Court Opinion

ID: 9552222
Source: CourtListenerOpinion
Date Created: 2023-08-07 19:06:30.886816+00
Date Added: 2024-06-11T15:25:50.525538
License: Public Domain

HARTZ, Chief Judge, concurring in part, dissenting in part. (40) I join Judge Alarid’s opinion except for the discussion of punitive damages. On that issue I respectfully dissent. Athough some language in decisions by the New Mexico Supreme Court supports the majority’s view, I believe that proper analysis of the role of punitive damages in contract eases requires reversal and remand for reconsideration. (41) I confess to being confused about the state of New Mexico law with regard to awards of punitive damages for intentional breaches of contract. To put the matter in perspective, I will first review what I understand the law to- be elsewhere in this country (although I will not discuss punitive damages for breaches of insurance contracts, a subject which receives distinct treatment, apparently because of the fiduciary nature of the relationship between the insurer and the insured). (42) Longstanding legal tradition in this country finds nothing morally repugnant about intentional breaches of contract. A century ago Oliver Wendell Holmes wrote: “The duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it, — and nothing else.” Oliver Wendell Holmes, The Path of The Law, 10 Harv. L.Rev. 457, 462 (1897). Indeed, modern theory recognizes the potential advantages of contract breaches. [Holmes’s] amoral view is supported by the economic insight that an intentional breach of contract may create a net benefit to society. The efficient breach of contract occurs when the gain to the breaching party exceeds the loss to the party suffering the breach, allowing the movement of resources to their more optimal use. (See Posner, Economic Analysis of Law (1986) 107-108.) Contract law must be careful “not to exceed compensatory damages if it doesn’t want to deter efficient breaches.” (Id. at p. 108.) Freeman & Mills, Inc. v. Belcher Oil Co., 11 Cal.4th 85, 44 Cal.Rptr.2d 420, 431, 433, 900 P.2d 669, 680, 682 (1995) (Mosk, J., concurring and dissenting). “[B]ecause of our notions of efficient breach and the freedom of the marketplace, we have generally not considered an intentional breach tortious.” Id., 44 Cal.Rptr.2d at 439, 900 P.2d at 688. (43) In line with this tradition, intentional breaches ordinarily cannot form the predicate for punitive damages. Not even when the breach is flagrant — when there is no question that the conduct breaches the contract. Not even if the other party will clearly be injured by the breach. Payment of the proper compensatory damages is all that is required. (44) There have been narrow circumstances, however, in which courts have recognized the appropriateness of punitive damages in a breach-of-contract case. The Restatement (Second) of Contracts § 355 (1981) summarized the state of the law two decades ago as follows: “Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable.” For example, an intentional breach accompanied by fraud could justify such an award. See, e.g., Whitehead v. Allen, 63 N.M. 63, 313 P.2d 335 (1957) (falsification of weight records by purchaser of alfalfa). (45) Since the publication of the Restatement, commentators have continued to explore when it is appropriate to impose punitive damages for an intentional breach of contract. One line of inquiry has focused on when economic analysis supports recovery of more than traditional contract damages. For example, if the breaching party attempts to gain an advantage through dishonesty, the breach serves no economic purpose. The breach is “opportunistic,” not efficient, and punitive damages may be useful in deterring such conduct. See Barry Perlstein, Crossing the Contrach-Tort Boundary: An Economic Argument for the Imposition of Extracompensatory Damages for Opportunistic Breach of Contract, 58 Brook. L.Rev. 877, 879-80 (1992). (46) Nevertheless, further exploration of the issue has not spurred a trend toward expansion of punitive damages for breach of contract. On the contrary, efficient-breach analysis has been a cautionary influence. There has even been some retrenchment. Under an onslaught from critical courts and commentators, a near-unanimous California Supreme Court in 1995 overruled a 1984 decision holding the defendant liable in tort (and therefore subject to punitive damages) for seeking to avoid contractual liability through a bad faith denial that the contract existed. See Freeman & Mills, Inc. (47) How does New Mexico law compare to the law elsewhere? The answer is not clear to me. The results in the New Mexico eases may be consistent with prevailing law elsewhere, but the language of the opinions is not. Perhaps uniquely among American jurisdictions, New Mexico appears to treat every breach of contract as a tort in determining whether to impose punitive damages. As stated in Romero v. Mervyn’s, 109 N.M. 249, 255, 784 P.2d 992, 998 (1989): “Our previous cases clearly establish that, in contract cases not involving insurance, punitive damages may be recovered for breach of contract when the defendant’s conduct was malicious, fraudulent, oppressive, or committed recklessly with a wanton disregard for the plaintiffs rights.” (48) What does this mean in the context of an intentional breach of contract? Opinions by our Supreme Court say that punitive damages should not be awarded for every intentional breach, see, e.g., id. at 256, 784 P.2d at 999—indeed, the Supreme Court has recognized that an efficient breach “may promote the interests of society as a whole,” Construction Contracting & Management v. McConnell, 112 N.M. 371, 375, 815 P.2d 1161, 1165 (1991)—but language elsewhere in the opinions suggests otherwise. For example, after stating that punitive damages can be awarded for a malicious breach of contract, Romero states that an act is malicious if “the defendant not only intended to do the act which is ascertained to be wrongful, but [ ] he knew it was wrong when he did it.” 109 N.M. at 256, 784 P.2d at 999. Similarly, in Paiz v. State Farm Fire & Cas. Co., 118 N.M. 203, 211, 880 P.2d 300, 308 (1994), the Court wrote: A mental state sufficient to support an award of punitive damages will exist when the defendant acts with “reckless disregard” for the rights of the plaintiff — i.e., when the defendant knows of potential harm to the interests of the plaintiff but nonetheless “utterly fail[s] to exercise care” to avoid the harm. It seems to me that virtually every intentional breach of contract would satisfy the above requirements. The breaching party knows that the breach is contrary to the contract rights of the other party and that the other party will suffer injury as a result of the breach. (49) One possible resolution of the puzzle derives from a qualification that appears in Romero. That opinion distinguishes “ “wrongful’ breaches of contract from those committed intentionally for legitimate business reasons.” Romero, 109 N.M. at 256, 784 P.2d at 999. Yet, this distinction raises questions of its own. What business reasons are “legitimate”? If any effort to increase profits is legitimate, then punitive damages would almost never be appropriate. On the other hand, if “legitimate” has a narrower meaning, what is that meaning? Perhaps one could interpret “legitimate” as “non-tortious,” in which case New Mexico law follows Section 355 of the Restatement. I would so interpret New Mexico law, but it would be helpful if the Supreme Court were explicit on this point. (50) Turning to the present case, I first address Landlord’s breach of the configuration agreement. The district court found that the violation “was outrageous, intentional, wanton, wilful, and malicious.” As far as I can tell, however, this finding was based solely on the breach being blatant and intentional. Although the district court orally stated that Landlord constructed the building in the parking lot to “take an unfair tactical advantage in the litigation,” I fail to understand how that was so. It seems to me that Landlord placed itself in a much more vulnerable negotiating position by constructing the building without the prior consent of Tenant. I would reverse the award of punitive damages to the extent that it is predicated on breach of the configuration agreement and remand to the district court to enter further findings and conclusions with respect to whether Landlord’s breach of the configuration agreement was tortious. (51) As for the breach of the CAM provisions, that breach may well have been tor- . tious.. There was evidence that Landlord engaged in a fraudulent attempt to conceal a management fee. But the district court made no finding to that effect in awarding punitive damages, so remand for further findings is also necessary on this issue.