The First Court of Appeals' recent decision in Rauf v. Manhattan Life Group reinforces the general pre-requisite to punitive damages awards—an award of actual damages—and clarifies a potential exception to that rule.  

Rauf concerned a real estate deal gone bad. The plaintiff, Manhattan Life Group, entered a contract to purchase a Houston commercial property from the defendant, Azhar Rauf. Rauf permitted his broker to market the property as fully available for use by prospective buyers. But that wasn’t true: a long-term lease encumbered it. When Rauf failed to show at closing, Manhattan sued him for breach of contract and fraud. 

The First Court reversed the punitive damages award. Under Civil Practice and Remedies Code section 41.004, actual damages are a required predicate to exemplary damages. Specific performance, the court explained, is an equitable substitute for monetary damages—not actual damages itself. Because the jury declined to award any monetary relief, the punitive damages award could not stand. 

Manhattan looked to our Supreme Court's 1985 decision in Nabours v. Longview Savings & Loan Association as a lifeline to save its punitive damages. The Nabours Court, though applying the no-punitive-damages-absent-actual-damages rule, stated that its holding “should not be confused with an absolute refusal to allow punitive damages in a case where equitable relief is had.”  That language, Manhattan said, left a door open for punitive damages in its case.

Key Takeaways

• Remedy selection and jury-charge strategy must be considered together.  If punitive damages matter, plaintiffs should present every viable, well-supported theory of actual damages. 
• Nabours may leave punitive damages available, but only in narrow circumstances. Nabours may leave an opening for exemplary damages when a plaintiff pursues and obtains only equitable relief. But Rauf makes clear that this opening does not apply when a jury is asked to award actual damages but declines to do so.