A Seattle-based electronics firm was ordered Tuesday to pay $2.25 million in punitive damages to an Internet advertising company run by three brothers from Yorba Linda.
The Orange County Superior Court jury had already ordered X10 Wireless Inc. to pay Advertisement Banners.com $4.3 million in compensatory damages for stealing the smaller company's technology, money and clients. The penalty phase of the litigation was postponed for a month after X10, which sells home-surveillance equipment through ads featuring cameras trained on scantily clad women, declared bankruptcy.
"The jury was able to grasp and recognize that what X10 was doing was wrong," said Tim Vanderhook, 22, who started Advertisement Banners.com with two brothers from their childhood home and now runs the business from an office in Anaheim. "They realized that punishment was needed to deter them from doing this again."
The brothers -- Tim; Chris, 25; and Russell, 26 -- contend that X10 did not pay the $564,000 in advertising commission the trio was due for a July 2001 business contract. Furthermore, they said, X10 used that money along with Advertisement Banners.com's proprietary technology and business model to steal some of their clients and start its own Internet advertising business.
Tuesday's hearing was held after the brothers successfully requested that a Washington Bankruptcy Court judge allow the proceedings to continue despite ongoing hearings on X10's bankruptcy. The plaintiffs have accused X10 of strategically declaring bankruptcy to freeze the punitive hearing proceedings and solicit sympathy from the jury.
X10 President Alex Peder said during his testimony Tuesday that a punitive verdict would irreparably damage the already financially troubled company. "Every day is a battle to figure out how to keep the business [going]," he said. "It's dark days, and they're darkening."
Attorney Sean P. O'Connor, who represented X10, told the jury during his closing statement that there was no need to punish X10 because the firm's officers were sorry and had been reprimanded enough already by the earlier verdict.
"If X10 becomes stable again, you can be assured that there won't be any similar conduct to this again," O'Connor said. "We're sorry, but I think enough is enough."
During Tuesday's daylong hearing, financial experts for each side presented different estimates for X10's net worth -- the plaintiffs said $21 million, and the defendants contended that the company had a negative balance of nearly $3 million.
Both sides presented an estimate of X10's net revenue as $9 million, the figure jurors said they used when determining the punitive verdict.
Telling X10 to pay 25% of its net annual revenue seemed a reasonable punishment considering the "malicious" nature of the firm's defrauding of the brothers' company, said jury foreman Richard D. Ortega, 27, of Anaheim Hills.
"We don't want to put X10 out of business," Ortega said after the jury reached its 9-3 verdict. "But we did want to flip around what they had been trying to do to [Advertisement Banners.com]."
X10 plans to appeal, O'Connor said after the jury completed its hour of deliberations and announced its verdict.
"The verdict is disappointing, but I do think it will be corrected," O'Connor said. "It's a sad day when a nonpayment of $500,000 results in a multimillion-dollar verdict against us."