CA Appeals Court Upholds $21 Million Punitive Award in Win for ELA Member

Joseph Girard

A California court of appeals affirms that the owner of a construction company fraudulently induced a special needs trust trustee to transfer title of the beneficiary’s family home to him, and that the conduct warranted punitive damages ten times the amount of compensatory damages.  Los Angeles ElderLawAnswers member Joseph Girard represented the trustee. Haworth et al. v. Ness Adams, Inc. (Cal. Ct. App., 2nd Dist., Div. 2, No. B260148, Feb. 1, 2017). unpublished

Kathleen McGinty was the beneficiary of a special needs trust, of which the principal asset was the home she lived in with her mother. Ms. McGinty’s autism made it difficult for her to form thoughts, communicate or socialize.  After the mother’s death in 2009, Ms. McGinty’s brother Tim McGinty,  successor trustee of the trust, moved in with her.  Mr. McGinty suffered from bipolar disorder, depression, and substance addiction, and was occasionally suicidal, psychotic, and delusional. 

In April 2011, Noam Bouzaglou, acting as officer of Ness Adams, a construction company he owned, met with Mr. McGinty to discuss a garage repair.  Mr. McGinty signed a contract with Ness and a number of subsequent work orders totaling $502,020.  Ms. McGinty suffered mental and physical distress when Mr. Bouzaglou moved the brother and sister into an apartment and Mr. McGinty attempted suicide and was placed in a psychiatric facility.  Shortly after Mr. McGinty’s discharge, while he still was depressed and psychotic, Mr. Bouzaglou had him sign documents transferring ownership of the home to Mr. Bouzaglou.  Mr. McGinty died in October 2012. 

Jeanne Haworth, as successor trustee, sought rescission of the transfer against Mr. Bouzaglou and other causes of action, including fraud against him and Ness.  The trial court found Ness and Mr. Bouzaglou liable for fraud, awarding $1.3 million against Ness and $803,280 against Mr. Bouzaglou in favor of the trust, and $17,000 against Mr. Bouzaglou in favor of Ms. McGinty.  For punitive damages, the jury awarded the trust $13.3 million against Ness and $8 million against Mr. Bouzaglou.  In a separate bench trial, the court rescinded and cancelled the property transfer.  Ness and Mr. Bouzaglou appealed. 

The Court of Appeal of the State of California, Second Appellate District, Division Two, affirms the judgment of fraud against Ness and dismisses Mr. Bouzaglou’s appeal for lack of standing.  The court finds that the construction contract and Mr. Bouzaglou’s representations were highly probative of fraudulent conduct and properly admitted at trial.  The court also finds there was substantial evidence to support the lower court’s application of the alter ego doctrine and its finding that Mr. Bouzaglou perpetrated the fraud through Ness.  Finally, the court finds that Ness’s and Mr. Bouzaglou’s conduct were so highly culpable that the punitive damages award meets the reasonableness standard set by the U.S. and California supreme courts.

For a full text of the opinion, click here.