Relevant Issues in Punitive Damage Claims in Business or Commercial Litigation

I initially wrote an Overview of Florida Law on Punitive Damages Claims in Business or Commercial Litigation a few years’ ago.  For a basic overview of punitive damages in commercial cases click here.  This article is meant to build upon the information provided in my initial article.

PUNITIVE DAMAGES IN FEDERAL COURT APPLYING FLORIDA LAW

 In Federal Court, there is no requirement to proffer evidence of punitive damages prior to seeking financial net worth discovery.  Pantages v. Cardinal Health 200, Inc., 2009 WL 1011048 (M.D. Fla. 2009) citing Cohen v. Office Depot, Inc., 184 F. 3d 1292 (11th Cir. 1999).  It is really important to understand this concept because in Federal Court it is much more difficult to prevent financial discovery then in State Court.  Whether filing on behalf of Plaintiff or defending with the opportunity to remove on the basis of diversity jurisdiction, the requirement to produce financial net worth shortly after filing/removal is a very important consideration.  If you are a publicly traded company financial net worth discovery may very well be limited to public financial disclosures.  However, if you are a closely held company or an individual defendant financial net worth discovery can be used as a pretext for discovery in aid of execution.

FINANCIAL DISCOVERY

If a claim that would support punitive damages survives a challenge at motion to dismiss and if the requirements to proffer evidence are complied with, the next battleground in litigating a punitive damages claim is financial discovery.  If the Defendant is an insurer or a publicly traded company financial discovery won’t likely be too much of a battle.  The financials of these companies are a matter of public record and a Plaintiff that demands more information that what is publicly available risks looking unreasonable in front of the Court.  However, the financial discovery battleground can be very important in the context of individual defendants or closely held companies.  Plaintiffs will often use financial net worth discovery as a pretext for discovery in aid of execution and Defendants will want to limit the information available.  The two main cases discussing the scope of financial net worth discovery in punitive damages claims are Tenant v. Charlton, 377 So.2d 1169 (Fla. 1979) and Church of Scientology FLAG Serv. v. Williams, 671 So.2d 840 (Fla. 5th DCA. 1996).

Tenant stands for the proposition that the scope of financial discovery is broad.  Specifically, Tenant held:

[T]here seems to be some confusion as to the proper direction and scope of discovery in determining the financial resources of a party in a law suit. Some authorities seem to suggest that a party can simply furnish a sworn statement of his current assets and liabilities to his opponent and thereby cut off any further aggressive inquiry into his true financial capacity to respond. We know from experience that one party frequently minimizes his financial ability to respond when it is an issue in a law suit, while the other party often has a tendency to inflate that same financial ability. Even under oath a party often seems to view another party’s financial resources as great or small in direct proportion to the benefit which will accrue to that party. Thus, it is the height of naivetee to suggest that a sworn statement of one’s net worth must be accepted as the final word on that important subject. The search for forgotten or hidden assets is of the essence of the discovery process. The whereabouts of assets disclosed by a recent income tax return, or shown on a recent financial statement furnished in another situation when the current litigation was not envisioned is very definitely appropriate inquiry as is the bona fides of the recent disposition of assets. These are routine inquiries for every knowledgeable trial lawyer in cases in which the financial resources of a party is a relevant issue. One must be afforded reasonable latitude in double and cross checking a party’s statements about his current net worth. This, of course, can be done by reviewing income tax returns, recent financial statements, and the myriad of other sources of financial information. . . .

The holding in Tenant speaks for itself.  Discovery is broad and a Plaintiff has discretion to request a host of documents.

However, requests for discovery are not unlimited.  In Church of Scientology, the Fifth District Court of Appeal warned that the quest for financial information has limits.(holding that financial discovery shouldn’t require very aspect of a petitioner’s financial existence).  The Court in Church of Scientology granted certiorari review and vacated the lower court’s ruling with instructions to enter a discovery order that required narrow production of financials.

JURY INSTRUCTIONS IN PUNITIVE DAMAGES CASES

The last battleground for punitive damages is generally jury instructions.  Note that there are two standard jury instructions for punitive damages.  Standard Jury Instruction 503.1 is for the Bifurcated Procedure and Standard Jury Instruction 503.2 is for the Non-Bifurcated Procedure.  For obvious reasons, the Plaintiff would want the Non-Bifurcated Procedure and the Defendant would want the Bifurcated Procedure.  In the Bifurcated Procedure, the jury is charged with deciding whether punitive damages are warranted on the jury verdict form.  If the jury finds punitive damages are warranted on the jury verdict form, then additional evidence on punitive damages, including evidence of financial net worth, is provided to the jury.  If you are moving forward under the Bifurcated Procedure ensure there is enough time for this second presentation of evidence.  There will be a second presentation of evidence and separate closing arguments.  It will take at least a half day to conclude this second presentation of evidence and may take longer depending on the complexity of the Defendant’s finances.

All of the above being said, it is particularly important for the Defendant to ensure that the portion of the jury instructions defining “clear and convincing evidence” is included.  At trial, Defendant’s counsel should ensure that the difference between the “greater weight of the evidence” and the “clear and convincing” standard is fully developed.  The jury should understand that punitive damages are never appropriate if an award for the Plaintiff was a close call or that when utilizing the 51% standard (as greater weight of the evidence is sometimes described) a 51% belief that the Plaintiff is at fault is not enough to satisfy the “clear and convincing evidence” standard.

In addition to the “clear and convincing standard”, both the Plaintiff and the Defendant will want to ensure the jury understands the definition of “intentional misconduct” and “gross negligence.”  The definitions of “intentional misconduct” and “gross negligence” set a high bar for the Plaintiff to overcome.  This is particularly true when reading these definitions in conjunction with the “clear and convincing evidence” standard.  That being said, the Defendant should speak to each required element in the definitions and point out to the jury each of the elements that was satisfied and that each element must be satisfied under the “clear and convincing evidence” standard.  The Plaintiff should be mindful of the elements and the high bar set by the “clear and convincing evidence” standard.  Too many times Plaintiff simply tells the story, casts the Plaintiff as a “bad person” and asks the jury to punish the “bad guy”.  This simplistic approach may be effective if Defendant’s counsel doesn’t walk the jury through the individual elements of intentional misconduct or gross negligence.  However, if the Defendant’s counsel has taken the jury through the elements of intentional misconduct and gross negligence it may be a strategic mistake for the Plaintiff to simply tell the jury how the Plaintiff was a bad actor.  The Plaintiff can still show the jury that the Defendant was a “bad guy” but the most effective argument would also show the jury how the Plaintiff’s bad acts also satisfied the individual elements of “intentional misconduct” or “gross negligence.”

CONCLUSION

If you haven’t read my first blog on punitive damages you should take time to review its contents.  After reading the first blog it should be clear that any claim of intentional misconduct or punitive damages should be a dog fight from start to finish.  A Defendant should never concede an intentional misconduct count when a good faith motion to dismiss can be filed.  Once an intentional misconduct count is properly pled, the burden for adding a claim for punitive damages is low.  Because punitive damages claims open financial net worth discovery and open the Plaintiff up to punitive damages that may be up to four time compensatory damages, the defense of even adding a claim for punitive damages to the Complaint should be vigorous.

Once a punitive damages claim is properly added, the Defendant should do everything possible to limit the scope of financial discovery and should try and take control of the jury instructions in an attempt to give the Defendant every advantage at trial.  Likewise, the Plaintiff should realize that a claim for punitive damages gives them significant leverage but can also result in catching a tiger by the toe.  Plaintiff and Plaintiff’s counsel should be well aware that litigating punitive damages is very, very expensive and that when they ultimately get to trial the burden of proof for obtaining punitive damages is a very, very high bar to overcome.  When a Plaintiff litigates punitive damages, particularly if they demand too much money, they back the Defendant into a corner.  Like the old saying, “any dog backed into a corner, wither vicious or not, is going to bite back.”  A Plaintiff that is not financially prepared for the litigation they instigated may be very unhappy with the result, especially considering the large financial commitment required to get to trial on a punitive damages claim.  Like any case, both Plaintiff and Defendant should be mindful of the risk and financial commitment required by the lawsuit and should evaluate their claims and settlement positions accordingly.

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