Punitive Damages for Breach of Contract
Last December, the California Supreme Court allowed punitive damages in a case that started as a breach of contract case. Much has been written about the opinion, wondering whether the case opens the floodgates to punitive damages for all sorts of business disputes. Taking a step back, the California opinion is fairly narrow in its holding. The California Supreme Court made clear that it only applies because the plaintiff's claims for intentional misrepresentation and fraud were independent of the breach of contract. (In addition to sending defective parts that breached the contract, the defendant sent along certificates misrepresenting that each batch conformed with the plaintiff's requirements for use in its helicopters). The opinion also requires that the defendant's conduct exposed the plaintiff to liability for "personal damages independent of the plaintiff's economic loss." (If a helicopter had crashed because of the defective parts, the plaintiff would have faced massive civil lawsuits and potential discipline from the FAA.)
There will be some shakedown as subsequent opinions determine what qualifies as (1) a misrepresentation that is independent from the breach of contract, and (2) exposing the plaintiff for personal damages separate from the economic loss.