Mid-America Food Service, Inc. v. ARA Services, Inc.

• Decision Date: 06 June 1978
• Docket Number: No. 77-1724,MID-AMERICA,77-1724
• Citation: 578 F.2d 691
• Parties: FOOD SERVICE, INC., Appellee, v. ARA SERVICES, INC., Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 691

578 F.2d 691

MID-AMERICA FOOD SERVICE, INC., Appellee, v. ARA SERVICES, INC., Appellant.

No. 77-1724.

United States Court of Appeals,

Eighth Circuit.

Submitted Feb. 16, 1978.

Decided June 6, 1978.

R. S. McKenzie, Kansas City, Mo., for appellant.

Leonard B. Rose, Kansas City, Mo., for appellee; David W. Howard, Kansas City, Mo., on the brief.

Before HEANEY and HENLEY, Circuit Judges, and HANSON, Senior District Judge. ^*

HANSON, Senior District Judge.

This is a diversity action in which ARA Services, Inc., (ARA) appeals from a judgment against it for slander entered upon a jury verdict for $25,000 in punitive damages. No actual damages were awarded.

Mid-America Food Service, Inc. (Mid-America) is a Missouri corporation; ARA is a Delaware corporation. Both companies are engaged in the food service business and are competitors in the Kansas City area for private and public food service contracts. In May 1975 Mid-America and ARA were invited to bid on a Special Food Service Program co-sponsored in Kansas City, Kansas by two eleemosynary organizations, Turner House, Inc., and Cross-Lines Cooperative Council, Inc. The program was funded through the federal Department of Agriculture and was administered by the Kansas Board of Education. The purpose of the program was to provide approximately 1000 nutritional cold lunches daily to children of low income families. Three companies including Mid-America and ARA bid on the contracts.

The bids were opened May 9, 1975 in the presence of the bidders. ARA had the low bid. Mid-America bid approximately five cents more per meal. The third company had the highest bid and dropped out of the competition. ARA and Mid-America were advised that award of the contract would be announced at a May 16, 1975 meeting at Turner House. The meeting was subsequently held as scheduled. Present were Mary Ann Flunder and Leslie Yarborough of Turner House; Phillip Malott and David Shulman of Cross-Lines; Edward Lapin, vice president of Mid-America; and William Coleman and William Robertson of ARA. It was announced that Mid-America had been awarded the contract, whereupon its representative Lapin thanked the co-sponsors and departed.

After Lapin's departure, ARA representative Coleman queried the co-sponsors as to why ARA, the low bidder, had not received the contract. The conversation apparently became quite heated in the course of which Coleman was alleged to have stated words to the effect that Mid-America was having financial problems and might not be able to complete the program. He allegedly further stated that Mid-America had been "nearly closed down" by the health department. At trial Flunder and Shulman testified concerning Coleman's statements relative to Mid-America's financial condition; Yarborough and Malott testified with respect to the statements about the health department. Coleman and Robertson testified and denied that the alleged statements had been made. The imputation of financial difficulty and trouble with the health department constituted the defamation on which Mid-America predicated its cause of action for slander.

Mid-America was eventually awarded the contract, though representatives of the co-sponsors testified that Coleman's statements gave them pause about Mid-America's ability to perform and that Coleman's allegations were investigated.

The case was tried under the substantive law of Kansas. On the morning of the second and final day of trial the district court ¹ held a conference on instructions with counsel for both parties. At the conference the district court made four rulings, an understanding of which is necessary to put this appeal in perspective.

First, the district court ruled that the defense of qualified privilege was not available to ARA as a matter of law. In this regard the court held that the defamatory statements could not have been made in good faith, and that there was no common interest between ARA and the co-sponsors of the program.

Second, the district court was particularly concerned about the impact of Supreme Court decisions in Time, Inc. v. Firestone, 424 U.S. 448, 96 S.Ct. 958, 47 L.Ed.2d 154 (1976), Gertz v. Robert Welch, Inc., 418 U.S. 323, 94 S.Ct. 2997, 41 L.Ed.2d 789 (1974), and New York Times v. Sullivan, 376 U.S. 254, 84 S.Ct. 710, 11 L.Ed.2d 686 (1964) on Kansas law in the private, non-media defamation context vis-a-vis the degree of fault constitutionally required for liability. With the acquiescence of Mid-America's counsel, the court announced that it would instruct the jury in substance that they could not assess either actual or punitive damages against ARA unless the jury first found that Coleman, in making the statements in question, "knew of their falsity or . . . acted in reckless disregard as to their truth." ² See Gertz, supra, 418 U.S. at 347-49, 94 S.Ct. at 2997.

The third matter discussed at the instructions conference concerned punitive damages. On the evening preceding the conference, counsel for ARA advised the trial judge that counsel had read an unspecified Kansas case which indicated that a jury could find punitive damages without returning an award for actual damages. The district court prepared its proposed instructions in reliance on this information, advising the jury they could award punitive damages even in the event they did not award actual damages. Ironically, it was counsel for Mid-America who expressed reservation about the proposed instructions, saying that he was "scared" they were not a correct statement of the law. It is evident from the transcript of the instructions conference that the district court would have seriously considered changing the punitive damages instructions had clear objection been taken against them. However, counsel for ARA did not object to the proposed instructions while in conference and may fairly be said to have acceded to them as an accurate statement of Kansas law.

Finally, the district court dealt with what constituted the requisite "malice" for the purpose of punitive damage awards in Kansas. Over ARA's protests, the court opted for the standard articulated in Schulze v. Coykendall, 218 Kan. 653, 545 P.2d 392 (1976). Schulze, which dealt with the degree of fault necessary to overcome qualified privilege in a defamation action, defined malice as "knowledge that the defamatory statement was false or with reckless disregard of whether it was false or not." Id. 545 P.2d at 399.

After the district court had instructed the jury, the parties were called on for exceptions to the instructions. ARA excepted to the court's earlier ruling on the unavailability of qualified privilege and the failure to propound an appropriate instruction. ARA also excepted to the court's definition of malice. Lastly, for our purposes, ARA attempted to except to the instruction it had earlier acceded to allowing punitive damages in the absence of an award of actual damages. ARA withdrew the objection, however, after a brief colloquy with the trial judge.

The jury returned a verdict for punitive damages in the amount of $25,000. No verdict for actual damages was returned. ARA submitted a timely motion for directed verdict, and a post-trial alternative motion for judgment notwithstanding verdict or for a new trial. The district court overruled said motions.

On appeal ARA argues that the judgment of the district court should be reversed for three reasons:

1. A verdict for punitive damages without an award of actual damages is contrary to Kansas law.

2. The district court incorrectly defined "malice" with respect to the requisite degree of fault for punitive damages.

3. The district court erred in ruling that Coleman's statements, if made, were not qualifiedly privileged, and in failing to give a related instruction.

I.

The principal issue raised by ARA is whether the jury verdict for punitive damages, but no actual damages, can stand. Before analyzing Kansas law on the issue, a threshold question is presented concerning ARA's standing to assert such error on appeal.

A.

The jury's verdict for punitive damages alone was in accord with the district court's instructions. In instructions 10 and 14 the district court advised the jury they could return punitive damages even though they might not award actual damages. ³ As noted, in shaping these instructions the district court relied on representations made by ARA's counsel. In the instructions conference shortly before the court charged the jury, counsel for ARA voiced no objection to the court's proposed punitive damages instructions. Only later, after the jury had received the instructions, did ARA's counsel attempt to enter a formal, unanticipated objection on the record. The objection was promptly withdrawn after the district court questioned counsel's good faith. Thus we are faced with a challenge to a jury verdict which was the product of instructions to which appellant ARA not only failed to make objection, but also encouraged and appeared to agree to as correct Kansas law.

The question arises as to precisely what it is ARA is appealing. ARA argues, somewhat disingenuously, and that it is not challenging the district court's damage instructions as such, but only the judgment on the jury's verdict for punitive damages as being contrary to Kansas law. ARA apparently views its post-trial alternative motion for judgment notwithstanding verdict or for a new trial as preserving this issue for our review. However, we find it impossible to so tunnel our vision as to focus only on the verdict while ignoring the instructions which so clearly precipitated it. Rule 51 of the Federal Rules of Civil Procedure is not so easily circumvented. If we were to adopt ARA's position, we would sanction a method whereby a party could belatedly raise objections by post-trial motion to alleged errors in instructions which should have been, but were not, objected to pursuant to Rule 51. Alleged errors of law rooted in the trial court's...