Werner, Zaroff, Slotnick, Stern & Askenazy v. Lewis
155 Misc. 2d 558, 588 N.Y.S.2d 960, 1992 N.Y. Misc. LEXIS 459 (1992)
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Rule of Law:
Punitive damages may be awarded for a breach of contract claim where the defendant's conduct is morally culpable, actuated by evil motives, or involves bad faith, in order to punish the wrongdoer and deter similar conduct.
Facts:
- Plaintiff, a law firm, orally agreed to retain Defendant, a computer consultant, to upgrade its computer system and modify its custom software.
- Plaintiff paid Defendant a total of $21,375 for his services.
- Upon receiving the final payment on January 18, 1986, Defendant inserted a floppy disk into Plaintiff's computer and remarked that if he had not been paid, the computer would have subsequently crashed.
- Without Plaintiff's knowledge, Defendant intentionally placed a hidden conditional statement in the software program that would cause it to stop functioning after it reached a specific claim number.
- In July 1986, the program shut down when it reached claim number 56789, significantly interfering with Plaintiff's ability to conduct its business.
- Defendant had retained the program's source code, making it difficult for others to fix, and falsely told Plaintiff he had destroyed it.
- The court concluded that Defendant sabotaged the program with the hope that Plaintiff would have to retain him again to correct the problem he created.
- Plaintiff was forced to hire another consultant for $7,000 to successfully repair the software.
Procedural Posture:
- Plaintiff, a law firm, filed an action for breach of contract, among other claims, against Defendant, a computer consultant, in a New York trial court.
- Plaintiff's complaint alleged that the defendant’s conduct was undertaken 'with malicious intent.'
- The court held an eight-day nonjury trial.
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Issue:
May punitive damages be awarded for a breach of contract when the breaching party's conduct is morally culpable and intentionally harmful, such as secretly planting a 'time bomb' in a computer program to cause it to fail?
Opinions:
Majority - Richard F. Braun
Yes, punitive damages may be awarded for a breach of contract when the defendant's conduct is morally culpable and intentionally harmful. Although the general rule is that punitive damages are not available for breach of contract, an exception exists to deter 'morally culpable conduct.' The court found that the right to award punitive damages is determined not by the form of the action but by the 'moral culpability of the defendant.' Here, Defendant's intentional and malicious act of planting a hidden directive to cause the program to crash was morally reprehensible and seemingly criminal, violating Penal Law § 156.20 (computer tampering). Given the public's reliance on and vulnerability to computer experts, Defendant's actions, motivated by the hope of securing future work, warrant the imposition of punitive damages to punish him and deter others from similar conduct.
Analysis:
This case is significant for extending punitive damages, typically reserved for tort claims, to a breach of contract action where the breach is accompanied by malicious and morally reprehensible conduct. The decision reflects the judiciary's adaptation of traditional contract law principles to address harms arising from technology and the abuse of specialized knowledge. It establishes that a breach of contract involving intentional sabotage, bad faith, and exploitation of a client's dependence on an expert's services can justify punitive damages to serve the public policy goals of punishment and deterrence. This precedent is particularly important in fields where clients are highly vulnerable to the bad faith actions of service providers with specialized technical expertise.
