Knight v. Tape, Inc.

• Decision Date: 29 July 1991
• Docket Number: No. 90-1577,90-1577
• Citation: 935 F.2d 617
• Parties: KNIGHT, David and Knight, Kathleen v. TAPE, INC., Appellant, v. GENERAL MILLS, INC.
• Court: U.S. Court of Appeals — Third Circuit

Page 617

935 F.2d 617

KNIGHT, David and Knight, Kathleen v. TAPE, INC., Appellant, v. GENERAL MILLS, INC.

No. 90-1577.

United States Court of Appeals Third Circuit.

Argued Jan. 23, 1991.

Decided June 7, 1991.

Rehearing and Rehearing In Banc

Denied July 29, 1991.

J. Brian Durkin (argued), John Gerard Devlin & Associates, Philadelphia, Pa., for appellant Tape, Inc.

S. Stanton Miller, Jr. (argued), Dunn and Miller, Media, Pa., for appellees David and Kathleen Knight.

Joanne R. Jenkins (argued), Thompson and Pennell, Philadelphia, Pa., for appellee General Mills, Inc.

Before BECKER, HUTCHINSON, Circuit Judges and SMITH, District Judge. ^*

OPINION OF THE COURT

BECKER, Circuit Judge.

This appeal presents the question of the constitutionality, under the due process and equal protection clauses of the Pennsylvania and United States Constitutions, of Pennsylvania Rule of Civil Procedure 238, 42 Pa. Cons.Stat.Ann. Rule 238 (Purdon Supp.1990). Rule 238 mandates the payment of delay damages by defendants to plaintiffs in tort cases under certain circumstances. The appeal also requires us to decide the appropriateness of apportionment of a delay damages award among joint tortfeasors when one of them is a third-party defendant who, under federal practice, is not directly liable to the plaintiff but only to the original defendant who impleaded it. For the reasons that follow, we hold that Rule 238 passes constitutional muster, and that such apportionment is appropriate.

I. PROCEDURAL HISTORY AND THE PARTIES' CONTENTIONS

On March 24, 1986, David Knight sustained a serious industrial injury. ¹ Knight and his wife Kathleen commenced a civil action against Tape in the Court of Common Pleas of Delaware County, Pennsylvania, alleging that the machine was improperly manufactured and designed. Tape removed the action to the district court for the Eastern District of Pennsylvania on diversity grounds, 28 U.S.C. Sec. 1332, and also filed a third-party complaint impleading General Mills as a third-party defendant seeking contribution and indemnity.

The district court set an initial discovery deadline of December 12, 1988. Following the joinder of General Mills, Tape requested and received an extension of the discovery deadline until February 12, 1989. On the motion of General Mills, the deadline again was extended until May 26, 1989. The case was placed in the district court's trial pool on May 30, 1989, but due to the court's backlog was not brought to trial until February 5, 1990.

While awaiting trial, the Knights made a written settlement demand of $600,000. Tape responded with a written offer of $50,000. On the first day of trial, the Knights suggested that they might be willing to settle for $300,000. Tape and General Mills responded with a combined oral offer of $150,000, to be borne equally by the two.

Unable to agree on the terms of a settlement, the parties proceeded to trial. The jury returned a verdict in favor of the Knights and against Tape in the sum of $175,000. The jury also returned a verdict in favor of Tape and against General Mills on Tape's contribution/indemnity claim, holding General Mills liable for 50% of the $175,000 awarded to the Knights. Tape does not challenge either of the jury's verdicts on this appeal.

The Knights filed a post-trial motion to mold the verdict against Tape to include delay damages pursuant to Rule 238. Tape filed a response contesting the imposition of delay damages against it, and simultaneously filed its own motion seeking delay damages against General Mills or, alternatively, an apportionment of the Knights' delay damages between Tape and General Mills. Tape argued that, but for the Knights' unreasonable settlement demand and the pretrial delay resulting from the district court's backlog, the case would have settled or proceeded to trial earlier. At most, Tape contended, it should be held responsible for only the sixty-day delay resulting from its request for an extension of the discovery deadline.

Because Rule 238 does not require an inquiry into the reasonableness of plaintiff's settlement demand or the defendant's fault for pretrial delay, the district court awarded delay damages against Tape for the entire period between the filing of the complaint and the jury verdict, in the amount of $29,280.67. Additionally, the court denied Tape any relief against General Mills. Tape timely appealed from both portions of the district court's order.

On appeal, Tape contends that, as applied by the district court, Rule 238 arbitrarily and capriciously punished it for failure to settle and for pretrial delay, although it was at fault for neither, in violation of the due process and equal protection clauses of the Pennsylvania and United States Constitutions. The Knights respond that Rule 238 does not violate due process in that it rationally promotes the state's interest in fostering the settlement of meritorious tort claims by providing defendants with a financial incentive to make a reasonable and timely offer of settlement. The Knights further argue that, although Rule 238 treats plaintiffs and defendants differently, such classification does not offend equal protection because the two groups are not similarly situated and the classification drawn by the Rule is rationally related to the state's interest in fostering settlement.

Tape also argues on appeal that, assuming the award of delay damages to the Knights is constitutional, the district court erred in not requiring General Mills to pay half of the award. Tape notes that numerous state courts applying Rule 238 have held that delay damages must be apportioned among joint tortfeasors according to the jury's apportionment of liability on the underlying verdict. This sensible policy, Tape argues, was not applied by the district court in this case solely because of a technicality, i.e., under federal practice General Mills was a third-party defendant, not an additional defendant as it would have been under state practice, and thus was not directly liable to the Knights. Tape asks us to look beyond this form-over-substance distinction and to apportion delay damages as if the parties had been in state court. General Mills responds that, under the plain language of Rule 238, no party can be made to bear all or part of a delay damages award who was not directly liable to the plaintiff on the underlying tort action, and therefore the district court correctly refused to apportion the Knights' award.

II. THE CONSTITUTIONALITY OF RULE 238

In order to place Tape's due process and equal protection challenges to the current version of Rule 238 in the context necessary for constitutional adjudication, it is necessary to first review the Rule's history, including the original version of the Rule and its judicial constructions. ²

A. The Original Rule and Laudenberger

In 1978, the Pennsylvania Supreme Court promulgated the original version of Rule 238 pursuant to its authority to "prescribe general rules governing practice, procedure and the conduct of all courts ... if such rules ... neither abridge, enlarge nor modify the substantive rights of any litigant...." Pa. Const. art. V, Sec. 10(c). The Rule required courts and arbitrators to award a successful tort plaintiff delay damages, which essentially constitute pre-judgment interest, in an amount equal to 10 percent per year of his or her compensatory award. ³ Damages were to be assessed for that period of time beginning on the later of the date the complaint was filed or one year after the cause of action accrued and ending on the date of the compensatory award. A defendant could avoid the assessment of delay damages only by making a written offer of settlement prior to trial, and keeping the offer open until the commencement of trial, in an amount equal to at least 80% of the plaintiff's ultimate jury award.

Within a year of its promulgation, the Rule was struck down by a Court of Common Pleas on the grounds that it: (1) affected the substantive rights of litigants and thus exceeded the Pennsylvania Supreme Court's limited authority under the Pennsylvania Constitution to promulgate procedural rules; and (2) violated the equal protection and due process clauses of the United States and Pennsylvania Constitutions. The Pennsylvania Supreme Court reversed, holding that the Rule was valid under both the state and federal constitutions. See Laudenberger v. Port Authority of Allegheny County, 496 Pa. 52, 436 A.2d 147 (1981).

In overturning the Court of Common Pleas' holding that it had exceeded its authority in promulgating the Rule, the Pennsylvania Supreme Court reasoned, based primarily on the unofficial explanatory notes accompanying the Rule, see 8 Pa.Bulletin 2668 (1978), that the "basic aim of the rule is to alleviate delay in the disposition of cases" by "prompting meaningful [settlement] negotiations," thereby "unclutter[ing] the courts." Laudenberger, 496 Pa. at 59-60, 436 A.2d at 151. The Court thus concluded that the Rule was primarily procedural in nature and within its constitutional authority, indeed its exclusive responsibility, to provide for "the efficient and orderly administration of the courts." Id. at 61, 436 A.2d at 152. The Court admitted that the Rule "touch[es] upon [the] substantive rights of both parties" by requiring defendants, who fail to make a reasonable written offer, to compensate plaintiffs for the loss of the use of money damages during the pendency of a lawsuit. Id. at 66, 436 A.2d at 155. The Court noted, however, that "[m]ost rules of procedure will eventually reverberate to the substantive rights and duties of those involved." Id. at 66-67, 436 A.2d at 155. The Court concluded, therefore, that it "should not be prevented from exercising its duty to resolve procedural questions merely because of a collateral effect on a substantive right." ⁴ Id. at 67, 436 A.2d at 155.

In overturning the Court of Common Pleas' holding that the Rule violated...