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american lawyer media news service Miami-In the span of 24 hours, a subsidiary of ChevronTexaco Corp. went from satisfaction over being found not liable for compensatory damages in a Florida trial court fraud lawsuit to dismay over being hit with a $33.8 million punitive damages verdict. On June 30, a six-person jury found that Texaco Refining and Marketing, a subsidiary of San Ramon, Calif.-based ChevronTexaco, had knowingly made false promises to Fort Lauderdale, Fla.-based Apex Development Corp. to induce Apex to build seven Texaco Xpress Lube retail sites throughout central and southern Florida. However, the jury found that Apex had suffered no economic damages. Then, on July 1, after hearing testimony and arguments over punitive damages, the jury delivered the huge punitive damages judgment on the ground that the corporate giant should be punished for bad behavior. The ruling caught some observers by surprise. “Offhand, I have never heard of this happening before,” said Jeffrey Tew, a partner at Miami’s Tew Cardenas Rebak Kellogg Lehman DeMaria Tague Raymond & Levine. “My impression is that you have to have some compensatory damage.” Elliott Scherker, an appellate attorney and partner in the Miami office of Greenberg Traurig, said that a recent Florida 3d District Court of Appeal ruling held that in fraud cases punitive damages can be awarded only when compensatory damages are awarded. In its recently ended term, the U.S. Supreme Court also ruled on the issue of excessive punitive damages in a case called State Farm v. Campbell. “The Supreme Court held that the punitive damages should be limited to reasonable relationship to compensatory damages, which would not seem to apply here,” said Jim McCann, a partner in Akerman Senterfitt’s West Palm Beach, Fla., office. “I think there will be a lot of room for argument on appeal by Texaco’s lawyers.” ChevronTexaco said that it does not think the verdict will stand. “We are disappointed that the jury reached the verdict on punitive damages after it had decided that the plaintiff had not suffered any harm entitling it to recover any compensatory damages,” company spokesman David Sander said after learning about the ruling. “It is our firm belief that the jury’s verdict on this issue is not in accordance with the law of Florida or the decisions of the U.S. Supreme Court.” But the lawyer for Apex Development Corp., a privately held company that owns franchises such as Papa John’s Pizza and Ponderosa Steakhouse, thinks the ruling will stand. “We are glad that the jury has decided that Texaco’s conduct should not be accepted and look forward to finally resolving this matter for our client,” said Adam M. Moscowitz, a partner at Kozyak Tropin & Throckmorton in Miami. Moscowitz, who declined to comment further, tried the case with Gail A. McQuilkin, also of Kozyak Tropin. Texaco was represented by David Wood, a partner in the Orlando, Fla., office of Cleveland’s Baker & Hostetler. Wood did not return calls for comment. The case, which started on June 18, was tried before Miami-Dade County Circuit Judge Fredricka G. Smith. Apex Development Corp. v. Texaco Refining and Marketing Inc., No. 99-11204-CA-21. Suit over promises According to court papers, in early 1997 Texaco made a decision to open Xpress Lube operations throughout Florida. It assigned a salesman named Scott Sutton to find business partners that would build and open the Xpress Lube franchises. In an effort to sign up franchisees, according to court documents, Sutton promised Apex that Texaco would guarantee to pay all rent on each property. In November 1997, Apex agreed to the deal and proceeded to open seven sites. But in April 1998, Texaco informed Apex in writing that it was not offering any rent guarantees and that Sutton did not have the authority to make such a promise. In May 1999, Apex sued on the ground that it had been fraudulently induced into the deal. In March 2000, it amended its complaint to seek punitive damages on the ground that either Sutton was authorized to enter into the lease guarantees or that Texaco knew about his promises and did nothing to stop him. At trial, the plaintiff argued that in September 1997, before striking the deal with Apex, Texaco learned that Sutton was making the lease-guarantee promise to potential business partners and orally told Sutton to stop. But it did not remove him from his position, and instead put him back into the field. In response, Texaco argued at trial that it took appropriate steps by instituting a lengthy investigation into Sutton’s conduct, and that it eventually fired him. Sutton, who was not named in the lawsuit, could not be reached for comment. After deliberating for five hours, the jury found that Apex had suffered no financial damages as a result of Sutton’s promise. But it did find that Texaco made false promises and was liable for punitive damages for failing to control its renegade salesman.

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