Consideration of Punitive Damages in Business Disputes

By Lauren S. Fallick, Esq., Partner, Haber Law, P.A.

 

It is important to consider whether there may be a potential basis for punitive damages in any business or commercial litigation disputes, especially where the claims allege business torts and intentional wrongdoing. If utilized properly, punitive damage claims can be an effective tool for claimants because asserting a punitive damage claim may potentially increase the potential value of a plaintiff’s lawsuit, while, at the same time, creating potential increased risks of exposure to a defendant. 

 

The purpose of punitive damages is to punish a defendant for its wrongful conduct and to deter similar misconduct by defendant and other wrongdoers in the future by awarding damages in excess compensable damages. As such, punitive damages cannot be unilaterally alleged by a plaintiff in its complaint, as is the case with compensatory damages. Rather, Florida law requires a plaintiff to file a motion seeking leave from the court to amend its complaint to allege a claim for punitive damages, which must make an evidentiary proffer that would demonstrate a “reasonable basis” for recovery of such damages. The proffer merely represents what evidence the claimant proposes to present to establish and prove punitive damages, and it is not actual evidence admitted to the court. Thus, no evidentiary hearing is required for the court to determine whether a proffer is sufficient to establish a reasonable basis for pleading punitive damages. If a court finds the proffer sufficient and allows the plaintiff to assert punitive damages, the plaintiff must prove to the trier of fact, by clear and convincing evidence, that the defendant was guilty of intentional misconduct or gross negligence.

 

Punitive damages for intentional and business torts may be available where: (a) the defendant had actual knowledge of the wrongfulness of its conduct and the high likelihood that injury or damage to claimant would result, and, despite such knowledge, intentionally pursued that course of conduct, resulting in injury or damage; and/or (b) defendant’s conduct was so reckless or wanting in care that it constituted a conscious disregard or indifference to the rights of persons exposed to such conduct. 

 

Under Florida law, punitive damages may potentially available, and should be carefully considered, in business disputes alleging claims for breaches of fiduciary duty, conversion, misappropriation of business assets and self-dealing, fraud, shareholder oppression, and other claims where a defendant’s conduct was solely to protect and serve its own financial interests to the detriment and injury of the company. 

 

Because punitive damages aim to punish and deter, they may be pled and awarded even where the plaintiff does not prove any damages for breach of fiduciary duty or conversion, and may be awarded based on nominal damages. Under Florida law, nominal damages are damages flowing from the establishment of an invasion of a legal right where actual or compensatory damages have not been proven. Florida courts have held that punitive damages can be awarded if there is finding of a breach of fiduciary duty, and thus, a finding of liability alone may potentially support an award of punitive damages. However, punitive damages for fraud may not be based upon nominal damages alone, and compensatory/actual damages on the fraud claim must be proven in order to recover punitive damages.

 

Being granted leave to add claims for punitive damages not only potentially increases the value of your lawsuit, but it provides a claimant with certain potential tactical advantages. Typically, this includes, for example, allowing plaintiff to seek financial discovery from a defendant and requiring defendants to disclose financial assets, as well as allowing plaintiff to discover and introduce evidence regarding a defendant’s acts of wrongdoing with respect to third parties. As a result, this may potentially increase the settlement value of the lawsuit or pressure a previously unwilling defendant into settlement. Thus, for a claimant, a punitive damage claim may serve as an effective means to facilitate the resolution of complex business disputes.  

 

It is critical that claimants in business disputes consult with experienced counsel who routinely handle disputes involving business torts and intentional wrongdoing like our business litigation attorneys at Haber Law, as claims for punitive damage claims should be considered, and strategically developed, early in the litigation process. Please contact me at lfallick@haber.law for more information or to schedule a consultation.