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4th Circuit vacates record $10M punitive award

The 4th Circuit has set aside a $10 million punitive damage award in a race discrimination case that was the largest verdict reported in 2008 in Virginia Lawyers Weekly.

In its Feb. 12 decision in Worldwide Network Services LLC v. DynCorp Internat’l LLC, the appellate panel upheld the jury award of $5 million in compensatory damages for the plaintiff minority subcontractor against a defense contractor operating in Iraq, for violations of 42 U.S.C. § 1981 and state law.

When the case was tried before Alexandria U.S. District Judge Gerald Bruce Lee, “smoking gun” evidence described a celebration at a company dinner after the minority sub was fired, and a public reading of a letter written in Ebonics, ostensibly from the president of the deposed company.

The panel struck the punitive damage award on the § 1981 claim, saying there was no evidence in the record that defendant DynCorp terminated the subcontract in the face of “a perceived risk” that its decision would violate federal law, the standard articulated in a 2003 en banc decision by the appellate court.

Judge Allyson Duncan also said the district court erred in its jury instruction on punitive damages, when it failed to define “malice” or “reckless indifference,” terms the jury had to apply to whether DynCorp knew it could be violating federal law.

Duncan wrote the 67-page unpublished opinion. Judge Paul Niemeyer concurred and dissented, saying the district court erred in allowing the jury to consider racial animus of lower-level managers who did not make the decision to terminate the subcontract. Niemeyer concurred in the decision to vacate the punitive damage award. Jim Jones, Chief Judge of the U.S. District Court for the Western District of Virginia, sitting by designation, agreed with Duncan’s analysis of the § 1981 jury instruction, but said the record evidence of a warning letter sent to DynCorp supported an award of punitive damages.

The jury verdict complicated vacatur, Duncan said. The district court instructed the jury it could award punitives on counts 1 (§ 1981), counts 3 and 4 for tortious interference, and count 5, for civil conspiracy. The jury found DynCorp liable only on count 1 and on count 3. The verdict did not specify how much of the $10 million punitive damage award was allocable to count 1 rather than count 3. So the panel remanded the case for retrial on punitive damages for count 3.

By Deborah Elkins

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