United States v. Slurry Systems, Inc.
1:09-cv-07459
N.D. Ill.Jul 18, 2013Background
- Pileco sued Slurry Systems, Inc. (SSI) and surety Fidelity & Deposit (F&D) under the Miller Act (bond claim) and for breach of contract arising from a Corps of Engineers reservoir project; Pileco sought over $4 million.
- SSI counterclaimed against Pileco and third‑party Bauer Maschinen GmbH for defective equipment and alleged breaches/warranties and Consumer Fraud Act violations; multiple contract and warranty counts proceeded to trial.
- A 8‑day jury trial produced a lengthy agreed charge (57 pages) and verdicts awarding: Pileco $2,000,000 (breach v. SSI) and $1,000,000 (bond v. F&D); SSI awards against Pileco ($600,000) and Bauer ($3,400,000); various warranty awards; and $20,000,000 punitive damages to SSI on its Consumer Fraud Act claim against Bauer while awarding $0 compensatory damages on that claim.
- The court and parties immediately recognized logical and legal defects in the verdict: the jury failed to adjudicate an agreed contractual offset (“equitable adjustment”) that could eliminate Pileco’s award, and the punitive award against Bauer was grossly disproportionate given zero compensatory damages.
- Citing Rule 59(d), Seventh Circuit authorities, and Supreme Court due‑process limits on punitive damages, the magistrate judge found the verdict both against the weight of the evidence (failure to apply equitable adjustment) and excessive (punitive damages), and ordered a new trial.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether verdict should be set aside/new trial for verdict against weight of evidence | Pileco: jury properly found breach and awarded damages; verdict stands | SSI/Bauer: jury ignored contractual equitable adjustment that would offset Pileco's award | Court: new trial warranted because jury failed to apply agreed equitable adjustment, making verdict against weight of evidence |
| Whether punitive damages award is permissible where compensatory damages are zero | SSI: punitive damages may be awarded under Consumer Fraud Act based on reprehensibility | Bauer: $20M punitive award is grossly excessive and unconstitutional given $0 compensatory damages | Court: punitive award excessive and cannot stand; new trial ordered |
| Appropriate legal standard for granting a new trial | Pileco: verdict should stand absent clear legal error | Court/Defendants: Rule 59(d) permits court‑initiated new trial where verdict is against weight/excessive | Court: exercised Rule 59(d) to order new trial citing Pickett/Emmel standards |
| Standard for constitutional review of punitive damages amount | SSI: jury discretion determines punitive amount | Bauer: punitive must be proportionate to harm/reprehensibility under Supreme Court guidance | Court: applied BMW/State Farm/Keeling framework; $20M is monstrously excessive and likely unconstitutional |
Key Cases Cited
- Pickett v. Sheridan Health Care Center, 610 F.3d 434 (7th Cir.) (new‑trial standard where verdict against weight of evidence)
- Emmel v. Coca‑Cola Bottling Co., 95 F.3d 627 (7th Cir.) (new‑trial grounds include verdict contrary to weight of evidence)
- BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996) (guideposts for assessing punitive damages proportionality and reprehensibility)
- Keeling v. Esurance Ins. Co., 660 F.3d 273 (7th Cir.) (discussion of punitive/compensatory multipliers and constitutional limits)
- Pacific Mutual Life Insurance Co. v. Haslip, 499 U.S. 1 (1991) (recognizing proportionality considerations for punitive damages)
- State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408 (2003) (single‑digit multipliers likely constitutional; excessive awards violate due process)