Conceding that the days of massive punitive damage awards may be over, Beckman Coulter Inc. on Wednesday settled its fraud and breach-of-contract lawsuit against Flextronics International Ltd. for $23 million, a far cry from the $934 million it was awarded by a jury.
The settlement is the latest fallout from a U.S. Supreme Court decision in April that is being interpreted by lower courts as limiting punitive damages to no more than nine times actual damages. On Tuesday, a California appeals court slashed a $290-million verdict against Ford Motor Co. more than 90%.
"You don't have to be a weatherman to know which way the wind is blowing," Daniel J. Callahan, a lawyer for Fullerton-based Beckman Coulter, said, paraphrasing Bob Dylan. "It was pretty obvious to us that our verdict was either going to be thrown out or chopped down to a few million bucks at best."
Flextronics said in a statement that it had agreed to pay far more than appellate courts might have allowed in order to get the case out of the way and get on with business. "Although the settlement remains larger than we believe the law would have allowed, it relieves the company of the significant burden and distraction that the original verdict imposed," Flextronics Chief Executive Michael E. Marks said in a statement.
Beckman, which sells test equipment to medical labs and drug companies, claims it was defrauded when Flextronics broke a contract to supply circuit boards for medical testing devices.
An Orange County jury decided in late September that Flextronics had engaged in fraud and broke its contract to provide the circuit boards, and awarded Beckman $498,000 in compensatory damages and $931 million in punitive damages.
The state appellate court in Santa Ana recently interpreted April's U.S. Supreme Court decision for the first time, reducing punitive damages to four times compensatory damages in a case called Diamond Woodworks vs. Argonaut Insurance. That court, the 4th District Court of Appeal, would have reviewed the Beckman Coulter award had the settlement not been reached.
Instead of risking a huge reduction, Beckman Coulter took the settlement, which amounts to about 40 times compensatory damages.
"The jury gave us $934 million based upon the potential damages that Beckman Coulter could have faced," Callahan said. "Using potential damages, the multiplier was 2.5 to 1. However, on the actual damages we have $498,000, and we were given $931 million, so that's a pretty high multiplier."
Callahan said the reduction in the Ford verdict Tuesday brought a quick close to two months of settlement negotiations.
"We were already staring down the gun barrel of Diamond Woodworks, and then you have [the Ford opinion] where three people were killed in a car crash -- and the appellate court likened it to manslaughter -- and all they got was $23 million in punitive damages," he said. "We didn't have personal injury. All we had was economic loss."
The settlement will result in third-quarter costs of 3 cents a share, Flextronics said in its statement.
"This is a positive event from Flextronics' point of view," said Avi Benus, a bond analyst at J.P. Morgan Securities Inc. in New York. "It's more like a disaster averted, as opposed to a big win."
Shares of Flextronics, which is based in Singapore but has administrative offices in San Jose, rose 45 cents to $15.84 on Nasdaq. Beckman dropped 50 cents to $50.61 on the New York Stock Exchange.
Bloomberg News was used in compiling this report.