comports with California authority that a punitive-damage award should not be so small ‘that it can be simply written off as a part of doing business.’” The court’s ruling came one week after the 5th District in Fresno concluded on remand that State Farm required it to reduce a $290 million punitive damages award against Ford Motor Co. to $23.7 million. That panel said the $290 million — the largest that had ever been upheld at the appellate level in California — was disproportionate to the $6.2 million in compensatory damages. Erwin Chemerinsky, the University of Southern California Law School professor who argued the case against Ford, couldn’t be reached for comment on Tuesday’s ruling. Neither could Andre Jardini, the partner at Glendale’s Knapp, Petersen & Clarke who represented the plaintiff in Tuesday’s case. Steven Richman, a partner at L.A.’s Epport, Richman & Robbins who defended San Paolo, said he couldn’t comment because he hadn’t seen the ruling.

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