MCCARTER & ENGLISH, LLP v. JARROW FORMULAS, INC., SC 21013

On Certification from the United States District Court for the District of Connecticut

 Punitive Damages; Whether Law Firm Can Recover Common-Law Punitive Damages For Client's Wilful and Malicious Breach of Agreement to Compensate Law Firm for Legal Services.  The plaintiff law firm represented the defendant dietary supplement company in a jury trial in Kentucky federal district court.  The jury returned a verdict against the defendant, and the defendant thereafter terminated its relationship with the plaintiff and refused to pay the plaintiff's remaining attorney's fees and costs.  The plaintiff filed an action in the United States District Court for the District of Connecticut claiming breach of contract, account stated, and quantum meruit, and the defendant filed counterclaims.  The parties stipulated before trial that the jury would determine whether a party was entitled to punitive damages and that the District Court would determine the amount of punitive damages.  The parties also reserved their rights, however, to argue that the other party was not entitled to any punitive damages and that the issue should not be submitted to the jury.  The District Court instructed the jury that punitive damages could be awarded if "the other party's conduct intended to violate—or showed reckless indifference to—the rights of the first party."  The jury returned a verdict in favor of the plaintiff and awarded $1,057,173.93 in compensatory damages.  It also determined that the defendant's conduct was wilful and malicious.  The defendant moved for judgment as a matter of law during trial and renewed its motion after trial on the ground that punitive damages could not be awarded to the plaintiff because Connecticut law does not "recognize bad faith breach of contract except when there is a strong public policy involved."  The plaintiff in turn filed a series of posttrial motions, including a motion for punitive damages.  The District Court issued a ruling on the parties' posttrial motions that in relevant part denied the plaintiff's motion for punitive damages without prejudice and provided, "because Connecticut law is unsettled on this question, resolving this question requires weighing competing public policy concerns, and other states have adopted several different rules, I will certify this question to the Connecticut Supreme Court."  The District Court explained that the Supreme Court suggested in dicta in Triangle Sheet Metal Works, Inc. v. Silver, 154 Conn. 116 (1966), that punitive damages might be available in a breach of contract case where "wanton and wilful injury is proved" or "malice is established" but has never directly addressed and decided the issue.  The District Court then observed that the Appellate Court applied the dicta in Triangle Sheet Metal Works, Inc. to a claim of breach of implied contract to act as a surety in L.F. Pace & Sons, Inc. v. Travelers Indemnity Co., 9 Conn. App. 30 (1986), but declined to apply it to a claim of wrongful termination in Barry v. Posi-Seal, International, Inc., 40 Conn. App. 577 (1996).  Given the absence of authoritative Connecticut law on the availability of punitive damages for wilful and malicious breach of contract, as well as differing approaches by courts of other jurisdictions and the significant policy implications of the issue, the District Court certified the following question of law to the Connecticut Supreme Court pursuant to General Statutes § 51-199b, and the Supreme Court accepted the following question: "Can a law firm recover common-law punitive damages, i.e., litigation costs including attorney's fees, for its client's wilful and malicious breach of an agreement to compensate the law firm for legal services?"