Guidance For Developers: Protect Against Liability Through Planning And Regulatory Compliance

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Recently, Phillips Lytle attorneys successfully appealed an award of punitive damages against a developer found liable for flooding neighboring property. Unanimously reversing the Appellate Division, the New York Court of Appeals held that the developer’s planning and regulatory compliance negated any finding of the wanton and reckless or malicious conduct required to support an award of punitive damages.

Punitive damages are meant to deter future wrongdoing by punishing the defendant through an award in addition to a recovery of compensatory damages. In some cases, punitive damages greatly exceed the amount of compensatory damages. Because they can be a harsh penalty, punitive damages are reserved for cases where the defendant’s conduct was immoral, willful and wanton, or malicious. Although this is regarded as a high standard, it is not always clear what constitutes conduct sufficiently egregious to impose punitive damages. The decision in Marinaccio v. Town of Clarence , 20 N.Y.3d 506 (2013) provides guidance. There, the New York Court of Appeals held that a defendant who relied on engineering experts, engaged in extensive planning, and complied with all applicable regulations could not be held liable for punitive damages.

Background

The plaintiff, Paul Marinaccio, owned land adjacent to that which one of the defendants, Kieffer Enterprises, Inc. (“KEI”), was developing into a residential subdivision. Throughout development, KEI complied with all federal, state, and local laws, obtained all necessary permits, and sought the assistance of wetlands, soil, and engineering experts. KEI drafted plans for the subdivision’s drainage system, which involved diverting water through a storm sewer, mitigation pond, and a drainage ditch on plaintiff ’s land. Both the Town Board and the Town Engineering Department approved these plans. Plaintiff, however, claimed that the diversion was unlawful and that it flooded and destroyed his land.

The Supreme Court Awards Punitive Damages And A Split Appellate Division Affirms

     Plaintiff commenced an action in New York State Supreme Court for trespass and nuisance. Plaintiff ’s complaint alleged that KEI  routed ground water from the subdivision into a ditch on plaintiff ’s  property, without permission, allegedly flooding his thirty acres of  vacant land. Although an easement had been granted to the Town allowing that drainage, defendants’ trial counsel were unaware of the easement until the day of trial and the trial court precluded its use at trial. The jury returned a verdict awarding plaintiff $328,400 in compensatory damages and an additional $250,000 in punitive damages against KEI. After compensatory damages were settled by KEI’s and the Town’s insurance carriers, KEI retained Phillips Lytle to appeal the punitive damage award.  

     The Appellate Division, Fourth Department affirmed the punitive  damages award, concluding that there was “a valid line of reasoning  supporting the jury’s conclusion that KEI’s conduct was sufficiently  egregious to warrant an award of punitive damages.” Marinaccio v. Town of Clarence, 90 A.D.3d 1599, 1600 (4th Dep’t 2011), rev’d ,  20 N.Y.3d 506 (2013). Phillips Lytle attorney Michael B. Powers handled the appeal to the Court of Appeals.

The  court of Appeals Reverses  the  Aw AR d of  punitive  damages,  finding  Insufficient  evidence of malice

     The issue before the Court of Appeals was whether there was sufficient evidence to support the award of punitive damages against KEI. The Court held that while the drainage diversion was intentional and caused plaintiff harm, that alone was insufficient to justify punitive damages. The Court held that punitive damages may be awarded only if the defendant’s conduct was “wanton and reckless or malicious. Punitive damages may be awarded for conduct that represents a high degree of immorality and shows such wanton dishonesty as to imply a criminal indifference to civil obligations.”  Marinaccio, 20 N.Y.3d at 512.  

     Searching the record, the Court found no evidence to suggest that KEI acted with such malice. To the contrary, the Court correctly observed that KEI complied with all applicable local, state, and federal laws and regulations, and had secured all requisite permits and   approvals. The Court also noted KEI’s use of engineering and other experts in designing the drainage plan. Id. Those facts demonstrated to the Court that KEI did not act with malice: “[t]his planning, if not indicative of good faith, at least shows that KEI’s actions could not be considered ‘wanton and reckless or malicious.’”

     In so holding, the Court drew a distinction between the general commission of a tort and acts rendering the defendant liable for punitive damages—i.e. “something more” than the intentional tort alone is required to justify punitives. Id. As one judge observed during oral argument, if any intentional act were enough to award punitive damages, then every successful intentional tort case would require a punitive damages award; and that is not the law. Id.

Implications

     Marinaccio’s holding provides guidance for developers and similarly situated businesses and individuals. A developer who drafts plans with the help of professionals and obtains all necessary governmental approvals ought to be protected from an award of punitive damages. Phillips Lytle attorneys are already working to apply this decision to dismiss a claim for punitive damages against a wind farm operator.