U.S. Court of Appeals for the Ninth Circuit, BladeRoom Group Ltd. v. Emerson Electric Co., Docket No. 19-16583

 

Punitive Damages

Breach of Contract Awards

Trade Secret Misappropriation

California Law

 

 

Under California law, a party cannot collect punitive damages for breach of contract awards.

 

(…) Finally, the same reasons support vacating the jury’s damages findings. The jury awarded damages in two lump sums that did not separate damages for breach of contract from misappropriation. As a result, we have no way to know how much damages the jury intended to allocate for each claim. And because we do not know whether the jury would have found Emerson liable under breach of contract or misappropriation, we cannot tell whether the damages findings would be the same. We therefore vacate the jury’s damages findings.

 

(…) Given the complex issues on appeal, we also address a couple of issues for consideration on the awards of damages and prejudgment interest should they be determined after a new trial.

California Civil Code § 3426.3(a) allows an aggrieved party to recover actual damages and any unjust enrichment on a trade secret misappropriation claim. Because the jury here found that Emerson willfully and maliciously misappropriated BladeRoom’s trade secrets, the district court awarded punitive damages equal to the $30 million in compensatory damages.

Under California law, however, a party cannot collect punitive damages for breach of contract awards. Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 516 (1994). Because the jury awarded a lump sum for breach of contract and misappropriation damages, Emerson correctly argued that the district court could not assume that the whole award went to misappropriation.

Courts that apply California law use three factors to award punitive damages. Neal v. Farmers Ins. Exch., 21 Cal. 3d 910, 928 (1978). The second factor, “the amount of compensatory damages awarded,” id., helps balance a punitive damages award with actual harm that is caused. See id. (“In general, even an act of considerable reprehensibility will not be seen to justify a proportionally high amount of punitive damages if the actual harm suffered is small.”). When weighing the second factor, the district court here merely noted that under Neal, 21 Cal. 3d at 928, “compensatory damages are a ‘relevant yardstick’ for punitive damages.” And, in a footnote, the district court explained that “the trial evidence shows that either the breach of contract or misappropriation claim for which the jury found liability could support the amount of compensatory damages it awarded.”

The district court misapplied the second factor for two reasons. One, the district court abused its discretion based on an earlier order denying Emerson’s motion to compel. And second, the district court never explained why it allocated compensatory damages the way it did.

First, in the earlier order, the district court found that “there is no way for the parties or the court to know how much was awarded for breach of contract and how much was awarded for misappropriation of trade secrets.” To be sure, the district court confirmed that “only the jury knows the number.”

A district court abuses its discretion when it “reaches a result that is illogical, implausible, or without support in inferences that may be drawn from the facts in the record.” United States v. Hinkson, 585 F.3d 1247, 1262 n. 21 (9th Cir. 2009) (collecting cases from other circuits). It was illogical for the district court to find how much the jury awarded for each claim when it already found that it had “no way” to do just that. See id. The district court should have explained why its reasoning changed. Instead, after awarding punitive damages, the district court issued another order that adopted the same reasoning in the order that denied Emerson’s motion to compel. In brief, the district court flipped its reasoning twice without explaining why. And the inconsistency visibly benefited BladeRoom because it cost Emerson millions in punitive damages that the district court would not have awarded otherwise. In sum, the inconsistency was “beyond the pale of reasonable justification” and an abuse of discretion. Harman v. Apfel, 211 F.3d 1172, 1175 (9th Cir. 2000).

 

(U.S. Court of Appeals for the Ninth Circuit, August 30, 2021, BladeRoom Group Ltd. v. Emerson Electric Co., Docket No. 19-16583, For Publication)