Burlington Northern Railroad Company v. Woods

• Decision Date: 24 February 1987
• Docket Number: No. 85-1088,85-1088
• Parties: BURLINGTON NORTHERN RAILROAD COMPANY, Petitioner, v. Alan WOODS and Cara Woods
• Court: U.S. Supreme Court

480 U.S. 1

107 S.Ct. 967

94 L.Ed.2d 1

BURLINGTON NORTHERN RAILROAD COMPANY, Petitioner,

v Alan WOODS and Cara Woods.

No. 85-1088.

Argued Nov. 4, 1986.

Decided Feb. 24, 1987.

Syllabus

An Alabama statute requires an appellate court, upon affirming a money judgment without substantial modification, to impose a 10% penalty on any appellant who had obtained a stay of that judgment by executing a bond. The statute's purposes are to penalize frivolous appeals and those interposed for delay, and to provide appellees with additional compensation for having to suffer the ordeal of appeal. Upon affirming without modification a judgment for respondents in their federal diversity action arising from a motorcycle accident, the Eleventh Circuit imposed the Alabama statute's penalty on petitioner, which had posted bond to stay the judgment pending appeal.

Held: The Alabama mandatory affirmance penalty statute has no application to judgments entered by federal courts sitting in diversity. Pp.3-8

(a) Rule 38 of the Federal Rules of Appellate Procedure affords federal courts of appeals plenary discretion to award damages to an appellee upon determining that the appeal is frivolous. Federal Rule 38's discretionary mode of operation conflicts with the Alabama statute's mandatory operation. Furthermore, the purposes underlying Rule 38—to penalize frivolous appeals and to compensate injured appellees for the delay and added expense inherent therein—are sufficiently coextensive with the statute's purposes to indicate that the Rule occupies the statute's field of operation. The fact that Alabama has a similar Appel- late Rule coexisting with the statute does not mean that a federal court could impose the mandatory statutory penalty while remaining free to exercise its Federal Rule 38 discretionary authority, since the statute would improperly limit the exercise of that discretion in instances in which the court wished to impose a penalty of less than 10%. Pp.4-8

(b) Rule 38 must be applied under the analysis set forth in Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8, since (a) it is a constitutional exercise of rulemaking authority in that it regulates matters that can reasonably be classified as procedural, and (b) it affects only the process of enforcing litigants' rights and not the rights themselves, and therefore does not violate the Rule Enabling Act's prohibition against affecting substantive rights (28 U.S.C. § 2072). P.8.

Reversed.

MARSHALL, J., delivered the opinion for a unanimous Court.

L. Vastine Stabler, Jr., Birmingham, Ala., for petitioner.

James O. Haley, Birmingham, Ala., for respondents.

Justice MARSHALL delivered the opinion of the Court.

This case presents the issue whether, in diversity actions, federal courts must apply a state statute that imposes a fixed penalty on appellants who obtain stays of judgment pending unsuccessful appeals.

I

Respondents brought this tort action in Alabama state court to recover damages for injuries sustained in a motorcycle accident. Petitioner removed the case to a Federal District Court having diversity jurisdiction. A jury trial resulted in a judgment of $300,000 for respondent Alan Woods and $5,000 for respondent Cara Woods. Petitioner posted bond to stay the judgment pending appeal, and the Court of Appeals affirmed without modification. 768 F.2d 1287 (CA11 1985).

Respondents then moved in the Court of Appeals, pursuant to Ala.Code § 12-22-72 (1986), for imposition of that State's mandatory affirmance penalty of 10% of the amount of judgment. Petitioner challenged the application of this statute as violative of the equal protection and due process guarantees of the Fourteenth Amendment and as "a procedural rule . . . inapplicable in federal court under the doctrine of Erie Railroad Company v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) and its progeny." App. to Pet. for Cert. A-5. The Court of Appeals summarily granted respondents' motion to assess the penalty and subsequently denied a petition for rehearing. The parties have stipulated that the final judgment has been paid, except for the $30,500 statutory affirmance penalty, which petitioner has withheld pending proceedings in this Court.

We granted certiorari to consider the equal protection and due process challenges as well as the Erie claim. 475 U.S. 1080, 106 S.Ct. 1456, 89 L.Ed.2d 714 (1986). Because we conclude that the Alabama statute imposing a mandatory affirmance penalty has no application in federal diversity actions, we decline to reach the Fourteenth Amendment issues.

II

The Alabama statute provides in relevant part:

"When a judgment or decree is entered or rendered for money, whether debt or damages, and the same has been stayed on appeal by the execution of bond, with surety, if the appellate court affirms the judgment of the court below, it must also enter judgment against all or any of the obligors on the bond for the amount of the affirmed judgment, 10 percent damages thereon and the costs of the appellate court. . . ." Ala.Code § 12-22-72 (1986).¹

As set forth in the statute, then, a combination of three conditions will automatically trigger the 10% penalty: (1) the trial court must enter a money judgment or decree, (2) the judgment or decree must be stayed by the requisite bond,² and (3) the judgment or decree must be affirmed without substantial modification. E.g., Chapman v. Rivers Construction Co., 284 Ala. 633, 644-645, 227 So.2d 403, 414-415 (1969). The purposes of the mandatory affirmance penalty are to penalize frivolous appeals and appeals interposed for delay, Montgomery Light & Water Power Co. v. Thombs, 204 Ala. 678, 684, 87 So. 205, 211 (1920), and to provide "additional damages" as compensation to the appellees for having to suffer the ordeal of defending the judgments on appeal. Birmingham v. Bowen, 254 Ala. 41, 46-47, 47 So.2d 174, 179-180 (1950).

Petitioner contends that the statute's underlying purposes and mandatory mode of operation conflict with the purposes and operation of Rule 38 of the Federal Rules of Appellate Procedure, and therefore that the statute should not be applied by federal courts sitting in diversity. Entitled "Damages for delay," Rule 38 provides: "If the court of appeals shall determine that an appeal is frivolous, it may award just damages and single or double costs to the appellee." See also 28 U.S.C. § 1912. Under this Rule, "damages are awarded by the court in its discretion in the case of a frivolous appeal as a matter of justice to the appellee and as a penalty against the appellant." Advisory Committee's Notes on Fed.Rule App.Proc. 38, 28 U.S.C.App., p. 492.

In Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965), we set forth the appropriate test for resolving conflicts between state law and the Federal Rules. The initial step is to determine whether, when fairly construed, the scope of Federal Rule 38 is "suffi- ciently broad" to cause a "direct collision" with the state law or, implicitly, to "control the issue" before the court, thereby leaving no room for the operation of that law. Walker v. Armco Steel Corp., 446 U.S. 740, 749-750, and n. 9, 100 S.Ct. 1978, 1984-85, and n. 9, 64 L.Ed.2d 659 (1980); Hanna, supra, 380 U.S., at 471-472, 85 S.Ct., at 1143-44. The Rule must then be applied if it represents a valid exercise of Congress' rulemaking authority, which originates in the Constitution and has been bestowed on this Court by the Rules Enabling Act, 28 U.S.C. § 2072.³ Hanna, 380 U.S., at 471-474, 85 S.Ct., at 1143-45.

The constitutional constraints on the exercise of this rulemaking authority define a test of reasonableness. Rules regulating matters indisputably procedural are a priori constitutional. Rules regulating matters "which, though falling within the uncertain area between substance and procedure, are rationally capable of classification as either," also satisfy this constitutional standard. Id., at 472, 85 S.Ct., at 1144. The Rules Enabling Act, however, contains an additional requirement. The Federal Rule must not "abridge, enlarge or modify any substantive right. . . ." 28 U.S.C. § 2072. The cardinal purpose of Congress in authorizing the development of a uniform and consistent system of rules governing federal practice and procedure suggests that Rules which incidentally affect litigants' substantive rights do not violate this provision if reasonably necessary to maintain the integrity of that system of rules. See Hanna, supra, at 464-465, 85 S.Ct., at 1140. Missis Publishing Corp. v. Murphree, 326 U.S. 438, 445-446, 66 S.Ct. 242, 246, 90 L.Ed. 185 (1946); 19 C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure § 4509, pp. 145-146 (1982). Moreover, the study and approval given each proposed Rule by the Advisory Committee, the Judicial Conference, and this Court, and the statutory requirement that the Rule be reported to Congress for a period of review before taking effect, see 28 U.S.C. § 2072, give the Rules presumptive validity under both the constitutional and statutory constraints. See Hanna, supra, at 471, 85 S.Ct., at 1144.

Applying the Hanna analysis to an analogous Mississippi statute which provides for a mandatory affirmance penalty, the United States Court of Appeals for the Fifth Circuit concluded in Affholder, Inc. v. Southern Rock, Inc., 746 F.2d 305 (1984), that the statute conflicted with Rule 38 and thus was not applicable in federal diversity actions.⁴ The Fifth Circuit discussed two aspects of the conflict: (1) the discretionary mode of operation of the Federal Rule, compared to the mandatory operation of the Mississippi statute, and (2) the limited effect of the Rule in penalizing only frivolous appeals or appeals interposed for purposes of delay, compared to the effect of the Mississippi statute in penalizing every unsuccessful appeal regardless of merit. Id., at 308-309.

We find the Fifth Circuit's analysis persuasive. Rule 38 affords a...