Zaxis Wireless Communications, Inc. v. Motor Sound Corp.

A jury found that Motor Sound Corporation (Motor Sound) committed fraud in inducing Zaxis Wireless Communications, Inc. (Zaxis) to remain as its subagent in selling wireless services. Zaxis was awarded $190,000 in compensatory damages. In a bifurcated proceeding the jury awarded Zaxis $300,000 in punitive damages.

Motor Sound does not contest the finding of fraud, the magnitude of harm to the plaintiff or the amount of compensatory damages. Its sole claim is the punitive damages award was excessive as a matter of law because it lacked the ability to pay by reason of a negative net worth of $6.3 million. The net worth was calculated, inter alia, by deducting a $6 million note to the sole owner of the corporation and $4.9 million of accumulated depreciation.

Motor Sound operates a substantial business. It had average annual revenues for 1997, 1998 and 1999 in excess of a quarter billion dollars but suffered a net loss, after allowing for depreciation and amortization, of $2.5 million in 1998 and $800,000 in 1999. During this period it had a $50 million line of credit with Wells Fargo Bank.

*580 We conclude that Motor Sound had the ability to pay the $300,000 punitive…