Atlas Food Systems and Services, Inc. v. Crane Nat. Vendors, Inc.
| Decision Date | 30 October 1996 |
| Docket Number | 95-1718,Nos. 95-1717,s. 95-1717 |
| Parties | , 36 Fed.R.Serv.3d 234 ATLAS FOOD SYSTEMS AND SERVICES, INCORPORATED, Plaintiff-Appellant, v. CRANE NATIONAL VENDORS, INCORPORATED; Richard Ricci; Steven Freedman, Defendants-Appellees, and Mars Electronics, Incorporated; Frank Hartmann, Defendants. ATLAS FOOD SYSTEMS AND SERVICES, INCORPORATED, Plaintiff-Appellee, v. CRANE NATIONAL VENDORS, INCORPORATED; Richard Ricci; Steven Freedman, Defendants-Appellants, and Mars Electronics, Incorporated; Frank Hartmann, Defendants. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: Thomas W. Traxler, Carter, Smith, Mirriam, Rogers & Traxler, Greenville, SC, for Plaintiff-Appellant. George Kermit Lyall, Nelson, Mullins, Riley & Scarborough, L.L.P., Greenville, SC, for Defendants-Appellees. ON BRIEF: T.S. Stern, Jr., Grant, Leatherwood & Stern, Greenville, SC, for Plaintiff-Appellant. A.M. Quattlebaum, Jr., William S. Brown, Nelson, Mullins, Riley & Scarborough, L.L.P., Greenville, SC, for Defendants-Appellees.
Before HALL, NIEMEYER, and HAMILTON, Circuit Judges.
Affirmed by published opinion. Judge NIEMEYER wrote the opinion, in which Judge HALL and Judge HAMILTON joined.
The principal issue presented in this appeal is whether the district court abused its discretion in ordering a new trial unless the plaintiff agree to a remittitur of a $3-million punitive damage award and, after the plaintiff's rejection of the remittitur and retrial, another new trial unless the plaintiff agree to a remittitur of a $4-million punitive damage award. This issue raises important questions about the scope of the district court's authority, through the grant of new trials under Federal Rule of Civil Procedure 59(a), to review jury awards of punitive damages.
Atlas Food System and Services, Inc., ("Atlas") sued Crane National Vendors Division of Unidynamics Corporation ("National Vendors") and two of its officers in federal court under diversity jurisdiction, demanding compensatory and punitive damages in connection with its purchase of defective vending machines. In its complaint, Atlas alleged breach of contract, breach of express and implied warranties, fraud, and deceptive and unfair trade practices under South Carolina law. 1 The jury returned a verdict against National Vendors in the amount of $1.32 million in compensatory damages and $3 million in punitive damages and against its officers in the amount of $120,000 in compensatory damages and $100,000 in punitive damages. Following post-trial motions, the district court reduced the compensatory damage award against National Vendors and found the $3-million punitive damage award excessive, granting National Vendors a new trial on punitive damages unless Atlas agree to a punitive damage award of $1 million. When Atlas refused the remittitur, the district court ordered a new trial on punitive damages.
After hearing substantially the same evidence, a second jury awarded Atlas $4 million in punitive damages. Again, on National Vendors' post-trial motion, the district court found the award excessive and ordered a third trial unless Atlas agreed to a $1 million punitive damage award. While Atlas did not agree to the remittitur of the second punitive damage award, it agreed not to demand a third trial and to accept the amount left standing following an appeal on the damage questions. Accordingly, the district court certified the case for immediate appeal pursuant to 28 U.S.C. § 1292(b), and we agreed to hear the case.
On appeal, Atlas contends that the district court abused its discretion in granting National Vendors' motions for a new trial unless Atlas agree to a remittitur and clearly erred in reducing the first jury's compensatory damage award by an amount described in Atlas' settlement agreement with Mars Electronics as consideration for a confidentiality provision. On cross-appeal, National Vendors contends that the district court erred in denying its motion for judgment as a matter of law on punitive damages after each trial and in limiting the scope of the second trial to punitive damages. The National Vendors officers joined the cross-appeal only in connection with the district court's denial of their motion for judgment as a matter of law on punitive damages.
Finding no reversible error, we affirm the rulings of the district court.
National Vendors had for a long time been the supplier of vending machines to Atlas, a South Carolina corporation engaged in the business of selling food to the public through vending machines. From about December 1989 through October 1991, however, National Vendors sold Atlas 340 defective machines. The defects rendered the machines susceptible to "yank-cheating," a practice by which a customer pulls his dollar bill out of a vending machine after the machine has validated the bill, thereby retaining his dollar and stealing food from the machine.
Two separate defects in National Vendors machines allowed the yank-cheating. The first defect existed in the bill validator, the component that takes in a customer's bill, validates it, and stores it in the vending machine. In February 1990, National Vendors had agreed, without Atlas' knowledge, to increase dramatically its purchase of bill validators from its secondary component supplier, Mars Electronics. Although National Vendors never informed Atlas of its commitment to buy Mars validators, it began a concerted effort in April 1990 to switch Atlas to Mars by misrepresenting that Atlas would not encounter cash shortages with Mars validators. The Mars validators, however, were defective, and some evidence indicated that National Vendors may have been aware of that problem beginning in 1991.
The second defect that permitted yank-cheating appeared in the erasable programmable output memory chips, or "Eproms" ("electronically programmable read only memory"), that created the electronic interface between the vending machine and its bill validator. National Vendors supplied the Eproms for its own machines, and the interface problems Atlas experienced were attributable to National Vendors' misinterpretation of Mars Electronics' engineering specifications.
After providing National Vendors several opportunities to remedy the problems with its vending machines, Atlas revoked its acceptance of the machines in July 1992. And when National Vendors refused to refund Atlas' money, Atlas brought this diversity action against National Vendors, alleging counts for (1) revocation of acceptance, (2) breach of contract accompanied by a fraudulent act, (3) fraud, (4) constructive fraud, and (5) unfair trade practices. Atlas also named National Vendors officers, Richard Ricci and Steven Freedman, as defendants in its constructive fraud count.
After a week-long trial, the jury returned a verdict for Atlas on all claims, awarding it $1,317,822 in compensatory damages; finding that Atlas was entitled to punitive damages from each of the defendants; and finding that National Vendors' unfair trade practices had not been "willful or knowing." After the jury returned that verdict, the parties presented argument to the jury on the amount of punitive damages. Following argument, the court instructed the jury under South Carolina law that it could grant punitive damages if it found by clear and convincing evidence that one or more of the defendants' conduct was "outrageous and extraordinary" or evinced "a reckless or callous disregard of or indifference to the rights of others." Following further deliberation, the jury awarded Atlas $3 million in punitive damages from National Vendors, $60,000 from Ricci, and $40,000 from Freedman.
All three defendants filed post-trial motions for judgment in their favor as a matter of law, which the district court denied. The court did, however, reduce the compensatory damage verdict against National Vendors and add prejudgment interest, yielding a $986,510.90 compensatory damage award. Part of the court's reduction resulted from a $316,688.25 setoff to which the court found National Vendors entitled because of an earlier settlement agreement between Atlas and Mars Electronics. Although the Atlas-Mars settlement had attributed $306,668.25 as consideration for a confidentiality provision and only $10,000 as consideration for Mars' release of Atlas' claim against it for the defective bill validators, the district court concluded that the entire $316,688 sum represented payment for the injury covered by Atlas' compensatory damage award from National Vendors. The court also denied the defendants' post-trial motion for judgment as a matter of law on punitive damages but granted National Vendors' motion for new trial unless Atlas agreed to reduce its punitive damage award from $3 million to $1 million. Even though the district court found that National Vendors' conduct "[a]t times ... could be viewed as rising to the level of reckless disregard of Atlas' rights," it reasoned that the evidence did not warrant the jury's $3 million award because it showed "[a]t worst ... miscommunication, delay, evasion of responsibility, and poor business practices on the part of National."
Atlas rejected the district court's $2 million remittitur, opting for a new trial, and the district court ordered a new trial only on punitive damages.
At the second trial, the district court advised the jury, over National Vendors' objection, about the first jury's findings and similarly permitted Atlas' counsel to make reference to those findings. The second jury returned another verdict for Atlas, this time awarding Atlas $4 million in punitive damages. The district court again denied National Vendors' post-trial motion for judgment as a matter of law on punitive damages. But the court did, once again, grant National Vendors' motion for a new trial unless Atlas agreed to reduce its punitive damage award to $1 million. In doing...
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