Defender Industries, Inc. v. Northwestern Mut. Life Ins. Co.
| Decision Date | 09 July 1991 |
| Docket Number | Nos. 90-2006,90-2007,s. 90-2006 |
| Citation | 938 F.2d 502 |
| Parties | DEFENDER INDUSTRIES, INCORPORATED, Plaintiff-Appellant, and Kathyrn G. Inabinet, Plaintiff, v. NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, Defendant-Appellee. DEFENDER INDUSTRIES, INCORPORATED, Plaintiff-Appellee, and Kathryn G. Inabinet, Plaintiff, v. NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Thomas English McCutchen, III, Thomas English McCutchen, Jr., Whaley, McCutchen, Blanton & Rhodes, Columbia, S.C., argued (John C. Bradley, Jr., Whaley, McCutchen, Blanton & Rhodes, Columbia, S.C., on brief), for plaintiff-appellant.
David Wallace Robinson, II, Robinson, McFadden & Moore, P.C., Columbia, S.C., argued (D. Reece Williams, III, D. Clay Robinson, Robinson, McFadden & Moore, P.C., Columbia, S.C., on brief), for defendant-appellee.
Before ERVIN, Chief Judge, and WIDENER, HALL, PHILLIPS, MURNAGHAN, SPROUSE and WILKINS, Circuit Judges.
A jury returned a verdict in favor of Defender Industries, Incorporated, awarding it actual and punitive damages in a fraud action against Northwestern Mutual Life Insurance Company. Finding that the jury properly awarded punitive damages but was excessive in the amount of its award, the district court granted a motion by Northwestern for judgment notwithstanding the verdict as to the amount of the punitive damages and reduced the amount from $5,000,000 to $10,000. Defender Indus., Inc. v. Northwestern Mut. Life Ins. Co., 727 F.Supp. 252, 260 (D.S.C.1989). Alternatively, the district court ruled that in the event it committed error in granting the judgment n.o.v. it granted a new trial as to the amount of punitive damages. Id. After oral argument before a panel, rehearing was ordered before this court sitting en banc. Because we find the district court did err, we remand for proceedings consistent with this opinion.
In late 1985 Defender began investigating the life insurance market with a view toward replacing a five million dollar life insurance policy then in place on the life of the chairperson of its board of directors and principal shareholder, Kathryn G. Inabinet, with a policy of a greater amount. In response to a general inquiry, agents from Northwestern began to solicit the Defender account and ultimately the parties entered into negotiations over the terms of a policy.
Defender desired to obtain a life insurance policy to offset anticipated estate tax liability that would become due at Inabinet's death. Defender retained professional assistance to value its stock in order to make an informed decision about the estimated amount of estate tax liability. Although Defender had not yet received the stock valuation when negotiations with Northwestern began, and therefore was not yet confident of the amount of insurance coverage it would require, Defender estimated that it needed between five and eight million dollars of coverage.
Defender wanted to have a new policy in place prior to the effective date of a new federal tax law affording less favorable tax treatment to insurance contracts entered into subsequent to the effective date. Northwestern agents were also anxious to close the deal because the sale of the policy would produce large commissions for them. As an inducement to Defender to purchase a policy from Northwestern, its agents represented that if Defender purchased the maximum amount of insurance coverage it anticipated it might need, Northwestern would permit Defender to reduce the coverage amount if, following receipt of the stock valuation, Defender determined that its actual insurance requirements were less. Northwestern agents explained that Northwestern would refund any excess premiums which resulted from such a reduction or would credit them toward future premiums. With this understanding, Defender purchased a policy for eight million dollars of coverage. Northwestern maintained possession of the policy and did not deliver it to Defender until after the dispute precipitating this lawsuit arose.
Some months after purchase of the policy, Defender determined that it actually required seven million dollars of coverage and sought to reduce the policy to this amount. Northwestern refused to reform the policy as promised. A Northwestern agent also threatened Defender with the loss of one of its largest customers over whom a Northwestern agent, through family connections, exercised some measure of influence in the event Defender should cancel the policy. Defender wrote to the chief executive officer (CEO) of Northwestern complaining of the misrepresentation and threat. Despite the fact that one of the Northwestern agents involved wrote to the CEO admitting that the conduct about which Defender complained had in fact occurred, the CEO wrote to Defender stating that an investigation had disclosed no reason to reduce the policy or discipline its agents. One reasonable interpretation of interoffice correspondence between high-ranking Northwestern officials would allow the conclusion that the upper echelons in the company were aware of the agents' misconduct and attempted to conceal it.
Defender permitted the policy to lapse and brought this action alleging breach of contract, breach of contract accompanied by a fraudulent act, fraud, constructive fraud, and negligence arising out of the misrepresentations and fraudulent statements made by the Northwestern agents in inducing Defender to purchase the policy. At the conclusion of all the evidence, the district court granted a motion by Northwestern for a directed verdict on the breach of contract, breach of contract accompanied by a fraudulent act, and negligence causes of action, reasoning that a South Carolina statute prohibited the type of agreement that Defender alleged the parties had entered. The district court denied a motion by Northwestern for a directed verdict on the fraud and constructive fraud allegations, ruling that the statute did not shield these two causes of action. Additionally, the district court denied a motion by Northwestern for a directed verdict on punitive damages.
The case was submitted to a jury which returned an actual damage award of $106,513.74, the exact amount Defender paid in premiums during the nine months the policy was in effect. The jury also returned a punitive damage award of $5,000,000 that was reduced to $10,000 by the district court.
In a diversity case, state substantive law governs the circumstances justifying an award and the amount of punitive damages, and federal law governs district and appellate court review of the jury award. Browning-Ferris Indus. of Vermont, Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 278-79, 109 S.Ct. 2909, 2922-23, 106 L.Ed.2d 219 (1989). In federal practice a "judgment n.o.v. should not be granted 'if there was any evidence in the case that would authorize a verdict for the plaintiff.' " Warner v. Billups E. Petroleum Co., 406 F.2d 1058, 1059 (4th Cir.1969) (quoting Tedder v. Merchants & Mfrs. Ins. Co. of N.Y., 251 F.2d 250, 254 (4th Cir.1958)). This court reviews the grant of a judgment n.o.v. to determine if, viewing the evidence in the light most favorable to the party opposing the motion, a jury could reasonably find in favor of that party. United States v. Tobias, 899 F.2d 1375, 1378 (4th Cir.1990). The district court properly concluded that the imposition of punitive damages in some amount was justified under South Carolina law based upon evidence in the record that Northwestern agents acted recklessly, willfully, or wantonly, see, e.g., Camp v. Components, Inc., 285 S.C. 443, 330 S.E.2d 315 (Ct.App.1985), in "intentionally misrepresent[ing] to Defender that there would be no 'loss of premium' should Defender decide to reduce coverage at a later date." 727 F.Supp. at 259.
Although deciding that the imposition of some amount of punitive damages was proper, the district court concluded that the jury award of $5,000,000 was "so grossly inflated as to constitute a miscarriage of justice." 727 F.Supp. at 260. Under traditional procedure, a district court, faced with what it believed to be an excessive damage award by a jury in a diversity case on a common-law cause of action, could set aside the excessive verdict by granting a new trial or a new trial nisi remittitur. See Browning-Ferris, 492 U.S. at 278-79, 109 S.Ct. at 2922-23; see generally, 11 C. Wright, A. Miller, & F. Elliott, Federal Practice and Procedure Sec. 2815 (1973 & Supp.1991) (hereinafter Wright & Miller). The district court did not follow this established procedure by ordering a new trial nisi remittitur to the amount of $10,000. Instead, the court exercised authority granted by this court in Shamblin's Ready Mix, Inc. v. Eaton Corp., 873 F.2d 736, 743 (4th Cir.1989) and ordered that judgment be entered in the amount of $10,000.
Shamblin's involved a relatively insignificant tortious conversion but ultimately presented this court with an exceptional set of circumstances. In the first trial of Shamblin's a jury awarded punitive damages in the amount of $600,000. This court remanded for a new trial because the punitive damage award was tainted by plaintiff's improper and highly prejudicial closing argument. During the second trial, plaintiff committed similar errors, and the jury awarded $650,000 in punitive damages. Rather than remand for yet a third trial to assess the amount of punitive damages, the panel held that the seventh amendment does not entitle a plaintiff to a jury determination of the amount of punitive damages and ordered judgment entered in the amount of $60,000 for punitive damages.
A court has the inherent power to put an end to civil litigation in the interests of fairness and judicial economy when, by its conduct, one of the parties has, in effect, waived its right to a jury determination. This court, however, went much...
To continue reading
Request your trial
-
Bowden v. Caldor, Inc.
...1258-1259 (9th Cir.1993), cert. dismissed, 510 U.S. 1033, 114 S.Ct. 671, 126 L.Ed.2d 640 (1994); Defender Industries v. Northwestern Mut. Life Ins., 938 F.2d 502, 505-507 (4th Cir.1991); McKinnon v. City of Berwyn, 750 F.2d 1383, 1391-1392 (7th Cir.1984); Leo Payne Pontiac, Inc. v. Ratliff,......
-
Jones v. United Parcel Serv., Inc.
...Amendment, which reserves to the jury the determination of damages.” Id. (citations omitted); see also Defender Indus., Inc. v. Nw. Mut. Life Ins. Co., 938 F.2d 502, 506–07 (4th Cir.1991). Despite Supreme Court precedent and our ruling in O'Gilvie, UPS argues that the Seventh Amendment perm......
-
TXO Production Corp. v. Alliance Resources Corp.
...503 U.S. 1011, 112 S.Ct. 1778, 118 L.Ed.2d 435 (1992); "reckless, willful and wanton," Defender Industries, Inc. v. Northwestern Mutual Life Ins. Co., 938 F.2d 502, 505 (4th Cir.1991); "particularly egregious," Eichenseer v. Reserve Life Ins. Co., 934 F.2d 1377, 1382 (5th Cir.1991); and "re......
-
Johnson v. Hugo's Skateway
...judge and jury, 8 we have held that in a federal court the jury performs those functions. See Defender Indus., Inc. v. Northwestern Mut. Life Ins. Co., 938 F.2d 502, 507 (4th Cir.1991) (en banc). Under these principles a district court applying state law may look beyond the state-formulated......
-
State farm and punitive damages: call the jury back.
...v. Prince William County, 523 U.S. 208 (1998). (112.) 492 U.S. at 280 n.26. Accord, Defender Indus., Inc. v. Northwestern Mut. Life Ins., 938 F.2d 502, 507 (4th Cir. 1991) (en banc) (holding that the Seventh Amendment protects the right to a jury determination of punitive damages); O'Gilvie......