The Alabama Supreme Court issued an opinion recently in a complex commercial fraud case. The case, arising out of Jefferson County, involved a claim for fraudulent suppression. The jury returned a verdict for the Plaintiff consisting of $3.8 million in compensatory damages and $7.6 million in punitive damages. The Supreme Court affirmed the judgment for the Plaintiff without any reductions. The following will describe the claim and briefly explain the court’s decision.
The Claim. The gravamen of the claims of Ligon and Hydraulic Technologies, LLC, based on fraudulent-suppression, is that CNH decided in approximately September 2007 to replace HTI as a supplier of cylinders and then fraudulently suppressed that fact from Ligon and HTI for approximately eight months, inducing them to take actions and expend funds in an impossible attempt to foster an ongoing relationship between HTI and CNH. CNH denies that it made a definitive decision to terminate its relationship with HTI in September 2007 and that it had any duty to disclose to Ligon and HTI that it was terminating its relationship with HTI before it did so in May 2008.
Duty to Disclose. To determine whether a duty to disclose arose, the Court used the test from Freightliner, L.L.C. v. Whatley Contract Carriers, L. L. C.., 932 So. 2d 883, 892 (Ala. 2005), under which in a commercial transaction involving arm’s length negotiations, the parties have no general obligation to disclose any specific information to the other, but each has an affirmative duty to respond truthfully and accurately to direct questions from the other. Thus, whether CNH had a duty to disclose to Ligon and HTI, before May 2008, that it had decided to terminate its relationship with HTI depends on:
The Court held there was sufficient evidence for the jury to determine that Ligon articulated with “reasonable clarity” its question, and that the answer provided was cleverly worded half-truths. Even under Freightliner, “once a party elects to speak, he or she assumes a duty not to suppress or conceal those facts that materially qualify the facts already stated.” The evidence supported the conclusion that the decision had already been made to replace HTI, and thus statements to the effect that CNH was “committed” to HTI were not fully and fairly disclosing, thus giving rise to a duty to disclose and non-disclosure.
Failure to Preserve a Judgement as a matter of Law (JML) Issue. The court also held that CNH failed to properly raise entitlement to JML as to the claims of Ligon (as opposed to and distinguished from its subsidiary HTI) because the JML at the close of all evidence essentially lumped the claims into one, and did not specifically articulate a separate request as to the claim of Ligon (for a failure by anyone at Ligon to make a request triggering a duty to disclose).
Reliance. In holding there was sufficient evidence of reliance, the Court dropped an important footnote about the effect of disclaimers on reliance issues:
CNH emphasizes that its forecasts always included a disclaimer indicating that they were not binding. However, we must view the evidence in the light most favorable to Ligon and HTI and entertain such reasonable inferences as the jury would have been free to draw. Waddell and Reed, 875 So. 2d at 1152. The jury certainly could have concluded that Ligon and HTI reasonably understood the forecasts to be good-faith estimates of future orders, subject to change based on CNH’s customer requirements – not false projections CNH had no intention of using HTI to fill. Although the disclaimer on the forecasts might defeat a breach-of-contract claim, Ligon and HTI are not arguing breach-of-contract here.
Punitive Damages. The Court rejected each of the punitive damage challenges of CNH. First, CNH argues that no punitive damages are warranted because, it argues, Alabama has no interest in punishing CNH, an Illinois corporation, for harm caused to HTI, an Ohio company. The Court rejected that challenge on the basis that Ligon (an Alabama-based company) was purportedly harmed as well, and CNH failed to preserve for appeal issues relating to liability running to Ligon. The court also upheld the 2:1 punitive damage verdict in light of the evidence, which supported a finding that defendant acted consciously.
The case was handled successfully by Michael D. Mulvaney, a Birmingham lawyer with Maynard, Cooper & Gayle. He did a very good job in the case. The case is CNH America, LLC v. Ligon Capital, LLC, No. 1111204 (Ala. Nov. 8, 2013).
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