SEIDMAN v. BANCO ESPIRITO SANTO Int'l, 3D09-324
| Decision Date | 23 June 2010 |
| Docket Number | 3D09-197,No. 3D09-324,3D07-2472.,3D07-2746,3D09-324 |
| Parties | BDO SEIDMAN, LLP., Appellant, v. BANCO ESPIRITO SANTO INTERNATIONAL, etc., et al., Appellees. |
| Court | Florida District Court of Appeals |
OPINION TEXT STARTS HERE
Greenberg Traurig, and Elliot H. Scherker, Elliot B. Kula, Julissa Rodriguez, and Brigid F. Cech Samole; Greenberg, Traurig and Karen Y. Bitar and Adam D. Cole, New York; Alvarez Armas & Borron, and Arturo Alvarez, for appellant/cross-appellee.
Holland & Knight, and Rodolfo Sorondo, Jr., Miami and Christopher N. Bellows; Gamba & Lombana, and Hector J. Lombana, Coral Gables; Thomas Alexander & Forrester and Steven W. Thomas, Emily Alexander and Mark Forrester; Billbrough
& Marks and Geoffrey B. Marks, Coral Gables; Gonzalo Dorta, for appellees/cross-appellants.
Before COPE, WELLS, and SALTER, JJ.
The accounting firm of BDO Seidman, LLP appeals a jury verdict and final judgment awarding the appellees over $159 million in compensatory damages and over $351 million in punitive damages. The appellees-Banco Espirito Santo and two of its affiliates (collectively, “Banco”)-cross-appeal the denial of prejudgment interest on the compensatory award from the date the losses allegedly occurred through the date of the jury verdict. We reverse the final judgment and remand the case for a new trial, finding that the “trifurcation” of the trial into three distinct phases impermissibly allowed the jury to render a verdict on BDO's liability for gross negligence (a determination pertinent in this case as a predicate for the later consideration of punitive damages) 1 two months before the jury's consideration of, and verdict deciding, the intertwined issues of causation, reliance, and comparative fault.
Because of the prejudice inherent in the premature, first-phase gross negligence finding, we do not address in detail other aspects of the trial. Our conclusion regarding the “trifurcation” issue renders moot or pretermits our consideration of most of the other parts of the jury's verdicts and the remaining points on appeal and cross-appeal.
The trial court's good intentions are apparent from this record, and the bifurcation of liability and damages is ordinarily within the sound discretion of the trial court. Florida Rule of Civil Procedure 1.270(b); Roseman v. Town Square Ass'n, 810 So.2d 516 (Fla. 4th DCA 2001). The salutary objectives of judicial economy (no phase II damages trial is required if the jury returns a defense verdict in phase I), and the reduction of a longer case into more digestible “phases,” often support bifurcation and the exercise of that discretion. These objectives are much harder to achieve, however, in a complex case brought by plaintiffs not in privity with the accounting firm/defendant. In such a case, liability ultimately turns on specific demonstrations of knowledge, intent, and reliance. 2 The evidence pertaining to those issues is inextricably intertwined with the claims and affirmative defenses on issues of comparative fault, causation, and gross negligence.
In this case, the parties did not move for bifurcation. The trial court notified the parties that the case would be tried in phases. First, the jury would hear evidence on whether BDO breached its professional duties to its former client, the bankrupt non-party E.S. Bankest L.L.C. (“Bankest”), whether BDO's duties extended to the appellees and, if so, whether the appellees relied on BDO's audit reports. Second, if the first phase culminated in a verdict finding duty and breach of duty, a trial on damages would proceed. This plan was later modified, however.
The trial court ultimately determined that comparative fault and causation issues would be tried and determined in the second, compensatory damages phase rather than in the first phase. The question of whether BDO was “personally guilty of gross negligence” 3 would be determined in the first phase. The jury would then be asked at the close of phase II whether Banco was entitled to punitive damages against BDO (and if so, the amount of those punitive damages would be determined in phase III). This meant that the phase I jury deliberation regarding negligence and gross negligence did not include specific evaluations of the alleged negligence and fault, including failures to report or act, on the part of the Banco parties and ten third-party or Fabre 4 actors. Those determinations occurred instead at the close of phase II, when all of the evidence in that phase was viewed against the backdrop that BDO had already been found not merely negligent, but so negligent (or “guilty”) as to arise to the level of intentional disregard for the rights of others. The jury's phase I finding of gross negligence required them to find that “guilt” by clear and convincing evidence as well, and they were reminded of this in the phase II instruction on “entitlement” to punitive damages:
You already have found Defendant BDO Seidman grossly negligent by clear and convincing evidence. If you now find for Plaintiff ESB Finance or Plaintiff Banco Espirito Santo, S.A. (Nassau Branch) and against Defendant BDO Seidman, you should consider whether in addition to compensatory damages, Plaintiffs are entitled to punitive damages in the circumstances of this case as punishment and as a deterrent to others.
As noted, the jury returned a phase II verdict finding no comparative fault by Banco or others, finding compensatory damages totaling $170 million, and finding an entitlement to punitive damages. The next day, the jury returned its phase III verdict for $351,689,343.
Punitive damages are a form of extraordinary relief for acts and omissions so egregious as to jeopardize not only the particular plaintiff in the lawsuit, but the public as a whole, such that a punishment-not merely compensation-must be imposed to prevent similar conduct in the future:
Under Florida law, the purpose of punitive damages is not to further compensate the plaintiff, but to punish the defendant for its wrongful conduct and to deter similar misconduct by it and other actors in the future. See W.R. Grace & Co.-Conn. v. Waters, 638 So.2d 502, 504 (Fla.1994); see also White Constr. Co. v. Dupont, 455 So.2d 1026, 1028 (Fla.1984); St. Regis Paper Co. v. Watson, 428 So.2d 243, 247 (Fla.1983). In White Construction Co., we reaffirmed the standard necessary to justify the imposition of punitive damages:
The character of negligence necessary to sustain an award of punitive damages must be of a “gross and flagrant character, evincing reckless disregard of human life, or of the safety of persons exposed to its dangerous effects, or there is that entire want of care which raise the presumption of a conscious indifference to consequences, or which shows wantonness or recklessness, or a grossly careless disregard of the safety and welfare of the public, or that reckless indifference to the rights of others which is equivalent to an intentional violation of them.”
455 So.2d at 1029 (quoting Carraway v. Revell, 116 So.2d 16, 20 n. 12 (Fla.1959)). Hence punitive damages are appropriate when a defendant engages in conduct which is fraudulent, malicious, deliberately violent or oppressive, or committed with such gross negligence as to indicate a wanton disregard for the rights and safety of others.
Owens-Corning Fiberglas Corp. v. Ballard, 749 So.2d 483, 486 (Fla.1999) (footnote omitted).
The Legislature codified the definition of “gross negligence” (as a predicate for a punitive damages claim) in section 768.72(2)(b), Florida Statutes (2007):
“Gross negligence” means that the defendant's conduct was so reckless or wanting in care that it constituted a conscious disregard or indifference to the life, safety, or rights of persons exposed to such conduct.
This definition is also found in the standard jury instruction on punitive damages 5 as adapted and given in this case. The phase I jury instructions at issue here did not use the specific term “punitive damages,” but they did include the definition of “gross negligence” in the standard instruction and the further requirement that the standard of proof for such a finding is “by clear and convincing evidence”:
“Clear and convincing evidence” differs from the “greater weight of the evidence” in that it is more compelling and persuasive. “Greater weight of the evidence” means the more persuasive and convincing force and effect of the entire evidence in the case. In contrast, “clear and convincing evidence” is “evidence that is precise, explicit, lacking in confusion, and of such weight that it produces a firm belief or conviction, without hesitation, about the matter in issue” (emphasis added).
Thus, two months before the jury retired in phase II to deliberate whether comparative fault on the part of Banco or ten other specific persons and entities was a legal cause of any damages suffered by Banco, the jurors had already rendered a verdict of “guilt” reflecting their “firm belief or conviction, without hesitation” that BDO was so reckless or wanting in care that its acts and omissions “constituted a conscious disregard or indifference to the rights of persons exposed to its conduct.” And in phase II argument, counsel for Banco reminded the jury in no uncertain terms that they had already reached such a conclusion. 6
In defense of this unusual order of proof and factfinding, Banco relies upon Mullen v. Treasure Chest Casino, LLC, 186 F.3d 620 (5th Cir.1999), a case cited favorably by our Supreme Court in Engle v. Liggett Group, Inc., 945 So.2d 1246, 1270 (Fla.2006). We do not find Banco's argument persuasive, however, as Mullen and Engle involved bifurcation issues in class actions, 7 another level of complexity that is not pertinent here. Those cases considered a division of fact-finding between mass tort issues that are appropriate for class...
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