Punitive Damages and Conservatorships

Author: Nicole Lenat

In 2010, the California Court of Appeals heard the case of Boothby v. Parker (Court of Appeal, 2nd Appellate Dist., 2nd Div. 2010) and rendered an unpublished decision wherein economic damages and punitive damages were awarded against the defendant, Mr. Parker.  That case involved two business partners (Boothby and Parker) who made a living “flipping” homes and agreed to share in the profits equally.  A dispute over a property arose, and Mr. Boothby ultimately sued Mr. Parker for breach of contract, breach of fiduciary duty, fraud, defamation, and emotional distress.  By special verdict, a jury found that Mr. Parker breached his fiduciary duty to Mr. Boothby, and acted with malice, fraud, oppression, or despicable conduct.  Mr. Boothby was awarded $725,000 in economic damages against Parker, and $350,000 in punitive damages against Parker.

However, following the decision, it came to light that Mr. Parker never paid the punitive damages against him in the prior proceedings because a conservatorship was established for him during that litigation when he had become ill (and before a judgment was rendered).  The conservators took the position that, under the Probate Code, the decision to pay the punitive damages award against their conservatee was entirely discretionary, and that they should not be forced to pay a debt that would deprive Mr. Parker of funds needed for the necessities of life.  The trial court disagreed and ordered the conservators to pay the award.

 The conservators appealed, and on August 4, 2014 the California Court of Appeal (Second Appellate District, Division Two) affirmed the trial court’s order. 

The court rejected the conservators’ reliance on a provision of Probate Code section 2430, which provides that debts occurring during a conservatorship need not be paid if doing so would impair the ability to provide for the necessaries of life.  The court concluded that provision was inapplicable because Mr. Parker’s liability for punitive damages “occurred” when he committed the underlying tort, not when the punitive damages were awarded or affirmed on appeal.  The Court quoted Hansen v. Cramer (1952) 39 Cal.2d 321, 323 in support of its decision, stating that “it is well settled in this state that the relationship of debtor and creditor arises in tort cases the moment the cause of action accrues”.  The Court also noted the inverse is true as well.  Someone injured by another’s tort “becomes a creditor when the cause of action accrues,” even before legal action is taken. (Chalmers v. Sheehy, 132 Cal. 459, 465).

The Court’s conclusion in the Boothby appeal that the Legislature intended for conservatees to be liable for tortious acts is fortified by Civil Code section 41, which states that persons of unsound mind are liable for exemplary damages if they are capable of knowing that the act was wrongful “at the time of the act.” This statute underscores that responsibility for punitive damages arises on the date the wrongful act was committed, not when a jury verdict or judgment is rendered.  The Court concluded, in this instance, Parker tried—and failed—to prove at trial that he suffered from diminished mental capacity due to dementia, alcoholism and diabetes.  Thus, the jury believed that Parker knew his act was wrongful “at the time of the act,” making him liable for pre-conservatorship wrongdoing under Civil Code section 41.

Thus, the payment of the debt was mandatory and not discretionary, regardless of whether paying the debt means that the conservators will no longer be able to provide for Parker’s basic needs.

The “take away” appears to be that attorneys defending a conservatee against a punitive damages claim must demonstrate during the underlying tort litigation the punitive damages award will be financially ruinous to the defendant.  Otherwise, the conservators will be required to pay the award in the future regardless of whatever financial consequences may ensue.

ABOUT THE AUTHOR: Nicole Lenat is a graduate of Pepperdine University School of Law. She focuses on products liability and business litigation. Contact her at NLenat@tysonmendes.com.

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