Clarifying Punitive Damage Confusion

Publication Source: New York Law Journal

State and federal cases applying New York law to resolve the circumstances under which punitive damages are awardable in contract and tort actions do not always present a perfect picture of clarity. A recent decision by Eastern District Court Judge Arthur D. Spatt, however, should help to provide considerable clarity to these issues.

The main culprit for much of the confusion is the issue of whether the egregious conduct in question must be aimed at the public generally to justify an award of punitive damages. While it is now widely accepted that punitive damages are recoverable in tort actions without proving the conduct at issue was aimed at the public generally, courts continue to confuse independent tortious conduct with legal duties arising strictly from a contractual relationship, where the additional requirement of harm to the public is imposed. A brief review of the relevant New York jurisprudence will place the issues in proper perspective.

In Walker v. Sheldon, 10 N.Y.2d 401, 223 N.Y.S.2d 488 (1961), the Court of Appeals was presented with a question of first impression - 'whether punitive damages may be allowed in a fraud and deceit action.' After surveying the case law and commentaries, the Court concluded that while punitive damages 'have been refused in the 'ordinary' fraud and deceit case,' such damages may be recovered 'in fraud and deceit actions where the fraud, aimed at the public generally, is gross and involves high moral culpability.'

The Court went on to note that it 'may be difficult to formulate an all-inclusive rule or principle as to what is an appropriate case for the recovery of punitive damages, but it is our conclusion that the allegations of the complaint before us, if proved, would justify such an award.'

Read the full article in the attached PDF.

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Kevin Schlosser is a Shareholder at Meyer, Suozzi, English & Klein, P.C., where he is Chair of the Litigation and Alternative Dispute Resolution Department which has a full roster of available private judges from virtually all disciplines of law. Mr. Schlosser also authors the popular blog, “New York Fraud Claims,” which analyzes the latest developments concerning civil fraud claims under New York law.

Reprinted with permission by the New York Law Journal.