Pair Win $130 Million in Southmark Lawsuit

In one of the largest verdicts by a California jury, a Rancho Santa Fe couple has been awarded $130.9 million in damages from Southmark Corp., a Dallas-based real estate investment and financial services company.

The couple, John and Lynne Riddle, had sued Southmark in San Diego County Superior Court in 1984, alleging fraud, breach of contract, intentional infliction of emotional distress and interference with business relationships. The suit arose from Southmark’s August, 1983, purchase of the Riddles’ business, Exchange Network, a resort time-share exchange agency.

On Tuesday, the couple was awarded $85 million in punitive damages from Southmark, after a two-month trial. Last week, the jury had awarded $45.9 million in compensatory damages to the Riddles, but Superior Court Judge Richard D. Huffman imposed a gag order on the participants until the verdict on punitive damages was reached Tuesday.

Liable for the compensatory damages are Southmark and its subsidiaries National American Corp. and Direct Mail Specialists, both based in Gautier, Miss. The $45.9 million in compensatory damages included more than $38 million for James Riddle for emotional distress suffered as a result of the abortive sale.

Greg Post, an attorney representing Southmark’s NACO unit, described the verdict as a “travesty” and said Southmark would file a motion for a new trial next month. Southmark executives were not available for comment late Tuesday, and Post declined to explain his description of the verdicts.

The Riddles sold Exchange Network, which they had formed in 1982, to Southmark for $2 million, with terms of the purchase calling for the Riddles to be paid out of the company’s profit, their attorney Brian Monaghan said Tuesday.

But after taking over the Riddles’ company, Southmark used Exchange Network as a “septic tank” for the bad debts of other Southmark operations, reducing Exchange Network’s profit to nil, Monaghan claimed. As a result, the Riddles received only a $290,000 initial payment in 1983 and none of the $1.6 million “earn-out” from Exchange Network profit that was due them, he said.

Six months after the acquisition, James Riddle was fired as the company’s chief executive, despite having received a five-year employment contract as part of the Exchange Network sale, Monaghan said.