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INTER MED. SUPPLIES v. EBI MED. SYS.

August 28, 1997

INTER MEDICAL SUPPLIES LIMITED, Plaintiff,
v.
EBI MEDICAL SYSTEMS, INC., ELECTRO-BIOLOGY, INC., and BIOMET, INC., Defendants/Counterclaimants. ORTHOFIX, INC., and ORTHOFIX S.r.l., Plaintiffs, vs. EBI MEDICAL SYSTEMS, INC., ELECTRO-BIOLOGY, INC., and BIOMET, INC., Defendants/Counterclaimants.



The opinion of the court was delivered by: ORLOFSKY

 ORLOFSKY, District Judge:

 This case was tried before a jury which returned a verdict in favor of the plaintiffs on their claims for breach of contract, breach of the duty of good faith and fair dealing, tortious interference with prospective economic advantage, tortious interference with contract, defamation, unfair competition, and violation of the Lanham Act. The jury awarded the plaintiffs compensatory damages in the amount of $ 48,000,000.00, and $ 100,600,000.00 in punitive damages. The jury separately awarded plaintiff, Inter Medical Systems Ltd., $ 875,399.00 in damages for goods sold and delivered. The jury also found in favor of the defendants on their counterclaims for breach of contract, breach of the duty of good faith and fair dealing, tortious interference with prospective economic advantage, and tortious interference with contract. The jury awarded the defendants $ 1.00 in damages on these claims. The jury also found in favor of defendant, EBI Medical Systems ("EBIMS"), on its claim for breach of certain purchase order contracts, and awarded it $ 1.00 as a set-off against the claim of plaintiff, Inter Medical Systems ("IMS"), for goods sold and delivered.

 Defendants have renewed their motion for judgment as a matter of law, made at the close of all the evidence, and have moved, in the alternative, for a new trial or remittitur of the jury's $ 100,600,000.00 punitive damages award. For the reasons set forth below, defendants' motion for judgment as a matter of law will be denied, and their alternative motions for a new trial or remittitur will be granted in part, and a remittitur of the punitive damages award to $ 50,000,000.00 will be ordered.

 While these post-trial motions raise complex issues of law, many of which have been addressed by the court during the course of the trial of this case, one issue of particular interest not previously addressed requires this court to analyze the punitive damages award under New Jersey's Punitive Damages Act, which took effect on October 27, 1995. N.J. Stat. Ann. § 2A:15-5.14(a) (West Supp. 1997). There are no reported New Jersey cases construing this subsection of the Act, or applying it to a case such as this. Therefore, this court must predict, without the benefit of guidance from any New Jersey court, how to construe and apply the Act in these circumstances.

 I. Background

 Orthofix, S.r.l., based in Milan, Italy, is a manufacturer of medical devices, including External Dynamic Axial Bone Fixator Systems, which are used in the treatment of severe fractures. These bone fixators attach to the bone through the skin, allowing the surgeon to manipulate the bone without repeated surgeries. The sale and distribution of these fixators form the subject matter of this litigation.

 Plaintiffs, Orthofix S.r.l., Inter Medical Systems ("IMS"), a Cyprus-based marketing affiliate of Orthofix S.r.l. and a worldwide distributor of Orthofix products, and Orthofix, Ltd., based in London, England, are subsidiaries of Orthofix International B.V., which is based in the Netherlands. Orthofix International B.V., in turn, and Orthofix, Inc., a Texas corporation, formerly American Medical Electronics, Inc. ("AME"), are wholly-owned subsidiaries of Orthofix N.V., which is a publicly traded corporation.

 For many years, the exclusive distributor of Orthofix products in North America and the Caribbean Basin was EBIMS, a Delaware corporation, having its principal place of business in Parsippany, New Jersey. EBIMS is a wholly-owned subsidiary of Electro-Biology Inc. ("EBI"), which, in turn, is a wholly-owned subsidiary of defendant, Biomet, Inc. Orthofix, Inc. is currently the exclusive distributor of Orthofix bone fixators in the United States.

 EBIMS began distributing Orthofix products under an exclusive agreement in 1983. This relationship was memorialized in a series of written agreements, most recently, an agreement (the "Distributor Agreement"), entered into between EBIMS and Orthofix S.r.l. on June 1, 1990, which expired on May 31, 1995. The claims and counterclaims in this action arise out of the termination of the Distributor Agreement and the events surrounding it. When it became clear that EBIMS would not be renewed as the exclusive North American distributor of Orthofix products, EBI/Biomet decided to develop external bone fixators which would compete directly with Orthofix's products. In an effort to maintain their commanding position as the leading United States marketer of external bone fixators until such time as their own products could be successfully launched, defendants attempted to secure a large inventory of Orthofix products. That plan was largely successful, and Orthofix is no longer a major force in the United States market for external bone fixation devices.

 Following a two month trial, at which the jury heard more than 5000 pages of testimony and endured numerous lengthy hiatuses while the parties debated points of law, the jury deliberated for over two days before reaching the verdict described above. It would disserve the jury system and dishonor the contribution of this dedicated jury to that system were the verdict to be lightly overturned.

 A motion for judgment as a matter of law "should be granted only if, viewing the evidence in the light most favorable to the nonmovant and giving it the advantage of every fair and reasonable inference, there is insufficient evidence from which a jury reasonably could find liability." Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1166 (3d Cir. 1993) (citations omitted). The standard for deciding a motion for judgment as a matter of law under Rule 50(b) is the same as it is under Rule 50(a). 9A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 2537, at 347 (2d ed. 1995). This court may not question the credibility of witnesses or weigh conflicting evidence on a motion for judgment as a matter of law. See Parkway Garage, Inc. v. City of Philadelphia, 5 F.3d 685, 691 (3d Cir. 1993). Applying these principles, a renewed, post-verdict motion for judgment as a matter of law must be denied unless, viewing the evidence in the light most favorable to the verdict winner, "the record is critically deficient of that minimum quantum of evidence from which a jury might reasonably afford relief." Rotondo v. Keene Corp., 956 F.2d 436, 438 (3d Cir. 1992) (internal citations and quotations omitted). Not only the facts of record, but all reasonable inferences which might be drawn from those facts must be viewed in the light most favorable to the verdict winner. Fineman v. Armstrong World Indus., Inc., 980 F.2d 171, 183 (3d Cir. 1992).

 The decision whether to grant a new trial pursuant to Federal Rule of Civil Procedure 59(a) lies within the district court's sound discretion. Allied Chemical Corp. v. Daiflon, Inc., 449 U.S. 33, 36, 66 L. Ed. 2d 193, 101 S. Ct. 188 (1980); Wagner v. Fair Acres Geriatric Ctr., 49 F.3d 1002, 1017 (3d Cir. 1995). A new trial may be granted, on the basis that the verdict is against the weight of the evidence, "'only where a miscarriage of justice would result if the verdict were to stand.'" Klein v. Hollings, 992 F.2d 1285, 1290 (3d Cir. 1993) (quoting Williamson v. Consolidated Rail Corp., 926 F.2d 1344, 1352 (3d Cir. 1991)). A new trial motion based upon the sufficiency of the evidence deserves especially close scrutiny because such a motion resembles a motion for judgment as a matter of law, inasmuch as it invites the court to substitute its judgment for that of the jury. Id. On the other hand, when the movant seeks a new trial based upon trial error, the district court has somewhat greater discretion. Errors in judicial rulings or in the conduct of the court permit the court to order a new trial where the error or conduct was prejudicial. 6A James Wm. Moore, Moore's Federal Practice § 59.08(2) (2d ed. 1996). However, even if the court determines that an error was made, it should not grant a new trial unless it also determines that the error was so prejudicial that "refusal to take such action appears to the court inconsistent with substantial justice." Fed. R. Civ. P. 61. See also Bhaya v. Westinghouse Elec. Corp., 709 F. Supp. 600, 601 (E.D. Pa. 1989), aff'd, 922 F.2d 184 (3d Cir. 1990). In order to mandate a new trial, an error in a jury instruction must be so substantial that, viewed in light of the charge as a whole, "'the instruction was capable of confusing and thereby misleading the jury.'" Link v. Mercedes-Benz, 788 F.2d 918, 922 (3d Cir. 1986) (quoting United States v. Fischbach & Moore, Inc., 750 F.2d 1183, 1195 (3d Cir. 1984)).

 III. Discussion

 A. Liability and Compensatory Damages

 Defendants contend that the jury's verdict as to liability must be set aside. I will first address the numerous reasons defendants offer in support of this contention before turning to the award of punitive damages, which defendants also contest in this motion. Obviously, the jury's award of punitive damages, cannot stand in the event its findings as to liability and the accompanying compensatory awards must be reversed.

 1. Plaintiffs' Tort Claims

 Defendants also contend that plaintiffs did not present evidence of damages flowing from the tortious interference, but solely presented evidence of damages from the alleged breach of contract. Because plaintiffs never claimed any distinct or additional compensatory damages arising from the torts, it is of little consequence that there are no separate damage calculations. Plaintiffs' expert testified to the entire amount of plaintiffs' damages. Defendants challenged that testimony upon cross-examination. I concluded, at trial, that requiring plaintiffs to itemize their damages as to each legal claim would be unnecessarily confusing to the jury and would risk a double, or even treble, recovery. The entire amount of damages plaintiffs sought for "lost profits" was presented to the jury and supported by expert testimony. Accordingly, there is sufficient evidence of plaintiffs' damages for tortious interference to support the jury's verdict, as there is for plaintiffs' contract damages.

 2. In Pari Delicto and "Unclean Hands"

 Defendants raise the twin doctrines of "unclean hands" and "in pari delicto " in support of their motion for judgment as a matter of law. It is an ancient maxim of equity that "he who comes into equity must come with clean hands." The "unclean hands" doctrine "embraces the principle that a court should not grant equitable relief to a party who is a wrongdoer with respect to the subject matter of the suit." Pellitteri v. Pellitteri, 266 N.J. Super. 56, 65, 628 A.2d 784 (App. Div. 1993) (citation omitted). Implementing the doctrine "calls for the exercise of careful and just discretion in denying remedies where a suitor is guilty of bad faith, fraud or unconscionable acts in the underlying transaction." Id. "The 'unclean hands' doctrine 'closes the door of a court of equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks relief, however improper may have been the behavior of the defendant.'" ABF Freight Sys., Inc. v. N.L.R.B., 510 U.S. 317, 329-30, 127 L. Ed. 2d 152, 114 S. Ct. 835 (1994) (Scalia, J., concurring) (quoting Precision Instrument Mfg. Co. v. Automotive Maintenance Mach. Co., 324 U.S. 806, 814, 89 L. Ed. 1381, 65 S. Ct. 993 (1945)). The purpose of the doctrine is to protect the integrity of courts of equity. Since defendants' motion seeks relief from the jury's verdict, and not from any award of injunctive relief, the "unclean hands" doctrine is not applicable in these circumstances. See McAdam v. Dean Witter Reynolds, Inc., 896 F.2d 750, 756 n.10 (3d Cir. 1990).

 Given the scope of this motion, defendants more appropriately raise the doctrine of "in pari delicto." This doctrine "derives from the Latin maxim, in pari delicto potior est conditio defendant is, which means: 'In a case of equal or mutual fault . . . the position of the party . . . [defending] is the better one.'" McAdam, 896 F.2d at 756. (quoting Black's Law Dictionary 711 (5th ed. 1979)). As the Third Circuit points out, "unless the degrees of fault are essentially indistinguishable or the plaintiff's responsibility is clearly greater, the in pari delicto defense should not be allowed, and the plaintiff should be compensated. Id. (citing Pinter v. Dahl, 486 U.S. 622, 635, 100 L. Ed. 2d 658, 108 S. Ct. 2063 (1988)). New Jersey law is in accord with this interpretation of the doctrine. See, e.g., Stella v. Dean Witter Reynolds, Inc., 241 N.J. Super. 55, 73, 574 A.2d 468 (App. Div. 1990) (The in pari delicto doctrine requires "at least substantially equal responsibility."). It is clear from the jury's verdict that it considered the plaintiffs comparatively innocent of wrongdoing. The jury both condemned the defendants' conduct through an award of punitive damages, and assessed a sizeable award of compensatory damages in favor of the plaintiffs compared with only a nominal award of damages to the defendants. On this record, the doctrine of in pari delicto simply does not apply.

 3. Mutual Breach

 Nor does the fact that the jury found both parties in breach of the contract prohibit an award of damages to the plaintiffs. At defendants' request, the court gave the following charge: "Under certain circumstances a material breach by one party may relieve the other party of its duty to continue to perform under the contract." Tr. at 5143-5144. Defendants raised no objection to the wording of the charge. Accordingly, defendants cannot now be heard to complain that any breach by Orthofix, material or otherwise, excused EBIMS's duty to perform under the Distributor Agreement. Fed. R. Civ. P. 51. Moreover, the cases cited by defendants do not stand for the proposition that any breach by one party to a contract excuses performance by the other, nor has this court's independent research uncovered any authority for such a broad proposition.

 4. Irreconcilable Inconsistency in the Verdict

 In further support of their twin contentions that a "mutual breach" precludes either party from recovering damages, and that such a mutual breach occurred in this case, defendants raise what they deem to be an inconsistency in the jury's verdict. Defendants assert that the jury must have found that EBIMS placed "excessive" orders in breach of the contract, yet the jury also found that Orthofix breached the contracts by failing to ship those "excessive" orders. Defendants' Brief at 14.

 Plaintiffs contend that the defendants' failure to bring alleged inconsistencies in the verdict sheet to the court's attention, before the jury was discharged, effectively waived defendants' right to seek a new trial on this basis. Plaintiffs' Brief at 9-10. Whether or not the failure to raise this issue constitutes a waiver may depend on whether the special verdict sheet in this case was governed by Rule 49(a) *fn1" or Rule 49(b) *fn2" of the Federal Rules of Civil Procedure.

  The majority of circuits that have interpreted Rule 49(b) require parties to object to alleged inconsistencies in the verdict before the jury is discharged. See, e.g., Coralluzzo v. Education Mgmt. Corp., 86 F.3d 185, 186 (11th Cir. 1996) (Challenges to the consistency of special verdicts "must be raised before the jury is excused" or they are waived.); White v. Celotex, 878 F.2d 144, 146 (4th Cir. 1989) (allowing the original deliberating body to reconcile inconsistencies prevents counsel from making an "end run" around Rule 49); United States Football League v. National Football League, 842 F.2d 1335, 1367 (2d Cir. 1988); Strauss v. Stratojac Corp., 810 F.2d 679, 682-83 (7th Cir. 1987) (invocation of the waiver rule promotes the just and efficient operation of the federal courts); Diamond Shamrock Corp. v. Zinke & Trumbo, Ltd., 791 F.2d 1416, 1423 (10th Cir. 1986); Merchant v. Ruhle, 740 F.2d 86, 92 (1st Cir. 1984) (application of waiver rule prevents trial counsel from using "agreeable acquiescence to perceivable error as a weapon of appellate advocacy"); Haskell v. Kaman Corp., 743 F.2d 113 (2d Cir. 1984); Fernandez v. Chardon, 681 F.2d 42, 58 (1st Cir. 1982) (because counsel waited until after the jury was excused before raising a claim of inconsistency, defendants waived their right to have the general verdict set aside on that ground), aff'd sub nom. Chardon v. Fumero Soto, 462 U.S. 650, 77 L. Ed. 2d 74, 103 S. Ct. 2611 (1983); Stancill v. McKenzie Tank Lines, Inc., 497 F.2d 529, 534-35 (5th Cir. 1974) (same); see also 9A Wright & Miller, supra, § 2513, at 226-27. At least one judge in the Third Circuit has opined that "it probably is necessary, as it is in the majority of the circuits, to raise prior to the jury's dismissal an objection based on the inconsistency of the answers to interrogatories supporting a general verdict rendered under Rule 49(b)." Simmons v. City of Philadelphia, 947 F.2d 1042, 1056-57 (3d Cir. 1991) (Becker, J., announcing the judgment of the court).

 However, no such requirement applies to verdicts controlled by Rule 49(a). Malley-Duff & Assoc. v. Crown Life Ins. Co., 734 F.2d 133, 145 (3d Cir. 1984). If such a verdict is inconsistent, the court may order a new trial regardless of whether the inconsistency was raised before the jury was excused. Halprin v. Mora, 231 F.2d 197, 201 (3d Cir. 1956) (cited in Malley-Duff, 734 F.2d at 145).

 As the Third Circuit has observed, "in many cases, it is not entirely clear whether the verdict is governed by Fed. R. Civ. P. 49(a) or 49(b)." Loughman v. Consol-Pennsylvania Coal Co., 6 F.3d 88, 104 n.16 (3d Cir. 1993). This is one such case, in which the jury was asked to make specific findings as to ultimate issues of fact as well as issues of evidentiary fact. *fn3" To the end that any confusion regarding the parties' obligations under Rule 49 might be dispelled, this court specifically invited counsel to object to the jury's verdict on the ground of inconsistency, before excusing the jury. Tr. at 5388. Counsel for the defendants lodged no objection at that time.

 Fortunately, I need not decide whether defendants' waived the alleged inconsistencies in the verdict by failing to object before the jury was discharged. Defendants cannot obtain a new trial on this basis. *fn4" The standard for granting a new trial based upon inconsistencies in the jury's verdict has been explained by the Supreme Court as follows:

 Atlantic & Gulf Stevedores, Inc. v. Ellerman Lines, Ltd., 369 U.S. 355, 364, 7 L. Ed. 2d 798, 82 S. Ct. 780 (1962). Furthermore, "a verdict must be molded consistently with a jury's answers to special interrogatories when there is any view of the case which reconciles the various answers." Bradford-White Corp. v. Ernst & Whinney, 872 F.2d 1153, 1159 (3d Cir. 1989) (emphasis added). Indeed, the Supreme Court has instructed that a court "must attempt to reconcile the jury's findings, by exegesis if necessary, . . . , before [it is] free to disregard the jury's special verdict and [order] a new trial." Gallick v. Baltimore & Ohio R.R. Co., 372 U.S. 108, 119, 9 L. Ed. 2d 618, 83 S. Ct. 659 (1963) (emphasis added).

 This is a stringent standard. In this case, contrary to defendants' assertion, there clearly is a view of the case that makes the jury's answers to the special verdict sheet internally consistent, ...


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