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A trial judge in Miami has thrown out a $33.8 million punitive damages-only jury verdict in a fraud case against ChevronTexaco. In the case, brought by Fort Lauderdale-based Apex Development Corp., Miami-Dade Circuit Judge Fredricka Smith ruled Nov. 12 that the punitive damage award could not stand because the jury found that Apex had suffered no economic loss. During its deliberations after a two-week trial in June, the jurors had sent two notes to Smith asking whether they could award punitive damages without any compensatory damages, Smith noted in her order. But before she could discuss the question with the trial lawyers and reply to the jurors, the jury announced it had reached a verdict. Both sides agreed to take the verdict without first answering its question. The jury found that Texaco, which merged with Chevron in 2000, made false promises to Apex in a business deal to open Texaco Xpress Lube franchises in South Florida. But it awarded Apex no compensatory damages, only punitive. San Ramon, Calif.-based ChevronTexaco filed a post-trial motion to set aside the verdict. In her order granting the motion, Smith said that because damages are an essential element of proving a case of fraud, compensatory damages are “a prerequisite to an award of punitive damages.” “Since the jury did not find that the misrepresentation resulted in compensatory damages, there was no express finding of liability,” Smith wrote. “There being no actual damages found by the jury or implied by law, the punitive damages award must fall.” As the basis for her ruling, Judge Smith cited a 1989 Florida Supreme Court case, Ault v. Lohr, and a recent 3rd District Court of Appeal ruling decertifying the Florida smokers’ class action case against cigarette makers, Liggett Group Inc., et al. v. Engle. In the same order, Smith denied Apex’s motion for a new trial on compensatory damages. Apex had argued that the verdict was contrary to the evidence and that Smith had improperly instructed the jurors that they could consider mitigating factors in assessing compensatory damages. Those mitigating factors included the fact that Apex had the chance to save its investment in the Xpress Lube stores by leasing the facilities to Pennzoil Oil, which had made an offer to take over management of the sites, according to Texaco’s attorney, David Wood. Apex had rejected Pennzoil’s offer, Wood told the jury in closing arguments. “Apex had a duty to mitigate its damages,” Wood, a partner at Baker & Hostetler in Orlando, Fla., said in an interview. “We argued that Apex wasn’t damaged because of the offer from Pennzoil.” “We respect Judge Smith and are studying the order to see our next step,” said Apex’s lawyer, Adam Moskowitz a partner at Kozyak Tropin & Throckmorton in Miami. According to Apex’s lawsuit in 1997, Scott Sutton, a salesman for Texaco Refining and Marketing, told Apex that if it purchased seven Texaco Xpress Lube sites, Texaco would give Apex a 15-year lease guarantee on all seven locations. Under the deal, Texaco would be responsible for paying the monthly leases, averaging $3,000 to $7,500, if the company operating the Xpress Lube stores left or went out of business. In November 1997, Apex agreed to the deal and began to open the seven sites in Jacksonville and South Florida. But five months later, the operator of the Xpress Lube stores went out of business and Apex tried to enforce the lease guarantee. That’s when Texaco refused to honor the agreement, saying it had never authorized Sutton to make such a promise. In May 1999, Apex filed suit against ChevronTexaco, claiming it had been fraudulently induced into the deal. During trial, Apex claimed that Texaco officials knew about the lease guarantee that Sutton had promised but did nothing to stop him. Texaco, however, claimed it had launched an investigation into Sutton’s conduct and eventually fired him in January 1998. The company contended that Sutton’s lease guarantee agreement with Apex was bogus. But June of this year, after five hours of deliberation, the six-member jury found that Texaco lied to Apex while brokering the business deal. On the verdict sheet, the jurors said they found that Sutton lied to Apex to induce the company to invest in Xpress Lube and that Apex had relied on that information in agreeing to accept the deal. The jury also found that Apex officials had reason to believe that Sutton had the authority to bind Texaco to the lease guarantee agreement. Despite Apex’s claims that the false promises cost the company $5.8 million in lost rent and decreased property value, the jury awarded no compensatory damages. Judge Smith said in her order that the jurors had asked her whether they could award punitive damages with compensatory damages, but that they had proceeded to reach a verdict without waiting for a reply. “We had been alerted to the jury’s struggle with the issue of damages,” Smith wrote. Nonetheless, she said, “there was sufficient evidence to support the conclusion that the plaintiff suffered no compensatory damages resulting from Texaco’s misrepresentation.”

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