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After Jury Awards $82.1 Million in Fraud Case, Judge Carpenter Grants Stay Pending Appeal While Denying Other Post-Trial Motions

June 18, 2020

In In Re Bracket Holding Corp. Litigation, C.A. No. N15C-02-223, defendants Express Scripts, Inc. and BioSource LLC in connection with the sale of a company to plaintiff Bracket Holding Corp. allegedly provided financial data that contained numerous material misrepresentations. The plaintiff alleged that the defendants’ misrepresentations fraudulently induced the plaintiff to purchase the company. After a 10-day trial, the jury awarded $82.1 million to the plaintiff. The parties filed numerous post-trial motions, which Judge Carpenter adjudicated as follows.

Denying Defendants Motion for Judgement as a Matter of Law. The defendants argued that the plaintiff failed to establish any misrepresentation related to how much working capital the defendants would provide at closing. Judge Carpenter disagreed, concluding that sufficient evidence existed for a jury to find that the defendants made such overstatements.

Denying Defendants’ Motion for New Trial. The defendants sought a new trial on three grounds, arguing that the court improperly permitted the plaintiff’s allegedly flawed expert to testify, the court improperly excluded certain evidence favorable to the defendants, and the court provided an erroneous jury instruction imposing only a “reckless” mental state to find fraud when the purchase agreement required “deliberate fraud.” The court concluded that the defendants had a full and fair opportunity to cross-examine the plaintiff’s expert, the defendants’ evidence was properly excluded as prejudicial and irrelevant, and that jury instruction was not in error. In particular, although the defendants argued that the purchase agreement required a finding of “deliberate fraud,” Judge Carpenter explained that the word “deliberate” appeared in a wholly distinct part of the purchase agreement and did not alter the mental state required for common law fraud. Accordingly, Judge Carpenter explained that he would not impose a requirement upon the parties for which they had not contractually bargained.

Denying Defendants’ Motion for Remittitur. The defendants moved for remittitur, arguing that the $82.1 million damage award was excessive. The court disagreed, finding that the verdict fell within a supportable range given the evidence presented at trial and that the text of the purchase agreement did not limit the amount of damages available.

Granting Defendants’ Motion to Stay Execution of Judgment Pending Resolution of Post-Trial Motions and Appeal. The defendants, citing to a 1986 Court of Chancery decision, argued that by posting a bond in the amount of the jury award, the defendants were entitled to a stay pending appeal. The plaintiff argued that such a stay would be unjust under the Delaware Supreme Court’s four-factor test announced in Kirpat, Inc. v. Del. Alcoholic Bev. Control Comm’n, 741 A.2d 356 (Del. 1998). Although the court agreed with the plaintiff that the posting of a bond to cover a damages award is alone insufficient to merit a stay, and that Kirkpat provides the operative framework to analyze the propriety of such stays, the court balanced the Kirpat factors and concluded that they weighed in favor of granting the defendants’ motion to stay, so long as the defendants posted a bond in the amount of the damages award against them.

Granting in Part and Denying in Part Plaintiff’s Motion for Costs and Prejudgment and Post- Judgment Interest. The court allowed the plaintiff to recover the following costs: court fees, filing fees, and electronic services fees; service of process costs; certain reasonable expert witness fees; deposition transcripts; trial technology fees to the extent they were used at trial; and pre- and post-judgment interest at a fixed rate of 5.75%.

Denying Plaintiff’s Motion for Attorney’s Fees and Expenses. The plaintiff argued entitlement to fees based on the fee-shifting provisions within the purchase agreement and a related representations and warranties insurance policy. Alternatively, the plaintiff argued that the defendants acted in bad faith. The court disagreed with the plaintiff, concluding that the contractual fee-shifting provisions at issue did not apply to first-party fraud claims, and that the defendants’ behavior did not rise to an “extraordinary” level so as to warrant an attorneys’ fees award resulting from bad faith.

Denying Plaintiff’s Motion for New Trial on Punitive Damages. The plaintiff argued that the court erred in preventing the jury from awarding punitive damages. The court disagreed, stating that “not every fraud case merits punitive damages.” The court reasoned that even in cases of fraud, only conduct that is “gross, oppressive or aggravated” or otherwise involves a “breach of trust or confidence” can substantiate a punitive damages award. Judge Carpenter explained that because the record evidence did not meet the gross, oppressive or aggravated threshold, and because the parties’ relationship was one of buyer and seller in an arm’s-length transaction, punitive damages were inappropriate and properly withheld from the jury’s consideration.

Analysis: This decision is notable for three reasons. First, Judge Carpenter reaffirmed the standard courts use to determine whether to grant a stay pending appeal, explaining that the propriety of such stays is analyzed under the Delaware Supreme Court’s four-factor Kirpat test. Second, the court’s opinion highlights the high threshold for punitive damages under Delaware law. Even though Judge Carpenter pulled no punches when characterizing the defendants’ behavior (“Regardless of how the Defendants try to spin the facts here, they manipulated their records to create a financial picture of [the company] that was simply wrong and fraudulent.”), the court nevertheless found that the record in its totality did not provide a basis for a punitive damages award. Third, throughout the opinion, Judge Carpenter analyzed the parties’ respective contractual rights as set forth in various operative agreements. The opinion follows the Delaware courts’ longstanding practice of honoring the freedom of contract and deferring to the bargains struck by the parties.

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