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In the span of 24 hours, a subsidiary of ChevronTexaco went from satisfaction over being found not liable for compensatory damages in a Miami-Dade Circuit Court fraud lawsuit to dismay over being hit with a $33.8 million punitive damages verdict. On Monday, a six-person jury found that Texaco Refining and Marketing, a subsidiary of San Ramon, Calif.-based Chevron-Texaco, had knowingly made false promises to Fort Lauderdale-based Apex Development Corp. to induce Apex to build seven Texaco Xpress Lube retail sites throughout Central and South Florida. Despite finding that the company had made empty promises to induce Apex into the deal, the jury found that Apex had suffered no economic damages. Then, on Tuesday, after hearing testimony and arguments over punitive damages, the jury delivered a huge punitive damages judgment on the grounds 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 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 at Greenberg Traurig in Miami, said that the recent 3rd District Court of Appeal ruling decertifying the Engle smokers’ class action case against cigarette makers 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 a reasonable relationship to compensatory damages, which would not seem to apply here,” said Jim McCann, a partner with Akerman Senterfitt in West Palm Beach. “I think there will be a lot of room for argument on appeal by Texaco’s lawyers.” ChevronTexaco said 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 of 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,” he said. But the lawyer for Apex Development Corp., a privately held company that owns franchises such as Papa John’s pizza and Ponderosa steakhouses, 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 further comment, tried the case with Gail A. McQuilkin, also at Kozyak Tropin. Texaco was represented by David Wood, a partner at Baker & Hostetler in Orlando. Wood did not return calls for comment. The case, which started on June 18 before concluding on Tuesday, was tried before Miami-Dade Circuit Judge Fredricka G. Smith. At issue was whether Texaco knew about the false promises being made by one of its salesmen and whether it had taken appropriate steps to stop him. 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 in Central and South Florida. But in April 1998, Texaco informed Apex in writing that it was not offering any rent payment guarantees and that Sutton did not have the authority to make such a promise. “Texaco was unaware of Mr. Sutton’s actions related to these properties until being informed by you,” Texaco wrote to Apex president Wesley Weeks. “Texaco does not provide a ‘Lease Guaranty’ because our only interest in the facility is as a supplier of motor oil and related products.” In May 1999, Apex sued on the grounds that it had been fraudulently induced into the deal and it began selling the oil-change shops. In March 2000, it amended its complaint to seek punitive damages on the grounds that either Sutton was authorized by Texaco to enter into the lease guarantees or Texaco knew about his promises and did nothing to stop him. 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. “Texaco was, at a minimum, negligent in allowing Sutton the opportunity to continue to defraud the public,” Apex claimed in court papers. 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. In January 1998, the company noted, it terminated Sutton — after the deal with Apex had been cemented. Sutton, who was not named in the lawsuit, could not be reached for comment. On Monday, at the conclusion of the liability and compensatory damages part of the trial, Apex argued that the value of the lease guarantee promise was $5.8 million. Texaco said the value of the rent promise was $1.1 million. 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 potentially liable for punitive damages for failing to control its renegade salesman. On Tuesday, Apex asked for punitive damages that amounted 0.0075 percent of the Texaco Refining and Marketing’s net value of $3 billion. The jury granted that request.

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