United States District Court, E.D. Pennsylvania
DECUS, INC., et al.
v.
HEENAN, et al.
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
...