Court Opinion

ID: 3034548
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:51:14.907265+00
Date Added: 2024-06-11T09:52:27.809197
License: Public Domain

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.                  *
          ___________

          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.                   *

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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

      1
       The Honorable G. Thomas Eisele, United States District Judge for the Eastern
District of Arkansas, sitting by designation in the Northern District of Iowa.

                                        -3-
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.

                                         -4-
       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

                                          -5-
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

                                           -6-
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.

                                         -7-
      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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