Utah's split-recovery law declared unconstitutional

A 3rd District judge Friday declared a Utah law unconstitutional in a decision that could have sweeping ramifications for Utahns who win financial awards in civil lawsuits.

Judge Frank Noel's potentially precedent-setting decision ruled that Utah's government cannot take half of the punitive damage judgment awarded in a civil lawsuit.

An assistant state attorney general said there was no decision Friday as to whether Noel's ruling would be appealed.

"My clients are both elated and relieved," said attorney Robert S. Campbell. "It's a great day for them, and it's a great day for the little person."

Campbell represents Armand and Virginia Smith of New Mexico, who sued Fairfax Realty Co. (formerly Price Development Co.) and its primary owner, John Price of Utah, for cheating them of more than $1 million in a deal involving a shopping center.

John Price is the U.S. ambassador to Mauritius, the Seychelles and the Comoros Republic Islands, and was a substantial contributor to President Bush's 2000 election campaign.

A jury sided with the Smiths in April 2001, and the defendants were ordered to pay the Smiths $5.5 million in punitive damages and $1.1 million in compensatory damages.

John Price and Fairfax Realty appealed to the Utah Supreme Court, which upheld the jury's decision. They then appealed to the U.S. Supreme Court, which refused to hear the case.

That would have meant victory for the Smiths — but then things shifted to another front.

Campbell said a Utah law requires that half of the net punitive damages in a case like this be paid to the state treasurer, along with half of any interest earned on the money while it sat in an interest-bearing account pending appeals.

The judgment in this particular lawsuit, which began in 1994, had earned about $1.2 million in interest during the lengthy appeals.

Campbell said that meant the Smiths would have had to hand over about $560,000 in interest to Utah, along with $2.74 million as half of the net judgment.

Campbell argued the law was unconstitutional because it violates the Fifth Amendment to the U.S. Constitution as well as a similar portion of the Utah Constitution, which says the government cannot take private property without paying compensation.

"The court (via Judge Noel's Friday ruling) recognized that the statute was a taking of my clients' property rights in the judgment," Campbell said.

Campbell said his clients have been through a stressful 10 years of court battles.

To top it off, he said, they were worried because the Internal Revenue Service taxes judgments on the entire amount that is awarded, with no consideration for what the state would have exacted.