## Facts

- Sears launched and marketed a national “Sears Add‑A‑Room” home-improvement program and licensed a contractor, United Remodeling Systems, Inc. (URS), to perform the work under Sears branding.
- Under the licensing arrangement, Sears received 10% of the gross contract price for each homeowner contract.
- Homeowners responded to Sears advertising and reputation, signed written improvement contracts, and often paid the full price at signing, sometimes using second mortgages.
- A performance bond supported the program; URS later became undercapitalized and failed, leaving about 200 California contracts unfinished or incomplete.
- Sears and the surety disputed responsibility for completion costs; Sears notified customers of URS’s “bankruptcy” and advised customers to press claims against the surety while stating Sears would “cooperate” in resolving matters.
- Many homeowners experienced defective or unfinished construction, long delays, and perceived avoidance of responsibility by entities associated with the program.
- Homeowners testified to frustration, anxiety, and domestic disruption tied to prolonged construction problems and disputes.
- After a 36-day jury trial, the jury awarded approximately $158,000 in compensatory damages and $10 million in punitive damages; the trial court denied a new-trial motion, and Sears appealed.

## Issues

1. Whether Sears could be held liable for breach of contract and misrepresentation where work was performed by a licensed contractor using Sears branding and supported by a performance bond.
2. Whether the evidence supported compensatory damages, including emotional distress, and whether the award was excessive.
3. Whether punitive damages were authorized by proof of “oppression, fraud, or malice” and whether $10 million was excessive.

## Decision

- The Court of Appeal affirmed the judgments for plaintiffs and intervenors.
- The court upheld findings that Sears was liable based on its role in designing, promoting, profiting from, and managing the branded program and the reliance its representations induced.
- The court sustained the compensatory awards, including emotional distress damages, as supported by the record and not shocking to the conscience.
- The court sustained the punitive damages award, finding evidence sufficient under California’s punitive-damages standard and concluding the amount was not impermissibly excessive in light of Sears’s financial condition and the need for deterrence.

## Legal Principles

- A company that markets and profits from a branded consumer program may be liable for resulting contractual and tort harms when its representations and conduct create reasonable consumer reliance that the company stands behind performance.
- Emotional distress damages may be recoverable in connection with fraud or tortious breach of contract when the distress is a reasonably foreseeable result of the defendant’s conduct.
- Punitive damages under California Civil Code § 3294 require proof of oppression, fraud, or malice and may be affirmed where the defendant’s conduct shows conscious disregard of others’ rights.
- In reviewing punitive damages for excessiveness, courts consider the nature of the misconduct, the harm caused, and the defendant’s wealth to assess deterrence and whether the award reflects passion or prejudice.

## Conclusion

The court affirmed liability and compensatory damages, including emotional distress, and upheld a $10 million punitive damages award after concluding that Sears’s branded program conduct and post-failure handling supported findings of fraud-like and oppressive behavior warranting substantial punishment and deterrence.


Rosener v. Sears, Roebuck & Co., 110 Cal. App. 3d 740, 168 Cal. Rptr. 237 (Ct. App. 1980)