In a landmark decision, the Kentucky Supreme Court has affirmed a trial court’s award of approximately $80,000,000 in punitive damages to the plaintiffs in a case against Grant Thornton LLP.
The plaintiffs, William J. Yung, Martha A. Yung, and the 1994 William J. Yung Family Trust, participated in a tax shelter marketed by Grant Thornton, that would purportedly allow funds held in the Yungs’ Cayman Island-based companies to be distributed to shareholders in the U.S. without federal tax liability. After the IRS disallowed the tax shelter, the Yungs settled with the IRS and sued Grant Thornton in Kenton Circuit Court.
William Yung
After a bench trial, Judge Patricia Summe found Grant Thornton liable for fraud and gross professional negligence in the marketing and sale of the tax shelter. The Yungs obtained a judgment for approximately $20 million in compensatory damages, the combined total paid to the IRS in back taxes, interest and penalties and paid to GT for fees.
In addition, the trial court awarded approximately $80 million in punitive damages. Grant Thornton appealed, asserting that a punitive damage award that large – approximately four times the amount of the compensatory damages – was unconstitutional.
In Thursdays’s decision, the Kentucky Supreme Court rejected those arguments: “Because the amount of an award is a reflection of the fact-finder’s measure of a defendant’s reprehensible conduct, the ratios must be assessed on a case-by-case basis. Considering GT’s highly reprehensible conduct, we do not find that, in the context of this case, the 4:1 ratio reflects an overly severe punishment.”
Kevin Murphy
Kevin Murphy, lead trial counsel for plaintiff William Yung, said, “Despite a whole array of arguments asserted by the defendant and by several organizations filing amicus curiae briefs, the Kentucky Supreme Court ultimately found that Judge Summe got it right in every respect. I am thrilled for the Yungs and to see that justice was served.”
The Kentucky Supreme Court upheld the trial court’s decision that Grant Thornton’s conduct “was egregious and highly reprehensible” and that “a substantial punitive damage award is warranted.”
In the words of the opinion authored by Justice Hughes, Kentucky’s highest court did “not view the $80 million punitive damage award to be disproportionate to the harm suffered by the Yungs” and upheld the trial court’s 4:1 punitive/compensatory damage award.
“Fraud cases turn on their facts, and each case is different,” Murphy said. “But it is very gratifying to know that, going forward, the Kentucky Supreme Court is keeping the door open to large punitive damage awards when the facts warrant them.”
A copy of the Kentucky Supreme Court decision is available here.
