February 12, 2010

Fourth Circuit Reverses $10 Million Punitive Damages Award

The U.S. Court of Appeals issued a non-precedential opinion today reversing a $10 million punitive damages award in a lawsuit by a minority-owned tech company against a major defense contractor. The plaintiff, Worldwide Network Services, alleged that defense contractor DynCorp. terminated its subcontract with Worldwide based on racial animus. A jury awarded $5 million in compensatory damages and $10 million in punitive damages for tortious interference with contract and racial discrimination in violation of section 42 U.S.C. section 1981.

The Fourth Circuit affirmed the jury's liability findings and compensatory damages award, but reversed the punitive damages award because the court found no evidence that the defendant knew it was acting in violation of the plaintiff's federally protected rights, as required for a punitive damages award for a violation of section 1981. The court noted, however, that the plaintiff also sought punitive damages based on tortious interference with contract. The jury's verdict did not indicate whether the jury intended to award punitive damages for the section 1981 violation, the tortious interference claim, or both. Accordingly, the court remanded for a retrial limited to the question of punitive damages on the tortious interference claim.

Procedurally, the analysis would be very different in California. Under California's "general verdict rule," when two theories are presented to a jury, only one of which is supported by substantial evidence, and a general verdict is returned in favor of the plaintiff, it is presumed that the jury based its verdict on the theory that is supported by the evidence. (See Lundy v. Ford Motor Co. (2002) 87 Cal.App.4th 472, 480.) If that rule had been applied here, the court would have presumed that the jury awarded punitive damages based on the tortious interference claim, and not the section 1981 claim.

(The Fourth Circuit also found a separate instructional error that would have required a new trial on punitive damages anyway, but I am focusing on the court's discussion of the sufficiency of the evidence on the section 1981 claim to highlight the procedural distinction discussed above.)

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