Federal Deposit Insurance Corporation v. W. R. Grace & Co.

United States District Court · Contracts

ContractsFraudAssignmentPunitive DamagesJNOVNew TrialRemittiturPedrick standard

Facts

The FDIC sued as assignee of Continental Bank's fraud claim arising out of a non-recourse loan to Grace. Before the loan closing, a Grace employee learned 'bad news' that the Southwest Piney Woods field likely had little or no gas reserves because of a serious water problem, but the FDIC alleged Grace failed to disclose that information before closing. Grace argued the bank had already become irrevocably bound to make the loan under earlier commitment letters and also challenged whether the fraud and punitive-damages claims were assignable to the FDIC. The jury found for the FDIC and awarded both compensatory and punitive damages.

Issue

Whether Grace was entitled to JNOV or a new trial on the fraud verdict because the FDIC failed to prove assignment, reliance, scienter, duty to disclose, damages, or proper jury instructions, and whether the punitive-damages award was legally recoverable and constitutionally or otherwise excessive. Also at issue was whether the punitive-damages claim passed to the FDIC as assignee and whether the amount awarded required remittitur.

Rule

In a diversity case, JNOV is governed by the Illinois Pedrick standard: judgment notwithstanding the verdict is proper only when all of the evidence, viewed most favorably to the nonmovant, so overwhelmingly favors the movant that no contrary verdict could stand. Under Illinois law, a new trial is warranted only where necessary to prevent a miscarriage of justice, including when the verdict is against the manifest weight of the evidence. A fraud or deceit claim survives and is assignable, and because punitive damages are part of the underlying cause of action rather than an independent claim, the punitive-damages component is also assignable with the fraud claim. Punitive damages in fraud may be submitted where there is some evidence of wilful and wanton conduct, but if the resulting award is clearly excessive and shocks the conscience, the court may order remittitur or a new trial on damages.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

A lender in Chicago sued a drilling company for Illinois common-law fraud based on alleged concealment before a loan closing. After a jury found for the lender, the defendant moved for judgment notwithstanding the verdict in federal court, arguing the judge should weigh conflicting testimony and decide that the lender's witnesses were not credible.

How should the federal court rule on the motion?

Explanation. In a diversity case involving this Illinois fraud claim, the court applies the Illinois Pedrick standard for JNOV. Judgment notwithstanding the verdict is proper only if all the evidence, viewed in its aspect most favorable to the nonmovant, so overwhelmingly favors the movant that no contrary verdict could stand. On JNOV, the court does not resolve controverted facts, assess witness credibility, or rely on impeachment to overturn the verdict. (Derived from Federal Deposit Insurance Corporation v. W. R. Grace & Co. (n.d.).)