Opinion ID: 2773208
Heading Depth: 2
Heading Rank: 2

Heading: Evidence of Outrageous Conduct by Defendants

Text: “‘Punitive damages may be awarded for conduct that is outrageous, because of the defendant’s evil motive or his reckless indifference to the rights of others.’” Feld v. Merriam, 485 A.2d 742, 747 (Pa. 1984) (quoting Restatement 23 (Second) of Torts, § 908(2)). “Punitive damages . . . are not awarded to compensate the plaintiff for her damages but rather to heap an additional punishment on a defendant who is found to have acted in a fashion which is particularly egregious.” Phillips v. Cricket Lighters, 883 A.2d 439, 446 (Pa. 2005) (citation omitted). “The state of mind of the actor is vital. The act, or the failure to act, must be intentional, reckless or malicious.” Feld, 485 A.2d at 748. “[W]e must make a ‘careful analysis of the entire trial record’ and examine whether the plaintiffs provided sufficient evidence to support a punitive damage award.” David by Berkeley v. Pueblo Supermarket of St. Thomas, 740 F.2d 230, 237 (3d Cir. 1984) (quoting Berroyer v. Hertz, 672 F.2d 334, 341 (3d Cir. 1982)). “‘[F]or punitive damages to be awarded there must be acts of malice, vindictiveness and a wholly wanton disregard of the rights of others.’” Tunis Bros., 952 F.2d at 741 (quoting Smith, 564 A.2d at 193) (emphasis added).
As to the Director Defendants—Andiorio, Baldwin, Thompkins, Johnson, and Bullock—insufficient evidence was presented to support a finding that any of them possessed a sufficiently culpable state of mind to warrant the imposition of the “extreme remedy” of punitive damages, which Pennsylvania courts have cautioned should be awarded “in only the most exceptional matters.” Phillips, 883 A.2d at 445. In its decision affirming the punitive damages award against five of the Director Defendants, the District Court pointed to the same conduct that it held had supported the compensatory damages award against all of the Director Defendants. Specifically, the District Court noted the Board’s failure to replace Causey despite awareness of her poor performance as Administrator, the Board’s January 2005 24 decision to close the Home which was not disclosed until April, and the mismanagement of the bankruptcy process by the Board. App. 42–43. Explaining the jury’s potential rationale for imposing punitive damages against only five of the members of the Board, the District Court concluded that, based on its “detailed review of the exhibits,” the Director Defendants against whom punitive damages were awarded had “received more correspondence relating to the closure of the Home than the other Defendants against whom liability was imposed, but no punitive damages were assessed.” App. 43–44. The amount of information individual directors knew is certainly relevant to establishing their liability for inaction and fraudulent nondisclosure. Nevertheless, we do not think that, on its own, evidence of the receipt of correspondence provided the jury with a sufficient basis to conclude that any of the five Director Defendants had engaged in “a quantum of outrageous conduct in addition to that undergirding the . . . liability . . . .” Tunis Bros., 952 F.2d at 741 (emphasis added). Our decision in Donaldson v. Bernstein, 104 F.3d 547 (3d Cir. 1997), in which we sustained a punitive damages award against a debtor’s two principals who had engaged in self-dealing, provides a helpful point of contrast. Unlike the evidence in that case, no evidence was presented in this matter that the Directors against whom the jury assessed punitive damages acted out of self-interest. Indeed, in a decision that the Committee does not appeal, the District Court directed a verdict in favor of all of the Directors on the Committee’s claim that they had breached their duty of loyalty to the Home. App. 1677. The District Court therefore found the record could not possibly support an inference that the Directors’ conduct was motivated by the intention to 25 extract a personal profit at the expense of the best interests of the Home. See In re Lampe, 665 F.3d 506 (3d Cir. 2011) (directors’ duty of loyalty prohibits them from “directly or indirectly, utiliz[ing] their position to obtain any personal profit or advantage other than that enjoyed also by their fellow shareholders” (quoting Tyler, 994 F. Supp. at 612)). The absence of evidence of self-dealing by any of the Director Defendants weighs heavily against the imposition of the “extreme” remedy of punitive damages. Moreover, the District Court acknowledged that three of the Director Defendants against whom punitive damages were imposed—Thompkins, Johnson, and Bullock—were mentioned only fleetingly during the course of trial testimony. The District Court cast the failure to call Thompkins, Johnson, and Bullock as witnesses, or to ask questions of other witnesses about their conduct, as a strategic decision made by both parties, similar to the decision to not present testimony regarding the Defendants’ financial statuses. But unlike evidence of a defendant’s wealth, which “is not a necessary condition precedent for imposition of an award of punitive damages,” Vance, 920 A.2d at 207, evidence of “outrageous or malicious conduct” is a necessary “legal and factual prerequisite” for a punitive damages award. Tunis Bros., 952 F.2d at 740. Therefore, it is the plaintiff who bears the burden of proving that the defendants’ conduct was outrageous in order to obtain a punitive damages award. A vacuum of evidence at trial on this topic does not affect both sides equally; rather, plaintiff loses, having failed to carry her burden. In light of the lack of state-of-mind evidence presented by the Committee regarding the Director Defendants against whom the jury imposed punitive damages, we will vacate the 26 jury’s award of punitive damages against those five Defendants.
We have no such concerns about the punitive damages assessed against the Officer Defendants. The mismanagement of the Home by Causey and Shealey was the focus of the Committee’s proof at trial. As detailed above, the Committee presented sufficient evidence at trial to sustain the jury’s verdict that both Officer Defendants breached their duty of loyalty to the Home. In Donaldson, we held that evidence of self-dealing by trustees provided sufficient factual support for imposition of a punitive damages award. 104 F.3d at 556–57. Likewise, the evidence of self-dealing presented at trial gave the jury a sufficient factual basis to conclude that the Officer Defendants acted with the outrageous motive of pursuing self-enrichment at the expense of the non-profit nursing home to which they owed fiduciary duties. In addition to the evidence of self-dealing, the Officer Defendants’ state of mind was illuminated by their own testimony at trial. Both Causey and Shealey responded evasively under cross-examination to questions about their conduct, allowing the jury to infer that they had acted culpably and continued to avoid recognizing the gravity of their misconduct. For instance, the Committee questioned Causey about the apparent conflict between her state-benefits application and her trial testimony regarding how much time she had worked during an eight month period in 2004. Causey first attempted to claim that she had worked “a minimum of 35 hours a week,” as required by state law, throughout this period. App. 1819. When reminded that she 27 had signed a state-benefits application “under penalties of law” claiming that she was working just 20 to 24 hours a week during the same period, Causey admitted, “I was working part-time.” App. 1820. Similarly, Shealey conceded at trial that he had refused to give Brown, the bankruptcy consultant for the creditors, the financial information he requested. Although Shealey initially claimed this was because Shealey “didn’t know who [Brown] was,” he later acknowledged that he had continued to refuse to cooperate even after being informed that Brown was a financial consultant. App. 1556–57. Taken together with the other evidence of their malfeasance, Causey and Shealey’s obfuscations at trial offered further support for the conclusion that they had acted outrageously, supporting the jury’s imposition of punitive damages against them.