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A jury’s award of $30 million in punitive damages has been reduced to $2 million by a federal judge who found it was “plainly excessive” because the compensatory damages in the case were just $190,000. In his 12-page opinion in CGB Occupational Therapy Inc. v. HA/Pennsylvania Nursing Homes Inc., Senior U.S. District Judge for the Eastern District of Pennsylvania Clarence C. Newcomer applied recent decisions from the U.S. Supreme Court and the 3rd U.S. Circuit Court of Appeals that call for trial judges to look to the ratio of punitive damages to compensatory damages. Newcomer found that the jury’s $30 million punitive award “yields a whopping 275:1 ratio — one that is clearly unacceptable given the facts of this case.” By reducing the award to $2 million, Newcomer said, the ratio was reduced to about 19:1 “which is not constitutionally excessive given the facts of this case –including the wealth of [the] defendant and the state’s interest in punishment and deterrence.” The January 2005 verdict stemmed from a second trial in the case that was limited to the issue of punitive damages. The first trial, in November 2002, ended with a verdict of nearly $2 million –$685,000 in compensatory damages and $1.3 million in punitives. But the 3rd Circuit overturned part of the verdict in February 2004, reducing the compensatory award to $109,000 and ordering a new trial limited to the issue of punitive damages. On retrial, the second jury again found that the plaintiff was entitled to punitive damages and awarded $30 million. In the suit, plaintiff CGB, a Delaware County, Pa., occupational therapy firm, claimed that Sunrise Assisted Living Inc., a Virginia nursing home management company, had tortiously interfered with its contracts by inducing two Philadelphia-area nursing homes to terminate CGB and then hire away five of its therapists. At the first trial, plaintiff’s attorney David G. Concannon of Wayne, Pa., told the jury that CGB’s contracts with RHA/Pennsylvania Nursing Homes Inc. included a “nonraiding” clause that prohibited the nursing homes from hiring any of the independent contractor therapists who worked for CGB for a period of one year in the event that CGB’s contract was terminated. CGB had settled with RHA prior to trial. The only remaining defendant was Sunrise, which had been hired by RHA to manage the two nursing homes. In the November 2002 verdict, the jury sided with CGB on both its claims. On the first claim, the jury found that Sunrise had tortiously interfered with CGB’s contract with RHA by inducing it to terminate CGB’s contract. The jury awarded $576,000 on that claim. The jury also found that Sunrise tortiously interfered with the contracts between CGB and CGB’s own therapists when Sunrise recruited CGB’s therapists to continue working for RHA, and awarded $109,000 on that claim. But on appeal, the 3rd Circuit ruled that although CGB’s second claim was valid, the first claim was flawed since Sunrise, as a management company, was legally acting as RHA’s “agent” and therefore had a “qualified privilege” to recommend termination of CGB’s contract. Having overturned a portion of the compensatory award, the appellate court also found that the punitive damages verdict could not stand because the jury did not allocate the punitive damages between the two claims. “It is impossible to determine how punitive damages should be allocated in light of our determination that Sunrise could not have interfered with the contract between CGB and RHA/Pennsylvania,” the appellate court said. In the retrial, CGB’s owner, Cindy G. Brillman, said she testified that it took her six months to recover from Sunrise’s raid of her employees. Brillman told the jury that she has been battling with Sunrise for seven years. In his closing argument, Concannon told the jury that Sunrise had $1.5 billion in annual revenue and earned $60 million in profits. Concannon urged the jury to hit Sunrise hard, saying, “your award must be high enough to punish Sunrise for its intentional, wrongful conduct, and to deter others from engaging in similar conduct. You must deter other billion-dollar companies from trying to crush the little guy simply because they can.” A punitive award of $15 million would represent just one-tenth of 1 percent of Sunrise’s annual revenues, he said. Concannon spoke with the jury immediately after the verdict and said jurors told him that they had decided to award $30 million because they believed that Sunrise should be ordered to pay all of its profits to CGB for a six-month period since it took that long for CGB’s business to recover. Sunrise’s lawyers urged Newcomer to order a third trial or, at a minimum, to drastically reduce the punitive award. In their brief, they argued that the 275:1 ratio was “grossly excessive” and that Newcomer should reduce it to 1:1 or no more than 4:1 –a figure they said would be the “constitutional maximum.” Concannon urged Newcomer not to disturb the award at all, saying it was “justified by Sunrise’s extreme and outrageous conduct, and the need to punish Sunrise and deter others.” Newcomer rejected both arguments, saying the evidence justified “a substantial punitive damage award, although not as high as that found by the second jury.” Testimony in the second trial, Newcomer said, showed that “only a substantial award would actually accomplish the goal of punitive damages under Pennsylvania state law — to punish and deter.” Newcomer said he had “not had an easy time determining an appropriate reduction” due to “the nature of the harm done to plaintiff.” Looking to the Pennsylvania courts for guidance, Newcomer found there were no “examples of Pennsylvania punitive damage awards for conduct similar to defendant’s.” The first jury’s award of $109,000 in compensatory damages, he said, did not adequately capture the nature of the harm inflicted on CGB. “Although this number has the virtue of simplicity, Pennsylvania state law is quite clear that punitive damages must address both the character and extent of the harm done to a plaintiff,” Newcomer wrote. “Here, the harm caused by defendant’s actions is much more than $109,000,” Newcomer wrote. Although reducing the punitive award to $2 million results in a 19:1 ratio, Newcomer said he “suspects, however, that given the hardships defendant imposed on plaintiff in its treatment of plaintiff after the interference took place, and given defendant’s antics leading up to the first trial, the true ratio –could the harm caused by defendant be expressed as a simple dollar value –would be closer to 3:1.”

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