Herman v. Sunshine Chemical Specialties, Inc.
627 A.2d 1081, 133 N.J. 329, 1993 N.J. LEXIS 727 (1993)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Evidence of a company's gross sales and the recent arm's-length sale price of the entire business is sufficient to prove the defendant's financial condition for the purpose of sustaining a punitive damages award.
Facts:
- In February 1985, Sunshine Chemical Specialties, Inc. (Sunshine) hired Sandra Herman as an independent contractor to demonstrate and sell its products.
- Sunshine's product, Sun-Clean, was falsely labeled as 'safe to use,' containing 'no caustics,' and meeting OSHA standards.
- Robert Feldman, Sunshine's president and sole owner, created the label by cutting and pasting from other labels, ignoring a safety data sheet that indicated the product contained sodium hydroxide, a caustic chemical.
- The Sun-Clean label omitted a necessary warning, present on the manufacturer's original label, which advised users to avoid breathing the product's vapors.
- While demonstrating Sun-Clean in July 1985, Herman inhaled its vapors and subsequently developed severe, chronic respiratory problems diagnosed as 'occupational asthma.'
- Sun-Clean was Sunshine's best-selling product, generating gross sales of $1 million in 1985 and $1.2 million in 1986.
- In 1986, Feldman and his wife sold 100% of their stock in Sunshine for $750,000.
Procedural Posture:
- Sandra Herman and her husband filed a complaint against Sunshine Chemical Specialties, Inc. and Concord Chemical Corp. in the Law Division, a state trial court.
- Plaintiffs settled with Concord, and the trial proceeded against Sunshine.
- A jury returned a verdict for Sandra Herman, awarding her $410,000 in compensatory damages and $400,000 in punitive damages.
- Sunshine's motion for a new trial was denied by the trial court.
- Sunshine's insurer, General Accident, and its trial law firm, Parker, were permitted to prosecute an appeal of the punitive damages award on Sunshine's behalf.
- General Accident and Parker, as appellants, appealed to the Appellate Division of the Superior Court, an intermediate appellate court.
- The Appellate Division reversed the punitive damages award, finding the evidence of Sunshine's financial condition insufficient, and remanded for a new trial on punitive damages.
- Plaintiff Sandra Herman, as petitioner, was granted certification to appeal to the Supreme Court of New Jersey, the state's highest court.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a plaintiff present sufficient evidence of a defendant's financial condition to support a punitive damages award by showing the company's gross sales, the product's sales figures, and the price for which the owner recently sold the entire company?
Opinions:
Majority - Pollock, J.
Yes, a plaintiff presents sufficient evidence of a defendant's financial condition to support a punitive damages award with such evidence. While a jury must consider a defendant's financial condition, this does not strictly require proof of net worth. The court reasoned that evidence of the company's gross sales, the product's sales figures, and, most significantly, the recent sale price of the entire corporation in an arm's-length transaction provided the jury with an adequate basis to assess the defendant's ability to pay. The court described the sale of an entire business as 'practically conclusive evidence of value.' Therefore, the evidence presented during the cross-examination of Sunshine's president was sufficient to sustain the jury's $400,000 punitive damages award.
Analysis:
This decision clarifies the evidentiary standard for proving a defendant's financial condition in a claim for punitive damages. It establishes that plaintiffs are not strictly required to present a defendant's net worth, which can be difficult to obtain and complex to prove. By allowing evidence like gross sales and, crucially, a recent company sale price to suffice, the court lowers the evidentiary burden for plaintiffs and prevents defendants from easily defeating punitive damage claims by obscuring their precise financial status. The ruling provides practical guidance for future cases, solidifying that the 'ability to pay' can be demonstrated through various forms of financial evidence, not just a formal balance sheet.
