When Can a Chancellor Award Punitive Damages?
September 18, 2014 § 4 Comments
Bar-Til entered into a contract as a subcontractor to do some work for Superior Asphalt on Pull-A-Part’s property. Problems arose with some environmental regulations that required some change orders. As the work expanded, so did the bills, and Superior quit paying the invoices.
Bar-Til sued Superior for breach of contract, breach of covenant of fair dealing, and breach of fiduciary duty. Bar-Til included Pull-A-Part on the basis that it had been unjustly enriched by Bar-Til’s uncompensated effort. When the trial was in its third day, Bar-Til moved to amend its complaint to allege bad faith, seeking punitive damages from Superior. The chancellor granted the motion, but clarified that only the issue of whether punitive damages would be an issue was before the court. He said that Bar-Til could “offer the proof of punitive damages when we decide if that’s going to be an issue.”
At the conclusion of trial, the chancellor found for Bar-Til on the breach of contract issue, and added that Bar-Til was even entitled to recover on a quantum meruit basis. The chancellor found that Bar-Til failed to prove that Superior acted in bad faith or breached a fiduciary duty, and so failed to prove entitlement to punitive damages. Since no punitive damages were due, attorney’s fees were denied. The judge also found that Bar-Til had failed to prove any of its claims against Pull-A-Part.
Bar-Til appealed on the chancellor’s denial of punitive damages, charging that the denial was in error, as was the chancellor’s refusal to hold a separate hearing on punitive damages.
In the COA case of Bar-Til, Inc. vs. Superior Asphalt, Inc. and Pull-A-Part, LLC, decided August 26, 2014, Judge Carlton spelled out the parameters for chancery judges considering whether to award punitive damages:
¶14. Our caselaw provides that “[t]he award of punitive damages, along with the amount of such, are within the discretion of the trier of fact.” Hurst v. Sw. Miss. Legal Servs. Corp., 708 So. 2d 1347, 1350 (¶6) (Miss. 1998) (citation omitted). In contract cases, “[p]unitive damages may not be awarded if the claimant does not prove by clear and convincing evidence that the defendant against whom punitive damages are sought acted with actual malice, gross negligence which evidences a willful, wanton[,] or reckless disregard for the safety of others, or committed actual fraud.” Miss. Code. Ann. § 11-1-65(1)(a) (Supp. 2013). In determining the propriety of punitive damages, a chancellor “decides whether, under the totality of the circumstances and viewing the defendant’s conduct in the aggregate, a reasonable, hypothetical trier of fact could find either malice or gross neglect/reckless disregard.” Ciba-Geigy Corp. v. Murphree, 653 So. 2d 857, 863 (Miss. 1994) (citations omitted).
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¶19. We now turn to a review of the statutory law and caselaw applicable to punitive damages. In discussing whether an award of punitive damages is proper, Mississippi Code Annotated section 11-1-65(1)(b)-(c) (Supp. 2013) provides:
In any action in which the claimant seeks an award of punitive damages, the trier of fact shall first determine whether compensatory damages are to be awarded and in what amount, before addressing any issues related to punitive damages.
If, but only if, an award of compensatory damages has been made against a party, the court shall promptly commence an evidentiary hearing to determine whether punitive damages may be considered by the same trier of fact.
¶20. The Mississippi Supreme Court has also provided the following guidance:
Mississippi law does not favor punitive damages; they are considered an extraordinary remedy and are allowed with caution and within narrow limits. Punitive damages should be awarded in addition to actual or compensatory damages where the violation of a right or the actual damages sustained, import insult, fraud, or oppression and not merely injuries, but injuries inflicted in the spirit of wanton disregard for the rights of others. In other words, there must be some element of aggression or some coloring of insult, malice[,] or gross negligence, evincing ruthless disregard for the rights of others, so as to take the case out of the ordinary rule.
. . . This Court has held that punitive damages are recoverable in breach of contract cases where the breach results from an intentional wrong and when there has been a showing of malice or gross/reckless disregard for the rights of others. Punitive damages are only appropriate in the most egregious cases so as to discourage similar conduct and should only be awarded in cases where the actions are extreme.
Warren v. Derivaux, 996 So. 2d 729, 738 (¶¶27-28) (Miss. 2008) (internal citations and quotation marks omitted).
¶21. As our precedent reflects, some underlying basis, such as actual malice or fraud, must exist for an award of punitive damages before a chancellor will hold a second hearing on the issue of such damages. See Miss. Code. Ann. § 11-1-65(1) (Supp. 2013). In the present case, the chancellor found no merit to Bar-Til’s claim that Superior’s conduct justified an award of punitive damages. As reflected in his order and final judgment, the chancellor found that Bar-Til failed to provide the requisite evidentiary basis to support an award of punitive damages.
That’s a pretty nifty survey of the law of punitive damages, and it illustrates how exceptional and infrequent such awards are.
The COA swept aside Bar-Til’s claim about the failure to hold a separate hearing based on the chancellor’s conclusion that punitive damages were not warranted.