Study Cites Big Punitive Judgment in Fraud Case

At the time, lawyers called the verdict one of the largest ever: $52 million recommended on July 28 by an Orange County jury in a fraud case against Security Pacific National Bank.

A political scientist who has studied punitive damage verdicts in state courts across the country called it “among the highest nationwide since 1980.”

“Extremely large awards like this are very, very rare,” said Stephen Daniels, who is conducting a nationwide study for the American Bar Assn.

Of the total, $48 million was assessed as punitive damages, designed to punish the bank for wrongdoing and hold the case up as an example. The jury was impaneled only as an adviser by Superior Court Judge Lloyd E. Blanpied Jr., and the judge is deciding whether to accept, reject or modify the verdict.

San Diego Leads Nation

Preliminary results of Daniels’ ongoing study show that the median punitive damages award in Los Angeles County between 1981 and 1983 was $87,500. For the same period, New York City juries awarded a median of $25,000 in punitive damages. San Diego juries led the nation, with a median of $244,500.

No figures were available for Orange County.

The jury in Santa Ana decided that damages equal to 15% of Security Pacific’s earnings last year was appropriate punishment, according to papers filed on behalf of the plaintiff, Robert Obarr, 30.

That approach is not unusual, Daniels said in a recent interview.

“In these very large cases, the way in which plaintiffs’ attorneys will try to suggest a figure is as a percent of profits or net worth,” Daniels said. “We’re not talking about compensating someone. We’re talking about punishment and deterrence.

“Lawyers will argue that’s the only way to make a large corporation pay attention. In the larger cases, this seems to be the way it’s done.”

The advisory verdict has gotten the bank’s attention. Its attorney, Andrew J. Guilford, called the recommendation “outrageous” and urged that Blanpied rule in favor of Security Pacific.

Managed 10-Acre Parcel

In the lawsuit, Obarr claimed that his late grandparents named Security Pacific as trustee of their sole asset--10 unimproved acres on 17th Street near Magnolia Street in Westminster that they had purchased for $4,000 in 1933.

The bank agreed to act as trustee for the Obarrs at the same time it was representing the dairy that rented the property at the time, thus involving the bank in a clear conflict of interest, said Arthur Hews, Obarr’s attorney.

The dairy had a $1,000-a-month, 60-year lease on the land. Conservative estimates are that the land, worth more than $4 million, could be leased for $450,000 a year.

Because the bank was one of the dairy’s biggest creditors and because the dairy was in a precarious financial position, the bank failed to renegotiate or terminate the lease when an opportunity arose in 1963, Hews claimed.

Guilford, in arguing before Blanpied last week, pointed to testimony at the trial that Robert Obarr’s grandparents did not want the lease renegotiated. The bank as trustee was required by law to follow the decisions of the Obarrs, Guilford said.

“They can’t show we could or should have gotten out of the lease,” Guilford said.

Plaintiffs Relied on Bank

“They (Security Pacific) can’t sit there and rely on Mr. Obarr’s guess as to the fair market value of the property or the rent,” countered Hews. “That’s what the Obarrs were paying the bank to do.”

Blanpied decided to impanel an advisory group after denying Hews’ demand for a jury trial. Although jury trials are generally a matter of right, the Obarr case involved a private trust; Blanpied accepted Guilford’s argument that juries are not required in such cases but decided that he wanted a jury’s advice on how to decide the case.

Should the case be appealed, the use of an advisory jury could help avoid the need for a retrial if Blanpied’s denial of a jury trial is overturned, lawyers said.