First Department Examines Standard for Award of Punitive Damages

On February 26, 2015, the First Department issued a decision in Macy's Inc. v. Martha Stewart Living Omnimedia, Inc., 2015 NY Slip Op. 01728, addressing, among other things, standard for an award of punitive damages.

In Macy's Inc., the First Department affirmed in part and reversed in part the trial court's decision in the much-publicized lawsuit involving Macy's, J.C. Penny and Martha Stewart. This post looks that part of the First Department's decision affirming the trial court's holding that Macy's was not entitled to punitive damages. The First Department explained:

In order to be entitled to punitive damages, a private litigant must not only demonstrate egregious tortious conduct by which he or she was aggrieved, but also that such conduct was part of a pattern of similar conduct directed at the public generally. Punitive damages are a social exemplary remedy, not a private compensatory remedy.

Macy's, in support of its application for punitive damages, points to, among other things, various emails from JCP's executives and board members which evince a certain degree of malicious gloating over the supposed coup of obtaining MSLO products for their company and the angst it would cause for Macy's executives. Macy's argues that, in conjunction with the actions taken by those executives toward achieving that goal, these emails establish the wanton and reckless conduct required to meet the high threshold for the imposition of punitive damages. To be sure, the conduct of JCP's personnel in this case was intentional and clearly below any minimum standard of business practices and ethical behavior. However, those emails, while distasteful and far beneath what one would expect from executives of a major corporation, are simply part and parcel of the unsavory atmosphere surrounding JCP's conduct.

Nevertheless, at least with respect to the "store-within-a store" concept, JCP was given an arguable basis on which to proceed with its negotiations for a retail agreement with MSLO. It bears noting that this concept came from MSLO's counsel, who opined that these stores would be in compliance with the Macy's agreement. JCP had experience with this concept with its Sephora product lines, albeit under very different circumstances. Its personnel were asked to validate whether the concept could work for MSLO. Despite some misgivings by some people involved on both sides of the negotiations as to whether the concept would hold up under a court challenge, the decision to go ahead, while ill-advised, did not constitute the type of wanton and reckless conduct that warrants the imposition of punitive damages.

Taken as a whole, JCP's conduct, while clearly intentional, did not evince the high degree of moral turpitude and demonstrate such wanton dishonesty as to imply a criminal indifference to civil obligations. As a result, the court correctly determined that punitive damages are not warranted in this case.

(Internal quotations and citations omitted) (emphasis added).