Petition for Writ of Certiorari — Chicago Title Insurance Corp. v. Magnuson (No. 07-649)
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No. 07-___ 07-649 NOV 1 4 2007
IN THE OFFICE OF THE OLERK
Supreme Court of the United States
CHICAGO TITLE INSURANCE CORP.,
Petitioner,
Vy.
FIRST AMERICAN TITLE INSURANCE Co.
AND JAMES A. MAGNUSON,
Respondents.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SiXTH CIRCUIT
PETITION FOR WRIT OF CERTIORARI
STEVEN A. GOLDFARB LAURENCE H. TRIBE
HAHN LOESER & PARKS, LLP Counsel of Record
200 Public Square, Suite 3300 Hauser Hall 420
Cleveland, Ohio 44114 1575 Massachusetts Avenue
(216) 621-0150 Cambridge, MA 02138
(617) 495-4621
JONATHAN S. MASSEY
JONATHAN S. MASSEY, PC
7504 Oldchester Road
Bethesda, MD 20817
(301) 915-0990
November 2007
SANNA eS IE iG SIREN AO AMELIE BEN EDIE ASCOT A OSE, SAME IR FOES ALITA A: APIA BEE
BATEMAN & SLADE, [NC BOSTON, MASSACHUSETTS
QUESTIONS PRESENTED
This punitive damages case presents three
questions relating to the due process “guideposts” of
BMW of North America, Inc. v. Gore, 517 U.S. 559
(1995), and State Farm Mutual Automobile Insurance
Company v. Campbell, 538 U.S. 408 (2003).
1. Whether the due process guideposts govern
only the size of punitive damages awards, or whether
— despite this Court’s overruling of Lochner v. New
York, 198 U.S. 45 (1905) — the guideposts also
license federal judicial interference with a State’s
considered judgment that certain types of misconduct
are so egregious as to warrant punitive liability in the
first instance.
2. Whether the “reprehensibility” guidepost of
Gore and State Farm can support an assessment of
punitive damages when the defendant’s tortious
conduct was malicious, or whether that guidepost
requires a showing of an additional aggravating
factor, such as the financial vulnerability of the
plaintiff or the risk of physical harm.
3. Whether a defendant qualifies as a “repeated
wrongdoer” (for purposes of the “reprehensibility”
guidepost of Gore and State Farm) if it commits
multiple reprehensible acts within a_ single
transaction with the plaintiff, or whether the
“repeated wrongdoer” test requires that additional
acts be committed against parties other than the
plaintiff.
PARTIES TO THE PROCEEDINGS BELOW
The parties to the proceeding are listed in the
caption.
ili
RULE 29.6 STATEMENT
Petitioner Chicago Title Insurance Corporation
(actual name: Chicago Title Insurance Company)
states that it is a wholly owned subsidiary of Chicago
Title & Trust Company, which is a wholly owned
subsidiary of Fidelity National Financial, Inc., a
publicly held company.
1V
TABLE OF CONTENTS
QUESTIONS PRESENTED coccccccccccsccsscsesdcccssscoccseees i
PARTIES TO THE PROCEEDINGS BELOW ........ ii
AFAde BEAD PRP RMRIIMIT AE sessececveesccoverseesscereeceeresennes ill
TABLE OF AUTHORITIES. ........0.ccccscccscccccssssesssees vil
PETITION FOR A WRIT OF CERTIORARI .......... 1
I PON ites secsicksnnsdensnnisinectevsntileverstoomens 1
PR TIINEET,. ssttictstemictinanssaitsedensuiniinasivinceennttcieceve 1
RELEVANT CONSTITUTIONAL AND
STATUTORY PROV ISIOING oseccecescseessesesescosscess 1
STATEMENT OF THE CASE uu... ceceeeeeeeees 1
1. ei ld sabalibaenieal 4
2. The Court of Appeals’ Decision. ......... 6
REASONS FOR GRANTING THE WRIT ............... 7
I. THE SIXTH CIRCUIT'S
JUDGMENT CONFLICTS WITH
DECISIONS LIMITING THE
GORE FACTORS TO AN
ASSESSMENT OF THE SIZE,
NOT THE FACT, OF A
PUNITIVE ASSESSMENT. ............... 9
Vv
A. The Sixth Circuit’s
Judgment Conflicts With
Decisions Of This Court
Regarding The Nature Of
The Gore Guideposts. ............... 9
B. The Sixth Circuit’s Decision
Represents A Return To
Es vcinthcitivinnsinwistec 11
C. The Court’s Grant of
Certiorari In Exxon
Shipping Heightens The
Need For Review Here. .......... 15
THE SIXTH CIRCUITS
JUDGMENT CONFLICTS WITH
DECISIONS FINDING THAT
MALICIOUS CONDUCT ALONE
ESTABLISHES SUFFICIENT
REPREHENSIBILITY TO
UPHOLD PUNITIVE DAMAGES
PSE MITE LEDs scccéosacssencisrssveceresenece 17
A. The Sixth Circuit’s
Judgment Conflicts With
Decisions of This Court. ......... 17
B. The Sixth Circuit’s
Judgment Conflicts With
Decisions Of Other Courts. .... 21
C. The Sixth Circuit’s Decision
Involves An Important
Question of Law. .................... 30
vl
III. REVIEW IS NEEDED TO
CLARIFY WHETHER A
DEFENDANT QUALIFIES AS A
“REPEATED WRONGDOER’” BY
COMMITTING MULTIPLE
REPREHENSIBLE ACTS
WITHIN THE SINGLE
TRANSACTION WITH THE
CET s. shastcdersennivienteersianeneiiniin 32
GME setisdcerncnessinvetninienreciebioncientounntetentetes 36
APPENDIX:
Appendix A: Opinion of the U.S. Court of
Appeals for the Sixth Circuit dated
Siilee SUEY siteskcesicticcaniaisiesniciiearectianuaanion la
Appendix B: Opinion of the U.S. District
Court for the Southern District of Ohio
dated September 26, 2005 ........... ee 30a
Appendix C: Order of the U.S. Court of
Appeals for the Sixth Circuit dated
PE 5 FIT kntaiitisiceanannn 114a
Vii
TABLE OF AUTHORITIES
FEDERAL CASES:
BMW of North America, Inc. v. Gore,
ee Eee ee iswindcinsetistiacisasscesnniiibienia passim
CGB Occupational Therapy, Inc. v. RHA Health
Servs., 499 F.3d 184 (CA3 2007)..................008 33
Cooper Indus. Inc. v. Leatherman Tool Group, Inc.,
Pe RFs Me GIR Pep iedicintohssipuncimnincerionernasns 12, 23
Diesel Mach., Inc. v. B.R. Lee Indus., Inc.,
EUS FBG G20 (CAB BD) encecccvccccccccsevcescccesescepsee 24
Eden Elec., Ltd. v. Amana Co.,
370 F.3d 824 (CA8 2004), cert. denied,
ee Fe I anitsndnnesicescsiinesvnsicaniparncctode 24
In re Exxon Valdez,
296 F. Supp. 2d 1071 (D. Alaska 2004),
vacated and remanded, 472 F.3d 600
(CAY9 2006), as amended, 490 F.3d 1066,
COTE. BPGNIO CO. GT-BID) ..cccccececieincsseseceseseevnness 27
In re John Richards Homes Bldg. Co.,
291 B.R. 727 (E.D. Mich. 2003)......................08 27
Kemezy v. Peters,
Oe a EE BD iaticndcdebectertncecccateccerseninnts 31
Kolstad v. American Dental! Ass’n,
yh ik & 1 SRR errr AnEe ae 2k, 31
Vill
Lee v. Edwards,
BOE F re CARS SOUP ese pccvenisssvssssnnsvbnctseicieets 33
Lochner v. New York,
Se Oi Be Ci iaseededitctiennsescisten i, 2, 4, 8, 11,13
Mathias v. Accor Econ. Lodging, Inc.,
SET Fe OTE GAT BO scstti pisercessemisericrrcsaens 23
Motorola Credit Corp. v. Uzan,
SO FBG TO (GAZ DIO]) srciescocrvesvsissavossoteoesesnaveny 22
Pacific Mut. Life Ins. Co. v. Haslip,
Ge Tie. Fe ei tititianeeccedniasce 13
Philip Morris USA v. Williams,
127 S. Ct. 1057 (2007)..............+. 11, 12, 13, 35, 36
Planned Parenthood of Columbia/Willamette Inc. v.
Am. Coalition of Life Activists,
422 F.3d GES (CAD DIGG) ccccicccosorcscssccevccvesss 24, 33
Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp.,
345 F.3d 1366 (Fed. Cir. 20038)...............00+ 21-22
Safeco Ins. Co. of America v. Burr,
TF Ee, Sk CE I ivikorictaccisendiccanactiecmicten 32
Smith v. Wade,
GE TFB, FO LT cascentasscsinccansccetinsintiases 14, 20-21
Southern Union Co. v. Southwest Gas Corp.,
415 F.3d 1001 (CA 9 2006) ....ccnvecccocrrcorssesscosseees 33
—————————
ix
State Farm Mutual Automobile Insurance
Company v. Campbell,
ee Fi OP CI ccvnccencoeceseveseeseseveveecesecere passim
TXO Prod. Corp. v. Alliance Res. Corp.,
509 U.S. 443 (19938)...........sccsseee 12, 13, 19, 30, 34
Williams v. Kaufman County,
Be BE GOS (CAD BOGS) coccsscessvesssevevsseesssceesesere 10
Willow Inn, Inc. v. Pub. Serv. Mut. Ins. Co.,
Be Be CUR BOG) cccenessocoveevaseseesseccceseesess 23
Zaza Designs v. L'Oréal, S.A.,
BTS B.A GB0 (CAT GOD) ....0sccceresessrecesssssessenseese 31
STATE CASES:
Borne v. Haverhill Golf & Country Club, Inc.,
791 N.E.2d 903 (Mass. App. 2003)..............00 27
Bright v. Addison,
171 S.W.3d 588 (Tex. Ct. App. 2005,
odie a Nivrecaeswerbeveseveserevesereees 27
Casciola v. F.S. Air Serv., Inc.,
120 F.3d 1059 (Alaska 2005) .................ceccccsceees 25
Century Surety Co. v. Polisso,
43 Cal. Rptr. 3d 468 (Cal. Ct. App. 2006)......... 34
Employees’ Benefit Ass’n v. Grissett,
py 25
x
Hayes Sight & Sound, Inc. v. ONEOK, Inc.,
Be Ee Ge CI, Bi sictnrvivcvasecsccviiictcsvenines 34
Mission Res., Inc. v. Garza Energy Trust,
166 S.W.3d 301 (Tex. Ct. App. 2005,
fe RRR Ce NCTA Te UN ND ELDER RT 26
Simon v. San Paolo U.S. Holding Co.,
113 P.3d 63 (Cal. 2005), cert. denied,
Rr ee ee eb iedaticiteidacaicttinininenapanteniindininis 25
Superior Fed. Bank. v. Jones & Mackey Constr.
Co., 219 S.W.3d 643 (Ark. Ct. App. 2005)......... 33
FEDERAL STATUTES:
aks Oe IEE winccsinicanunitensiniciccpeinceniapienial 32
Be eae ae INI wisinsiviiceiserveinnianinenndecenniewteamiaiiainin 32
ee Oe Re ici crriticnstteniessavoackseessenbenicdaniermuldelin 1
Fe ee SEE) cite ttieasincintiincmnvennentianion 31
Be Se ID iaitis terssteesirncinididesacndnaina 32
STATE STATUTES:
Ohio Rev. Code. Ann. § 2315.21(C)(1) woe eee eeeeeees 9
xl
OTHER AUTHORITIES:
A. Mitchell Polinsky & Steven Shavell,
Punitive Damages: An Economic Analysis,
111 Harv. L. Rev. 869 (1998)................ccssssscseses 31
Andrew C.W. Lund, The Road From Nowhere?
Punitive Damage Ratios After BMW v.
Gore and State Farm v. Campbell, 20
POUTO Le. Bev. OES (ZIG)... crccccerecerescescesedessoss 28-29
Erwin Chemerinsky, More Questions About
Punitive Damages, 43 Trial 72 (May 2007)...... 35
George L. Priest, Punitive Damages Reform:
The Case of Alabama, 56 Ala. L. Rev. 825
I eciccaci andsababacehlit tectonics Pade disagstogsebnckasiseds 29
Jeff Bleich, et al., Philip Morris Provides Yet
Another Chapter in the Ongoing Saga of
Punitive Damages in the U.S. Supreme
Court, 67 Or. St. B. Bull. 24 (2007)... 35
Jeffrey R. White, State Farm and Punitive
Damages: Call the Jury Back, 5 J. High
Be Be Be hic sikddcscakcemcicticuetenavbicoxtonien 29
Jenny Jiang, Comment, Whimsical
Punishment: The Vice of Federal
Intervention, Constitutionalization, and
Substantive Due Process in Punitive
Damages Law, 94 Cal. L. Rev. 793 (2006)........ 28
Xli
John Zenneth Lagrow, BMW of North America,
Inc. v. Gore: Due Process Protection
Against Excessive Punitive Damages
Awards, 32 New Eng. L. Rev. 157 (1997).......... 28
Mark K. Moller, Introduction, 2007 Cato Sup.
I Weise nthntacbacisiniinscindvescbaeiucudllbsancians axeiaees 35
Michael I. Krauss, Punitive Damages And The
Supreme Court: A Tragedy In Five Acts,
2007 Cato Sup. Ct. Rev. 316.......0ccccccsssseessevsssees 35
Neil B. Stekloff, Note and Comment, Raising
Five Eyebrows: Substantive Due Process
Review of Punitive Damages Awards After
BMW v. Gore, 29 Conn. L. Rev. 1797 (1997) .... 29
Nitin Sud, Punitive Damages: Achieving
Fairness and Consistency After State Farm
v. Campbell, 72 Def. Couns. J. 67 (2005).......... 29
Robert L. McFarland, BMW v. Gore: Ten Years
Later, 68 Ala. Law. 126 (Mar. 2007)
Stephanie L. Nagel, BMW v. Gore: The United
States Supreme Court Overturns an Award
of Punitive Damages as Violative of the
Due Process Clause of the Constitution, 71
Sk Oy ER sisi dds tice cdetsasasersenccensszess 29
Steven Chanenson & John Yotanda, The Foggy
Road for Evaluating Punitive Damages:
Lifting the Haze From the BMW/State
Farm Guideposts, 37 U. Mich. J.L. Reform
I a iii cancoiices neice Agsacubamsedaceasaicoiens tee: 28
1
PETITION FOR A WRIT OF CERTIORARI
Petitioner Chicago Title Insurance Corporation
(“Chicago Title”) respectfully petitions for a writ of
certiorari to review the judgment of the United States
Court of Appeals for the Sixth Circuit in this case.
OPINIONS BELOW
The Sixth Circuit’s opinion (Pet. App. la-29a) is
published at 487 F.3d 985 (CA6 2007). The opinion of
the district court (Pet. App. 30a-113a) is not
published but may be found at 2005 U.S. Dist. LEXIS
43884.
JURISDICTION
The Court of Appeals deni~* a timely petition for
rehearing and rehearing en banc on September 7,
2007. Pet. App. 114a-115a. This Court has
jurisdiction pursuant to 28 U.S.C. § 1254(1).
RELEVANT CONSTITUTIONAL AND
STATUTORY PROVISIONS
The Fifth Amendment provides in relevant part:
“No person shall be . . . deprived of life, liberty, or
property, without due process of law.” The
Fourteenth Amendment provides in relevant part:
“(Nlor shall any State deprive any person of life,
liberty, or property, without due process of law.”
STATEMENT OF THE CASE
In BMW of North America, Inc. v. Gore, 517 U.S.
559 (1995), and State Farm Mutual Automobile
Insurance Company v. Campbell, 538 U.S. 408 (2003),
this Court articulated three “guideposts” for judicial
review of the size of punitive damages awards: the
2
reprehensible nature of the defendant’s conduct, the
ratio between punitive damages and the compensable
harm, and a consideration of similar civil and
criminal penalties. This case presents the
fundamental question whether the guideposts
authorize the federal courts not merely to ensure that
the size of an award comports with due process, but
also to prevent a State from enforcing its own statute
imposing punitive liability un certain categories of
misconduct in the first place. In addition, this case
presents two further questions regarding the
meaning of the first (and most important) Gore
guidepost, reprehensibility.
The Sixth Circuit acknowledged that there was
ample evidence that the defendant in this case acted
intentionally and “with malice” (Pet. App. 28a) to
inflict substantial economic injury on the plaintiff.
Yet the Sixth Circuit held that the Gore factors
precluded the imposition of any punitive damages in
cases such as this, where “there were no physical
injuries or threat to personal safety” and where the
plaintiff “was not a financially vulnerable victim.” Id.
The Sixth Circuit’s decision inexplicably converts
the multi-factor Gore analysis, which courts have
heretofore properly confined to a review of the
potential excessiveness of a particular punitive award
on the record and instructions in a specific case, into
a new substantive due process standard for deciding
which sorts of conduct categorically may be made
subject to any punitive damages at all. The Sixth
Circuit’s invocation of due process to prevent Ohio
from punishing the business tort in this case does not
invoke Lochner explicitly but is thinly veiled
Lochnerism nonetheless. It amounts to federal
3
judicial interference with the considered judgment of
the State of Ohio that the kind of misconduct at issue
here is so egregious that it warrants at least some
level of deterrence and punishment through the
mechanism of punitive damages.
Having radically transformed this Court’s test for
reviewing the size of particular damages awards into
a basis for trumping the substantive law of Ohio, the
Sixth Circuit compounded its misuse of the
reprehensibility guidepost by construing it to bar a
State from identifying cases involving malicious and
intentional torts as eligible for punitive damages
unless the defendant has caused “physical injuries or
ja] threat to personal safety,” or the plaintiff is “a
financially vulnerable victim.” Pet. App. 28a. Thus,
the effect of the decision below is to render business
tort cases and cases arising in many statutory
contexts ineligible for punitive damages liability in
the Sixth Circuit, as a matter of federal constitutional
law — even when long-settled state law would entitle
a plaintiff to recover them. Such a restriction on the
authority of States — and, presumably, Congress as
well — to select cases of intentional and malicious
wrongdoing for prevention and punishment through
punitive damages liability is unprecedented and
unprincipled.
Finally, as addressed in the third question
presented, the Sixth Circuit’s decision deepens a
circuit split under the first Gore guidepost on the
issue of whether a defendant may qualify as a
“repeated wrongdoer” if it commits multiple
reprehensible acts within the single transaction with
the plaintiff.
4
The Sixth Circuit’s holding warrants plenary
review, or summary reversal under the long line of
precedent repudiating Lochner, because it plainly
misconstrues this Court’s instructions regarding the
due process limits on punitive damages and
represents a serious affront both to principles of
federalism and to the separation of powers. In
addition, the Sixth Circuit’s judgment warrants
review because it conflicts with decisions throughout
the Nation on important questions of law regarding
the meaning of this Court’s punitive damages
jurisprudence even in its proper setting.
1. Background.
Chicago Title and First American are rivals in the
“highly competitive” title insurance business. Pet.
App. 4a. In 2002, First American launched a new
title insurance brand, The Talon Group (“Talon”), and
“embarked on an expansion strategy that included
recruiting experienced individuals from industry
competitors.” Jd. First American targeted key
Chicago Title employee James Magnuson
(“Magnuson”) as the lynchpin to a plan to raid
employees and customers from Chicago Title’s
Columbus area offices. First American knew that
Magnuson had an agreement not to compete against
Chicago Title in Columbus and contiguous counties
through 2006. Jd. In feigned deference to the non-
compete agreement, First American purported to
“carvel] out” central Ohio from Magnuson’s area of
responsibility. Jd. at 18a. But the carve-out was a
sham, and First American never intended to honor it.
Instead, the Court of Appeals found that there was
“undisputed evidence” of First American’s deliberate
intent: “First American placed Magnuson its
5
Columbus office building, included him in a local title
insurance industry directory, listed his cell phone
number as the regional office number, placed an
incoming local phone line on his desk, included his
name on marketing materials, and had him
participate in sales calls to Columbus-area clients.”
Id. First American even promised to indemnify
Magnuson for breaching his non-compete agreement.
Id. at 4a. The scheme had the intended devastating
effect on Chicago Title’s central Ohio operations. Id.
at 4a, 25a.
Chicago Title brought a diversity suit under Ohio
law against Magnuson for breaching the non-compete
agreement and First American for intentionally
inducing the breach. The District Court granted
partial summary judgment for Chicago Title on its
tortious interference claim, finding that “no
reasonable mind could conclude that .. . Talon did
not intentionally induce Magnuson into breaching his
contractual obligations.” Jd. at 17a-18a. After a
sixteen-day trial on proximate cause and damages,
the jury awarded Chicago Title $10.8 million in
compensatory damages. Id. at 5a. The jury also
found that First American had acted with malice
under Ohio law and, on that basis, assessed punitive
damages of $32.4 million. Jd. In sustaining the
punitive damages award, the District Court noted
that First American’s deceptive strategy permeated
not only the transaction, but also the testimony it
offered to the jury to explain and excuse its
misconduct. Jd. at 37a-39a. The District Court
characterized the malice as “particularly egregious.”
Id. at 5la.
6
2. The Court of Appeals’ Decision.
The Sixth Circuit upheld the summary judgment
rulings that, under Ohio law, Magnuson was liable
for having breached the non-compete agreement and
that First American was liable for having
intentionally interfered with the contract. Id. at 5a-
18a. The Sixth Circuit nevertheless reversed the
award of compensatory damages, holding that the
District Court had improperly granted Chicago Title’s
motion for judgment as a matter of law on the
mitigation defense rather than submitting that issue
to the jury. Id. at 18a-23a.
The Sixth Circuit then conducted a due process
review under the Gore factors and summarily
rejected the constitutionality of any punitive damages
in cases such as this one, notwithstanding the jury’s
finding of actual malice under Ohio law and the
District Court’s finding (which the Court of Appeals
affirmed) that no reasonable person could find that
First American’s misconduct was anything other than
intentional. Jd. at 17a-18a. The Sixth Circuit
explained that it had “already upheld the district
court’s finding that First American intentionally
interfered with the Contract, so we are willing to
assume, for sake of argument, that First American
acted maliciously rather than by accident.” Jd. at 25a.
Nevertheless, in a remarkable holding with
sweeping implications, the Sixth Circuit concluded
that First American’s malice could not by itself
establish the requisite reprehensibility to justify
punitive damages under the Gore analysis and that,
because this was so, Ohio could not treat the
underlying conduct as warranting punitive damages
at all:
7
Here, the only factor present is that First
American acted with malice. Especially
because there were no physical injuries or
threat to personal safety as a result of First
American’s conduct, and because Chicago
Title was not a financially vulnerable victim,
the fact that First American acted maliciously
is insufficient to support a finding that [its]
behavior was sufficiently reprehensible for an
award of punitive damages.”
Id. at 28a (emphasis added). The Sixth Circuit added
that the remaining two Gore guideposts were
“irrelevant,” “{slince punitive damages are
inappropriate in this case due to insufficient
reprehensibility of First American’s conduct.” Id. at
29a n.9.
REASONS FOR GRANTING THE WRIT
Review is warranted to address the basic
question whether this Court’s punitive damages
jurisprudence authorizes federal courts, in the name
of substantive due process, to override state (and,
presumably, federal) choices regarding the kinds of
wrongful and injurious conduct that warrant
punitive damages. The Sixth Circuit licensed the
federal courts to substitute their judgment for that of
a state legislature that has defined by statute the
sort of egregious conduct that may give rise to civil
punishment.
The Sixth Circuit’s decision is flatly inconsistent
with this Court’s teachings regarding the due process
limits on punitive damages. The Court of Appeals
assumed that First American’s conduct was
actionably malicious and accordingly met the criteria
8
for punitive damages under long-settled Ohio law.
Nevertheless, the court invoked “due process” as a
basis for eliminating punitive damages altogether
from the panoply of options available to Ohio for
dealing with such conduct.
The Sixth Circuit’s judgment conflicts with the
decisions of this Court and of lower courts in three
distinct and troubling ways:
First, the Sixth Circuit’s judgment departs from
decisions of this Court and of lower courts regarding
the target of federal due process review. Courts have
properly confined that review to the size of a punitive
damages verdict. When the conduct in question is
sufficiently egregious to warrant punitive damages
under state law, courts (until now) have never
invoked due process to evaluate the propriety of an
underlying finding of punitive liability — preserving
state authority to specify the type and level of
wrongful and injurious conduct that warrants
imposing punitive damages in the first place. The
Court of Appeals’ usurpation of Ohio’s prerogative to
define the elements of punitive liability amounts to a
virtually complete return to the misguided days of
Lochner v. New York, 198 U.S. 45 (1905).
Second, the Sixth Circuit’s judgment creates a
two-factor minimum for the _ reprehensibility
guidepost, which conflicts with decisions of this Court
and of lower courts under which a _ single
reprehensibility factor — particularly malice — is
enough to justify an award of punitive damages.
Third, the Sixth Circuit’s decision conflicts with
decisions in other circuits regarding the meaning of
the “repeated conduct” factor of the reprehensibility
9
guidepost ~— specifically, whether a defendant may
qualify as a “repeated wrongdoer” if it commits
reprehensible acts within the single transaction with
the plaintiff, or whether the repeated acts must be
committed against a variety of different parties, in
addition to the plaintiff, before the defendant may be
deemed to be a recidivist.
I. THE SIXTH CIRCUIT’S JUDGMENT
CONFLICTS WITH DECISIONS
LIMITING THE GORE FACTORS TO AN
ASSESSMENT OF THE SIZE, NOT THE
FACT, OF A PUNITIVE ASSESSMENT..
The Sixth Circuit’s decision warrants review
because it transforms the Gore factors from a test of
whether punitive damages are “grossly excessive” in
a particular case into a test of whether punitive
damages may be imposed at all — even when proper
under settled state law.
A. The Sixth Circuit’s Judgment
Conflicts With Decisions Of This
Court Regarding The Nature Of The
Gore Guideposts.
The Sixth Circuit held that the Gore factors
prevented the State of Ohio from imposing any
punitive liability for business torts against financially
viable defendants, even though the finding of malice
was sufficient to support an assessment of punitive
damages under the applicable Ohio law, which
provided clear statutory notice that conduct
“demonstratling] malice” may lead to punitive
damages. OHIO REV. CODE. ANN. § 2315.21(C)(1).
To Chicago Title’s knowledge, no court anywhere
has ever construed the Gore factors to permit the
10
outright elimination of punitive liability in a category
of cases in which the legal basis for the award of
punitive damages under the governing substantive
law is otherwise satisfied. E.g., Williams v. Kaufman
County, 352 F.3d 994, 1016 (CA5 2003) (rejecting an
interpretation of Gore factors that “would defeat the
ability to award punitive damages at all” in actions
with only nominal compensatory damages).
In both Gore and State Farm, this Court was
careful to limit its decisions to the issue of the gross
excessiveness of particular awards of damages. This
Court did not apply the due process guideposts to
question whether the conduct could be subjected to
punitive damages in the first instance. In Gore, for
example, the Court explained that “[o]nly when an
award can be fairly categorized as ‘grossly
excessive’... does it enter the zone of arbitrariness
that violates the Due Process Clause.” 517 US.
at 568 (emphasis added). The Court explained that it
did not question the authority of the State to impose
some punitive sanction to the conduct at issue: “we of
course accept the Alabama courts’ view that the state
interest in protecting its citizens from deceptive trade
practices justifics a sanction in addition to the
recovery of compensatory damages.” Id. at 585
(emphasis added). The Court’s focus was solely on
the size of the particular punitive award. See id. at
574 (“BMW did not receive adequate notice of the
magnitude of the sanction that Alabama might
impose.”) (emphasis added); id. at 580 (“That conduct
is sufficiently reprehensible to give rise to tort
liability, and even a modest award of exemplary
damages does not establish the high degree of
culpability that warrants a substantial punitive
11
damages award.”) (emphases added); id. at 584-85
(asking “whether a lesser deterrent would have
adequately protected the interests of Alabama
consumers”) (emphasis added).
Similarly, in State Farm, this Court applied the
Gore guideposts to the amount of the award, not the
State’s imposition of punitive liability in the first
place. See 538 U.S. at 419-20 (“While we do not
suggest there was error in awarding punitive
damages|[,] ... a more modest punishment for this
reprehensible conduct could have satisfied the State's
legitimate objectives ....”). Thus, the Court remanded
the matter for “[t]he proper calculation of punitive
damages.” Id. at 429 (emphasis added). See also
Philip Morris USA v. Williams, 127 S. Ct. 1057, 1062
(2007) (“we have emphasized the need to avoid an
arbitrary determination of an award’s amount”)
(emphasis added).’
B. The Sixth Circuit’s Decision
Represents A Return To
Lochnerism.
The Court has recognized that each State has the
authority to determine for itself under the Tenth
Amendment what conduct to define as subject to
' The Sixth Circuit’s sole justification for its radical approach is
an isolated statement in State Farm that “the existence of one”
reprehensibility factor “may not be sufficient to sustain a
punitive damages award.” Pet. App. 28a n.8 (quoting State
Farm, 538 U.S. at 419). But the Sixth Circuit took the reference
out of context. The authority cited in State Farm for the quoted
proposition is Gore. See State Farm, 538 U.S. at 419 (citing
Gore, 517 U.S. at 575). That section of Gore, in turn, focuses on
the relationship between reprehensibility and the size of the
specific award, not punitive liability vel non. See Gore, 517 U.S.
at 575.
12
liability for punitive damages. Thus, the predicate
finding of liability for punitive damages is “entitled to
a strong presumption of validity,” TXO Prod. Corp. v.
Alliance Res. Corp., 509 U.S. 443, 457 (1993), and is
subject to no “heightened scrutiny.” Cooper Indus.
Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424,
431 n.4 (2001); see also id. at 433 (“legislatures enjoy
broad discretion in authorizing and _ limiting
permissible punitive damages awards”). In Gore, the
Court emphasized that, notwithstanding its role in
checking excessive awards of punitive damages, the
Constitution does not constrain a state’s “legitimate
interests in punishment and deterrence” or its
“considerable flexibility” in determining’ the
availability of punitive damages. 517 U.S. at 568. In
State Farm, the Court again underscored the
“discretion” that states enjoy “over the imposition of
punitive damages.” 538 U.S. at 417. In Philip Morris
USA v. Williams, 127 S. Ct. 1057, 1062 (2007), the
Court reaffirmed the same point.
This limitation reflects bedrock principles of
federalism as well as separation of powers. The
constitutional analysis must accommodate not only
the limited institutional role of the federal judiciary
but also “the diverse policy judgments of lawmakers
in 50 States.” Gore, 517 U.S. at 570. “A basic
principle of federalism is that each State may make
its own reasoned judgment about what conduct is
permitted or proscribed within its borders, and each
State alone can determine what measure of
punishment, if any, to impose on a defendant who
acts within its jurisdiction.” State Farm, 538 U.S. at
422. The Sixth Circuit’s decision intrudes on the
13
authority of the States reserves by the Tenth
Amendment.
The Article III judiciary oversteps the boundaries
of the judicial function most conspicuously when it
undertakes to direct policy-makers at any level of
government, state or federal, as to conduct deserving
of civil punishment. The federal judiciary should not,
in the guise of due process, interfere with the power
of a State to determine that malicious conduct
causing injury, whether economic or physical, may be
sufficiently egregious to warrant punitive damages.
Indeed, Members of this Court have expressed doubts
about the legitimacy of exercising substantive judicial
review even over the magnitude of particular
punitive awards.” Whatever the wisdom, as a matter
of stare decisis, in retaining such limited review for
gross excessiveness, the Court should not permit the
Sixth Circuit to engage in a radical expansion of the
Gore guideposts to second-guess essentially political
determinations about the regulation of malicious
business conduct and other species of intentional
torts causing substantial social harm. Such a
transformation of the guideposts would effectively
resurrect the sorry history of the Lochner era.”
* See Philip Morris, 127 S. Ct. at 1067-68 (Thomas, J.,
dissenting); id. at 1068 (Ginsburg, J., joined by Scalia and
Thomas, JJ., dissenting); State Farm, 538 U.S. at 429 (Scalia, J.,
dissenting); id. at 429-30 (Thomas, J., dissenting); id. at 431
(Ginsburg, J., dissenting); Gore, 517 U.S. at 598-602 (Scalia, J.,
joined by Thomas, J., dissenting); id. at 607 (Ginsburg, J., joined
by Rehnquist, C.J., dissenting); TXO, 509 U.S. at 470 (Scalia, J.,
joined by Thomas, J., concurring in judgment); Pacific Mut. Life
Ins. Co. v. Haslip, 499 U.S. 1, 25-28 (1991) (Scalia, J., concurring
in judgment).
* Lochner v. New York, 198 U.S. 45 (1905).
14
Moreover, nothing in the decision below would
limit its application to state-created causes of action:
Congress is equally covered by the Sixth Circuit’s
holding, which simply failed to recognize that a polity
is entitled to deter and punish with special severity
— opting for punitive damages liability as one
available mechanism — what it deems malicious
wrongdoing. “[S]ociety has an interest in deterring
and punishing all intentional or reckless invasions of
the rights of others ....” Smith v. Wade, 461 U.S. 30,
54 (1983).
The Sixth Circuit’s transformation of the Gore
factors into a test of eligibility for punitive liability
will strip the States and the Federal Government
alike of the fundamental authority to choose both the
kinds of conduct they will regulate and the manner in
which they will regulate it — whether .through
criminal fines and imprisonment, punitive damages
assessments, or some mix of these devices. Here,
Ohio is entitled, and its legislature has chosen, to
punish and deter parties that intentionally harm
their competitors even if the only harm 1s economic,
there is no financial vulnerability or recidivism, and
compensatory damages make the plaintiff whole.
While due process places checks on the extent to
which Ohio may punish under these circumstances,
the Sixth Circuit improperly usurped the prerogative
of Ohio to punish at all. Indeed, the Court of Appeals
has essentially invited potential wrongdoers to
violate Ohio public policy through malicious infliction
of economic harm on solvent competitors.
15
C. The Court’s Grant of Certiorari In
Exxon Shipping Heightens The
Need For Review Here.
By Order of October 29, 2007, the Court granted
certiorari in Exxon Shipping Co. v. Baker, No. 07-219,
to examine the imposition of punitive damages under
maritime law. Although the Court did not grant the
petitioner’s request for review of the Ninth Circuit’s
application of the Gore factors, this case is an ideal
“bookend” to Exxon Shipping.
First, this case presents an issue that is in some
respects a mirror image of Exxon Shipping. The first
question presented in Exxon Shipping is whether
maritime law, a species of federal common law,
permits the imposition of punitive damages against a
shipowner for the conduct of a ship’s master at sea,
absent any finding that the owner directed,
countenanced, or participated in that conduct, and
even when the conduct was contrary to policies
established and enforced by the owner. Here, by
contrast, the question is whether due process
prohibits the imposition of punitive damages even
when the defendant corporation directed,
countenanced, and participated in the misconduct,
and even when the conduct was carried out in
fulfillment of the policies established and enforced by
the defendant. In the case at bar, the Sixth Circuit
specifically found that there was “undisputed
evidence” of First American’s deliberate intent and
upheld the District Court’s summary judgment ruling
that First American intentionally interfered with the
contract. Pet. App. 17a. The Sixth Circuit, in other
words, held that punitive damages were prohibited by
due process despite the kind of direct, malicious
16
involvement by the defendant that the Ninth Circuit
held to be unnecessary under maritime law for the
award of such damages.
More fundamentally, this case presents the
opportunity to elaborate on the principles of
federalism that complement the separation-of-powers
principles involved in Exxon Shipping. The second
question presented in Exxon Shipping is whether
federal judge-made law may expand the remedies
provided by Congress in the Clean Water Act, which
specifies the criminal and civil penalties for maritime
conduct but contains no punitive damages liability.
This case, too, involves the principle that the
sovereign responsible for regulating the wrongdoing
at issue enjoys the prerogative to decide whether to
use punitive damages, civil fines, criminal penalties,
or some other sanction altogether to deter that
misconduct and to punish it when it takes place.
In Exxon Shipping, the relevant sovereign is the
United States, acting through Congress in the Clean
Water Act. The question is whether federal courts
may revise Congress’ decision about the punishment
of maritime misconduct by adding judge-made
punitive damages to specified civil and criminal
penalties. In the instant case, the relevant sovereign
is Ohio, acting through its legislature and courts.
The salient question is whether federal courts may
revise Ohio’s decision about punishment of economic
misconduct by subtracting punitive damages from the
state-created scheme.
Both cases, in other words, involve fundamental
limits on the federal judicial role in second-guessing
the substantive decisions of political bodies.
Granting review in the instant case would allow the
17
Court to consider the principles of federalism that
reinforce the separation-of-powers rules that govern
Exxon Shipping.
Il. THE SIXTH CIRCUIT'S JUDGMENT
CONFLICTS WITH DECISIONS FINDING
THAT MALICIOUS CONDUCT ALONE
ESTABLISHES SUFFICIENT
REPREHENSIBILITY TO UPHOLD
PUNITIVE DAMAGES ASSESSMENTS.
The Sixth Circuit’s judgment warrants review for
an additional reason: Even setting aside its improper
extension of due process review into the fact, rather
than the amount, of a punitive assessment, the
judgment below conflicts with decisions of this Court
and of lower courts’ establishing that the
“reprehensibility” guidepost of Gore can support a
punitive award merely by a showing that the
defendant’s tortious conduct was intentional or
malicious. The Sixth Circuit improperly demanded
evidence of an additional aggravating factor, such as
the financial vulnerability of the plaintiff or the risk
of physical harm.
In State Farm, this Court granted review to
address “the imprecise manner in which punitive
damages systems are administered.” 538 U.S. at 418.
Review is warranted here to clarify the
reprehensibility guidepost and to address the conflict
created by the Sixth Circuit.
A. The Sixth Circuit’s Judgment
Conflicts With Decisions of This
Court.
The first guidepost — the degree of
reprehensibility — is “[t]he most important indicium
18
of the reasonableness of a punitive damages award.”
State Farm, 538 U.S. at 419. The Court has
instructed that judicial review of the
“reprehensibility” guidepost must consider several
factors, including whether the defendant’s conduct
was intentionally malicious:
We have instructed courts to determine the
reprehensibility of a defendant by considering
whether: the harm caused was physical as
opposed to economic; the tortious conduct
evinced an indifference to or a_ reckless
disregard of the health or safety of others; the
target of the conduct had financial
vulnerability; the conduct involved repeated
actions or was an isolated incident; and the
harm was the result of intentional malice,
trickery, or deceit, or mere accident.
Id. at 419 (emphasis added). Hence, the Court
expressly has listed the question of whether a
defendant’s conduct is intentional or malicious as one
of the reprehensibility factors that can warrant a
punitive award.
There is no way to square the Sixth Circuit’s
decision with this Court’s articulation of the
reprehensibility guidepost in State Farm. The Sixth
Circuit refused to treat a showing of intentional
malice as_ sufficient by itself to ‘satisfy’ the
reprehensibility guidepost. The Sixth Circuit held
that two reprehensibility factors must be present —
i.e., that malicious conduct must be coupled with an
additional “aggravating” factor — in order to justify
an award of punitive damages. But this Court has
consistently repudiated efforts to subject the due
process analysis to such a litmus test, much less a
19
test requiring at least two indicia of reprehensibility.
To the contrary: in both Gore and State Farm, this
Court opined that the reprehensibility guidepost was
satisfied by conduct that did not contain any
additional “aggravating” factor beyond the malicious
nature of the defendant’s conduct, by itself.
Indeed, in Gore, the Court found that the conduct
in question met “none” of the reprehensibility factors,
because BMW (unlike First American here) was not
guilty even of intentional affirmative misconduct.
517 U.S. at 576; id. at 579 (“the record in this case
discloses no deliberate false statements, acts of
affirmative misconduct, or concealment of evidence of
improper motive”); id. at 580 (“this case exhibits none
of the circumstances ordinarily associated with
egregiously improper conduct”). Nevertheless, the
Court explained that even conduct without a “high
degree of culpability” could give rise to least a
“modest” punitive award. Id. at 580 (“That conduct is
sufficiently reprehensible to give rise to tort liability,
and even a modest award of exemplary damages does
not establish the high degree of culpability that
warrants a substantial punitive damages award.”).
The Court opined that either intentional acts of
misconduct or the financial vulnerability of the victim
could trigger punitive damages. Id. at 576 (the
“infliction of economic injury, especially when done
intentionally through affirmative acts of misconduct,
or when the target is financially vulnerable, can
warrant a substantial penalty”) (emphasis added).
Moreover, this Court indicated that, for Justice
Kennedy, “the defendant’s intentional malice was the
decisive element in a ‘close and difficult’ case.” Id.
(citing TXO, 509 U.S. at 468 (separate opinion)).
20
Hence, Gore makes clear that malicious conduct alone
can serve as the basis for punitive damages, with
none of the additional aggravating factors demanded
by the Sixth Circuit.
In State Farm, the Court again implied that an
award could be imposed based solely on the
defendant’s malicious conduct. State Farm held that
the vast bulk of the plaintiffs’ reprehensibility
arguments were irrelevant and impermissible
because they related to the defendant’s “nationwide
policies rather than [to] the conduct directed toward
the Campbells.” 538 U.S. at 420. The Court
specifically rejected any claim that plaintiffs had
suffered physical harm or that there was a risk to the
health or safety of others. Jd. at 426. The Court also
found that there was no basis for contending that
State Farm’s conduct involved repeated actions. Id.
at 423.
In short, the Sixth Circuit’s demand for a further
“aggravating” factor — in addition to the defendant’s
malice — flatly conflicts with both Gore and State
Farm. Indeed, the Court has long recognized the
States’ wide constitutional latitude to impose
punitive damages even when a defendant is guilty of
no intentional wrongdoing — let alone the kind of
deliberate tort at issue in this case. In Smith v.
Wade, the Court surveyed the historical record and
concluded that, when the Fourteenth Amendment
was adopted, “|t]he large majority of state and lower
federal courts were in agreement that punitive
damages awards did not require a showing of actual
malicious intent; they permitted punitive awards on
variously stated standards of negligence,
21
recklessness, or other culpable conduct short of actual
malicious intent.” 461 U.S. at 45.
In Kolstad v. American Dental Ass’n, 527 U.S. 526
(1999), the Court also rejected the need for the
additional aggravating factors required by the Sixth
Circuit. In Kolstad, the Court surveyed the common-
law history to find that a plaintiff could recover
punitive damages solely on the basis of a defendant’s
malicious intent, without any showing that the
defendant had engaged in “conduct with some
independent, ‘egregious’ quality before being subject
to a punitive award.” Id. at 538. “Most often...
eligibility for punitive awards is characterized in
terms of a defendant’s motive or intent. Indeed, ‘[{t]he
justification of exemplary damages lies in the evil
intent of the defendant.’ . . . Conduct warranting
punitive awards has been characterized as
‘egregious, for example, because of the defendant’s
mental state.” Jd. (citation omitted). The Sixth
Circuit’s decision therefore urgently warrants this
Court’s review.
B. The Sixth Circuit’s Judgment
Conflicts With Decisions Of Other
Courts.
Next, the Sixth Circuit’s judgment conflicts with
decisions of other circuits and state courts refusing to
require multiple reprehensibility factors and
upholding punitive awards solely on the basis that a
defendant’s conduct was intentional and malicious:
e The Federal Circuit has upheld a punitive
award similar in magnitude to the award in this case
($50 million/3.3:1 ratio) even when malice was the
only reprehensibility factor. See Rhone-Poulenc Agro,
22
S.A. v. DeKalb Genetics Corp., 345 F.3d 1366, 1371
(Fed. Cir. 2003). The Court of Appeals explained that
“lilt is true that the facts alleged herein do not
demonstrate any of the criteria enhancing
reprehensibility mentioned in Gore, such as an act of
violence, disregard for the health and safety of others,
a pattern of misconduct, or the exploitation of a
financially vulnerable target.” Jd. at 1370 (internal
quotation marks omitted). Nevertheless, in contrast
to the Sixth Circuit in the decision below, the Federal
Circuit in Rhone-Poulenc recognized that State Farm
listed the intentional nature of wrongdoing as a
factor that, by itself, can warrant a punitive award:
“(flor the Court’s majority, [intentional malice,
trickery, or deceit] has become an important criterion
of what the Constitution accepts as reprehensible
conduct.” 345 F.3d at 1371. The Federal Circuit held
that the defendant “acted with the necessary
intentional malice, trickery or deceit to satisfy Gore’s
requirement of reprehensibility.” Jd. That holding is
not irreconcilable with the Sixth Circuit’s decision in
the instant case.
e The Second Circuit has also held that the
reprehensibility guidepost counsels in favor of
upholding a punitive award even where any “harm
caused by defendants was not ‘physical as opposed to
economic”; where defendants did not directly
endanger the health and safety of others; and where
plaintiffs were not “financially vulnerable.” See
Motorola Credit Corp..v. Uzan, 388 F.3d 39, 63-64
(CA2 2004). The Second Circuit has opined that
where a punitive damages assessment arises from
economic injury, the due process review should
functionally focus on the ‘severity of [the]
23
misconduct” and the amount “needed to deter other
potential perpetrators,” not mechanistically “on how
many relevant f[reprehensibility] factors” a
defendant’s conduct manifests. Id. at 64.
¢ In Willow Inn, Inc. v. Pub. Serv. Mut. Ins. Co.,
399 F.3d 224, 233 (CA3 2005), the Third Circuit held
that a defendant’s “purposefully indifferent inaction
and intentionally dilatory action” demonstrated
sufficient reprehensibility. The Court of Appeals
noted that “the critical input to the reprehensibility
calculus in this case is whether the delay in settling
the claim was due to legitimate differences of opinion
over its value or, rather, to [defendant’s] dilatoriness
and inertia.” Jd. at 231. The Third Circuit stressed
that the evaluation of whether the conduct was
intentionally malicious or taken in good faith “was
best made by the judge who heard the testimony and
observed the demeanor of all of the significant
participants.” Jd. Accordingly, the Third Circuit
followed this Court’s instruction that “the district
courts have a somewhat superior vantage over courts
of appeal, and even then the advantage exists
primarily with respect to issues turning on witness
credibility and demeanor.” Jd. at 230-31 (quoting
Cooper Indus., 532 U.S. at 424).
¢ In Mathias v. Accor Econ. Lodging, Inc., 347
F.3d 672, 677 (CA7 2003), Judge Posner upheld a 37
to 1 ratio of punitive damages to compensatory
damages as constitutional, where a hotel failed to
fumigate to remove bedbugs. The court explained
that the “defendant’s behavior was outrageous but
the compensable harm” was “slight” and “difficult to
quantify.” Id. at 677.
24
e In Eden Elec., Ltd. v. Amana Co., 370 F.3d 824,
829 (CA8 2004), cert. denied, 543 U.S. 1150 (2005),
the Eighth Circuit affirmed a punitive damage award
approximately 4.5 times greater than the
compensatory damages where the only
reprehensibility factor was that the defendant “was
guilty of malice, trickery, and deceit.” Id. at 829. The
Eighth Circuit acknowledged that the plaintiffs
“compensatory damage recovery was significant and
that this is a commercial case.” Jd. Moreover, the
court conceded that “this is a case of economic rather
than physical harm. [Defendant’s] conduct did not
evince a disregard for the health or welfare of others,
and the fraud involved only a single incident and a
single victim.” Id. Nonetheless, the court of appeals
upheld a punitive award of $10 million. Similarly, in
Diesel Mach., Inc. v. B.R. Lee Indus., Inc., 418 F.3d
820 (CA8 2005), the Eighth Circuit concluded that
the defendant was liable for punitive damages
because it exhibited “a callous disregard for the
dealers’ legal rights,” id. at 840, even though “the
first three reprehensibility factors weigh on
[defendant’s] side. [Plaintiffs] harm was economic,
not physical; the tortious conduct did not jeopardize
personal health or safety; and [plaintiff] was not
financially vulnerable. The punitive damage award is
not doomed, however, simply because some factors
weigh in the defendant’s favor.” Id. at 839.
e The Ninth Circuit has opined that even modest
reprehensibility factors in cases of purely economic
harm can warrant a 4:1 ratio between punitive and
compensatory damages. Planned Parenthood of
Columbia/ Willamette Inc. v. Am. Coalition of Life
Activists, 422 F.3d 949, 962 (CA9 2005) (“In cases
25
where there are significant economic damages and
punitive damages are warranted but behavior is not
particularly egregious, a ratio of up to 4 to 1 serves as
a good proxy for the limits of constitutionality.”).
° In Employees’ Benefit Ass’n v. Grissett, 732
So.2d 968, 979 (Ala. 1998), the Alabama Supreme
Court upheld a punitive award that was 17 times the
compensatory damages, even though it concluded
that “[tlhe degree of reprehensibility in this case is
low.” “[T]he evidence indicates that [the defendant’s
conduct was] ... merely clumsy and dogmatic, not
malicious. There was no evidence at all to indicate
that [defendant] tried to conceal its actions.” Id. at
980. “This present case involves no false
representations.” Id. at 979. “[I]t does not reflect the
degree of reprehensibility, often marked by greed,
that has been the basis of large punitive damages
awards in the past.” Jd. at 980. Nonetheless, the
state court concluded that the defendant’s “dogmatic
adherence to rules and bylaws that are inartfully
drafted and therefore unworkable” justified “an
award of more than token punitive damages.” Id.
The facts in the instant case are far more egregious.
¢ In Casciola v. F.S. Air Serv., Inc., 120 P.3d
1059, 1068 (Alaska 2005), the Alaska Supreme Court
held the reprehensibility guidepost met because
“(t]he superior court found that [defendant’s] actions
were ‘outrageous, malicious and with bad motives’
and ‘the injuries suffered by [plaintiff] flowed from
[defendant’s] ‘intentional malice, trickery, or deceit.”
(citation omitted).
¢ In Simon v. San Paolo U.S. Holding Co., 113
P.3d 63, 76 (Cal. 2005), cert. denied, 127 S.Ct. 48
(2006), the California Supreme Court imposed a
26
punitive award of ten times the compensatory
damages in a case involving purely economic harm.
The court held that the defendant’s intentional
wrongdoing was the only reprehensibility factor met.
The court explained that “the tortious act on which
liability was based was a single false promise (or set
of promises) made in the letter of intent, and no
evidence indicated [defendant] had acted similarly
toward other potential buyers.” Jd. at 76. The injury
suffered was solely economic, and there was no threat
to health or safety. Id. The court concluded that, “of
the five subfactors relevant to reprehensibility, only
one applies. In the universe of cases warranting
punitive damages under California law, the
fraudulent promise or promises ... have to be
regarded as of relatively low culpability.” Td.
Nonetheless, the court concluded that the
reprehensibility guidepost was sufficiently satisfied
to warrant a 10:1 ratio between punitive and
compensatory damages.
e Texas courts have also recognized that
malicious conduct, by itself, can satisfy the first Gore
guidepost. For example, in Mission Res., Inc. uv.
Garza Energy Trust, 166 S.W.3d 301, 318 (Tex. Ct.
App. 2005, pet. granted), the Texas Court of Appeals
upheld a $10 million punitive award by observing
that “(t]he high Court has also explained that
intentional malice can be the decisive element in a
‘close and difficult case.” Jd. at 318 (quoting Gore).
The state court opined that the intentional nature of
the defendant’s conduct satisfied the reprehensibility
guidepost. Jd. (“Although |defendant’s] conduct did
not cause physical injury, it did involve a substantial
amount of economic harm. [Defendant] breached its
27
contract and committed the intentional tort of
trespass. It acted with malice, and its conduct
amounted to felony theft.”). See also Bright v.
Addison, 171 S.W.3d 588, 603-04 (Tex. Ct. App. 2005,
pet dism’d) (“We agree the harm suffered by
[plaintiffs] was economic and did not involve their
health, safety, or financial vulnerability.
[Defendant’s] conduct, however, was an intentional
breach of his fiduciary duty to his clients. .. . The
evidence showed |defendant] acted with intentional
malice, trickery, and deceit rather than mere
accident.”).
The Sixth Circuit’s judgment also conflicts with
many other decisions recognizing that malicious
conduct, by itself, can satisfy the reprehensibility
guidepost. E.g., In re John Richards Homes Bldg.
Co., 291 B.R. 727, 739 (E.D. Mich. 2003) (upholding
punitive damages award because “evidence of
ldefendant’s] bad faith is overwhelming”); Borne uv.
Haverhill Golf & Country Club, Inc., 791 N.E.2d 903,
916 (Mass. App. 2003) (upholding punitive damages
award because defendant was “cavalier and callously
indifferent”).
This Court’s review is also warranted because of
the need for guidance regarding the reprehensibility
guidepost. Lower courts have complained that the
“reprehensibility of a party’s conduct, like truth and
beauty, is subjective. One’s view of the quality of an
actor’s conduct is the result of complex value
judgments.” In re Exxon Valdez, 296 F. Supp. 2d
1071, 1093 (D. Alaska 2004), vacated and remanded,
472 F.3d 600 (CA9 2006), as amended, 490 F.3d 1066,
cert. granted (No. 07-219).
28
To be sure, this Court has attempted to bring
some level of objectivity to the inherently subjective
reprehensibility analysis by promulgating a series of
sub-rules for lower courts to consider when
evaluating defendants’ misconduct. However, as one
commentator has noted, “these sub-rules have, in
fact, done very little in the way of promoting
uniformity.” Jenny Jiang, Comment, Whimsical
Punishment: The Vice of Federal Intervention,
Constitutionalization, and Substantive Due Process in
Punitive Damages Law, 94 CAL. L. REV. 793, 794
(2006).
Other scholars have found that, despite this
Court’s desire to illuminate a path for lower courts to
follow,
the Court’s guideposts have not produced a
workable and predictable test for determining
the constitutionality of large punitive awards.
... Although the Court has said that the first
guidepost, the degree of reprehensibility of
the defendant’s conduct, is the “most
important,” it has proved to be amorphous in
application.
Steven Chanenson & John Yotanda, The Foggy Road
for Evaluating Punitive Damages: Lifting the Haze
From the BMW/State Farm Guideposts, 37 U. MICH.
J.L. REFORM 441, 466-67 (2004).*
* John Zenneth Lagrow, BMW of North America, Inc. v. Gore:
Due Process Protection Against Excessive Punitive Damages
Awards, 32 New Eng. L. Rev. 157, 196-97 (1997) (it is unclear
“how courts should determine the proper amount of punitive
damages to assess when the defendant’s conduct falls between
the ranges of violence and pure economic harm”); Andrew C.W.
Lund, The Road From Nowhere? Punitive Damage Ratios After
5
—_
29
The Sixth Circuit’s decision in this case
illustrates the need for additional clarification of the
reprehensibility guidepost. The Court of Appeals
misunderstood the nature of the guidepost and
demanded a showing of “aggravating” factors beyond
malicious and intentional misconduct. That decision
is utterly irreconcilable with this Court’s precedent
and with decisions in the lower courts.
BMW v. Gore and State Farm v. Campbell, 20 Touro L. Rev.
943, 968-69 (2005) (“[T]he punitive damage analog of any
particular level of reprehensibility is extremely murky.”); Robert
L. McFarland, BMW v. Gore: Ten Years Later, 68 Ala. Law. 126,
127 (Mar. 2007) (“The Gore guideposts, much like the infamous
three-pronged Lemon test, possess the deceptive appearance of
utility. It is easy to memorize the three factors, but difficult to
know what they mean.”); Stephanie L. Nagel, BMW v. Gore: The
United States Supreme Court Overturns an Award of Punitive
Damages as Violative of the Due Process Clause of the
Constitution, 71 Tul L. Rev. 1025, 1039 (1997) (“the only
predictable cases are those that land at the extremes of the
reprehensibility scale”); George L. Priest, Punitive Damages
Reform: The Case of Alabama, 56 Ala. L. Rev. 825, 838 (1996)
(reprehensibility “is a very vague concept and hardly susceptible
of careful measurement”); Neil B. Stekloff, Note and Comment,
Raising Five Eyebrows: Substantive Due Process Review of
Punitive Damages Awards After BMW v. Gore, 29 Conn. L. Rev.
1797, 1817 & 1819 (1997) (Gore guideposts are “far too
subjective and malleable to be meaningful”); Nitin Sud, Punitive
Damages: Achieving Fairness and Consistency After State Farm
v. Campbell, 72 Def. Couns. J. 67, 74 (2005) (surveying lower
courts and complaining that “there is little consistency in the
applications of State Farm”); Jeffrey R. White, State Farm and
Punitive Damages: Call the Jury Back, 5 J. High Tech. L. 79
(2005) (noting “(t]he wide variation in the application of these
{reprehensibility] factors by the courts” and predicting that the
variation in approaches in the lower courts “dims the outlook for
more predictable punitive damage awards”).
30
C. The Sixth Circuit’s Decision
Involves An Important Question of
Law.
Review is also justified because the Sixth
Circuit’s decision will have a host of pernicious and
disruptive effects. The Sixth Circuit has held that
due process bars a State from imposing punitive
damages altogether, even in cases involving malicious
and intentional torts, where there are “no physical
injuries or threat to personal safety” and where the
plaintiff is “not a financially vulnerable victim.” Pet.
App. 28a.
The net effect of this decision will be to render
punitive damages essentially unavailable in economic
tort cases with commercial actors, as a matter of
federal constitutional law. Business tort cases
typically do not involve physical injuries, threats to
personal safety, or financially vulnerable victims.
Hence, the Sixth Circuit’s ruling will effectively
insulate business wrongdoers from punitive damages
as a matter of constitutional law, limiting punitive
liability to personal injury cases and other contexts
involving physical injuries, threats to personal safety,
and other aggravating factors cited by the Sixth
Circuit.
Yet it is no accident that one of the few recent
decisions of this Court to uphold a punitive award in
full was a business tort case. TXO Prod. Corp. v.
Alliance Res. Corp., 509 U.S. 443 (1993). Punitive
damages often make good economic sense in
commercial tort cases because they can remove a
defendant’s anticipated financial gain, as adjusted by
the probability of detection, and therefore ensure
31
adequate deterrence. This Court has noted the
plethora of statutes mandating double and treble
damages for a wide variety of business torts —
underscoring the reasonableness of punitive damages
in the commercial context. Gore, 517 U.S. at 581
n.33. Yet under the Sixth Circuit’s new rule, punitive
damages will be essentially unavailable in the one
category of cases in which such damages make the
most obvious economic sense.
Moreover, the Sixth Circuit’s decision calls into
question the availability of punitive damages in many
other contexts in which malicious conduct, by itself,
has been the traditional basis for punitive liability.
For example, the sole statutory requirement for
punitive damages in federal employment
discrimination cases under Title VII is whether a
defendant’s practices exhibit “malice or . . . reckless
indifference to the federally protected rights of an
aggrieved individual.” 42 U.S.C. § 198la(b)(1). Until
now, courts in Title VII cases had uniformly rejected
the additional aggravating elements demanded by
the Sixth Circuit. E.g., Kolstad, 527 U.S. at 538.
Indeed, many federal statutory schemes
authorize the imposition of punitive damages without
the two-factor reprehensibility showing demanded by
the Sixth Circuit. The Fair Credit Reporting Act, for
example, provides that a court may award punitive
damages when a consumer reporting agency willfully
fails to comply with the requirements imposed by the
* See Kemezy v. Peters, 79 F.3d 33, 34-35 (CA7 1996) (Posner, J.);
Zazu Designs v. L’Oréal, S.A., 979 F.2d 499, 508 (CA7 1992)
(Easterbrook, J.); A. Mitchell Polinsky & Steven Shavell,
Punitive Damages: An Economic Analysis, 111 Harv. L. Rev.
869, 874-75 (1998).
32
Act. 15 U.S.C. §1681n(a)(2). A “willful” failure under
the Act includes a violation committed in mere
reckless disregard of statutory obligations. See
Safeco Ins. Co. of America v. Burr, 127 S.Ct. 2201
(2007). Similarly, the Equal Credit Opportunity Act,
15 U.S.C. §169le(b), and the Fair Housing Act, 42
U.S.C. §3613(c), provide for punitive damages
without the requirements imposed by the Sixth
Circuit.
In all of these contexts, malicious conduct, by
itself, is a sufficient basis for the award of punitive
damages. The Sixth Circuit’s decision erecting a
constitutional barrier to the imposition of such
liability therefore threatens substantial disruption to
statutory schemes for the enforcement of important
federal rights.
Ill. REVIEW IS NEEDED TO CLARIFY
WHETHER A DEFENDANT QUALIFIES
AS A “REPEATED WRONGDOER” BY
COMMITTING MULTIPLE
REPREHENSIBLE ACTS WITHIN THE
SINGLE TRANSACTION WITH THE
PLAINTIFF.
The Sixth Circuit’s decision warrants review for a
final reason relating to the meaning of one of the
reprehensibility factors, recidivism. The Sixth
Circuit followed circuit precedent in holding that a
defendant cannot qualify as a “repeated wrongdoer”
under the guidepost unless the acts in question were
committed against different parties, other than the
plaintiff. Pet. App. 26a-27a.
This Court’s review is warranted because the
lower courts are divided on the question. The Second
33
Circuit has agreed with the Sixth Circuit. See Lee v.
Edwards, 101 F.3d 805, 809 (CA2 1996) (citing need
for evidence of repeated misconduct with respect to
other employees rather than repeated misconduct
against the plaintiff).
But the Third Circuit has interpreted the
“repeated wrongdoing” factor differently. The Third
Circuit has held that repeated acts of wrongdoing can
demonstrate reprehensibility even when they involve
parties other than the plaintiff: “[Wlhile the
‘repeated conduct’ subfactor will necessarily have less
force where the defendant’s misconduct did not
extend beyond his dealings with the plaintiff, it may
still be relevant in measuring the reprehensibility of
the defendant’s conduct, based on the particular facts
and circumstances presented.” CGB Occupational
Therapy, Inc. v. RHA Health Servs., 499 F.3d 184,
191 (CA3 2007) (internal quotation marks omitted).
The Third Circuit proceeded to find — in a case of
wrongful employee recruiting with parallels to the
instant case — that the defendant’s persistence in its
wrongful conduct justified a finding of recidivism. Id.
The Ninth Circuit has adopted the same view as
the Third Circuit. Southern Union Co. v. Southwest
Gas Corp., 415 F.3d 1001, 1010 (CA 9 2005) (holding
that conduct toward same plaintiff, including
improper litigation tactics against same plaintiff,
could establish reprehensibility); Planned
Parenthood, 422 F.3d at 959 (citing need to show that
defendant’s past conduct caused harm to particular
plaintiffs before court). State courts have followed
the Third Circuit’s approach as well. In Superior
Fed. Bank. v. Jones & Mackey Constr. Co., 219
S.W.3d 643 (Ark. Ct. App. 2005), the Arkansas Court
34
of Appeals held that the “repeated conduct” factor
was satisfied “given that several statements were
made by [defendant] in what seemed to be a
continuing effort to inflict harm” on the same
plaintiff. Id. at 651. The court explained that Gore
and TXO “recognizled] that evidence of other
transactions may be relevant in determining a
defendant’s degree of reprehensibility. TXO also
considered evidence of a ‘pattern of fraud, trickery,
and deceit.” Jd. at 650 n.3. The court held that a
course of conduct involving the same plaintiff could
satisfy the “repeated wrongdoing” test:
the other defamatory statements that
appellant asks us to disregard were not
directed to other persons and did not involve
separate, unrelated claims; nor were they
dissimilar acts, independent from the acts
upon which liability was premised. Instead,
they were part of a pattern of behavior
directed toward the LLC, and they paint a
telling picture of appellant’s overall conduct
and intent to cause harm.
Id. at 650.°
* See also Century Surety Co. v. Polisso, 43 Cal. Rptr. 3d 468,
499-500 (Cal. Ct. App. 2006) (“While there was no evidence
Century engaged in such tactics with other individuals, its
conduct with respect to the Polissos was hardly limited to a
single event. Century engaged in a course of conduct over a five-
year period of time .. . . Under these circumstances, we conclude
Century’s conduct rates moderately high on the reprehensibility
scale.”); Hayes Sight & Sound, Inc. v. ONEOK, Inc., 136 P.3d
428, 447 (Kan. 2006) (holding that defendant’s conduct was
reprehensible because it “was not an isolated incident,” even
though all evidence referred to the single natural gas well
involving plaintiff).
35
This Court should grant review to address the
divergent approaches by the lower courts. The Sixth
Circuit's decision has created precisely the
constitutional risk that the Court condemned in State
Farm and Philip Morris — namely, that juries and
trial courts might use punitive damages to punish a
defendant for wrongdoing against absent parties
rather than against the plaintiff. See 127 S. Ct. at
1062; 538 U.S. at 422-23. Conversely, when the
repeated acts are all directed at the plaintiff in a
common course of conduct before the court, the acts
necessarily share a joint focus, and the defendant has
ample ability to obtain relevant evidence and mount
a defense.
Granting review would therefore afford the Court
the opportunity to clarify the principles articulated in
State Farm and Philip Morris in the context of the
“repeated wrongdoing” factor of the reprehensibility
guidepost. Commentators have stressed the need for
further guidance in this area.’ This Court should
make clear that a standard focusing on repeated acts
of wrongdoing against the same plaintiff is relevant
" Jeff Bleich, et al., Philip Morris Provides Yet Another Chapter
in the Ongoing Saga of Punitive Damages in the U.S. Supreme
Court, 67 Or. St. B. Bull. 24 (2007) (“[T]he Philip Morris test
may be a difficult one to apply or police, and so it may not
amount to much of a limitation at all.”); Erwin Chemerinsky,
More Questions About Punitive Damages, 43 Trial 72 (May 2007)
(“Appellate courts are left with little guidance on when the size
of a punitive damages award is appropriate and when it is
unconstitutional.”); Michael I. Krauss, Punitive Damages And
The Supreme Court: A Tragedy In Five Acts, 2007 Cato Sup. Ct.
Rev. 315, 333 (‘We can look forward to years of litigation and
circuit splits trying to sort out what the Court hath wrought.”);
Mark K. Moller, /ntroduction, 2007 Cato Sup. Ct. Rev. 1, 5
(complaining that Williams is “no model of clarity”).
36
to the reprehensibility guidepost and, indeed,
minimizes the constitutional concerns expressed by
this Court in State Farm and Philip Morris. The
need to clarify the “repeated wrongdoer” element of
the reprehensibility guidepost is a further reason to
grant certiorari.
CONCLUSION
The petition for writ of certiorari should be
granted. In the alternative, the Sixth Circuit’s
judgment should be summarily reversed.
Respectfully submitted,
STEVEN A. GOLDFARB LAURENCE H. TRIBE
HAHN LOESER & PARKS, LLP Counsel of Record
200 Public Square, Suite 3300 Hauser Hall 420
Cleveland, Ohio 44114 1575 Massachusetts Avenue
(216) 621-0150 Cambridge, MA 02138
(617) 495-4621
JONATHAN S. MASSEY
JONATHAN S. MASSEY, PC
7504 Oldchester Road
Bethesda, MD 20817
(301) 915-0990
November 2007
la
Appendix A: Opinion of the U.S. Court of
Appeals for the Sixth Circuit dated
May 21, 2007
Recommended for Full-Text Publication
Pursuant to Sixth Circuit Rule 206
United States Court of Appeals
for the Sixth Circuit
CHICAGO TITLE INSURANCE CORPORATION, a
Missouri Corporation, Plaintiff-Appellee,
v.
James A. MAGNUSON; First American Title
Insurance Company, c/o Timothy P. Sullivan,
Registered Agent, Defendants-Appellants.
No. 05-4411.
Appeal from the United States District Court
For the Southern District of Ohio at Columbus.
No. 03-00368 — Gregory L. Frost, District Judge.
Argued: Nov. 28, 2006.
Decided and Filed: May 21, 2007.
Before: DAUGHTREY, GIBBONS, Circuit Judges;
EDMUNDS, District Judge.”
EDMUNDS, District Judge.
The numerous questions presented in this appeal
concern a covenant not to compete and the resulting
jury verdict awarding compensatory and punitive
* The Honorable Nancy G. Edmunds, United States District
Judge for the Eastern District of Michigan, sitting by
designation.
2a
damages to Plaintiff-Appellee Chicago Title
Insurance Corporation (“Chicago Title”) for
Defendant-Appellant James Magnuson’s breach of
the agreement and Defendant-Appellant First
American Title Insurance Companys (“First
American’s”) tortious interference with this
agreement. On January 25, 2005, a jury found
Magnuson and First American liable for breaching
the covenant and for tortious interference and
awarded compensatory and punitive damages
totaling over $43 million. The district court denied
several post-trial motions and upheld the verdict in
its entirety. For the reasons discussed below, we
AFFIRM in part, REVERSE in part, and REMAND
this case to the district court for a new trial on
compensatory damages consistent with this opinion.
Chicago Title and First American are competitors
in the title insurance industry, and Magnuson is an
individual with many years of experience in a variety
of positions for companies in this industry. Magnuson
formed a title insurance agency in central Ohio in
1978 along with a partner, James Steller. Magnuson
and Steller built the business and brought on
additional partners until 1991, when the partners
sold the business to Chicago Title for $5.5 million.
In conjunction with the sale, and in an effort to
protect the goodwill of the business that Chicago Title
purchased, Magnuson entered into an employment
contract (the “Contract”) on July 1, 1991, that
included a covenant not to compete (the “Covenant”)
as one of its provisions. Specifically, the Contract
obligated Magnuson to work for Chicago Title for five
years after the sale, and the Covenant prohibited him
from acting in any capacity for a title insurance
company in a seven-county area surrounding, and
including, Columbus, Ohio “(flor a period of five years
3a
after the term of this Agreement.” Steller also took a
position with Chicago Title following the sale, but he
left the Ohio market in 1993.
At the time Steller left Chicago Title’s employ,
Magnuson and Chicago Title amended the Contract
to state that the initial five-year term of employment
would extend for ten-and-a-half years, until
December 31, 2001. According to the modification,
“(ajny other reference to word (sic) ‘term’ in the
Contract and the Exhibits thereto shall be construed
as being the said ten and one half year period.”
Therefore, the five-year non-compete period did not
begin until the term of the agreement ended, and
contractual expiration of the non-compete period was
delayed until the end of 2006.
Throughout his employment with Chicago Title,
Magnuson advanced through a_ variety of
management positions, each with an increasing scope
of geographic coverage. In 1996, Magnuson became
Chicago Title’s Ohio Manager, where he supervised
offices in Cincinnati, Dayton, Cleveland and Akron.
He turned over direct management of the Columbus
office to other Chicago Title managers at that time.
In 1998 or 1999, Magnuson assumed responsibility
over Ohio, Indiana, Michigan and Pennsylvania as
Chicago Title’s Regional Manager. Finally, in 2001,
Magnuson became Regional Manager for all title
insurance brands of Chicago Title’s parent, Fidelity.
In this position, his territory covered Ohio,
Pennsylvania, New Jersey, Delaware, Maryland,
Virginia and West Virginia.
Once the Contract term expired on its own terms
at the end of 2001, Magnuson and Chicago Title
discussed a two-year employment agreement
containing a one-year post-employment non-compete
4a
clause, but they never executed any documents
related to an extension of the Contract. In August
2002, Magnuson was appointed Division Vice
President of another one of Fidelity’s title insurance
brands and no longer worked for Chicago Title.
Also in 2002, The Talon Group (“Talon”), a
division of First American, ‘embarked on an
expansion strategy that included recruiting
experienced individuals from industry competitors.
Attracting employees who possessed established
relationships with customers and employees was
critical to generating business growth, as the title
insurance business is highly competitive with
minimal product differentiation among competitors.
As part of this effort, First American convinced
Magnuson to leave Chicago Title and join Talon.
During the negotiation process, Magnuson made
Talon aware of the existence of his non-compete
agreement with Chicago Title, and First American
agreed to indemnify Magnuson for any liability he
might incur as a result of making the move. Shortly
thereafter, Steller also joined First American.
Once with First American, Magnuson was based
out of an office located in Columbus, and the company
began recruiting other key Chicago Title customers
and employees from central Ohio. Within the first
three months, thirty Chicago Title employees
switched to First American, and a significant number
of Chicago Title’s customers in the area also ended up
moving over.
The district court below granted Chicago Title’s
motions for summary judgment as to liability on its
breach of contract claim against Magnuson and its
tortious interference claim against First American
before submitting the case to the jury on the issue of
5a
damages. The jury returned a verdict of $10.8 million
in compensatory damages and $32.4 million in
punitive damages, and the district court denied
various motions for a new trial by Magnuson and
First American, leading to the instant appeal.
Magnuson and First American challenge the
following rulings of the district court: (1) finding that
the Covenant was reasonable and_ therefore
enforceable, (2) granting summary judgment for
Chicago Title on the issue that Magnuson breached
the Covenant, (3) granting summary judgment for
Chicago Title on the issue that First American’s
actions constituted tortious interference, (4) granting
judgment as a matter of law on the issue that
Chicago Title was a lost volume seller, (5) instructing
the jury that the Covenant was reasonable for the full
five-year period, (6) finding that punitive damages
were appropriate for the jury to consider, (7) not
remitting the jurys punitive damages award as
unconstitutionally large in relation to the amount of
compensatory damages awarded, (8) failing to order a
new trial on punitive damages, and (9) giving
improper jury instructions that tainted the jury’s
verdict.
Magnuson and First American filed a timely
appeal. We have appellate jurisdiction under 28
U.S.C. § 1291.
A. Reasonableness of the Covenant
An appellate court reviews “the district court’s
conclusions of law de novo and its findings of fact for
clear error. Questions of contract interpretation are
generally considered questions of law subject to de
novo review.” Golden v. Kelsey-Hayes Co., 73 F.3d
648, 653 (6th Cir.1996) (internal citations omitted).
Here, the district court’s decision involved a question
6a
of law, as it required a determination of whether the
Covenant was reasonable under the circumstances
and was therefore enforceable. Furthermore, under
Ohio law, which the parties have chosen to govern
the Contract, a non-compete clause’s enforceability is
a matter of law for the court. UZ Engineered Prods.
Co. v. Midwest Motor Supply Co., 147 Ohio App.3d
382, 770 N.E.2d 1068, 1078 (2001). Thus, we review
the district court’s ruling on the Covenant’s
reasonableness de novo, but accept the district court’s
findings of fact unless they were clearly erroneous.
1. The Covenant period at issue
Although the Covenant is contained in a single
document that was extended by amendment on one
occasion, there are actually two separate covenant
periods at issue here between the parties. At the time
of the 1991 sale, Chicago Title and Magnuson agreed
that Magnuson would be employed for five years,
after which time the five-year non-compete period
would begin. Since the Contract was entered into at
the same time Magnuson sold the business and
mentions the acquisition itself, the original covenant
is properly viewed as incident to the sale and not as
an employment-related covenant.
At the time of the 1993 amendment, the
amendment’s provisions explicitly provided that the
post-employment covenant period remained in effect
and would begin at the end of Magnuson’s
employment term, as extended by the amendment to
December 31, 2001. The amendment’s sole focus,
however, was on extending the period of Magnuson’s
employment with Chicago Title, and not the sale that
occurred two years prior. The Covenant was no longer
tied to the original ten-year period of protection
contemplated when Magnuson sold his business to
7a
Chicago Title, as nothing in the amendment mentions
the sale. Thus, the two covenants are: (1) a sale-
related covenant not to compete for five years,
beginning on July 1, 1996, and ending June 30, 2001,
and (2) an employment-related covenant not to
compete for five years (the one referred to as the
“Covenant”), beginning on January 1, 2002, and
ending on December 31, 2006.’
2. The Covenant is reasonable for at least two
years
Under Ohio law, “[i]Jn determining the validity of
a covenant or agreement in restraint of trade, each
case must be decided on its own facts.... A covenant
restraining an employee from competing with his
former employer upon termination of employment is
reasonable if it is [1.] no greater than is required for
the protection of the employer, [2.] does not impose
undue hardship on the employee, and [3.] is not
injurious to the public. Courts are empowered to
modify or amend employment agreements to achieve
such [reasonable] results.” Raimonde v. Van Vlerah,
42 Ohio St.2d 21, 325 N.E.2d 544, 547 (1975). The
party seeking to enforce the covenant “is required to
adduce clear and convincing evidence as to each of
these factors” in order to prove that the covenant is
‘ The first period is not in dispute, as Chicago Title contends
that Magnuson’s breach occurred when he accepted the new
position with First American in December 2002, after the
expiration of the initial covenant period tied to the sale of his
business. As a result, the cases that Chicago Title cites from
other jurisdictions distinguishing between covenants not to
compete arising under a sale of business and those from
standard employment contracts are inapplicable here.
* Magnuson limits his challenge to the first prong of this test,
and does not address any hardship on himself or public injury.
8a
reasonable.’ Levine v. Beckman, 48 Ohio App.3d 24,
548 N.E.2d 267, 270 (1988). “Clear and convincing
evidence is that measure or degree of proof which is
more than a mere ‘preponderance of the evidence,’
but not to the extent of such certainty as is required
‘beyond a reasonable doubt’ in criminal cases, and
which will produce in the mind of the trier of facts a
firm belief or conviction as to the facts sought to be
established.” Estate of Schmidt v. Derenia, 158 Ohio
App.3d 738, 822 N.E.2d 401, 405 (2004) (quoting
Cross v. Ledford, 161 Ohio St. 469, 120 N.E.2d 118,
119 (1954)).
Additional considerations that courts should
assess in reviewing the reasonableness of a covenant
include:
whether the covenant imposes temporal and
spatial limitations, whether the employee had
contact with customers, whether’ the
employee possesses confidential information
or trade secrets, whether the covenant bars
only unfair competition, whether’ the
covenant stifles the employee’s inherent skill
and experience, whether the benefit to the
employer is disproportionate to the
employee’s detriment, whether the covenant
destroys the employee’s sole means of
* Chicago Title cites a number of cases for its assertion that the
proper burden of proof on this issue is a preponderance of the
evidence. This position results from a failure to recognize that
the clear and convincing standard required for an injunction to
issue and the preponderance of the evidence standard that must
be met to obtain monetary damages are the requisite burdens of
proof to obtain either of these legal remedies. Each of these is
distinct from a plaintiff's initial burden to show that a covenant
not to compete is reasonable by clear and convincing evidence in
order for there to be a viable claim for breach of the covenant.
9a
support, whether the employee’s talent was
developed during the employment, and
whether the forbidden employment is merely
incidental to the main employment.
Basicomputer Corp. v. Scott, 973 F.2d 507, 512 (6th
Cir.1992) (quoting Raimonde, 325 N.E.2d at 547).
We need not determine whether the Covenant
was valid for its full five-year term because
Magnuson’s actions that Chicago Title claims violated
the Covenant occurred just over one year after his
defined term of employment ended. So, as long as the
Covenant was reasonable for at least two years, we
must affirm the district court’s decision to award
summary judgment to Chicago Title on the issue of
liability.
The district court below noted that Chicago Title’s
vice president and manager of Ohio, Michael Nolan,
testified that the five-year duration was necessary in
order to give Chicago Title “time to secure the
relationships.” While this is not particularly strong
evidence on its own, the district court made findings
of fact regarding the competitive nature of the title
insurance industry and the “importance of
relationships within the ... industry.” See also Ticor
Title Ins. Co. v. Cohen, 173 F.3d 63, 71 (2d Cir.1999)
(discussing the significance of strong customer
relationships). Given this backdrop, and how quickly
Magnuson was able to bring employees and
customers over to First American after leaving
Chicago Title, it appears reasonable for an employer
to seek to restrict an employee from moving to a
competitor and taking customers and _ other
employees with them for two years following the
employee’s departure. This is especially true with an
employee such as Magnuson, who was a “key figure
10a
in the central Ohio title insurance industry” and had
“exposure to Chicago Title’s inner workings in Ohio.”
Magnuson argues that Chicago Title’s failure to
present evidence justifying the specific length of five
years (as opposed to a one-year or two-year non-
compete period), means that the Covenant is
unreasonable. See Economou v. Physicians Weight
Loss Centers of Am., 756 F.Supp. 1024, 1034
(N.D.Ohio 1991) (finding a three-year covenant
unreasonable without support for that particular
length of time); Cole Nat’l Corp. v. Koos, No. 66760,
1994 WL 716522 at *3-4 (Ohio Ct.App. Dec. 22, 1994)
(reaching the same result for a one-year covenant).
Both of these cases are distinguishable, as the
appellant-employers in Cole “wanted a longer period
of time but [were] told by counsel that twelve months
would be reasonable.” Cole, 1994 WL 716522 at *3.
The court continued, reasoning that the employers
chose “a time period not because of what was
necessary but because it was the longest they
expected would be enforced.” Jd. Similarly, in
Economou, the plaintiff produced “no relevant
testimony” whatsoever on this point. 756 F.Supp. at
1034.
Magnuson asserts that a plaintiff must state
specific reasons for a particular covenant length in
order for the covenant to be found reasonable, but he
does not cite any cases in support of this proposition.
Even though the Economou court had no testimony
before it as to whether the particular time period
sought was reasonable, it still assessed a number of
the other factors outlined in Raimonde before coming
to its final conclusion that the covenant at bar in that
case was not reasonable. This mode of reasoning
refutes Magnuson’s position that a failure to provide
specific justification for a covenant’s length
lla
automatically means that the covenant is
unreasonable.
Based upon all of the facts found by the district
court to justify the Covenant, we are satisfied that
the Covenant is reasonable for at least two years
even though Chicago Title’s testimony did not provide
justification for a specific time period.
3. Magnuson’s remaining challenges are
meritless
Magnuson also challenges several of the district
court’s factual grounds for finding that the Covenant
was reasonable. First, he asserts that consideration
of Chicago Title’s desire to protect its employee
relationships was inappropriate because Chicago
Title could have protected its interests through less
restrictive means by entering into covenants with
those employees directly. Busch v. Premier Integrated
Med. Assoc., Ltd., No. 19364, 2003 WL 22060392 at
*6-7 (Ohio Ct.App. Sept.5, 2003) (holding that a
desire of “maintaining stability” was not sufficient to
make a covenant not to compete reasonable in a
medical practice setting). Here, however, Chicago
Title was concerned with more than merely
maintaining the stability of its workforce. The district
court’s opinion states that the relationships between
a title company’s principals and its employees are
important in maintaining business and relationships
with customers. As this item goes to the heart of a
company’s ability to compete in the marketplace, we
do not find Busch applicable here, since a desire to be
able to effectively compete is a stronger justification
than a desire to retain stability among employees.
Furthermore, we reject Magnuson’s argument for
extension of Busch to all cases, as nothing in Busch
indicates that its holding was to be construed so
12a
broadly. Therefore, it was appropriate for the district
court to consider this justification in assessing the
Covenant’s reasonableness.
Next, Magnuson argues that protecting Chicago
Title’s customer relationships was not a valid reason
because he was not the “sole customer contact and
not actively engaged in the market at issue.”
(Appellants’ Br. at 29; citing Economou, 756 F.Supp.
at 1034.) The district court found, however, that
Magnuson, in fact, was “the key figure in the central
Ohio title insurance industry, even if he was not the
day-to-day point man with each customer.” Magnuson
challenges this finding by asserting his own view that
he was not an important customer contact by this
time. Such an argument is unavailing at this stage,
since assessing the credibility of various witnesses
was the district court’s responsibility, and the district
court’s finding of fact on this point was not clearly
erroneous. Therefore, this was also a valid factor to
consider in the reasonableness inquiry.
Finally, Magnuson posits that protecting Chicago
Title’s trade secrets and confidential information is
an insufficient reason to justify the Covenant on
these facts because Chicago Title employees were not
required to sign confidentiality agreements and the
company’s information systems were not password
protected. Although this is Chicago Title’s weakest
justification for the Covenant’s necessity, Raimonde
lists the protection of trade secrets as only one item
to consider in assessing reasonableness, so this
potential deficiency is not dispositive of the issue.
Overall, because Chicago Title had critical
customer and employee relationships to protect,
because these relationships directly affected Chicago
Title’s ability to compete in the market, because
13a
Magnuson could influence the continuity of these
relationships, because the Covenant contained
appropriate geographic and temporal limits, because
Magnuson had other means to support himself (i.e.
his law degree), and because at least some of
Magnuson’s_ relationships were established or
strengthened during his employment with Chicago
Title, we find that the district court properly
concluded that the Covenant was reasonable for at
least two years following Magnuson’s departure from
Chicago Title.
B. Grant of Summary Judgment to Chicago
Title on the Contract Claim Against Magnuson
Magnuson next argues that the district court
erred in granting summary judgment to Chicago Title
on the issues of the Covenant’s enforceability and
Magnuson’s breach. Specifically, he claims that (1) he
presented sufficient evidence of a novation to avoid
Chicago Title’s motion for summary judgment, (2) the
evidence, in fact, supported a grant of summary
judgment to Magnuson on _ the _ issue. of
reasonableness, and (3) the court’s decision
prejudiced him at trial. Only the first and third
arguments merit attention here, as we previously
* Magnuson is correct that courts have refused to enforce
covenants not to compete in situations where an employee
possessed skills that were developed prior to the employment
with the party seeking enforcement. See Patio Enclosures, Inc. v.
Herbst, 39 Fed.Appx. 964, 968 (6th Cir.2002); Raimonde, 325
N.E.2d at 547. Here, Magnuson had a wealth of experience in
the title insurance industry prior to joining Chicago Title, which
weighs against enforcement, but he also had ten years of
employment with Chicago Title with which to strengthen his
relationships with its customers, and this factor supports
enforcement.
l4a
affirmed the district court’s finding regarding
reasonableness.
Appellate courts review a district court’s grant of
summary judgment de novo. Leary v. Daeschner, 349
F.3d 888, 896 (6th Cir.2003). Summary judgmert
must be granted if “there is no genuine issue as to
any material fact, and ... the moving party is entitled
to a judgment as a matter of law.” Fed.R.Civ.P. 56(c).
“Initially, the moving party has the burden of proving
that no genuine issue as to any material fact exists
and that it is entitled to a judgment as a matter of
law. To meet this burden, the moving party may rely
on any of the evidentiary sources listed in Rule 56(c)
or on the failure of the nonmoving party to produce
‘more than a mere scintilla of evidence’ which would
create a genuine dispute for the jury. In reviewing
the district court’s decision to grant summary
judgment, we must view all evidence and draw all
reasonable inferences in the light most favorable to
the nonmoving party.” Leary, 349 F.3d at 897
(internal citations omitted). The standard prohibits a
court from making credibility determinations. Arnett
vu. Myers, 281 F.3d 552, 559 (6th Cir.2002).
1. No genuine issue of fact existed regarding
novation
Under Ohio law, “[a] contract of novation is
created where a _ previous valid obligation is
extinguished by a new valid contract, accomplished
by substitution of parties or of the undertaking, with
the consent of all the parties, and based on valid
consideration.” McGlothin v. Huffman, 94 Ohio
App.3d 240, 640 N.E.2d 598, 601 (1994). The party
asserting a novation defense carries the burden of
showing “evidence of clear intent to form a new
contract...."Am. Vineyards Co., Inc. v. Wine Group, 20
15a
Ohio App.3d 366, 486 N.E.2d 854, 857 (1984). The
existence of a novation “will never be presumed.”
Fitness Experience, Inc. v. TFC Fitness Equip., 355
F.Supp.2d 877, 891 (N.D.Ohio 2004) (citing Bolling v.
Clevepak, 20 Ohio App.3d 113, 484 N.E.2d 1367, 1379
(1984)).
Despite Magnuson’s citation of several items in
the record that indicate the Contract may no longer
have been in effect, none of these showed that the
parties agreed on a substitute contract to replace the
earlier one, so the district court did not err in finding
that a novation did not occur here.
2. Evidence of Magnuson’s recruiting activities
was properly admitted at trial
Next, Magnuson alleges that the district court
granted summary judgment on liability without
specifically finding that Magnuson’s recruitment of
Chicago Title employees violated the Covenant. He
cites no authority for his argument that the district
court must have listed all possible ways that the
covenant was breached in order tor the jury to
properly calculate damages. With language as broad
as that in the Covenant prohibiting Magnuson from
engaging in “any business ... whether as owner,
director, officer, investor, employee, or otherwise,
which is in competition with the business of [Chicago
Title] ... in the [counties surrounding Columbus,
Ohio],” a district court need not list all possible ways
that the defendant might violate the covenant in
order te properly grant summary judgment to the
plaintiff on the issue of liability. In addition, such
actions were properly considered on the issue of
proximate cause for the damages that Chicago Title
suffered as a result of Magnuson and First
16a
American’s breach of contract. As a result, the
argument on this point is without merit.
For the above reasons, we affirm the district
court’s grant of summary judgment to Chicago Title
on the issue of Magnuson’s liability for breach of
contract.
C. Grant of Summary Judgment to Chicago
Title on the Tortious Interference Claim
Against First American
The same de novo standard of review that applies
to Magnuson’s argument regarding the district
court’s grant of Chicago Title’s motion for summary
judgment on breach of contract liability governs the
tortious interference issue. First American’s
arguments regarding the district court’s grant of
summary judgment to Chicago Title on the issue of
whether First American tortiously interfered with
Chicago Title’s employment contract and _ the
associated covenant with Magnuson are: (1) Chicago
Title has not proven that a valid contract existed due
to either (i) the Covenant being unenforceable, or (ii)
the alleged novation, and (2) First American
presented sufficient evidence on the issue of intent to
defeat Chicago Title’s motion for summary judgment.
As noted above, the Covenant was enforceable for the
relevant period and Magnuson failed to establish a
novation as a matter of law, so First American’s
initial argument on this point is without merit.
Once the party moving for summary judgment
has met its burden of raising sufficient facts to entitle
its motion to be granted as a matter of law under
Rule 56(c), the opposing party “has an affirmative
duty to direct the court’s attention to those specific
portions of the record upon which it seeks to rely to
create a genuine issue of material fact.” In re Morris,
17a
260 F.3d 654, 665 (6ti, Cir.2001). A district court is
not required to “search the entire record to establish
that it is bereft of a genuine issue of material fact.”
Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479-80
(6th Cir.1989). Furthermore, the Sixth Circuit “will
not entertain on appeal factual recitations not
presented to the district court” when reviewing a
district court’s decision. Guarino v. Brookfield Twp.
Trustees, 980 F.2d 399, 404 (6th Cir.1992). “In
reviewing summary judgment, we look at [the] record
in the same fashion as the district court.” Jd. (quoting
Estate of Mills v. Trizec Prop., 965 F.2d 113, 115 (6th
Cir.1992)).
First American’s appellate brief cites to numerous
items from the record in an attempt to establish that
disputed items of material fact existed regarding its
intent to cause Magnuson to breach his covenant not
to compete with Chicago Title. Under Guarino,
however, our proper focus is on the factual evidence
submitted below.
First American’s sole assertion of fact regarding
this tortious interference claim before the district
court was that First American carved out and
excluded the Columbus area from Magnuson’s
assigned territory. Chicago Title’s undisputed
evidence, however, showed that First American
placed Magnuson in its Columbus office building,
included him in a local title insurance industry
directory, listed his cell phone number as the regional
office number, placed an incoming local phone line on
his desk, included his name on marketing materials,
and had him participate in sales calls to Columbus-
area clients. In the face of such evidence, the district
court did not err in granting summary judgment to
Chicago Title on the issue of liability for tortious
interference because “no reasonable mind could
18a
conclude that ... Talon did not intentionally induce
Magnuson into breaching his contractual obligations”
by placing him in the Columbus market despite the
alleged exception of this territory from his
responsibilities.
For the above reasons, we affirm the district
court’s grant of summary judgment to Chicago Title
on the issue of First American’s liability for tortious
interference.
D. New Trial on Compensatory Damages
Magnuson and First American argue for a new
trial on compensatory damages because the district
court erred by: (1) finding that Chicago Title was a
lost volume seller as a matter of law, and (2)
instructing the jury that the Covenant was
enforceable for the full five-year period.
1. Chicago Title’s duty to mitigate damages
We review the district court’s grant of a motion
for judgment as a matter of law de novo. “The motion
may be granted only if in viewing the evidence in the
light most favorable to the non-moving party, there is
no genuine issue of material fact for the jury, and
reasonable minds could come to but one conclusion, in
favor of the moving party.” Gray v. Toshiba Am.
Consumer Prods., Inc., 263 F.3d 595, 598 (6th
Cir.2001).
In general, an aggrieved party has a duty to
mitigate its damages arising out of a breach of
contract under Ohio law. Young v. Frank’s Nursery &
Crafts, Inc., 58 Ohio St.3d 242, 569 N.E.2d 1034,
1037 (1991). One exception to this rule is a “lost
volume seller” situation, where the aggrieved party
could have made both (i) the sale that was lost due to
the breach, as well as (ii) a second, subsequent sale.
19a
Under such a scenario, traditional contract damages
would not fully compensate the damaged party for its
losses because the second sale would likely mitigate
nearly all of the party’s lost profit damages from the
first sale, thus depriving the party of its profit on the
second sale. To ameliorate this unjust result, Ohio
law allows a damaged lost volume seller to recover its
lost profits from the breached sale in addition to
traditional breach of contract damages. Lake Erie
Boat Sales, Inc. v. Johnson, 11 Ohio App.3d 55, 463
N.E.2d 70, 73 (1983) (citing Ohio Rev.Code §
1302.82(B) (2006), Ohio’s version of § 2-708(2) of the
Uniform Commercial Code prior to the 2003
amendments to Article 2). Although this case involves
services rather than a sale of goods, the lost volume
seller theory extends to service providers in a number
of jurisdictions, and there is no indication that the
Ohio Supreme Court would hold otherwise.’ See
Evergreen Int'l Airlines, Inc. v. Asiana Airlines, 136
Fed.Appx. 95, 97 (9th Cir.2005); Gianetti v. Norwalk
Hosp., 266 Conn. 544, 833 A.2d 891, 897 (2003).
In order to qualify as a lost volume seller,
Chicago Title must prove that it had access to
sufficient supply to make both sales and that it would
have completed the additional sale even if it made the
first sale. Tigg Corp. v. Dow Corning Corp., $62 F.2d
1119, 1130 (3d Cir.1992). Below, First American
attempted to present evidence that Chicago Title had
to turn away business during 2002 because its
existing employees were too busy and the company
did not have physical capacity to hire additional
employees. If believed, this evidence suggests that
* Furthermore, Magnuson and First American do not dispute
that Chicago Title could be considered a lost volume seller even
though it provides only services and not goods.
20a
Chicago Title might not have been able to take on any
additional business beyond that which it ended up
losing to First American and, thus, was not a lost
volume seller. The district court excluded this
evidence, however, because it arose prior to the
relevant damages period that began in March 2003
after Magnuson had influenced other employees and
customers to leave Chicago Title.
“We review a district court’s decision to exclude
evidence for abuse of discretion. ‘Under this standard,
we will leave rulings about admissibility of evidence
undisturbed unless we are left with the definite and
firm conviction that the [district] court ... improperly
applie[d]) the law or use[d] an erroneous legal
standard.” U.S. v. Lucas, 357 F.3d 599, 608 (6th
Cir.2004) (quoting U.S. v. Bartholomew, 310 F.3d
912, 920 (6th Cir.2002) (internal quotations omitted)).
Although this is a deferential standard, existing case
law establishes that the district judge applied the law
incorrectly by excluding evidence of Chicago Title’s
ability to take on new business prior to March 2003.
While Chicago Title provides no cases holding that
such evidence is improper to consider, numerous
courts have recognized the propriety of allowing pre-
breach evidence in making the determination of
whether a party is a lost volume seller. See R.E.
Davis Chem. Corp. v. Diasonics, Inc., 924 F.2d 709,
711 (7th Cir.1991) (citing to evidence that the seller
was “beating the bushes for all _ possible
sales,"““pursued ‘every possible lead,’ and attempted
to ‘identify every possible qualified customer’ in 1984”
prior to the 1985 breach); Ullman-Briggs, Inc. v.
Salton, Inc., 754 F.Supp. 1003, 1009 (S.D.N.Y.1991)
(considering evidence of the seller’s business with the
defendant prior to the breach). Where, as here, a
party is seeking to dispute the other side’s claim that
2la
it is a lost volume seller, evidence of the seller’s
business practices within a year of the breach is
relevant and should have been admitted.
In addition, Magnuson and First American
should also be able to present evidence of Chicago
Title’s post-breach conduct relative to obtaining new
business, as that would be relevant to Chicago Title’s
capacity and ability to take on additional work. This
would not be an improper indicator of whether
Chicago Title did or did not mitigate its damages, so
long as the evidence is limited to the stated purpose
of determining Chicago Title’s ability to service new
customers.
Lastly, Chicago Title argues that it adequately
proved mitigation, which would make the district
court’s decision regarding its status as a lost volume
seller irrelevant. Because neither the district court
nor the jury considered this evidence below, it is
premature for us to make a determination on this
issue.
This is not to say that the evidence conclusively
shows that Chicago Title was or was not a lost
volume seller, but merely that the district court
improperly excluded this evidence from
consideration. With this evidence, a genuine issue of
material fact exists, and a reasonable person could
find that Chicago Title was not a lost volume seller.
Therefore, we reverse the district court’s grant of
Chicago Title’s motion for judgment as a matter of
law that it was a lost volume seller and remand the
case for a new trial on damages on this ground.
2. Enforceability of the Covenant for five years
Magnuson and First American also argue that
this case should be remanded for a new trial on
22a
compensatory damages because the district court
erred in instructing the jury that the Covenant was
valid for the full five-year period. Although we have
found that the Covenant was reasonable for at least a
two-year period, we express no decision one way or
another as to the Covenant’s validity for the full five-
year period as written. This uncertainty does not
affect our previous discussion of the district court’s
grant of summary judgment to Chicago Title on the
question of Magnuson’s liability for breach of the
Covenant, because evidence of his conduct that
breached the Covenant and supported that decision
occurred during the first two years previously
determined to have been a reasonable period to
protect Chicago Title’s legitimate interests. As
Magnuson and First American argue, however, the
district court subsequently instructed the jury that
the Covenant was enforceable through 2006, the full
five-year period. Although the district court had both
sides brief the issue of the full period’s
reasonableness prior to instructing the jury, the court
failed to incorporate its findings of fact on the issue in
any written opinion. The only record is a brief
mention of this instruction in the district court’s
opinion denying Magnuson and First American’s
post-trial motions. This indicates that the jury’s
damage calculation may have improperly considered
actions taken by Magnuson beyond the time when the
Covenant was enforceable.
Numerous Ohio state courts have _ upheld
covenants that extended for three to five years,
finding that a covenant of five years is not per se
unreasonable. See, e.g., Briggs v. Butler, 140 Ohio St.
499, 45 N.E.2d 757, 763 (1942) (upholding a five-year
non-compete provision); Procter & Gamble Co. uv.
Stoneham, 140 Ohio App.3d 260, 747 N.E.2d 268, 276
23a
(2000) (three years); Matrix Corp. v. Faber, 104 Ohio
App. 8, 146 N.E.2d 447, 451 (1957) (five years).
Without any further factual development in the
district court record as to the reasonableness of the
Covenant for a period of five years, however, we are
unable to perform the requisite review under
Raimonde for this longer period of time. For the
above reasons, we affirm the district court’s ruling
that the Covenant was reasonable and enforceable for
at least two years, but reverse for a new trial on
damages on this additional ground.
E. Constitutionality of the Punitive Damages
Award
In contrast to compensatory damages, which are
designed to compensate victims for actual harm
suffered as a result of another’s wrongful conduct, the
purpose of punitive damages is grounded in
retribution and deterrence. Cooper Indus., Inc. v.
Leatherman Tool Group, Inc., 5382 U.S. 424, 432, 121
S.Ct. 1678, 149 L.Ed.2d 674 (2001). The Supreme
Court has overturned jury verdicts awarding punitive
damages that are so large that they constitute
“grossly excessive or arbitrary punishments.” State
Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408,
416, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003). Such
punishments do not put citizens on sufficient notice of
the possible legal repercussions they may face as a
result of their actions, and thus do not satisfy the
Constitution’s guarantee of due process of law. Id. at
416-17, 123 S.Ct. 1513. In State Farm, the Court
confirmed three guideposts for lower courts to use
when considering the constitutionality of a punitive
damage award that were initially enunciated in BMW
of North America, Inc. v. Gore, 517 U.S. 559, 116
S.Ct. 1589, 134 L.Ed.2¢d 809 (1996). Under these
guideposts, a court’s decision must be informed by:
(pase ener emenr ers imeetetinih meester rene iy
24a
“(1) the degree of reprehensibility of the defendant’s
misconduct; (2) the disparity between the actual or
potential harm suffered by the plaintiff and the
punitive damages award; and (3) the difference
between the punitive damages awarded by the jury
and the civil penalties authorized or imposed in
comparable cases.” State Farm, 538 U.S. at 418, 123
S.Ct. 1513 (citing Gore, 517 U.S. at 575, 116 S.Ct.
1589).
“(Clourts of appeals should apply a de novo
standard of review when passing on district courts’
determinations of the constitutionality of punitive
damages awards.” Cooper Indus., 532 U.S. at 436,
121 S.Ct. 1678.
1. Reprehensible nature of First American’s
conduct
“(T]he most important indicium of the
reasonableness of a punitive damages award is the
degree of reprehensibility of the defendant’s conduct.”
Gore, 517 U.S. at 575, 116 S.Ct. 1589. In making this
assessment, the Court has instructed an inquiry into
a number of factors, specifically, whether:
the harm caused was physical as opposed to
economic; the tortious conduct evinced an
indifference to or a reckless disregard of the
health or safety of others; the target of the
conduct had financial vulnerability; the
conduct involved repeated actions or was an
isolated incident; and the harm was the result
of intentional malice, trickery, or deceit, or
mere accident. The existence of any one of
these factors weighing in favor of a plaintiff
may not be sufficient to sustain a punitive
damages award; and the absence of all of
them renders any award suspect. It should be
~ nema
25a
presumed a plaintiff has been made whole for
his injuries by compensatory damages, so
punitive damages should only be awarded if
the defeindant’s culpability, after having paid
compensatory damages, is so reprehensible as
to warrant the imposition of further sanctions
to achieve punishment or deterrence.
State Farm, 538 U.S. at 419, 123 S.Ct. 1513. The
harm here was economic, not physical, and the health
or safety of others were not in danger. Therefore, the
primary considerations to be addressed are Chicago
Title’s financial vulnerability, whether First
American’s conduct was repeated, and the culpability
of First American’s actions. We have already upheld
the district court's finding that First American
intentionally interfered with the Contract, so we are
willing to assume, for sake of argument, that First
American acted maliciously rather than by accident.
As a result, only two of the factors merit discussion
here.
a. Chicago Title was not financially vulnerable
First American presents Chicago Title as the
antithesis of an entity that could be considered to
exhibit financial vulnerability, due to the company’s
large size, as wel! 2s its self-professed status as still
having the number ore position in Ohio a year after
Magnuson’s departure On the other hand, there was
evidence in the record that a realtor in the area
believed that “Chicago Title would be out of business
in six months” as a result of First American’s actions,
that employee morale within Chicago Title “was at
the very bottom,” and that rumors existed that
Chicago Title was no longer a viable company.
Regardless of the cases cited by the parties, the
decisive fact on the instant record is Chicago Title’s
26a
own testimony that it maintained the number one
position in Ohio a year after Magnuson left. Such
evidence indicates a general lack of financial
vulnerability on Chicago Title’s part, despite the
initial predictions that the company was placed in
dire straits following First American’s actions. If
First American’s conduct was insufficient to unseat
Chicago Title as the top player in this market within
a year, it would violate the plain meaning of the term
to hold that Chicago Title was financially vulnerable.
On these facts, Chicago Title does not meet the
criteria for being a financially vulnerable victim, and
the district court incorrectly found this factor to be
present.
b. First American’s conduct was not repeated
against other companies besides Chicago Title
In Bach v. First Union Nat'l Bank, 149 Fed.Appx.
354, 356 (6th Cir.2005), and citing to Gore, we
interpreted the repeated conduct factor to “require
that the similar reprehensible conduct be committed
against various different parties rather than repeated
reprehensible acts within the single transaction with
the plaintiff.” Chicago Title argues that this
interpretation disregards another teaching of State
Farm, illustrated in our recent decision in Clark uv.
Chrysler Corp., 436 F.3d 594, 609-10 (6th Cir.2006),
that the court is not to consider actions taken outside
of the forum state when awarding punitive damages.
Chicago Title’s argument overlooks a distinction
between two different aspects of the analysis. When
assessing whether the defendant’s behavior was
sufficiently reprehensible to support an award of
punitive damages, the Supreme Court has noted that
consideration of the defendant’s conduct against
other parties across the country is instructive to the
27a
analysis. State Farm, 538 U.S. at 419, 123 S.Ct. 1513.
When it comes to assessing the amount of damages
awarded, however, such information is not to be
considered, as that would allow a court to punish
behavior outside of its jurisdiction that might be
lawful in the second state.° Jd. at 420, 123 S.Ct. 1513.
Here, therefore, Chicago Title’s argument that we
should disregard Bach as inconsistent with the
principles of State Farm is misplaced.
In this case, Chicago Title presented evidence
that First American’s conduct of hiring experienced
individuals from other title insurance companies was
part of its nationwide expansion plan, but the district
court did not find that First American engaged in the
same type of tortious behavior against other
competitors that it displayed against Chicago Title.’
Without an indication that First American employed
tortious tactics against other competitors, its actions
here were not repeated, as we have interpreted this
factor of the reprehensibility analysis.
* Similarly, the Court recently affirmed this distinction in
reversing a punitive damages verdict that was possibly based
upon harm to other individuals who were not parties to the case
at bar, although such evidence could be relevant to the
reprehensibility issue. Philip Morris USA v. Williams, 549 U.S. -
---, 127 S.Ct. 1057, 1064, 166 L.Ed.2d 940 (2007).
" Chicago Title’s argument that the district court “precluded [it]
from introducing evidence of similar misconduct by [First
American] in another market” does not have merit. A review of
that portion of the trial transcript reveals that Chicago Title
was merely using a deposition from another case against First
American for impeachment purposes, and not attempting to
demonstrate similar conduct in other markets.
———
28a
c. First American’s conduct was not sufficiently
reprehensible to support a punitive damage
award
By meeting a higher number of _ the
reprehensibility factors, a plaintiff has a better
chance of supporting a jurys award of punitive
damages. In State Farm, however, the Supreme
Court did not set a threshold number of the five
factors that must be met in order for the defendant’s
conduct to be sufficiently reprehensible. In fact, the
Court stated that the existence of one factor might
not be enough, but left open the possibility that an
award could still be upheld even if none of the factors
were present.”
Here, the only factor present is that First
American acted with malice. Especially because there
were no physical injuries or threat to personal safety
as a result of First American’s conduct, and because
Chicago Title was not a financially vulnerable victim,
the fact that First American acted maliciously is
insufficient to support a finding that First American’s
behavior was sufficiently reprehensible for an award
of punitive damages. As the Supreme Court
instructed in State Farm: “It should be presumed a
plaintiff has been made whole for his injuries by
compensatory damages, so punitive damages should
only be awarded if the defendant’s culpability, after
having paid compensatory damages, is_ so
reprehensible as to warrant the imposition of further
sanctions to achieve punishment or deterrence.” 538
U.S. at 419, 123 S.Ct. 1513. Therefore, an award of
* “The existence of any one of these factors weighing in favor of a
plaintiff may not be sufficient to sustain a punitive damages
award; and the absence of all ef them renders any award
suspect.” State Farm, 538 U.S. at 419, 123 S.Ct. 1513.
29a
punitive damages is inappropriate here, and we
reverse the district court on this issue.’
Ill
For the foregoing reasons, we AFFIRM the district
court’s opinion in part, REVERSE in part, and
REMAND this case to the district court for a new
trial on compensatory damages consistent with this
opinion.”
* Since punitive damages are inappropriate in this case due to
insufficient reprehensibility of First American’s conduct, a
number of its additional arguments are now irrelevant: (1) the
two remaining guideposts from State Farm (that the ratio
between punitive and compensatory damages was too high, and
a consideration of similar civil and criminal penalties), (2) that
Ohio law and the Ohio state constitution prohibit punitive
damages in this case, (3) that Chicago Title’s trial conduct
prejudiced the jury, and (4) that the case should be remanded
for remittitur of the punitive damages award. Thus, we need not
address these issues further.
Although we decline to reverse the district court on the issue
that the jury instructions did not distinguish between the
damages arising from Magnuson's breach of contract and First
American’s tortious interference with the contract, we note that
it is usually proper trial practice to do so. Here, the
unavailability of punitive damages and the fact that First
American indemnified Magnuson reduce the possible prejudicial
effect from the omission. Still, the differing legal characteristics
of contract and tort claims suggest that it is typically prudent to
request that the jury assign an independent damage figure to
each separate theory of recovery.
30a
Appendix B: Opinion of the U.S. District Court
for the Southern District of Ohio dated
September 26, 2005
UNITED STATES DISTRICT
COURT FOR THE SOUTHERN
DISTRICT OF OHIO,
EASTERN DIVISION
CHICAGO TITLE INSURANCE CORPORATION,
Plaintiff,
Vv.
JAMES A. MAGNUSON, et al., Defendants.
Case No. 2:03-cv-368
2005 U.S. Dist. LEXIS 43884
September 26, 2005, Filed
OPINION AND ORDER
This matter is before the Court for consideration
of the following sets of filings:
(1) a motion for judgment as a matter of law or a
new trial, or, in the alternative, motion for remittur
based upon punitive damages issues (Doc. # 192) filed
by Defendant First American Title Insurance
Company (“First American”); a memorandum in
support of that motion (Doc. # 206); a memorandum
in opposition (Doc. # 215) filed by Chicago Title
Insurance Corporation (“Chicago Title”); and a reply
memorandum (Doc. # 220) filed by First American;
(2) a motion for judgment as a matter of law or a
new trial based upon causation and compensatory
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damages issues (Doc. # 193) filed by First American;
a memorandum in support of that motion (Doc. #
207); a memorandum in opposition (Doc. # 216) filed
by Chicago Title; and a reply memorandum (Doc. #
219) filed by First American;
(3) a motion for judgment as a matter of law or a
new trial (Doc. # 194) filed by Defendant James
Magnuson; a memorandum in support of that motion
(Doc. # 208); a memorandum in opposition (Doc. #
214) filed by Chicago Title; and a reply memorandum
(Doc. # 224) filed by Magnuson;
(4) a motion for entry of permanent injunction
(Doc. # 196) and supporting memorandum (Doc. #
197) filed by Chicago Title; a memorandum in
opposition (Doc. # 213) filed by First American; and a
reply memorandum (Doc. # 222) filed by Chicago
Title; and
(5) a motion for determination and entry of award
of attorneys’ fees and costs (Doc. # 198) filed by
Chicago Title; a memorandum in opposition (Doc. #
212) filed by First American; and a _ reply
memorandum (Doc. # 223) filed by Chicago Title.
I. Background
In 1978, Magnuson and a business partner,
James Steller, formed a title insurance agency known
as Northern Title Insurance Agency (later known as
Chicago Title Agency of Central Ohio, Incorporated).
In July 1991, Magnuson, Steller, and four other
business partners later added as shareholders sold
their interests in their company to the legal
predecessor of Chicago Title, which is a national title
insurance underwriter that does business in Ohio. As
part of this sale, the parties entered into a 1991
purchase agreement that required the sellers,
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including Magnuson, to enter into employment
contracts with Chicago Title that would contain non-
competition clauses. (Doc. # 21, Ex, A, Purchase
Agreement, at 6 § 10.) Magnuson’s employment
contract therefore contained a _ section entitled
“Competitive Employment,” which provided in
relevant part:
For a period of five years after the term of
this Agreement, [Magnuson] shall not, except
with prior written consent of [Chicago Title],
directly or indirectly, engage in any business,
including that of a title insurance agency ...
whether as owner, director, officer, investor,
employee or otherwise, which is in
competition with the business of [Chicago
Title] or any affiliates of [Chicago Title] in the
Counties of Franklin, Union, Madison,
Delaware, Licking, Fairfield and Pickaway, in
the State of Ohio. Any breach of this covenant
shall be sufficient to permit [Chicago Title] to
terminate this Contract for cause and also, at
its option to be entitled to injunctive relief
against [Magnuson] in a court of appropriate
jurisdiction enforcing this restriction.
(Ex. P-4, Employment Contract, at 3.) Absent early
termination for inapplicable reasons specified in the
contract, Magnuson’s employment was originally set
to terminate on June 30, 1996. (Doc. # 21, Ex, A,
Employment Contract, at 1.) Magnuson and Chicago
Title subsequently amended the employment contract
in June 1993, however, extending its duration until
December 31, 2001. (Doc. # 21, Ex. A, First
Amendment to Employment Contract, at 1.) The
amendment did not expressly modify the non-
compete clause and provided that “[lelxcept as
expressly modified herein, all other terms and
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provisions of the said Employment Contract shall
remain in effect and unchanged.” (Doc. # 21, Ex. A,
First Amendment to Employment Contract, at 2.)
Magnusom continued to work in_ various
capacities for Chicago Title, Fidelity, Security Union,
and Ticor until his resignation on December 2, 2002.
He then began to work as an employee and officer of
Talon Title--also known as The Talon Group--which is
a division of First American, a title insurer that
competes with Chicago Title in Ohio and elsewhere.
The negotiations between Magnuson and First
American initially contemplated that Magnuson
would be in charge of Talon’s Ohio and Indiana
operations. After Magnuson disclosed his non-
competition covenant with Chicago Title, however,
Magnuson and Talon included the following provision
in his Talon/First American employment agreement:
[Magnuson] has informed [Talon] that in
connection with the sale of a prior business
there was a covenant not to compete that
covered certain counties in the Columbus,
Ohio metropolitan area. In no event do either
of the parties hereto want or intend
[Magnuson] to violate this covenant not to
compete. Therefore, subject to the terms and
conditions of this Agreement, [Talon] employs
[Magnuson] to serve in an executive and
managerial capacity as Vice President
managing the states of Indiana and Ohio
(except the Columbus metropolitan area) as
well as a [sic] providing assistance in other
areas especially the state of Florida.
(Doc. # 52, Ex. 7, Employment Agreement, at 1 § 1.)
An additional provision indemnified Magnuson
against
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an action brought by a third party ... to
impose liability or penalty ... for an act
alleged to have been committed by
[Magnuson] while [Magnuson] was employed
by and acting in good faith on behalf of
[Talon], within the scope of his job
responsibilities and for a purpose which
[Magnuson] reasonably believed to be in the
best interests of [Talon or its shareholders].
(Doc. # 52, Ex. 7, Employment Agreement, at 4 § 12.)
In addition to assisting in Talon’s development of
Ohio business, Chicago Title asserts, Magnuson has
also been involved in the successful recruitment of
thirty-two individuals from Chicago Title to work for
Talon.
On April 24, 2003, Chicago Title initiated this
action (Doc. # 1), later amending its Complaint to
assert only the following three claims: breach of
contract against Magnuson, seeking damages and
enforcement of the non-competition agreement;
tortious interference with contractual relations
against First American/Talon, for purportedly
interfering with the Magnuson-Chicago Title non-
competition agreement; and tortious interference
with business relations against Talon and Magnuson,
for hiring employees away from Chicago Title to
Talon. Magnuson in turn asserted a counterclaim
against Chicago Title and a third-party complaint
against Ticor and Fidelity for their refusal to pay him
a 2002 bonus and incentive compensation, as well as
for breach of the 1991 employment agreement and
the 1993 amendment. (Doc. # 91, at 8 PP 1-4.)
All the parties moved for summary judgment. In
arn August 25, 2005 Opinion and Order (Doc. # 98),
the Court granted summary judgment on liability
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only in favor of Chicago Title on several aspects of the
case, but found that genuine issues of material fact
precluded entry of summary judgment on other
remaining aspects of the case. The matter proceeded
to a jury trial on January 3, 2005. On January 25,
2005, the jury returned a verdict in favor of Chicago
Title and against First American and Magnuson in
the amount of $ 10.8 million in compensatory
damages and $ 32.4 million in punitive damages.
(Doc. # 185.)
Following entry of judgment (Docs. # 187, 188),
First American filed two motions for judgment as a
matter of law or a new trial (Docs. # 192, 193),
Magnuson filed one motion for judgment as a matter
of law or a new trial (Doc. # 194), and Chicago Title
filed a motion for entry of a permanent injunction
(Doc. # 196) and a motion for attorneys’ fees and costs
(Doc. # 198). The parties have exhaustively briefed
the issues involved, and these motions are now ripe
for adjudication.
II. Defendants’ Motions
A. Standards Involved
Defendants’ motions join two types of requests: a
motion for judgment as a matter of law under Federal
Rule of Civil Procedure 50(6) and a motion for a new
trial under Rule 59. The Sixth Circuit has explained
that “[a] judgment as a matter of law pursuant to
Federal Rule of Civil Procedure 50(b) may only be
granted where, in viewing the evidence in the light
most favorable to the non-moving party, no genuine
issue of material fact remains for the jury, and all
reasonable minds would necessarily find in favor of
the moving party.” Bach v. First Union Nat'l Bank,
149 Fed. Appx. 354, 2005 WL 2009272, at *5 (6th Cir.
2005) (citing Gray v. Toshiba Am. Consumer Prod's.,
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Inc., 263 F.3d 595, 598 (6th Cir.2001)). In conducting
this inquiry, a court cannot weigh the evidence,
evaluate the credibility of the witnesses, or substitute
its judgment for the jury verdict. 149 Fed. Appx. 354,
[WL] at *5 (quoting Wehr v. Ryan’s Family Steak
Houses, Inc., 49 F.3d 1150, 1152 (6th Cir. 1995)).
A court can grant a new trial under Rule 59 “for
any of the reasons for which new trials have
heretofore been granted in actions at law in the
courts of the United States.” Fed. R. Civ. P. 59(a)(1).
Thus, a new trial is warranted “where the jury has
reached a seriously erroneous result, as evidenced by
(1) the verdict being against the weight of the
evidence, (2) the damages being excessive, or (3) the
trial being unfair to the moving party in some
fashion.” Medlin v. Clyde Sparks Wrecker Serv., Inc.,
59 Fed. Appx. 770, 776 (6th Cir. 2003) (citing Holmes
vu. City of Massillon, 78 F.3d 1041, 1045-46 (6th Cir.
1996)).
B. First American’s Motion on Punitive
Damages Issues (Doc. # 192)
First American predicates its motion for
judgment as a matter of law or for a new trial on
three basic grounds. None of these grounds are well
taken.
1. Evidence of Malice
The company first argues that Chicago Title failed to
prove malice as required under Ohio law. Proving
malice is indeed a prerequisite for recovering punitive
damages, because
Ohio law provides that an award of punitive
damages is available only upon a finding of
actual malice. Berge v. Columbus Community
Cable Access (1999), 136 Ohio App.3d 281,
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316, 736 N.E.2d 517. The “actual malice”
necessary for purposes of an award of
punitive damages has been defined as “(1)
that state of mind under which a person’s
conduct is characterized by hatred, ill will or
a spirit of revenge, or (2) a conscious
disregard for the rights and safety of other
persons that has a great probability of
causing substantial harm.” /d., quoting
Preston v. Murty (1987), 32 Ohio St.3d 334,
512 N.E.2d 1174, syllabus.
Kemp v. Kemp, 161 Ohio App. 3d 671, 681, 2005 Ohio
3120, 831 N.E.2d 1038, 1045 (Ohio App. dth Dist.
2005). See also Calmes v. Goodyear Tire & Rubber
Co., Inc., 61 Ohio St. 3d 470, 473, 575 N.E.2d 416,
419 (1991).
First American’s argument is premised in part on
the remarkable assumption that the jury believed its
evidence that the company proceeded “in a cautious
and good faith manner” in employing Magnuson and
that it “was taking reasonable precautions to protect
Chicago Title’s interests, not disregard them.” (Doc. #
206, at 7, 8.) But such a circular, self-serving
contention ignores that the incredulous jury was free
to disbelieve the often impeached testimony of First
American’s witnesses. The jury was free to conclude
that First American did not in fact make any attempt
whatsoever to follow the course of conduct in which
the company claims to have engaged. In other words,
just because First American said it did something or
offered an innocent explanation for what it did does
not mean that the jury was required to believe that
such proper conduct occurred or that the company did
not act with malicious intent. The jury was free to
evaluate the credibility of the witnesses, weigh the
evidence (including reasonable inferences), and draw
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its own conclusions as to First American’s conduct
and intent.
Equally dubious is First American’s alternate
premise that it was punished for seeking greater
marker share within its industry or for engaging in
“industry-appropriate” recruiting practices that are
the norm in its industry. Again, First American’s
loaded premise begs the answer, but the company
again errs in framing the issue. Chicago Title did not
argue that malice existed based on mere competition,
but instead asserted that First American’s competing
by improper means reflected malice. Further, there
was little evidence supporting First American’s
“industry norm” argument, and even if there were,
even industry-wide impropriety does not excuse the
specific misconduct involved here. It is axiomatic that
a party cannot excuse its tortious conduct by pointing
to the alleged tortious conduct of its peers. It is also
axiomatic that the jury was free to determine
whether the impropriety involved here indicated
malice or simple unfair business practices. The jury
obviously found that malice existed.
Similarly unpersuasive is First American’s
reasoning that no malice could be found in the
compensation scheme the company set for Magnuson.
Just as First American errs in continuing to regard
the indemnity agreement as impermissible evidence,
the company also errs in arguing that because
Magnuson never actually received any bonus or stock
related to Ohio profits, he could not have been
motivated by the possibility of receiving such
additional compensation. This is an illogical inference
that the jury was free to reject, just as the jury was
free to reject the company’s explanation that the
compensation scheme was the product of mere
oversight.
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Also unconvincing is First American’s argument
that Chicago Title misled the jury into finding malice
based on the fact that First American defended itself
at trial. In making this argument, First American
either unintentionally misconstrues or purposefully
mischaracterizes much of the substance of Chicago
Title’s closing.
The Court agrees with First American that
counsel for Chicago Title pointed tu the fact that First
American earns approximately $2.0 million in net
profit per day, noted that the trial took approximately
fifteen days, and asked for a minimum of $2.0 million
in punitive damages for each of those days. But these
closing remarks targeted the amount of punitive
damages Chicago Title sought, not the factual
predicate for awarding those damages. (The Court
also recognizes that the jury apparently simply
evaluated the compensatory damages involved in this
case--presumably in light of First American’s $2.0
million a day in net profits--and tripled the
compensatory damages award to arrive at its
punitive damages award.) This does not equate to
punishing a party for exercising its right to litigate
its interests, and there is no actual evidence here that
the jury did such a thing in this case. Further,
despite First American’s strategic labeling of Chicago
Title’s closing as “a thinly-veiled attack on the Court”
for having let the matter proceed to trial (Doc. # 206,
at 11), the Court itself finds no basis here for
granting the paternalistic First American’s joint
motion.
In its memorandum in opposition, Chicago Title
has exhaustively and correctly set forth the predicate
evidentiary chain that can support the jury’s punitive
damages award. The Court need not repeat that
evidence here in more detail than the above
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references. But the Court must note that viewing all
the evidence in a light most favorable to the non-
moving Chicago Title, the Court cannot say that First
American is entitled to judgment as a matter of law.
Further, given the jury’s ability to wholly disregard
the testimony of First American’s witnesses, the
Court also cannot say that the jury’s verdict was
against the weight of the evidence so as to warrant a
new trial.
2. Jury Instructions and Interrogatories
As a second ground for invalidating the jury’s
punitive damages award, First American contends
that there were errors in the instructions and
interrogatories submitted to the jury. Specifically, the
company asserts that the instructions did not include
the proper standard for awarding punitive damages
and that the interrogatories failed to provide for
separate assessment of the contract and tort damages
to sustain a compensatory or punitive damages
award.
Chicago Title initially responds to _ both
allegations by pointing out that because First
American failed to object to the pertinent instructions
and interrogatories, the company lost the right to
assert error now. Chicago Title correctly directs this
Court to Federal Rule of Civil Procedure 51, which
requires an objection on the record to “an instruction
or the failure to give an instruction.” Fed. R. Civ. P.
51(c)(1). The consequent waiver that a failure to
object produces also extends to the failure to object to
jury interrogatories. Johnson v. Howard, 24 Fed.
Appx. 480, 485 (6th Cir. 2001).
First American in turn directs this Court to case
law indicating that the mere request for an
instruction preserves the issue. What First American
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does not discuss, however, is that after much
discussion at the charging conference, its trial
counsel expressly elected to pursue only select
objections. These five objections, set forth at pages
3203 to 3205 of the trial transcript, simply do not
include the punitive damages issues First American
now asserts, and defense counsel expressly stated
that he had no further objections than these five
when later given another opportunity to object. (Tr.
at 3423-24.) Accordingly, in light of the fact that trial
counsel either had apparently elected to abandon the
issues sub judice or had determined that their
arguments were substantively deficient, the Court
concludes that First American forfeited or abandoned
its allegations of the purported errors in the
instructions and interrogatories and can now only
assert its arguments as plain error.
Even assuming arguendo that First American did
not forfeit its arguments, the Court finds these
arguments substantively wanting. First American
complains that the Court delivered an incomplete
instruction to the jury by failing to tell the jury that
Chicago Title had to adduce procf of actual damages
that resulted from its malicious or fraudulent acts or
omissions. But the Court instructed the jury as
follows:
Chicago Title also brought suit against First
American claiming that First American knew
about the terms of the noncompetition
provision of the contract that Mr. Magnuson
had with Chicago Title and interfered with
the contract by inducing Mr. Magnuson to
breach his contract with Chicago Title. The
Court already found that First American did
interfere with the employment contract
between Mr. Magnuson and Chicago Title by
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inducing Mr. Magnuson to breach it.
Therefore, as to First American, the question
for you to decide -- questions for you to decide
are whether Chicago Title proved by a
preponderance of the evidence that First
American proximately caused Chicago Title to
suffer compensatory damages, and if so, how
much. If you find that Chicago Title is
entitled to compensatory damages, you will
decide whether Chicago Title has proved by
clear and convincing evidence that it is
entitled to punitive damages.
(Tr. at 3401-02.) The Court also instructed the jury a
few moments later:
[Yjou must decide whether Chicago Title
proved by a preponderance of the evidence
that First American proximately caused
compensatory damages to Chicago Title. If
you find that First American proximately
caused these damages to Chicago Title, then
you must decide what amount of
compensatory damages, if any, that Chicago
Title proved by a preponderance of the
evidence should be awarded.
The compensatory damages claim by Chicago
Title for Mr. Magnuson’s breach of contract
and for First American’s__ intentional
interference with contractual relations are
the same. Chicago Title claims that its
compensatory damages for both claims
include, among other items of damage, the
lost profits from customers that moved. If you
find that Chicago Title proved by a
preponderance of the evidence that it suffered
compensatory damages proximately caused
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by First American, then you must further
decide whether Chicago Title proved by clear
and convincing evidence that First American
is liable for punitive damages, and if so, in
what amount.
(Tr. at 3403-04.) And the Court later repeated this
point, explaining:
The compensatory damages available to
Chicago Title in its claim against First
American are the same as are available on
the claim against Mr. Magnuson. If you find
for Chicago Title and award compensatory
damages on its claim against First American,
you will proceed further to decide whether
you will separately award punitive damages
against First American. If you do not find
compensatory damages, you cannot consider
punitive damages.
You will decide whether First American shall
be liable for punitive damages in addition to
any compensatory damages that you award to
Chicago Title for interference for contractual
relations. The purpose of punitive damages is
to punish the offending party and to make the
offending party an example to discourage
others from similar conduct. You may decide
that First American is liable for punitive
damages if you find by clear and convincing
evidence that First American's acts or failures
to act demonstrated malice, aggravated or
egregious fraud, oppression, or insult.
(Tr. at 3408.) These instructions told the jury that it
could not award punitive damages without first
awarding compensatory damages on the tort claim
against First American. The instructions also
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explained that the jury could not award punitive
damages without finding by clear and convincing
evidence that First American’s acts or failures to act
demonstrated malice, aggravated or egregious fraud,
oppression, or insult. This satisfies the substance of
the model instruction First American references
because it predicates the award of punitive damages
on malicious acts or omissions that produced tort-
related compensatory damages; the instruction does
not enable the jury to consider other malicious acts,
even if stray comments by Chicago Title’s counsel
referenced other acts. The jury therefore was
informed that the essence of Chicago Title’s case was
that the out-of-the-ordinary, improper, and malicious
conduct caused compensatory damages and that only
acts causing these damages--not trial conduct--could
provide a basis for punitive damages. The Court
agrees with Chicago Title that to the extent First
American argues otherwise, First American
mischaracterizes the litigation.
The Court emphasized in its instructions that any
compensatory damages arising from the tort were
necessarily the same as any compensatory damages
arising from the breach of contract. The latter flowed
from the former, and as cited above, the Court
emphasized that only compensatory damages for the
tort could lead to punitive damages. (Tr. at 3408 (“If
you find for Chicago Title and award compensatory
damages on its claim against First American, you will
proceed further to decide whether you will separately
award punitive damages against First American. If
you do not find compensatory damages, you cannot
consider punitive damages.”).) Moreover,
Interrogatory No. 3 targeted the total amount of
compensatory damages, and given the evidence
produced and the amount the jury awarded, any
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suggestion that the jury doubled the compensatory
damages is uncertain, speculative, and unwarranted.
Johnson, 24 Fed. Appx. at 486. Interrogatory No. 4 in
turn asked the jurors to answer whether any of the
compensatory damages indicated in Interrogatory No.
3 were proximately caused by First American.
Because the Court repeatedly told the jury that the
compensatory damages available in the contract
claim were the same as in the tort claim, the fourth
interrogatory functioned to test whether the
compensatory damages awarded against First
American could enable punitive damages. This was a
scheme with wording upon which all parties agreed
(Tr. at 3201)--after much discussion and suggestions
by the Court and counsel during the charging
conference--and to which no party objected (Tr. at
3422). The Court is frankly surprised that First
American would now argue otherwise, despite the
presence of new counsel. Presumptively, new counsel
has reviewed what occurred at the charging
conference with First American’s trial counsel (who
still represent Magnuson) and should be aware of the
fact that all parties accepted the interrogatories,
which were ultimately the product of discussions with
counsel. Thus, even if the interrogatories were in
error, the concept of invited error applies here.
Moreover, again assuming arguendo that the
instructions or interrogatories were confusing, the
evidence presented and counsel’s own explanations to
the jury of what punitive damages were possible
preclude any prejudice to First American. See
Coggins v. KILLM, Inc., 146 Fed. Appx. 9, 2005 WL
1869512, at *2 (6th Cir. 2005) (citing the evidence
presented and counsel’s closing remarks as clarifying
verdict forms for the jury so as to preclude prejudice).
The interrogatory responses and damages awarded
46a
reconcile with the evidence presented at trial;
Chicago Title claimed approximately $13 million in
compensatory damages and the jury awarded
approximately $10 million in compensatory damages.
Further, Chicago Title’s counsel explained to the jury:
The focus is not on what Jim Magnuson did
in consciously disregarding anything.
[Chicago Title] is not asking for punitive
damages against Jim Magnuson, we can't get
punitive damages against Jim Magnuson.
The tort claim, the intentional inducement, is
against First American Title Insurance
Company.
(Tr. at 3385-86.) Such comments target the core
punitive damages issue: that such damages were tied
only to the tort compensatory damages and the tort
was against only First American. The end result is
that the jury was fully informed that (1) any
compensatory damages resulting from Magnuson’s
contractual breach flowed from First American’s
tortious inducement of that breach, (2) there could be
no different compensatory damages for the tort than
there could be for the breach of contract, and (3) the
compensatory damages resulting from the tort were
the only damages that were of import to the punitive
damages issue. First American’s arguments to the
contrary are unpersuasive.
3. Federal Due Process and State Limitations on
Damages
First American argues that the punitive damages
award at issue in this case violates the Due Process
Clause of the United States Constitution and Section
16, Article I of the Ohio Constitution, as well as state
court precedent. The company also asserts that the
punitive damages award is against the weight of the
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evidence and is the product of a jury infected by
passion and prejudice. Alternatively, First American
seeks a remittitur of the award.
The key issue here is whether the jury’s punitive
damages award, which is presumptively valid, was
grossly excessive. The Sixth Circuit has explained the
necessary analysis:
The Supreme Court’s approach to reviewing
the constitutionality of a punitive damage
award is laid out in the [case of State Farm
Mutual Automobile Insurance Company v.
Campbell, 538 U.S. 408, 123 S. Ct. 1513, 155
L. Ed. 2d 585 (2003)]. In State Farm, the
Supreme Court noted that punitive awards,
designed as tools of deterrence and
retribution, have upward limits imposed by
the elementary notions of fairness contained
in the Due Process Clause. 538 U.S. at 416-
17. The Supreme Court laid out three
guideposts for courts to consider in reviewing
the constitutionality of punitive damage
awards: (1) the reprehensibility of the
defendant’s conduct; (2) the disparity between
the actual harm suffered by the plaintiff and
the size of the punitive damage award; and
(3) the difference between the punitive
damages awarded and the civil or criminal
penalties imposed or _ authorized for
comparable misconduct. Id. at 418.
Bach, 149 Fed. Appx. 354, 2005 WL 2009272, at *8.
This Court shall therefore address each guidepost or
factor in turn.
In regard to the first guidepost, the Court
initially concludes that the reprehensibility of
Defendants’ conduct supports the punitive damages
48a
awarded. In reaching this conclusion, the Court is
guided by the relevant indicators of reprehensibility
that govern such an inquiry:
(1) whether the harm caused was physical or
economic; (2) whether the conduct showed an
indifference or reckless disregard for the
health or safety of others; (3) whether the
target of the conduct was financially
vulnerable; (4) whether the conduct involved
repeated actions or was merely the result of
an isolated instance; and (5) whether the
harm was caused by intentional malice,
trickery or deceit or was rather accidental.
Bach, 149 Fed. Appx. 354, 2005 WL 2009272, at *9
(State Farm, 538 U.S. at 419). Here, the harm
involved was undeniably solely economic, which leads
to two conclusions. First, as Chicago Title notes, the
United States Supreme Court has recognized that
“(the] infliction of economic injury, especially when
done intentionally through affirmative acts of
misconduct ... or when the target is financially
vulnerable, can warrant a substantial penalty.” BMW
of North America, Inc. v. Gore, 517 U.S. 559, 576, 116
S. Ct. 1589, 134 L. Ed. 2d 809 (1996) (citation
omitted). Although “this observation does not convert
all acts that cause economic harm into torts that are
sufficiently reprehensible to justify a _ significant
sanction in addition to compensatory damages,” id., it
also does not mean that substantial punitive
damages are not wholly appropriate for only economic
damages. Second, “because [Defendants’] actions
occurred in the ‘economic realm,’ it cannot be said
that the tortious conduct displayed an indifference or
reckless disregard for the health and safety of others.
Therefore, the second indicator of reprehensibility is
not met.” Jd.
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The third factor, whether Chicago Title was
financially vulnerable, is less clear cut. The larger
Chicago Title company certainly possessed a more
substantial ability to absorb the damage caused by
Defendants than its subdivisions viewed separately.
Also less than dispositive is the fact that although
Defendants’s conduct involved repeated actions
spread out over a notable period of time, the jury was
not permitted to consider evidence of a nationwide
pattern of allegedly tortious conduct, such as the
Arizona case. See Bach, 149 Fed. Appx. 354, 2005 WL
2009272, at *9 (explaining that State Farm
apparently requires inquiring whether misconduct
replicates prior transgressions). In this case, then,
although the Court was informed of numerous other
instances of similar conduct nationwide-about which
the Court expresses no opinion as to whether they
create liability--the jury only considered that there
was not one infraction but multiple infractions
involved in Defendants’ business plan to profit from
their misconduct here. Finally, the harm inflicted by
Defendants was not accidental but was caused by
intentional malice, trickery or deceit. Defendants’
misconduct formed the foundation of their business
plan and can in no way be regarded as mere accident.
The jury in fact specifically found that Defendants’
misconduct evinced malice, and the fact that Chicago
Title placed First American’s wealth before the jury
to inform the amount of damages does not mean that
the jury relied upon such information to determine
whether any such damages were justified. First
American’s contrary proposition is unfounded
speculation that finds no more support in the record
than does its assertion that Chicago Title
impermissibly used it’s opponents’ out-of-state status
to justify punitive damages.
50a
The Court thus concludes that Chicago Title’s
Ohio operation presented a financially vulnerable
victim subject to malicious acts of trickery and deceit.
At least two of the reprehensibility factors therefore
exist, distinguishing this case from the one-factor
Bach and providing some support for a finding of
reprehensibility.
The second guidepost to be addressed is the
disparity between the harm Chicago Title suffered
and the size of the punitive damages awarded. This
inquiry requires that the Court examine the ratio
between the amount of actual or compensatory
damages that Chicago Title suffered and the punitive
damages awarded. 149 Fed. Appx. 354, [WL] at *10.
The damages ratio here is precisely 3:1--$ 32.4
million punitive damages in relation to $ 10.8 million
compensatory damages.
There is no bright-line rule for when a punitive
damages award is unconstitutional, although the
Supreme Court has explained that “awards exceeding
a single-digit ratio will rarely be upheld against a
constitutional challenge” with “a four-to-one ratio ...
‘close to the line of constitutional impropriety.” Id.
(quoting State Farm, 538 U.S. at 424-25). Further,
“where the amount of compensatory damages is high,
a lesser amount of punitive damages, perhaps only in
an amount equal to the compensatory damages, may
comport with due process.” Id. (citing State Farm, 538
U.S. at 425).
First American argues that State Farm and its
progeny indicate that when only economic damages
are involved, at best a 1:1 ratio of punitive to
compensatory damages comports with due process.
The company cites to a number of cases presented to
support this general proposition. But these cases do
5la
not carry the day here, because they are
distinguishable insofar as the case sub judice involves
a particularly egregious act. No binding precedent
imposes a limit of a ratio of 1:1, and for the Court to
impose one here would be to abuse its discretion by
invading the province of the jury. The facts and
circumstances of this case and the gravity of the
harm to Chicago Title support upholding the punitive
damages award. State Farm, 538 U.S. at 415. The
United States Supreme Court recognized that well
over five hundred years of jurisprudence support
“sanctions of double, treble, or quadruple damages to
deter and punish.” Jd. This Court should not and will
not ignore that principle here, just as numerous other
courts to which Chicago Title cites have not ignored
that principle. See Doc. # 215, at 27 (collecting cases
upholding punitive damages awards exceeding 1:1
ratio).
The Court disagrees with Chicago Title’s theory
that the punitive damages award could also be
upheld on the grounds that it functions to
compensate the company for losses sustained beyond
the period contemplated by the compensatory
damages award. (Doc. # 215, at 27-28.) Such
reasoning runs directly contrary to the dual purposes
of deterrence and punishment recognized under both
federal and state law as justifying punitive damages.
There is no evidence here that the jury applied such a
“future losses” theory in arriving at the punitive
damages here, and to the extent that Chicago Title
attempts to rely on that theory now, the dubious
attempt is wholly and absolutely unpersuasive.
This leaves the third and final guidepost for
determining whether the amount of punitive
damages awarded is impermissible: the difference
between the jury’s award of punitive damages and
52a
the civil or criminal penalties imposed or authorized
for misconduct comparable to that found here. State
Farm, 538 U.S. at 428. First American asserts that
“the punitive damages in this case far outweigh any
civil penalty that could have been assessed against
defendants for comparable conduct. In fact, there is
no comparable civil penalty in this case.” (Doc. # 206,
at 26.) Chicago Title in counters by drawing an
analogy between the conduct at issue here and the
unfair competition prohibitions contained in The
Lanham Act, the Ohio Consumer Sales Practices Act,
and various other attenuated statutes--violation of
which often carries penalties of up to treble or
quadruple the actual damages a party suffers. Such
reference to these statutes provides some limited
support for Chicago Title’s defense of its punitive
damages award, although this skeptical Court is
cautious in wholly endorsing these statutes as truly
comparable conduct. In any event, even drawing no
firm conclusion on this point, the Court recognizes
that the balance .of the factors considered above
favors Chicago Title’s position in regard to both First
American’s federal and state due process concerns.
Although the Ohio Constitution certainly applies
with independent force here, see Dardinger v. Anthem
Blue Cross & Blue Shield, 98 Ohio St. 3d 77, 2002
Ohio 7113, 781 N.E.2d 121 (2002), its protections
yield no different a result than that produced by the
foregoing analysis. Given the amount of profit First
American generates on a daily basis, the Court can
only conclude that anything less than the award here
would fail to punish First American for its
misconduct and _ perhaps deter such future
transgressions. This does not punish First American
for being successful; rather, it merely punishes the
53a
company for achieving a portion of its success
through tortious means tainted with malice.
First American also asserts, however, that “a
punitive award of this size for this type of injury has
no precedent in Ohio. It is higher than the largest
punitive damages award ever upheld on appeal in
state history, and is over eight times that of the
highest Ohio punitive award in an economic ivijury
case.” (Doc. # 206, at 1.) But this argument does not
accommodate either the high compensatory damages
involved in this case or the specific facts underlying -
this litigation. Moreover, the company’s Ohio-
centered ratio argument fails to recognize that Ohio
courts have endorsed punitive damages awards far
exceedin
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