Monarch Insurance Company of Ohio v. Spach

• Citation: 281 F.2d 401
• Decision Date: 05 August 1960
• Docket Number: No. 17889.,17889.
• Parties: MONARCH INSURANCE COMPANY OF OHIO, Appellant, v. May SPACH, as Receiver for Ro-Ben, Inc., Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

281 F.2d 401 (1960)

MONARCH INSURANCE COMPANY OF OHIO, Appellant, v. May SPACH, as Receiver for Ro-Ben, Inc., Appellee.

No. 17889.

United States Court of Appeals Fifth Circuit.

July 8, 1960.

Rehearing Denied August 5, 1960.

COPYRIGHT MATERIAL OMITTED

Geo. J. Baya, Miami, Fla., for appellant.

Stephen C. McAliley, James A. Smith, Wicker & Smith, Miami, Fla., for appellee.

Before TUTTLE, JONES and BROWN, Circuit Judges.

JOHN R. BROWN, Circuit Judge.

In what would otherwise be an ordinary run-of-the-mill diversity suit granting recovery under a fire insurance policy for property located in Florida, there is presented an issue on a specific piece of evidence tendered and excluded which brings the question to the brink of the constitution. The precise question is whether a federal court sitting in Florida could, by virtue of a specific Florida statute, exclude testimony which otherwise would be admissible.

Posing the problem with such potential implications is a very simple situation. The property owner, a Florida corporation, sued the insurance company. It removed the case to the Florida District Court on diversity. Among many defenses filed to the complaint were those charging specifically that the assured had wilfully made false and fraudulent representations with respect to the origin and cause of the fire which was in truth of incendiary origin, the value of property before the fire and the damage sustained, and actions of the president of the assured corporation just prior to the fire. Further, it alleged a wilful concealment of specific facts covering similar matters, intentional false swearing in the formal proof of loss and intentional false swearing with respect to specified similar matters in the examination under oath obtained after the loss. These and other specific defenses raised squarely the question of honesty and fair dealing on the part of the corporate assured through its president in connection with the issuance of the policy and the actions taken after the loss in the assertion of the claim under the policy. Credibility of the corporate president was a key matter in general. In addition false statements made in the prosecution of the claim could amount to an outright defense as a breach of the contract. American Ins. Co. of Newark, N. J. v. Robinson, 1935, 120 Fla. 674, 163 So. 17; Chaachou v. American Central Ins. Co., 5 Cir., 1957, 241 F.2d 889.

Acting pursuant to provisions of the policy the Insurer examined the corporate president under oath prior to the commencement of any legal proceedings. This was done before a court reporter, privately employed. The Insurer's answer set up that in this examination on oath the president had falsely sworn to significant specified facts. During cross examination of this witness on the trial, the Insurer defendant undertook to cross examine the president on the basis of this statement which had been taken. The plaintiff objected on the ground that the Insurer had declined to furnish a copy pursuant to the demand made by the Assured both at the time of its taking and thereafter by formal letter to counsel for the insurance company. Consequently, the plaintiff urged the statement should be excluded under a 1951 Florida Statute providing that on refusal to honor a demand for a copy "no written statement by an injured person shall be admissible in evidence or otherwise used in any manner in any civil action relating to the subject matter thereof * *."¹

The Court sustained the objection and forbade the use of this statement either for purposes of impeachment or to establish the affirmative defenses of false swearing.

On this record we are certain of four things. First, there was an adequate proffer. Second, the trial court after extended argument fully understood the respective position of both parties, and the Court's ruling intentionally prohibited any use of the statement. Third, the evidence was such that in the context of this contentious controversy, it was important and relevant for both impeachment purposes and to establish the affirmative defense of breach of the policy. It bore directly and critically on the merits of the case and unless the District Court was justified in excluding it by virtue of the Florida Statute, the cause must be reversed. Fourth, we accept the plain words of the Florida Statute as making it applicable to cover this kind of a statement concerning destruction of property made in connection with a contract, not tort, claim.

The fact that rules of evidence are ordinarily thought of as procedural or, for that matter, are covered at least in part by specific Federal Rules of Civil Procedure does not really solve the problem. For we are taught that while the lines are shadowy and we may but dimly see the path, the Erie Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 adjustment which our constitutional federalism imposes on a federal court hearing a diversity case is not satisfied by a talismanic label of "procedural" or "substantive." But this is not, as some have occasionally felt or uttered, to say that in diversity cases substance and procedure are now one and the same thing or that, as one dissenting Justice characterized it, the Supreme "Court riddled the distinction between `substantive' and `procedural'." Wells v. Simonds Abrasive Co., 1952, 345 U.S. 514, at page 523, 73 S.Ct. 856, at page 861, 97 L.Ed. 1211, at page 1219 (dissenting opinion).

The terms are still useful and when the thing sought to be determined is analyzed in the light of the goal of achieving substantial uniformity in decision in a state court and a federal court sitting within that state concerning a state-created right, they can be decisive. Their use in the accommodation of adjudication by federal courts to those of the forum state grows out of analogies in the field of conflicts of laws and the historic experience under the Rules of Decision Act² and the Conformity Act.³ If it is "substantive" in the analogous conflicts of laws sense, then the federal court must follow that of the forum state. And in determining what that substantive law is, Erie accorded equal significance to decisional as well as statutory declaration. On the other hand, the procedural rules to be followed are those of the court hearing the cause. After a series of cases demonstrated that substantial uniformity in result could or would often be thwarted or deterred from the impact of rules or practices customarily characterized as procedural, the court recognized that in this profound realm of federalism there were some procedural rules which so far affect rights and the outcome of the case as to require that they be followed by the federal court. This resulted in the "outcome-determinative" test. "In essence, the intent of that decision Erie was to insure that, in all cases where a federal court is exercising jurisdiction solely because of the diversity of citizenship of the parties, the outcome of the litigation in the federal court should be substantially the same, so far as legal rules determine the outcome of a litigation, as it would be if tried in a state court. The nub of the policy that underlines Erie * * * is that for the same transaction the accident of a suit by a non-resident litigant in a federal court instead of in a state court a block away should not lead to a substantially different result." Guaranty Trust Co. of New York v. York, 1945, 326 U.S. 99, 109, 65 S.Ct. 1464, 89 L.Ed. 2079, 2086.

The implications of such an approach, exemplified in action as it was in at least two cases where specific Federal Rules of Civil Procedure were given a subordinate role to state requirements in the same area,⁴ can be somewhat awesome. Even before Bernhardt⁵ this led no less a distinguished authority in the field of the Federal Rules than Judge Charles E. Clark to express the opinion that the "drastic logic" in the pursuit of the goal of uniformity of outcome has brought to pass a situation in which "hardly a one of the heralded Federal Rules can be considered safe from attack by shrewd lawyers and obedient lower tribunals."⁶ Others apprehend that Bernhardt perhaps imperils some federal procedural statutes as well.⁷

A consideration of this problem must take into account the more recent case of Byrd v. Blue Ridge Rural Electric Coop., 1958, 356 U.S. 525, 78 S.Ct. 893, 2 L.Ed.2d 953. Whatever else it is thought to do,⁸ it certainly amplifies what undoubtedly must have been implicit in the development of the "outcome-determinative" test that all does not necessarily fall in the path of uniformity of result. So to determination of whether the application of the state rule would likely affect the outcome in a significant way must now be added the further one. Are there countervailing considerations reflecting substantial federal policies which outweigh in final balance the aim of like result? Declining to compel application of the state rule for non-jury trial of a particular issue, the Court expressed it this way. "Therefore, were `outcome' the only consideration, a strong case might appear for saying that the federal court should follow the state practice. But there are affirmative countervailing considerations at work here. The federal system is an independent system for administering justice to litigants who properly invoke its jurisdiction." 356 U.S. at page 537, 78 S.Ct. at page 900, 2 L.Ed.2d at page 926. The Court went on to say that "The policy of uniform enforcement of state-created rights and obligations * * * cannot in every case exact compliance with a state rule * * *" of a kind described as one "not bound up with rights and obligations." 356 U.S. at pages 537-538, 78 S.Ct. at page 901, 2 L.Ed.2d 962-963. But on the Court's earlier statement this would include as well "state rules even of form and mode where the state rules may bear substantially on the question whether the litigation would come out one way in the federal court and...