The Utah Supreme Court struck down a 1989 state law allowing Utah to take half of all punitive damage awards. The statute - which the Legislature amended in 2004 - sought to unconstitutionally deprive Utah residents of their property, the justices ruled.

The high court's decision, made as part of a lawsuit filed against the development company of Utah mall magnate and former U.S. ambassador John Price, marks one of the few times such a statute has been struck down in the nation.

"This is a major landmark decision in the country," said attorney Robert Campbell, who represented Armand and Virginia Smith against the company Price owned, Price Development, in the appeal.

For the state treasurer, it means a loss of millions in anticipated collections.

The state sought about $3.3 million in the Price case, and also tried to collect half of another well-known judgment. Inez Campbell and her late husband, Curtis, were awarded $9 million in punitive damages after exposing a State Farm Mutual Automobile Insurance Co. scheme to pay policyholders less than their claims were worth.

The state interprets the ruling to invalidate any attempt to collect money on punitive damages awarded before May 2004, when lawmakers redrafted the provision.

The 12-page ruling, according to Assistant Attorney General Kevin Olsen, means "the state would have a problem making a claim" for the money in either the Price Development, State Farm cases and about 38 other cases.

But the state will still attempt to collect half of any punitive damages awarded in cases decided since May 2004.

Olsen said lawmakers corrected the "failings" in the 1989 law.

Deputy Treasurer Robert Kirk called Friday's ruling "a sad thing for the state."

"My perspective is you would certainly think that in a punitive damages settlement that the public should have some benefit," he said.

Punitive damages are a financial penalty larger than the actual loss used to deter future wrongdoing.

Utah has only collected about $95,000 in punitive damage claims since the original 1989 law. The paltry amount is because of legal challenges and default judgments where the person or company doesn't have the financial resources to pay.

The $95,000 comes from two cases, one where the state settled out of court and another where the party voluntarily turned over half the damage award.

The state has collected no money since the 2004 version of the law was enacted.

The small number of cases resulting in punitive damages shows that the original law worked, according to Olsen. He said legislators created the provision as a way to encourage litigants to settle their cases.

Utah is one of eight states that take some portion of punitive awards, claiming the public should also benefit from the payments of wrongdoers.

Utah, Alaska and Missouri law reserves half of punitive awards for government. Oregon takes 60 percent, while Georgia, Indiana and Iowa take 75 percent. Illinois leaves the amount up to judges. But unlike some of these states, Utah deposits the money it collects into its general fund rather than earmarking it for a special account such as Indiana's fund for victims of violent crime.

Utah's 2004 amendment made the law less vulnerable to attack by patterning it after a Georgia statute that has withstood legal challenges.

But for Armand and Virginia Smith, their decade-long legal battle is over.

"This is an extraordinary day for my clients . . . who for 12 years have put virtually everything on the line - their lives, their fortunes," Campbell said. "The Supreme Court opinion is strong and decisive."

A jury ordered Price's company to pay $5.5 million in punitive damages for cheating the Smiths, who were partners with Price in a shopping mall deal. The award was on top of $1.1 million in compensatory damages.

With interest and legal fees added in, the total amount of the judgment was around $9 million.

Price attorney Jim Jardine declined comment Friday on the Supreme Court ruling, saying the decision had no impact on his client and the payments already made.

John Price, who was 99.9 percent owner of the development company, has declined comment on the case since his March 29, 2001, appearance on the witness stand during trial. At that time he said 54 times during a little less than two hours of testimony that he did not know or could not recall information relevant to the case.

Price recently returned to Salt Lake City from a 3-year stint as U.S. ambassador to the African nation of Mauritius, the Seychelles and the Comoros Republic.

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Tribune reporter Elizabeth Neff contributed to this article.