On January 12, 2021, the Missouri Court of Appeals for the Western District issued a 24-page decision addressing an appeal of a multi-million-dollar jury verdict and award entered against a large, full-service promotional products distributor, HALO Branded Solutions, Inc. (“HALO”), for engaging in unlawful competition. See All Star Awards & Ad Specialties, Inc. v. Halo Branded Solutions, Inc., -- S.W.3d --, 2021 WL 96073 (Mo. App. W.D. Jan. 12, 2021).
Factual and Procedural Background
The underlying case involved claims by a smaller “mom-and-pop” promotional company—All Star Awards & Ad Specialties, Inc. (“All Star”)—against HALO for civil conspiracy to breach the duty of loyalty arising from the conduct of a former All Star employee and for engaging in tortious interference with All Star’s business expectancies. For several months, former All Star employee, Doug Ford (“Ford”), actively and surreptitiously coordinated with and diverted business to HALO while still employed with All Star. Ford did not have a non-competition agreement with All Star.
The evidence at trial showed All Star suffered about $25,000 in lost profits due to the coordinated conduct of Ford and HALO. The evidence also showed that HALO expected to bring in around $500,000 in additional sales revenue from All Star as a result of these coordinated efforts. The jury ultimately awarded damages to All Star in these amounts.
The jury also awarded All Star $12,000 in punitive damages against Ford and $5.5 million in punitive damages against HALO. However, after post-trial motions by HALO, the trial court applied a statute imposing caps on punitive damages award—that is, Section 510.265—and reduced the punitive damages award against HALO to about $2.6 million—that is, an amount five times the actual damages in the case. Both parties appealed.
On appeal, the Western District addressed several different issues raised by the parties. This article will focus only on two significant issues that the Court addressed:
- Whether the trial court erred in applying a Section 510.265 that capped punitive damages awards to the jury’s punitive damages award in this case; and
- Whether the trial court erred in submitting the question of punitive damages to the jury.
In addressing the first question, the Court began its analysis by noting the language of Section 510.265:
- No award of punitive damages against any defendant shall exceed the greater of:
- Five hundred thousand dollars; or
- Five times the net amount of the judgment awarded to the plaintiff against the defendant.
On its face, the language of this statute seems to apply. There do not appear to be any qualifiers or exceptions stated in the statute. This appears, in large part, to be what the trial court believed and why it applied the statute to reduce the jury verdict.
However, as the Western District explained, this should not have been the end of the trial court’s analysis. Prior Missouri courts have found that Section 510.265 may be unconstitutional in application in certain cases. See Lewellen v. Franklin, 441 S.W.3d 136, 143-50 (Mo. banc 2014).
In Lewellen, the Missouri Supreme Court held a trial court erred in reducing a punitive damages award under Section 510.265 in a case involving a claim of fraud. Id. This is because the Missouri Constitution, which was adopted in 1820, states the right to a jury trial “shall remain violate,” juries determined punitive damages award amounts in 1820, claims of fraud were recognized in 1820, and any change in the right to a jury determination on such claims as existed in 1820 is unconstitutional. Id.
Despite the holding of Lewellen, HALO argued that claims for breach of the duty of loyalty and for tortious interference with business expectancies were not formally recognized by Missouri courts until the middle of the 20th century, no such claims would have been tried by a jury in 1820, and therefore there is no right to a jury determination affected by application of Section 510.265in this case.
The Western District rejected this argument, drawing from historical considerations about the origins and development of English and Missouri common law to conclude such claims “would have been cognizable” in 1820 and triable by jury. According to the Western District, “[i]t is clear that the date that the Missouri courts recognized a particular common-law cause of action is irrelevant under Lewellen to the question of whether the action or an analogous action existed at common law when our constitution was adopted.” (emphasis original).
Ultimately, because application of the statutory caps of Section 510.265 in this case would alter this “inviolate” right from 1820 to a jury trial and determination of damages, the Western District concluded the trial court erred in applying Section 510.265 to reduce the punitive damages award. However, the Court noted that the trial court, due to this erroneous ruling, did not determine whether the punitive damages award otherwise comported with due process considerations. As a result, the Court remanded the case for the trial court to address and answer this question.
Before remanding the case, however, the Court addressed and rejected HALO’s argument that the trial court erred in submitting the punitive damages claim to the jury in the first place. HALO claimed All Star did not make a submissible case for punitive damages because “it failed to elicit clear and convincing proof that HALO’s conduct warranted a punitive-damages award.”
The Court resoundingly rejected this argument by spelling out in detail HALO’s misconduct over the course of three to four pages of its decision. In doing so, the Court emphasized that “every employee owes his or her employer a duty of loyalty.” (citing Scanwell Freight Express STL Inc. v. Chan, 162 S.W.3d 477, 479 (Mo. banc 2005)). The absence of non-competition agreements on the part of All Star was immaterial to the Court:
"Even though All Star did not require its employees to sign non-competition agreements, and Mr. Ford and HALO are therefore under no legal obligation not to compete for All Star’s customers, they did so in breach of the duty of loyalty before [Ford] left All Star’s employ and plan to do so in the future with the benefit of proprietary information improperly taken from All Star’s files to ensure a seamless transition for All Star’s customers moved to HALO."
The Western District’s decision provides additional guidance on when and why the punitive damages cap of Section 510.265 may not apply to certain claims. It also makes clear that protections against unfair competition exist even if the absence of noncompete agreements. Practitioners and clients alike should heed the main lesson in this case: the absence of non-compete agreements does not mean any and all competition flies in Missouri. As we saw in this case, serious consequences—like multi-million-dollar judgments—may result when parties believe and act otherwise.