Pennsylvania Supreme Court Adopts “Per-Defendant” Approach to Calculation of Punitive to Compensatory Damages Ratio

Pennsylvania Supreme Court Adopts “Per-Defendant” Approach to Calculation of Punitive to Compensatory Damages Ratio

Pennsylvania Supreme Court Adopts “Per-Defendant” Approach to Calculation of Punitive to Compensatory Damages Ratio

In the case of Bert Company v. Turk, — A.3d —, (2023), 2023 WL 4607874, the Supreme Court of Pennsylvania affirmed both the trial court and Superior Court’s determination that a jury’s calculation of punitive damage using a “per-defendant” approach is consistent with federal constitutional principles that require consideration of the defendant’s due process rights.

The Bert Company was doing business as Northwest Insurance Services (“Northwest”). Turk had been an insurance broker and the head of Northwest’s property and casualty division for eight years before he became a senior vice president. First National Insurance Agency, LLC (“FNIA”) is an insurance brokerage firm. FNB Corporation is the parent company of First National Bank (“FNB”) and FNIA (collectively and with FNIA “First National”).

First National initiated a “take-over” plan of Northwest in 2016 by covertly meeting with Turk. First National’s goal was to acquire the acquisition of key employees and their books of business, and then takeover of Northwest at a fire sale price. Northwest’s employees were under non-solicitation agreements. Turk provided First National with sensitive pieces of Northwest’s data, such as his book of business and a list of profitable employees. While First National was meeting with Northwest employees, Turk attempted to undermine Northwest’s operations by creating discontent amongst its staff and management.

In 2017, several Northwest employees resigned and accepted offers from First National. Turk remained at Northwest to convince the company to sell its remaining business to First National. Northwest refused, choosing instead to fire Turk and initiate legal action. Northwest initially sued several of its ex-employees, including Turk, alleging breach of their NSND Agreements. The trial court issued an injunction barring the ex-employees from soliciting or servicing Northwest customers and from soliciting other Northwest employees to leave the company. Northwest then filed an amended complaint, adding First National as defendants and seeking compensatory and punitive damages. In addition, Northwest asserted: (1) breach of contract and fiduciary duties and theft of trade secrets against its ex-employees; (2) unfair competition against First National; and (3) misappropriation of trade secrets, tortious interference with contract, and civil conspiracy against Turk and First National.

The case proceeded to a jury trial on December 10, 2018, resulting in verdicts on December 21, 2018 against Turk, FNIA, FNB, and FNB Corporation (collectively the “Defendants”). The jury found Turk liable for breach of contract, breach of fiduciary duty, and civil conspiracy; it found First National liable for civil conspiracy and unfair competition. The jury awarded Northwest compensatory damages as follows:

Turk: Breach of Contract, $164,943, Breach of Fiduciary Duty, $90,000

Turk, FNB Corp., FNB, FNIA: Civil Conspiracy, $164,943

FNB Corp., FNB, FNIA: Unfair Competition, $250,000

The trial court instructed the jury that Northwest would receive only the largest award of any compensatory damages and that Northwest could not recover on each theory separately. The largest compensatory damages award for which Turk and First National were jointly and severally liable was $164,943 (civil conspiracy). The largest compensatory damages award for which First National was jointly and severally liable was $250,000 (unfair competition). The jury also awarded a total of $2.8 million in punitive damages, imposed per-defendant as follows:

Turk: Breach of Contract & Fiduciary Duty, Civil Conspiracy $ 300,000

FNB Corp.: Civil Conspiracy and Unfair Competition $ 500,000

FNB: Civil Conspiracy and Unfair Competition $ 500,000

FNIA: Civil Conspiracy and Unfair Competition $1,500,000

The Superior Court affirmed the jury’s decision, and the trial court’s rulings. The Supreme Court accepted the case to determine whether the trial court’s upholding of the jury’s punitive damage verdict violated the Due Process Clause of the Fourteenth Amendment to the United States Constitution. The Defendants argued the punitive damages assessed against them on the grounds that the aggregate ratio of punitive to compensatory damages in this case was 11.2 to 1, resulting in an award of punitive damages that was unconstitutionally excessive. The Pennsylvania Supreme Court analyzed several United States Supreme Court decisions, the most recent being State Farm Mutual Automobile Ins. Co. v. Campbell, 538 U.S. 408 (2003). The Court in State Farm instructed courts to consider five factors” in examining this criterion, namely, whether

(1) the harm caused was physical as opposed to economic;

(2) the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others;

(3) the target of the conduct was vulnerable;

(4) the conduct involved repeated actions or was an isolated incident; and

(5) the harm was the result of intentional malice, trickery, or deceit, or mere accident.

State Farm, 538 U.S. at 419-20. The Court in State Farm reiterated there is no bright-line ratio for determining whether an award of punitive damages meets constitutional muster. However, it opined that “few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.” State Farm, 538 U.S. at 425).

The trial court in this case had rejected the Defendants’ math, explaining that the trial court computed the ratio using the amount of the punitive damages assessed against each of the Defendants compared to the compensatory damage imposed on that defendant. This resulted in ratios of 1.8 to 1 for Turk; 2 to 1 for FNB; 2 to 1 for FNB Corporation; and 6 to 1 for FNIA. Using this per-defendant approach, the trial court concluded that the ratios would be constitutionally sound under State Farm and further, under the facts and circumstances of this case.

The issue of how to calculate the damages ratio among multiple defendants presented an issue of first impression in Pennsylvania. The Bert Co. v. Turk, 257 A.3d 93, 124 (Pa. Super. 2021). After surveying precedent from various state and federal courts, the Superior Court ultimately found persuasive the combined reasoning of the United States Court of Appeals for the Ninth Circuit in Planned Parenthood of Columbia/Willamette Inc. v. American Coalition of Life Activists, 422 F.3d 949 (9th Cir. 2005), and the Supreme Court of Texas in Horizon Health Corp. v. Acadia Healthcare Co., Inc., 520 S.W.3d 848 (Tex. 2017). In Planned Parenthood, the Ninth Circuit’s math compared each plaintiff’s individual compensatory damages and punitive damages awards as to each defendant. Planned Parenthood, 422 F.3d at 961. The Texas Supreme Court reached the same result in Horizon Health. In so doing, the Texas Supreme Court stated that the “proper basis for assessing the constitutional excessiveness of an exemplary-damages award is per- defendant rather than per-judgment. Horizon Health, 520 S.W.3d at 877.

After adopting the per-defendant ratio, the Pennsylvania Supreme Court, in agreeing with the Superior Court, determined that the ratio guidepost is not strictly a compensatory-to-punitive damages question, and that courts can also consider the ‘potential harm’ a plaintiff could have suffered due to the defendant’s misconduct, citing BMW of North America, Inc. v. Gore, 517 U.S. 559, 575 (1996). Here, the trial, Superior and Supreme Courts reviewed the evidence of record which in their view clearly demonstrated that the Defendants intended to do as much economic damage as possible to Northwest, to the point of forcing Northwest into sacrificing its entire staff and book of business to the First National. As such, the Pennsylvania Supreme Court affirmed the trial court and Superior Court’s decisions to uphold the jury’s punitive damage verdict.

Bert Company v. Turk, — A.3d —, (2023), 2023 WL 4607874 can be accessed here.