FRAUD IN THE INDUCEMENT - HALF TRUTH - CONTINUANCE - PUNITIVE DAMAGES RATIO: ALABAMA RIVER GROUP AND GEORGE LANDEGGER V. CONECUH TIMBER, INC., ET AL.
The transactions involved in the litigation were affected by a subsidy program administered by the USDA known as the Biomass Crop Assistance Program (“BCAP”). Pursuant to BCAP, a wood dealer was eligible to receive subsidies for qualifying materials. The BCAP program specifically excluded from eligibility for subsidies materials known in the timber and paper industry as “black liquor.” Ms. *4. Black liquor is a slurry of water and other chemicals removed from wood as a by-product in the manufacturing of paper. Ms. *4. Defendant George Landegger was on a call the day after the release of the eligible material list, during which a USDA representative stated emphatically that “black liquor is not going to be eligible” for subsidy. Ms. *5. The ARG defendants’ pulp mills entered into agreements with the USDA to follow the rules and regulations concerning the BCAP and to certify for BCAP subsidies only eligible materials. Ms. *6.
ARG was suspended from the BCAP program as a result of allegedly having certified as eligible products that were not eligible for the subsidies. ARG represented to the wood dealers that the suspension resulted from “a misunderstanding” and encouraged them to continue to deliver their products to the ARG pulp mills. Ms. *10. The gravamen of the wood dealers’ complaint was that ARG made various misrepresentations to them related to its participation in BCAP to induce them to continue to sell wood products to ARG pulp mills at a reduced price. Ms. *14.
The Court rejected ARG defendants’ sufficiency of the evidence on fraudulent inducement in part because “ARG’s representations to the wood dealers that they would receive a BCAP subsidy, even if true for part of the wood products at issue, was not true as to the material used to make black liquor. It is no defense that the statements that ARG made were, at best, ‘half-true’.” Ms. *26-27.
The Court also rejected the defendants’ contention that the false statements were merely an opinion or a prediction about events to occur in the future. The Court concluded that many of the statements in question related to past events and were therefore actionable as misrepresentations. For example, the Court noted testimony from one of the plaintiffs that ARG represented “‘[w]e are not really kicked out. Everything was legal. We got the formula approved by the FSA. Just a misunderstanding. We are going to get put back in the program.’” Ms. *29.
The Court also rejected the ARG defendants’ contention that the representations in question were in the nature of promissory fraud. The Court held
“‘“Fraud in the inducement consists of one party’s misrepresenting a material fact concerning the subject matter of the underlying transaction and the other party’s relying on the misrepresentation to his, her, or its detriment in executing a document or taking a course of action.”’” Farmers Ins. Exch. v. Morris, [Ms. 1121091, Feb. 12, 2016] ___ So. 3d ___, ___ (Ala. 2016) (quoting Johnson Mobile Homes of Alabama, Inc. v. Hathcock, 855 So. 2d 1064, 1067 (Ala. 2003), quoting in turn Oakwood Mobile Homes, Inc. v. Barger, 773 So. 2d 454, 459 (Ala. 2000)).
Ms. *32-33. The Court noted that the ARG defendants’ representations were in the nature of statements as to how much money the plaintiffs would make in the future based upon existing facts. The Court also noted that “a claim of misrepresentation is not necessarily mutually exclusive with a promissory-fraud claim. We have upheld findings of liability for both misrepresentation and promissory fraud where the record below supported each claim.” Ms. *34.
The Court also held the defendants’ contention that the trial court had erroneously instructed the jury that there was a contract claim against defendant Landegger in his individual capacity was not preserved for review. The Court explained “an appellant ‘must adequately state specific grounds for his objection’ at the close of the court’s jury instructions, McElmurry v. Uniroyal, Inc., 531 So. 2d 859, 860 (Ala. 1988), and thereby permit the trial court to correct any error immediately.” Ms. *40-41.
The Court also rejected the defendants’ contention that George Landegger could not be held liable for fraud individually:
“Landegger certainly ‘cannot escape individual liability on the ground that he was acting in an official corporate capacity,’ [Inter-Connect, Inc. v. Gross], 644 So. 2d [867,] 869 [(Ala. 1994)], or on the ground that he did not directly communicate with the wood dealers. The evidence in this case was sufficient for a jury to conclude that, in the alleged scheme of misrepresentation in this case, Landegger authorized and directed his companies and his companies’ employees in at least one of the essential components of the scheme: the crucial decision that ARG would certify as eligible for BCAP subsidies wood material used to make black liquor.”
The Court rejected the defendants’ motion for new trial based on alleged error by the trial court in denying defendants’ motion for a continuance asserting Landegger could not attend the trial due to his home confinement on a criminal charge in Connecticut. The Court held “civil litigants in Alabama have no right to a continuance of the trial, nor do incarcerated parties have a right to personally attend or testify at trial.” Ms. *52.
Noting that compensatory damages must be reasonably certain but are not held to a strict numerical standard, the Court rejected the defendants’ challenge to the amount of compensatory damages. The Court declined the ARG defendants’ invitation to reexamine the competing arithmetic of the parties and to reweigh the competing testimony and exhibits. The Court noted “just as a trial court may not substitute its judgment for that of the jury when the jury has returned a compensatory verdict that is supported by the record, neither may this court.” Ms. *88 (internal citations omitted).
As for remittitur of punitive damages, the Court held
Although we continue to refuse to identify any bright-line numerical value that would judicially cap punitive damages for all cases, we conclude that in the present case the second Gore guidepost, informed by Campbell and Alabama law, favors a remittitur to a 3:1 ratio [to compensatory damages]....