WEST PALM BEACH, Fla. The Fourth District Florida Court of Appeal on March 21 reversed a $1.58 billion judgment in favor of Coleman (Parent) Holdings (CPH) on CPH’s claims that Morgan Stanley provided false financial information to investors (Morgan Stanley & Co., Inc. v. Coleman (Parent) Holdings Inc., No. CA4D05-2606, Fla. Ct. App., 4th Dist.).
In a 2-1 decision, the appellate panel overturned the Palm Beach County Circuit Court’s final judgment for CPH.
On March 3, 2005, Circuit Judge Elizabeth T. Maass issued an adverse inference order that reversed the burden of proof, finding that Morgan Stanley’s failure to produce e-mails “severely hindered CPH’s ability to proceed.” On March 23, 2005, Judge Maass entered default judgment for CPH. Judge Maass denied Morgan Stanley’s motion for judgment or for a new trial on punitive damages and entered final judgment of $1.58 billion for CPH on June 23, 2005. CPH sold its interest in Coleman Co. Inc. to Sunbeam in 1998 in return for Sunbeam stock. Sunbeam filed for bankruptcy protection in 2001.
CPH and financier Ronald Perelman sued Morgan Stanley for aiding and abetting fraud and conspiracy, alleging that, during negotiations, Morgan Stanley prepared and provided CPH with false financial and business information about Sunbeam that was designed to create the appearance that Sunbeam was prospering.
The appeals court majority focused on whether Perelman produced proper evidence to show he was damaged by accepting Sunbeam stock in exchange for his Coleman stake.
“Because there was no proof presented at trial on the correct measure of damages, the trial court should have granted Morgan Stanley's motion for directed verdict,” Judges Carole Taylor and George Shahood said. “Even if CPH established the fact of some unquantified damage (which theoretically could have supported a nominal damage award), this is not enough to justify a punitive damage award in a fraud case. Punitive damages for fraud cannot be based on nominal charges alone.”
Judge Gary Farmer dissented. He indicated that he would leave the compensatory damages intact and remand the case for a new trial on punitive damages.
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