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Quote of the Day - You signed a contract. But much more important than that, you gave your word. And I intend to hold you to that word within the bounds of the law. If necessary, without the bounds of the law. - Josh Brand and John Falsey, Northern Exposure
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Punitive Damages Now Become Part of Breaches of Contracts

Admittedly, this hasn't happened to many of us, and indeed, to only 9.86% of a particular helicopter manufactured by Robinson Helicopter during a very short time period - less than a year and a half.

But, the fact that it happened at all would be of concern to those 9.86% of pilots flying that particular helicopter. If you fly, you don't need to worry now, however, all of the defective parts have been replaced.

The part? A sprag clutch (not from this manufacturer), but from this one - Dana Corporation.

Now what does this have to do with anything related to the law?

Well, it turns out - you guessed it - that Robinson sued Dana over the defective sprag clutches.

Not only for breach of contract for failure to deliver the parts in conformance with the specifications, but also for intentional misrepresentation. That's a pretty unusual second cause of action when it comes to contract lawsuits.

Especially here, where Robinson sought and received over $6M in punitives.

In a contract case?

You got it. And even more surprising, the punitives award was upheld by the California Supreme Court in the case of Robinson Helicopter Co. v. Dana Corp. This punitive damages award was on top of a $1.5M compensatory damages verdict.

Previously, a good majority of Supreme Court rulings had broadened the chasm between tort and contract damages, preventing companies who sued for breach of contract from recovering punitive damages. Many years ago, the Supreme Court banned the cause of action for bad faith denial of a contract, which many lawyers used to add punitives into the mix of a contract action.

That chasm provided predictability for businesses that damages would be limited solely to economic losses - those losses that come from damages as a direct result of the contract breach (not punitive damages). The so-called economic loss rule, however, just got hammered by the Supreme Court.

Flattened may be a better word. Like a steamroller.

So, predictability is out the window, and breach of contract lawsuits just got a lot dicier for businesses. Admittedly, Dana's fraudulent misrepresentations were bad, and add to that the potential for death, property damage and other injuries as a result of a helicopter falling out of the sky, and you can begin to see why the jury awarded punitives to Robinson.

Indeed, "[a]llowing Robinson's claim for Dana's affirmative misrepresentation discourages such practices in the future while encouraging a 'business climate free of fraud and deceptive practices,'" wrote Justice Janice Brown.

On the other hand, in her dissent, Justice Kathryn Mickle Werdegar accused the majority of prescribing "a cure worse than the disease. ... Today's decision greatly enhances the ease with which every breach of contract claim can don tort clothes," she wrote. "I fear that in doing so, it opens a Pandora's box better left sealed."

The wolf is always at the door.

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Printer friendly page Permalink Email to a friend Posted by J. Craig Williams on Tuesday, December 28, 2004 at 13:26 Comments Closed (0) |
 
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