Jottings By An Employer's Lawyer

Monday, May 21, 2007

Mixed Results on 43 Million Dollar Raiding Case

Although the case turned strictly on interpretations related to a covenant not to compete and a related tortious interference with contract claim, the dispute between two title companies that resulted in a $43 million dollar judgment is really a "raiding" case, where 30 employees switched from one title company to another.

Raiding cases are unusual in that they are a form of behavior that is quite problematic, but one where there is no clear cut cause of action specifically designed to fit it. There are a number of causes of action that are brought to bear in these situations but no "silver bullet" even though as can seen by the lower court judgment reviewed in Chicago Title Insurance v. Magnuson (6th Cir. 5/21/07) [pdf], it is apparent that in the right circumstances a jury can be considerably offended. $32 million of the judgment was for punitive damages.

The Court of Appeals affirmed liability, reversed the punitive damage award and sent the case back to the lower court for a re-trial on the compensatory damages.

While the discussion of liability and compensatory damages may shed some light on covenant not to compete law in Ohio, the ruling on punitive damages carries a broader message and continues to show how such damages are currently in disfavor.

Ultimately the Court found the award could not pass constitutional muster under the U.S. Supreme Court precedent contained in State Farm and BMW of North America. Focusing on the 5 factor test for reprehensibility derived from those cases:
  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 had financial vulnerability;
  4. the conduct involved repeated actions or was an isolated incident;
  5. the harm was the result of intentional malice, trickery, or deceit, or mere accident

the Court assumed the conduct was intentional and felt only two of the other factors merited further discussion since the conduct was economic not physical, and the health or safety of others was not in danger.

The Court gave little weight to financial vulnerability, in large part because of Chicago Title's own claim that notwithstanding the defections they remained the number one company in the contested markets. The Court also limited the review of repeated actions to actions against other parties (of which there were none), as opposed to repeated actions against Chicago Title, distinguishing State Farm's teaching that damages (as opposed to liability) can not be based on conduct against third parties.

The bottom line, no punitive damage award available.

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