Security Title Agency, Inc. v. Pope – 7/29/2008

August 1, 2008

Arizona Court OfAppeals Division One Holds That (1) Sufficient Evidence Supported Title Company’s Liability For Aiding And Abetting A New Employee’s Breach Of Fiduciary Duty Against Previous Employer, A Competing Title Company; (2) Punitive Damages Were Not Improper for Commercial Business Tort, But (3) The Amount Of Punitive Damages Was Unconstitutionally Excessive.

In 2003, First American Title Insurance Company sought to regain its position as the nation’s largest title insurance company from its main competitor, Security Title Agency.  As part of this campaign, First American recruited Linda Pope, a branch manager, and officer of Security Title.  Once Pope agreed to join First American, she then sought to recruit over sixty of Security Title’s employees while she was still employed by Security Title.  First American allegedly knew that Pope was trying to bring with her as many of these sixty-plus employees as possible.  First American also met with several of these employees and advised that these employees should come to First American in groups, not all at once, to avoid the appearance of impropriety on First American’s part.  After Security Title discovered Pope’s actions, she was fired, but she managed to convince thirty employees to walk out on Security Title that same day.  Security Title brought a claim against First American for aiding and abetting Pope’s breach of her fiduciary duty to Security Title.  The trial court refused to grant First American judgment as a matter of law, and the jury found for Security Title, awarded six million in compensatory damages, and thirty-five million dollars in punitive damages.  The trial court set aside the award of punitive damages because First American’s conduct was not sufficiently egregious.  Both sides appealed.     

The ArizonaAppeals Court affirmed the trial court’s denial of First American’s motion for JMOL on Security Title’s aiding and abetting claim, vacated the trial court’s order setting aside the punitive damages award, and reduced the amount of punitive damages.  The Court first concluded that sufficient evidence supported the finding that First American aided and abetted Pope’s breach of fiduciary duty by improperly soliciting Security Title’s employees while she was still an officer of the company.  The jury could have concluded that First American was aware of Pope’s conduct, such as offering employees hiring bonuses and improved benefits, and provided Pope with encouragement and assistance by (among other things) providing the money for the hiring bonuses and agreeing to indemnify Pope if Security Title brought suit against her.  Moreover, the evidence was sufficient even if Pope’s breach did not involve making explicit job offers and even if First Americans did not know every particular of Pope’s tortious conduct.  The Court next concluded that, contrary to the trial court’s order, First American’s conduct justified an award of punitive damages.  The Court then concluded that the jury’s award of thirty-five million in punitive damages was unconstitutionally excessive and reduced the award to six million, which was an amount equal to the compensatory damages awarded to Security Title.  The court concluded that this 1:1 ratio was appropriate because the compensatory damage award was large and the harm caused was economic, not health or safety-related, and involved only one or two of the pertinent reprehensibility factors.  The court finally upheld the trial court’s sanction award of attorneys’ fees and costs against Security Title for its failure to disclose the expected testimony of a trial witness, which ultimately resulted in the case having to be retried.    

Judge Johnsen authored the opinion; Judges Thompson and Timmer concurred.