Kamlar Corp. v. Haley

COMPTON, J.,

dissenting in part.

I would affirm the judgment for punitive damages.

Despite protestations to the contrary, the majority has not adhered to the rule of Wright v. Everett, 197 Va. 608 , 90 S.E.2d 855 (1956). Rather, my brethren have altered the principle established in that case and, in the process, have stepped back from a sound, salutary precept relied on for over 25 years.

Until today the law of Virginia provided that, while punitive damages are not recoverable in breach of contract actions, the “ ‘rule does not obtain, however, in those exceptional cases where the breach amounts to an independent, wilful tort, in which event exemplary damages may be recovered under proper allegations of malice, wantonness, or oppression — as, for example, in actions for breach of marriage contracts.’ ” 197 Va. at 615 , 90 S.E.2d at 860 (emphasis added). As Haley points out, this rule does not mean that the breach must actually be a tort; instead, it means the breach must “amount” to or be analogous to a tort.

The principles articulated by the late Chief Justice Hudgins in Wright v. Everett were not new to the law of this Commonwealth. For example, in Anchor Co. v. Adams, 139 Va. 388 , 124 S.E. 438 (1924), cited in Wright , the plaintiff lessees sued their lessor for damages arising from breach of a restaurant lease contract. The *709 contract was “in writing, [its] meaning [was] clear, and the legal rights of the parties arising thereunder indisputable.” 139 Va. at 390 , 124 S.E. at 438 . Notwithstanding the contract, the lessor commenced to make extensive improvements to the premises, erecting scaffolding in front of the property, thereby making access to the restaurant difficult, unpleasant, and dangerous. As a result, the plaintiffs were unable to continue their business. This Court held that the issue of punitive damages was properly submitted to the jury. Even though, as the majority points out, the plaintiffs’ claim was based on the lessor’s tortious conduct, the Court nevertheless stated:

“That the wilful and unauthorized destruction of one’s business is ground for the imposition of punitive damages on the wrongdoer has been settled in this State ever since the decision of Peshine v. Shepperson [ 58 Va. (17 Gratt.) 472 (1867)]. The undisputed facts in this case justify the imposition of such damages. The defendant, in disregard of its contract, made it impossible for its tenants to continue their business. So far as this record discloses, its action was without justification or excuse. No palliation of its conduct is suggested. Those responsible therefor were apparently either ignorant of the plaintiffs’ rights or else contemptuous of them. If contemptuous, they apparently took a chance, relying upon their ability to convince a jury that the business was of small value. When such a chance is taken, the loser must expect the sanctity of contracts to be vindicated and all doubts to be resolved in favor of the plaintiff who suffers such a wrong.” 139 Va. at 392-93 , 124 S.E. at 439 (emphasis added).

Wright v. Everett has been interpreted by the federal courts applying Virginia law in just the fashion that I advocate. For example, in Material Handling Industries, Inc. v. Eaton Corp., 391 F. Supp. 977 (E.D. Va. 1975), plaintiff sued defendant for breach of a franchise agreement in which plaintiff became an “authorized retail dealer” of equipment manufactured by defendant. Plaintiff alleged defendant maliciously and in bad faith terminated the agreement without complying with the notice provisions of the contract. Denying the defendant’s motion to dismiss the punitive damage claim, the court said:

*710 “It is indeed the general rule that punitive damages will not be awarded in an action for breach of contract. Virginia, however, approves the award of punitive damages in a contract action when the breach is occasioned by conduct of an aggravated manner or accompanied by malice, bad faith, or reckless disregard for the rights of others. See Wright v. Everett, 197 Va. 608, 615 , 90 S.E.2d 855, 860 (1956). Since plaintiff has alleged that defendant maliciously and in bad faith terminated the franchise agreement to further anti-competitive and unlawful objectives, the Court concludes that plaintiff has alleged the requisite aggravated conduct which, if proved, would entitle plaintiff to punitive damages and will, consequently, deny defendant’s motion to strike.” 391 F. Supp. at 981-82 .

In United States v. Snepp, 595 F.2d 926 (4th Cir. 1979), aff'd in part, rev’d in part on other grounds, 444 U.S. 507 (1980), a contract action by the United States against a former CIA agent for breach of a secrecy agreement, the court stated that punitive damages could be recovered “where the acts constituting the breach also constitute the commission of a tort or are closely analogous thereto.” 595 F.2d at 936 (emphasis added). Additionally, in Matney v. First Protection Life Ins. Co., 73 F.R.D. 696 (W.D. Va. 1977), a suit on an insurance policy for failure to pay a claim, Wright v. Everett was construed by the court to “clearly reflect concurrence [of the Supreme Court of Virginia] with the general rule that punitive damages would be available where the breach of contract amounted to an independent willful tort, due to malicious, wanton or oppressive behavior by the breaching party.” 73 F.R.D. at 697 (emphasis supplied).

Also, in National Homes Corp. v. Lester Industries, Inc., 336 F. Supp. 644 (W.D. Va. 1972), in determining whether recovery of punitive damages for breach of contract was dischargeable by defendant’s bankruptcy, Judge Widener said (before quoting the portion of Wright on which I rely), “[a]n examination of Virginia law makes it clear that a judgment such as the one here in question is permitted although the suit may sound principally in contract.” 336 F. Supp. at 647 . See generally, 5 A. Corbin, Contracts § 1077 at 438-40 (1964).

Yet, confronted with the explicit language of Wright v. Everett , and the interpretation placed on that language by other courts, *711 the majority now says that the rule of that case “require[s] proof of an independent, wilful tort, beyond the mere breach of a duty imposed by contract, as a predicate for an award of punitive damages, regardless of the motives underlying the breach.” As I understand that holding, proof of conduct which merely “amounts to” a wilful tort without actually supporting an independent cause of action in tort will no longer suffice for recovery of punitive damages in a suit for breach of contract.

We are even advised by the majority that henceforth such a claim in tort should be pled in a count separate from that which alleges a breach of contract. This is a further indication, I submit, that no longer in Virginia will punitive damages be allowed in a pure contract action in which the proof shows conduct that evinces malice, wantonness, or oppression.

I lament the demise of the prior rule because it served the beneficial purpose of civilly punishing the wrongdoer in those exceptional cases based on a breach of contract where, as here, the conduct of the breaching party was egregious. As the trial judge noted, there was “abundant” evidence to support a conclusion that Kamlar’s breach of contract was committed maliciously, and in wilful, reckless disregard of Haley’s rights. Kamlar’s principals were displeased with Haley’s job performance. They accepted without question an employee’s affidavit charging Haley with larceny of corporate property; they refused a request to review documents governing the sale of the business which bore on the alleged theft; they denied Haley an opportunity to explain; and they attempted to coerce Haley to sign a confession — Oettinger said to Haley: “ ‘If you sign this affidavit, nobody will know about this. . . . This thing could ruin your reputation here in the community. ... If you sign this, nobody will know but you and I and the members of the corporation.’ ” From the facts, the jury properly could conclude that Kamlar knew that by terminating Haley on a pretext they were depriving him of his livelihood and probably damaging his reputation; that Kamlar’s officers knew the pump was not on the list of items sold and, thus, belonged to Haley; that Kamlar did not investigate because the officers wanted to discharge him in violation of his employment contract because he was not generating sufficient business profits for the corporation; and that they attempted to blackmail Haley into resigning.

In sum, and viewing the evidence in the light most favorable to Haley, I think that Kamlar’s conduct, while not fitting into a well- *712 defined tort category, was malicious, wanton, and oppressive. Thus, it “amounts to” a tort and should be deterred by an award of punitive damages.

STEPHENSON, J., joins in dissent.