A victory for small business

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On Thursday, August 23, 2007, the U.S. Court of Appeals for the Third Circuit issued its decision in the case of CGB Occupational Therapy, Inc. v. Sunrise Senior Living, Inc., a David v. Goliath case involving a small business that was nearly destroyed by a billion dollar company.

Writing for the majority, Judge Kent Jordan excoriated Sunrise Senior Living, Inc. (NYSE: SRZ) for its "remarkable" and "abusive litigation tactics," as well as its intentional disregard for the rights of CGB Occupational Therapy, Inc., a provider of therapists to two nursing homes managed by Sunrise. The Third Circuit affirmed the trial court's decision that CGB deserved an award of substantial punitive damages, although not the $2 million amount previously set by the District Court or the $30 million amount imposed by a federal court jury that heard the incredible testimony of Sunrise's senior executives. The appellate court imposed a punitive damages award of $750,000, or seven times the $109,000 compensatory damages awarded to CGB in an earlier trial.

In reaching this award, the Third Circuit totally rejected Sunrise's arguments that its conduct toward CGB was "barely a tort," as well as the company's argument that the maximum punitive damages allowed under the U.S. Constitution is only a 1:1 ratio of punitive damages compared to compensatory damages. The court issued a blistering rebuke of Sunrise's litigation tactics, saying: "litigants should not have to face something akin to medieval trial by combat to resolve a basic business dispute."

Although the damages award was significantly reduced, the appellate court was clearly sending a message: Large companies will be held accountable for trying to destroy small businesses if they don't play by the rules.