Decus, Inc. v. Heenan

          MEMORANDUM

          KEARNEY, J.

         After evaluating credibility of witnesses describing widely varied reasons for a failed business relationship, our jury unanimously found the individual Defendant fraudulently induced the relationship by failing to disclose an earlier employer fired him and the reasons for firing him. The jury awarded $18, 000 in compensatory damages and $225, 000 in punitive damages for this fraud. The jury found once the individual Defendant induced the relationship, both he and his company followed up with tortious interference, conversion, breach of contract, unjust enrichment, and violating the Lanham Act. The jury awarded compensatory and punitive damages on the conversion and tortious interference claims, but not the others.

         The Defendants now move for a new trial or to alter the jury verdict arguing we erred in admitting evidence of the reason an earlier employer fired the individual Defendant; and, the jury awarded grossly excessive compensatory and punitive damages on all claims. We agree with the individual Defendant only as to the excessiveness of $225, 000 in punitive damages for fraud after finding $18, 000 in compensatory damages. Consistent with due process, we amend the verdict to award $ 18, 000 in punitive damages for fraud against each Defendant consistent with the jury's approximate 1:1 ratios of punitive to compensatory damages awarded for the tortious interference and conversion claims. We otherwise deny the Defendants' motion.

         I. Background adduced from trial evidence.

         Decus, Inc. and Decus Construction, Inc. (together "Decus") perform general construction and construction management services. Based on individual Defendant Mark Heenan's representations, including a resume showing extensive contacts in the New Jersey construction community without mentioning his earlier employer fired him, Decus entered into a consulting agreement with Mr. Heenan. Mr. Heenan owns Heenan Holdings, LLC (together, "Heenan"). The business relationship between the parties devolved when Decus discovered Heenan attempted to divert business opportunities away from Decus to Heenan Holdings. Decus sued Heenan for fraud in inducing the consulting relationship, tortious interference with contract, conversion, breach of contract, unjust enrichment, trademark infringement, and cyberpiracy under the Lanham Act. Heenan counterclaimed for breach of contract, fraud, conversion, and tortious interference with contract.

         On its fraud claim, Decus alleged it entered into a consulting agreement with Mr. Heenan to develop business, procure new contracts, and perform project management services for Decus. Decus alleged Mr. Heenan made representations regarding his work history with, and ownership in, Hessert Corp. and Hessert Construction Management (together "Hessert Construction") owned by William Hessert. Decus alleged Mr. Heenan represented he voluntarily left Hessert Construction on good terms. Decus contends it reasonably relied on Mr. Heenan's representations regarding his employment with Hessert Construction understanding Mr. Heenan would have good relationships in the construction community and would otherwise assist Decus's small business grow particularly in New Jersey.

         Decus later learned Mr. Heenan did not voluntarily leave Hessert Construction on good terms; Decus learned Mr. Hessert fired Mr. Heenan after he discovered Mr. Heenan placed a baby monitor video camera in a restroom of Hessert Construction ("baby monitor incident"). Mr. Heenan admitted to owning the baby monitor, explaining he put the monitor in the restroom because he wanted to test the monitor's low-light capabilities. Mr. Hessert testified to the baby monitor incident, including retaining a private investigator. Mr. Hessert admittedly destroyed the content of the baby monitor video upon firing Mr. Heenan. Mr. Heenan and Mr. Hessert sued each other in New Jersey state court resulting in depositions contemporaneous with our progress in this case and eventually - shortly before our trial - resolving their New Jersey case.

         Before trial, Heenan moved in limine to exclude "all evidence related to the Hessert/Heenan dispute and Baby Monitor situation" as not relevant and the probative value is outweighed by prejudice under Federal Rules of Evidence 401 and 403.^[1]We denied Heenan's motion in limine, finding Decus pleaded the materiality of Mr. Heenan's work history representations in the parties' negotiations making relevant the grounds of his departure from Hessert Construction.^[2] Heenan additionally objected to Decus's designations from Mr. Hessert's video deposition, including an objection on the basis of hearsay to Mr. Hessert's testimony regarding the investigator's report. We did not allow the investigator's report into evidence but allowed Mr. Hessert to generally describe his state of mind in firing Mr. Heenan.

         After trial, the jury returned a verdict in favor of Decus on its claims of fraud, tortious interference with contractual relations, conversion, breach of contract, unjust enrichment, and service mark claims under the Lanham Act.^[3] The jury did not award damages for all claims. The jury awarded to Decus and Decus Construction each $18, 000 in compensatory damages and $225, 000 in punitive damages on the fraud claims against Mr. Heenan alone; $400, 000 in compensatory damages and $500, 000 in punitive damages on the intentional interference with contractual relations claims; and $150, 000 in compensatory damages and $150, 000 in punitive damages on the conversion claims.^[4] The jury did not award damages after finding liability for breach of contract, unjust enrichment and under the Lanham Act. The jury also awarded Mr. Heenan $9, 000 on his breach of contract counterclaim. We entered judgment after entry of the jury's verdict.^[5]

          II. Analysis

         Mr. Heenan and his company move for a new trial arguing we erred in admitting evidence of the reason Mr. Hessert fired him and because the jury awarded excessive damages. Heenan alternatively asks we amend the judgment to reduce the jury's damages award for fraud, tortious interference and conversion as excessive. We deny the motion for a new trial but we find the jury's punitive damages award for fraud violates the due process clause and grant Heenan's motion to amend the judgment to reduce the punitive damages award to be equal to the compensatory damages award.

         Reviewing new trial motion challenging admission of evidence.

         Under Rule 59(a)(1)(A), we "may, on motion, grant a new trial on all or some of the issues - and to any party . . . after a jury trial, for any reason for which a new trial has heretofore been granted in an action in federal court."^[6] Rule 59 does not provide specific grounds to grant a new trial, leaving the decision to our discretion.^[7] Motions for new trial may be granted where there is "substantial error in the admission or exclusion of evidence; error in the court's instructions to the jury; where the jury's verdict [is] inadequate or excessive; or where the verdict [is] against the weight of the evidence."^[8] Our court of appeals cautions we should grant a motion for new trial "only when 'the great weight of the evidence cuts against the verdict and ... [ ] a miscarriage of justice would result if the verdict were to stand.'"^[9]

         The scope of our discretion depends on the basis of the motion for a new trial.^[10] Heenan first argues we erred in our pre-trial evidentiary ruling admitting evidence relating to the baby monitor incident. Our "latitude on a new trial motion is broad when the reason for interfering with the jury verdict is a ruling on a matter that initially rested within the discretion of the court, e.g. evidentiary rulings . . '"^[11] Heenan asserts the standard is plenary review, because we are "reviewing a ruling on the admissibility of evidence which depends on an interpretation of the Federal Rules of Evidence, " citing Barker v. Deere and Co.^[12]In Barker, an appeal in a products liability case, defendant moved for a new trial arguing the district court erred in allowing plaintiffs to introduce evidence of earlier tractor rollovers when the case did not involve a rollover.^[13] Our court of appeals applied the abuse of discretion standard to a district court's evidentiary rulings under Federal Rules of Evidence 401, 402, and 403.^[14] When the court of appeals reviews "a ruling on the admissibility of evidence which turns on an interpretation of a Federal Rule of Evidence, [its] review is plenary."^[15] There is a difference between evidentiary rulings applying the rules of evidence to the facts of a case, and a challenge to our interpretation of a rule of evidence, a legal inquiry to which plenary review is applied. Here, we applied the rules of evidence to the facts of Mr. Heenan's placing the baby monitor in the restroom alleging leading to Mr. Hessert ending the employment - the issue of fraud in inducing the consulting relationship with Decus. Mr. Heenan presented his defense based on his hope to test the baby monitor and he forgot he left it in the bathroom. We were not interpreting a rule of evidence. We applied a rule of evidence to this disputed material issue of Mr. Heenan's conduct which may, or may not, have led to Hessert firing him.

         Reviewing new trial motion based on compensatory v. punitive damages awards.

         Heenan's second argument for a new trial is the excessiveness of the compensatory and punitive damages for fraud, tortious interference, and conversion. We apply different standards to reviewing these two types of damages.

         We may disturb a jury's compensatory damages verdict "only if it is so grossly excessive that it shocks the judicial conscience."^[16] Under the Seventh Amendment, our review of compensatory damages is limited to determining if the jury had a rational, evidentiary basis for their award.^[17] The jury's award of compensatory damages must be upheld unless it is "clearly, decidedly, or overwhelmingly against the weight of the evidence."^[18]

         Heenan challenges the punitive damages awards as grossly excessive and arbitrary under the Due Process Clause of the Fourteenth Amendment. Unlike compensatory damages generally left to the jury's discretion under the Seventh Amendment, "the level of punitive damages is not really a 'fact' 'tried' by the jury."^[19] Punitive damages are not compensation for injury based on fact determinations, but more akin to private fines designed to punish and deter reprehensible conduct.^[20] We defer to the jury's fact finding on whether to award punitive damages but not as to the amount of punitive damages. Our review of whether the jury's punitive damages award comports with due process is an "exacting" standard under which we do not defer as we would in reviewing liability and compensatory damage verdicts.^[21]

         Reviewing motion to alter or amend the judgment.

         Heenan alternatively moves to alter or amend the judgment. Federal Rule of Civil Procedure 52(b) provides "[o]n a party's motion filed no later than 28 days after the entry of judgment, the court may amend its findings - or make additional findings - and may amend the judgment accordingly." Rule 52(b) allows us "to correct plain errors of law or fact, or, in limited situations, to allow the parties to present newly discovered evidence."^[22] The standard is similar to a motion for reconsideration or to alter judgment under Rule 59(e), which may be granted where Heenan shows at least one of the following "(1) an intervening change in the controlling law; (2) the availability of new evidence that was not available when the court granted the motion ...; or (3) the need to correct a clear error of law or fact or to prevent manifest injustice."^[23]

         Decus argues Heenan's Rule 59 motion must be denied because Heenan failed to move for directed verdict. Under Rule 50, "[i]f a party fails to move for judgment as a matter of law at the close of all the evidence, the party waives the right to a post-trial attack on the sufficiency of the evidence."^[24] Heenan's challenge is not to the sufficiency of the evidence; rather, it is a challenge to evidentiary rulings and the excessiveness of damages awarded.^[25] Heenan is not precluded from moving under Rules 52(b) and 59 for an amendment of the judgment.^[26]

         A. Admitting evidence relating to the baby monitor incident is not erroneous.

         Heenan argues we erred in admitting evidence relating to the baby monitor incident, contending such evidence is (1) irrelevant and prejudicial; (2) inadmissible hearsay; and (3) inadmissible character evidence. We employ a two-step inquiry to determine whether to grant a new trial under Rule 59 based on evidentiary rulings; we determine whether error occurred and we then apply Rule 61 to determine whether any error "affect[ed] any party's substantial rights."^[27]

         1. Admitting evidence of the baby monitor incident is not irrelevant or unfairly prejudicial.

         Heenan argues the baby monitor incident is irrelevant under Federal Rule of Evidence 401 and should have been excluded under Rule 402. Heenan further argues even if the baby monitor evidence is relevant and admissible, it should be excluded under Rule 403 because its probative value is substantially outweighed by the danger of unfair prejudice. Heenan contends the baby monitor incident is not relevant because it is "simply not related" to the issues in this litigation and instead relates to "untried allegations" made by Mr. Hessert against Mr. Heenan in "a completely different company [without] any bearing on the issues" in this case.

         We found the reason Mr. Hessert terminated Mr. Heenan's employment directly relevant to Decus's claim Mr. Heenan misrepresented his separation from Hessert Construction. We explained the relevance of the evidence in our Order denying Heenan's motion in limine.^[28] We explained Decus pleaded the materiality of Mr. Heenan's work history representations in the parties' negotiations making relevant the grounds of his departure from Hessert Construction.

         Heenan argues even if the evidence is relevant, it is unfairly prejudicial because "it is indisputable that Plaintiffs' continuous and prejudicial reference to these allegations during trial provoked the jury's instinct to punish, and incited the jury to base its decision on the allegations of Hessert... as opposed to making a rational decision upon the established propositions in the case" and "a large portion of the testimony regarding these allegations was presented to the jury in the middle of Defendants' case, after the Plaintiffs closed their case, adding to further jury confusion and prejudice." Mr. Heenan testified to his separation from Hessert Construction. Mr. Heenan testified he decided to leave Hessert Construction because of increasingly differing views in managing the company given the increased and apparently recent involvement of Mr. Hessert's children in his business. Mr. Heenan also explained he sought better opportunities in his own name given his expanding relationships in the construction business. Mr. Heenan told Decus he left Hessert on good terms.

         After Mr. Heenan described his reasons for leaving Hessert Construction, Decus introduced Mr. Hessert's video trial deposition regarding the reasons he terminated Mr. Heenan, including the baby monitor incident. We limited Mr. Hessert's deposition based on Heenan's objections to deposition designations.^[29] Mr. Heenan had a full opportunity to testify as to the baby monitor incident relative to his separation from Hessert Construction. He had the benefit of Mr. Hessert's deposition testimony which would be shown to the jury.

         Under Rule 403, we may exclude relevant evidence if its probative value is "substantially outweighed" by the danger of unfair prejudice. There is no unfair prejudice here. Decus's fraud claim is based on Mr. Heenan failing to disclose being fired and why Hessert fired him. Decus's officers testified they would not have hired Heenan had they known of the baby monitor incident. We appreciate this reliance is somewhat challenged by Decus's attempts to work with Heenan after learning of the baby monitor incident. But those credibility findings are left to the jury. Mr. Heenan forcefully described his reasons for leaving Hessert. He denied the fraud claim. Decus's claim based on the baby monitor incident required describing the facts.

         Much admitted evidence is prejudicial to someone. We expect trial lawyers will not waste the jury's time with evidence which does not prejudice the opponent's arguments. The test is whether the evidence is unfairly prejudicial. The baby monitor incident occurred. As testified, its effect on Decus is material. We cannot preclude evidence of the reason Hessert may have fired Mr. Heenan because, if the jury believes it, the evidence of a baby monitor in a restroom may offend sensibilities. Mr. Heenan explained his reasons for having the baby monitor in the restroom. No. one claimed Mr. Heenan left the baby monitor in the restroom for an improper purpose. A jury could have readily accepted Mr. Heenan accidentally left the baby monitor in the restroom while testing it. But the reason Mr. Heenan left the baby monitor in the restroom is not dispositive; the issue is whether Mr. Heenan concealed the reason for Hessert Construction's firing him. Even interpreting the facts in the light most favorable to Mr. Heenan, Hessert Construction fired him at least partially because of the baby monitor incident. To the extent Heenan now objects to the number of times Decus referred to this evidence, Heenan did not object at trial and has waived an objection to repetitive questions.

         2. There is no basis for a hearsay objection to the baby monitor report because it was not admitted into evidence.

         Heenan next objects to the introduction of the baby monitor incident and investigator's report as inadmissible hearsay. To the extent Heenan objects to the report itself, the parties never moved the exhibit into evidence at trial. To the extent Heenan objects to Mr. Hessert's testimony regarding the investigator's report, it is not hearsay. We limited Mr. Hessert's testimony regarding the investigation and the investigator's report, sustaining Heenan's hearsay objections regarding the investigation as alleged in his counterclaim in the New Jersey state court litigation between Heenan and Hessert.^[30] Although Heenan objected on the basis of hearsay to portions of Mr. Hessert's video deposition regarding the investigation, the testimony is not hearsay. In those portions, Mr. Hessert testified to his own actions stated in the investigator's report, including testifying to his own knowledge of a baby monitor camera found in the restroom, his belief the camera was covertly placed, and his decision to destroy the camera's recording. The parties never introduced the report itself and any testimony from Mr. Hessert about the report came from his own knowledge.

         3. Evidence regarding the baby monitor incident was not introduced as character evidence prohibited by Rule 404(b).

         Heenan contends evidence of the baby monitor incident is impermissible character evidence of prior bad acts in violation of Federal Rule of Evidence 404(b). Rule 404(b) provides "[e]vidence of a crime, wrong, or other act is not admissible to prove a person's character in order to show that on a particular occasion the person acted in accordance with the character."^[31] Heenan's objection is misplaced. The baby monitor evidence was not introduced to prove Mr. Heenan's character "in order to show that on a particular occasion [he] acted in accordance with the character." We admitted the evidence as relevant to Decus's fraud claim based on Mr. Heenan's representations about his work history with Hessert. Our case did not involve use of a camera or other recording device while Heenan served as a consultant for Decus.

         B. We amend the verdict only to reduce the punitive damages for fraud.

         Heenan also argues we should order a new trial or alternatively amend the judgment because the jury's compensatory damages are not "reasonably certain" and the jury did not explain its calculations and otherwise awarded excessive punitive damages violative of due process. The jury's compensatory damages findings are based on the evidence. We agree with Heenan as to the jury's punitive damages award of $225, 000 for fraud for each Plaintiff after the jury found $18, 000 in compensatory damages.

         We decline to order a new trial based on the jury's punitive damages for fraud. A new trial interferes with our jury's careful deliberations after evaluating credibility of conflicting witnesses. The preferred remedy for damages award which is excessive in one limited part and thus violative of due process is to amend our judgment as to the excessive damages rather than toss the entire verdict and order a new trial.^[32]

         1. The compensatory damage award is based on the evidence.

         Heenan argues the compensatory damages are excessive and "not reasonably certain as there is no explanation, calculation, or basis" on the fraud, intentional interference with contractual relations, and conversion claims.

         Heenan has a "heavy burden" in seeking a new trial under Rule 59, and an even "greater burden" where, as here, they seek a reduction in the jury's compensatory damages verdict.^[33] Generally, "the determination of compensatory damages is within the province of the jury and is entitled to great deference."^[34] We give deference to a jury's damages verdict, disturbing it "only if it is so grossly excessive that it shocks the judicial conscience . . ."^[35] or "clearly unsupported by the evidence."^[36] Where there is a challenge to damages as grossly excessive, our court of appeals identified its standard of review as "exceedingly narrow, " and will not disturb a jury's decision "so long as there exists sufficient evidence on the record, which if accepted by the jury, would sustain the award."^[37] We must not substitute our own "judgment of the facts and the credibility of the witnesses for that of the jury."^[38] We view the facts in the light most favorable to Decus.^[39]

         Heenan challenges the amounts awarded on each of these claims arguing, without citing authority, the jury did not explain or calculate how it reached the amounts it awarded or what evidence it relied on to make its calculations. Decus argues, generally, we may only grant a new trial where the verdict is against the weight of the evidence; we must defer to the jury's role as fact finder and may not substitute our own judgment for the jury; and the jury's compensatory award need not be based on mathematical certainty.

         Fraud ...