Opinion
A-3647-18
01-12-2023
FAIRFAX FINANCIAL HOLDINGS LIMITED, Plaintiff, v. S.A.C. CAPITAL MANAGEMENT, LLC, S.A.C. CAPITAL ADVISORS, LLC, S.A.C. CAPITAL ASSOCIATES, LLC, SIGMA CAPITAL MANAGEMENT, LLC, and STEVEN A. COHEN, Defendants-Respondents, and CRUM & FORSTER HOLDINGS CORP., Plaintiff-Appellant/ Cross-Respondent, and EXIS CAPITAL MANAGEMENT, INC., EXIS CAPITAL, LLC, EXIS DIFFERENTIAL PARTNERS, L.P., and EXIS INTEGRATED PARTNERS, L.P., Defendants-Respondents/ Cross-Appellants, and ADAM D. SENDER and ANDREW HELLER, Defendants-Respondents, and SPYRO CONTOGOURIS, MAX BERNSTEIN, MAX BERNSTEIN, MI4 INVESTORS, LLC, MI4 RECONNAISSANCE LLC, MI4 LIMITED PARTNERSHIP, ROCKER PARTNERS, L.P., COPPER RIVER PARTNERS, L.P., DAVID ROCKER, THIRD POINT LLC, DANIEL S. LOEB, JEFFREY PERRY, MORGAN KEEGAN &COMPANY, INC., JOHN D. GWYNN, CHRISTOPHER BRETT LAWLESS, INSTITUTIONAL CREDIT PARTNERS, LLC, WILLIAM GAHAN, JAMES S. CHANOS, and KYNIKOS ASSOCIATES LP, Defendants.
Michael J. Bowe (Brown Rudnick LLP) of the New York bar, admitted pro hac vice, and Bruce H. Nagel argued for appellant/cross-respondent (Nagel Rice LLP, attorneys; Michael J. Bowe and Lauren Tabaksblat, of counsel and on the briefs; Bruce H. Nagel and Andrew L. O'Connor, on the briefs). Benjamin P. McCallen (Willkie Farr &Gallagher LLP) of the New York bar, admitted pro hac vice, argued the cause for respondents S.A.C. Capital Management, LLC, S.A.C. Capital Advisors, LLC, S.A.C. Capital Associates, LLC, Sigma Capital Management, LLC, and Steven A. Cohen (Weil, Gotshal &Manges, LLP, attorneys; Diane P. Sullivan, Benjamin P. McCallen, and Martin B. Klotz (Willkie Farr &Gallagher LLP) of the New York bar, admitted pro hac vice, on the brief). Cindy Nan Vogelman argued the cause for respondents/cross-appellants Exis Capital Management, Inc., Exis Capital, LLC, Exis Differential Partners, L.P., and Exis Integrated Partners, L.P., and respondents Adam D. Sender and Andrew Heller (Chasan Lamparello Mallon &Cappuzzo, PC, attorneys; Cindy Nan Vogelman, of counsel and on the briefs; Qing H. Guo, on the briefs).
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
Argued December 20, 2022
On appeal from the Superior Court of New Jersey, Law Division, Morris County, Docket No. L-2032-06 and L-5000-06.[1]
Michael J. Bowe (Brown Rudnick LLP) of the New York bar, admitted pro hac vice, and Bruce H. Nagel argued for appellant/cross-respondent (Nagel Rice LLP, attorneys; Michael J. Bowe and Lauren Tabaksblat, of counsel and on the briefs; Bruce H. Nagel and Andrew L. O'Connor, on the briefs).
Benjamin P. McCallen (Willkie Farr &Gallagher LLP) of the New York bar, admitted pro hac vice, argued the cause for respondents S.A.C. Capital Management, LLC, S.A.C. Capital Advisors, LLC, S.A.C. Capital Associates, LLC, Sigma Capital Management, LLC, and Steven A. Cohen (Weil, Gotshal &Manges, LLP, attorneys; Diane P. Sullivan, Benjamin P. McCallen, and Martin B. Klotz (Willkie Farr &Gallagher LLP) of the New York bar, admitted pro hac vice, on the brief).
Cindy Nan Vogelman argued the cause for respondents/cross-appellants Exis Capital Management, Inc., Exis Capital, LLC, Exis Differential Partners, L.P., and Exis Integrated Partners, L.P., and respondents Adam D. Sender and Andrew Heller (Chasan Lamparello Mallon &Cappuzzo, PC, attorneys; Cindy Nan Vogelman, of counsel and on the briefs; Qing H. Guo, on the briefs).
Before Judges Geiger, Susswein and Fisher.
PER CURIAM
Plaintiff Crum &Forster (C &F) is a New Jersey corporation which is wholly owned by plaintiff Fairfax Financial Holdings, Limited, a Canadian corporation listed on the New York Stock Exchange. Plaintiffs came to believe in 2003 that defendants were conspiring to impugn plaintiffs' financial stability to cause a reduction in their value that would allow defendants to profit on short sales of plaintiffs' securities. Plaintiffs filed this action in 2006, alleging that defendants had engaged in racketeering and conspired to commit business torts. Most of the defendants are New York financial firms and New York residents; plaintiffs also alleged that certain New Jersey residents had conspired with the New York defendants and that some acts in furtherance of defendants' harmful enterprise were committed or had impacts in New Jersey.
By late 2012, all plaintiffs' claims had been summarily dismissed, generating an earlier appeal that concluded with our affirmance in part and reversal in part. Fairfax Fin. Holdings Ltd. v. S.A.C. Capital Mgmt., LLC, 450 N.J.Super. 1 (App. Div. 2017). Following that decision, the S.A.C. defendantssuccessfully moved for a dismissal for lack of personal jurisdiction. Defendants Spyro Contogouris and Morgan Keegan &Company, Inc., amicably resolved their differences with plaintiffs. And the remaining defendants - the Exis defendants, their principal Adam Sender, and their chief operating officer, Andrew Heller - proceeded to a six-week trial that started in September 2018.
Namely, S.A.C. Capital Management, LLC, S.A.C. Capital Advisors, LLC, S.A.C. Capital Associates, LLC, Sigma Capital Management, LLC, and Steven A. Cohen.
Namely, Exis Capital Management, Inc., Exis Capital, LLC, Exis Integrated Partners, L.P., and Exis Differential Partners L.P.
C &F had elected at trial not to pursue further its "tortious interference claim" but instead chose to "proceed on the two claims . . . left": commercial disparagement and conspiracy. On October 12, 2018, the jury returned its verdict. The jury found liability on both remaining claims and awarded C &F compensatory damages of $5,464,000. The jury was also asked to assign responsibility for the wrongs it found had occurred, even for those defendants no longer participating. The jury assigned no responsibility to Adam D. Sender, Andrew Heller, Steven A. Cohen, Daniel S. Loeb, and Kynikos Associates LP, but assigned responsibility to the others as follows:
C & F, and not Fairfax, pursued claims at trial. C & F observed in its merits brief that in the wake of all prior rulings, C & F was "the only plaintiff with damages remaining in the case."
• eight percent to the Exis defendants;
• ten percent to the S.A.C. defendants;
• forty percent to Contogouris;
• twenty percent to Morgan Keegan;
• fifteen percent to James S. Chanos; and
• seven percent to Third Point LLC.
The jury also awarded punitive damages of $3,000,000 against the Exis defendants, $2,250,000 against Sender, and $250,000 against Heller.
The judge later granted Sender's and Heller's motions to vacate the punitive damage awards against them, and correspondingly denied C &F's motion to mold the compensatory damages verdict by making Sender and Heller personally liable, in accordance with the jury verdict, and thus liable for punitive damages. The judge also denied Exis's motion to vacate the compensatory damages award for failure to prove special damages, as well as its motion to set off the amount of Morgan Keegan's settlement from the compensatory and punitive damage awards. The judge also granted a motion to render Exis liable for the full amount of compensatory damages due to joint and several liability for conspiracy, and it issued a superseding order to that effect.
On appeal, C & F argues that the trial judge erred (1) by refusing to reconsider a choice-of-law determination, (2) by dismissing the S.A.C. defendants for lack of personal jurisdiction, (3) by failing to mold the verdict to attribute personal liability to Sender and Heller in light of the finding against Exis; and (4) by giving a charge on causation that mistakenly compelled the jury to deny recovery of lost profits from prospective customers, while Exis crossappeals, arguing the judge erred (5) by denying its pretrial and post-trial motions to dismiss because C &F failed to prove special damages, and (6) by failing to set off Morgan Keegan's settlement payment from the damages awarded. For the reasons that follow, we reject all these arguments except the fourth and the sixth.
I
C &F first claims that the trial judge erred by denying its pretrial motions for reconsideration of the law to be applied to its common law and racketeering claims. We disagree.
In our prior decision, the choice-of-law analysis presupposed what Fairfax and C &F consistently maintained: their finances and interests were too intertwined to be separated for any purpose and, in particular, attempts to identify a financial harm or loss from the scheme that might affect only one of them without also substantially redounding upon the other. Fairfax, 450 N.J.Super. at 34-36. We also observed that "[a] sudden alteration" in that perspective was "sought by no one here, even now on appeal." Id. at 36.
We recognized that defendants' alleged misconduct "predominantly occurred in New York rather than New Jersey and was primarily aimed at harming plaintiffs indirectly by damaging their reputation by influencing the mostly New York-based financial markets and financial news media." Id. at 49. In tackling the choice-of-law issues, we recognized that New York and New Jersey had manifestly different policies for defining and policing racketeering, but that New York had the most significant relationship with the parties and the alleged misconduct. And so, we concluded that New York law should govern the racketeering claims, which compelled their dismissal because New York does not recognize such a private right of action. Id. at 36-57. We reached the same conclusion in determining that New York law would apply to the remaining common law claims. Id. at 63 &n.40.
Following our remand, C &F unsuccessfully moved for reconsideration of our determination that New York law should apply to its common law claims. C &F based its motion on the fact that Fairfax's absence from the remaining proceedings meant the case was no longer about what we had seen as Fairfax's and C &F's New York-centric and impenetrable tangle of interests, and that the case had instead been reduced to the harm that C &F - a New Jersey entity -had sustained from the common law torts.
After careful consideration of the parties' arguments, we are satisfied that the trial judge correctly recognized that our decision continued to control the proceedings. Indeed, if our view had been limited, we would have then so held.
At another hearing closer to the start of trial, the judge denied C &F's motion to reconsider the denial of reconsideration. The judge found this court's description of plaintiffs' assertions of an "alleged enterprise of multistate disparagement" encompassed all the misconduct they urged, and that it all was covered by our ruling that the "weight of the conduct" was in New York. Finding our choice-of-law ruling could be revisited only "in truly exceptional circumstances" that revealed adherence would be unworkable or unjust, the motion was denied.
The trial judge correctly rejected C &F's contentions, which were based on an erroneously perceived change in the status of the parties or claims between the prior appeal and the remand necessitating a reconsideration of the law to be applied. Indeed, there had been no change in the status quo between our ruling and the circumstances as they existed when the judge ruled on these motions. The racketeering claims, and therefore the Fairfax interests that were putatively separable from the common law claims, were not removed from the litigation during the remand; they were removed the moment we upheld the summary judgment that dismissed them. Once we so ruled, we turned to the common law claims and concluded they did not warrant their own choice-of-law analysis. That is the posture of the case when we remanded, and the trial judge correctly recognized that nothing had happened after our rulings to significantly change it.
In addition, it is important to recognize in this regard that several defendants, who were dismissed from the action yet remained on the verdict sheet, were New York residents. The scheme the jury was asked to dissect and make findings about was as complex as if those defendants had remained in the case, so the alleged misconduct of all defendants and thus the full dimensions of the disparagement campaign remained in the case as a predominantly New York activity, giving New York the chief interest in regulating or deterring it.
We thus reject C &F's choice-of-law arguments.
II
In its next point, C &F argues the judge erred in granting the S.A.C. defendants' motion to dismiss for lack of personal jurisdiction. We disagree.
Rule 4:4-4(b)(1) allows for the exercise of personal jurisdiction over nonresident defendants "consistent with due process of law." That is, our courts' jurisdictional reach over nonresidents extends as far as federal standards of due process allow. Avdel Corp. v. Mecure, 58 N.J. 264, 268 (1971); Reliance Nat'l Ins. Co. in Liquidation v. Dana Transp., Inc., 376 N.J.Super. 537, 543 (App. Div. 2005). The federal standard permits the exertion of personal jurisdiction over a nonresident that had "minimum contacts" with the forum "such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.'" Int'l Shoe v. Washington, 326 U.S. 310, 326 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 563 (1940)). In "some circumstances," minimum contacts may be established by "the combined effect of several contacts with the state, no one of which is sufficient." Zahl v. Eastland, 465 N.J.Super. 79, 98 (App. Div. 2020) (quoting Bayway Refining Co. v. State Utils., Inc., 333 N.J.Super. 420, 433 (App. Div. 2000)).
General jurisdiction, which plaintiffs do not now argue, would have required a finding that the S.A.C. defendants had "continuous and systematic" contacts or activities with New Jersey, unrelated to the conduct that plaintiffs alleged, approximating an actual presence here. Waste Mgmt. v. Admiral Ins. Co., 138 N.J. 106, 119 (1994); Lebel v. Everglades Marina, Inc., 115 N.J. 317, 322-23 (1989). For specific jurisdiction, "the minimum contacts inquiry must focus on 'the relationship among the defendant, the forum, and the litigation.'" Lebel, 115 N.J. at 323 (quoting Shaffer v. Heitner, 433 U.S. 186, 204 (1977)). Whether a court may fairly say the nonresident has had minimum contacts with the forum "turns on the presence or absence of intentional acts of the defendant to avail itself of some benefit of a forum state," Waste Mgmt., 138 N.J. at 126, which means "purposeful conduct" with enough "connection" to the forum that the defendant should "reasonably anticipate being haled into court there." Lebel, 115 N.J. at 323-24 (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980)).
In reviewing the disposition of a motion to dismiss for lack of personal jurisdiction, appellate courts "generally defer" to the judge's factual findings and will look to see if "those factual determinations are supported by substantial, credible evidence," YA Glob. Inv., L.P. v. Cliff, 419 N.J.Super. 1, 8 (App. Div. 2011), but will review the legal aspects of the decision de novo, Zahl, 465 N.J.Super. at 92.
In explaining the dismissal of the claims against the S.A.C. defendants on jurisdictional grounds, the trial judge relied on our approach in affirming the dismissal of Third Point and Kynikos in the prior appeal. At that time, we determined that Third Point's and Kynikos's "handful of communications" with a ratings agency and the financial media as "far too inconsequential" for the exercise of specific personal jurisdiction, Fairfax, 450 N.J.Super. at 72, before embarking on our discussion of "conspiracy-based jurisdiction" that the remand court cited and treated as all but indistinguishable from personal jurisdiction based on agency.
We characterized conspiracy-based jurisdiction as focusing on "the actions of other alleged co-conspirators." Ibid. For intentional torts, like plaintiffs' common law claims, "the question is whether an intentional act was 'calculated to create an actionable event in a forum state.'" Id. at 74 (quoting Blakey v. Cont'l Airlines, Inc., 164 N.J. 38, 67 (2000)). Conduct has a sufficient connection to the forum if the nonresident "directed his conduct" at the plaintiff, Walden v. Fiore, 571 U.S. 277, 289 (2014), with knowledge that the plaintiff had sufficient contact with or interests in the forum as to make it reasonably predictable, rather than fortuitous, that the plaintiff would "[feel] the impact of [the nonresident's] conduct" in the forum. Fairfax, 450 N.J.Super. at 75.
We then addressed when communication or coordination with a coconspirator amounts to conduct directed toward the forum or the plaintiff's interests there, and concluded the alleged false statements had not been "distributed into New Jersey" but rather disseminated "to affect the financial markets in New York in order to cause harm to a Canadian corporation." Id. at 77-78. The bare existence of the conspiracy was therefore not enough, and personal jurisdiction over a particular nonresident co-conspirator required proof that the nonresident knew or should have known that significant acts in furtherance of the conspiracy would be committed in the forum. Ibid. (citing Waste Mgmt., 138 N.J. at 127, and other authorities).
We recognized in our prior opinion that Third Point's and Kynikos's communications consisted of "information-sharing and speculation about the profitability of" holding short positions in Fairfax securities when the false statements were disseminated, that there was "nothing objectively actionable in the substance of the communications," and that they "constitute[d] 'insufficient minimum contacts to establish personal jurisdiction over a defendant.'" Id. at 78-79 (quoting Baanyan Software Servs., Inc. v. Kuncha, 433 N.J.Super. 466, 477 (App. Div. 2013)). And, so, the communications could not establish those defendants' knowledge except by "speculation and innuendo." Id. at 79. That was in marked contrast to State, Dep't of Treasury v. Qwest Commc'ns Int'l, Inc., 387 N.J.Super. 487 (App. Div. 2006), where the nonresident defendants' communications directed toward New Jersey residents were not incidental to the alleged misconduct but were instead "the gravamen" of the misconduct itself, namely, fraudulent misrepresentations directed at them to induce investment in the titular defendant's stock. Id. at 76-79 (quoting Qwest, 387 N.J.Super. At 500). We then held that "we must reject plaintiffs' claims that courts may assert personal jurisdiction over [Third Point and Kynikos] based solely on actions that other defendants allegedly committed within New Jersey absent evidence these defendants knew or should have known their alleged co-conspirators would take action in this State." Id. at 78.
On remand, the trial judge described how S.A.C.'s own few contacts with New Jersey were insufficient for general jurisdiction, focusing on a theory of specific jurisdiction as the means for imputing the in-state misconduct of Contogouris to S.A.C. because S.A.C. knew C &F's "operations were centered in New Jersey," and had "knowingly and intentionally participated in an enterprise and conspiracy that was intended to, and did, cause harm in New Jersey to C &F and Fairfax." The judge then observed that we had rejected that same theory of specific jurisdiction over Third Point and Kynikos when considering "virtually identical facts," namely, "Contogouris's dissemination and publication of MI4 reports and Contogouris's use of ICS [Research], "a company that Contogouris and Rekuc formed in New Jersey "to prepare and disseminate the allegedly false reports." The effect, and therefore the purpose, of the conspiracy was, as the trial judge held, to cause harm "in New York and Canada, not New Jersey."
The judge also relied on our prior observation that "mere communication between co-conspirators is insufficient to demonstrate the out-of-state coconspirators' awareness of specific conduct directed toward New Jersey." Finding no evidence that the S.A.C. defendants "were aware of the particular actions taken by Contogouris in New Jersey," the judge found, as we held in dealing with Third Point and Kynikos, that there was "no basis for an inference that [they] were aware of any particular actions taken by their alleged coconspirators in New Jersey" (quoting Fairfax, 450 N.J.Super. at 78). In short, the judge recognized that we had equated conspiracy and agency for this purpose, by rejecting personal jurisdiction over one defendant when its assertion was based solely on the acts of other defendants, unless it knew or should have known that those acts occurred within this State.
To be sure, an agency relationship might suffice as a purposeful availment of a forum and thereby establish specific jurisdiction if the principal "direct[s] its agents or distributors to take action there." Daimler AG v. Bauman, 571 U.S. 117, 135 n.13 (2014). But there was no evidence that the S.A.C. defendants directed Contogouris to take action within this State, and the simple fact that Steven A. Cohen had the "ability to speak with Contogouris while Contogouris was in New Jersey" was an insufficient basis for inferring "that Cohen instructed Contogouris to direct any particular conduct toward New Jersey or that Cohen intended his actions to affect the New Jersey forum."
The judge then capped off his discussion about personal jurisdiction by returning to our determination that to the extent there was an intent to harm plaintiffs, even the intent to cause C &F to lose customers, it was an intent by all participants in the scheme to cause harm where plaintiffs would experience most of it - in New York - and that the intent could not be fairly connected to New Jersey. The absence of an intent to cause harm in New Jersey, even through an agent or co-conspirator, meant there was no intent that could be imputed to S.A.C. as a basis for forming a contact with this State.
We would also add that the specific circumstances which C &F argues to suggest a greater connection between S.A.C. and this State are simply too ephemeral. For example, C &F asks us to consider S.A.C.'s supposed contacts with Contogouris by citing to diary notes, emails, and deposition excerpts. But these items provide no support for the broad assertion contained in plaintiffs' brief that S.A.C. "continued to communicate with [Contogouris] and facilitated internships for him . . . to assist him in establishing more legitimate credentials." Nor do they demonstrate the degree of S.A.C. control over Exis that C &F need to justify in attempting to equate S.A.C.'s large investment in Exis with S.A.C. being involved in all Contogouris's activities, or to justify equating Contogouris's giving Exis material that he hoped it would forward to S.A.C. with Contogouris's actually having "communicated with Cohen."
Indeed, the only suggestion of a communication between Contogouris and Cohen is an email in which Sender asked Cohen if he would "have any time in the next two weeks to meet with myself and my new headanalyst [sic]." Sender stated that he thought Cohen "would like access to his deeply researched ideas," and that he was willing to drive to Connecticut for a meeting. C &F, however, does not furnish any evidence that a meeting was scheduled, and that particular email provides no support for the proposition that "Cohen . . . called Sender . . . about Contogouris." To get further in the weeds, the contention about Contogouris calling Cohen directly when he "want[ed] Steve to [k]now something" was his description of the access he was asking Sender to arrange, not a statement that he had achieved it and begun to exercise it. At his deposition, Contogouris stated that he had spoken with Cohen only once or twice, probably in 2000, and he testified consistently to that effect except for one instance of saying "I did call him," upon which C &F seizes. That is the statement Contogouris professed to correct by declaring in an affidavit that he had meant to say that he did not call Cohen.
Separately or collectively, these communications are too insubstantial to suggest S.A.C. knew or should have known the New Jersey locus of Contogouris's activities, and too insubstantial to provide an inference of such knowledge. And the statements by Contogouris to others about his authority to act for Cohen or S.A.C. do not figure in the jurisdictional analysis because apparent authority must be "created by the conduct of the alleged principal," not "alone and solely" by the actions or statements of the alleged agent. Mercer v. Weyerhauser Co., 324 N.J.Super. 290, 318 (App. Div. 1999) (quoting Blaisdell Lumber Co., Inc. v. Horton, 242 N.J.Super. 98, 103 (App. Div. 1990)).
C &F's additional theory that S.A.C. controlled Exis by virtue of the size of its investment fails to explain why the other investors with comparable investments would have acquiesced, or why Sender would have ceded such control over his own considerable investment. Even if S.A.C. did have this alleged outsized influence, there was still no communication between S.A.C. and Exis or their principals, or anything inherent in the nature of Exis's trading in Fairfax securities, to indicate S.A.C.'s knowledge of the location of Contogouris's activities.
Finding insufficient merit in any of C &F's other arguments about personal jurisdiction to warrant further discussion in a written opinion, R. 2:11-3(e)(1)(E), we reject C &F's second point.
III
C &F next argues that the trial judge erred by failing to enter final judgment against Sender and Heller as well as Exis, and that the judge should have granted the request to instruct the jury that these defendants could be found liable in their individual capacities beyond simply being the corporate officers whose conduct made Exis liable. In arguing the jury was confused without such instructions, C &F alludes to the fact that the verdict form named Sender and Heller. C &F also argues that the judge should have molded the verdict to impose liability on Sender and Heller, noting that the jury found the malice needed for commercial disparagement, and its award of punitive damages against Sender and Heller plainly reflected the jury's belief that they acted maliciously. We find no merit in these arguments.
To put this argument in context, we note that the jury charge defined commercial disparagement as a false statement made with malice and "published by a defendant to a third-party." The jury was told that C &F needed to prove that the statements or actions of "defendants" caused the loss of business, meaning there was a sufficient connection between the conduct and the loss for "defendants" to be held liable. In turning to the apportionment of damages on this claim, the judge instructed that the jury would reach that question only if it were to "find that one or more of the remaining defendants, the Exis company, Adam Sender, and Andrew Heller, are liable, and that their libelous acts or actions were a proximate cause of the plaintiff['s] damages."
The verdict sheet required separate determinations for Exis, Sender, and Heller on each element of liability. During deliberations, the jury asked why there were verdict interrogatories for Sender and Heller as well as Exis. This prompted C &F's counsel to request that the judge tell the jury "there is individual tort liability for these two guys as well." C &F requested an instruction that the individuals were corporate officers whose conduct could bind Exis, and "[i]n addition to the corporate liability of the Exis companies, [they] can also be individually liable for the tort of commercial disparagement." The judge simply told the jury that Sender and Heller were listed separately "[b]ecause the plaintiffs claim that they are personally liable."
The jury then rendered its verdict. It voted unanimously that Exis had made false statements about C &F's "business, products or services," while also voting (seven to one) that Sender and Heller had not. The jury then attributed responsibility for the damages, as mentioned earlier in this opinion, allocating Exis a minor share of eight percent.
For conspiracy, the jury similarly voted unanimously that Exis or its agents had committed each element while voting by seven to one that Sender and Heller had not.
Following this verdict, the judge charged the jury on punitive damages, explaining that such an award may be made "to punish a defendant who has acted maliciously and to discourage others from doing the same" by engaging in "wanton and malicious acts." The judge also informed the jury that an employer can be liable "for the intentional wrongdoing" of persons who were shown by clear and convincing evidence to be employees or agents; this requires, the judge instructed, "that a superior officer, in the course of employment, orders, participates in, or ratifies outrageous conduct" of its employees, and that a superior officer is "a person possessing a high level of general managerial authority in relation to the nature and operation of the employer's business."
The judge also instructed the jury that finding "the Exis Companies, or any of the defendants, has engaged in the type of wrongdoing that justifies punitive damages" would then require them to determine the amount to award. The jury was told that it "must determine, as to each defendant, whether malice existed, and if so, its extent, "and make separate awards against each of them.
The verdict sheet listed Exis, Sender, and Heller as the remaining defendants, phrased the liability question simply as whether C &F was "entitled to punitive damages against the defendants, "and required separate votes on liability for each of them. The jury voted seven to one to award punitive damages against them all.
The judge granted Sender and Heller's motion to vacate the punitive damage awards against them and denied C &F's motion to mold the compensatory damages verdict to render Sender and Heller personally liable to comport with the jury's punitive-damage findings.
The judge found that "[w]hile liability may inure to a company based on the actions of its agents or employees, it is not applicable in the reverse," and concluded he was "not persuaded that an agent or employee is, as a matter of law, held personally liable for the actions of its employers." The judge therefore held that the jury did not stray outside the law when "specifically reject[ing] the personal liability of both Sender and Heller," and concluded that "molding the judgment to include them would be an improper breach of the jury's province."
The judge also recognized that New York law on punitive damages requires malice, which the jury specifically declined to find for Sender or Heller, when concluding only that Exis was liable for commercial disparagement or conspiracy. And a punitive damage award also required liability for an intentional tort and an award of compensatory damages, neither of which was imposed on Sender or Heller. The judge, thus, vacated the punitive damage awards. We agree that was the appropriate disposition.
A corporation is independent of its shareholders, and our courts have rarely "disregarded the corporate form and determined that the principals of the corporation were indistinguishable from the corporation itself." See McCarthy v. John T. Henderson, Inc., 246 N.J.Super. 225, 231 (App. Div. 1991). Even a corporation that elects Subchapter S status maintains the quintessence of a corporation, namely, "an existence separate and distinct from its shareholders." Colonial Trust III v. Dir., Div. of Tax'n, 16 N.J. Tax 385, 393 (Tax Ct. 1997).
That independence runs in both directions, as corporate officers are not personally liable simply because they represent the corporation. Van Natta Mech. Corp. v. Di Staulo, 277 N.J.Super. 175, 191 (App. Div. 1994). To be held liable, corporate officers must actively engage in or direct the corporation's tortious conduct. Ibid. (citing McGlynn v. Schultz, 95 N.J.Super. 412, 416 (App. Div. 1967)).
New York law is similar. "A director or officer of a corporation does not incur personal liability for its torts merely by reason of [their] official character." N. Shore Architectural Stone, Inc. v. Am. Artisan Constr., Inc., 61 N.Y.S.3d 627, 629 (App. Div. 2017) (quoting Greenway Plaza Off. Park-1, LLC v. Metro Constr. Servs., Inc., 771 N.Y.S.2d 532, 533 (App. Div. 2004)). The corporate official therefore "cannot be liable for torts 'attributable to the corporation if he [or she] did not participate in and was not connected with the acts in any manner.'" Ibid. (quoting PDK Labs, Inc. v. G.M.G. Trans. W. Corp., 957 N.Y.S.2d 191, 195 (App. Div. 2012)). But "[a] corporate officer who participates in the commission of a tort may be held individually liable, regardless of whether the officer acted on behalf of the corporation in the course of official duties and regardless of whether the corporate veil is pierced." Rajeev Sindhwani, M.D., PLLC v. Coe Bus. Serv., Inc., 861 N.Y.S.2d 705, 709 (App. Div. 2008) (quoting Am. Express Travel Related Servs. Co. v. N. Atl. Resources, 691 N.Y.S.2d 403, 404 (App. Div. 1999)).
We agree that the absence of a finding that Heller and Sender were liable for the alleged torts precluded the incorporation of the jury's punitive damages verdict against them into the judgment. And we reject C &F's argument that, rather than recognize the mistake in the punitive damages verdict, the judge should have molded the earlier verdict to reflect what the jury found about punitive damages. Rather than fix the mistake that led to the rendering of a verdict on punitive damages, C &F would have had the judge - and now this court - compound that mistake by overriding the jury's liability verdicts on compensatory damages. Like the trial judge, we decline that invitation.
IV
C &F claims that the judge erred in charging the jury on causation for commercial disparagement. C &F argues that a defendant's conduct need only be a substantial factor, not the sole or predominant factor, and that the judge's error led the jury to award damages only for the lost profits from existing customers that failed to renew, without including lost profits from new customers who were similarly dissuaded by the disparagement from doing business with C &F. We agree the jury charge on causation was erroneous.
In our earlier opinion, we explained that "in New York, defamation claims, which are akin to disparagement claims, require 'special damages,' meaning an economic loss resulting from the harm to the plaintiff's reputation." Fairfax, 450 N.J.Super. at 64. Proving that loss "requires the identification of customers who would have dealt with the plaintiff but for the reputational harm." Ibid.
During the charge conference, the judge referred to a New York case -Learning Annex Holdings, LLC v. Gittelman, 850 N.Y.S.2d 422, 423 (App. Div. 2008) - for the proposition that a "but for" standard of causation applies to claims alleging tortious interference with prospective business relationships. C &F objected to this suggestion, arguing that an unelaborated statement of "but-for" as the standard would be misleading for two reasons.
First, C &F argued that a bare statement of but-for cause to indicate the necessity of the disparagement as an element in a customer's decision not to do business with C &F would wrongly imply that it had to be the sole cause of that decision. C &F argued for the judge's utilization of a New York "pattern jury instruction, "which requires that a defendant's conduct be a "material and substantial cause" without mentioning but-for. See N.Y. Pattern Jury Instruction - Civil 2:70. Second, C &F argued that even if the charge contained a but-for requirement, that the judge should have also charged that "it doesn't have to be the sole factor." The judge recognized that he "was torn too" about this, but ultimately settled on charging only "the but-for test."
That is, in defining proximate cause for the jury, the judge imposed on C &F the burden of showing that "the statements or actions of defendants were a substantial causative factor for the loss of business" and that the claim of lost profits was "so connected with the statements and actions of the defendants that . . . it is reasonable . . . the defendants should be held wholly or partially liable for" them. The judge also explained for the jury that commercial disparagement required "special damages," meaning "a loss of business from specific customers . . . that . . . resulted directly and naturally from the false statement or statements of the defendants."
The judge's description of customer reliance in his disparagement charge emphasized the terms "but for" and "direct and natural":
If you find that the statements were maliciously made, you will next consider whether plaintiffs have proved that but for the statements of the defendants you have found were maliciously made, one or more particular customers ceased or refused to engage in a business transaction with the plaintiffs.
To demonstrate this loss the plaintiffs must establish the particular companies who ceased or refused to engage in a business transaction with them. Plaintiffs must also prove that the damage it claims from that loss of business was the direct and natural result of the defendants' statements.
If you find that but for the defendants' statement, the plaintiffs would have sold or renewed insurance
with one or more of the identified perspective customers that plaintiffs have identified, then you may move forward and determine the amount of the pecuniary lost profits from each such lost sale that you find resulted directly and naturally from the making of those statements by the defendant.
[(Emphasis added).]
In instructing about special damages, the judge again emphasized for the jury the aforementioned "but for" and "direct and natural" requirements. The judge advised the jury that special damages required C &F to "identify particular persons who ceased or refused to engage in business transactions with plaintiffs [and] who would have dealt with the plaintiffs but for the statements of the defendants" (emphasis added). "[G]eneral proof of lost customers is not sufficient," the judge stated in his charge, because C &F had to demonstrate the "direct financial loss" of a customer as "the natural and immediate consequence of" the disparaging statements (emphasis added). The verdict form also referenced "but for" as the causation standard, by posing for the jury the question: "Have the [p]laintiffs proven that but for the [d]efendants['] or their agents['] false statements a loss of business to the [p]laintiffs from specific customers would not have occurred?" (emphasis added). In denying Exis's postverdict motion, the judge acknowledged he had "charged the more rigorous 'but for' standard" rather than the "substantial factor" standard that C &F requested.
To be sure, we said in our prior opinion that to prove a disparagement claim under New York law, a plaintiff must "identif[y] . . . customers who would have dealt with the plaintiff but for the reputational harm," Fairfax, 450 N.J.Super. at 64, but we were then considering the category of damages that could be sought, not so much the causation element. Indeed, the New York cases we cited referred to a "material and substantial" standard. For example, in Waste Distillation Tech,. Inc. v. Blasland &Bouck Eng'rs, P.C., 523 N.Y.S.2d 875, 877 (App. Div. 1988), the court held that the disparaging communication "must play a material and substantial part in inducing others not to deal with the plaintiff, with the result that special damages, in the form of lost dealings, are incurred." New York's model jury instructions are constructed in this same way:
If you find that the statement was maliciously made, you will next consider whether the statement was a substantial factor in causing plaintiff pecuniary loss. . . . If you find that plaintiff did not suffer such loss, or that though (he, she) did, the statement was not a substantial factor in causing that loss, you will find for the defendant. If you find that the statement was a substantial factor in causing plaintiff pecuniary loss you will find for plaintiff in the amount of such pecuniary loss as you find resulted directly and naturally from the making of the statement.
[New York Pattern Jury Instructions - Civil 3:55 (Dec. 2021) (emphasis added).]
As described above, while the judge's instructions on commercial disparagement described for the jury how "the statements or actions of defendants [must be] a substantial causative factor for the loss of business," the judge also used the term "but for" repeatedly in discussing for the jury whether false statements could have influenced a customer not to do business with C &F. The judge's last instruction, which described the availability of specific damages, similarly declared "but for" as the standard the jury was obligated to apply.
This error clearly impacted the verdict. The judge noted, in ruling on Exis's motions for judgment on causation, that the jury award of $5.464 million equaled the lost profits C &F claimed for existing customers, meaning that the jury failed to award damages for lost profits caused by the loss of prospective customers. If the jurors thought that the disparagement needed to be the exclusive cause of C &F's harm, they might have believed that only the existing customers had sufficient confidence in C &F for the disparagement to be their sole reason not to do business with it, but not necessarily so for prospective customers.
Although "but-for" might be plausibly interpreted as requiring only necessity, it is more likely understood as requiring exclusivity, especially when only one cause is presented. Moreover, the judge's charge included nothing that would have prevented the jury from interpreting "but-for" as requiring the cause to be the exclusive cause. This alone could have led the jury to withhold an award of damages on the disparagement claim for the loss of prospective business despite the more permissive standard imposed by New York law.
For these reasons, we conclude that there must be a new trial on causation regarding C &F's disparagement claim. That trial should be limited to whether the remaining defendants caused damages beyond the compensatory damages already awarded.
V
In its cross-appeal, Exis claims that the judge erred by failing to dismiss the commercial disparagement claim due to the lack of "special damages" that New York law requires. It argues that a lost customer's reliance on the disparagement must be demonstrated, but instead of presenting statements by past or prospective customers that the disparagement influenced their decisions, C &F's employee and expert witnesses testified only to their reasons for suspecting a particular customer had been so influenced. Exis also notes that the alleged disparagement was directed only at Fairfax, not at C &F. We disagree.
A motion for judgment notwithstanding the verdict presents a question of law, and a trial judge's decision is subject to de novo review. Royster v. N.J. State Police, 227 N.J. 482, 493 (2017); Estate of Barbuto v. Boyd &Boyd, 462 N.J.Super. 580, 587 (App. Div. 2020).
In our prior opinion, we explained why the alleged false statements were legally sufficient to constitute commercial disparagement, observing that "statements disparaging the financial condition of plaintiffs may have a direct link to its products" by undermining confidence in their ability to vindicate the "promise[s] to clients" that the insurance policies they sell represent their promise "to pay them money in the future in the event of certain occurrences." Fairfax, 450 N.J.Super. at 62 n.39. "Statements that question plaintiffs' ability to make those payments [accordingly] strike at both the heart of their reputation and the products they sell[.]" Ibid.
Turning to New York's requirement of special damages, we said C &F was compelled to identify its lost customers by presenting "evidence of particular persons who ceased to be or refused to become customers" due to the disparagement. Id. at 65 (quoting De Marco-Stone Funeral Home Inc. v. WRGB Broad. Inc., 610 N.Y.S.2d 666, 668 (App. Div. 1994)). We noted how C &F developed the list of 180 lost customers and stated that "[p]laintiffs' proofs that these 180 customers relied on the resulting reduced ratings and financial reputation indicated these customers relied on defendants' statements indirectly, as defendants allegedly intended." Id. at 67. We, thus, concluded that the grant of summary judgment based on plaintiffs' inability to prove special damages was erroneous "because the claim of 180 lost business prospects was sufficient to meet the requirements of New York law." Ibid.
On remand, the trial judge denied a motion for summary judgment on causation by recognizing that material factual disputes remained on the "impact of the disparaging statements on the 180 lost customers." The judge observed that the claim requires "proof of special damages and a causal link between the alleged damages and a tortious act," and that we had found special damages to be established by C &F's identification of the 180 customers.
The trial judge also explained that the causation analysis was "extremely fact sensitive" because the disparagement did not have to be "the sole cause of the harm" of losing those customers, but rather "a substantial factor" in a harm that "would not have occurred without it" (quoting Restatement (Second) Torts § 622A cmt. b (1976)). The judge recognized that "a 'black cloud' in the financial market" over plaintiffs created by the disparagement could not suffice, but that causation for any particular customers could be proved by "the effect of the alleged disparaging statements, taken as a whole, on the customers' decisions not to do business with" C &F, as we had held in the previous appeal.
In denying Exis's post-trial motion, the judge observed there was little direct evidence of causation for the lost customers - recognizing that direct evidence "is often nearly impossible to obtain" on such claims - but that the circumstantial evidence was "considerable." The jury, of course, had the opportunity to consider whether C &F's evidence was weakened by its reluctance to seek confirmation from the lost customers or their brokers of the disparagement's impact. The jury plainly made that assessment instead of simply accepting C &F's proofs, because after hearing the circumstantial evidence of the general market effect of disparagement, C &F's reasons for identifying the 180 customers as possibly influenced by the disparagement, and the substantial propensity of existing customers to continue rather than switch to a new carrier, it implicitly distinguished between renewal and prospective customers by awarding only the lost profits claimed for the former.
It also appears true that New York law does not require additional proofs beyond identification of the lost customers. See Van-Go Transp. Co., Inc. v. N.Y.C. Bd. of Educ., 971 F.Supp. 90, 98 (E.D.N.Y. 1997); Kirby v. Wildenstein, 784 F.Supp. 1112, 1115 (S.D.N.Y. 1992); SRW Assocs. v. Bellport Beach Prop. Owners, 517 N.Y.S.2d 741, 743-44 (App. Div. 1987). In fact, it has been held that a republication of the disparagement to an identified customer can make the original author liable for an attendant loss if "the original author was responsible for or ratified the republication." Fashion Boutique of Short Hills v. Fendi, 314 F.3d 48, 59 (2d Cir. 2002) (citing Macy v. N.Y. WorldTelegram Corp., 161 N.Y.S.2d 55, 60 (1957)); see also Burton v. Label, LLC, 344 F.Supp.3d 680, 700 (S.D.N.Y. 2018). C &F's evidence was sufficient to get the claim to the jury; the strength of that evidence is irrelevant when considering the post-trial motion for judgment.
In short, C &F gave the jury sufficient proof of causation because its evidence provided information we previously found sufficient under New York law. They identified the lost customers, which left for the jury the question of whether the disparagement influenced their decisions not to do business or continue doing business with C &F. The jury heard expert testimony suggesting that a lower retention rate for existing customers implied an outside influence, and C &F's employees expressed contemporaneous impressions that certain customers were more concerned about company attributes or capacities than they would have been if not exposed to false statements about them.
And so, for these reasons, we find no error in the judge's disposition of Exis's post-trial motion.
VI
Exis claims that the trial judge erred by failing to reduce the compensatory and punitive damage awards to reflect C &F's settlements with other defendants, namely Morgan Keegan and Contogouris. It argues that New York law required an analysis of the claims against the settling and non-settling defendants for any degree of overlap, and then an allocation of liability between them unless the jury already did so. It further argues that the judge mistakenly disregarded C &F's assertion of all claims against all defendants, which established the overlap between the claims covered by the settlements and the jury verdict that compelled set-off and avoided set-off by speculating what other exposures other settling defendants might have feared. Exis offers alternative calculations of how set-off could have been adopted to reflect the 60% share of liability allocated by the jury to settling defendants.
We find merit in the argument that there should have been a set-off against the compensatory damages award, but we reject the claim that there should have been a set-off against the punitive damages award.
In denying Exis's post-trial motion for a set-off, the trial judge began by observing that the intent behind awarding a set-off is the vindication of a general prohibition against allowing a party to obtain a double recovery for the same harm. It is not available for punitive damages because they are awarded to punish and deter each defendant for its own "particularly egregious conduct," which must be "clearly and convincingly established against each defendant individually."
The judge acknowledged that New York law provides for a set-off against a compensatory damages award, but only to the extent that "the settlement amount and the verdict are for the 'same injury' in tort" (quoting N.Y. Gen. Oblig. Law § 15-108(a) (McKinney 2007)). Referring to Morgan Keegan's settlement shortly before the trial's commencement, the judge observed that "it is illogical for Morgan Keegan to have settled an $18 - $19 million claim for $20 million" and that the settlement must have "not only resolved [its] liability on this $18 - $19 million claim, but eliminated its exposure to substantially more liability, attorney's fees, and litigation cost in the event the Appellate Division reverses one or more of the multiple trial court decisions."
"Without a clear convincing basis" to determine whether the Morgan Keegan settlement and the jury verdict against Exis reflected the "same injury," the judge found no justification for granting any set-off. He also found "it would be inequitable and unjust to, in essence, reward defendants by completely absolving the Exis Companies of compensatory damages" liability for conduct that the jury "appropriately condemned with punitive damages."
New York law allows a defendant held liable in tort to claim a set-off of the damage award by the value of any settlement for "the same injury":
When a release or a covenant not to sue or not to enforce a judgment is given to one of two or more persons liable or claimed to be liable in tort for the same injury, or the same wrongful death, it does not discharge any of the other tortfeasors from liability for the injury or wrongful death unless its terms expressly so provide, but it reduces the claim of the releasor against the other tortfeasors to the extent of any amount stipulated by the release or the covenant, or in the amount of the consideration paid for it, or in the amount of the released tortfeasor's equitable share of the damages under article fourteen of the civil practice law and rules, whichever is the greatest.
[N.Y. Gen. Oblig. Law § 15-108(a) (2007).]
The purpose of this statute, as one New York court recognized "is to encourage settlement [while] ensuring equity" by promoting the fair compensation of a plaintiff without requiring nonsettling defendants to "bear more than their fair share of a plaintiffs loss." Whalen v. Kawasaki Motors Corp. U.S.A., 703 N.E.2d 246, 248 (N.Y. 1998). "[T]he possibility of double recovery should [also] be avoided." Ibid.
Because the statute applies to settlements by "persons liable or claimed to be liable in tort for the same injury," Pollicina v. Misericordia Hosp. Med. Ctr., 604 N.Y.S.2d 879, 883 (1993) (quoting N.Y. Gen. Oblig. Law § 15-108(a)) (emphasis added by Pollicina), that inclusive formulation "compels the conclusion that the settlement amount should be deducted even if the party 'claimed to be liable' is ultimately exonerated." Ibid. (citations omitted). The statute applies if the liability would have been "for the same injury," with no requirement that the settling and non-settling defendants "be liable upon the same theory." Roma v. Buffalo Gen. Hosp., 481 N.Y.S.2d 811, 812-13 (App. Div. 1984).
We agree a set-off was appropriate here. Plaintiffs asserted the same causes of action against all defendants in their third amended complaint and this continued to be their posture through trial. Contogouris was Exis's agent, so Exis was involved in generating and publishing the false statements just as Morgan Keegan was, and they contributed to the "same injury" of the 180 lost customers. That injury was the subject of all the business torts, which substantially overlapped in both principle and proofs. C &F's decision to present only one business tort rather than risk confusing the jurors with the fine distinctions among them did not change the underlying injury for which it was seeking redress; the jury was in fact properly tasked with allocating liability among the remaining defendants as well as the defendants who had settled or been dismissed before trial.
In circumstances like this, once a jury allocates fault and damages for the causes of action, a trial judge must apply the jury's determination of "the monetary value "of the claims and apportion the settlement amount accordingly. Casey v. State of New York, 507 N.Y.S.2d 159, 163 (App. Div. 1986). The apportionment should be conducted only for the fraction of the settlement amount that covered the "same injury," which the court "determine[s] by the sums allocated by the trier of the facts to the respective . . . causes" of action. Id. at 162-63.
We recognize that this process may not be as easy as it sounds because it requires an understanding of the claims that the released parties settled, and a determination of the extent to which those released claims overlapped, with those that were decided by the jury. But the difficulty that this process may present is not a reason for denying relief to the nonsettling defendants to which they were entitled by way of New York law. We leave it to the able trial judge to determine the matter in the first instance.
* * *
The judgment or orders under review are affirmed in part and reversed or vacated in part, and we remand for a new trial on causation as described in Section IV of this opinion and for a determination as to the extent of a set-off thereafter in conformity with Section VI of this opinion. We do not retain jurisdiction.
To the extent we have not expressly or impliedly addressed any of the other arguments posed by the parties in the appeal and cross-appeal it is because we find those other arguments to have insufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).