Another catastrophic failure in Hawai'i's funeral and mortuary industry was the subject of an $8 million court judgment yesterday.

More than 100 customers of the now-defunct Diego Memorial Mortuary on the Big Island were awarded $8 million in punitive damages by O'ahu Circuit Court Judge Sabrina McKenna. The company also did business under the names Memorial Mortuary and Memorial Mortuary Funeral Plans Inc.

The debt is owed by the former owners of the company, Robert R. Diego and his wife Momi and daughter Bobbi Jean Diego. How much, if any, of that money will ever be recovered is unknown, plaintiffs' attorney Michael Green acknowledged after the court ruling.

The Diegos were convicted in 2004 of theft charges in a criminal case on the Big Island related to the disappearance of $531,000 from trust funds held for the benefit of customers of the company. Each is repaying $50,000 in restitution ordered in the criminal case at the rate of $100 and $200 per month.

The Diegos did not defend themselves in the civil suit.

Green also said he is seeking some $1 million in special damages which may have to be paid by the state because of lax oversight of the funeral and mortuary businesses by state regulators in the 1980s and 1990s.

Deputy Attorney General Randolph Slaton, who represented the state in the civil case, declined comment yesterday, referring questions to Assistant Attorney General Lisa Ginoza. Candace Ito, executive officer of the state's Cemetery and Pre-Need Funeral Authority, also referred question to Ginoza.

Ginoza did not respond to a request for comment.

Officials in the state Department of Commerce and Consumer Affairs learned in 1986 and 1987 that trust fund money was missing but did not notify the Department of the Attorney General about the problem, according to Green and to evidence introduced in the criminal case in 2004.

Instead, regulators entered into a consent decree with the Diegos that allowed them to continue doing business, Deputy Attorney General Rick Damerville said during the criminal trial.

Attorney Brian De Lima, who represented Robert Diego in the criminal trial, said yesterday he could not comment on the civil case.

During the criminal trial, De Lima said the Diegos should have declared bankruptcy in the early 1990s, but instead tried to meet their financial obligations by taking trust fund money from new customers to pay for funeral goods and services owed to old clients.

"What they did was try to save face without admitting their inability to make this business run," De Lima said at the criminal trial.

Green said yesterday that two of the Diegos' children are still in the mortuary/funeral business on the Big Island and that they might be liable for some of the punitive damages.

But state records show that the company the two Diego children were operating, West Hawaii Mortuary, was involuntarily dissolved by the state last year and is no longer in operation.

Although not legally affiliated with Diego Mortuary, West Hawaii Mortuary had promised to honor pre-need funeral contracts written by Diego Mortuary.

Green said McKenna must still rule on whether the state is liable for $1 million in special damages he claims should be paid to his clients.

Green said Diego Mortuary charged customers for caskets but instead buried corpses in "body bags."

One of his clients, suspicious of the company's claims, disinterred the body of a loved one for reburial at another cemetery and found "a bag of bones," Green said.

Judge McKenna is also overseeing litigation related to the financial collapse of the RightStar companies, Hawai'i's largest group of mortuary and funeral services firms.

A court-appointed receiver has been running the RightStar businesses since 2004, when it defaulted on millions of dollars of loans. The attorney general's office has alleged in civil lawsuits that former executives and consultants of RightStar conspired to illegally drain $30 million from customers' trust funds. Only one man, former RightStar chief executive John Dooley, has been charged with a crime, for allegedly stealing some $50,000 in trust funds.

Dooley has pleaded not guilty in that case and other former company executives and consultants, including former Hawai'i Gov. John Waihee, have denied the state's accusations of wrongdoing.