Opinion ID: 2975107
Heading Depth: 3
Heading Rank: 2

Heading: Enforceability of the Covenant for five years

Text: Magnuson and First American also argue that this case should be remanded for a new trial on compensatory damages because the district court erred in instructing the jury that the Covenant was valid for the full five-year period. Although we have found that the Covenant was reasonable for at least a two-year period, we express no decision one way or another as to the Covenant’s validity for the full five-year period as written. This uncertainty does not affect our previous discussion of the district court’s grant of summary judgment to Chicago Title on the question of Magnuson’s liability for breach of the Covenant, because evidence of his conduct that breached the Covenant and supported that decision occurred during the first two years previously determined to have been a reasonable period to protect Chicago Title’s legitimate interests. As Magnuson and First American argue, however, the district court subsequently instructed the jury that the Covenant was enforceable through 2006, the full five-year period. Although the district court had both sides brief the issue of the full period’s reasonableness prior to instructing the jury, the court failed to incorporate its findings of fact on the issue in any written opinion. The only record is a brief mention of this instruction in the district court’s opinion denying Magnuson and First American’s post-trial motions. This indicates that the jury’s damage calculation may have improperly considered actions taken by Magnuson beyond the time when the Covenant was enforceable. Numerous Ohio state courts have upheld covenants that extended for three to five years, finding that a covenant of five years is not per se unreasonable. See, e.g., Briggs v. Butler, 45 N.E.2d 757, 763 (Ohio 1942) (upholding a five-year non-compete provision); Procter & Gamble Co. v. Stoneham, 747 N.E.2d 268, 276 (Ohio Ct. App. 2000) (three years); Matrix Corp. v. Faber, 146 N.E.2d 447, 451 (Ohio Ct. App. 1957) (five years). Without any further factual development in the district court record as to the reasonableness of the Covenant for a period of five years, however, we are unable to perform the requisite review under Raimonde for this longer period of time. For the above reasons, we affirm the district court’s ruling that the Covenant was reasonable and enforceable for at least two years, but reverse for a new trial on damages on this additional ground. E. Constitutionality of the Punitive Damages Award No. 05-4411 Chicago Title Ins. v. Magnuson, et al. Page 11 In contrast to compensatory damages, which are designed to compensate victims for actual harm suffered as a result of another’s wrongful conduct, the purpose of punitive damages is grounded in retribution and deterrence. Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 432 (2001). The Supreme Court has overturned jury verdicts awarding punitive damages that are so large that they constitute “grossly excessive or arbitrary punishments.” State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003). Such punishments do not put citizens on sufficient notice of the possible legal repercussions they may face as a result of their actions, and thus do not satisfy the Constitution’s guarantee of due process of law. Id. at 416-17. In State Farm, the Court confirmed three guideposts for lower courts to use when considering the constitutionality of a punitive damage award that were initially enunciated in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1995). Under these guideposts, a court’s decision must be informed by: “(1) the degree of reprehensibility of the defendant's misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.” State Farm, 538 U.S. at 418 (citing Gore, 517 U.S. at 575). “[C]ourts of appeals should apply a de novo standard of review when passing on district courts' determinations of the constitutionality of punitive damages awards.” Cooper Indus., 532 U.S. at 436. 1. Reprehensible nature of First American’s conduct “[T]he most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant's conduct.” Gore, 517 U.S. at 575. In making this assessment, the Court has instructed an inquiry into a number of factors, specifically, 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. The existence of any one of these factors weighing in favor of a plaintiff may not be sufficient to sustain a punitive damages award; and the absence of all of them renders any award suspect. It should be presumed a plaintiff has been made whole for his injuries by compensatory damages, so punitive damages should only be awarded if the defendant's culpability, after having paid compensatory damages, is so reprehensible as to warrant the imposition of further sanctions to achieve punishment or deterrence. State Farm, 538 U.S. at 419. The harm here was economic, not physical, and the health or safety of others were not in danger. Therefore, the primary considerations to be addressed are Chicago Title’s financial vulnerability, whether First American’s conduct was repeated, and the culpability of First American’s actions. We have already upheld the district court’s finding that First American intentionally interfered with the Contract, so we are willing to assume, for sake of argument, that First American acted maliciously rather than by accident. As a result, only two of the factors merit discussion here.
First American presents Chicago Title as the antithesis of an entity that could be considered to exhibit financial vulnerability, due to the company’s large size, as well as its self-professed status as still having the number one position in Ohio a year after Magnuson’s departure. On the other hand, there was evidence in the record that a realtor in the area believed that “Chicago Title would be out of business in six months” as a result of First American’s actions, that employee morale No. 05-4411 Chicago Title Ins. v. Magnuson, et al. Page 12 within Chicago Title “was at the very bottom,” and that rumors existed that Chicago Title was no longer a viable company. Regardless of the cases cited by the parties, the decisive fact on the instant record is Chicago Title’s own testimony that it maintained the number one position in Ohio a year after Magnuson left. Such evidence indicates a general lack of financial vulnerability on Chicago Title’s part, despite the initial predictions that the company was placed in dire straits following First American’s actions. If First American’s conduct was insufficient to unseat Chicago Title as the top player in this market within a year, it would violate the plain meaning of the term to hold that Chicago Title was financially vulnerable. On these facts, Chicago Title does not meet the criteria for being a financially vulnerable victim, and the district court incorrectly found this factor to be present. b. First American’s conduct was not repeated against other companies besides Chicago Title In Bach v. First Union Nat’l Bank, 149 F. App’x 354, 356 (6th Cir. 2005), and citing to Gore, we interpreted the repeated conduct factor to “require that the similar reprehensible conduct be committed against various different parties rather than repeated reprehensible acts within the single transaction with the plaintiff.” Chicago Title argues that this interpretation disregards another teaching of State Farm, illustrated in our recent decision in Clark v. Chrysler Corp., 436 F.3d 594, 609-10 (6th Cir. 2006), that the court is not to consider actions taken outside of the forum state when awarding punitive damages. Chicago Title’s argument overlooks a distinction between two different aspects of the analysis. When assessing whether the defendant’s behavior was sufficiently reprehensible to support an award of punitive damages, the Supreme Court has noted that consideration of the defendant’s conduct against other parties across the country is instructive to the analysis. State Farm, 538 U.S. at 419. When it comes to assessing the amount of damages awarded, however, such information is not to be considered, as that would 6allow a court to punish behavior outside of its jurisdiction that might be lawful in the second state. Id. at 420. Here, therefore, Chicago Title’s argument that we should disregard Bach as inconsistent with the principles of State Farm is misplaced. In this case, Chicago Title presented evidence that First American’s conduct of hiring experienced individuals from other title insurance companies was part of its nationwide expansion plan, but the district court did not find that First American engaged in the same type of tortious behavior against other competitors that it displayed against Chicago Title.7 Without an indication that First American employed tortious tactics against other competitors, its actions here were not repeated, as we have interpreted this factor of the reprehensibility analysis. c. First American’s conduct was not sufficiently reprehensible to support a punitive damage award By meeting a higher number of the reprehensibility factors, a plaintiff has a better chance of supporting a jury’s award of punitive damages. In State Farm, however, the Supreme Court did 6 Similarly, the Court recently affirmed this distinction in reversing a punitive damages verdict that was possibly based upon harm to other individuals who were not parties to the case at bar, although such evidence could be relevant to the reprehensibility issue. Phillip Morris USA v. Williams, 549 U.S. ___, 127 S.Ct. 1057, 1064 (2007). 7 Chicago Title’s argument that the district court “precluded [it] from introducing evidence of similar misconduct by [First American] in another market” does not have merit. A review of that portion of the trial transcript reveals that Chicago Title was merely using a deposition from another case against First American for impeachment purposes, and not attempting to demonstrate similar conduct in other markets. No. 05-4411 Chicago Title Ins. v. Magnuson, et al. Page 13 not set a threshold number of the five factors that must be met in order for the defendant’s conduct to be sufficiently reprehensible. In fact, the Court stated that the existence of one factor might not be enough, but8 left open the possibility that an award could still be upheld even if none of the factors were present. Here, the only factor present is that First American acted with malice. Especially because there were no physical injuries or threat to personal safety as a result of First American’s conduct, and because Chicago Title was not a financially vulnerable victim, the fact that First American acted maliciously is insufficient to support a finding that First American’s behavior was sufficiently reprehensible for an award of punitive damages. As the Supreme Court instructed in State Farm: “It should be presumed a plaintiff has been made whole for his injuries by compensatory damages, so punitive damages should only be awarded if the defendant's culpability, after having paid compensatory damages, is so reprehensible as to warrant the imposition of further sanctions to achieve punishment or deterrence.” 538 U.S. at 419. Therefore, 9an award of punitive damages is inappropriate here, and we reverse the district court on this issue.