VF Corp. v. Wrexham Aviation Corp.

the late filing did not cause any inconvenience to the parties, Court we exercise our discretion to deny this motion.

JUDGMENT REVERSED. BE

COSTS TO PAID BY APPELLEE.

686 A.2d 647 CORPORATION, VF et al. v.

WREXHAM AVIATION CORPORATION. 1700, Sept. Term,

No. 1995. Special Appeals

Court of Maryland.

Nov. 1996.

Reconsideration Denied Jan. (Nell Benjamin Strachan, R. Civiletti B. Mitchell Y. Mirviss Venable, and Baetjer Howard, LLP, brief), on the Balti- more, for Appellants. (David Sykes, Sutton,

Melvin J. Baltimore, Baltimore P. Timothy Warfield, E. Meredith and Meredith & Darrah, Sev- Park, brief), erna on the for appellee.

Argued MURPHY, C.J., HARRELL, J., before GETTY, (Retired), JAMES S. Judge Specially Assigned.

MURPHY, Judge. Chief

In the Circuit Court Baltimore City, assessed compensatory punitive damages against Corporation VF for appellants,

(“VF”) subsidiary corporations,1 and one of its cer appellee, Corporation, Aviation from concealing Wrexham freight company aviation about an tax information tain The Honorable Edward appellants. from appellee purchased trial, a post- conducted over presided who Angeletti, J. verdict review in favor of

ORDERED, entered Wrexham judgment Plaintiff, against: Corporation, Aviation (a) Wrangler Apparel Corporation, Corporation VF for: severally, jointly $189,336.61 pre- plus damages compensatory from per 6% annum at the rate of

judgment interest 23,1990; and October $21,416,430.00 plus post-judg- damages per annum statutory rate 10% interest at the

ment 21,1995; and from June for

(b) Corporation compensatory Apparel Wrangler from $535,000.00 interest plus pre-judgment 23,1990. October us appellants present judgments, from those appeal

In this following questions: with on non- fraudulent concealment based In an action for

I. day before completed a field tax audit disclosure closing, [appel- proving recover without [appellee] a. can duty of a to disclose? knew lants] advised by counsel —who reliance on advice b. does fraud? duty had no to disclose —defeat [appellants] springs only duty [appellee] [appellants’] II. Where bringing contract, barred from [appellee] from tort action? duplicative sale, Bell, subsidiary but the VF involved in Inc. was the

1. Blue against entered responsible were judgments which it had been held interest. Wrangler Apparel Corporation, its successor in III. In a claiming warranty case a breach of and fraud for act, [appellee]

the same can recover more than the fraud $189,336 [.61], of actually paid? taxes million, punitive damage IV. Can of or more than 100 $21.4 times tort damages, be affirmed where

a. no reprehensible, egregious or malicious conduct is present?

b. [appellants] relied on of the advice counsel?

c. the wealth of [appellants] was the in principal basis instructions post-trial opinion [c]ourt’s and to obtain justify million award? $21.4 I.a., that, To question we answer while of knowledge duty a to disclose was an essential element of the action asserted case, this appellants issue of whether had such knowledge properly was jury. submitted to the To questions Lb. and IV.b., that, we answer while there are indeed circumstances in which reliance on advice counsel will a complete be defense claim, to a fraud of issue whether appellants were entitled prevail

to on this properly defense was jury. submitted We answer II question in the negative question III in the affirmative. We shall therefore affirm each compensatory damage judgment. IV.a.,

To question that, we answer while malicious conduct an essential action, element of a punitive damage the issue appellants whether guilty were of such conduct proper was ly submitted to jury. IV.c., To question that, we answer while a defendant’s wealth cannot be principal basis for a award, damage reject we the contention that the trial court erred in its must, however, instructions. We vacate the punitive damage judgment light America, of BMW North — Gore, U.S. —, Inc. v. 116 S.Ct. 134 L.Ed.2d 809 (1996). parties post-verdict entitled to a review of the court, the circuit who apply shall the BMW standards to the facts of this case.

Background an (“Wrangler”), originally Corporation Wrangler Aviation and sold “spun was off” subsidiary, a division of VF freight air took back a this sale and part financed in 1988. VF advised In VF was May interest. secondary security agreement, its loan primary in breach of Wrangler was in to cure stepped called unless VF the loan would be and that operating then assumed direct did so and the default. VF Wrangler. control of managerial operated as Wrangler to appellee, it was sold Until VF, employee, with a Varnell subsidiary of VF wholly-owned It contin- Wrangler. Moore, and CEO serving as President kept that was company vulnerable financially ued decided appellants. from VF cash infusions operation with it. Appellee purchase decided for sale. Wrangler offer treasurer, Pickard, appel- handled the sale Frank VF’s an of sale on October agreement reached parties lants. The date, Agree- executed a Purchase 19, appellee 1990.2 On following provisions: ment that contained 9(h) of the 9.(h) copy is a hereto as Schedule Attached year for the fiscal ended financial statements Company’s 1990, Marwick. 30, by were audited which June KPMG/Peat statements, such financial knowledge, of To the best Seller’s therein, fairly present set forth including any qualifications operation and results of financial condition Company’s 30, 1990.... year fiscal ended June Company’s for the shall mean “knowledge” the term in this Section As used of the Seller and any of of the officers knowledge actual VF.... dollars payment its of 2.6 million agreement provided that for

2. The debts, appellee Wrangler’s dollars of assumption of 1.7 million and stock, subsidiary by Wrangler’s then held a VF would receive 100% Bell, Inc., “forgive” loans that it had and that VF would as Blue known Wrangler. made to (a) error, There shall not be any material misstatement or omission in representations warranties made in Agreement; Seller this all representations and war- ranties the Seller Agreement contained in this shall be true in all respects material at and as the Closing as such though representations and warranties were made at date;.... and as said

16.... In Buyer’s connection with the due diligence exami- nation of the Company, Business the Buyer has not statement, upon any relied opinion, representation, or war- VF, ranty of the Seller or either of respective their di- rectors, officers, employees, agents, or representatives, ex- press implied, other than those representations warranties of the Seller expressly set forth Section 9 hereof or elsewhere this Agreement____ (Emphasis supplied.)

Closing was scheduled to take place Baltimore on October 7(a)(v) 1990. Section Agreement provided that, at closing, the seller would deliver a Closing Certificate containing the following provision: hereby Seller certifies that all of representations

and warranties respect with to the Seller contained in the Agreement true, Purchase complete accurate and in all material respects on and as of the date hereof. The deliv- ery of this Certificate in no way expands, diminishes or supersedes the warranties representations of the Seller contained in the Purchase Agreement. 22,

The Events of October 1990 22, 1990, On Harden, October Larry Wrangler’s comptrol- ler, was presented with a “field audit report” which North Carolina Department of Revenue asserted that Wran- The North $872,199.45 in sales and use taxes.3 owed

gler (1) Wrangler had been authorities also asserted Carolina that, jet a “lubri- in its because fuel was position incorrect and use tax refunds cant,” to certain sales it was entitled (2) law; Department Revenue under North Carolina (3) refundable; taxes were not had determined that these 1990, claims, $107,000 in year fiscal approximately the refund Wrangler. This information longer no be available would to Mr. Pickard. was communicated 23, The Events of October 23, fact that he closing, despite At the October Pickard did previous day, of the Mr. knew about the events about the field audit any appellee’s representatives not tell Instead, Closing Certifi- signed he and delivered report. in the cate, representations truth of all made reasserting the Closing The Certificate included Agreement. Purchase following representation: such financial state- knowledge, of Seller’s best

[t]o accoun- ments, set forth in the including any qualifications footnotes set forth accompanying tant’s and the opinion condition fairly present Company’s financial therein, 30, year fiscal ended June operation and results of 1990. added.)

(Emphasis

The Trial suffered jury testimony appellee The heard jet refund claims $831,366.61 the fact fuel because its actual Wrangler no available to reduced longer would $642,000.00; paid appellee subsequently value also heard $189,336.61 resolve the tax audit. of the North Car- that on October word testimony command to relayed up the chain of report olina tax audit auditor, two During with the Mr. Harden discovered his discussion Adjustment for those errors reduced the amount report. errors in the forty dollars. owed about thousand CEO, Moore, Wrangler’s Mr. very who was concerned that the field audit would delay closing that it would be a “deal breaker.” Pickard,

Moore problem discussed the with Mr. who in turn conferred with Ernest Choquette, attorney handling closing for VF. Mr. Choquette testified that because the audit the preliminary stages, and because the amount of money “not significant,” involved was he advised Pickard that had no duty report. VF to disclose the auditor’s field (1) Appellants argued to the jury they did not commit a because, breach of warranty in the context of this sales transaction, proposed nondisclosure of the tax assessment was omission, not a “material” if even the audit should have disclosed, been they had not committed a fraud because their decision to remain silent was made in good faith reliance on advice of case, counsel. At the conclusion a well tried jury appellee awarded to damages ultimately reduced judgment by Judge Angeletti, who stated in his post-verdict Memorandum Opinion appellants had committed an “egregious, outrageous act of villainy.” white-collar

Discussion I Appellants argue that we must reverse the fraud judgment appellee generate because failed to a jury issue on the element of scienter. That argument overlooks the fact that was entitled to infer totality scienter from the of the circum- stances.

When a owes party legal obligation no to speak, mere If, silence is not however, actionable fraud. “what is stated disclosure, amounts to a ‘partial fragmentary’ that mis- leads because incompleteness, of its ‘legal situation is Associates, Inc., Lubore v. RPM entirely changed.’” Md.App. 330-31, 674 A.2d 547 v. Brager (quoting Friedenwald, 8, 31-32, (1916)). 128 Md. Moreover, 97 A. 515 may suppression

[f]raud consist of the truth as well as in the assertion a falsehood. The concealment becomes talk, by misleading deceptive

fraud it is effected where acts, conduct, by misrepresentations, accompanied or or is silence, where, any there is party’s in addition to a or statement, word, his which tends affirmative- part, or act on truth, or covering up or to a suppression to the ly truth, of a or to a withdrawal distraction disguising of the from the real facts. attention party’s Brooks, (1926); See 52, 57-58, 132 A. 381 v. Schnader 150 Md. Lubore, 330, at 674 A.2d 547. also Md.App. 109 ‘“(1) are misrepresentation for fraudulent The elements plaintiff, to the representation made a false that defendant (2) or that known to the defendant falsity that its was either as to made with reckless indifference representation was (3) truth, was made for the misrepresentation that its (4) plaintiff that the relied defrauding plaintiff, purpose it, and right rely and had the on misrepresentation on the (5) resulting compensable injury suffered plaintiff ” Savings, Ellerin v. misrepresentation.’ from the Fairfax (1995) F.S.B., Everett 216, 229, (quoting 652 A.2d 1117 337 Md. Elec., 286, 300, v. Baltimore Gas & 307 Md. 513 A.2d 882 (1986)). case, appellee claim in this was prevail

To on its fraud (1) at jury closing, appellants required persuade (2) facts; to disclose all material appellee duty owed to (3) fact; appellants concealed report audit was a material field (4) failure to disclose from because their appellee; that fact representa audit report, appellants’ the existence of the field existing Wrangler financial condition of tions the then about (5) failure to respect; appellants’ in a material were false deceive fact intended to defraud or disclose the material justifi the transaction while appellee; appellee completed misrepresentations; false ably relying appellants’ on Lu- from concealment. appellants’ appellee suffered v. bore, A.2d 547. See also Homa 329, Md.App. 109 at 674 Inc., Manor, 337, 346, 612 A.2d Friendly Mobile Md.App. 93 dis 1085, (1992), 168, granted cert. 329 Md. 617 A.2d 322 318, 624 A.2d 490 argument, missed oral 330 Md. before Co., 190, 232, Hughes Finch v. (1993); 57 Md.App. Aircraft 867, 88, (1984), 475 A.2d 1200 469 A.2d cert. denied 300 Md. 1190, cert. denied 469 U.S. 105 S.Ct. 84 L.Ed.2d 336 (1985). persuaded appellee enough offered evi We jury’s findings. support dence on each of these elements to Appellants define scienter in a fraud action as “the actual wrong being disagree awareness that a done.” We do not fact, however, may with that definition. The trier of infer such awareness from the concealment of material facts. Lu bore, Md.App. (citing at 674 A.2d 547 Finch v. Co., 190, 239, 469 A.2d 867 Hughes Md.App. Aircraft (1984)). that, under the was entitled conclude Agreement, appellants duty Purchase had a to disclose the audit was a fact report field because its existence material appellants’ representations earlier as to the financial qualified Wrangler. jury condition of was also entitled to conclude they spoken that that have appellants were well aware should audit, up they about the tax and that remained silent because they appellee were afraid that consider audit to would be “deal breaker.” Knowledge Duty

A. of the to Disclose to duty

Both the disclose and the defendant’s scien in a proven ter must be fraud action. Scienter is the intent to Sussex, 247, 260, deceive or See defraud. Gross v. 332 Md. (1993). 630 A.2d 1156 to According appellants, the failure to disclose is than fraudulent the nondis negligent rather unless product closure is the an active and conscious decision taken with actual that was do knowledge required. disclosure We not disagree proposition. with that To hold otherwise would plainly negligent convert acts into fraud.

No fraud is ignorant committed defendant who true, ly negligently misrepresentation or that the believes Gross, 260, 1156; at Martens Chevrolet e.g. 332 Md. 630 A.2d 328, 333, (1982); Seney, v. 292 Md. 439 A.2d 534 v. Weisman Connors, 488, 498, (1988), 547 A.2d 636 Md.App. merely judgment.

defendant who exercises Ellerin v. bad F.S.B., 239, 216, Savings, 337 Md. 652 A.2d 1117 Fairfax (1995). support that their Appellants principles claim these Intent, prove failed to fraud. howev argument appellee that evidence, er, including appellants’ inferred from the may Raines, 591, v. 582, conduct. State 326 Md. 606 A.2d Bank, Maryland v. Nat’l (1992); 514, 520, Henderson 278 Md. Thomas, v. 136, McClung-Logan (1976); 226 Md. 366 A.2d 1 (1961). 148, 172 A.2d 494 they continue to insist did not know

Appellants to the tax audit to they duty report appellee. had a disclose of that They every right produce support had evidence however, reject entitled to jury, contention. The contrary jurors and come to a conclusion. The were evidence all, they part, instructed that were entitled to believe properly they and that were testimony presented permit- or none of the to draw reasonable inferences from the evidence. ted the circumstances of this case it was not unrea

Under appellants’ denying for the to disbelieve evidence sonable scienter, they to conclude that decided that appellants field audit out of fear that would remain silent about if the true appellee complete would refuse to the transaction than sufficient facts were disclosed. The evidence was more that, on support jury’s finding prior closing October they fact appellants were well aware appellee report. should have told about the tax audit B. Advice of Counsel that, also reliance on

Appellants contend because action, they advice of counsel is a defense to a fraud to a in their favor on fraud count. judgment entitled on of an does indeed on attorney Reliance the advice bear scienter; if misrepresentation it follows from the rule that made, honestly person misrepresentation who made the Collison, See Brashears v. hás not committed a 207 fraud. (1955). 339, 349-51, prevail Md. 115 A.2d 289 To on an advice defense, however, to appellants required of counsel were all jury they communicated to counsel persuade known; reasonably facts should have they knew 717 given. Judge advice upon faith they good relied instruction on this issue: gave following Angeletti upon faith good acted you [appellants] If find counsel, [appellants] must find that did you then advice necessary intent deceive. not have counsel, relied on the advice [appellants] To find that in a case such the advice of counsel protected by one is not to their counsel all they unless have communicated as this you which either bearing the issue before upon the facts diligence could have ascer- they knew or reasonable they not work unless good tained. ... A faith defense does facts. had all the Appellants’ correct. evidence entitled

That instruction was did or did not they them to a determination whether not, however, entitled to Appellants faith. were good act a matter of law. prevail on that issue as

II III& tax their failure to disclose the According appellants, Angeletti warranty, Judge audit was a mere breach of a contract claim to tried as a fraud erred when he allowed An disagree. action. We act that constitutes breach Sussex, Gross v. may contract also constitute fraud. 332 Cf. v. (1993); Sonnenberg Security Md. 630 A.2d (1992). 117, 125, Management Corp., 325 Md. 599 A.2d 820 Appellants argue appellee also received “double Certainly recovery” damages. appellee for the same “would tort permitted merely recover twice the same [be] wrong rise to of recov- gave because alternative theories v. 307, 315, ery.” Shapiro Chapman, 520 A.2d Md.App. (1987). however, case, In appellee this it is certain that types damages. recovered different ques two following The verdict sheet contained compensatory damages: tions about compensatory damages, any, if do

2. What amount of you Corpora- assess in favor of Wrexham Aviation tion as a result of the failure to disclose the audit? a) Damages_ Yes_

b) Pre-judgment Interest No damages, any, compensatory amount of if do What you Corpora- assess in favor of Aviation Wrexham warranty? tion as a result of the breach of a) Damages_ Yes_ No_

b) Pre-judgment Interest Hindsight only indicates that there should have one been however, “compensatory damages” question. Appellants, did object any to the verdict sheet at time before it was jury. present complaint submitted to the Their comes too Eng’g late. Edwards v. Gramling Corp., 535, 550, 322 Md. (1991). 588 A.2d 793 2.a., jurors $189,336.61.

On line entered On line $535,000. 5.a., jurors jurors yes entered answered questions damage 2.b. and 5.b. Those answers reflect appellee’s trial counsel requested following por closing argument: tion of his

... you’ve testimony you And heard know what looking these that we’re for are. The main one $189,336.61 you’ve testimony that heard about is the that paid actually was paid out-of-pocket the State North — get Carolina to rid of this tax assessment that such an immaterial, insignificant thing.

In to that you testimony addition heard Mr. Hardin’s [sic] just during year the refunds the last calendar were $107,000 get again and we can’t those refunds ever without knowingly and the law. And that’s intentionally breaking so $107,000 a year impacts company the value of this they telling sold us without us that. multiple they

Mr. Heddelman talked about a used in calculating purchase price approximately six. Mr. it’s multiple; that was a reasonable you told Wagner If company. pay publicly-traded would you half what $642,000 $107,000, that’s a times multiple of six take a you 642,000 to If add the company. you this in the value of loss State, of dam- the amount 189,000 to the already paid the a result of the by Wrangler as then incurred ages that was $831,336.61. So that’s fraud is warranty and the breach in ... “so what” this case. the

Now, compensatory— on the if a verdict both you return claim for claim and the fraud of contract on both the breach you you of do $831,336, question have the before you still case---- this award circumstances, no doubt that the there can be these Under compensate appellee on 2.a. was intended amount entered had to North paid amount of taxes it very for that same Carolina, compensated on 5.a. the amount entered $107,000 tax was fact that an annual refund appellee for the a “double has not received longer Appellee no available. recovery.”

IV why are four reasons According appellants, there (1) because the damage award must be reversed: requirement, trial court misconstrued the actual malice an jury insufficient for the to consider evidence was (2) instructions failed to meet punitive damages; (3) standards; the trial court failed to conduct legal applicable (4) review; and the verdict is unconstitu- post-verdict a proper There is no merit the first grossly tional and excessive. arguments. two Sufficiency Evidence Ellerin, issue of Appeals

In resolved the supra, Court whether, fraud, plaintiff may in an action for recover no evidence that the though even there punitive damages It is now certain injure plaintiff. intended to defendant that, case, that his knowledge “a actual person’s a fraud false,

statement is coupled with his intent to deceive another statement, by means of that constitute the ‘actual malice’ Id. at required availability for the of punitive damages.” 652 A.2d 1117.

The Ellerin explained Court our case law recog nizes two different mental states that may give to fraud: rise knowledge false; actual representation reckless indifference to the truth or falsity representa of the Id. at 229-33, tion. Although A.2d 1117. punitive dam ages cases, cannot be awarded in disregard” “reckless fraud knowledge actual of falsity, coupled defendant’s with his

intent plaintiff by deceive the means of the false state ment, constitutes the actual required malice to support an punitive award of damages.

Id. at 652 A.2d 1117. already

We have why jury discussed entitled (1) infer that report nondisclosure the field audit constituted (2) misrepresentation; material appellants they knew had a (3) audit; duty to disclose the field arid appellants intended appellee by deceive not disclosing that information. The evidence was to support sufficient the conclusion appel- that lants should be liable for punitive damages. Adequacy Jury Instructions

The verdicts at issue in this case were returned on the day second of deliberations. parties agreed jury fraud, should first warranty, decide the issues of compen- satory damages, as well as the issue of whether some amount of punitive damages should parties be considered. The also that, agreed if awarded compensatory damages for fraud, and appellants concluded that puni- were hable for damages, second, tive there would be a separate deliberation to determine the amount of damages, preceded by additional instructions and argument of counsel. argu- Before the final ments that preceded deliberations, the first Judge Angeletti gave the following punitive instructions on damages: in know, already you has told you the Court As you may puni- sheet that of the verdict explanation convincing persuaded by if are clear damages you tive that either or has established plaintiff evidence that damages. for punitive are liable both defendants of fraudulent con- guilty you If find the defendants is, duct, knowledge actual they had intended to [sic] was false and the defendant statement statement, of that false then plaintiff by means deceive damages. for they punitive find that are liable you may Now, Maryland, may imposed be punitive damages, conduct. It outrageous egregious only where there only upon showing of actual malice or may be awarded to teach punish wrongdoer, fraud. It’s to intentional conduct, and to repeat wrongful them not to their deter engaging others from the same conduct. degree

It must to the exhibited culpability relate which, if particular you defendant and other instructions I liability damages, find that there is a will at a later you [sic] instruct on as calculate the amounts time.

Now, if only you should awarded find actual malice that exists this case. That means that [sic] defendants, must determine whether these Blue Bell you motive, ill-will, Corporation, acted with an evil and a VF plaintiff. to the deliberate desire intent harm or This means that must be an evil rancorous there by explanation. motive influenced hate for is no which there proper purpose An evil action has no belief or and is one explain having thought they that the defendants cannot as primary purpose for a The of the pursued proper purpose. deliberately defendants for the action must be to wilful- injure ly plaintiff. by claim to must be plaintiff

The of conduct alluded if, judgment, there is by you your examined to determine convincing by clear and evidence that the actions taken defendants, volunteering these not the results the sales audit, tax any proper justification. and use was without The injure sole motive plaintiff must have been to and not merely to benefit itself. may

You determine that is to plaintiff puni- entitled if damages only you tive conclude that there is sufficient convincing clear and evidence that this action was motivated ill-feelings against plaintiff. availability such The therefore, punitive damages, depends reprehensibili- on the defendants’, VF’s, ty of the Blue Bell and conduct this case.

When a makes a false statement of fact person about and that property may reasonably expected statement property, affect the value of that they responsible are any may financial loss which result. plaintiff must prove ill-will, that the defendant was motivated or made statement knowledge falsity, with of its or reckless disregard its truth.

Both sides took exception Upon these instructions. consideration of exceptions, Judge Angeletti counsel’s conclud- fact, ed that he should have defined “material” and should not have stated that required “deliberate intent harm” is in a action. fraud He also decided to make it clear that damages could not be awarded for a fraudulent misrepresenta- disregard tion based on reckless of the truth.4 He commend- ably delivered the instructions on following those issues: if, circumstances,

... A fact is material under person rely reasonable would it in upon making their deci- material, sion. A may fact also be even though reasonable person might regard it as if important, person stating concealing it knows that the person with whom they dealing probably will use the fact in determining their course of conduct. 2-520(e) example

4. This case contains an excellent of how Rule supposed complex litigation. judge patiently to work in The trial listens and, explain exceptions as counsel their when there is merit in an exception, jurors properly closing arguments are reinstructed before begin.

72$ punitive damages. as to You some instructions given were case, in this charged case such as is In a conduct fraudulent guilty are of fraudulent if the defendants you find in addition punitive damages, conduct, you may award then plain- the you find damages the of compensatory to amount to, had find the defendant actual you tiff is if entitled defendant its false and the statement was knowledge means of that false plaintiff by to deceive the intended statement. day second entirely correct. On the

That re-instruction was deliberations, compensatory damage its before it returned of verdicts, punitive clarification of the dam- jury requested instruction, responded as follows: Judge Angeletti ages if given, Notwithstanding previously other instructions any defendants, them, guilty of are of that the or either you find fraud, in addition may punitive damages you plaintiff compensatory damages you find amount of you if to, only to be determined find entitled the amount met, if relating are that the standards knowledge actual that its you find that defendant had to deceive was false and the defendant intended statement a false statement. plaintiff by means of that day, That was also correct. Later before the instruction deliberations, Judge Angeletti of delivered the phase second instruction: following case,

Now, you phase in this of the will jury, members relating have to the financial condi- you the evidence before you for tion of and that information is before [appellants], in trying to determine what purposes assisting you amount, favor of any, punitive damages if assess herein, Wrexham, of this occurrence. plaintiff as result the Court has previous general All instructions to all the evidence---- given you relating effect In determining damages] the amount of [the award, and discretion your judgment should use sound you punish an will you to arrive at amount which believe and others from similar defendant and deter the defendant conduct. should There be reasonable connection between ability pay. the award and the defendant’s to The award designed should not bankrupt financially destroy to the defendants. instructions,

Appellants’ exception counsel noted an to these stating:

To the extent that the has the that it jury Court advised may relationship consider the between the amount dam- ages awarded as compensatory damages determining and I punitive damages, exception take the to failure the to instruct as to as jury Court that and to the fact that transaction, this was a one-time in a incident business no physical anyone, situation, to no injury life-threatening no fiduciary duly existed in parties between this arm’s length transaction.

I all of think that those are which factors the Court they may should advise the jury determining consider damages and amount punitive and punitive damages, to the extent that the given Court has not those factors to jury, exception. I take According appellants, to the these instructions are deficient (2) inconsistent, because are they improperly emphasize ability to appellants’ pay and their culpability minimize as factors for the in determining consider the amount of award, do mitigating not refer to any factors. There is no merit in of those contentions. agree We not do these instructions incon were That argument sistent. can be made whenever the judge trial it necessary finds an retract incorrect instruction Moreover, it replace with a correct one. was appellants it who pressed for the incorrect language “actual malice” that was properly exceptions retracted after the The in conference. structions, whole, taken entirely when as a are with consistent Alexander & Alexander v. B. Dixon the law set forth Associates, Inc., Evander & 672, 715-716, 88 Md.App. 596 den., cert. (1991), (1992), 687 A.2d 326 Md. A.2d Ellerin, 10:12 and as well with revisions MPJI as 10:12.1. have been jurors that the contend should

Appellants damages awarded amount of “any instructed injury relationship to economic must a reasonable bear very those jurors did hear this It is true that case.” however, there are four persuaded, words.5 We to a on this appellants are not reversal why reasons entitled ground.6

First, request precise for that instruction appellants’ written page first near Appellants’ was buried the bottom page request No. two fact- Requested Instruction April Angeletti the Judge counsel benefit of 1996 5. Neither nor had the Jury Maryland the Pattern Instructions —Civil revision to (“MPJI”). following the instruction on MPJI now recommends 10:12 damages punitive generally: damages compensate you plaintiff If for and award to for find the suffered, (losses) you gomay on to whether to injuries the consider damages. punitive damages punitive for An of make an award award by convincing proven and evidence. must be clear punitive damages be in that for should an amount will An award An others similar conduct. award of deter the defendant and from punitive damages wrongfulness the of the proportionate be to should ability not pay but de- defendant’s conduct and the defendant’s to bankrupt financially destroy signed a defendant. to case, that, jurors fraud be MPJI now in a the 10:12.1 recommends instructed: punitive damages requires this case that award of in the An you mind. find that the acted with a certain state of If defendant expected actually representation was and the false defendant knew you rely representation, may an plaintiff upon the to the make award damages. compensatory While an for award representa- may upon finding a that the defendant made be based truth, this is not sufficient to tion with reckless indifference its Negligence, gross, punitive damages. however the award of warrant damages. enough The knowl- is not defendant’s representation edge falsity is the of of the of the state mind justifies punitive damages. the award rejection anything nor in the our this Neither contention else appellants’ opinion Indeed, interpreted as a counsel. should criticism trial favorably impressed all counsel of we are with work of appeal verdicts in this reflected the record this case. The at issue conduct, aggravated jury’s appellants’ and were not assessment any lawyers represented appellants way trial. able who at 726 argumentative to which

specific, appellants instructions were not a trial judge’s entitled.7 We shall reverse failure to Second, in haystack. proposed find a needle instruction incomplete it did not proposition because include the jurors potential are entitled consider the as harm well Mutual Ins. v. Haslip, actual Co. as the harm. Pacific Life 1, 21, 1032, 1045, (1991); 499 111 1 U.S. S.Ct. 113 L.Ed.2d TXO Production v. Corp. Alliance Resources 509 Corp., U.S. 443, 460, 2711, 2721-22, (1993); 113 125 S.Ct. L.Ed.2d 366 America, North BMW Inc. v. Gore, — U.S. — , — , 116 1589, (1996). 1603, Third, S.Ct. L.Ed.2d the above quoted exception merely requested the court tell jurors that they “may consider” such a relationship. Finally, “could, appellants’ did, because trial counsel present very arguments to the would have made had [he] requested] instructions been given, fairly, [the the matter was adequately, actually given.” covered instructions Co., Inc. Transportation, CSX v. Continental Ins. Md. (1996). 680 A.2d 1082 jurors were instructed that their award “must relate to degree defendant, of culpability exhibited” following appellants’ thereafter heard the from argument counsel:

... VF did not sell to a public danger- [B]ut the consumer drug ous or a that dangerous product would hurt people. was no physical injury There that anybody sustained as a result of what was done.

There fiduciary relationship was no or between Frank VF plaintiff Picard and [sic] in this case. in plaintiff The this case and client —at my length, represented by arm’s counsel, transaction, sophisticated business and so average people you’ve not hurt. And already were deter- injury mined amount of that you believe has occurred are, effect, and you telling wrong us that we were what forty-one Appellants Requests Jury submitted written Instructions. to Wrex- give money we that back did and that should we ham. make you your in mind when asking you keep I’m to

So involved, involved, size of the what was who is decision that have deter- transaction, injury you and the amount appropriate. verdict is your mined compensatory damage ultimately calculated its jury The award down damage and its penny down to the award circumstances, these we decline thirty dollars. Under reasonably its could be related that hypothesize being also reason- “degree culpability” without appellants’ compensatory damages. ably appellee’s related to trial court committed re argue Appellants that it should jury when it to instruct versible error failed as on the factors such reliance specific mitigating consider acts, counsel, prior subsequent or similar advice absence commercial trial wrong. judge nature of the The and or to deliver the required to summarize evidence closing Appel equivalent party’s argument. functional of a did, to, to the bring were and these factors lants entitled not, however, jury. entitled Appellants attention of the were they requested. to the instruction that (1) jurors were instructed (2) evidence; proof by clear cannot be require convincing and compensatory damages; there was an award of awarded unless (3) though compensatory damages need not even be awarded (4) awarded; degree of culpability must relate to the (5) defendant; imposed may only upon exhibited knowledge their mis showing appellants had actual fraudulent; goals of must serve the representation deterrence; must not bankrupt punishment comprehen financially destroy Those correct appellants. for a special prerequisites puni- instructions the sive satisfied 728 Alexander, damage

tive award in fraud case.8 Md.App. 88 687; Ellerin, 715-16, 234, at 596 A.2d Md. at 652 A.2d 337 1117. Judge by

3. Review the Post-Verdict Trial & Post-Judgment Appellate 4. Review A punitive award that damage upon proper was entered procedure may nonetheless violate the Due Process Clause of Alexander, 719, Fourteenth the Amendment. 88 at Md.App. A.2d 687. award, Review the amount first court, court trial and then an appellate is an essential danger. Haslip, 22, supra, safeguard against U.S. at (1991). at S.Ct. 1045-46 In Haslip, affirming while a punitive damage judgment that was “more than 200 times the [plaintiffs] ex out-of-pocket id. penses,” at 111 S.Ct. at Court Supreme components identified three essential “the constitutional (1) calculus” involved in its decision: the jury instructions correct; judicial were was an there effective review of the verdict; objective amount of the award did not lack BMW, Id. at 18-21, criteria. 111 S.Ct. at 1043-45. In filed on 20, 1996, May Supreme Court identified three additional “guideposts” to a correct due process analysis.

In its required post-verdict review damage award, the circuit court must its interfering state reasons for verdict, the jury refusing with or for In do so.9 our structure, appellants agreed Because of their business given should not be required the “individual basis” instruction punitive damages being against sought when one more than defen- dant. reviewing required question 9. The court will often be to address the (or which) punished whether extent the defendant has been states, one state for conduct occurred in other well as the as question impact of what award would have on innocent parties may compensatory damages third who be unable to collect punitive damages plaintiff(s) because of awarded to who won the review, must court the independent appellate post-judgment punitive for prerequisites the special determine whether a i.e., satisfied; the have been whether evidence damage damages, of support punitive an award was sufficient the and whether properly, was instructed whether the find- any contained erroneous post-verdict trial court’s review law, fact, any or of discretion. ing any error of abuse Opinion Memorandum contains post-trial Judge Angeletti’s after that finding eight no Over erroneous fact. months law. BMW filed, however, changed applicable the opinion was circuit by the requires post-verdict That a review change new court. v. Gore

BMW a filed Court BMW involved fraud action the Circuit Alabama, the of a BMW County, by purchaser Jefferson “new” by had told that the sports sedan who not been BMW $41,000.00 damaged paid nearly car for which he had been delivery. defended repainted transit and before BMW was plaintiff nondisclosure to ground claim on the that that, policy” with “nationwide unless entirely consistent its price, cost of the car’s retail repair percent exceeded 3 new car was as “new” without disclosure repaired delivered BMW, cost at According repair defect. because the percent price, issue 1.5 only was of the retail no disclosure the damage repair required. that jurors expert opine repainting

The heard an witness luxury in this reduce type of vehicle involved case would with jurors presented its market value 10%. The were also effect, that, it policy gone since 3% had into evidence BMW’s repainted had 983 cars that had sold as “new” total of been only at a than car. 14 such per Although cost of more $300 case, however, danger that a race to the courthouse. In this there is no punished Maryland jury appellants for committed on some has fraud state, danger even or in some and there is no other occasion other plaintiff right one other has to collect for the fraud involved in the transaction at issue. vehicles had Alabama, been sold in plaintiffs counsel argued damage award should be calculated multiplying the amount of plaintiffs compensatory dam- ages by the approximate number of vehicles that should not x ($4,000 1,000). have been delivered as new jurors agreed with that argument, finding BMW liable for compensatory $4,000 damages of and punitive damages of million Supreme dollars. The $4 Court of Alabama concluded damage high award was too because the jury punished BMW for conduct jurisdictions occurred in other than Alabama. That court reduced the punitive damage America, award to million dollars. BMW North Inc. v. $2 of Gore, 619, (Ala.1994). 646 So.2d Although the United Supreme States Court was unanimous its conclusion that punitive some amount of damages would not be unconstitution- case, al in this a majority held that the million dollar award $2 was “grossly excessive.” According to Stevens, Mr. Justice

(e)lementary notions of fairness enshrined in our constitu- jurisprudence tional dictate that a person receive fair notice only of the conduct that subject will him punishment to but also of severity penalty that a may State impose. guideposts, Three each of which indicates BMW did not adequate receive notice of the magnitude of the sanction that might Alabama impose for adhering to the policy nondisclosure adopted in lead us to the conclu- sion that million award is grossly $2 excessive.... — BMW, at —, (footnote omitted). U.S. 116 S.Ct. at 1598

If only constitutional violation BMW identified was the lack of “adequate notice the magnitude of the sanction that might impose,” [the state] that case would have application one, no to this in which it is certain that appellants were on notice that they very could well be hit with a forty million dollar punitive damage award. As Judge Angeletti pointed out in Opinion: his

It was entirely predictable that if jury rejected [appel- arguments lants’] on materiality, those same arguments num- very large produce against [them] used would be rata pro on a basis. bers however, guideposts BMW’s persuaded,

areWe of the adequate notice the defendant has even when applicable (1) now required court is reviewing at issue. The amount con [appellants’] “degree reprehensibility consider the id., the ratio duct,” at—, at determine 116 S.Ct. harm) (or the victim by suffered potential harm between the therefor, id. at damages awarded amount of and the 1601-02, differ — - —, compare at S.Ct. or criminal and “the civil amount awarded ence between the misconduct.” comparable imposed that could be penalties at —, 116 S.Ct. at 1603. Id. course, must, judg to the apply court BMW

This apply should question is whether we ment at issue. The review, or post-judgment in our point at this guideposts court. The by review the circuit post-verdict remand for a post- Haslip. found in Because question to that is answer prerequisite an essential judge review the trial verdict award, guideposts we conclude that the BMW a valid This conclusion is by the circuit court. applied should first be Co., Co., v. Petroleum Phillips Robertson Oil Inc. bolstered (8th Cir.1991), court appellate in which the 930 F.2d 1342 award to the United preHaslip punitive damage a remanded Arkansas so for District of District Court the Western States award under the criteria judge trial could “review the remand, circuit On Haslip...’’ Id. at 1347. approved to the following standards apply court shall each at issue. punitive award

Degree Reprehensibility required by principle is reprehensibility analysis ‘grossly proportion out punitive damages may “that be ” at —, Id., 116 at 1599 offense.’ S.Ct. severity to the of the (1993)). TXO, at 113 S.Ct. at 2717-18 509 U.S. (quoting BMW, words, should fit the crime. punishment In other — — n. 24, 116 1599 n. 24. S.Ct. at U.S. at

732 agree appellants

We with that violent acts and acts that reveal a disregard public safety reckless generally are reprehensible more than acts that do not in physical result Id. at —, Deceit, harm. however, S.Ct. at 1599. Id. at —, certainly reprehensible. And, 116 S.Ct. at 1599. “the injury when infliction of economic affir [resulted from] misconduct, mative acts of ... a substantial penalty war [is Id. at —, at 1599. ranted].” S.Ct.

This is a case which a award is appropriate. The is, however,' precise question punishment “does the fit the crime?” Compensatory Damages

Ratio to Punitive damages “must bear ‘reasonable relationship’ to Id. at —, compensatory damages...” 116 S.Ct. at 1601. That requirement rejected by had been Appeals the Court of Brooks, D.C. Transit v. System Inc. 578, 589-90, 264 Md. (1972). clear, however, 287 A.2d 251 It is now reviewing court must apply relationship” “reasonable test. damage

Punitive likely arbitrary awards less to be when the argument as to the amount of such damages is based on a fact-specific theory economic that establishes a reasonable (or harm) relationship between the harm potential caused goals the defendant and the of punishment and deterrence. — BMW, at —, J., (Breyer, U.S. 116 S.Ct. at 1607 concur ring). agree Breyer We with Justice that a valid economic theory well may explain what would otherwise an appear award, exorbitant damages and a more deferential appellate appropriate review is when the has pre been Id. at —, sented with such a theory. at S.Ct. During punitive damages case, phase present appellee’s trial counsel asked for an award of “40 million in punitive damages dollars” and supported request with an economic theory reasonably related the harm suffered by appellee to the amount of jury eventually awarded:

... is no I specific you [T]here number that can tell to look at, I you but think that should essentially hang Pick- [Mr.

733 “A testimony testimony and his was with his own ard] number, No, $350,000 significant that wasn’t a liability? Wrangler in with million dollars sales like company for 42 No, $350,000 with significant isn’t to someone had. sales,” argument repeated in and that million dollars you closing argument. on blurted just something it wasn’t that Mr. [Pickard]

So emphasizing work million out. You’ll recall this sheet $350,000 in sales, if much you try figure out how sales, well, only eight- it’s gosh, relation to million and so percent. percent tenths of one It’s less than one number, it? import that can’t be an can [sic] if own you percentage eight-tenths And use his one sales, year’s you’re talking of our last about 40 percent dollars, you yourself, to ask million and even then have ‘Well, signifi- but Mr. Picard testified that that’s not a [sic] percentage signifi- cant number. He said that that was not cant.” just percent

... 40 million dollars would be about 15 year’s last ... after-tax profit. [VF’s] $350,000 you’ll liability they And recall this didn’t percent purchase price want to disclose was about 15 of the Wrangler for the stock of Aviation. So there is another If relationship you there. take the 40 million dollar num- ber, directly testimony it does tie in to Mr. Picard’s about in directly relationship what is not material an it ties to the with purchase price Wrangler Aviation. fact, back, they expert

In if you brought think this Borris, testimony from Mr. Borris. Gunther and Mr. Borris like, $350,000 “Well, something significant said is not be- cause, million, if had of 21 so company already liabilities no, $21,350,000? So, 350,000 what if it has liabilities of isn’t significant.”

734 numbers, if thinking. Again, big that’s the these that’s

So they say significant, you pick high is not then have to a what to their attention and to make them enough get number in wrongfulness of their conduct this case. appreciate logical fact-specific much more than argument That was BMW.10 Appellee’s in counsel was argument presented punitive damages that the award certainly argue entitled relationship should bear some reasonable VF’s sales and Opinion Memorandum profits.11 Judge Angeletti’s net observations: following includes the liability of amount of should Addressing question what setting, corpo- material in a commercial be considered $325,000 not rate treasurer of VF testified that would be a $42,000,000 in liability company material "with sales____ words, In other under the VF standard of mate- (.008333,— amount to that small riality, equal percentage an 1%) i.e., company’s less than of a sales would not be Applying considered material this standard to VF. VF’s $41,429,284 of operations proportionately, liability own (i.e., $4,971,713,000) x might sales of .008333 Defendants’ significant not be considered or material VF. amount, half that jury’s approximately closely percentage the same of sales approximates VF’s (the $189,000 ultimately paid by Wrangler) repre- taxes sales____ in in relationship Wrangler’s

sented million $42 Borris, accounting expert, The Defendant’s Mr. Gunther $350,000 expressed opinion liability that a would be require 10. The United States "Constitution does not the States to theory” any particular reviewing when an award subscribe to economic Vermont, damages. Browning-Ferris Ind. Inc. v. Kelco Inc., 257, 300, 2909, 2933, Disposal, 492 U.S. 109 S.Ct. 106 L.Ed.2d J., (1989) (O’Connor, concurring part dissenting part) America, 69, 92, (quoting Corp. Dynamics Corp. CTS v. 481 U.S. 1637, 1651, (1987)). 95 L.Ed.2d 67 S.Ct. proceedings Judge Angeletti, appellants post-trial In before charac- misleading argument. They an "tit for tat” terized this as unfair and however, interposed objection, jury. no when it was made to the Wrangler already material to a like had company $21 A liability million other liabilities.... which was “mere- of a would not ly” company’s 1.6% other liabilities material. that standard to liabilities of Applying VF’s $1.6 billion, $25,625,584 liability VF would not consider a that amount. jury’s material. The award was under ... [argued jury] liability Defendants to the that a which = [$350,000 $4,000,000 + represented 8.75% .0875] not Wrangler’s Applying net loss would be material. this $455,661,00 percentage operating to VF’s net income $274,536,000 taxes, produce before taxes and after would million and million respective- benchmarks $39.87 $24.02 ly. Again, jury’s proportionately award was less than the amount the Defendants not contended should be consid- jury. ered material Plaintiff and the by the properly proportionate The could consider these in determining appropriate punish amounts an amount to Defendants for their efforts to transfer to Plaintiff an $350,000 liability undisclosed for in taxes and a back new $107,000 recurring expense of per year. is, however, not disagree analysis.

We do with that There a logical explanation jury’s distinction between a for the verdict, and the constitutional that there requirement reasonable relationship compensatory puni- between damages. tive It for the circuit in first court instance to determine whether the award in this case bears constitutionally to the relationship compensatory reasonable damages. Comparable

Sanctions for Misconduct or “Comparing punitive damages the civil criminal penalties imposed comparable that could be for mis BMW, provides conduct a third indicium of excessiveness.” — at —, 27, U.S. 116 at 1603. art. S.Ct. Md. Ann.Code (1992 § RepLVol.)provides 174 as follows: Any agent any corporation officer or whatsoever of who or in fraudulently sign, any shall other manner assent to 736 for the or the publication, public statement or either

any thereof, containing representations untruthful shareholders affairs, either assets or liabilities with a view of its therein, or the market value of the shares depress enhance in obligations, any or other corporate or the value of its any thereby, fraud shall be deemed accomplish manner to thereof, misdemeanor, conviction upon of a guilty law, fined not less than any indictment in court of shall be dollars, nor more than ten thousand one thousand dollars jail or either fined or imprisoned penitentiary, and be court, than at the discretion of the less imprisoned, years. six months nor more than three impris- maximum fine is not much a benchmark when The criminal “could of an individual required onment also be 23-24, 111 Haslip, 499 at S.Ct. at 1046. context.” U.S. sentence, however, jail legislature’s reflects maximum of- misrepresentation is a serious judgment corporate (1982), Holly, v. Embrey In 293 Md. A.2d fense. approval following with Appeals quoted the Court Ry., v. Trunk Goddard Grand 57 Me. 223- observation (1869): class of cases confess that it seems to us that there is no We more exemplary damages where the doctrine of can be A beneficially corpo- then to ... applied corporations.... mind being. ration is an It has no mind but the imaginary servants; servants; of it no voice but the voice of its its has of its and it has no hands with which to act but the hands mischief, All its schemes- of as well as its schemes servants. by are conceived human minds and public enterprise, hands; by executed human and these minds hands malice, guilt, its minds and hands.... Neither servants’ existence, suffering predicable nor of this ideal called And since these ideal existences can nei- corporation.... stocks,— in put hung, imprisoned, whipped, ther be brought in can to since fact no corrective influence be bear loss, does seem to us upon except pecuniary them that —it in is more beneficial exemplary damages that the doctrine of them, in to natural application its to than its application persons. suggested 966. The Ellerin Court

Id. at A.2d in policy consider the reflected reviewing legislative court to conduct at issue. applicable criminal statutes that are Ellerin, 1117. That suggested 337 Md. at n. 652 A.2d mandatory by has been made BMW. analysis

Conclusion remand, whether the the circuit court shall determine On requirements this case satisfied the punitive damage If that the award does Haslip persuaded and BMW. both court has discretion to comport process, not with due parties order a remittitur or a new trial. The will thereafter appellate to further review of the right post-judgment have court. punitive damages judgment by final entered the circuit oral by addressing expressed during We conclude a concern that an affir- argument, appellants’ suggested when counsel might mance of the award in this case be viewed as As Maryland an indication that is an “anti-business” state. we occasion, influenced judges said on that because should be justice, corporate no interest than the interest of if other “anti-business,” it is perceive Maryland America does be judicial government change not for the branch (2) it is unfair to trial or perception; suggest our unfriendly courts are somehow inter- appellate business is, however, message a decidedly “pro-business” ests.12 There full opinion: this because claims of business fraud receive courts, adjudication in our and fair this state is a safe others, would it harbor those who defraud is therefore will victimized fraud while unlikely corporations Maryland. transacting business case, Subsequent argument Appeals Court to oral in this criticized, think, unfairly so we for its to hold “that refusal fraud, regardless in an of which recoverable action lor knowledge supports finding Survey, form of of fraud.” Recent Maryland Appeals, Decisions Court 55 Md. L.Rev. (1996). AF- FOR DAMAGES

JUDGMENTS COMPENSATORY FIRMED; FOR PUNITIVE DAMAGES VA- JUDGMENT CATED; A REMANDED FOR POST-VERDICT CASE AWARD; APPEL- DAMAGE REVIEW OF PUNITIVE COSTS; THE THE PAY OF 50% OF LANTS TO 50% BE PAID BY APPELLEE. TO COSTS GETTY, J., concurs.

GETTY, Judge, concurring. the trial court to reconsider allowing I concur in the remand in accordance with the due punitive damages the issue of Gore, v. BMW articulated in which was standards process to the trial court’s Supreme subsequent decided Court damage award in this case. Absent affirmance of the remand, I a new trial as to the grant would reverse which, view, grossly exces- punitive damage my sive.

686A.2d 665 POST, Chartered, v. Alan F. BREGMAN, Douglas M. et al. 1746, Sept. Term, 1995. No. Special Appeals Maryland. Court

Dec.

Case Details

Case Name: VF Corp. v. Wrexham Aviation Corp.

Court Name: Court of Special Appeals of Maryland

Date Published: Nov 27, 1996

Citation: 686 A.2d 647

Docket Number: 1700, Sept. Term, 1995

Court Abbreviation: Md. Ct. Spec. App.