American Trim v. Oracle Corporation ( 2004 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206 2 American Trim v. Oracle Corp. No. 02-4186
ELECTRONIC CITATION: 2004 FED App. 0289P (6th Cir.)File Name: 04a0289p.06 III, KEATING, MUETHING & KLEKAMP, Cincinnati,
Ohio, for Appellee. ON BRIEF: James D. Thomas, Harris
A. Senturia, SQUIRE, SANDERS & DEMPSEY, Cleveland,
UNITED STATES COURT OF APPEALS Ohio, Andrew L. Frey, MAYER, BROWN, ROWE & MAW,
LLP, New York, New York, Robert L. Bronston, MAYER,
FOR THE SIXTH CIRCUIT BROWN, ROWE & MAW, Washington, D.C., Dorian Daley,
_________________ Karen P. Scarr, ORACLE CORPORATION, Redwood City,
California, for Appellant. James E. Burke III, Steven C.
AMERICAN TRIM , L.L.C., X Coffaro, KEATING, MUETHING & KLEKAMP, Cincinnati,
Plaintiff-Appellee, - Ohio, for Appellee.
-
- No. 02-4186 _________________
v. -
> OPINION
, _________________
ORACLE CORPORATION , -
Defendant-Appellant. -
JULIA SMITH GIBBONS, Circuit Judge. Plaintiff-
N appellee American Trim, LLC (“American Trim”) brought
Appeal from the United States District Court suit against defendant-appellant Oracle Corporation
for the Northern District of Ohio at Toledo. (“Oracle”), alleging claims of breach of contract, breach of
No. 99-07265—James G. Carr, District Judge. express and implied warranties, negligent misrepresentation,
and fraudulent inducement stemming from Oracle’s sale of a
Argued: April 21, 2004 software package to American Trim. Following a denial of
Oracle’s motion for partial summary judgment, the district
Decided and Filed: September 1, 2004 court divided the case into three parts: In Phase I, the jury
would decide the liability issues relating to American Trim’s
Before: SUHRHEINRICH and GIBBONS, Circuit Judges; misrepresentation and fraud claims. If American Trim
LAWSON, District Judge.* prevailed in Phase I, the jury would determine damages in
Phase II. In Phase III, the jury would hear American Trim’s
_________________ breach of contract claims. After a trial on the merits, the jury
found for American Trim in both Phase I and Phase II and
COUNSEL awarded $3,000,000 in compensatory damages and
$10,000,000 in punitive damages. American Trim then
ARGUED: James D. Thomas, SQUIRE, SANDERS & moved to voluntarily dismiss its contract claims under Federal
DEMPSEY, Cleveland, Ohio, for Appellant. James E. Burke Rule of Civil Procedure 41(a)(2). The district court granted
this motion after construing it as a motion for leave to amend
the complaint by deleting the contract claims. Oracle filed a
* motion for a new trial, or, in the alternative, remittitur, and a
The Honorable David M. Lawson, United States District Judge for motion for judgment as a matter of law. The district court
the Eastern District of Michigan, sitting by designation.
1
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denied these motions. Oracle appeals, arguing (1) the district Oracle is a supplier of business software. It licenses a suite
court erred when it denied its motion for judgment as a matter of ERP software called “Oracle Applications.” In the 1990s,
of law on American Trim’s fraud claims; (2) the district court Oracle worked with Radley Corporation, another software
abused its discretion by dividing the trial into three phases; vendor, to offer EDI capabilities to automotive businesses.
(3) the compensatory damages were excessive; (4) Oracle was (Appellant’s Br. at 5.) In 1996, Oracle initiated plans to
entitled to judgment as a matter of law on the issue of develop software that would integrate Radley’s EDI
punitive damages; and (5) the ratio of punitive to automotive software, CARaS (“Computer Aided Release
compensatory damages violated due process. For the Accounting System”), with Oracle ERP software in order to
following reasons, we affirm the judgment of the district allow “automatic data exchange without the need for
court. customized integration.”
I. Hank Atwell, American Trim’s manager of information
systems (“I/S”), put together a list of twenty-five leading
American Trim was formed in 1996 as a joint venture software vendors who were candidates to provide a new
between Alcoa, Inc., and Superior Metal Products, Inc.1 It integrated system, and then narrowed that list down to six
manufactures and sells component parts to automobile and vendors, including Oracle. Craig Rogers, American Trim’s
appliance manufacturers, including Ford, General Motors, EDI expert, testified that EDI was a “critical determinant” in
Whirlpool, and General Electric. These manufacturers including or eliminating participants in the selection process.
require their suppliers, like American Trim, to process their According to Rogers, one of Oracle’s competitors was
orders electronically using Electronic Data Interchange eliminated from the process when it informed American Trim
(“EDI”). EDI enables companies to exchange information, that it did not have the integrated EDI functionality American
such as orders and shipment status, between different Trim was seeking.
computer systems (e.g., between manufacturers and
suppliers). Alcoa and Superior Metal Products both had In December 1996, an employee in American Trim’s I/S
separate EDI systems, but these systems could not department contacted Mike Vandivier, a sales representative
communicate with each other, and the Superior Metal for Oracle, and requested information about Oracle’s
Products system was not Y2K compliant. In late 1996, manufacturing software and applications. She told Vandivier
American Trim began the process of acquiring an enterprise that American Trim wanted an integrated system with EDI
resource planning (“ERP”) software system that would capabilities. Vandivier did not know at that time whether
provide the integrated EDI technology American Trim Oracle could satisfy American Trim’s needs, so he spoke with
needed. ERP software consists of numerous application other people within the company, including Peter Ciccarelli,
programs that perform a broad variety of functions, such as Oracle’s sales manager for the mid-Atlantic region. Ciccarelli
financial accounting, human resources, payroll, suggested to Vandivier that a product named Oracle
manufacturing planning, and EDI. Automotive might work for American Trim. He told
Vandivier to try to get American Trim’s representatives to
come to a demonstration of the product in Detroit.
In March 1997, Oracle sent American Trim a “Statement of
1 Direction,” which described Oracle Automotive as “an
All facts are taken from the trial record unless otherwise noted.
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integrated supply chain management solution for . . . suppliers purchasing Oracle’s software unless Oracle Automotive was
of the automotive industry.” The Statement of Direction included.
consistently describes Oracle Automotive in the present tense:
In March 1997, Atwell prepared a Request for
Oracle Automotive supports the key EDI transactions Authorization (“RFA”) for his plan to convert the company
used within the automotive supply chain. Oracle EDI to new software. The RFA recommended the Oracle
Gateway, Radley CARaS, and other transaction software, Applications system as the “best fit” for American Trim: “The
provide the necessary components to enable EDI Oracle Applications contain all of the software modules
transmission of automotive documents between trading necessary to provide American Trim with a single integrated
partners. system. These software modules include Human Resources,
Payroll, Manufacturing, Accounting, Sales & Marketing,
However, the Statement of Direction also notes that: Purchasing, & Quality.”
The features listed in this statement of direction are American Trim sent its I/S group to Troy, Michigan on
planned for Beta release early in calendar Q1 1997 and April 24, 1997, to see a live demonstration of Oracle
are based on Oracle Applications Release 10.7 with Automotive. The purpose of attending the presentation was
Smartclient. Production release will be achieved as soon to see the EDI functionality operating before American Trim
as successful Beta testing is completed. actually ordered it. Vandivier opened the presentation by
telling the American Trim representatives that what they were
In the software industry, “Beta release” refers to a stage of going to see was “live” and “in production.” During the
software development in which the software is released to a presentation, Radley representatives demonstrated Radley
limited number of customers for testing and further CARaS and an Oracle representative demonstrated certain
development before being released to the general public. modules of Oracle Applications. Jim Butts of Oracle and
According to Oracle, Oracle Automotive entered Beta testing John Walczy of Radley gave a slide presentation to illustrate
in June 1997. Vandivier testified that he was aware in spring the Oracle-Radley partnership. The slides, like the Statement
1997 that Oracle Automotive was limited in availability, but of Direction, described Oracle Automotive in the present
that Ciccarelli told him to proceed with his negotiations with tense, as an existing integrated EDI product. The slides
American Trim because the product would be available by the included (1) a statement that the Oracle Automotive Solution
time American Trim was ready to implement it. “fulfills” industry supply chain EDI requirements; (2) a
depiction of the integrated flow of EDI transactions between
When Atwell saw the reference to Beta testing in the Oracle Applications and the Radley CARaS software; and
Statement of Direction, he asked Oracle if he could see the (3) statements that “Oracle Automotive is . . . [p]owerful
software in use at a customer’s site. Vandivier suggested capabilities [sic] through two programs” and that “Oracle
instead that he attend a demonstration at Oracle’s automotive supports, warrants & enhances the complete solution over
center in Detroit because it would be too intrusive to go to a time.” (emphasis in original).
customer and he “didn’t think [a customer] would give them
a good show.” Atwell testified that he made clear to After the slide show, Butts conducted a demonstration
Vandivier that American Trim would not be interested in showing the integrated flow of EDI transactions directly from
the Radley CARaS component into the Oracle ERP
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applications. Butts indicated to the American Trim I/S American Trim was purchasing Oracle Automotive because
representatives that what they were seeing was actually he thought the term was synonymous with “Oracle
happening and never advised that it was a simulation. Automotive CARaS.” Under the agreement, American Trim
Vandivier testified that, as a result of the presentation, he paid Oracle $1,263,613 in license fees, $284,734 in technical
thought Oracle had functional EDI capability: support fees, and $208,200 in training fees, for a total of
$1,756,547. The agreement included an integration clause
Q: Okay. In terms of the functional EDI capability, and provided for a 15-day “Acceptance Period” in which
though, you were under the impression that that American Trim was allowed to cancel the licenses by giving
functional EDI capability existed in April of ‘97. written notice to Oracle and returning all of the programs.
A. Yes. I saw it demonstrated along with the people
from American Trim. Now, you know, quite bluntly, I Prior to delivery of the software, Atwell and Rogers
don’t know exactly what I saw, but I saw transactions attended an Oracle Applications User Group (“OAUG”)
going from a work station to the server and going Conference in Orlando. The conference materials advertised
through the Oracle system. an “Automotive Process SIG” meeting, at which attendees
Q. You certainly were under the impression it was would “hear an update regarding the Oracle Automotive
actually operating, weren’t you? solution status.” Neither Atwell nor Rogers attended this
A. Yes. meeting. During the conference, Oracle issued a press release
stating that Oracle Automotive would become available with
Butts later wrote in an email, “To be honest, if you were an Oracle Applications Release 11. The record contains no
American Trim person attending that demo, you would have evidence that this press release ever came to American Trim’s
believed that you were being sold an automotive solution.” attention.
After the Troy demonstration, Vandivier sent a proposed American Trim took delivery of the software in October
set of contract documents to American Trim, which included 1997. Oracle delivered twenty-five to thirty CDs, along with
quotes for the software and for training. The proposals listed boxes of additional materials American Trim had not ordered.
all of the Oracle ERP Applications that the parties had According to Atwell, “it looked like somebody went through
discussed, as well as Radley CARaS software, but they did the warehouse and picked up one of everything they had just
not include Oracle Automotive. Atwell told Vandivier that he to ship it.” One of the CDs was labeled “Oracle Automotive
was not going to sign a contract that did not include Oracle 1.0.0.0.2 Beta.”
Automotive and Vandivier told him he would give him one.
Several American Trim representatives later testified at trial The 15-day Acceptance Period expired on October 13.
that they would not have entered into a contract with Oracle American Trim made no inquiry into the status of Oracle
if Oracle Automotive had not been part of the agreement. Automotive during that period, and it did not exercise its right
to return the software. In December 1997, when American
On August 22, 1997, American Trim entered into a Trim started installing the Oracle software for training, it
Software License and Services Agreement (“the agreement”) discovered that Oracle had shipped a different version of the
with Oracle. The agreement listed “Oracle Automotive applications software than American Trim had ordered.
CARaS” as one of the applications being sold to American Oracle sent a consultant, Marion Zankowski, to help install
Trim. Atwell later testified that at the time he thought the software they had received in time for American Trim’s
No. 02-4186 American Trim v. Oracle Corp. 9 10 American Trim v. Oracle Corp. No. 02-4186
in-house training that had been scheduled for the first week of American Trim LLC to pursue other solutions to our Year
January. Atwell asked Zankowski to install Oracle 2000 issues, and as a result [we] can no longer utilize Oracle
Automotive, but Zankowski told him that he was not Applications software.” In response, Butts and Oracle Vice
authorized to install it because American Trim had received President John Levey traveled to American Trim’s office for
it in Beta format. Later that month, Rogers contacted Walczy a meeting on September 22, 1998. According to American
to make preparations for training on Oracle Automotive and Trim, the meeting became “hostile” and “contentious” when
the CARaS EDI product. Walczy told him that Oracle Butts denied that Oracle had ever sold Oracle Automotive to
Automotive was not available and would not be available American Trim and accused it of fabricating the slides from
until March 1998. Rogers later testified that he was “really the Troy presentation.
shocked” at this news.
Levey followed up on the meeting by offering to pay two-
On February 10, 1998, Atwell met with Oracle employees thirds of the cost of having Oracle Consulting bring one of
David Synek and Mark Colburn and complained that American Trim’s plants up on the Oracle system. He
American Trim had purchased Oracle Automotive, but had estimated that American Trim would have to pay $99,000 for
not received it. Colburn responded that American Trim could the one plant and $3.6 million for the whole company. 2
not have purchased Oracle Automotive because “it didn’t Atwell rejected it:
exist.” In a February 18, 1998 internal Oracle email detailing
Atwell’s complaints about the “automotive” solution, a All the representations to American Trim, including the
regional sales manager for Oracle noted that American Trim literature from Oracle, led us to believe that the Oracle
“had purchased the Radley software along with the rest of our software constituted an integrated, turn-key system.
ERP suite – this is not at all unusual (as opposed to buying Your letter suggests to the contrary. Are we to
the complete ‘Oracle Automotive Solution’ which is a good understand that three months of consulting will only be
story [but] is not much more than this as far as I know.)” the beginning? That we could expect as much as twice
the license cost, or $3,400,000, in additional dollars in
Despite what Colburn had told Rogers in January, Oracle consulting fees? If that is the case, why was this not
Automotive was not ready in March 1998. Rogers testified made known to us long ago and prior to ordering the
that every month thereafter Oracle would promise that Oracle Oracle system?3
Automotive would be available the next month: “Sometimes
they’d say we’re just two weeks away from having it ready.”
In June 1998, American Trim still had not received Oracle 2
Automotive, and Atwell complained to Colburn in an email: This figure was later ad justed to $4 .4 million.
“I am up against deadlines, and so far all I get is promises and 3
still no product (Oracle Automotive) that I can use.” Notably, Atwell’s March 1997 RFA stated:
The cost of the Oracle Ap plications is $1,066 ,997 . Oracle’s
On August 7, 1998, Atwell sent a letter to Oracle requesting suggested training and implementation costs approach
a return of the $1,756,547 American Trim had paid for the $1,000,000, and include extensive use of outside consultants.
Oracle Applications software, noting that “American Trim The I/S Team feels that $25 0,000 will cover the training of the
has tried to obtain the Oracle Automotive software without in-house Implementation T eam and eliminate the need for the
success since the contract was signed. This delay has caused high-priced consultants, thus bringing the expertise inside
American Trim .
No. 02-4186 American Trim v. Oracle Corp. 11 12 American Trim v. Oracle Corp. No. 02-4186
In a follow-up letter, Levey outlined the reasons why misrepresentation claims. If American Trim prevailed on any
American Trim was not having success with implementing claim in Phase I, the jury would consider whether American
“the Oracle solution”: (1) American Trim underestimated the Trim was entitled to damages on that claim in Phase II. If
scope of the project; (2) American Trim “did not execute due necessary, in Phase III the jury would consider breach of
diligence in ensuring that the order between American Trim, contract liability and damages.
LLC and Oracle accurately and completely defined the details
of the solution purchased according to . . . expectations. In Oracle objected to the district court’s decision to divide the
fact, Oracle could have never committed to the terms trial into three stages. It argued that the tort claims could not
currently voiced by Mr. Atwell”; (3) American Trim be separated from the contract claims because “[t]he fraud,
“underestimated the core Technical competencies needed to breach of contract, and negligent misrepresentation claims are
implement the solution purchased”; (4) American Trim inextricably intertwined.” The district court disagreed:
“elected not to utilize consulting services to assist and/or
manage implementing the project. The need to utilize I really think that there’s not that much overlap, as I see
consulting services on such a project is common knowledge it, between the issues that would be tried on the fraud and
within the industry”; and (5) American Trim “elected not to negligent misrepresentation because I think that’s a
move forward on the Oracle software modules which do pretty straightforward issue, was something called Oracle
provide Year 2000 compliance, irrespective of integration Automotive promised, and if so, was it delivered, and if
with the Radley CARaS product.” not, that’s the end of the fraud case and could potentially
impact significantly on the contract claims.
At the end of 1998, American Trim upgraded its existing
software to make it Y2K compliant and began converting the The court justified the division of the trial in part because it
entire company to a newer version of a previously existing had the potential to conserve judicial resources. “Whatever
ERP system with integrated EDI capability. (Appellee’s Br. the outcome of the trial on the fraud and misrepresentation
at 20-21.) claims, the case may end once that trial is completed. If
plaintiff prevails, the contract is a nullity. If plaintiff loses,
In May 1999, American Trim brought suit against Oracle Oracle may prevail on its pending motion for summary
for fraud, negligent misrepresentation, breach of contract, and judgment as to its contract-based defenses.”
breach of warranty. Oracle filed a motion seeking partial
summary judgment on American Trim’s contract, warranty, Oracle filed a motion for reconsideration of the court’s
intentional fraud, and punitive damages claims. At the outset, issue-separation rulings. It argued that the district court,
the district court determined that California law governed subsequent to its initial order separating the trial into three
both the tort and contract claims. The court then bifurcated phases, had changed its earlier ruling and stated for the first
the tort claims from the contract claims and denied Oracle’s time that the element of causation would not be submitted to
motion for summary judgment with respect to the fraud the jury in Phase I. Oracle claimed that it was entitled to
claims, holding the motion for summary judgment with present evidence relating to causation during a trial on
respect to the contract and punitive damages claims in liability for fraud and misrepresentation because causation is
abeyance pending trial on the merits. The trial was divided a “liability” issue and the district court’s initial order stated
into three stages: In Phase I, the jury would consider the issue that tort liability would be tried in Phase I. The district court
of Oracle’s liability on the fraud and negligent denied the motion, noting that it had announced on July 23,
No. 02-4186 American Trim v. Oracle Corp. 13 14 American Trim v. Oracle Corp. No. 02-4186
2001, that Phase I would consider only whether “something damages were excessive; (4) it was entitled to judgment as a
called Oracle Automotive was promised, and if so, was it matter of law on the issue of punitive damages; and (5) the
delivered.” The court also emphasized that its decision to ratio of punitive to compensatory damages violated due
limit Phase I in this way would not deprive Oracle of the process.
opportunity to meet plaintiff’s proof as to causation and that
causation would still be addressed in Phase II: “Absent proof A. Motion for Judgment as a Matter of Law on the
of causation, Plaintiff cannot prevail, even if Oracle Fraud Claims
deliberately deceived plaintiff as to one or more material
facts.” Oracle argues that it was entitled to judgment as a matter of
law on American Trim’s fraud claims because American
Phase I took place from March 5-14. The court instructed Trim’s false promise claim is barred by the parol evidence
the jury on American Trim’s four theories of fraud under rule and there was insufficient evidence to prove actual or
California law: false promise, intentional misrepresentation, justifiable reliance.
concealment, and negligent misrepresentation. The jury
found for American Trim on all issues. This court normally reviews the denial of a Rule 50(b)
motion for judgment as a matter of law de novo, viewing the
After its deliberations in Phase II, the jury returned verdicts evidence in the light most favorable to the verdict. Gray v.
for American Trim and awarded $3 million in compensatory Toshiba Am. Consumer Prods., Inc., 263 F.3d 595, 598 (6th
damages, plus $10 million in punitive damages. Cir. 2001). However, in a diversity case, when a Rule 50
motion for judgment as a matter of law is based on the
American Trim then filed a motion under Federal Rule of sufficiency of the evidence, this court applies the standard of
Civil Procedure 41(a)(2) to voluntarily dismiss its claims for review of the state whose substantive law governs the matter.
breach of contract, express warranties, and implied Morales v. Am. Honda Motor Co., 151 F.3d 500, 506 (6th
warranties. The district court granted the motion, construing Cir. 1998). The district court determined that the substantive
it as a motion for leave to amend the complaint under Federal law of the state of California governs this action. Under
Rule of Civil Procedure 15(a), and dismissed American California law, “[t]he trial court’s discretion in granting a
Trim’s contract claims without prejudice. motion for judgment notwithstanding the verdict is severely
limited.” Hansen v. Sunnyside Prods., Inc., 55 Cal. App. 4th
Oracle filed motions for a new trial and remittitur, and a 1497, 1510 (1997). When presented with such a motion, the
renewed motion for judgment as a matter of law. The district court is not permitted to weigh the evidence, or to judge the
court denied these motions on September 12, 2002, and credibility of witnesses. Id. A motion for judgment
Oracle filed this timely appeal. notwithstanding the verdict may be granted only if it appears
from the evidence, viewed in the light most favorable to the
II. party securing the verdict, that there is no substantial evidence
to support the verdict. Id. If the evidence is conflicting, or if
Oracle argues that (1) the district court erred when it denied several reasonable inferences may be drawn from the
its motion for judgment as a matter of law on American evidence, the motion should be denied. Id.Trim’s fraud claims; (2) the district court abused its discretion
by dividing the trial into three phases; (3) the compensatory
No. 02-4186 American Trim v. Oracle Corp. 15 16 American Trim v. Oracle Corp. No. 02-4186
American Trim presented the jury with four different licensed software” and specifically “disclaim[s] any
theories of fraud under California law: (1) Oracle falsely functionality aside from that described in the documentation
promised to deliver Oracle Automotive with no intention of accompanying the licensed software.” As American Trim
doing so; (2) Oracle intentionally or (3) negligently notes, however, the parol evidence rule does not apply here
misrepresented its ability to provide software with integrated because its false promise claim is based on Oracle’s promises,
EDI capability; and (4) Oracle concealed the fact that Oracle contained in the agreement itself, to deliver Oracle
Automotive was not available. Oracle argues that the first Automotive. The agreement specifies that “Oracle
theory, promissory fraud, is barred by California’s parol Automotive CARaS” was being delivered, and Atwell
evidence rule, and that with respect to the other three theories, testified that he took that term to be another name for the
American Trim failed to meet its burden of proving actual or product with EDI functionality that had been demonstrated in
justifiable reliance. Detroit. Testimony as to the meaning of the term “Oracle
Automotive CARaS” was not barred by the parol evidence
1. The False Promise Claim and the Parol Evidence rule because it was “relevant to prove a meaning to which the
Rule language of the instrument [was] reasonably susceptible.”
See Delta Dynamics, Inc. v. Arioto, 72 Cal. Rptr. 785, 787
Oracle’s first argument is that California’s parol evidence (Cal. 1968). American Trim’s false promise claim was that
rule prohibits enforcement of pre-contractual promises that Oracle promised to provide “Oracle Automotive CARaS”
contradict or vary the terms of an integrated written contract. when it entered into the agreement, that “Oracle Automotive
The parol evidence rule is statutorily defined at California CARaS” referred to the integrated EDI product it was
Civil Procedure Code § 1856(a). It provides that when the seeking, and that Oracle failed to provide that product as
parties to a contract have set forth the terms of their promised in the agreement. This claim does not contradict or
agreement in a writing that they intend as the final and vary the terms of a prior written contract because “Oracle
complete expression of their understanding, it is deemed Automotive CARaS” is not defined anywhere in the
integrated and may not be contradicted by evidence of any agreement. American Trim’s false promise claim therefore is
prior agreement or of a contemporaneous oral agreement. not barred by the parol evidence rule.
Banco Do Brasil v. Latian, Inc., 285 Cal. Rptr. 870, 885 (Cal.
App. 1991). However, the parol evidence rule does not 2. Actual and Justifiable Reliance
exclude evidence “to establish illegality or fraud.” Cal. Civ.
P. Code § 1856(g). This exception is limited in situations Oracle next argues that American Trim produced
where a plaintiff is alleging a false promise: if “the false insufficient evidence of its actual and justifiable reliance. It
promise relates to the matter covered by the main agreement contends that American Trim failed to meet its burden of
and contradicts or varies the terms thereof, any evidence of showing that it believed Oracle Automotive was in production
the false promise directly violates the parol evidence rule and release and entered into the agreement on that basis.
is inadmissible.” Banco Do Brasil, 285 Cal. Rptr. at 892
(internal quotes omitted). Actual and justifiable reliance are elements of each of
American Trim’s fraud claims. See Firoozye v. Earthlink
Oracle contends that American Trim’s false promise claim Network, 153 F. Supp. 2d 1115, 1128 (N.D. Cal. 2001);
is barred by the parol evidence rule because the contract in Kremen v. Cohen, 99 F. Supp. 2d 1168, 1175 (N.D. Cal.
this case “unambiguously specifies the functionality of the 2000); Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal.
No. 02-4186 American Trim v. Oracle Corp. 17 18 American Trim v. Oracle Corp. No. 02-4186
Rptr. 2d 861, 863-64 (Cal. App. 1991). Actual reliance B. The District Court’s Decision to Divide the Trial
occurs when a misrepresentation is an immediate cause of a into Three Phases
plaintiff’s conduct, which alters his legal relations, and when,
absent such representation, he would not, in all reasonable Oracle contends that the district court’s procedural and
probability, have entered into the contract or other associated evidentiary rulings caused it to suffer “substantial
transaction. Engalla v. Permanente Med. Group, Inc., 15 Cal. prejudice.” In particular, it argues that the district court’s
4th 951, 976 (1997). Actual reliance must also be justifiable, separation of the fraud and contract claims deprived it of the
i.e., reasonable. Wilhelm v. Pray, Price, Williams & Russell, opportunity to present a meaningful defense. Oracle’s
231 Cal. Rptr. 355, 358 (Cal. Ct. App. 1986). “theory of the case” was that American Trim knew the actual
status of Oracle Automotive at the time it bound itself to the
In this case there was substantial evidence to support the agreement, and that, even if it did not, the current availability
jury’s conclusion that American Trim actually and justifiably of Oracle Automotive was immaterial to its purchase
relied on Oracle’s misrepresentations that Oracle Automotive decision. According to Oracle, Atwell understood, no later
was available for purchase and entered into the agreement on than the delivery to American Trim of a Beta version during
that basis. Several American Trim employees testified that the acceptance period, that Oracle Automotive remained
American Trim would not have entered into the contract with under development. “Atwell nevertheless decided to continue
Oracle were it not for Oracle’s representations about Oracle with the project to install Release 11 (with the Oracle
Automotive’s availability. Oracle argues that Atwell’s Automotive functionality) when it became available, since
testimony demonstrates that there was no actual reliance American Trim had no need for immediate availability of
because he stated that he “wasn’t really concerned” whether Oracle Automotive.”
Oracle Automotive was in pre-production (Beta) release and
that Oracle Automotive was “not a major issue” as late as Federal Rule of Civil Procedure 42(b) allows a district
January 20, 1998. There is a substantial difference between court to “separate trial of any claim . . . or of any separate
being concerned about whether Oracle Automotive was in issue” to promote convenience and economy or to avoid
Beta release and whether it was in release at all. prejudice. A district court’s decision to do so is within its
Furthermore, the level of concern Atwell displayed upon sound discretion and “will be affirmed unless the potential for
learning of Oracle’s fraud after the contract was signed is not prejudice to the parties is such as to clearly demonstrate an
relevant to the issue of whether American Trim actually relied abuse of discretion.” In re Bendectin Litig., 857 F.2d 290,
on the misrepresentation when it entered into the agreement, 308 (6th Cir. 1988).
and in any case, at the time when Atwell said that Oracle
Automotive was “not a major issue,” Oracle was still Contrary to Oracle’s contention, a review of the record in
promising that it was going to deliver the product in March this case indicates that it had every opportunity to present all
1998. Butts’s own testimony demonstrates that American relevant arguments in Phases I and II of the trial. For
Trim’s reliance on Oracle’s representations at the Troy instance, Oracle conducted an extensive cross-examination of
presentation was reasonable: “To be honest, if you were an Atwell in which he stated that Oracle Automotive was “not a
American Trim person attending the demo, you would have major issue” in January 1998. Oracle introduced evidence
believed you were being sold an automotive solution.” that (1) Atwell was told he needed to spend money on
consultants but did not; (2) Atwell failed to complain when he
received the Beta version of Oracle Automotive; (3) Atwell
No. 02-4186 American Trim v. Oracle Corp. 19 20 American Trim v. Oracle Corp. No. 02-4186
did not raise the issue of the missing integration piece until issues from the question of whether an intentionally false
February 1998; and (4) Atwell’s job was in jeopardy in July promise caused harm, and, if so, the amount of such
1998 because he did not have Oracle Automotive. At closing harm.
argument in Phase I, counsel for Oracle told the jury: “You
also see from their own documents what we told them. We The court did not abuse its discretion when it divided the trial
told them that you also need a consultant. You heard Mr. into three separate phases. Oracle was given an opportunity
Atwell say, we didn’t spend money on a consultant. . . . Mr. to present fully its “theory of the case” with respect to the
Atwell claims that he wanted something called Oracle fraud claims, and the jury rejected it. The district court’s
Automotive and that he understood from the demonstration in separation of issues caused no prejudice to Oracle.
Troy it was live and real. When it’s delivered in September
of 1997, if you believe his testimony, and you see Oracle C. Compensatory Damages
Automotive beta, what do you do? That’s when you claim
fraud.” Oracle next argues that the compensatory damage award of
$3 million “exceeds the maximum that a jury could
Oracle also argues that the district court’s separation of the reasonably find to be compensatory for the plaintiff’s loss,”
issue of causation from Phase I prejudiced its ability to and that the district court erred by failing to grant a new trial
present its defense that American Trim had not acted in or remit the award “to the maximum supportable level.”
reliance upon its alleged false representations when it entered
into the agreement. Oracle confuses the issue of whether the As a general rule, this court has held that “a jury verdict
representation was the cause of American Trim’s conduct in will not be set aside or reduced as excessive unless it is
entering into the transaction, which was in fact discussed in beyond the maximum damages that the jury reasonably could
detail in Phase I, with the issue of whether Oracle’s find to be compensatory for a party’s loss.” Farber v.
misrepresentation caused American Trim to suffer any Massillon Bd. of Educ., 917 F.2d 1391, 1395 (6th Cir. 1990).
damages, which was at issue in Phase II. In Phase I, the jury A trial court is within its discretion in remitting a verdict only
heard testimony from numerous witnesses that American when, after reviewing all the evidence in the light most
Trim would not have entered into the contract if it had known favorable to the prevailing party, it is convinced that the
at the time that Oracle Automotive was not in fact available. verdict is clearly excessive; resulted from passion, bias, or
The trial structure did not require the jury to decide an prejudice; or is so excessive or inadequate as to shock the
identical question in each of the first two phases of the case, conscience of the court. Id. If there is any credible evidence
as Oracle contends. Moreover, the tort and contract claims to support a verdict, it should not be set aside. Id.were not the same and were properly divided. As the district
court noted, In Phase II, Oracle presented the jury with the following
summary of its damages:
Fraud and breach of contract (and defenses related to the
claim of breach of contract) are distinct claims: one
relates to the contract’s formation, while the other relates
to its performance, and fraud in a contract’s formation
can defeat its enforceability. Likewise, whether a false
promise was intentionally made and relied on are distinct
No. 02-4186 American Trim v. Oracle Corp. 21 22 American Trim v. Oracle Corp. No. 02-4186
The district court concluded that there was an adequate
evidentiary basis for the compensatory damage award, and we
Cost of Oracle System $1,849,447.00 agree. There is at least some credible evidence to support the
jury’s $3,000,000 verdict. Therefore, the district court did not
Training and $32,744.09 abuse its discretion when it refused Oracle’s request to set it
Implementation Costs aside or reduce it as excessive.
for Oracle System D. Motion for Judgment as a Matter of Law on
Punitive Damages
Cost of Renewing MDSS $72,000
License Oracle also contends that American Trim failed to meet its
burden of proof on its claim for punitive damages. In
Prejudgment Interest particular, it argues that American Trim failed to prove by
clear and convincing evidence that Peter Ciccarelli was a
@ 6% $581,914.93 managing agent who authorized or ratified the fraud against
it.
@ 7% $691,275.75
In order to hold a corporation liable for punitive damages
Total (with 6% interest) $2,536,106.02 based on fraud under § 3294(b) of the California Civil Code,
a plaintiff must show by clear and convincing evidence that
Total (with 7% interest) $2,645,466.84 an officer, director or manager authorized or ratified the
fraud. Cal. Civ. Code § 3294(b). An agent or employee acts
American Trim’s witnesses also testified about additional in a managerial capacity whenever the degree of discretion
damages not itemized in the above summary, including: permitted the agent or employee in making decisions is such
approximately $140,000 in wages and related expenses in that the agent or employee’s decisions will ultimately
connection with the employee hours American Trim determine the corporation’s business policy. Mitchell v.
employees spent training on Oracle software and $50,000 of Keith, 752 F.2d 385, 390 (9th Cir. 1985) (quoting Egan v.
microcomputer equipment American Trim had upgraded Mut. of Omaha Ins. Co., 620 P.2d 141, 148 (Cal. 1979)). In
specifically to work with Oracle software. Additionally, order to demonstrate that an employee is a true managing
American Trim’s treasurer, Dana Morgan, testified that he agent under § 3294(b), a plaintiff seeking punitive damages
took a “conservative” approach to calculating their must show that the employee exercised substantial
compensatory damages. American Trim also introduced discretionary authority over significant aspects of a
testimony about its “intangible losses” caused by the amount corporation’s business. White v. Ultramar, Inc., 981 P.2d
of wasted time and effort it expended on Oracle, including 944, 951 (Cal. 1999). The critical inquiry is the degree of
testimony from Rogers that American Trim had “lost a year- discretion the employee has in making decisions that will
and-a-half in a critical, important project” and that time was determine corporate policy, not the employee’s particular
“as important as money.” level in the corporate hierarchy. Egan, 620 P.2d at 149.
No. 02-4186 American Trim v. Oracle Corp. 23 24 American Trim v. Oracle Corp. No. 02-4186
In this case, there was sufficient evidence for the jury to Ciccarelli told Vandivier to offer Oracle Automotive to
find both that Ciccarelli was a managing agent for Oracle and American Trim even though he knew that it was not yet
that he authorized or ratified the fraud against American available. He also testified that he did not know that his sales
Trim. As Oracle’s Application Sales Director for the mid- team misrepresented the functionality of Oracle Automotive
Atlantic region, Ciccarelli had a sales quota of $70,000,000. or that American Trim believed his sales team. Oracle notes
He was responsible for fifty employees, including all the sales that “[c]orporate ratification in the punitive damages context
representatives in his region and their supervisors. See White, requires actual knowledge of the conduct and its outrageous
981 P.2d at 954 (holding that a zone manager responsible for nature.” Coll. Hosp., Inc. v. Superior Court, 34 Cal. Rptr. 2d
supervising eight retail stores and sixty-five employees who 898, 912 (Cal. 1994). However, nothing in the case law
had “substantial discretionary authority over vital aspects” of Oracle has cited indicates that Ciccarelli had to have actual
the corporation’s business, including “managing numerous knowledge that American Trim was in fact deceived by the
stores on a daily basis, and making significant decisions deception he authorized when he told Vandivier to offer
affecting both store and company policy,” was a managing Oracle Automotive before it was in production.
agent). Oracle’s 2000 annual report described the company
as a “feudal operation” run by a group of autonomous general Viewing the evidence in the light most favorable to
managers, who set their own prices, invented their own American Trim, there was clear and convincing evidence in
policies and procedures, and ran their own computer systems. the record to support the jury’s finding that Ciccarelli was a
Although this section of the annual report describes the managing agent for Oracle and that he ratified the acts of his
responsibilities of the managers responsible for sales in entire subordinates.
countries, the district court concluded that the jury was
entitled to infer from this evidence that it was an accurate E. The Ratio of Punitive to Compensatory Damages
portrayal of the kind of authority given to a sales manager
responsible for only a large segment of a country. Ciccarelli Finally, Oracle argues that the punitive damages award is
himself testified that he was “authorized to determine and unconstitutionally excessive under the Due Process Clause of
agree to and approve what solutions [Oracle] would present the Fourteenth Amendment. This argument was raised for the
to [its] customers to solve their business problems.” It is first time in Oracle’s reply brief, and this court has
worth noting that California does not require evidence that a consistently held that we will not consider such arguments.
purported managing agent was responsible for setting firm- Overstreet v. Lexington-Fayette Urban County Gov’t, 305
wide or official policy. See White, 981 P.2d at 956 (Mosk, J., F.3d 566, 578 (6th Cir. 2002). Oracle contends that this
concurring) (noting that while supervisor “lacked the “general” rule is not to be applied “where doing so would
authority to terminate plaintiff without approval of [the result in a miscarriage of justice.” As American Trim notes,
corporation’s] human resources and division manager” and that language is from a different rule of this court, i.e., that we
had no authority to set firm-wide or official policy, she will not consider arguments raised for the first time on appeal
exercised the authority that necessarily resulted in the “ad hoc unless doing so would “result in a plain miscarriage of
formulation of policy” that adversely affected the plaintiff, justice.” Id. at 578. Oracle actually raised the argument that
and was therefore a managing agent). the punitive damages award was unconstitutional before the
district court, but chose not to include it in its 67-page
With respect to whether Ciccarelli ratified or authorized the opening brief. Oracle argues that its failure to challenge the
fraud committed by Oracle, the record clearly indicates that constitutionality of the punitive damages award is excused
No. 02-4186 American Trim v. Oracle Corp. 25 26 American Trim v. Oracle Corp. No. 02-4186
because the Supreme Court filed its decision in State Farm III.
Mutual Auto Insurance Co. v. Campbell, 538 U.S. 408(2003), seven weeks after its opening brief was due. For the foregoing reasons, we affirm the judgment of the
According to Oracle, State Farm was “an intervening change district court.
in the law subsequent to the filing” of its opening brief that
excused its initial failure to raise the constitutional argument.
However, State Farm did not work a change in the law so
much as it clarified existing law set forth in BMW of North
America v. Gore, 517 U.S. 559 (1996).
Due process prohibits the imposition of grossly excessive
or arbitrary punishments on a tortfeasor. State Farm, 538
U.S. at 416. In Gore, the Supreme Court instructed courts
reviewing punitive damages awards to consider three
guideposts: (1) the degree of reprehensibility of the
defendant’s misconduct; (2) the disparity between the actual
or potential harm suffered by the plaintiff and the punitive
damages award; and (3) the difference between the punitive
damages awarded by the jury and the civil penalties
authorized or imposed in comparable cases. 517 U.S. at 575.
State Farm did not change these factors, and in fact, the court
analyzed the constitutionality of the punitive damages award
at issue in that case using those same three guideposts. 538
U.S. at 418-29. Counsel for Oracle was familiar with Gore’s
guideposts long before the outcome in State Farm was
decided. Indeed, counsel challenged the constitutionality of
the punitive damages award before the district court. Oracle
waived its right to assert the same argument on appeal by
raising it for the first time in its reply brief.4
4
In State Fa rm, the Court noted that “single-digit multipliers are
more likely to comport with due process, while still achieving the State’s
goals of deterrence and retribution.” 538 U.S. at 425. We no te that the
3.3-to-1 ratio in this case is single-digit and less than the 4-to-1 ratio cited
in Gore. 517 U.S. at 581 . California courts have also upheld similar
ratios since State Fa rm was decided. See, e.g., Romo v. Ford Motor Co.,
6 Cal. Rptr. 3d 793, 813 (Ca l. Ct. App. 2003) (upholding a punitive-to-
compensatory damage awa rd ratio of 5-to-1).