Claiming punitive damages in fraud cases

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Since 1986, Florida law has required that before bringing a punitive damages claim, a plaintiff must make a reasonable showing by evidence (or proffer) that the plaintiff would be able to show, by clear and convincing evidence, a reasonable basis for recovering punitive damages. (§ 768.72, Fla. Stat.) The court acts as a gatekeeper to ensure that claims for punitive damages have a basis in fact and are not simply used as leverage for settlement purposes. There also cannot be any discovery into a defendant’s net worth or finances until the court first finds that the punitive damages claim has a reasonable basis for succeeding. In essence, the statute prevents a claim for punitive damages from being “weaponized.” 

Immediately after passage of the statute, however, in First Interstate Development Corp. v. Ablanedo, 511 So. 2d 536 (Fla. 1987) (a case that did not involve the statute), the Florida Supreme Court ruled that bringing a fraud claim necessarily is grounds for making a claim for punitive damages, because fraud is an intentional tort. Lower courts in Florida since Ablenedo have come to differing conclusions as to whether evidence could support an intentional tort but still not be sufficient to award punitive damages.

This uncertainty was resolved in KIS Group, LLC v. Moquin, -- So. 3d -- (Fla. 4th DCA 2019), in an opinion entered by the Fourth District Court of Appeal on Jan. 2, 2019. The case involved a disappointed investor who, unsolicited, asked defendants to redeem his membership units in an LLC, despite then being told that the assets of the LLC might be sold in the next year. The LLC members complied with his request, but when the LLC was sold approximately nine months later for a large profit, plaintiff sued them for fraud, for not talking him out of redeeming his units at par. Despite expressing qualms about the lack of egregious evidence usually seen to justify a claim for punitive damages, the trial court felt compelled to follow the Florida Supreme Court’s holding in Ablenado – that a claim for fraud, ipso facto, is sufficient to justify allowing a claim for punitive damages. The court, however, stayed the case pending defendants filing a petition for certiorari to the Fourth District Court of Appeal (which they did) or bringing a summary judgment motion on the matter.

The Fourth District made it clear, in granting the defendants’ petition, that proof of fraud is not the same as pleading a claim for fraud. It held that even in a fraud claim, the statute necessarily requires the court to weigh the evidence and act as a factfinder before allowing an amendment to add a claim for punitive damages, which the trial court did not do. 

This case is an excellent example of why the Florida legislature requires plaintiffs to show a reasonable basis for the recovery of punitive damages before being allowed to claim them. The court’s role as a gatekeeper implements society’s need to differentiate between unjustified claims for punitive damages and those egregious cases for which punitive damages are appropriate.    

Defendants in KIS Group, LLC v. Moquin were represented by McDonald Hopkins’ attorneys Peter M. Bernhardt, Mary F. April, and Courtney Tito.

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