Jarvis v. Johnson

• Decision Date: 11 January 1982
• Docket Number: No. 80-1951,80-1951
• Citation: 668 F.2d 740
• Court: U.S. Court of Appeals — Third Circuit
• Parties: Harold L. JARVIS and Janet R. Jarvis, his wife v. Raymond E. JOHNSON, K & L Builders and Gene C. Lenhart v. Lois E. GILLETTE. Harold L. JARVIS and Janet R. Jarvis, his wife v. Michael P. KIENLE. Appeal of Harold L. JARVIS and Janet R. Jarvis, his wife.

Page 740

668 F.2d 740

Harold L. JARVIS and Janet R. Jarvis, his wife v. Raymond E. JOHNSON, K & L Builders and Gene C. Lenhart v. Lois E. GILLETTE.

Harold L. JARVIS and Janet R. Jarvis, his wife v. Michael P. KIENLE.

Appeal of Harold L. JARVIS and Janet R. Jarvis, his wife.

No. 80-1951.

United States Court of Appeals, Third Circuit.

Argued Nov. 6, 1981.

Decided Jan. 11, 1982. ^*

John G. Gent (argued), Cygne L. Nemir, Quinn, Gent, Buseck & Leemhuis, Inc., Erie, Pa., for appellants.

John W. Beatty (argued), Timothy J. Lucas, Knox, Graham, McLaughlin, Gornall & Sennett, Inc., Erie, Pa., for appellees Raymond E. Johnson, K & L Builders, Gene C. Lenhart and Michael P. Kienle.

Michael V. Gilberti (argued), Eric N. Anderson, Meyer, Darragh, Buckler, Bebenek & Eck, Pittsburgh, Pa., for appellee Lois E. Gillette.

Before HUNTER and GARTH, Circuit Judges, and SAROKIN, District Judge ^**.

OPINION OF THE COURT

GARTH, Circuit Judge.

This appeal requires us to determine whether Rule 238 of the Pennsylvania Rules of Civil Procedure, which provides for prejudgment interest in tort cases, must be applied in a diversity action brought in a federal district court in Pennsylvania.

The district court held that Rule 238 was a "procedural" rule and that therefore prejudgment interest was not available in a federal court under the doctrine first enunciated in Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Jarvis v. Johnson, 491 F.Supp. 389 (W.D.Pa.1980). Two other federal district courts in Pennsylvania have since come to the opposite conclusion, and have applied Rule 238 in the cases before them. Bullins v. City of Philadelphia, 516 F.Supp. 728 (E.D.Pa.1981); Renner v. Lichtenwalner, 513 F.Supp. 271 (E.D.Pa.1981). Each of these opinions was filed prior to the opinion of the Pennsylvania Supreme Court in Laudenberger v. Port Authority, --- Pa. ---, 436 A.2d 147 (Pa.1981), filed on October 29, 1981, which analyzed and upheld the validity of the Rule under the Pennsylvania Constitution.

After considering Rule 238 against the background of the policies embodied in the Erie doctrine, we conclude that Pennsylvania Rule of Civil Procedure 238 must be applied by the federal courts sitting in Pennsylvania. We thus reverse the district court's order of May 28, 1980 which denied plaintiffs' motion for prejudgment interest. ¹

I.

On July 18, 1977, while passengers in an automobile owned by their daughter, Lois E. Gillette, plaintiffs Harold L. Jarvis and Janet R. Jarvis were injured when the automobile in which they were traveling was struck from behind by a vehicle driven by defendant-appellee Raymond E. Johnson. The accident occurred on Route 90 in Erie County, Pennsylvania. The Jarvises, citizens of California, thereupon brought a diversity personal injury action in the U. S. District Court for the Western District of Pennsylvania against Johnson; K & L Builders, the partnership that owned the vehicle driven by Johnson; and K & L's partners, Michael V. Kienle and Gene C. Lenhart; all citizens of Ohio. The defendants in turn joined Gillette, a citizen of Indiana, as a third-party defendant.

After trial, the jury found the defendants to be 70% liable and the third-party defendant, Gillette, 30% liable for the Jarvises' injuries. The district court, after reducing the damage award to Harold Jarvis by the amount due him under the Pennsylvania No-Fault Motor Vehicle Insurance Act, entered judgments totaling $57,750 in favor of the two plaintiffs. The propriety of these awards is not contested in this appeal. ²

On April 1, 1980, the Jarvises filed a motion to amend the judgment to include prejudgment interest in accordance with Rule 238. The district court denied the motion on May 28, 1980. The sole question presented by this appeal is whether the district court correctly held that Rule 238 does not constitute a substantive right of recovery and therefore is inapplicable in a diversity action brought in a federal court in Pennsylvania.

II.

It has been generally held that a state rule of law which is deemed "substantive" is to be applied in federal diversity proceedings, whereas a state rule which is characterized as "procedural" is not to be so applied. However, in Edelson v. Soricelli, 610 F.2d 131, 133 (3d Cir. 1979), this court stated: "Labeling a legal precept ab initio as 'procedural' or 'substantive,' without more, contributes nothing to reasoned discourse. It provides no effective guidance in solving difficult problems that arise in diversity cases such as the one before us."

Since this case does not present a direct conflict between state law and any Federal Rule of Civil Procedure, the starting point for our inquiry as to when a state rule is to be applied in a diversity action, must be the Rules of Decision Act, originally enacted as section 34 of the Judiciary Act of 1789:

The laws of the several states, except where the Constitution or treaties of the United States or Acts of Congress otherwise require or provide, shall be regarded as rules of decision in civil actions in the courts of the United States, in cases where they apply.

28 U.S.C. § 1652 (1976). ³ It was this Act on which the Supreme Court focused in Erie, supra, the case in which the Court overturned the precept expressed in Swift v. Tyson, 41 U.S. (16 Pet.) 1, 10 L.Ed. 865 (1842), that "(t)he laws of the several states" includes only state statutory and "local" law. Rejecting the Swift principle, the Court in Erie held instead, that the Rules of Decision Act mandates the application of state common law as well.

Underlying the Erie decision were two considerations, one constitutional and one policy-oriented. On the one hand, the Court concluded that "Congress has no power to declare substantive rules of common law applicable in a State.... (N)o clause in the Constitution purports to confer such a power upon the federal courts." 304 U.S. at 78, 58 S.Ct. at 822. On the other hand, the Court was disturbed by the forum shopping to which the Swift rule gave rise, and by the patent unfairness of having the law to be applied in the resolution of a controversy depend upon whether, because of the accident of diversity of citizenship, the case was brought in a federal or state court.

After Erie, the Court was left with the task of defining exactly when a state law constituted a "rule of decision" and thus had to be applied by a federal court. In Guaranty Trust Co. v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945), the Court, in holding that federal courts must apply state statutes of limitations in diversity cases, rejected a test based on the characterization of a law as "substantive" or "procedural." The appropriate inquiry, rather, was whether the application of the state, rather than the federal, rule would determine the outcome of the litigation:

It is therefore immaterial whether statutes of limitation are characterized either as "substantive" or "procedural" in State court opinions in any use of those terms unrelated to the specific issue before us. Erie R. Co. v. Tompkins was not an endeavor to formulate scientific legal terminology. It expressed a policy that touches vitally the proper distribution of judicial power between State and federal courts. In essence, the intent of that decision 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 underlies Erie R. Co. v. Tompkins 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.

Id. at 109, 65 S.Ct. at 1469. Underlying the "outcome-determinative" test of Guaranty Trust was the view that the "unfairness" and "forum shopping" that the Court in Erie desired to prevent were likely to occur, and indeed were inevitable, where the difference between the application of state or federal law would be dispositive of the outcome of the suit.

In subsequent opinions, the Court refined the "outcome-determinative" test of Guaranty Trust. In Byrd v. Blue Ridge Rural Electric Cooperative, Inc., 356 U.S. 525, 78 S.Ct. 893, 2 L.Ed.2d 953 (1958), the Court announced that that test must give way where there is a strong countervailing federal interest in the application of the federal rule-there, the provision of jury trials of disputed questions of fact. More fundamentally, in Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965), the Court observed that " '(o) utcome-determination' analysis was never intended to serve as a talisman" and that "choices between state and federal law are to be made not by application of any automatic, 'litmus paper' criterion, but rather by reference to the policies underlying the Erie rule ...: discouragement of forum-shopping and avoidance of inequitable administration of the laws." Id. at 466-68, 85 S.Ct. at 1141-1142 (footnote omitted). See also Walker v. Armco Steel Corp., 446 U.S. 740, 747, 100 S.Ct. 1978, 1983, 64 L.Ed.2d 659 (1980).

Thus, in determining whether a federal court in a diversity case should apply state law under the Rules of Decision Act, the mere labeling of the state law as "substantive" or "procedural" does not advance the analysis. Rather, we must approach a problem such as is presented by the instant case by considering how the constitutional and policy concerns that motivated the Court in Erie and its progeny are implicated by the application or nonapplication of the particular state rule at issue. See Stoner v. Presbyterian Univ. Hosp., 609 F.2d 109, 111 (3d Cir. 1979) (per curiam). As indicated by the preceding discussion, these concerns include (1) the effect of application of ...