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4th Circuit Reverses $10 Million Punitive Damage Verdict

Published by on March 8, 2010

In Worldwide Network Services, LLC v. DynCorp International, LLC, the Fourth Circuit reversed a $10 million punitive damages award in favor of the plaintiff on the grounds that there was no evidence that the defendant acted with the knowledge that its conduct violated federal law.  Our prior post about the jury verdict can be found […]

In Worldwide Network Services, LLC v. DynCorp International, LLC, the Fourth Circuit reversed a $10 million punitive damages award in favor of the plaintiff on the grounds that there was no evidence that the defendant acted with the knowledge that its conduct violated federal law.  Our prior post about the jury verdict can be found here.  More after the break.

Worldwide Network Services, LLC (“WNS”), a minority-owned company, held a subcontract with DynCorp International, LLC (“DynCorp”) for government-related work in Iraq and Afghanistan.  The relationship between WNS and DynCorp began to deteriorate when DynCorp hired new executives for the company.  Shortly thereafter, DynCorp decided not to renew WNS’s contract and stopped payment on work that was already completed.  There was also evidence that DynCorp executives exhibited racial animus towards WNS owners.

WNS brought suit against DynCorp, alleging discrimination under § 1981 as well as tortious interference and breach of contract claims.  After a jury trial, WNS was awarded $3.42 million on the discrimination claim, $83,000 on the tortious interference claim, $1.3 million on the breach of contract claims, and $10 million in punitive damages. 

On appeal to the Fourth Circuit, DynCorp argued that the jury instruction on the discrimination claim and punitive damages was erroneous, and that certain evidence should have been admitted and other evidence excluded.  The court upheld the jury instruction on the discrimination claim, finding it was not an abuse of discretion.  The court also affirmed the district court’s denial of DynCorp’s Rule 50(b) motion on that claim, and upheld the district court’s ruling on the evidentiary issues.

With regard to the punitive damages award, the Fourth Circuit reviewed de novo the district court’s denial of DynCorp’s Rule 50(b) motion on this issue.  The court began its analysis by stating that a punitive damages award under § 1981 requires “evidence that the defendant acted in the face of a perceived risk that [its] decision would violate federal law.”  The court stated that after “combing the record,” it had found no evidence suggesting that DynCorp terminated WNS’s contract with the knowledge that its actions would be in violation of federal law.  Further, the court found that the lower court’s jury instruction on the punitive damages issue was erroneous.  The court stated that the instruction failed to define “malice” or “reckless indifference,” terms which a layperson could not have known pertained to DynCorp’s knowledge that it was violating a federal law.

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