Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-03-02188/USCOURTS-ca8-03-02188-0/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 

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United States Court of Appeals

FOR THE EIGHTH CIRCUIT

 ___________

 No. 03-2123

 ___________

Eden Electrical, Ltd., *

*

Plaintiff/Appellee, *

*

Itzhak Eden; Yehezkel Ida; Aharon Ida; *

Yocheved Rosenbaum; Michal *

Rosenbaum; Arieh Rosenbaum Heirs, *

the wife, daughter and heirs of Arieh *

Rosenbaum, *

* Appeal from the United States

Plaintiffs, * District Court for the

* Northern District of Iowa.

v. *

*

Amana Company, doing business as *

Amana Appliances, L.P., *

*

Defendant/Appellant, *

*

Richard Montross, Individually; Steve *

Prusha, Individually; Leonard Mason, *

Individually; Bruce Boyle, Individually, *

*

Defendants, *

______________________ *

*

United States Chamber of Commerce, *

*

Amicus on Behalf of *

Appellant. *

Appellate Case: 03-2188 Page: 1 Date Filed: 05/28/2004 Entry ID: 1772121 
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 ___________

 No. 03-2188

 ___________

Eden Electrical, Ltd., *

*

Plaintiff/Appellant, *

*

Itzhak Eden; Yehezkel Ida; Aharon Ida; *

Yocheved Rosenbaum; Michal *

Rosenbaum; Arieh Rosenbaum Heirs, *

the wife, daughter and heirs of Arieh *

Rosenbaum, *

*

Plaintiffs, *

*

v. *

*

Amana Company, doing business as *

Amana Appliances, L.P., *

*

Defendant/Appellee, *

*

Richard Montross, Individually; Steve *

Prusha, Individually; Leonard Mason, *

Individually; Bruce Boyle, Individually, *

*

Defendants, *

______________________ *

*

United States Chamber of Commerce, *

*

Amicus on Behalf of *

Appellee. *

Appellate Case: 03-2188 Page: 2 Date Filed: 05/28/2004 Entry ID: 1772121 
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The Honorable G. Thomas Eisele, United States District Judge for the Eastern

District of Arkansas, sitting by designation in the Northern District of Iowa.

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___________

Submitted: March 12, 2004

Filed: May 28, 2004

___________

Before WOLLMAN, FAGG, and HANSEN, Circuit Judges.

___________

WOLLMAN, Circuit Judge.

This appeal arises out of a distributorship agreement between Amana

Company, L.P., doing business as Amana Appliances, Inc. (Amana) and Eden

Electrical, Ltd. (Eden). In return for Eden’s purchase of $2.4 million in inventory,

Amana agreed to make Eden its exclusive distributor in Israel. Eden brought suit,

alleging fraud, after Amana abruptly terminated the agreement seventy-seven days

after its signing. The jury returned a verdict in favor of Eden, awarding it $2.1

million in compensatory damages and $17.875 million in punitive damages. Amana

appeals, arguing (1) that a number of the district court’s1

 jury instructions were

improper and (2) that the punitive damages award, although reduced by the district

court to $10 million, violates due process and Iowa law. Eden cross-appeals, arguing

that the district court erred in reducing the punitive damages award. We affirm.

I.

At the time of the acts complained of, Eden owned twenty-five appliance stores

throughout Israel, at least some of which sold Amana refrigerators, which Eden

purchased from Amana’s Israeli distributor, Pan El A/Yesh Shem, which was owned

and controlled by Leon Adam. As a result of certain legal and financial problems on

the part of Adam and Pan El A/Yesh Shem (including a $2.4 million debt another

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Adam-controlled company owed Amana), Amana needed a new distributor for Israel.

Adam approached Eden about possibly taking over the Israeli Amana distributorship.

After considering the proposal, Eden decided to send a number of representatives to

meet with Amana executives in Iowa. Eden’s representatives traveled to Iowa, met

with Amana executives, signed the distributorship agreement, and delivered to

Amana’s executives a check for $1.2 million and letter of credit in the same amount.

During the negotiations, Amana executives, including a territory manager, the

international credit manager, and a vice president, made a variety of assurances to

Eden’s representatives about Amana’s good faith, its hope of having a long-term

business relationship with Eden, and its willingness to have a direct business

relationship with Eden as its exclusive distributor in Israel.

Seventy-seven days after the agreement was reached and payment was made,

Amana terminated the distributorship contract without any explanation. Eden’s

attempts to make contact with Amana were met with no response. Unbeknownst to

Eden, which believed it was embarking on a long-term relationship as Amana’s

exclusive distributor, Amana had, following the execution of the agreement,

continued selling refrigerators to other entities for the Israeli market and had

represented to others that it was still looking for a long-term distributor for Israel.

Eden eventually brought suit, alleging fraud in the inducement. Following a

thirteen-day trial, the jury returned the above-described verdict in favor of Eden.

II.

We review the district court’s jury instructions for abuse of discretion. Brown

v. Sandals Resort Intern., 284 F.3d 949, 953 (8th Cir. 2002). Our review is limited

to a determination of whether the instructions fairly and accurately present the

evidence and law to the jury given the issues in the case. Id. Where a party contends

that an improper instruction was given to the jury, reversal is appropriate only where

the erroneously given instruction affects substantial rights. Id.

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Amana first argues that the district court’s fraudulent misrepresentation jury

instruction was not supported by the evidence and was legally erroneous because

Amana had never represented that it was acting in good faith. This contention rings

hollow, however, in light of the testimony of one of Amana’s officers that he had

expressly told Eden’s representatives that Amana would deal with them in good faith.

Additionally, Amana complains about the district court’s decision to give both a

fraudulent misrepresentation instruction as well as a fraudulent nondisclosure charge.

Contrary to Amana’s contention that the two charges were duplicative, the evidence

adduced at trial supported the giving of both instructions. The district court

reasonably determined that a jury might find (as it ultimately did) that Amana actively

misrepresented its good faith but did not commit the distinct act of failing to

communicate other information it was obliged to disclose.

Amana next argues that the district court erred in instructing the jury about how

the actions of Amana’s agents could be imputed to it to form the basis of its fraud.

Specifically, Amana argues that the conduct of its agents Prusha, Mason, and Boyle

should not have been considered because the individual fraud claims against them

had been dismissed at summary judgment. Amana cites no case for the proposition

that a corporation’s fraud must be committed entirely by a single agent. It is simply

not necessary that the entire scheme of fraud be perpetrated by a particular

individual. Rather, it is the actions of the corporation as a whole, executed by its

agents individually or collectively, that must satisfy the essential elements of the

fraud claim. Accordingly, we find no error in the court’s instruction.

III.

We review de novo the district court’s determination regarding the

constitutionality of a punitive damages award. Ross v. Kansas City Power & Light,

Co., 293 F.3d 1041, 1048 (8th Cir. 2002). Because the Iowa Supreme Court’s

opinions track the United States Supreme Court’s due process holdings, see, e.g.,

Wilson v. IBP, Inc., 558 N.W.2d 132, 147 (Iowa 1996), the same analysis is utilized

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in examining the legality of the punitive damage award under both federal and state

due process principles. Id. 

The United States Supreme Court has held that we must look to three factors

in determining whether a punitive damages award is so grossly excessive as to violate

due process: the reprehensibility of the conduct complained of, the disparity between

the harm or potential harm suffered by the plaintiff and the punitive damages award

(often expressed as a ratio), and the difference between the punitive damages award

and the civil or criminal penalties authorized or imposed in comparable cases. BMW

of N. Am., Inc. v. Gore, 517 U.S. 559, 575 (1996). Because the most important of

these factors is the reprehensibility of the defendant’s conduct, id., the Supreme Court

has elaborated on several factors relating to the wrongfulness of the defendant’s

conduct: whether “the harm caused was physical as opposed to economic; the tortious

conduct evinced an indifference to or a reckless disregard of the health or safety of

others; the target of the conduct had financial vulnerability; the conduct involved

repeated actions or was an isolated incident; and the harm was the result of

intentional malice, trickery, or deceit, or mere accident.” State Farm Mut. Auto. Ins.

Co. v. Campbell, 538 U.S. 408, 419 (2003). 

Having reviewed the record, we agree with the district court that a punitive

damages award of $10 million under these facts comports with due process and Iowa

law. In conducting its due process analysis, the district court stated that “the Court

can hardly think of a more reprehensible case of business fraud. Because of Amana’s

‘intentional malice, trickery, [and] deceit,’ this case certainly falls at the high end of

reprehensibility in the economic harm category of punitive action claims.” D. Ct.

Order of April 21, 2003 (footnote omitted). Amana’s conduct was not accidental or

inadvertent. The scheme to defraud Eden involved various members of Amana’s

leadership team, including a vice president, the international credit manager, and a

territory manager. Leon Adam testified that he had numerous conversations with

Amana’s vice president Montross about the “Eden project,” “the only purpose of

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which was to get rid of the [$2.4 million worth of] inventory which commonly we

called . . . junk.” Amana’s leadership directed Adam to find someone in Israel “who

can take the junk.” He was instructed to offer the exclusive distributorship as a way

of selling “the junk” to someone who had the requisite cash available. Upon

receiving this request from Amana, Adam identified and contacted Eden. Amana’s

actions were purposefully designed to maliciously victimize another company, all the

while giving Eden the impression that it was entering into a long-lasting and mutually

profitable relationship. Amana entered into the agreement with Eden, then ignored

all communications from Eden (including an attempt to place additional orders for

Amana appliances) and failed even to deliver to Eden the $2.4 million worth of

inventory it had purchased. Eden’s was the briefest exclusive distributorship in

Amana’s history. Even after Eden received the faxed two-page termination letter,

Amana refused to discuss the situation. 

Given the egregious nature of Amana’s conduct and our affirmance of awards

with similar compensatory-to-punitive damages ratios in other non-personal injury

cases, we conclude that the $10 million punitive damage award is appropriate. See,

e.g., State Farm, 538 U.S. at 419-20, 423 (stating that punitive damages at or near the

level of compensatory damages appropriate even in the absence of evidence of

repeated conduct or reprehensibility); Morse v. Southern Union Co., 174 F.3d 917

(8th Cir. 1999) (affirming punitive damage award in age discrimination case where

ratio was greater than 4:1 where upper management was involved in the

discrimination scheme). We acknowledge that Eden’s compensatory damage

recovery was significant and that this is a commercial case. But as has been noted,

this was an extraordinarily reprehensible scheme to defraud. Amana’s agents

expressed the desire to “f***” and “kill” Eden after taking its $2.4 million. Amana’s

own agent characterized its actions as “extreme.” Accordingly, we conclude that the

ratio of slightly more than 4.5:1 does not offend due process and that the award

appropriately futhers the state’s twin goals of punishment and deterrence. State Farm,

538 U.S. at 416.

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Amana argues that the punitive damages award should be set aside because the

jury considered conduct that occurred outside of Iowa: specifically, that Adam

approached Eden in Israel and some of the resulting negotiations occurred there. We

are not persuaded by this argument. The jury found that Amana committed fraud

through its agents, including Adam. The record shows that Amana’s leadership was

located in Iowa, met with representatives of Eden in Iowa, took Eden’s $2.4 million

payment in Iowa, and in Iowa made the decision to fraudulently enter into and then

terminate the distributorship agreement. Adam’s actions in Israel were certainly in

furtherance of the fraudulent scheme, so his conduct is closely related to Eden’s harm.

State Farm, 538 U.S. at 422-23. Additionally, there is no indication that Amana’s

conduct was lawful under Israeli law. Id. at 421.

In sum, then, we find no constitutional impediment to the enforcement of the

punitive damage award as ultimately determined by the district court.

Eden argues in its cross-appeal that the district court erred in reducing the

punitive damage award. We disagree. Granted that Amana was guilty of malice,

trickery, and deceit, this is a case of economic rather than physical harm. Amana’s

conduct did not evince a disregard for the health or welfare of others, and the fraud

involved only a single incident and a single victim. See Gore, 517 U.S. at 576-77.

Given the constitutional constraints imposed by the Supreme Court’s holdings in

Gore and State Farm, we agree with the district court that a punitive damage award

greater than $10 million would run afoul of the due process principles set forth in

those cases.

The judgment is affirmed.

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