Food Fair Stores, Inc. v. Hevey

⁵¹ Levine, J., delivered the opinion of the Court. This appeal is from an award of punitive damages in the total sum of $100,000 recovered jointly by appellees, Edmund J. Hevey and Gordon L. Malone (the employees), at the conclusion of a jury trial in the Circuit Court for Calvert County. In addition, the employees were awarded separate judgments for compensatory damages in consequence of verdicts directed by the trial judge (Bowen, J.). Appellant (Food Fair) does not contest those judgments.

These proceedings arose from an action brought by appellees against Food Fair for wrongful conversion of moneys allegedly due them under that company’s “Incentive Bonus and Retirement Plan” (the Plan). In February and April of 1970, the employees voluntarily terminated their employment and commenced to work for two other companies whom Food Fair regarded as competitors. For that reason, Food Fair denied the employees their benefits pursuant to Section 7.1 of the Plan, and caused their accrued interests therein to be redistributed among the remaining participants. 1 The employees were notified of this action by letters from Food Fair dated May 28,1970. 2 In Food Fair Stores v. Greeley, 264 Md. 105 , 285 A. 2d 632 , 54 A.L.R.3d 177 (1972), decided January 12, 1972, we held under circumstances identical to those here that the ⁵² anti-competition clause of Section 7.1 of the Plan was an unreasonable restraint upon the right to earn a livelihood, and that the refusal of Food Fair to pay benefits to Greeley under the Plan constituted a conversion. Following that decision, the employees filed this action on December 28, 1972.

At the conclusion of all the evidence at the trial, as we have already noted, the court directed verdicts in favor of both employees on their claims for compensatory damages upon the authority of Food Fair Stores v. Greeley, supra. 3 The compensatory damage awards included the amounts found to have been wrongfully withheld from the employees and interest thereon accruing from the date of the conversion in May 1970. The rationale for the trial judge’s submission of the punitive damage issue to the jury is revealed in his ruling on a pretrial motion for summary judgment, which he adopted by reference at the trial: “. .. If I understand correctly the plaintiffs’ position, it is that they are small individual parts of a large corporate undertaking, ... and that it is incumbent upon the large corporate undertaking to obey the law and provide what is required without the necessity of them having to resort to Courts to enforce their rights if their rights have been plainly established by the law, and that acting contrary to the claim the State law brings the Defendant within that ambit of evidence dealing with total circumstances indicating oppression or dealing at a disadvantage perhaps would be another way of saying it .... Usually [punitive damages] are awarded as a punishment for deliberate wrongdoings, either wrongs to the person directly or wrongs to the property directly, but in this area where there is no animosity, no direct animosity or demonstrable malice is shown but where the ⁵³ circumstances in which parties are placed give rise to inferences of oppression or dealing with a disadvantage or a person’s disadvantage with you, it would be best to reserve the Court’s decision on [the motion].” (emphasis added).

Challenging the award of punitive damages, Food Fair advances these contentions on appeal: 1) As a matter of law, punitive damages should not have been awarded in this case. 2) The trial judge failed to instruct the jury properly with regard to “actual malice.” 3) The lump-sum verdict for punitive damages in favor of both employees, without apportionment, was improper. 4) The allowance of punitive damages absent an underlying award of compensatory damages on the tort counts was improper. Since we agree with the first contention, it is unnecessary to reach the remaining questions. In maintaining that the issue of punitive damages should not have been submitted to the jury, Food Fair stresses these facts: that appellees terminated their employment voluntarily; that the separation was amicable and totally lacking in animosity or ill will; and that the decision of the Advisory Committee was not aimed at these particular employees, but was merely a routine business decision arrived at in accordance with established practice. In sum, Food Fair urges that absent here was the actual malice necessary for the recovery of punitive damages.

The employees respond by pointing to the course of action followed by Food Fair in routinely denying benefits under the Plan in other cases of this kind, and to the fact that Food Fair failed to take any remedial action with respect to these two claims in the eleven month interval between the Greeley decision and the institution of this law suit. Although the general rule respecting punitive damages is that they may be awarded where there is “an element of fraud, or malice, or evil intent, or oppression entering into ⁵⁴ and forming part of the wrongful act.” P., W. & B. R.R. Co. v. Hoeflich, 62 Md. 300, 307 (1884), a more stringent rule applies, as we indicated in H & R Block, Inc. v. Testerman, 275 Md. 36 , 338 A. 2d 48 (1975), where, as here, the tort is one arising out of a contractual relationship. In such situations, punitive damages are recoverable only upon a showing of actual malice. As our predecessors said in the leading case of Knickerbocker Co. v. Gardiner Co., 107 Md. 556, 569-70 , 69 A. 405 (1908): “...

We do not mean to say there may not be [punitive] damages in cases of this character, for if, for example, there was evidence tending to show that, the defendant had caused the contract to be broken for the sole purpose, and with the deliberate intention of wrongfully injuring the plaintiff, exemplary damages might be recovered, but when the object was merely to benefit itself, although the plaintiff would be thereby injured, there would be no more reason for allowing such damages than there would be in a suit by one party to a contract against the other for breach of it. . . .” (emphasis added). This rule has been followed consistently, H & R Block, Inc. v. Testerman, supra; Siegman v. Equitable Trust Co., 267 Md. 309, 314 , 297 A. 2d 758 (1972); Daugherty v. Kessler, 264 Md. 281, 284 , 286 A. 2d 95 (1972); St. Paul at Chase v. Mfrs. Life Insur., 262 Md. 192, 238 , 278 A. 2d 12 (1971), cert. denied, 404 U. S. 857 (1971); Damazo v. Wahby, 259 Md. 627, 639 , 270 A. 2d 814 (1970). 4 Consequently, there appear to be only two Maryland cases in which punitive damages have been allowed for a tort arising out of a contractual relationship. Rinaldi v. Tana, 252 Md. 544 , 250 A. 2d 533 (1969); McClung-Logan v. Thomas, ⁵⁵ 226 Md. 136 , 172 A. 2d 494 (1961).

In describing the actual malice which formed the basis of the punitive damage award in Rinaldi , we said in Damazo : “. . . There, although the per curiam opinion does not reveal it, there was testimony in the record that the interferer had expressed animosity towards his sister with whose contract he interfered and had threatened and indicated a determined purpose to harm her.