TriZetto's $570M punitive damages win ruled ‘excessive’

Tech company Syntel was hit with “excessive punitive damages” when a New York jury delivered a $855 million verdict in favour of TriZetto, a US judge has found.

District Judge Lorna Schofield handed down her decision at the US District Court for the Southern District Of New York on Tuesday, April 20, ruling that TriZetto must choose between a new punitive damages trial or reduced damages.

Background

The origins of the long-running trade secrets and copyright infringement dispute between the two companies began in 2010 when Syntel and TriZetto entered into a Master Services Agreement.

The former agreed to provide software development, consulting services and other support to TriZetto’s customers, but they later amended the agreement and deleted a provision that barred Syntel from competing with TriZetto.

Cognizant acquired TriZetto in 2014, and the two companies terminated the agreement and their relationship.

Syntel sued TriZetto in January 2015 for breach of contract, while TriZetto countersued, alleging that Syntel had stolen trade secrets and was liable for copyright infringement.

During a trial held in October 2020, TriZetto argued that Syntel was unjustly enriched by stealing and using TriZetto’s trade secrets instead of incurring the cost of developing the trade secrets on its own.

Punitive damages

The jury agreed and awarded TriZetto $284,855,192 in compensatory damages and double that amount in punitive damages ($569,710,384).

Following the jury’s verdict, Syntel requested a motion for judgment as a matter of law, or a new trial or a reduction (remittitur) on the punitive damages, holding that the jury had erred in finding that it had misappropriated trade secrets and infringed copyright.

Judge Schofield found this week that “whether viewed as a question of law for the court, or the sufficiency of the evidence before the jury”, Syntel’s arguments provided no basis to reverse the ruling that Syntel misappropriated TriZetto’s trade secrets or had infringed copyright.

But she was convinced by Syntel’s argument that the jury’s punitive damages award violated due process, and that the verdict should be reduced as a matter of law because the punitive damages award was excessive.

In reaching her decision, Judge Schofield held that an award of punitive damages must be “fair, reasonable, predictable and proportionate”, and that under federal common law, a jury verdict is excessive when the award is “so high as to shock the judicial conscience and constitute a denial of justice”.

‘Reprehensible, not egregious’ behaviour

She noted that “the Supreme Court has articulated three ‘guideposts’ for reviewing punitive damages awards” for excessiveness, including the degree of reprehensibility, the disparity between the harm or potential harm suffered and the size of the punitive award; and the difference between the remedy in this case and the penalties imposed in comparable cases.

Judge Schofield accepted that the evidence showed that Syntel’s conduct had been reprehensible, as it had engaged in a sustained course of illegal conduct against TriZetto, including misappropriating more than 100 of Syntel’s trade secrets and downloading more than 700 test cases and automation scripts.

She also agreed that TriZetto had presented convincing evidence that Syntel acted willfully, that it adopted a plan in 2012 “to go to war” with TriZetto, by using an “arsenal” of TriZetto’s trade secrets to target TriZetto’s customers.

But she held that while Syntel’s conduct was reprehensible, it was not “egregious” or “on a par with murderous or life-threatening conduct”. She also noted that when the punitive damages were compared with those in similar cases, a 1:1 ratio relative to the compensatory award “is the highest permissible award”.

Following her findings, she ruled that the punitive damages be reduced to $284,855,192 if TriZetto agrees to remittitur and that it must inform the court of its decision by May 4. If TriZetto declines, Syntel’s motion for a new trial on the issue of punitive damages will be granted.

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