Ohio punitive damage awards in non-compete cases

The United States 6th. Circuit Court of Appeals last week added to an observed nationwide trend in holding punitive damage awards in non-compete cases to higher standards.

The case, Chicago Title Insurance Corp. v. James Magnuson/First American Title Insurance, presented numerous questions concerning both “not-to-compete” covenants and the jury verdict awarding damages.

Magnuson had been a regional vice-president with Chicago Title, having previously sold his own business to Chicago Title and entering into a five-year non-compete contract with them. He then left Chicago Title for a like job at First American, recruiting customers and other employees from his former employer. Filed in Southern Ohio District Court, a jury found Magnuson liable for breaching his contract with Chicago Title and First American for tortious interference, awarding Chicago Title $10.8 million in compensatory damages, and $32.4 million punitive – one of the biggest of that year. (Article)

On appeal, the Sixth Circuit, however, found that the District Court had committed an abuse of discretion in not including evidence of Chicago Title’s ability to take on new business in one of the intervening periods required to apply the law they did, and so reversed the District Court’s judgment, remanding for a new trial.

In its consideration of punitive damages, the Sixth Circuit cited State Farm Ins. Co. v. Campbell (2003), which confirmed three guideposts for lower courts to use when considering the constitutionality of a punitive damage award. That court said, “It should be presumed a plaintiff has been made whole for his injuries by compensatory damages, so punitive damages should only be awarded if the defendant’s culpability, after having paid compensatory damages, is so reprehensible as to warrant the imposition of further sanctions to achieve punishment or deterrence.” Here the 6th. Circuit found that Chicago Title was not made financially vulnerable by the actions of Magnuson or First American, and that First American’s conduct was neither repeated against other companies or sufficiently reprehensible. Awarding punitive damages was, therefore, inappropriate.