Wieber v. Fedex Ground Package System

• Decision Date: 28 October 2009
• Docket Number: A135969.,040909259.
• Citation: 231 Or. App. 469,220 P.3d 68
• Court: Oregon Court of Appeals
• Parties: Michael WIEBER, an individual; and Intrepid Corporation, an Oregon domestic business corporation, Plaintiffs-Respondents, v. FEDEX GROUND PACKAGE SYSTEM, INC., a Delaware corporation, Defendant-Appellant, and Bradley Kline, an individual; Nancy Khut, an individual; and Laurie LaVigne, an individual, Defendants.

220 P.3d 68

231 Or. App. 469

Michael WIEBER, an individual; and Intrepid Corporation, an Oregon domestic business corporation, Plaintiffs-Respondents, v. FEDEX GROUND PACKAGE SYSTEM, INC., a Delaware corporation, Defendant-Appellant, and Bradley Kline, an individual; Nancy Khut, an individual; and Laurie LaVigne, an individual, Defendants.

040909259.

A135969.

Court of Appeals of Oregon.

Argued and Submitted December 1, 2008.

Decided October 28, 2009.

Robert K. Spotswood argued the cause for appellant. With him on the briefs were John A. Anderson and Anderson & Yamada P.C., Portland and Michael T. Sansbury, Emily J. Tidmore, and Spotswood Sansom & Sansbury LLC.

Bruce L. Campbell, Portland, argued the cause for respondents. With him on the briefs were Peter C. Richter, Heather K. Cavanaugh, and Miller Nash LLP.

Before EDMONDS, Presiding Judge, and ARMSTRONG, Judge, and WOLLHEIM, Judge.

WOLLHEIM, J.

Defendant FedEx Ground Package Systems, Inc. (FedEx) appeals a judgment following a jury verdict in favor of plaintiffs Wieber and Intrepid Corporation on claims for breach of the covenant of good faith and fair dealing, fraud, and intentional interference with economic relations.¹ The judgment awards plaintiffs compensatory damages of $350,000 and punitive damages of $7 million. FedEx assigns error to the trial court's denial of its motions for a directed verdict on the fraud and intentional interference claims and to the trial court's denial of its motion for a new trial based on the excessiveness of the punitive damages award. We reverse the trial court's denial of the directed verdict motion on the intentional interference claim, affirm the denial of the directed verdict motion on the fraud claim, and conclude that the punitive damages award was grossly excessive under the Due Process Clause of the Fourteenth Amendment to the United States Constitution.

I. FACTUAL BACKGROUND

We state the facts in the light most favorable to plaintiffs, because they prevailed before the jury. Taylor v. Ramsay-Gerding Construction Co., 345 Or. 403, 406, 196 P.3d 532 (2008).

Plaintiffs entered into an independent contractor agreement with FedEx on July 29, 2002, under which plaintiffs agreed to pick up and deliver packages on behalf of FedEx from businesses and residences located within a designated service area. Under the terms of the agreement, plaintiffs incurred the obligation to purchase vehicles, hire drivers, and manage their operations within guidelines specified by FedEx. In exchange, FedEx paid plaintiffs for picking up and delivering packages within the designated service area.

The agreement had an initial term of three years, automatically renewable for successive one-year terms unless either party provided notice of termination at least 30 days prior to the expiration of any term. As relevant to this case, the agreement provided that FedEx could terminate the agreement without notice only "if the other party breaches or fails to perform the contractual obligations."

In addition, the agreement granted plaintiffs a "proprietary interest" in the customer accounts within the designated service area. Consistently with that proprietary interest, the agreement stated, "Provided Contractor is in good standing hereunder, Contractor shall * * * have the right to assign his/her rights and obligations hereunder to a replacement contractor acceptable to FedEx Ground." As FedEx was aware, contractors frequently sell those rights at a profit over their initial investments; in fact, FedEx's marketing materials advertise to prospective contractors that they may "resell the rights to their routes at an attractive profit."

Plaintiffs purchased rights to their designated service area from three other contractors for $20,000. Plaintiffs purchased a truck to service that designated area. Wieber viewed his relationship with FedEx as a long-term investment, and he had plans to expand his business relationship with FedEx.

In January 2004, plaintiffs sought to purchase rights to an additional service area, and FedEx approved that purchase. Plaintiffs paid $35,000 to obtain that additional service area and purchased a truck to handle that expansion. Plaintiffs began servicing that additional area in early February 2004. By that time, FedEx had documented several incidents in which plaintiffs did not provide adequate service under the agreement. Among those incidents were two motor vehicle accidents in late 2002, several failures to pick up customer packages, the loss of additional packages, and several other complaints from customers.

In late February 2004, FedEx received two customer complaints concerning plaintiffs' new service area. On February 25, 2004, Wieber and a FedEx manager, Kline, discussed those complaints. Wieber testified:

"I said, well, okay, what does this mean? Shall I sell my routes? And [Kline] said, oh, no, your contract is not in jeopardy. I heard him say, you are at a fork in the road. But that's—that's the only time I ever heard the words `in jeopardy' * * * in any form whatsoever."

(Emphasis added.) Later during the first quarter of 2004, FedEx documented several other issues relating to plaintiffs' service areas, including a problem with an improper driver release on February 27, a delivery in an unauthorized vehicle on March 1, a misdirected package on March 4, and a safety violation on March 9.

Meanwhile, on March 1, 2004, Kline met with a different independent delivery contractor, Sherer, and discussed the possibility of Sherer taking over plaintiffs' service area. On March 17, 2004, FedEx pick-up and delivery manager LaVigne submitted internal FedEx forms requesting that different contractors take over each of plaintiffs' two service areas. Those forms identified plaintiffs' service areas, indicated that the purpose of the requests was to replace a terminated contractor, and identified Wieber as the contractor being replaced. On March 18, 2004, FedEx's managing director Littleton approved both of those requests.

On March 23, 2004, Wieber spoke with FedEx manager Khut about the status of his agreement and updated her on the recent issues concerning his service areas. At that time, Wieber asked her, "[W]ors[t] case scenario, how much time would I have to sell my routes"? Khut replied, "[W]ell, it varies, but usually 30 to 45 days." FedEx admitted before trial that "independent contractors are generally not informed if their contract has been recommended for termination." On March 24, 2004, the day after his conversation with Khut, Wieber sought approval to purchase another cargo van.

Between March 31 and April 7, 2004, LaVigne told another contractor, Justin Jones, that plaintiffs' service agreement was going to be terminated, that FedEx would be willing to give Jones one of plaintiffs' service areas at no cost, and that Jones should not tell anyone of plaintiffs' pending termination.

On April 1, 2004, Kline submitted written paperwork requesting termination of plaintiffs' service agreement. On April 2, 2004, FedEx approved plaintiffs' March 24 request to purchase an additional cargo van. Plaintiffs purchased that van for $26,000.

On April 17, 2004, Littleton approved Kline's recommendation to terminate plaintiff's contract. On May 5, 2004, FedEx's contractor relations department approved the termination; on May 14, 2004, Kline was informed of that approval; on May 17, 2004, Kline notified Wieber of his termination, effective immediately.

II. PROCEDURAL BACKGROUND

Plaintiffs sued, alleging eight claims for relief. Four claims were ultimately submitted to the jury: (1) breach of contract, (2) breach of implied covenants of good faith and fair dealing, (3) fraud, and (4) intentional interference with economic relations. Plaintiffs sought $2,928,391 in compensatory damages on all claims for relief. In addition plaintiffs sought $11,713,564 in punitive damages on the fraud and intentional interference claims.

At the conclusion of plaintiffs' case-in-chief, FedEx orally moved for a directed verdict. On the intentional interference with economic relations claim, FedEx argued that plaintiffs had a proprietary interest in the customer accounts in their designated service area only before the contract was terminated. Thus, according to FedEx, plaintiffs had "no prospective business relationship with customers" in that service area after contract termination. On the fraud claim, FedEx argued that its statements that plaintiffs would be provided advance notice of contract termination and that plaintiffs' contract was not under immediate threat of termination were not false at the time that the statements were made. FedEx also argued that any reliance by plaintiffs on those remarks was not reasonable because the contract did not require advance notice for termination. The trial court denied FedEx's directed verdict motions on those claims.

The jury found in FedEx's favor on the breach of contract claim and in plaintiffs' favor on the remaining claims. The jury awarded compensatory damages of $350,000 and punitive damages of $7 million.

Following the verdict, FedEx moved for judgment notwithstanding the verdict, or, in the alternative, for a new trial on the fraud and intentional interference claims. Along with the motion for judgment notwithstanding the verdict, FedEx moved for a new trial on the ground that the amount of the punitive damages award was grossly excessive under the Due Process Clause of the Fourteenth Amendment of the United States Constitution. The trial court denied FedEx's motions. This appeal followed.

III. ANALYSIS

FedEx's arguments on appeal, as a practical matter, concern only the award of punitive damages. FedEx does not challenge the judgment in favor of plaintiffs on the claim for breach of the implied covenant of good faith and fair dealing or the award of $350,000 in compensatory damages that could have been based solely on that claim. Rather, FedEx challenges the court's...