United States of America et al v. Slurry Systems, Inc. et al
Filing
282
MEMORANDUM Opinion and Order. Signed by the Honorable Arlander Keys on 7/18/2013. (ac, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UNITED STATES OF AMERICA,
for the use and benefit of
PILECO, INC.,
)
)
)
)
Plaintiff,
)
)
v.
)
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SLURRY SYSTEMS, INC. and
)
FIDELITY AND DEPOSIT
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INSURANCE COMPANY OF
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MARYLAND,
)
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Defendants.
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------------------------------)
SLURRY SYSTEMS, INC.,
)
)
Third Party Plaintiff )
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v.
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BAUER MASCHINEN GMBH,
)
)
Third Party Defendant.)
Case No. 09 C 7459
Magistrate Judge Arlander Keys
MEMORANDUM OPINION AND ORDER
In this lawsuit, Pileco, Inc. has sued Slurry Systems, Inc.
(“SSI”) and its surety, Fidelity and Deposit Company of Maryland
(“F&D”), seeking to recover money allegedly owed on a contract
executed in connection with a reservoir project undertaken by the
Army Corps of Engineers in Willow Springs, Illinois.
In its
complaint, Pileco alleged two counts: a Miller Act claim seeking
payment on a performance bond issued by F&D in connection with
the project; and a breach of contract claim seeking monetary
damages in excess of $4 million from SSI.
SSI filed a
counterclaim alleging that, in connection with the reservoir
project, it subcontracted with Pileco and Bauer to provide
certain equipment necessary to the job, that the equipment never
worked properly, that Pileco and Bauer breached their agreement
with SSI, and that SSI paid Pileco all that it was due under the
contract.
SSI’s counterclaim included nine counts: (1) breach of
contract; (2) breach of express warranty; (3) breach of implied
warranty of merchantability; (4) breach of the implied warranty
of fitness for a particular purpose; (5) promissory estoppel; (6)
alternative breach of contract (Bauer); (7) alternative breach of
contract (Pileco and Bauer); (8)alternative declaratory judgment;
and (9) violation of the Illinois Consumer Fraud and Deceptive
Business Practices Act.
All are asserted against both Pileco and
Bauer, except for count 6, which is asserted against Bauer alone.
After the Court denied the parties’ motions for summary
judgment, the case was set for trial.
The parties tried the case
to a jury over a period of 8 days in May of this year.
Just
before the case went to the jury, SSI dropped its claim for
breach of the implied warranty of fitness for a particular
purpose; the remainder of the case went to the jury.
The jury
instructions, agreed to by the parties, accurately stated the law
regarding the parties’ claims and defenses, but were extremely
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long (57 pages – for what was, at its core, a breach of contract
case) and rather convoluted.
For example, at the request of the
parties, the instructions relating to the breach of contract
claims included a full recitation of the contract language, and
the instruction relating to the stipulations of the parties was,
by itself, three pages, single spaced.
After about four hours of actual deliberations (not long,
given that the parties had together introduced more than 6
binders of exhibits and that the instructions were 57 pages
long), the jury returned its verdict.
The verdict form reflected
the following:
(1) on Pileco’s breach of contract claim against SSI, the
jury found in favor of Pileco and awarded $2,000,000, leaving the
equitable adjustment line blank;
(2) on Pileco’s claim against F&D on the bond, the jury
found for Pileco and awarded $1,000,000;
(3) on SSI’s breach of contract claim against Pileco, the
jury found for SSI and awarded $600,000;
(4) on SSI’s breach of contract claim against Bauer, the
jury found for SSI and awarded $3,400,000;
(5) on SSI’s breach of express warranty claims, the jury
found for SSI and awarded $100,000 against Pileco and $400,000
against Bauer;
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(6) on SSI’s breach of implied warranty claims, the jury
found for SSI and awarded $100,000 against Pileco and $400,000
against Bauer;
(7) on SSI’s Consumer Fraud Act claim, the jury found for
SSI and awarded punitive damages against Bauer in the amount of
$20,000,000; the jury awarded SSI nothing in compensatory damages
on this claim.
Finally, the jury left blank the paragraph
relating to SSI’s promissory estoppel claim.
The Court and the parties immediately realized that the
verdict was problematic in a number of respects.
Most
significantly, the jury clearly wanted to send a message to Bauer
with its punitive damages award.
However, given that the jury
awarded no compensatory damages on the Consumer Fraud Act claim,
it was clear from the outset that the punitive damages award
could not stand.
Additionally, although the jury seemed to
attempt to “split the baby” with regard to the parties’ breach of
contract claims, it failed to consider a key component of the
parties’ contractual obligations – namely, the equitable
adjustment, which all parties agreed would affect any damages
award on these claims.
After discussing the problems with the verdict, the Court
and the parties met once again to attempt to resolve the parties’
dispute.
That attempt was unsuccessful.
Accordingly, the Court
must now formally consider how best to proceed.
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Federal Rule of Civil Procedure 59(d) allows a Court, on its
own motion, to order a new trial “for any reason that would
justify granting one on a party’s motion.”
A new trial is
appropriate, among other reasons, when the verdict is against the
weight of the evidence or where the verdict is excessive or
inadequate in some way.
E.g., Pickett v. Sheridan Health Care
Center, 610 F.3d 434, 440 (7th Cir. 2010)(citing Emmel v. CocaCola Bottling Co., 95 F.3d 627, 636 (7th Cir.1996))).
Both are
true here: the jury’s verdict was, in at least one respect,
contrary to the weight of the evidence, and, in at least one
respect, excessive.
First, the verdict was against the weight of the evidence.
As explained above, the jury instructions and the evidence
adduced at trial demonstrated that, if Pileco won on its breach
of contract claim, SSI would be entitled to some sort of an
offset – what the contract termed an “equitable adjustment” in
any damages award.
issue.
The testimony at trial was unambiguous on the
The instructions on Pileco’s breach of contract claim
stated that:
SSI and Pileco agree that SSI is entitled to an
equitable adjustment but disagree on the amount of that
equitable adjustment. If you find that Pileco is
entitled to any damages then you must determine the
amount of the equitable adjustment to which SSI is
entitled.
Despite this instruction, which was reiterated on the verdict
form, the jury awarded damages to Pileco on its breach of
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contract claim, but failed to consider any equitable adjustment.
The equitable adjustment could have wiped out Pileco’s breach of
contract award.
In this respect, the verdict was both against
the weight of the evidence and inadequate.
The verdict must also be set aside because of the amounts
awarded on SSI’s Illinois Consumer Fraud Act claim.
As
explained, on this claim, the jury awarded nothing in
compensatory damages and $20 million in punitive damages.
The
punitive damages award is monstrously excessive under any
standard and particularly where the amount of actual damages was
determined to be zero on that claim.
Although punitive damages
are certainly recoverable on this claim, and although the
testimony at trial was enough to get the claim to the jury, the
amount awarded was way too high.
E.g., BMW of North America,
Inc. v. Gore, 517 U.S. 559, 575-576, 580-581 (1996)(punitive
damages may not be grossly out of proportion to the actual harm
suffered or to the reprehensibility of the conduct at issue);
Keeling v. Esurance Ins. Co., 660 F.3d 273 (7th Cir. 2011)(awards
where the punitive damages are a single-digit multiple of the
compensatory damages pass constitutional muster; beyond that they
likely do not).
In Keeling, the Seventh Circuit noted that courts in
Illinois have affirmed awards for violations of the Consumer
Fraud Act that include punitive damages that are in the range of
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four to seven times the compensatory damages, and that this range
would seem to be consistent with the Supreme Court’s guidelines
on the issue.
Keeling, 660 F.3d at 275 (citing Gehrett v.
Chrysler Corp., 379 Ill.App.3d 162, 882 N.E.2d 1102
(2008)(multiplier of seven); Bates v. William Chevrolet/GEO,
Inc., 337 Ill.App.3d 151, 785 N.E.2d 53 (2003)(multiplier of
seven); Pacific Mutual Life Insurance Co. v. Haslip, 499 U.S. 1,
23–24 (1991)(suggesting that a multiplier of four is close to
constitutional limit); State Farm Mutual Automobile Insurance Co.
v. Campbell, 538 U.S. 408, 425 (2003)(suggesting that a
multiplier that was larger than four but still in the single
digits could pass muster)).
Without even considering the degree
of the reprehensibility of Bauer’s conduct – which would likely
fall on the low end of the scale in any event,1– it is clear that
the jury’s award in this case was way out of whack. It cannot
stand.
For these reasons, the Court finds that a new trial is
warranted.
The Court, therefore, exercises its discretion under
Rule 59(d) to order a new trial.
The re-trial of this case is
scheduled for September 9, 2013 at 10:00 a.m.
1
In BMW, the Supreme Court suggested a hierarchy of conduct that
may be sufficiently reprehensible to justify an award of punitive
damages, with violent acts on the high end, trickery and deceit in the
middle and negligence on the low end; additionally, repeated
misconduct is more reprehensible than a single instance of
malfeasance. BMW, 517 U.S. at 575-577.
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Date: July 18, 2013
E N T E R E D:
______________________________
MAGISTRATE JUDGE ARLANDER KEYS
UNITED STATES DISTRICT COURT
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