Beardshall v. Minuteman Press Intern., Inc.

• Decision Date: 17 November 1981
• Docket Number: No. 81-1387,81-1387
• Citation: 664 F.2d 23
• Parties: Thomas A. BEARDSHALL and Annamae Beardshall, his wife v. MINUTEMAN PRESS INTERNATIONAL, INC., Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 23

664 F.2d 23

Thomas A. BEARDSHALL and Annamae Beardshall, his wife v. MINUTEMAN PRESS INTERNATIONAL, INC., Appellant.

No. 81-1387.

United States Court of Appeals,

Third Circuit.

Argued Oct. 14, 1981.

Decided Nov. 17, 1981.

Robert L. Potter (argued), Titus Marcus & Shapira, Pittsburgh, Pa., for appellant; Andre Weitzman, Braiterman & Johnson, P. A., Baltimore, Md., of counsel.

Maurice A. Nernberg, Jr. (argued), Nernberg & Laffey, Pittsburgh, Pa., for appellees.

Before HUNTER, ROSENN, and WEIS, Circuit Judges.

OPINION OF THE COURT

ROSENN, Circuit Judge.

The twin issues on appeal in this diversity case ¹ stem from the instructions of the trial court to the jury. The plaintiffs, Thomas A. Beardshall and his wife Annamae, brought suit in the United States District Court for the Western District of Pennsylvania charging the defendant, Minuteman Press International, Inc. (Minuteman), a nationwide franchisor, with having committed common law fraud under Pennsylvania law ² when it entered into a franchise agreement with the Beardshalls. The jury returned a verdict for plaintiffs in the sum of $70,000. The defendant filed a motion for a new trial and the plaintiffs filed a motion for a new trial on damages. The district court denied both motions and Minuteman has appealed. We reverse.

I.

In March 1978 Thomas Beardshall attended a start-your-own-business trade show in Pittsburgh where he spoke to a Minuteman representative. Beardshall, a college graduate, testified at trial that the representative gave him promotional literature, told him of the opportunities in the printing business, and showed him a financial statement of a company operated store which the representative described as a "typical mid-range operation." The company representative further informed Beardshall that a Minuteman franchise would carry its own operating expenses from the start, and should turn a profit in three to six months and provide a reasonable income within six to twelve months. Subsequently, Beardshall communicated with Minuteman's offices in Pittsburgh and visited a recently opened franchise in the area with another Minuteman representative who reviewed Beardshall's projected calculations on volume and profit.

The Beardshalls indicated their interest in obtaining a franchise in Pittsburgh, signed a preliminary agreement and made a deposit. Later, they decided to move to Savannah, Georgia. Minuteman officials tried to discourage them because they thought a Pittsburgh location had better potential. The Beardshalls, however, pressed for a location in Savannah and ultimately executed a franchise agreement with Minuteman for a Savannah location. After a two week training period they opened for business on July 31, 1978.

Dissatisfied with their first month's business and their projections as to future earnings, the Beardshalls wrote to Minuteman on September 5, 1978, and sought rescission of the agreement. Minuteman refused. The Beardshalls closed the shop on November 23, 1978, and returned to Pittsburgh. They thereupon instituted this lawsuit against Minuteman.

II.

In his instructions to the jury, the trial judge charged, inter alia, that the plaintiffs bore the burden of proving their case "by a fair preponderance of the evidence." He defined at length what was meant by this burden of proof and also instructed the jury fully on the common law of fraud. Defense counsel at the time, replaced on this appeal, took no exceptions and stated that he had no objections to the charge. After a full day of deliberation, the jury informed the court that it was "hung." The court released the jurors for the day with instructions to resume their deliberations the next morning. The following morning the jury sent this message to the court: "Could you repeat the six points of fraud we are supposed to go by? In writing? " The trial judge thereupon had a statement typed containing the jury's question and the six elements of fraud, displayed it to counsel for the parties, and advised them that he intended to submit the document to the jury. Defense counsel objected to the submission on the ground that repetition of a section of the charge might emphasize an aspect which could be prejudicial to the defendant, especially if in writing. ³ Despite the objection, the court had the writing delivered to the jury. Shortly thereafter, it returned its verdict for the plaintiffs.

On appeal, Minuteman contends that the district court reversibly erred in two aspects of its instructions. First, the court committed plain and fundamental error in instructing the jury that the plaintiffs must prove their case by a preponderance of the evidence when, under the applicable Pennsylvania common law, they were obligated to meet the much higher standard of proving fraud "by clear and convincing evidence." Second, it erred when, having given entirely oral instructions to the jury, it submitted to them over defendant's objection a typewritten, highly condensed statement of the substantive law of fraud which necessarily emphasized plaintiffs' theory of the case.

III.

In determining whether the instructions on the burden of proof warrant reversal, we must first decide what burden Pennsylvania law places on those attempting to prove fraud. Then, if the charge was erroneous, we must determine whether the defendant can on this record raise the error on appeal and whether the error is so grave as to justify reversal.

In a recent decision the Supreme Court of Pennsylvania held that fraud or intent to defraud must be proved by " 'evidence that is clear, precise and convincing.' " Snell v. Pennsylvania, 490 Pa. 277, 416 A.2d 468, 470 (1980) (citations omitted). In earlier cases the terminology varied. For example, in Gerfin v. Colonial Smelting & Refining Co., 374 Pa. 66, 97 A.2d 71, 74 (1953), two formulations for the burden of proof were used, "clear and convincing or ... clear, precise and indubitable." Whatever the formulation, it is evident that under Pennsylvania law fraud must be proved by a higher standard than the preponderance of the evidence standard charged by the trial judge.

The plaintiffs contend that the "clear, precise, and convincing" standard enunciated by the cases is one only to be applied by the trial judge in deciding whether the case should be submitted to the jury. Once it is submitted to the jury, argue the plaintiffs, the jury's sole function is to determine which evidence is true. Therefore, the trial court having submitted this case to the jury, the plaintiffs conclude it committed no error when it instructed the jury that the plaintiffs had to prove their case by a fair preponderance of the evidence. This argument is implausible and must be rejected. Plaintiffs misread the cases they cite. ⁴ Those cases stand only for the proposition that the trial judge must decide as a matter of law before he submits a case to the jury whether plaintiffs' evidence attempting to prove fraud is sufficiently clear, precise and convincing to make out a prima facie case; they do not hold that once that burden is met, the jury may apply a lesser standard of proof in determining which evidence is true. Thus, if the trial judge determines there is sufficient evidence from which the jury could reasonably find that the plaintiffs have proven fraud according to this standard of proof, the judge may then submit the case to the jury. " 'Whether the evidence is true is a question of fact ... but whether it meets the required standard which justifies its submission to the jury ... is always a question of law ...." Aliquippa National Bank to use of Woodlawn Trust Co. v. Harvey, 340 Pa. 223, 231, 16 A.2d 409, 414 (1940), quoted in Gerfin v. Colonial Smelting & Refining Co., 374 Pa. 66, 97 A.2d 71, 72 (1953); M. H. Davis Estate Oil Co. v. Sure Way Oil Co., 266 Pa.Super. 64, 403 A.2d 95, 97 (1979). The trial judge still has the duty to instruct the jury as to the proper burden of proof which plaintiffs must meet under the applicable law.

The elements of fraud were central to this case and the proper standard of proof to be applied was critical. Thus, the district court's erroneous jury instructions would normally require reversal. The troublesome question posed by the plaintiffs, however, is that counsel for Minuteman did not raise the issue of the erroneous charge during the trial; he took no exceptions and in fact acquiesced in the charge. The plaintiffs, therefore, assert that the defendant is precluded by Federal Rule of Civil Procedure 51 from raising it now. Rule 51 reads in part, "No party may assign as error the giving or the failure to give an instruction unless he objects thereto before the jury retires to consider its verdict, stating distinctly the matter to which he objects and the grounds of his objection."

There is, however, a judicially created exception to Rule 51, the "plain error" doctrine, which this circuit recognizes. For example, in McNello v. John B. Kelly, Inc., 283 F.2d 96 (3d Cir. 1960), this court found that the trial court in its jury instructions had failed to explain the application of the principles of law to the various possible factual conclusions. The court determined that Rule 51 did not preclude the raising of this issue on appeal, though no objection had been made to the trial court's instructions, because the error was fundamental. This court's application of the plain error doctrine was explicated in United States v. 564.54 Acres of Land, 576 F.2d 983, 987 (3d Cir. 1978) (footnote omitted), rev'd on other grounds, 441 U.S. 506, 99 S.Ct. 1854, 60 L.Ed.2d 435 (1979):

(W)e have the discretion to review instructions sua sponte if the error is fundamental and highly prejudicial or if the instructions are such that the jury is without adequate guidance on a fundamental question and our failure to consider the error would result in a miscarriage of justice.

Plaintiffs' argument that the error in the charge is not plain or fundamental...