Pursuing Punitive Damages in Business Litigation

It is a common reaction for a performing party under a contract to want to punish another party for failing to perform. However, damages to punish (punitive damages), rather than just to compensate for a loss, are generally limited to tort actions and are not recoverable in lawsuits resulting from a contractual breach alone. Thus, plaintiffs are prohibited from recovering punitive damages based on a breach of a covenant of good faith and fair dealing. Only in the context of implied covenant claims involving insurance companies are tort remedies (punitive damages) available.

California follows the rule limiting punitive damages established under English common law over 150 years ago, which restricted a plaintiff’s award in contract litigation to the damages that were both foreseeable at the time that the contract was executed and that could reasonably be calculated. Courts have viewed this rule as having been incorporated into the California statutory definition of the damages available for a breach of contract. California law provides for the recovery of punitive damages in business tort cases only in the event of a breach of an obligation not arising from the contract. Even when defendant’s actions are regarded as fraudulent, malicious or willful, a breach of contract claim is not sufficient to support a demand for punitive damages.

In order to claim the right to punitive damages, the plaintiff must prove that a tort independent of the breach of contract claim was committed. According to California Civil Code section 3294, a claimant must demonstrate by “clear and convincing evidence” that the defendant is guilty of an act of “oppression, fraud, or malice.” The standard of proof in a case for punitive damages is more stringent than the normative showing of a preponderance of the evidence in a typical tort action.

Fraud as a stand-alone tort claim, may be asserted to fulfill this requirement. Fraud entails an intentional misrepresentation of information by the defendant with the intent of causing another to suffer harm to his or her person or property. Other causes of action rooted in tort law may uphold a claim for punitive damages, including interference with prospective economic advantage, conversion and inducing breach of contract. If a plaintiff cannot prove fraud, he will have to establish either malice or oppression by the defendant. However, outcomes in California court cases attempting to define the nature of oppression, fraud or malice have been vague and erratic.

Punitive damages may be appropriate in particular business tort cases. Clients should explore this avenue with the guidance of an attorney who has broad experience in contract law, tort law and dispute resolution. As an attorney with expertise in these areas of law, Shane Coons can assist you in obtaining the maximum reward in any contract dispute. He can be reached at 949-333-0900 or visit www.ShaneCoonsLaw.com.

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Pursuing Punitive Damages in Business Litigation

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