Court of Appeals Disallows Jury Award of Punitive Damages in Contract Dispute

Posted on: November 28th, 2017

Hansen Company is a general contractor that was hired to renovate the former Younkers Building in downtown Des Moines. In the spring of 2013, RedNet Environmental Services contracted with the Hansen Company to perform asbestos abatement, lead abatement, PCB/Mercury disposal, and demolition of the aforementioned building. Before RedNet was allowed to perform any of the contracted work on the project, the Hansen Company terminated the contract. RedNet filed suit against Hansen claiming breach of contract and punitive damages. RedNet’s claim for punitive damages was based on the facts Hansen “require[ed] RedNet to expend time and monies to continue its preparations to be ready for the start date that was continually extended; inform[ed] RedNet to obtain a bond although not required by the contract terms or of other subcontractors; arrang[ed] for another subcontractor to perform the work while stringing RedNet along; and terminat[ed] the contract at the very last moment.” After hearing the evidence, the jury determined Hansen breached the contract and committed willful and wanton conduct and awarded a verdict for compensatory damages in the amount of $1,381,387 and punitive damages of $250,000. Hansen appealed the verdict contending in part that the claim for punitive damages should have been dismissed.
Ultimately, the Court held that a “wrongful or intentional breach is not enough to afford punitive damages.” Rather, an award of punitive damages for breach of contract is only permitted when the breach “(1) constitutes an intentional tort, and (2) is committed maliciously, in a manner that meets the standards of Iowa Code section 668A.1 (1993).” Citing Magnusson Agency v. Pub. Entity Nat’l Co-Midwest, 560 N.W.2d 20, 29 (Iowa 1997). Therefore, although the Court noted Hansen’s conduct was “clearly willful and intentional” and “indicative of actual spite and hatred,” the Court reversed the jury’s award of punitive damages due to the fact RedNet failed to present evidence of an intentional tort.
THE HANSEN COMPANY, INC., Plaintiff-Appellant, vs. REDNET ENVIRONMENTAL SERVICES, L.L.C., LYNN KNUDSEN, and ROBERT KNUDSEN, Defendants-Appellees. REDNET ENVIRONMENTAL SERVICES, L.L.C., LYNN KNUDSEN, and ROBERT KNUDSEN, Counterclaim Plaintiffs, vs. THE HANSEN COMPANY, INC., Counterclaim Defendant, No. 16-2230 (Iowa App. Oct. 11, 2017).

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