PUBLISHED OPINION
Case No.: 93-0140
†Petition for Review Filed
Complete Title
of Case:MANAGEMENT COMPUTER SERVICES, INC.,
A WISCONSIN CORPORATION,
Plaintiff-Appellant-Cross Respondent,†
v.
HAWKINS, ASH, BAPTIE & CO.,
A WISCONSIN PARTNERSHIP,
HAWKINS, ASH, BAPTIE, INC.,
A WISCONSIN CORPORATION,
DAVID D. BAPTIE, JAMES O. ASH,
R. ROY CAMPBELL, ROBERT J. DALEY,
WALTER L. LEIFELD, LARRY E. VANGEN
AND JACK E. WHITE,
Defendants-Counter
Claimants-Respondents-Cross Appellants,
MANAGEMENT COMPUTER SERVICES, INC.,
Counter Defendant-Appellant.
Oral Argument: April
21, 1994
COURT COURT OF APPEALS OF WISCONSIN
Opinion Released: August
31, 1995
Opinion Filed: August 31, 1995
Source of APPEAL Appeal and Cross-Appeal from a
judgment and orders
Full Name JUDGE COURT: Circuit
Lower Court. COUNTY: La
Crosse
(If "Special" JUDGE: Robert
W. Radcliffe
so indicate)
JUDGES: Gartzke,
P.J., Dykman and Sundby, JJ.
Concurred: Sundby, J.
Dissented: Dykman, J.
Appellant
ATTORNEYSFor the plaintiff-appellant-cross respondent the cause was
submitted on the brief of Thomas D. Bell and Matthew A. Biegert
of Doar, Drill & Skow, S.C. of New Richmond. Oral argument by Thomas D. Bell.
Respondent
ATTORNEYSFor the defendants-counter claimants-respondents-cross
appellants the cause was submitted on the brief of Daniel W. Hildebrand
and Steven J. Kirschner of Ross & Stevens, S.C. of
Madison. Oral argument by Daniel W.
Hildebrand.
COURT OF APPEALS DECISION DATED AND RELEASED August 31, 1995 |
NOTICE |
A party may file with the
Supreme Court a petition to review an adverse decision by the Court of
Appeals. See § 808.10 and
Rule 809.62, Stats. |
This opinion is subject to
further editing. If published, the
official version will appear in the bound volume of the Official Reports. |
No.
93-0140
STATE
OF WISCONSIN IN COURT OF
APPEALS
MANAGEMENT COMPUTER SERVICES, INC.,
A WISCONSIN CORPORATION,
Plaintiff-Appellant-Cross
Respondent,
v.
HAWKINS, ASH, BAPTIE & CO.,
A WISCONSIN PARTNERSHIP,
HAWKINS, ASH, BAPTIE, INC.,
A WISCONSIN CORPORATION,
DAVID D. BAPTIE, JAMES O. ASH,
R. ROY CAMPBELL, ROBERT J. DALEY,
WALTER L. LEIFELD, LARRY E. VANGEN
AND JACK E. WHITE,
Defendants-Counter
Claimants-Respondents-
Cross Appellants,
MANAGEMENT COMPUTER SERVICES, INC.,
Counter Defendant-Appellant.
APPEAL and CROSS-APPEAL
from a judgment and orders of the circuit court for La Crosse County: ROBERT W. RADCLIFFE, Judge. Affirmed in part; reversed in part and
cause remanded.
Before Gartzke, P.J.,
Dykman and Sundby, JJ.
GARTZKE, P.J. The appellant, Management Computer
Services, Inc. (MCS) designs and programs computer software. One part of its business is licensing
computers, software, training, supplies and support designed to meet the
accounting needs of public housing authorities (PHA's). Respondent Hawkins, Ash, Baptie & Co.
(HABCO) is a Wisconsin partnership and a public accounting firm. It provides accounting services to
PHA's. Respondent Hawkins, Ash, Baptie,
Inc. (HABINC) is a corporation owned by HABCO.
It licenses turnkey computer systems[1]
to PHA's. The individually named
defendants are HABCO partners.[2]
MCS's complaint alleged
that HABCO conspired to copy, use and sell MCS products, including its computer
software, without authority from MCS in breach of its agreement with MCS,
contrary to Wisconsin criminal and civil statutes. HABCO counterclaimed that MCS's breach of the contract excused
HABCO's obligation, if any, to purchase equipment from MCS and to make certain
payments to MCS.
The case was tried in
1991. The jury found: (1) HABCO had materially breached its 1979
contract with MCS by failing to purchase computer hardware from MCS, failing to
pay twenty-five percent of the program value to MCS for use of the contract
software, and by failing to compensate MCS for the use of proprietary software,
and that MCS's damages from those breaches amounted to $740,000, $530,000 and
$250,750, respectively; (2) MCS breached the contract by failing to pay HABCO
ten percent of the program value for contract software provided and installed
for HABCO's clients, and that HABCO's damages in this regard were $5,140; (3)
HABCO intentionally converted MCS's software contained on backup tapes without
MCS's consent, that HABCO's actions seriously interfered with MCS's right to
possess and use that property, and that MCS's conversion damages in this regard
were $65,000; (4) HABCO was unjustly enriched by copying MCS's software, and
the reasonable value of the benefit HABCO retained is $1 million; and (5)
HABCO's copying MCS's backup tapes was outrageous. The jury assessed $1,750,000 in punitive damages against HABCO.
The trial court changed
answers in the verdict. It eliminated
the contract and unjust enrichment damages, reduced MCS's conversion damages to
$62,000, and ordered a new trial under § 805.15(6), Stats., on punitive damages (both as to
whether defendant's conduct was outrageous and as to the amount of punitive
damages), unless MCS accepted a reduced award of $50,000. MCS rejected the $50,000 award. At the second trial, MCS called only one
witness, asked five introductory questions and rested. The court dismissed MCS's punitive damages
claim. That appeal brings before us all
prior orders and rulings adverse to MCS, none of which have been previously
appealed. Rule 809.10(4), Stats.
The respondents have
cross appealed. They assert that the
trial court should have dismissed MCS's conversion claim for failure to prove
its damages and should have granted frivolous costs and sanctions against MCS
for its default of proof at the retrial of the punitive damage issue.
The issues are: (1) whether the trial court correctly set
aside the breach-of-contract verdict against HABCO; (2) whether the evidence
supports the finding that the respondents were unjustly enriched; (3) whether
the evidence supports the award for conversion; (4) whether (a) the punitive
damages award is excessive, (b) the trial court erred by ordering a retrial
after MCS had declined a remittitur and (c) MCS waived its right to complain
about the scope of the second punitive damages trial; (5) whether the court
erred in tolling interest on the verdict from June 1992 until October 1992; and
(6) whether the court erred in dismissing MCS's Wisconsin Organized Crime
Control Act claim.
1. BREACH OF CONTRACT
MCS alleged in its
complaint that by the terms of the agreement between it and HABCO, the latter
agreed to pay MCS twenty-five percent of the value of MCS software on each
computer system HABCO installed and operated, and HABCO agreed to purchase
computers through MCS for the MCS software it used on non-MCS computers. HABCO failed to pay MCS twenty-five percent
of the value of the software, and HABCO failed to purchase computers through MCS
for each installation on which it used MCS contract software.
Probably because the
agreement between the parties contains no provisions directly providing as MCS
contends, MCS claimed the provisions of the contract were ambiguous and it
sought leave before the trial to submit parol evidence on the intention of the
parties regarding their contractual obligations. The trial court held that the agreement was ambiguous, and at the
trial it admitted parol evidence on the parties' intent. The jury found that HABCO had materially
breached the contract with MCS by "failing to purchase computer hardware
from MCS," "failing to pay 25 percent of the program value to MCS for
use of the contract software," and "failing to compensate MCS for the
use of the proprietary software," and MCS sustained damages of $740,000,
$530,000, and $250,750, for those respective breaches.
After the verdict HABCO
moved the court to reverse its pretrial ruling. The court did so. It held
that the contract was too indefinite to be enforced in the respects that MCS
claimed, and vacated the jury's answers to the breach of contract questions,
including, of course, the damage questions.
We affirm the ruling.
When a trial court is
asked to change an answer to the verdict, the evidence is viewed in the light
most favorable to the verdict and the answer must be affirmed if it is
supported by any credible evidence. Nelson
v. Travelers Ins. Co., 80 Wis.2d 272, 282-83, 259 N.W.2d 48, 52-53
(1977). MCS contends that the evidence
so viewed supports the verdict on the breach of contract questions.
But the rule MCS relies
on applies to issues the jury must decide.
Whether an agreement is ambiguous is a question of law for the
court. Energy Complexes, Inc. v.
Eau Claire County, 152 Wis.2d 453, 467, 449 N.W.2d 35, 40 (1989). Whether the contract is sufficiently
definite to be enforced as one party contends it should be enforced is also a
question of law. The court's pretrial
decision that the contract was ambiguous did not prevent it from later deciding
whether, as a matter of law, the contract is sufficiently definite to be
enforced, insofar as it covers the party's contractual obligations that the
jury found HABCO had violated.
To be enforceable the
contract must express the essential commitment and obligations of each party
with reasonable certainty. Witt
v. Realists, Inc., 18 Wis.2d 282, 297, 118 N.W.2d 85, 93 (1962). The minds of the parties must meet on the
essential terms. Todorovich v.
Kinnickinnic Mut. Loan & Bldg. Ass'n, 238 Wis. 39, 42, 298 N.W.
226, 227 (1941).
When we review a trial
court's ruling on whether a contract is sufficiently definite, we examine the
contract to determine what the parties contracted to do, not to make or reform
it. What the parties contracted to do
is not necessarily what they intended to agree on but what they did agree on,
as evidenced by the language they chose.
Wisconsin Marine & Fire Ins. Co. Bank v. Wilkin, 95
Wis. 111, 115, 69 N.W. 354, 354 (1897) (quoted with approval, Marion v.
Orson's Camera Ctrs., Inc., 29 Wis.2d 339, 345, 138 N.W.2d 733, 736-37
(1966)).
The first question asked
of the jury, whether HABCO violated the contract by failing to purchase
computer hardware from MCS, is quickly answered. The agreement provides that HABCO is to purchase a
single-computer system, and it is undisputed that HABCO did. Nothing in the contract required HABCO to
purchase computers from MCS other than the single system it in fact
purchased. And nothing in the contract
provides that HABCO is to purchase additional computer systems from MCS. The court properly vacated the jury's answer
to the first question and the $740,000 award.
The second question,
whether HABCO breached the agreement by failing to pay twenty-five percent of
the program value to MCS for the use of contract software, is answered by
reference to the following provision in the contract:
HABCO
shall pay MCS 25 percent of the program value as identified in this Agreement
for the use of the jointly owned software on each additional computer system
purchased through MCS and installed or operated by HABCO.
(Emphasis
added.) It is undisputed that HABCO did
not purchase additional systems from MCS.
The trial court properly vacated the jury's finding that HABCO had
breached the contract as to the twenty-five percent provision and the $530,000
award based on that breach.
The trial court properly
vacated the jury's affirmative answer to the question whether HABCO had
breached the agreement by "failing to compensate MCS for use of the
proprietary software." This
question must have been put to the jury in accordance with HABCO's theory of
the case: that when HABCO purchased
computer equipment from a vendor other than MCS, the contract required HABCO to
pay twenty-five percent of the program value for the use of MCS software with
that equipment. MCS's president, Robert
A. Sierp, testified that this was his understanding of the agreement. Since it is undisputed that HABCO used MCS
software with computers it bought from vendors other than MCS, it is arguable
that HABCO breached the contract when it used MCS software on non-MCS computers. For that reason, the jury could have been
asked whether HABCO's use of MCS software on non-MCS computers breached the
contract between the parties, and MCS's damage, given that breach. But the jury was not asked those questions. The jury was asked whether HABCO breached
the agreement by "failing to compensate MCS for their use of the
proprietary software." That
question referred the jury to the agreement, and it makes no provision for
compensation to MCS for HABCO's use of proprietary software on non-MCS
equipment. The jury could answer the
question affirmatively only on the basis of parol evidence. When the court subsequently ruled that the
contract was insufficiently definite to be enforced, as MCS would have it
enforced, MCS was left with the quoted question and award based on a theory of
the case which no longer applied.[3]
We conclude that we must
affirm the trial court's ruling vacating the verdict with respect to MCS's
claim that HABCO breached the contract.
2. DAMAGES FOR CONVERSION
In the early 1980's, to
ensure that it had a copy of its software if a fire or other damage occurred at
its place of business, MCS stored copies of its computer program backup tapes
in HABCO's vault. Sierp testified there
was no written agreement regarding storage.
Nor was there a written agreement that HABCO had to keep the tapes
secure or could not "look" at them.
He could not recall whether MCS paid HABCO for storage.
In 1981 or 1982, HABCO's
data-processing manager and a HABCO partner loaded MCS's backup tapes on
HABCO's computer and copied MCS's payroll, accounts receivable and accounts
payable software, all without the permission or knowledge of MCS. HABCO concedes that it converted the software
and used some of it. In 1990, HABCO
replaced the payroll and accounts payable software with new software it bought
from an organization other than MCS.
An owner of converted
property may recover its value at the time of the wrongful taking. Production Credit Assoc. v. Nowatzski,
90 Wis.2d 344, 354, 280 N.W.2d 118, 123 (1979). Interest to the date of trial may also be recovered. Id. The jury was instructed only that if HABCO "wrongfully took
or converted software from MCS's backup tapes, then you are to award MCS as
damages, the value of its property at the time of the wrongful
taking." The jury awarded $65,000
to MCS to compensate it for the value of the software copied from the backup
tapes. On motions after verdict, the
trial court reduced the award to $62,000.
It held that the only evidence on the conversion damages was the amount
HABCO paid in 1989 and 1990 to replace the copied software, $62,000. MCS argues that the $65,000 award must be
reinstated, and we agree.
Damages need only be
proved to a reasonable certainty. Production
Credit Assoc., 90 Wis.2d at 356, 280 N.W.2d at 124. Unliquidated tort damages need not be fixed
with mathematical precision. Cutler
Cranberry Co. v. Oakdale Elec. Coop., 78 Wis.2d 222, 233, 254 N.W.2d
234, 240 (1977). A fair and reasonable
estimate is all that the law requires. Id.
at 234, 254 N.W.2d at 240. Conversion,
of course, is a tort.
MCS established its
damages for conversion with sufficient definiteness. The jury could have taken into account that between the
conversion in the early 1980's to the date of trial in 1991, the value of the
use of $62,000 amounts to some $3,000.[4] We vacate that part of the order which
reduces the award and direct the trial court to reinstate it and to award
judgment to MCS for that amount.[5]
3.
UNJUST ENRICHMENT
That HABCO's tortious
conduct unjustly enriched it is undisputed.
The trial court made no finding or conclusion to the contrary. The court ruled, however, that the separate
awards for conversion and unjust enrichment duplicated each other because, it
said, the damages for unjust enrichment, in this case, were the same as the
damages for the conversion. It set
aside the $1 million unjust enrichment award for the additional reason that no
credible evidence supported it. We need
not discuss the duplication issue.[6]
Tort damages and
restitution are different in purpose and measurement. The differences are critical to this case. Damages for conversion are designed to
compensate the plaintiff "for the loss sustained because his property was
taken." Traeger v. Sperberg,
256 Wis. 330, 333, 41 N.W.2d 214, 216 (1950).
Restitution, the recovery for an unjust enrichment, is granted for
another reason, that it would be inequitable to allow a defendant to retain a
benefit without paying for it. Ramsey
v. Ellis, 168 Wis.2d 779, 785, 484 N.W.2d 331, 333 (1992). Unjust enrichment is not dependent on loss
to the plaintiff.
The differences between
tort damages and restitution are the reason why a tort victim may seek
restitution from the tortfeasor. The
tort victim may bring an action for restitution because the victim has suffered
little loss from the tort. Lord Goff & Gareth Jones, The Law of Restitution 714 (4th Ed.
1993). See also George E. Palmer, The Law of Restitution § 2.3 at 60
(1978):
In many instances the most important difference
between quasi contract and the tort remedy lies in the measure of
recovery. Sometimes there will be no
such difference, but often there will be, since the damage action is designed
to provide money compensation for harm to the victim of the tort, whereas quasi
contract is aimed at awarding him the money value of the benefit to the
tortfeasor. When this leads to
differences in the amount of recovery, the advantage will sometimes be in the
tort action but frequently it will be in the quasi contract action. (Footnote omitted.)
MCS offered two exhibits
to establish its loss from the conversion, and that evidence was admitted. MCS argues in this appeal that the evidence
it provided to establish its conversion damages is a basis for the jury's award
of $1 million for unjust enrichment.[7] We disagree.
The two exhibits MCS
offered to establish its conversion damages are accounting studies. The studies are designed, on the basis of
HABCO's own records, to show that HABCO used MCS's software to process over
200,000 items for itself and its clients, that MCS could have provided that
service to HABCO, and that the charges MCS would have made to HABCO for that
service amount to $191,880.
There is no doubt but
that MCS offered the two exhibits to establish its damages for the
conversion. When arguing admissibility
of the exhibits, trial counsel for MCS noted several times that the exhibits
were offered in support of its conversion claim.
When moving for admission
of the two exhibits, trial counsel for MCS correctly argued that two methods
exist to calculate damages for conversion:
(1) the value of the property at the time it is taken plus interest, and
(2) the value of the property plus its rental value. Interest and rental value are alternative measures of damages to
be added to the value of converted property.
Production Credit Assoc., 90 Wis.2d at 356, 280 N.W.2d at
124.
Although the trial court
admitted both exhibits, its jury instructions made them irrelevant for the
conversion claim. The trial court
instructed the jury: "If the
defendant wrongfully took or converted software from MCS's backup tapes, then
you are to award MCS damages, the value of its property at the time of the
wrongful taking." No mention is
made of rental value. Because the jury
awarded MCS only $65,000 damages for the conversion, the only reasonable
inference is that the jury relied on the instruction quoted above and did not
rely on the two exhibits and the $191,880 they reflect.
On appeal MCS proposes
to use the two exhibits to prove unjust enrichment by equating the
"rent" it would have received had HABCO paid MCS for the use of the
software or had MCS used the software to serve HABCO and its clients and
charged for that service. The two
exhibits do not support those contentions.
The exhibits do not show
the cost HABCO would have incurred had it paid MCS for the use of the
software. HABCO would have used its own
computers and its own personnel, all at its own cost, had it "rented"
the software. Moreover, the exhibits
show only the charges MCS would have made and the "direct expenses"
MCS would have incurred had it used the tapes with its computers and personnel to
serve HABCO. Had MCS charged HABCO for
those services, MCS would have had a profit, but lost profits to a plaintiff do
not prove unjust enrichment to a defendant.
Graf v. Neith Co-op. Dairy Prods. Assoc., 216 Wis. 519,
523, 257 N.W. 618, 620 (1934).
MCS relies upon a third
exhibit, "HABCO/PHA Initial Contract Sales Data"[8]
to establish $357,300 of unjust enrichment to HABCO. MCS arrives at that number by adding two columns in the document
identified as "AP" and "GPR." The first column, "AP" refers to "accounts
payable" and the second column "GPR" refers to "general
payroll," these being parts of the software HABCO converted. The total for the first column is $216,000
and the total for the second is $141,300.[9]
MCS contends that the
three exhibits "are sufficient to support the jury's verdict of $1 million
for unjust enrichment." We
disagree.
First, as we have said,
the two earlier exhibits showing a total value of $191,880 conversion damages
do not establish unjust enrichment to MCS.
Second, even adding that amount to the $357,300 total of the third exhibit
results in a far cry from the $1 million the jury awarded for unjust
enrichment. Third, the gross sales of
HABCO's accounts payable and payroll software to housing authorities do not
measure the benefit to HABCO, since gross revenues do not account for HABCO's
sales expenses and updating costs HABCO required to keep software current. MCS's president admitted that software
cannot be used without such continuous updating, and the record so
reflects. HABCO also asserts that only
small portions of MCS's accounts payable and payroll software found their way
into HABCO's software. MCS's reply
brief does not rebut those contentions.
A proposition asserted by a respondent on appeal and not disputed by the
appellant's reply is taken as admitted.
Schlieper v. DNR, 188 Wis.2d 318, 322, 525 N.W.2d 99, 101
(Ct. App. 1994).
MCS cites Topzant
v. Koshe, 242 Wis. 585, 588-89, 9 N.W.2d 136, 137-38 (1943), as
establishing both a tort damages rule and an unjust enrichment rule for our
application in this case. The Topzant
court examined the traditional measure of damage for conversion. That measure includes an option available to
the plaintiff when a tortfeasor has subsequently sold the converted chattel for
more than its value on the date of taking.
In that circumstance, the plaintiff may elect to recover as tort damages
the sale price with interest from the date of sale to the date of trial. Id. at 588-89, 9 N.W.2d at
138. The Topzant court
cited Ingram v. Rankin, 47 Wis. 406, 420-21, 2 N.W. 755, 766
(1879), for that option. The Ingram
court commented that the rule
will
prevent the defendant from making profit out of his own wrong, will give the
plaintiff the benefit of any advance in the price of the chattels when [the]
defendant holds possession of the same at the time of the trial, and on the
whole will be much more equitable ....
Ingram, 47
Wis. at 421, 2 N.W. at 766.
The Topzant
and Ingram decisions are not in point. As we showed at the beginning of this section of our opinion,
there is a significant difference between conversion damages (designed to
compensate for a loss) and an award for unjust enrichment (designed to prevent
the wrongdoer from unjustly retaining a benefit). An attempt to apply the conversion rule to establish unjust
enrichment of the wrongdoer fails to take into account the expenses the
wrongdoer has had. The Topzant
rule prevents the wrongdoer from retaining the gross purchase price it received
on sale of the converted goods, since that is a price to which the property
owner would have been entitled had it made the sale, and in that sense the rule
measures a loss to the owner. But loss
to the owner does not equate with unjust enrichment of the wrongdoer and is not
an alternative method of establishing unjust enrichment to the wrongdoer.
We therefore conclude
that the trial court correctly held that the credible evidence does not
establish that HABCO enjoyed, and therefore must disgorge, unjust enrichment to
it in the amount of $1 million.
4. PUNITIVE DAMAGES
The jury found that
HABCO's conduct was outrageous and awarded $1,750,000 for punitive
damages. When reducing the award to
$50,000, the trial court said that HABCO's conduct for which punitive damages
could be awarded was not so outrageous or malicious as to merit the award, the
award was not reasonably related to MCS's actual damages and the award was so
disproportionate to HABCO's conduct that it amounted to a denial of due process
of law. The court did not discuss the
evidence. The court added only that had
the HABCO defendants been charged criminally with theft of the MCS software,
the maximum penalty imposable for the theft would have been a $10,000
fine. The court's order for remittitur
gave MCS the option of a new trial under § 805.15(6), Stats.,[10]
or to accept a $50,000 award. MCS
elected a new trial.
We reject the trial
court's conclusion that the punitive damage award violates due process. Due process is provided if the standards
imposed by a state's trial and appellate courts "impose[ ]a sufficiently
definite and meaningful constraint" on a jury's discretion in awarding
punitive damages. Pacific Mut.
Life Ins. Co. v. Haslip, 499 U.S. 1, 22 (1991). Those standards must ensure that a
particular award is no greater than reasonably necessary to punish and
deter. Id.
Wisconsin's statutes and
case law impose definite and meaningful constraints on a jury's discretion to
award punitive damages. The case law
establishes the factors to be considered in determining the proper amount to be
awarded as punitive damages. They
include "the grievousness of the defendant's acts; the degree of malicious
intention; the potential damage which might have been done by such acts as well
as the actual damage; and the defendant's ability to pay." Fahrenberg v. Tengel, 96
Wis.2d 211, 234, 291 N.W.2d 516, 527 (1980).
The jury was instructed regarding those factors, the purpose of punitive
damages, and the jury's right to decline to award punitive damages.
Due process requires
that the size of a punitive damage award be judicially reviewable to protect a
defendant from the danger of arbitrary deprivation of property. Honda Motor Co. v. Oberg, 512
U.S. ___, ___, 129 L.Ed.2d 336, 349-50 (1995).
Wisconsin provides that review.
Section 805.15(6), Stats.,
establishes a procedure by which a trial court provides relief from an
excessive damage award by determining the amount which as a matter of law is
reasonable and ordering a new trial on the issue of damages unless the party to
whom the option of remitting the excess amount is offered elects to accept
judgment in the changed amount. Case
law establishes the scope of appellate review of such an order. Powers v. Allstate Ins. Co.,
10 Wis.2d 78, 102 N.W.2d 393 (1960); Carlson & Erickson Builders v.
Lampert Yards, 190 Wis.2d 651, 670-71, 529 N.W.2d 905, 912 (1995).
The Powers court recognized
that the circuit court which sees and hears the witnesses has an advantage over
an appellate court which can only review the record. Thus a reviewing court will reverse a circuit court's remittitur
order only when it finds that the circuit court erroneously exercised its
discretion. A reviewing court will not
reverse a circuit court's discretionary determination if the record shows that
discretion was in fact exercised and there exists a reasonable basis for the
circuit court's determination after resolving any direct conflicts in the
testimony in favor of the prevailing party, even if the reviewing court would
have reached a different conclusion than the circuit court.
If, however, a circuit court fails to analyze
the evidence supporting its conclusion that the damage award is excessive, or
fails to state the reasoning behind its decision, the reviewing court should
place no weight upon the trial court's findings. In such a situation, the reviewing court must then review the
entire record and determine, as a matter of first impression, whether the jury
award is excessive. In conducting its
analysis, the reviewing court must view the evidence in the light most
favorable to the party prevailing with the jury.
Carlson
& Erickson Builders, 190 Wis.2d 651, 670-71, 529 N.W.2d 905,
912 (1995) (footnotes omitted).
Our review of the trial
court's order reducing the punitive damages award has two parts: first, whether
the court properly exercised its discretion when it set aside the $1,750,000
punitive damage award as excessive; second, if it did, whether the court
properly gave MCS the option of accepting a $50,000 award or a new trial.
Because the trial
court's reasons for setting aside the $1,750,000 award are sketchy and largely
conclusory, we give little weight to that decision. We review the record de novo to determine whether, as a matter of
first impression, viewing the evidence in the light most favorable to MCS, the
award is excessive. Carlson &
Erickson Builders, 190 Wis.2d at 670-71, 529 N.W.2d at 912. We conclude that it is excessive.
Punitive damages are
awarded "to punish the wrongdoer and to deter him and others from future
similar wrongdoing." Fahrenberg,
96 Wis.2d at 234, 291 N.W.2d at 526-27. If the award is more than enough to
meet those purposes, it is excessive.
To determine whether it is excessive, we examine the evidence presented
to the jury in the light most favorable to its decision. Carlson & Erickson Builders,
190 Wis.2d at 670-71, 529 N.W.2d at 912.
HABCO's wrongdoing--its
copying and use of the MCS software--was outrageous and malicious to a high
degree. It was done secretly, without
the knowledge or consent of MCS. It was
done solely for the financial benefit of HABCO. It was done with criminal intent, and MCS rightly refers to it as
theft. It was done by HABCO personnel
possessing significant responsibilities.
HABCO's manager of data processing and a partner of HABCO copied the
backup tapes. They worked
together. They searched the backup
tapes for specific program items HABCO lacked, and they copied those items to
their computer, copied from the computer to another tape, printed off the source
code and removed it from their computer.[11] They changed the billing output generated by
the stolen accounts receivable software to disguise what they had done.[12] The partner kept the newly created tapes in
his office. The manager kept the source
code print outs in his office. The
theft enabled HABCO to use MCS's software for years.
However, the high degree
of outrageousness and maliciousness present here are not the only factors we
must consider. The compensatory award
and the potential criminal penalties are additional factors for our consideration.
In Wozinak v. Local 1111 of UE,
57 Wis.2d 725, 731, 205 N.W.2d 369 (1973), Meke v. Nicol, 56
Wis.2d 654, 664, 203 N.W.2d 129 (1973), and Lisowski v. Chenenoff,
37 Wis.2d 610, 634, 155 N.W.2d 619 (1968), this court recognized that
compensatory damages and criminal fine[s] are relevant to the assessment of
punitive damages. This court has never
held, however, that there is any mathematical formula for calculating punitive
damages on the basis of the compensatory damages or the criminal fine. Plaintiff argues that the award of $125,000
is about six times the maximum fine of $20,000, if defendant were found guilty
of just two counts of receiving stolen property. In Lisowski v. Chenenoff, 37 Wis.2d 610, 155 N.W.2d
619 (1964), the ratio of punitive damages to penalty was 10 to 1, and in Dalton
v. Meister, 52 Wis.2d 173, 188 N.W.2d 494 (1971), it was 75 to 1. In Meke v. Nicol, 56 Wis.2d
654, 664, 203 N.W.2d 129 (1973), the punitive damages were 13 times the maximum
fine for a similar offense. In Malco
v. Midwest Aluminum Sales Co., 14 Wis.2d 57, 66, 109 N.W.2d 516 (1961),
the court stated that "[t]here is no arbitrary rule that punitive damages
cannot equal 15 times the compensatory damages." In Dalton v. Meister, 52 Wis.2d 173, 181, 188
N.W.2d 494 (1971), the court noted that "there is no arithmetic proportion
to which punitive damages should relate to the wealth of the defendant or to
the damage done the plaintiff ...."
Fahrenberg, 96
Wis.2d at 233, 291 N.W.2d at 526.[13]
The high ratios of the
punitive damage award to the compensatory award for tort damages and to the
potential criminal fine lead us to conclude that the initial award of
$1,750,000 is unnecessary to serve the purposes of deterrence or punishment. The punitive award is almost twenty-seven
times the compensatory award of $65,000.
The punitive award must bear "a reasonable relationship to the
award of compensatory damages." Tucker
v. Marcus, 142 Wis.2d 425, 447, 418 N.W.2d 818, 826 (1988). Even with "due regard for the
discretion of the jury in assessing punitive damages," id.
at 447-48, 418 N.W.2d at 826, the award
does not bear a reasonable relationship to MCS's compensatory damages. The potential criminal penalty for
willfully, knowingly and without authorization copying computer programs where
the damages are greater than $2,500 is a fine not exceeding $10,000 or
imprisonment not exceeding five years, or both. Sections 943.70(2)(a) and (3)(b)3, and 939.50(3)(d), Stats.
The punitive damages award is 175 times the maximum fine.
We also conclude that
the reduced punitive award of $50,000 is insufficient to punish HABCO and to
deter others in the future from similar wrongdoing. The compensatory award is in a sense a starting place, since punitive
damages equal to compensatory damages are reasonable. Dalton v. Meister, 52 Wis.2d 173, 181, 188 N.W.2d
494, 498 (1971). The $50,000 award by
the trial court does not even match the compensatory award for conversion,
$65,000. The high degree of outrageous
conduct and maliciousness exhibited by HABCO is such that a punitive award
merely equal to the compensatory award fails to serve the purposes of
punishment and deterrence.
We reach that conclusion
because the record shows how easy it is to steal computer programs, once
possession of the physical software is obtained. One contemplating such a theft and watching the development of
the law might well consider that the ease of theft, the low risk of detection
and the potential profit are worth the cost if punitive damages merely
approximate the amount of compensatory damages. We should dissuade software thieves from reaching that
conclusion. In this age of computers
and the many uses to which they are put in almost every professional,
commercial, industrial and governmental context, deterrence of others similarly
situated is even more important than punishing the wrongdoer. We conclude that a punitive award only
approximating MCS's compensatory damages is far too little.
To accomplish the dual
purposes of punishment and deterrence, we conclude that, as a matter of law,
reasonable punitive damages in this case are $650,000.[14] This amount is approximately ten times the
amount of the compensatory damages award, a far more reasonable relationship in
this case, and sixty-five times the maximum fine for computer theft. It better satisfies those purposes in the
case before us than does the $50,000 award the trial court directed in its
remittitur order. Accordingly, MCS
should be given the option of accepting judgment for $650,000 in punitive
damages, or having a new trial limited to the issue of the amount of punitive
damages.
We direct the trial
court to modify the judgment by decreasing the amount of the punitive damages
award to MCS from $1,750,000 to $650,000, exclusive of costs, unless within
twenty-one days from the date of remittitur, MCS files with the clerk of the
circuit court a notice in writing that the plaintiff elects to have a new trial
limited to the issue of the amount of punitive damages. If such notice is timely filed, the modified
judgment for $650,000 punitive damages shall stand reversed and a new trial had
on punitive damages.[15]
5. ISSUES ON RETRIAL
The
trial court stated that the retrial if MCS elected it, included the issue
whether HABCO's conduct was outrageous.
The court erred. No reason
exists to retry the issue whether HABCO's conduct was outrageous. Liability for punitive damages has been
fixed. To retry that issue would
deprive MCS of a liability finding. The
amount HABCO must pay because of that liability is the only remaining
issue. Evidence relevant to the degree
of that outrageousness may be presented by both MCS and HABCO, but the jury
should be instructed that as a matter of law HABCO's conduct was
outrageous. The only question for the
jury is the amount of punitive damages, and it should consider the degree of
outrageousness in fixing that amount.
The trial court
apparently interpreted Badger Bearings, Inc. v. Drives & Bearings,
Inc., 111 Wis.2d 659, 331 N.W.2d 847 (Ct. App. 1983), as holding that a
trial court has unlimited discretion in fixing the scope of a new trial. That was not our holding.
In Badger Bearings,
we said that the trial court might grant a partial new trial when the error is
confined to an issue which is "entirely separable" from the
others. We concluded that
"compensatory and punitive damages are separable and that justice would
not be served by mandating a new trial on all damages questions as the
invariable alternative to acceptance of a changed amount of punitive
damages." Id. at
673-74, 331 N.W.2d at 855.
Consequently, because
the liability of the respondents for punitive damages will not be an issue, and
that issue is separable from the amount of damages, the only issue at the
second trial will be the amount of the punitive damages, and evidence relevant
to outrageousness will be admissible only on the degree of that outrageousness.
6. INTEREST ON VERDICT
After MCS rejected the
$50,000 punitive award, the court scheduled the second trial for June 23,
1992. On June 3, 1992, MCS moved to a
continuance, on grounds that counsel (who had been substituted for trial counsel)
was not prepared to try the case on that date.
HABCO consented to a continuance, provided that interest on the verdict
was tolled through the date of the adjourned trial. Counsel for MCS had no objection to that and obtained the oral
consent of MCS's president to the continuance.
The court scheduled the trial for October 27, 1992, and tolled interest
until that date. MCS claims error.
MCS asserts that it has
a statutory right to the interest the trial court tolled. Section 814.04(4), Stats., provides that if a judgment is for the recovery of
money, interest at the rate of twelve percent per year from the time of the
verdict until judgment is entered shall be computed by the clerk and added to
the costs. As MCS points out, the
statute has no pertinent exceptions.
However, because counsel
for MCS and an officer of MCS consented to a continuance and to tolling
interest on the verdict through the date of the adjourned trial, and the trial
court relied on that consent, MCS is judicially estopped from claiming that it
did not consent. See Coconate v.
Schwarz, 165 Wis.2d 226, 231, 477 N.W.2d 74, 75 (Ct. App. 1991)
(judicial estoppel precludes a party from asserting a position in a legal
proceeding that is inconsistent with a position previously taken). Having consented to the adjournment and to
the tolling of interest, it has waived the right to interest on the judgment.
7. WISCONSIN ORGANIZED CRIME
CONTROL ACT (WOCCA) CLAIM
MCS sought damages under
WOCCA, § 946.80-88, Stats. Section 946.87(4), Stats., provides that a person who is injured by reason of
any violation of § 946.83 or § 946.85 has a cause of action for twice
the actual damages sustained, attorney fees and costs reasonably incurred and,
when appropriate, punitive damages.
Section 946.83(3), Stats.,
provides that no person employed by, or associated with, any enterprise may
conduct or participate, directly or indirectly, in the enterprise through a
"pattern of racketeering activity."
Section 946.82(3), Stats.,
provides in pertinent part:
"Pattern of racketeering activity"
means engaging in at least 3 incidents of racketeering activity that have the
same or similar intents, results, accomplices, victims or methods of commission
or otherwise are interrelated by distinguishing characteristics, provided at
least one of the incidents occurred after April 27, 1982 and that the last of
the incidents occurred within 7 years after the first incident of racketeering
activity.
Section
946.82(4) defines "racketeering activity" as any activity specified
in 18 U.S.C. § 1961(1) in effect as of April 27, 1982, or the attempt,
conspiracy to commit, or commission of any of the felonies specified in
particular chapters and sections of the Wisconsin statutes, including
§ 943.70, the computer-crimes statute.
The wilful, knowing and unauthorized copying of data, computer programs
or supporting documentation is a crime.
Section 943.70.
HABCO moved for summary
judgment dismissing MCS's WOCCA claim.
The trial court granted the motion because it concluded that any
violation of § 943.70, Stats.,
that occurred before its effective date is not racketeering activity under
§ 946.82(4), Stats., and
HABCO's copying and use of software are not violations of § 943.70. For that reason, the court concluded that
MCS did not establish the requisite number of predicate acts necessary to
establish a "pattern of racketeering activity" under
§ 946.82(3).
MCS contends that each
unauthorized copying of the stolen software after § 943.70, Stats., became effective is a separate
violation of § 943.70, and therefore each act of unauthorized copying is a
separate predicate act under WOCCA. MCS
submitted an affidavit to the trial court identifying sixty-three acts of
copying which occurred after § 943.70 became effective.
The Seventh Circuit rejected
MCS's same contention on the same facts in Management Computer Servs.,
Inc. v. Hawkins, Ash, Baptie & Co., 883 F.2d 48 (7th Cir.
1989). In that case MCS sought damages
from HABCO under 18 U.S.C. § 1961-68, the Racketeer Influenced and Corrupt
Organizations Act (RICO). Violation of
RICO requires a "pattern of racketeering activity." 18 U.S.C. § 1962. A "pattern of racketeering
activity" requires at least two acts of racketeering activity within a
defined period. 18 U.S.C.
§ 1961(5). MCS argued that each
time HABCO made another use of the software it had copied, it committed another
predicate act under RICO. The Seventh
Circuit said,
If,
as MCS alleged, the contract software at issue was proprietary to MCS, then
when HABCO first copied that software it in essence stole the software. HABCO's subsequent use of the allegedly
stolen software cannot be characterized as subsequent thefts. When a thief steals $100, the law does not
hold him to a new theft each time he spends one of those dollars.... This is simply not a case that involves
long-term criminal conduct or activity that could, in common-sense, be called a
pattern of racketeering.
Management
Computer Servs., Inc., 883 F.2d at 51.
Because WOCCA is
patterned after RICO, federal case law interpreting RICO is persuasive
authority in our interpretation of WOCCA.
State v. Evers, 163 Wis.2d 725, 732, 472 N.W.2d 828, 831
(Ct. App. 1991). We see no reason in
this case to apply WOCCA differently from the Seventh Circuit's application of
RICO to the same facts. We conclude
that the trial court properly granted summary judgment dismissing MCS's WOCCA
claim.
8.
CROSS-APPEAL
In their cross-appeal,
the defendants argue that the trial court should have dismissed MCS's
conversion claim because MCS failed to prove its damages, and the court should
have granted sanctions against MCS or its counsel.
As we have already said,
our disposition of MCS's appeal regarding its compensatory damages for
conversion disposes of the first issue in the cross-appeal. The second issue is based upon § 802.05
and 814.025, Stats., and results
from MCS's default of proof at the scheduled new trial on punitive
damages. Our disposition of MCS's
appeal regarding punitive damages disposes of the second issue.
By the Court.--Judgment
and orders affirmed in part, reversed in part and remanded with directions.
No. 93-0140(C)
SUNDBY, J. (concurring). "Punitive
damages have long been a part of traditional state tort law." Silkwood v. Kerr-McGee Corp.,
464 U.S. 238, 255 (1984), quoted in Pacific Mut. Life Ins. Co. v.
Haslip, 499 U.S. 1, 15 (1991).[16] In Wilkes v. Wood, Lofft 1, 98
Eng Rep 489 (CP 1763), the Lord Chief Justice validated exemplary damages as
compensation, punishment and deterrence.
(Cited in Haslip, 499 U.S. at 15). The history of the excessive fines clause of
the Eighth Amendment shows that the clause is applicable to punitive
damages. Browning-Ferris Indus.
of Vermont, Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 286-87 (1989)
(O'Connor, J., concurring in part and dissenting in part).
Under the Saxon legal
system in pre-Norman England, "the victim of a wrong would, rather than
seek vengeance through retaliation or `blood feud,' accept financial
compensation for the injury from the wrongdoer." Id. at 287.
At some point after the Norman Conquest in 1066, this method of settling
disputes gave way to a system in which individuals who had engaged in conduct
offensive to the Crown placed themselves "in the King's mercy" so as
not to have to satisfy all the monetary claims against them. Id. In order to receive clemency, these individuals were required to
pay an "amercement" to the Crown, its representative, or a feudal
lord. Id. at 287-88
(citing Tumey v. Ohio, 273 U.S. 510, 525 (1927)).
Fines and amercements
had very similar functions. Id.
at 289. Fines originated in the
Thirteenth Century as voluntary sums paid to the Crown to avoid an indefinite
prison sentence or to avoid royal displeasure.
Id. In practice,
it became difficult to distinguish between amercements and fines. However, by the Seventeenth Century, fines
had replaced amercements as the preferred penal sanction. Id. at 290. The word "fine" took on its modern
meaning, while the word "amercement" dropped out of ordinary
usage. Id. Shakespeare did not distinguish between
fines and amercements in the plays he wrote in the late Sixteenth Century. Id. In Romeo and Juliet, published in 1597, Prince Escalus uses the
words "amerce" and "fine" interchangeably. In this manner, he warned the Montagues and
the Capulets not to shed blood on the streets of Verona:
I have an interest in your hate's
proceeding,
My blood for your rude brawls doth lie
a-bleeding;
But I'll amerce you with so strong a
fine,
That
you shall all repent the loss of mine.
Id.
(quoting Act III, scene 1).
A fascinating account of
the development of punitive damages appears in Justice O'Connor's separate
opinion in Browning-Ferris.
See 492 U.S. at 286-95.
The Browning-Ferris majority questioned Justice O'Connor's
conclusion that the word "fine," as used in the late Eighteenth
Century encompassed private civil damages.
492 U.S. at 265 & n.7.
Justice Blackmun doubted whether Shakespeare appreciated the difference
between a "fine" and an "amercement." He observed:
Though
Shakespeare, of course,
Knew
the Law of his time,
He
was foremost a poet,
In search of a rhyme.
Id. at
265 n.7.
Justice Blackmun
concluded that the "pedigree" of the Eighth Amendment convinced a
majority of the Court that the excessive fines clause did not apply to civil
damages but was intended to limit only those fines directly imposed by and
payable to the government. 492 U.S. at
268.
The majority concluded
that the excessive fines clause did not limit the ability of a civil jury to
award punitive damages. Id.
at 271. Justice Blackmun concluded that
the practice of awarding damages far in excess of actual compensation for
quantifiable injuries was well recognized at the time the framers produced the
Eighth Amendment. Id. at
274.
The petitioners also
asked the Browning-Ferris Court to determine whether the punitive
damages award therein was excessive under the Due Process Clause of the
Fourteenth Amendment. Id.
at 276. However, the Court deferred
that inquiry to another day because petitioners had failed to raise the
argument before either the district court or the court of appeals and made no
specific mention of it in their petition for certiorari. Id. at 276-77.
In Haslip,
however, the Court made that inquiry.
The Court approved the traditional common-law approach for assessing
punitive awards. 499 U.S. at 15-17. Under that
approach, the amount of the punitive award is initially determined by a
jury instructed to consider the gravity of the wrong and the need to deter
similar wrongful conduct. Id.
at 15. The jury's determination is then
reviewed by trial and appellate courts to ensure that it is reasonable. Id. The Court declined to hold that this common-law method for
assessing punitive damages was so inherently unfair as to deny due process and
violate the Fourteenth Amendment: "If
a thing has been practiced for two hundred years by common consent, it will
need a strong case for the Fourteenth Amendment to affect it." Sun Oil Co. v. Wortman, 486
U.S. 717, 730 (1988) (quoting Jackman v. Rosenbaum Co., 260 U.S.
22, 31 (1922)), quoted in Haslip, 499 U.S. at 17.
The Court said, however,
that accepting the common-law manner of computing punitive damages did not
require the conclusion that the imposition of punitive damages is never
unconstitutional. 499 U.S. at 18. The Court noted again its concern about
punitive damages "run wild." Id.
I set forth the
foregoing history of punitive damages solely to show that our review of an
award of punitive damages is not deferential; we are part of the "due
process" by which an award of punitive damages is determined. The jury makes its award. The trial court reviews the award. It is then reviewed by our court, and,
possibly, our supreme court. See
TXO Production Corp. v. Alliance Resources Corp., 509 U.S.____, 113 S.
Ct. 2711, 2719-20 (1993). The United
States Supreme Court has refused to "enshrine" a comparative approach
whereby other awards are tested against the award made in a particular
case. 509 U.S. at ____, 113 S. Ct. at
2720.
The Court has confirmed
that a mathematical bright line between the constitutionally acceptable and the
constitutionally unacceptable cannot be drawn in every case. Id. (citing Haslip,
499 U.S. at 18). However, a general
concern for reasonableness properly enters into the constitutional calculus.
Some courts have held
that punitive damages should bear a reasonable relationship to the harm that is
likely to occur from the defendant's conduct as well as to the harm that
actually occurred. "If the
defendant's actions caused or would likely cause in a similar situation
only slight harm, the damages should be relatively small. If the harm is grievous, the damages should
be much greater." TXO,
509 U.S. at ____, 113 S. Ct. at 2721 (quoting Garnes v. Fleming Landfill,
Inc., 413 S.E.2d 897, 909 (1991)).
In TXO, a
plurality of the Court adopted the principle that a mere "dramatic
disparity" between the actual damages and the punitive award is not
controlling. 509 U.S. at ____, 113 S.
Ct. at 2722. In TXO,
plaintiff's actual damages were $19,000 and the jury awarded $10 million
punitive damages. A plurality of the
Court affirmed the award.
In a "spotted
cow" case, Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d
655 (4th Cir.), cert. denied, 114 S. Ct. 443 (1993), the jury awarded
Trandes $17,400 in compensatory damages and $750,000 in punitive damages. Id. at 657. Trandes alleged that the defendant
improperly acquired and used the "Tunnel System," a computer program
written by Trandes's president to perform survey calculations for the
construction of subway tunnels. Id. The Fourth Circuit Court of Appeals affirmed
the jury's award but remanded for remittitur or retrial of punitive damages in
accordance with a Maryland statute placing a cap on punitive damages. Maryland limits punitive damages to twice
compensatory damages. Id.
at 658.
The Fourth Circuit Court
of Appeals concluded that "the evidence is clear that [defendant's]
actions were both willful and egregious."
Id. at 666. The
actions which the jury found to be willful and egregious do not differ greatly
from appellant's actions in this case.
Numerous employees of the defendant knew or had reason to know that the
defendant was not authorized to use the Tunnel System software, but yet the
defendant modified the program to misrepresent that it was an authorized
user. Id.
TXO does
not provide a great deal of guidance other than fundamental fairness for
determining punitive damages. The Haslip
Court approved a jury instruction which instructed the jury that punitive
damages are to punish the defendant and deter it and others from similar
conduct in the future. See Dunn v. Hovic, 1 F.3d 1371,
1380 (3d Cir.), modified in part on other grounds, 13 F.3d 58 (3d Cir.),
cert. denied, 114 S. Ct. 650 (1993).
The district court also told the jury that punitive damages are allowed
only for wanton and reckless behavior "[where] defendant's conduct was
outrageous because done with an evil motive or done with reckless indifference
to the rights of others." Id. In Haslip, the Court noted
that under the applicable Alabama precedent, the factors a trial court
considers in scrutinizing a jury verdict for excessiveness of damages are
"the `culpability of the defendant's conduct,' the `desirability of
discouraging others from similar conduct,' the `impact upon the parties,' and
`other factors, such as the impact on innocent third parties.'" Dunn, 1 F.3d at 1381 (quoting Haslip,
499 U.S. at 16 (quoting Hammond v. City of Gadsden, 493 So. 2d
1374, 1379 (Ala. 1986))).
Wisconsin courts review
punitive damage awards much as do the Alabama courts. Courts are particularly likely to approve punitive damage awards
where defendant's conduct entails health hazards. See Dunn, 1 F.3d at 1383. Courts also consider the ability of the
defendant to pay and the extent to which the defendant has profited from its
egregious conduct. See id.
at 1383-84.
In this case, the
plaintiff did not present evidence as to HABCO's net worth. I agree that HABCO's actions were
egregious. However, an award of
$1,750,000 is unreasonable and will not survive a due process challenge given
that HABCO's conduct did not affect the life or health of any individual and
MCS can be compensated for its actual damages.
An award of $1,750,000 for software theft shocks my conscience. I am satisfied that the award of $650,000
which we make is a sufficient deterrent to HABCO and others who might be
similarly tempted to steal and convert computer software.
For these reasons I
concur.
No. 93-0140(D)
DYKMAN, J. (dissenting). Had
the defendant accountants at Hawkins, Ash, Baptie & Company (HABCO) been
lawyers, they would have been disbarred and prosecuted. Stealing from clients is outrageous
behavior, and deserves to be substantially penalized. That is what the jury decided when it awarded $1,750,000 in
punitive damages to Management Computer Services, Inc. (MCS). But a majority of this court has reduced
MCS's compensatory damages from $2,585,750 to $65,000 and has awarded punitive
damages of only $650,000 because that figure is exactly ten times the amount of
the reduced compensatory award.
The majority fails to
understand MCS's theory of recovery and it also adopts a new rule for
determining whether a contract is indefinite which is wholly at variance with
past precedent. I cannot accept the
majority's analyses or conclusions, and therefore, I dissent.
BREACH OF CONTRACT
The basic problem with the majority's
analysis of the contract between HABCO and MCS is its conclusion that because
nothing in the wording of the contract expressly required HABCO to purchase
more than one computer from MCS, HABCO
did not breach the contract by buying additional computers from other
vendors. But MCS did not and does not
contend that the words of the contract required HABCO to purchase computers
from MCS. Robert A. Sierp, president of
MCS, testified: "[HABCO wasn't] required to buy computers from
MCS." But that is not the end of
the analysis because the contract between HABCO and MCS dramatically limited
the use that HABCO could make of the software MCS sold to HABCO. Only if HABCO purchased additional computers
from MCS could HABCO use MCS's software on those computers.
The contract reads:
This
software is proprietary to MCS and shall be furnished upon completion under
license to HABCO for use on the HABCO computer installation described in this
Agreement. MCS shall provide the
non-applications software described above at no extra charge for each
additional computer system purchased by HABCO through MCS.
Sierp testified:
[T]he
objective was if [HABCO was] going to use that software, that contract
software, that [it] would buy a computer from us. If [it] wanted to go off and do some tax reporting, [it] could
buy any computer [it] want[ed] and we weren't—we would not have been involved
in that transaction.
Thus, it is apparent
from the parties' contract and from Sierp's testimony that although the
contract between MCS and HABCO did not require HABCO to buy MCS computers, if
HABCO bought computers from another supplier, it could not use MCS software on
those computers. What the majority
fails to recognize is that without software, the computers bought from another
vendor would be useless to develop turnkey computer systems for public housing
authorities. The software furnished by
MCS was highly specialized software developed at great cost and it was very
valuable to a company in the business of licensing computer systems to public
housing authorities.
The jury was asked
whether HABCO breached its contract with MCS in three respects. It answered "yes" to all three
special verdict questions. The majority
dislikes the questions asked, and proposes an alternative. But that is not the test appellate courts
use when faced with an argument that a jury question was misleading. In Topp v. Continental Ins. Co.,
83 Wis.2d 780, 785, 266 N.W.2d 397, 401 (1978), the court said:
This
court has frequently stated that the form of the special verdict rests in the
discretion of the trial court, and the court's chosen form will not be rejected
unless the inquiry, taken with the applicable instruction, does not fairly
present the material issues of fact to the jury for determination.
Instead
of using this deferential review of the verdict used by the trial court, the
majority, without considering the court's instructions, reviews the verdict de
novo, and decides that it would have used alternative language. I cannot join in this sub silentio overruling
of Topp. It will only
cause confusion for future cases where the proper standard of review for
special verdict questions is at issue.
HABCO, MCS, the trial
court and the jury all understood MCS's theory of its case. I recognize that the jury questions could
have been better worded, but when the jury was first asked whether HABCO
breached the parties' contract by failing to purchase computers from MCS, the
jury answered "yes" knowing that the contract was not worded: "HABCO agrees to purchase all computers
from MCS." The jury responded
affirmatively because it knew that the only practical way HABCO could have
legally used MCS software for public housing authorities was to buy MCS
computers. The jury also knew that
HABCO avoided the increased cost of purchasing MCS computers by purchasing
computers from another vendor and using MCS software on them in breach of the
parties' contract. Because purchasing
computers from MCS was the only practical way HABCO could avoid breaching the
contract, question one of the verdict settled the real issue over which the parties
contended. In any event, I cannot
conclude that asking question one was an erroneous exercise of discretion, nor
that the question failed to fairly present what everyone knew were the material
issues of fact in the case.
The same is true of the
second breach question. The jury was asked whether HABCO breached the parties'
contract by failing to pay twenty-five percent of the program value to MCS for
the use of the contract software. The majority's conclusion, that because HABCO
did not purchase additional computer systems from MCS, HABCO did not breach the
contract, is an overly simplistic answer and does not address MCS's theory of
the case. The breach is HABCO's use of
MCS software on non-MCS computers, not HABCO's failure to buy MCS computers. Had HABCO done what it agreed to do, it would
have had to purchase MCS computers. It
then would have used jointly owned software on those computers and paid
twenty-five percent of the program value to MCS. MCS's damages for HABCO's breach of its agreement not to use MCS
software on non-MCS computers equalled the twenty-five percent it would have
received had HABCO not breached the contract.
I conclude that the verdict form for the second question was not an
erroneous exercise of discretion and that it fairly presented the material
issues of fact in the case.
The final breach
question is the only one the majority directly addresses, but it does so in a
way which ignores our standard of review of a jury verdict. The jury was asked whether HABCO breached
the parties' contract by failing to compensate MCS for the use of the
proprietary software. Had HABCO not
breached the contract by using MCS software on non-MCS computers, HABCO would
have been required by the contract to pay twenty-five percent of the program
value because it would have then used the software purchased through MCS. That was exactly what the jury was
asked. Though the jury verdict might
have been better drafted, or drafted in a manner which the majority would
prefer, that is not what this court reviews.
Our review is deferential, not de novo. See Topp, 83 Wis.2d at 785, 266 N.W.2d at
401. I conclude that the trial court
did not erroneously exercise its discretion in wording the third question of
the breach of contract verdict as it did.
And, given the focus of the trial, I have no doubt but that the form of
the verdict fairly presented the material issues of fact to the jury.
There is a problem,
however, with this final breach question.
Once the jury found the first breach and awarded damages, the facts show
that there would be either no breach of the contract by HABCO's failure to
compensate MCS for its use of the proprietary software or no damages for the
breach. The contract provided that if
HABCO bought additional computers from MCS, MCS would provide HABCO with
proprietary software at no extra charge.
The jury's affirmative response to the first breach of contract question
put MCS in the financial position in which it would have been had HABCO bought
additional computers from MCS. MCS
would then have provided the proprietary software to HABCO at no cost to
HABCO. I would change the answer to
breach question number three to "no."
INDEFINITE CONTRACT
The majority concludes that the parties'
contract is too indefinite to be enforced.
Yet, it never quotes the part of the contract which it believes is
indefinite. Apparently, the majority
has adopted a new rule of contract law to the effect that a contract is
indefinite if it does not mean what one of the parties contends that it
means. I am unaware of such a
rule. We look to the contract itself to
determine whether it is indefinite and therefore unenforceable. Arthur Corbin notes:
A court cannot enforce a contract unless it can
determine what it is. It is not enough
that the parties think that they have made a contract. They must have expressed their intentions in
a manner that is capable of being understood.
It is not even enough that they have actually agreed, if their
expressions, when interpreted in the light of accompanying factors and
circumstances, are not such that the court can determine what the terms of that
agreement are.
1 Arthur Linton Corbin, Corbin on Contracts
§ 4.1 (1993). This is consistent
with the Restatement (Second) of
Contracts § 33(2) (1981), which provides: "The terms of a contract are reasonably certain if they
provide a basis for determining the existence of a breach and for giving an
appropriate remedy." The majority
holds: "When the court subsequently
ruled that the contract was insufficiently definite to be enforced, as MCS
would have it enforced, MCS was left with the quoted question and award
based on a theory of the case which no longer applied." Maj. op. at 9 (emphasis added). This new holding looks to the pleadings and
the positions taken at trial to determine whether a contract is
indefinite. The majority cites no
authority for this dramatic change in contract law, and I find none. I believe that the proper test for
indefiniteness is to look at the language of the contract to determine whether
the contract is too indefinite to be enforced.[17] There is no question but that the contract
is sufficiently definite. Even the
majority notes: "Since it is
undisputed that HABCO used MCS software with computers it bought from vendors
other than MCS, it is arguable that HABCO breached the contract when it used
MCS software on non-MCS computers."
Maj. op. at 9 (emphasis added).
Once we conclude that a
contract was formed, and that HABCO breached it, facts that even the majority
grudgingly admits, the only question becomes the extent of MCS's damages. Because there is evidence to support the
damages the jury awarded for HABCO's failure to purchase computer equipment
from MCS, and for HABCO'S failure to pay twenty-five percent of the program
value for the use of the contract software, I would reinstate that part of the
jury's verdict.
PUNITIVE DAMAGES
The
only rationale that I can discern for the majority's reduction of the
$1,750,000 punitive damage award is that the figure it chooses, $650,000, is
ten times the amount of the reduced compensatory damages. But why is ten, aside from being a round
number with metric significance, the proper multiplier? Would not eleven or nine be just as
appropriate? And if "[t]here is no
arbitrary rule that punitive damages cannot equal 15 times the compensatory
damages," Malco, Inc. v. Midwest Aluminum Sales, Inc., 14
Wis.2d 57, 66, 109 N.W.2d 516, 521 (1961), why did not the majority award
punitive damages of $975,000?
The use of a multiplier
as the sole means to determine punitive damages has been specifically
rejected. In Fahrenberg v. Tengel,
96 Wis.2d 211, 235-36, 291 N.W.2d 516, 527 (1980), the court said:
Although
the amount of compensatory damages and criminal penalties have some relevancy
to the amount of punitive damages and may be factors in determining the
reasonableness of the punitive damages award, we have not been willing in the
past, and are not willing in this case, to adopt a mathematical formula for
awarding punitive damages. In punitive
damages, as in damages for pain and suffering, the law furnishes no mechanical
legal rule for their measurement. The
amount rests initially in the discretion of the jury. We are reluctant to set aside an award because it is large or we
would have awarded less. As we have
said in cases involving compensatory damages, "`[A]ll that the court can
do is to see that the jury approximates a sane estimate, or, as it is sometimes
said, see that the results attained do not shock the judicial conscience.'"
(Emphasis
added; quoted source omitted.)
The jury saw the
witnesses and heard what HABCO did. I
cannot conclude that a $1,750,000 punitive damage award against accountants who
have stolen their client's software was an insane estimate by the jury. We give juries discretion in their award of
punitive damages. I agree that the
award is large and I would have awarded less.
But that is not the test. We
must look at whether "the jury approximates a sane estimate," Id. at 236, 291 N.W.2d at 527,
and, using that test, I would affirm the jury's punitive damage award. The message sent by the majority in a world
where computers have provided extensive profits to those who can market the
technology, is that crime pays, and pays well.
The decision to risk $650,000 by stealing software can be an easy one
where the profits can reach millions of dollars. Perhaps a $1,750,000 punitive damage award is not much better
than a $650,000 award, but it is a start. It sends the message that courts will
not reverse large punitive damage awards where the conduct is criminal and
egregious. It allows for the
possibility that even larger awards will be sustained when the conduct merits
it. And that possibility will, perhaps,
give potential computer thieves pause when they contemplate obtaining desired
software by theft.
For these reasons, I
respectfully dissent.
[1] A turnkey system is a complete computer system including hardware, software, installation, training and support services.
[2] Those individuals are David D. Baptie, James O. Ash, R. Roy Campbell, Robert J. Daley, Walter H. Leifeld, Larry E. Vangen and Jack E. White. We refer to the respondents collectively as HABCO or the respondents.
[3] This case has nothing to do with the trial court's exercise of discretion when framing the verdict. No party objected to the form of the verdict. The form was correct when applied to MCS's theory of the case. That theory was rejected on postverdict motions. That rendered the verdict questions inapplicable.
[4] It may also have taken into account that the copied software included an accounts receivable program, while the replacement software apparently did not.
[5] We do not reach HABCO's contention that the trial court should have dismissed MCS's conversion claim because MCS failed to prove damages.
[6] Duplication between the $65,000 award for conversion and the $1 million unjust enrichment award seems unlikely if the jury followed its instructions, but if duplication occurred it could easily be eliminated by deducting $65,000 from the $1 million award.
[7] MCS offered other exhibits specifically designed to establish HABCO's unjust enrichment. The court refused to admit those exhibits, and MCS has not sought review of those rulings.
[9] The purpose of the exhibit was never established. When trial counsel for MCS moved for admission of the exhibit, in response to an objection by counsel for HABCO and to an inquiry by the court regarding the exhibit's purpose, counsel stated that the ten-page exhibit contained information used in other exhibits. Those exhibits have not been identified, so far as we can determine.
[10] Section
805.15(6), Stats., provides in
pertinent part:
If a trial court determines that a verdict is excessive or inadequate, not due to perversity or prejudice or as a result of error during the trial (other than an error as to damages), the court shall determine the amount which as a matter of law is reasonable, and shall order a new trial on the issue of damages, unless within 10 days the party to whom the option is offered elects to accept judgment in the changed amount.
[13] The record contains no evidence of the wealth of any respondent. See Meke v. Nicol, 56 Wis.2d 654, 658, 203 N.W.2d 129, 132 (1973) (evidence of an individual defendant's wealth is inadmissible when punitive damages are sought from multiple defendants).
[14] "The Powers rule ... allows both the trial court and the appellate court to determine a reasonable award and to grant the plaintiff the option of accepting that sum or having a new trial. This court has exercised this kind of control in punitive damage cases." Wangen v. Ford Motor Co., 97 Wis.2d 260, 307, 294 N.W.2d 437, 461 (1980) (citations omitted).
[15] We fashion our mandate on that in Powers, 10 Wis.2d at 92, 102 N.W.2d at 401, except that we think giving notice to the clerk of circuit court will be more convenient than notice to the clerk of the court of appeals.