Court Opinion

ID: 8963782
Source: CourtListenerOpinion
Date Created: 2022-11-27 09:57:24.88012+00
Date Added: 2024-06-11T17:10:16.701983
License: Public Domain

MURNAGHAN, Circuit Judge,
concurring in part and dissenting in part:
I agree with the majority that there was adequate evidence in the record for the jury to find that there was a valid contract among the parties and that Goodyear Tire and Rubber Company had breached it. However, because the actions of Goodyear did not rise to the level of a “fraudulent act” accompanying a breach of contract pursuant to South Carolina law, I respectfully dissent from the affirmance of the award of punitive damages.
South Carolina courts repeatedly have explained that a mere breach of a contract, even if willful or with fraudulent purpose, is not sufficient to entitle a plaintiff to go to the jury on the issue of punitive damages. E.g., Smyth v. Fleishmann, 214 S.C. 263, 269, 52 S.E.2d 199, 202 (1949); Holland v. Spartanburg Herald-Journal, 166 S.C. 454, 464-65, 165 S.E. 203, 206-07 (1932). As recognized by the majority, in order to recover punitive damages in an action in contract, the plaintiff must prove a breach of contract accompanied by a fraudulent act. The plaintiff must show the following three elements: (1) a breach of contract, (2) fraudulent intent relating to the breach, and (3) a fraudulent act accompanying the breach. Thompson v. Home Sec. Life Ins., 271 S.C. 54, 55, 244 S.E.2d 533, 534 (1978); Floyd v. Country Squire Mobile Homes, Inc., 287 S.C. 51, 53-54, 336 S.E.2d 502, 503-04 (Ct.App.1985). The fraudulent act may be prior to, contemporaneous with, or subsequent to the breach of contract, but it must be connected with the breach itself and cannot be too remote in either time or character. Smith v. Canal Ins. Co., 275 S.C. 256, 260, 269 S.E.2d 348, 350 (1980). It is not disputed that elements of a breach of contract accompanied by a fraudulent act differ from the elements of the action in tort for fraud and deceit. See Harper v. Ethridge, 290 S.C. 112, 118-19, 348 S.E.2d 374, 378 (Ct.App.1986).
The third element of the contract claim, the fraudulent act, is characterized as “dishonesty in fact, unfair dealing, or the unlawful appropriation of another’s property by design.” Id. at 119, 348 S.E.2d at 378. When the fraudulent act element is based on misrepresentation, as in the present case, South Carolina courts have held that the plaintiff must prove reliance on such misrepresentation, a rather universal — and indeed obvious — point. The South Carolina Supreme Court clearly explained as follows:
In Corley v. Coastal States Life Ins. Co., 244 S.C. 1, 135 S.E.2d 316 (1964), we held that a misrepresentation made in reckless disregard for the truth will support an action for breach of contract accompanied by a fraudulent act. However, in Vann v. Nationwide Ins. Co., 257 S.C. 217, 185 S.E.2d 363 (1971), we explicitly recognized that reliance on the misrepresentation must also be proved.
Kelly v. Nationwide Mut. Ins. Co., 278 S.C. 488, 489, 298 S.E.2d 454, 455 (1982). See also Vann v. Nationwide Ins. Co., 257 S.C. 217, 221, 185 S.E.2d 363, 364-65 (1971); Rutledge v. St. Paul Fire & Marine Ins. Co., 286 S.C. 360, 365, 334 S.E.2d 131, 135 (Ct.App.1985).
In the instant case, the majority holds that-Goodyear’s misrepresentation through concealment regarding the signing of the extension agreement was sufficient to meet the fraudulent act element. The plaintiffs, however, have failed to show any reliance on such misrepresentation. There is no evidence nor was there any apparent evidence that Goodyear gained anything by virtue of the misrepresentation, or that plaintiffs’ claim for actual damages was prejudiced. Kelly, 278 S.C. at 489, 298 S.E.2d at 455. Under such circumstances, *209the district court erred by denying Goodyear’s motion for a directed verdict as to punitive damages.
The Supreme Court has recognized no distinction such as that advanced in the majority opinion between affirmative misrepresentation and failure to disclose. See Basic Inc. v. Levinson, — U.S. -, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988). Additionally, it would be unwarranted action, disregarding the thrust of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), to rely on such a supposed distinction, for the South Carolina courts have never relied conclusively on such a supposed distinction. If the distinction is relied upon by the majority, the defendant, who merely failed to disclose a piece of information, could face a greater threat of punitive damages than the defendant who told an outright lie. It would be illogical thus to lighten the burden in a case of mere failure to disclose as measured against the burden of proving reliance on the misrepresentation.
The majority’s conclusion that the jury could properly infer detrimental reliance from Goodyear’s silence is to me unwarranted. It is difficult to appreciate how North Strand would have been in a better position on December 10, 1984 (the date Goodyear cancelled the lease) if it had believed earlier that Goodyear had agreed to the extension.
Finally, the fact that the reliance issue has not been briefed or argued by Goodyear is in no way dispositive here. We have held that the appellate court “may sua sponte consider points not presented to the district court and not even raised on appeal by any party” if it is “deemed necessary to reach the correct result.” Washington Gas Light Co. v. Va. Elec. & Power Co., 438 F.2d 248, 251 (4th Cir.1971). Accord Kirby v. Allegheny Beverage Corp., 811 F.2d 253, 256 n. 2 (4th Cir.1987); Austin v. Torrington Co., 810 F.2d 416, 420 (4th Cir.), cert. denied, — U.S. -, 108 S.Ct. 489, 98 L.Ed.2d 487 (1987). It is well settled that we may consider an issue not raised at trial “if the error is ‘plain’ and if our refusal to consider such would result in the denial of fundamental justice.” Stewart v. Hall, 770 F.2d 1267, 1271 (4th Cir.1985) (trial judge’s error in instructing jury resulted in a complete failure of proof with respect to the essential element of the cause of action).
It is necessary in this respect to consider the impact of the thrust of, and the limitations on, the doctrine announced in United States v. Mercedes Benz, 542 F.2d 912 (4th Cir.1976) and companion cases. That case intends to serve right the lawyer who contributes to a trial judge’s error by failing to call to his or her attention a non-obvious point of law. Here, however, we are dealing with a basic, elemental concept, namely that reliance is required to trigger consequences of fraudulent misrepresentation. We deal here with what amounts to “plainly misstated fundamentally controlling substantive principles governing ... [the] right to recover.” Furka v. Great Lakes Dredge & Dock Co., 755 F.2d 1085, 1089 (4th Cir.1985), cert. denied, 474 U.S. 846, 106 S.Ct. 136, 88 L.Ed.2d 112 (1985) (reversing case on grounds of erroneous jury instructions, not objected to at trial, where such instructions went to the “soul of appellant’s case”). By contrast, United States v. Gravely, 840 F.2d 1156 (4th Cir.1988), concerned the proper sequence of proof at trial, not a fundamental principle of law.
Furthermore, cases in the Mercedes Benz mold have involved lapses in calling to the trial court’s attention a rule of law concerning the merits of the controversy, not punishment for conduct independent of the merits. See, e.g., Levy v. Kindred, 854 F.2d 682 (4th Cir.1988) (review of judgment forcing defendants to return money obtained through fraud; no punitive damages awarded); G. Heileman Brewing Co., Inc. v. Stroh Brewery Co., 843 F.2d 169 (4th Cir.1988) (rejecting defendant’s arguments that state franchise law was inapplicable; no punitive damages involved); Babb v. Olney Paint Co., 764 F.2d 240 (4th Cir.1985) (rejecting argument that defendants breached fiduciary duties; no punitive damages). In cases involving punitive damages, the largely unbridled latitude entrusted to the jury warrants special care by appellate courts to ensure that the letter of the law guided the jury instructions.
*210In many instances, this Court s refusal to consider issues not raised at trial has had little or no effect on the outcome of the cases. See, e.g., Wilkinson v. United States, 677 F.2d 998, 1002 (4th Cir.), cert. denied, 459 U.S. 906, 103 S.Ct. 209, 74 L.Ed.2d 167 (1982) (although disinclined to consider issue not raised below, court considered point anyway and found it merit-less); Martin v. United States, 780 F.2d 1147, 1150 n. 9 (4th Cir.1986) (court refused to address matter not raised below where another issue disposed of the case); Sanderson v. Rice, 777 F.2d 902, 905 n. 4 (4th Cir.1985), cert. denied, 475 U.S. 1027, 106 S.Ct. 1226, 89 L.Ed.2d 336 (1986) (same); Newman v. Hy-Way Heat Systems, Inc., 789 F.2d 269, 271-72 (4th Cir.1986) (refusal to reverse on issue not raised below where no prejudice to appellant); Barger v. Mayor & City Council of Baltimore, 616 F.2d 730, 734-35 (4th Cir.), cert. denied, 449 U.S. 834, 101 S.Ct. 105, 66 L.Ed.2d 39 (1980) (issue not core-central to litigation because jury could have reached same result even if properly instructed). By contrast, the issue of reliance lies at the core of the punitive damages award in the instant case. Without proof of reliance, the jury could not properly have awarded punitive damages under South Carolina law.
National Wildlife Federation v. Hanson, 859 F.2d 313 (4th Cir., 1988) holds:
While it is true that we ordinarily will not consider issues raised for the first time on appeal, we have recognized that in very limited circumstances, we may consider such an issue of the error is “plain” and our refusal to consider it would result in a miscarriage of justice. Stewart v. Hall, 770 F.2d 1267, 1271 (4th Cir.1985).
At 318.
Furthermore, appellate review of the reliance issue cannot be said to inflict injustice upon the plaintiffs when it was the plaintiffs who had the burden from the start of proving detrimental reliance. The plaintiffs failed to bear that burden, and, in fact, failed even to allege in their complaint that they had relied on Goodyear’s concealment of the deadline extension.1 It would be unjust, however, for this Court to uphold a punitive damages award when the plaintiffs are not entitled to it under South Carolina law.
I, therefore, dissent with respect to the issue of punitive damages.

. The plaintiffs indirectly referred to the reliance issue in their complaint, but alleged only that the defendant’s actions were ones upon which the plaintiffs "were expected to rely.” (J.A. 9). The plaintiffs did not allege that they had in fact relied. In addition, during oral argument before the trial judge in response to a motion for judgment notwithstanding the ver-diet, plaintiffs’ counsel again obliquely referred to the reliance issue: “The act is sending out a cancellation letter breaching a contract, for a false reason in an attempt to trick somebody into giving up their rights.” (J.A. 353). Again, however, plaintiffs’ counsel failed to allege that plaintiffs had, in fact, been misled to give up any of those rights.