Ohio Supreme Court Reaffirms Punitive Damages May Not Be Awarded for a Breach of Contract
Business Litigation Update
Date: January 10, 2018
On January 4, 2018, the Ohio Supreme Court in Lucarell v. Nationwide Mut. Ins. Co. reaffirmed the principle that punitive damages are not recoverable for breach of contract. If a breach of contract involves conduct that separately constitutes a tort, punitive damages may only be awarded for the tort, not for the breach, and are subject to statutory limitations.
Ohio appellate courts, including the Seventh District Court of Appeals, previously suggested that there may be an “exception” to the common law rule that punitive damages are recoverable if a breach of contract is accompanied by a connected, but independent, tort. However, the Ohio Supreme Court clarified that punitive damages are only available when the claimant “suffered a harm distinct from the breach of contract action and attributed solely to the alleged tortious conduct.” Therefore, punitive damages are “recoverable for a tort committed in connection with, but independently of, the breach of contract, where the essentials of the award of such damages are otherwise present, the allowance of such damages being for the tort and not for the breach of contract.”
The Lucarell decision includes two other significant rulings regarding application of the prevention of performance doctrine as a defense to a release and the ability to claim fraud based on future projections.
The prevention of performance doctrine stands for the proposition that a party who prevents another from performing a contractual obligation may not rely on that failure of performance to assert a claim for a breach of contract. In Lucarell, the court held that this doctrine is not a defense to a release of liability. An unconditional release of liability becomes effective upon execution and delivery of the release and bars any claims encompassed within it, unless it was procured by fraud, duress or other wrongful conduct. Thus, the court reasoned that any analysis of the prevention of performance doctrine as a defense to a release is irrelevant and erroneous as a matter of law.
Next, the court decided that predictions or projections relating to future performance or misrepresentations made to third parties cannot form the basis of a fraud claim. To constitute fraud, a misrepresentation must involve a matter of fact that relates to the past or present. Notably, the court stated that a pro forma is not an actionable representation because it is a prediction about the future, not a statement about the past or even the present.
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