Appeal from a final judgment of the United States District Court for the Eastern District of New York, Jacob Mishler, Judge, awarding plaintiff $158,446 in compensatory damages for breach of contract, fraud, and breach of fiduciary duty, plus $500,000 in punitive damages against two defendants jointly for breach of fiduciary duty and fraud. Affirmed in part; vacated and remanded in part.
Newman, Kearse, and Cardamone, Circuit Judges
Defendants Jack B. Solerwitz, Lightning Bolt Productions, Inc. ("Lightning Bolt"), and the law firm of Solerwitz & Leeds ("S&L") appeal from a final judgment entered in the United States District Court for the Eastern District of New York, Jacob Mishler, Judge, following a jury trial and a remittitur, (1) ordering them to pay plaintiff Harlan Alonzo Smith, a/k/a Lonnie Smith, $158,446.14, plus interest, as compensatory damages for fraud, breach of fiduciary duty, and breach of contract, and (2) ordering Lightning Bolt and Solerwitz jointly to pay Smith $500,000, plus interest, as punitive damages for breach of fiduciary duty and fraud. On appeal, S&L contends that it was entitled to judgment on the ground that there was no evidence that S&L ever represented Smith; Solerwitz and Lightning Bolt contend that punitive damages were as a matter of law not awardable and were in any event not supported by the evidence; and all defendants contend that the entire verdict should have been set aside on the grounds, inter alia, that there was no evidence of fraud and that the jury's verdict was the product of a misunderstanding of the issues or of passion and prejudice. For the reasons below, we affirm the award of compensatory damages, and we vacate the award of punitive damages and remand for further proceedings.
The following facts do not appear to be seriously in dispute. Smith was a professional boxer who entered into a written agreement with Solerwitz in April 1985 which called for Solerwitz "to act as his attorney and legal adviser" in an effort to negotiate a championship bout for Smith. Solerwitz was a partner in S&L and was also, as Smith knew, a principal in Lightning Bolt, which was a licensed New York State boxing promotional corporation. Prior to April 1985, Smith had granted Top Rank, Inc. ("Top Rank"), one of the two leading boxing promoters, the exclusive right to promote his bouts. Following Smith's agreement with Solerwitz, Solerwitz obtained an assignment from Top Rank of its contract with Smith.
On May 27, 1985, Smith entered into a three-year contract with Lightning Bolt ("May 27 contract"), pursuant to which Lightning Bolt was given the exclusive right to promote boxing matches for Smith. This agreement, signed for Lightning Bolt by its president, John Maichin, provided, inter alia, that Smith would agree to fight either Aaron Pryor or Billy Costello for the Junior Welterweight Championship of the World Boxing Council ("WBC") or the International Boxing Federation; that Smith would receive $100,000 as compensation (his "purse") plus $50,000 in training expenses; and that if Smith won this bout, he would "receive an additional sum of $200,000.00 as and for a bonus from Lightning Bolt Productions, Inc." The May 27 contract also incorporated the terms of Smith's contract with Top Rank, including a provision that if Smith won a world championship, the promoter would arrange three additional bouts for him within the next year, paying him a purse of at least $150,000 for each title defense.
Pursuant to the May 27 contract, Lightning Bolt arranged for Smith to fight Costello, the WBC superlightweight champion, in Madison Square Garden on August 21, 1985. Lightning Bolt, however, lacked sufficient funds to pay for the arrangements, and Maichin advanced $400,000 of his own money for these expenses. In exchange, Maichin took a secured interest in the gate and ticket proceeds from the Garden. Smith soon became aware of Lightning Bolt's financial difficulties and sought reassurances as to the company's ability to pay him. Solerwitz told him not to worry.
On August 21, Smith defeated Costello and became the WBC superlightweight champion. Lightning Bolt promptly paid Smith $24,000 but stalled him with respect to the rest. Within the next few days, Smith pursued his request to be paid the remainder of the money called for by the May 27 contract, i.e., the remaining $76,000 of his purse plus his $200,000 bonus (the $50,000 in expenses apparently already having been paid). Lightning Bolt took the position that the $200,000 bonus was not due and gave him a check for $76,000. The check, however, was postdated, and by the time Smith could deposit it in his bank, Lightning Bolt had stopped payment on it.
In September, having failed to gain payment of $276,000 of the sums specified in the May 27 contract, Smith took the position that Lightning Bolt had repudiated the contract. He commenced the present action in November 1985 against Solerwitz, Lightning Bolt, S&L, and Maichin, and against several other entities that were later dismissed. The complaint alleged principally that Lightning Bolt was liable to Smith for breach of the May 27 contract and for breach of its fiduciary duty as Smith's exclusive agent for fight promotion; that Solerwitz, Lightning Bolt, S&L, and Maichin were liable for fraud; and that Solerwitz and S&L were liable for legal malpractice and breach of their fiduciary duties as Smith's attorneys. Smith sought $329,000 in compensatory damages and several million dollars in punitive damages.
Lightning Bolt counterclaimed, asserting that Smith had breached the May 27 contract following the championship bout by refusing to allow Lightning Bolt to arrange further matches for him. After commencement of the suit, Lightning Bolt paid Smith an additional $117,553.86 pursuant to an order of the district court, bringing the total paid him to $141,553.86.
Prior to trial, Maichin was granted a severance because of poor health. Smith's claims against the three remaining defendants and Lightning Bolt's counterclaim were tried and submitted to the jury.
The jury was asked to return a special verdict consisting of 20 questions, some with subparts. With respect to Smith's contract claim against Lightning Bolt, the jury found that the May 27 contract required that Smith be paid the $200,000 bonus at the time Smith won the championship (Question 1), that the amount due Smith under that contract after he won the championship was $350,000 (Question 3), that Lightning Bolt, not Smith, was the first to repudiate the contract (Questions 2(a), 4, and 5), that Lightning Bolt's failure to pay the postdated $76,000 check was a repudiation (Question 2(b)), and that by reason of Lightning Bolt's repudiation, Smith lost the sum of $608,446.14 (Question 6).
With respect to Smith's claims against Solerwitz and S&L, the jury found that Solerwitz had acted as Smith's attorney under their April 1985 agreement, but that he had done so negligently and in violation of the fiduciary duty he owed Smith (Questions 7, 8, and 10), and that these derelictions were attributable to S&L (Questions 9 and 11). It found that these acts proximately caused injury to Smith in the amount of $608,446.14 (Questions 12 and 13).
With respect to Smith's claims of fraud against Lightning Bolt, Solerwitz, and S&L, the jury found that prior to May 27, 1985, Solerwitz and/or Maichin had knowingly misrepresented Lightning Bolt's financial condition to Smith in order to induce him to enter into the May 27 contract (Questions 14(a) and (0)), and that Smith relied on these misrepresentations and suffered a loss of earnings as a result (Questions 14(c) and (d)). It found that the misrepresentations of Solerwitz were attributable to S&L (Question 14(e)).
The jury found that Solerwitz had "abuse[d] his position of trust as Smith's attorney by repeated fraudulent representations and in reckless and callous disregard of Smith's rights," that his conduct was attributable to S&L (Questions 15 and 17), and that "further acts of deception" by Solerwitz and/or Maichin "demonstrat[ed] a knowing, intentional, reckless and callous disregard of Smith's right to Lightning Bolt's loyalty and good faith dealing" (Question 18). It assessed punitive damages against Solerwitz in the amount of $1,250,000 and against Lightning Bolt in the amount of $750,000 (Questions 16 and 19).
Having found for Smith in every respect, the jury, in accordance with the court's instructions, found it unnecessary to address Lightning Bolt's counterclaim.
B. The Postverdict Rulings
All defendants moved for judgment notwithstanding the verdict ("n.o.v.") or in the alternative for a new trial. In response, Smith conceded that the evidence did not support a finding of $608,446.14 as compensatory damages. The trial court found that $158,446.14 reflected the total compensation to which Smith had been entitled ($100,000 $200,000) less the total amount he had been paid prior to trial ($141,553.86). As to punitive damages, the court found that the jury's total award of $2,000,000 was far in excess of the amount required to deter defendants and others from similarly violating positions of trust and was so high as to shock the judicial conscience.
Accordingly, the court stated that it would grant defendants' motions unless Smith agreed to accept $158,446.14 as compensatory damages from Lightning Bolt, Solerwitz, and S&L, and $500,000 as punitive damages from Lightning Bolt and Solerwitz jointly. Smith so agreed, and defendants' motions for judgment n.o.v. or a new trial were denied.
Finding that trial of Smith's claims against Maichin might be postponed for many months or even years because of Maichin's health, that adjudication of Smith's claims had already been delayed, and that further delay might seriously impair Smith's ability to satisfy the judgment against Lightning Bolt, Solerwitz, and S&L, the court concluded that there was no just reason to delay the entry ...