Opinion ID: 652883
Heading Depth: 3
Heading Rank: 6

Heading: Source of Oil Fraud

Text: 168 Lightning Lube argues that Witco's fraud in regard to the source of oil warrants an inference of corporate intent. Yet, as we explained above, despite the fact that the jury found that Lightning Lube had proven all of the elements of a claim of misrepresentation as to the source of oil, the jury also found that Lightning Lube sustained no damages on this claim. Furthermore, the jury did not award Lightning Lube nominal damages on this claim. Although an award of compensatory damages is not a prerequisite for a punitive award, see Nappe v. Anschelewitz, 477 A.2d at 1233, at least some injury, loss, or detriment to the plaintiff must occur to warrant punitive damages. Id. at 1229; see also O'Connor v. Harms, 111 N.J.Super. 22, 266 A.2d 605 (App.Div.), certif. denied, 57 N.J. 137, 270 A.2d 40 (1970) (striking down punitive damages award because no nominal damages were awarded). Inasmuch as the jury did not find sufficient injury to award nominal damages on this claim, the source of oil fraud cannot sustain an award of punitive damages. 169 Lightning Lube challenges this conclusion by arguing that the jury instructions did not include an explicit provision for an award of nominal damages. It argues that a rational jury, acting under the trial court's instructions, could have determined that, although the interrogatories contained no space in which nominal damages could be written, the jury nonetheless was authorized to proceed in imposing punitive damages as if nominal damages had been awarded on the source of oil claim. Lightning Lube therefore invites us to assume that the jury awarded nominal damages. We decline to accept this invitation. Given the court's instructions to the jury and the wording of the interrogatories, we are satisfied that the jury knew to award nominal damages expressly if it desired to do so. 22 7. Glady's Activities 170 Lightning Lube also argues that Glady's participation in the Wieland incident was not his only tortious act. After closely studying the record, we reject this assertion. Lightning Lube cites to a memorandum written by Glady in January 1987 ordering Witco salespersons to contact Lightning Lube franchisees directly with respect to the sale of oil products. In Lightning Lube's view, this order was tortious because it signified an attempt to circumvent Venuto. We conclude that inasmuch as this memorandum was connected with the credit hold, a jury could not find that Glady acted improperly. Nor, as we explained above, could the jury have believed reasonably that Witco instituted the credit hold for pretextual reasons to justify selling oil directly to the franchisees. 171 Similarly, we agree with the district court's conclusion that Glady's activities in connection with the Wieland incident cannot sustain an award of punitive damages. In this regard, Witco argues that Glady's conduct was free of culpable intent, and even if it was not, Glady was not an executive at the time. We do not address either Glady's status in the Witco hierarchy or the district court's reasoning, that a single tortious act by Glady could not give rise to an award of punitive damages for a wide-ranging corporate scheme, inasmuch as we agree with Witco's first argument. Based on the record, we see no evidence showing that Glady intentionally ratified Eyers's offer of free equipment to Wieland. On the contrary, a memorandum by Glady to his superiors indicates that he withdrew the offer and explained to Wieland that Witco had a special arrangement with Lightning Lube in regard to its equipment. Lightning Lube raises the possibility that Glady lied in the memorandum to give his superiors cover, but the mere fact the jury could disbelieve the contents of the memorandum does not substitute for proof that Glady intentionally sought to interfere with Lightning Lube's relations with Wieland. 8. Counterclaim 172 Finally, Lightning Lube argues that Witco's filing of a counterclaim, which the district court partially dismissed on April 20, 1992, justifies a punitive award because it constituted an intentional corporate decision by Witco to injure Lightning Lube through the making of false allegations. The counterclaim to the extent dismissed and germane here accused Lightning Lube of defrauding its franchisees by overcharging them for oil it had purchased from Witco. Lightning Lube argues, however, that Witco filed the claim knowing it was not true and that it would have a devastating effect on Lightning Lube, because Lightning Lube would be required to disclose Witco's charges to existing and prospective franchisees. Venuto testified that the disclosure of this counterclaim completely stopped all sales of new franchises and was Lightning Lube's death blow. Lightning Lube Br. at 9. In order to show that Witco filed the counterclaim solely to destroy Lightning Lube's relations with its franchisees, Venuto and Kleger testified that Witco's attorneys threatened to bury Lightning Lube when it filed suit against Witco and, upon filing the counterclaim said, you can't sell no [sic] franchises now, can you Ralph? In granting Witco's posttrial motions, the district court ruled that it had erred in admitting evidence of these statements. 173 Witco advances two arguments as to why the counterclaim and the alleged statements by Witco counsel do not warrant a punitive award. First, Witco argues that the district court's denial of two Rule 11 motions against Witco and Witco's counsel, based on the counterclaim, bars the jury from inferring any malice in determining punitive damages. We summarily reject this contention. Inasmuch as the denial of a Rule 11 motion does not foreclose the assertion of a subsequent malicious prosecution suit, see Cohen v. Lupo, 927 F.2d 363, 365 (8th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 180, 116 L.Ed.2d 142 (1991) (grant of Rule 11 motion not res judicata with respect to state claim of malicious prosecution); Amwest Mortgage Corp. v. Grady, 925 F.2d 1162, 1165 (9th Cir.1991) (denial of Rule 11 motion will not support federal court's enjoining state malicious prosecution proceeding), neither should it automatically prevent an award of punitive damages predicated on conduct of which the moving party on the Rule 11 motion complained. Where, as here, the Rule 11 proceedings were limited in scope and did not constitute a full and fair litigation of the issues presented to the jury, it would be inappropriate to use such collateral proceedings to re-examine the jury's finding of malice. [T]he court cannot consistent with the Seventh Amendment, evaluate a jury's verdict based on evidence that the jury was not permitted to consider at trial or on a legal standard not given to the jury. Mattison v. Dallas Carrier Corp., 947 F.2d 95, 108 (4th Cir.1991). 174 Witco's second argument is that under New Jersey law evidence of an allegedly false judicial pleading is inadmissible to establish willfulness for purposes of tortious interference in a subsequent judicial proceeding. See Rainier's Dairies v. Raritan Valley Farms, Inc., 19 N.J. 552, 117 A.2d 889 (1955) (allegations made in judicial proceeding cannot form predicate for action in defamation or tortious interference because such allegations are absolutely privileged). Thus, Witco maintains that the counterclaim is absolutely privileged and cannot be used as evidence of corporate malice. However, we agree with Lightning Lube that if such a privilege existed in the circumstances of this case, Witco has waived it. Although Witco objected to the introduction of evidence of the statements by its attorneys, it never objected to testimony regarding the counterclaim itself. Furthermore, Witco did not assert the claim of privilege as an affirmative defense in its answer or joint pretrial order. 175 Even if admissible, however, we find that, viewed in the light most favorable to Lightning Lube, the evidence of Witco's counterclaim, when considered separately from the attorney's statements, cannot sustain an award of punitive damages. Lightning Lube's accusations in regard to the counterclaim are analogous to the tort of wrongful use of civil proceedings, more commonly known as malicious prosecution. Under New Jersey law, a plaintiff asserting a claim of malicious prosecution must prove that the defendant (1) instituted proceedings (2) without probable cause and (3) with legal malice and (4) that the proceedings terminated in favor of the plaintiff. See Westhoff v. Kerr Steamship Co, 219 N.J.Super. 316, 530 A.2d 352 (App.Div.1987). Legal malice is defined as either knowingly acting without probable cause--i.e., a reasonable belief--or primarily for a purpose other than securing the proper adjudication of the claim in which the proceedings are based. Thus, even if the allegations contained in Witco's counterclaim turned out to be false, so long as its assertion of the counterclaim was not malicious and without probable cause, there is no cause of action for malicious prosecution. Furthermore, the instigator of a civil suit may rely on facts which it reasonably might be expected that subsequent pretrial discovery would adduce. Westhoff, 530 A.2d at 355. This is because 176 obviously less in the way of grounds for belief will be required to justify a reasonable man in bringing a civil rather than a criminal suit. Sometimes this is expressed by saying that want of probable cause must be 'very clearly proven' or 'very palpable,' or that 'greater latitude' must be allowed than in a criminal case. Apparently what is meant is merely that the instigator need not have the same degree of certainty as to the facts, or even the same belief in the soundness of his case, and that he is justified in bringing a civil suit when he reasonably believes that he has a good chance of establishing it to the satisfaction of the court or the jury. 177 Id. (quoting Prosser and Keeton on the Law of Torts Sec. 120, at 843 (5th Ed.1984)). Applying this standard to the present case, and disregarding the statements of Witco's attorneys to Kleger and Venuto, the evidence in this case simply does not establish that, at the time it asserted the counterclaim, Witco acted without probable cause or with an improper purpose, let alone with the egregious motive necessary to warrant a punitive award. 23 178 Having determined that the remaining evidence concerning the counterclaim does not provide an adequate basis for a claim of malicious prosecution 24 and thus cannot standing alone be the predicate for punitive damages here, we next address whether the district court improperly admitted the evidence of the attorneys' statements, and, if so, whether we still must consider this evidence in determining the sufficiency of the proofs with respect to Witco's state of mind in filing the counterclaim. In considering Witco's posttrial motions, the district court ruled that it erred in admitting the extra-judicial statements by Witco's lawyers against Witco as admissions under Fed.R.Evid. 801(d)(2)(C). We agree. Rule 801(d)(2)(C) specifically excludes from the definition of hearsay any statements used against a party which were made by another person authorized by the party to make a statement concerning the subject. Courts have applied this rule to admit evidence of statements made by attorneys in a representational capacity. Hanson v. Waller, 888 F.2d 806, 814 (11th Cir.1989). 179 But not every out-of-court statement by an attorney constitutes an admission which may be used against his or her client. Rather, an attorney has authority to bind the client only with respect to statements directly related to the management of the litigation. United States v. Dolleris, 408 F.2d 918, 921 (6th Cir.1969) ([a]n attorney, merely because of his employment in connection with litigation, does not have the authority to make out-of-court admissions for his client, except those which are directly related to the management of that litigation.), cert. denied, 395 U.S. 943, 89 S.Ct. 2014, 23 L.Ed.2d 461 (1969). Thus, courts generally measure the authority of the attorney to make out-of-court admissions by the same tests of express or implied authority as would be applied to other agents. John W. Strong, 2 McCormick on Evidence Sec. 259, at 163 (4th Ed.1992). Here, no evidence shows that the statements of Witco's attorneys were related to the management of the litigation or that Witco otherwise authorized its attorneys to make these statements. The district court, therefore, should not have admitted these statements. 180 During oral argument, Lightning Lube suggested that if we determined that the district court improperly admitted evidence in connection with the counterclaim, such a determination could lead at most to a remand for a new trial on punitive damages, but not the affirmance of the district court's grant of judgment on that claim. Lightning Lube makes this contention because in its view neither the district court nor the appellate court when considering a motion for judgment as a matter of law, may ignore evidence later found to have been admitted erroneously, but instead must consider all the evidence submitted to the jury. 181 This argument is directly contrary to Lippay v. Christos, 996 F.2d 1490, 1501 (3d Cir.1993). In that case, after holding that the district court erroneously had admitted hearsay evidence, we vacated the district court's order denying the defendant's motion for judgment as a matter of law and remanded the case to the district court to reconsider the motion without the inadmissible evidence. 25 Remarkably, just as in this case, the inadmissible evidence in Lippay was a statement by a purported agent of the defendant that was used improperly against the defendant as a vicarious admission to demonstrate malice. While Lightning Lube argues against the result in Lippay, which it dismissed at oral argument as being an almost inadvertent holding, Lippay is binding on this panel. 182 In fact, there was nothing startling in Lippay because dicta in Aloe Coal Co. v. Clark Equip. Co., 816 F.2d 110, 115-16 (3d Cir.), cert. denied, 484 U.S. 853, 108 S.Ct. 156, 98 L.Ed.2d 111 (1987), foreshadowed its holding. In Aloe we found unpersuasive cases from outside this circuit holding that a district court cannot grant judgment as a matter of law without consideration of evidence it wrongly had admitted. It is true that over 50 years ago, the Supreme Court suggested in dicta that assertions that the district court erred in admitting or excluding evidence should not be considered in a motion for judgment. See Montgomery Ward & Co. v. Duncan, 311 U.S. 243, 249, 61 S.Ct. 189, 194, 85 L.Ed. 147 (1940). But to our knowledge the Supreme Court never has addressed directly the issue of whether a trial court, in reviewing the sufficiency of the evidence with respect to a motion for judgment, must take the record as presented to the jury and thus cannot enter judgment on a record altered by the elimination of inadmissible evidence. 26 See Aloe, 816 F.2d at 115 (stating that this issue is unresolved). 183 We also recognize that other courts of appeals that have ruled on the issue and have determined that the district court should not review a truncated record, see, e.g., Jackson v. Pleasant Grove Health Care Ctr., 980 F.2d 692, 695 (11th Cir.1993); Douglass v. Eaton Corp., 956 F.2d 1339, 1343 (6th Cir.1992), have cited the nonmovant's reliance interest as their rationale. According to these courts, if evidence is ruled inadmissible during the course of the trial, the plaintiff has the opportunity to introduce new evidence. Jackson v. Pleasant Grove, 980 F.2d at 696. But, when that evidence is ruled inadmissible in the context of deciding a motion for [judgment as a matter of law], the plaintiff, having relied on the evidence already introduced is unable to remedy the situation. Id. Yet, as we pointed out in Aloe, this explanation of course does not address either the competing reliance of the defendant, or the homespun axioms that a litigant is entitled to only one bite of the apple or to only three strikes at bat. 816 F.2d at 116. Further, we find no reason to suppose that a litigant would hold back significant evidence at trial. 27 Indeed, Lightning Lube has not pointed to any additional evidence of the culpability of Witco's management that it withheld at trial, but would have introduced had it known that the court ultimately would rule evidence of the attorneys' state of mind concerning the counterclaim to be inadmissible. 184 We recognize that the rule enunciated in Lippay could lead to an unjust result where a litigant actually tendered additional evidence which the district court excluded on the ground that it was cumulative. In that situation it would be unfair, in determining a posttrial motion for judgment, for a court to disregard the erroneously admitted evidence if the excluded evidence could have substituted for it. Thus, in such a case, which was not the situation in Lippay, fairness would dictate that the district court consider the entire trial record in ruling on a motion for judgment. But Witco has not suggested that the district court excluded, as cumulative, evidence of the same character as that of the counterclaim. 185 In light of our precedent in Lippay, we hold that we may not consider the inadmissible evidence of the lawyers' statements in reviewing the sufficiency of the evidence sustaining the punitive award. Given this determination, and the insufficiency of the remaining evidence of malice in connection with the counterclaim, we further conclude that the counterclaim cannot support an award of punitive damages. 186 In sum, viewed in the light most favorable to Lightning Lube, the admissible evidence presented cannot support a finding of evil-minded motives or a willful disregard of Lightning Lube's rights on the part of Witco's management. We recognize that, in certain circumstances, a jury properly may infer malice from the sum of the acts proved, even where no individual act could support such an award. See, e.g., Viviano v. CBS, Inc., 597 A.2d at 552. In this case, however, no jury could infer that the wrongful acts, whether considered separately or cumulatively, were authorized or ratified by the corporation. The record is devoid of evidence showing the existence of a plot. Lightning Lube's attempt to create a wide-ranging corporate scheme out of isolated events rests on speculation only. We therefore will affirm the district court's grant of judgment as a matter of law on this claim.