Ill Supreme Court
Trims Punitive Damages
Local 150 Sells Court
on ratios, but what does
“minimally reprehensible” mean?
A few weeks ago the Illinois Supreme Court reversed in part an appeals court ruling that awarded Lowe Excavating $325,000 in punitive damages against Operating Engineers Local No. 150. International Union of Operating Engineers, Local 150 v. Lowe Excavating Company, No. 101231 (November 30). The amount was cut to $50,000. See our blog entry discussing the appellate court case.
In early 1988 Lowe had been working at a federally funded jobsite in McHenry County using non-union operators, but paying at or about union scale. Local 150 picketed the job, using signs that stated: “Notice to the public: Lowe Excavating does not pay the prevailing wages and economic benefits for operating engineers which are standard in the area. Our dispute concerns only sub-standard wages and benefits paid by this company.” Lowe had been negotiating a collective-bargaining agreement with the 150 but without success.
Such picketing is protected under the National Labor Relations Act under §8(b)(7)(c), provided its sole object is to advise the public truthfully that the targeted employer does not meet area standards. However, this exception may disappear if the union knew or should have known that the employer in fact did pay or confer benefits within area standards. In this case, Lowe had provided certified payrolls to HUD. Union business agents decided to picket Lowe without investigating its payroll practices, despite a written declaration from Lowe stating: “We are paying area standards,” and despite the general contractor, FAMCO, expressly telling the B.A. present during the picketing that this was a HUD job and that FAMCO had filed Lowe’s certified payrolls with HUD. Obviously the 150 picketed Lowe to exact concessions it was not getting at the bargaining table – one can assume the union insisted on the execution of a short-form agreement that would plug Lowe into the area agreement but Lowe had decided to bargain for a one-on-one contract.
In any event when the picketing took its inevitable toll on the project FAMCO replaced Lowe, then brought him back twice, then fired him again. On the two separate occasions when Lowe returned to the jobsite, the union returned with picketing, and was again advised that Lowe paid prevailing wages under certified payrolls.
At trial the FAMCO CEO testified that he doubted Lowe had its “house in order” after these incidents of Lowe’s return to the job had declined to give him work for five years.
Lowe apparently had little evidence of illegal pressure applied to FAMCO and did not seek damages under §303 of the federal law for illegal secondary picketing. Instead, soon after being thrown off the job Lowe (as did Maki Construction, see blog entry) went to state court under the intentional tort exception to the rule that all labor law disputes belong at the NLRB or in federal court. Resorting to Illinois common law, Lowe claimed intentional interference with prospective economic advantage (the advantage being Lowe’s expectation of performing its subcontract on the project), and subsequently amended its complaint to allege trade libel and tortious interference with a contract relationship. The material fact alleged by Lowe was that it did pay its operators within area standards and that the union’s statements were false and made with actual malice.
As we reported earlier the appeals court reversed a McHenry County bench trial verdict in favor of the union on all counts (so much for pro-employer sentiment in the collar counties). Although upholding the finding in favor of Local 150 as to the intentional interference claims, the Second District Appellate Court ruled that the union was guilty of trade libel and that the statements were made with actual malice. The appeals court sent the case back to the trial judge to determine what, if any, punitive damages were appropriate.
Although Lowe’s actual damages on the job were relatively small, i.e., $4,680, the trial court entered an order awarding Lowe $525,000 in punitives. The court held that a factor in determining these damages was the company’s attorney’s fees of $495,000. When the union on appeal argued that such damages were inappropriate, the appeals court ruled that such damages are appropriate when actual malice is proved, and under its previous ruling, actual malice was the law of the case.
But the appellate court did reduce the amount from $525,000 to $325,000. It applied the widely used ratio test, and found that the ratio of $525,000 to the actual damages of $4,680 was “exceedingly disproportionate.”
In its recent ruling the Illinois Supreme Court applied the U.S. Supreme Court Gore test to the findings in this case: 1) the degree of reprehensibility of the union’s conduct, 2) the disparity between the compensatory damages awarded Lowe and the punitive damages, and 3) the difference between the punitive damages in this case and the penalties imposed in comparable cases. The first factor would take into account whether the harm to Lowe was economic or physical, and whether the economic harm made Lowe “financially vulnerable.” Obviously there was no physical harm, and Lowe fell short of proving serious economic harm, even as a small company:
“…Contrary to Lowe’s contentions and the appellate court’s findings,
we conclude that the record in this case is devoid of evidence
demonstrating that Lowe was financially vulnerable. Lowe claims that
the record shows that it was forced to “engage in odd jobs” after the
picketing. However, the portion of the record Lowe cites merely
demonstrates that, some four to six years after the Ballashire Hall
project, FAMCO contacted Lowe to perform snow removal work.
Lowe cites to nothing in the record indicating that it was required to
do such work to “stay afloat,” as it now contends.
Further, the fact that Lowe is a “small business” does not, by
itself, prove financial vulnerability. While we agree with the appellate
court that small businesses often rely on reputation to maintain and
attract customers, the evidence presented in this case demonstrated
that Lowe temporarily lost only one customer, FAMCO, as a result of
the Union’s conduct. The evidence also demonstrated that Lowe
operated as a nonunion company paying less than the prevailing wage
rate for the area without incident from 1969 until 1988 when the
Union picketed the Ballashire Hall site. There is no evidence that
Lowe lost any other business as a result of the Union’s conduct.
Moreover, the only financial loss proven was the $4,680 in lost profits
stemming from the Ballashire Hall project. Lowe provided no other
financial information which would demonstrate its vulnerability…”
In addition, the Illinois Supreme Court held that the repeat instances of “false” picketing were relevant under Gore but of little weight.
The court agreed that the union had acted with intentional malice and that its conduct could be categorized as “reprehensible.” But the ratio of $325,000 to $4,680 (75 to 1) was “unconstitutionally excessive,” the court reasoned, and instead concluded that a “double-digit ratio of approximately 11 to 1 would be reasonable and constitutional [because] the union’s conduct was minimally reprehensible.” The court cited the US Supreme Court’s standard that any ratio in excess of single digit was suspect and likely to deny due process. And, the Illinois Supreme Court added, other awards have been smaller where the conduct was more egregious. The Supreme Court allowed that the adjusted punitive damages award of $50,000 fell far short of covering Lowe’s attorney’s fees, but the court correctly held that it had no authority to award fees, and certainly could not do so “under the guise of a punitive damages award.”
The court’s analysis in this case is exhaustive. It is a watershed opinion in that the Illinois Supreme Court for the first time guides all Illinois employers who win at trial in state court for tort claims against a union. It teaches that small companies who go through the nightmare of malicious picketing must still suffer serious economic harm (and prove it!) to hold on to a punitive damages award.
It is ironic, to say the least, that rulings from the U.S. Supreme Court that derived from corporate America’s outrage over grossly inflated jury verdicts in personal injury cases would control the analysis of a state supreme court passing on the damages award to a corporation injured by the intentional actions of a labor organization.
This leaves the issue of the attorney’s fees, and the law is a stacked deck in this regard. So long as there is no fee-shifting provision in the law for employers damaged by illegal picketing that involves intentional malice, even a small business that is financially hammered by the encounter with a union will spend vast – and unrecoverable - sums on lawyers to prove a point.