In Bagby Elevator Co. v. Schindler Elevator Corp., No. 09- 10804, 2010 U.S. App. LEXIS 13857 (5th Cir. June 21, 2010), both Bagby and Schindler provided customers with elevator- servicing, such as elevator maintenance, modernization, construction, installation, and repair. A salesperson hired by Bagby in 2003, Derald Armstrong, developed contacts with Younan Properties, a company that owned and mortgaged commercial office buildings. Through this relationship, Bagby obtained contracts to perform various maintenance services for Younan Properties. Previously, Younan had primarily used Schindler to service its properties, but Younan had begun to complain of poor work quality. Younan therefore cancelled the existing service agreements with Schindler.
Bagby then terminated Armstrong’s employment after discovering misuse of a company credit card. Armstrong immediately began working for Schindler and set up meetings between Schindler and Younan to acquire the cancelled contracts. Armstrong provided Schindler with the terms of Bagby contracts so that Schindler could offer lower rates. Younan signed new contracts with Schindler and informed Bagby that it was cancelling their service contracts, because Armstrong had informed Younan that all Bagby contracts contained cancellation clauses, even though they did not. Younan did not bother to check the contracts.
Bagby sued Younan for breach of contract. In asking Armstrong and Schindler for help, Younan received a suspicious letter from Armstrong which Armstrong claimed to have written in December 2006 when he was still an employee of Bagby, which purported to give Younan a unilateral right to cancel contracts with Bagby by furnishing 30 days notice. The authenticity of the letter, however, was questioned.
Bagby filed suit against Schindler, seeking $240,000 in lost profits for interference with service contracts with Younan. The jury in the district court found for Bagby, awarding it $210,222.95 in economic damages and $500,000 in exemplary damages.
In affirming the lower court’s verdict, the U.S. Court of Appeals for the Fifth Circuit found that the lower court did not err when it gave the jury instruction on exemplary damages. Exemplary damages were allowed in such a case if Bagby proved by clear and convincing evidence that the harm resulted from fraud, malice, or gross negligence. There was sufficient evidence of both malice and gross negligence to support the award.