(May 29, 2008) The California Supreme Court recently invalidated a jury’s punitive damages award in a breach of contract case.
In the case of City of Hope National Medical Center (City of Hope) v. Genentech Inc. (Genentech), the issue before the court was, whether a fiduciary relationship arose between two contracting parties by virtue of the fact that one party was contracted to develop a secret scientific discovery.
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On August 13, 1999, City of Hope sued Genentech for breach of fiduciary duty and for breach of contract, including breach of the implied covenant of good faith and fair dealing. At the first trial, the jurors were unable to reach a verdict, voting 7 to 5 in favor of Genentech. The case was then retried.
In June 2002, after a jury trial, City of Hope obtained a judgment against Genentech for breach of fiduciary duty and for breach of contracts. The judgment awarded City of Hope more than $300 million in compensatory damages and $200 million in punitive damages. The Court of Appeal affirmed.
The Supreme Court found no fiduciary relationship existed between Genentech and the City of Hope. Because punitive damages cannot be awarded for a breach of contract, the court held that there was no fiduciary relationship and therefore set aside the jury’s award of $200 million in punitive damages to City of Hope.
City of Hope insisted that the trial court’s instruction based on the case of Stevens v. Marco (1956) 147 Cal.App.2d 357, was correct because the relationship with Genentech manifest the four characteristics that, according to City of Hope, are typical of a fiduciary relationship. The Supreme Court disagreed.
The Supreme Court concluded that the trial court erred in instructing the jury that a fiduciary relationship existed between City of Hope and Genentech. Because fiduciary duties do not necessarily arise from this type of relationship, City of Hope’s only theory at trial for claiming a fiduciary relationship with Genentech was legally invalid and therefore the judgment against Genentech is defective insofar as it is based on the jury’s finding that Genentech breached fiduciary duties owed to City of Hope.
The only other ground for the jury’s imposition of liability against Genentech was the jury’s finding that Genentech had breached its contract with City of Hope. Because punitive damages may not be awarded for a breach of contract, the award of punitive damages must be set aside.
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Staff Contact: Erika Frank