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COA modifies punitive damages award

October 14, 2015

The statutory cap on punitive damages should be based on the amount of compensatory damages awarded in the action in which the party seeks punitive damages, the Indiana Court of Appeals held, and not based on the total compensatory damages awarded in the action on all claims.

Techna-Fit Inc. and its owner Stuart Trotter were embroiled in litigation with Trotter’s former company, Fluid Transfer Products Inc. Trotter, who had a company in California called Techna-Fit, started FTP with Michael Lang in Indiana as a way to manufacture and sell products under the Techna-Fit brand name. Techna-Fit used a specific system for numbering its parts, which FTP also adopted.

After a dispute arose regarding the operation of FTP, Trotter formed a new Indiana corporation called Techna-Fit Inc. He then hired an FTP employee to work at the new company. FTP continued using Techna-Fit’s parts numbering system, which led to a lawsuit alleging unfair competition. FTP filed a countersuit alleging breach of contract and also a third-party complaint alleging breach of contract and breach of fiduciary duty against Trotter. The trial court ruled in favor of FTP on Techna-Fit’s claims, its counterclaims and third-party claims. FTP was awarded $663,901.86 on the breach of contract claims and $125,000 for Trotter’s breach of fiduciary duty. FTP also received punitive damages of $1.5 million for Trotter’s breach of fiduciary claim.

The appellate court reversed the punitive damages award in Techna-Fit, Inc. and Stuart Trotter v. Fluid Transfer Products, Inc., 32A05-1410-PL-462, noting no Indiana court has interpreted the meaning of “the amount of compensatory damages awarded in the action.” FTP argued the punitive damages are based on total compensatory damages awarded in all claims; Techna-Fit believes the statute limits punitive damages to three times the compensatory damages awarded just on Trotter’s breach of fiduciary duty, the only claim FTP requested punitive damages for.

The COA ruled in Techna-Fit’s favor on this issue, citing SJS Refractory Co. LLC v. Empire Refractory Sales Inc., 952 N.E.2d 758, 770 (Ind. Ct. App. 2011), which held that punitive damages must arise from the underlying claim for which those damages are sought. To include both the underlying and unrelated compensatory damages in the calculation of the statutory cap would expand, rather than limit, punitive damages, contrary to the clear legislative intent, Judge Edward Najam wrote.

Because FTP was awarded $125,000 for Trotter’s breach of fiduciary duty, the company is only entitled to $375,000 in punitive damages. The judges also determined FTP is not entitled to attorney fees and denied its request for appellate attorney fees.
 

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