Thursday, February 7, 2002
City Can Sue Ex-Lawyer for Punitive Damages in Fraud Case—C.A.
By KENNETH OFGANG, Staff Writer/Appellate Courts
A former lawyer who allegedly defrauded his client, the city of Glendale, can be sued for punitive damages, this district’s Court of Appeal has ruled.
A1988 Court of Appeal ruling barring cities from suing for punitive damages is wrong, Justice Paul Boland wrote for Div. Seven in a case stemming from a Los Angeles Superior Court corruption scandal. Boland’s opinion was filed Jan. 7 and certified Tuesday for publication.
Boland, a member of the new Div. Eight, has been assigned to Div. Seven to finish work on cases that he heard as an assigned Superior Court judge prior to his appointment to the Court of Appeal.
The appellate panel granted a writ of mandate reinstating the city’s claim against Robert Fenton. The former Encino lawyer resigned with discipline pending and moved to Monterey, State Bar records show.
Fenton previously pled no contest to bribing Gregory Pentoney, a senior finance and accounting administrator for the Superior Court, to obtain inside information regarding unclaimed interest owed to cities that had posted bonds in eminent domain cases. Pentoney pled no contest to accepting a bribe.
Fenton would offer to represent cities on contingency, then give a percentage to Pentoney, court officials and prosecutors said after the pleas were entered. Discovery of the scheme led to a change in court policy, and the index showing which public entities are entitled to interest after posting condemnation bonds is now a public record.
Between December 1995 and November 1996, Fenton is believed to have uncovered up to $5 million in forgotten interest for municipalities and earned $1.5 million in bounty fees, of which he paid $463,000 to Pentoney for the inside information about the 99 accounts.
Glendale refused to pay Fenton’s fees, and Fenton sued for the money in 1998, prior to criminal charges being filed. The city responded with a cross-complaint against Fenton and Pentoney for general, special and punitive damages.
Los Angeles Superior Court Judge Richard Wolfe, relying on City of Los Angeles v. Shpegel-Dimsey, Inc. (1988) 198 Cal.App.3d 1009, struck the city’s request for punitive damages. The city then sought the writ of mandate.
Pentoney reached a tentative settlement with the city and was not a party to the mandate proceeding.
City of Los Angeles, Boland explained, involved a suit against a plastics manufacturer in which the city hoped to recover costs of extinguishing a fire at the defendant’s plant, along with punitive damages for repeated violations of the fire code.
The Court of Appeal cited two bases for its ruling that a city cannot recover punitive damages.
The panel reasoned that since the government has the power to punish misconduct through the police power, it has no reason to resort to a punitive damage remedy. Also, since a private party cannot sue the government for punitive damages, equal protection principles bar the government from suing a private party for punitive damages, the court suggested.
But a later Court of Appeal case, City of Sanger v. Superior Court (1992) 8 Cal.App.4th 444, rejected City of Los Angeles, and Boland agreed with the Sanger court that the earlier ruling was flawed.
“The plain language of Civil Code section 3294 permits all plaintiffs, both public and private, to recover punitive damages in appropriate cases,” the justice wrote. Courts cannot read an exception into the unambiguous legislation, he said.
Besides, Boland said, the “police power” reasoning of City of Los Angeles doesn’t apply to Fenton, because there was no way for the city to punish him other than through its lawsuit. Even if it could, the justice said, City of Sanger correctly held that the punitive damage remedy should remain available as a matter of public policy.
Boland also rejected the equal-protection argument. California law immunizing governmental entities against punitive damage claims for conduct as to which such damages would be available against a private party, he noted, has been upheld as having a rational basis.
“Similarly, a rational basis exists for treating public and private parties the same when they are plaintiffs,” Boland wrote. “As observed in City of Sanger, ‘requiring private parties to pay punitive damages regardless of whether the plaintiff is a public or private party furthers the goal of punitive damages; i.e., punishment and deterrence of wrongdoing.’”
Attorneys on appeal were City Attorney Scott H. Howard and Carol Ann Humiston, Richard H. Nakamura, Jr., and Pamela A. Hill of Morris, Polich & Purdy for the city and Jay J. Plotkin of Plotkin, Marutani & Kaufman for Fenton.
The case is City of Glendale v. Superior Court, 02 S.O.S. 740.
Copyright 2002, Metropolitan News Company