Sayre v. Musicland Group, Inc., a Subsidiary of American Can Co., 87-5174

• Decision Date: 10 August 1988
• Docket Number: No. 87-5174,87-5174
• Citation: 850 F.2d 350
• Parties: Coletta SAYRE, Personal Representative of the Estate of Grover C. Sayre, Jr., Appellee, v. The MUSICLAND GROUP, INC., A SUBSIDIARY OF AMERICAN CAN CO., a New Jersey Corp., Appellant, American Can Company, a New Jersey Corp.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 350

850 F.2d 350

12 Fed.R.Serv.3d 352

Coletta SAYRE, Personal Representative of the Estate of Grover C. Sayre, Jr., Appellee, v. The MUSICLAND GROUP, INC., A SUBSIDIARY OF AMERICAN CAN CO. a New Jersey Corp., Appellant American Can Company, a New Jersey Corp.

No. 87-5174.

United States Court of Appeals Eighth Circuit.

Submitted Feb. 8, 1988.

Decided June 21, 1988.

Rehearing and Rehearing En Banc Denied Aug. 10, 1988.

Jon P. Parrington, Minneapolis, Minn., for appellant.

Kyle E. Hart, St. Paul, Minn., for appellee.

Before HEANEY and BOWMAN, Circuit Judges, and FAIRCHILD, Senior Circuit Judge. ^*

BOWMAN, Circuit Judge.

Defendant, The Musicland Group, Inc. (formerly known as Pickwick International, Inc., and hereinafter referred to as Pickwick), appeals the final judgment entered by the District Court ¹ upon a jury verdict finding Pickwick liable for breach of an employment contract. Pickwick does not challenge the jury's finding of liability in favor of the plaintiff--appellee Colletta Sayre, suing as personal representative for the estate of her husband, Grover C. Sayre, Jr.--but demands a new trial on damages. Pickwick argues that the trial court committed prejudicial error by (1) refusing to instruct the jury on mitigation of damages, and (2) refusing to deduct certain life insurance proceeds from the jury's award. We affirm.

Mr. Sayre was a senior vice president of real estate for Pickwick in Minneapolis from 1956 to 1981. When he was fired on November 13, 1981, his annual salary was $66,000. Pickwick discharged Sayre for an alleged conflict of interest after learning that he had started a running-shoe store business on the side in early 1981. After the termination of his employment with Pickwick, Sayre worked full time as president and general manager of his fledgling business, Advantage Athletics, paying himself $20,000 a year. The fifty-two-year-old Sayre did not try to find a replacement job similar to his executive position at Pickwick.

In March 1982 Sayre filed a complaint against Pickwick in federal district court, alleging, inter alia, age discrimination under 29 U.S.C. Sec. 623(a) and a pendent state law claim for breach of contract. Pickwick's answer did not allege that Sayre had failed to mitigate his damages. Pickwick deposed Sayre in October 1982. Several pages of the 350-page deposition included specific questions about Sayre's decision not to seek replacement employment similar to the executive position he had held for twenty-five years. After the deposition, Pickwick filed an amended answer, which also failed to raise the mitigation issue. Then, in early 1984, Sayre underwent surgery and learned that he did not have long to live. His counsel obtained an order allowing Sayre's trial testimony to be taken by videotaped deposition in August 1984. During this trial deposition, counsel for Pickwick and Sayre asked several questions about the availability of other executive employment opportunities in the Twin Cities area, and about Sayre's decision not to apply for them before turning his attention full time to Advantage Athletics. Sayre was in a frail condition during the deposition; he died five months later.

In February 1986, a mini-jury trial was held before a federal magistrate. Pickwick offered and the magistrate gave a jury instruction on mitigation of damages. The jury found that Pickwick had wrongfully terminated Sayre, but set damages at zero because they found that Sayre had failed to mitigate damages. In March 1986 counsel for plaintiff served on Pickwick a proposed mitigation of damages instruction slightly different from the instruction offered by Pickwick at the mini-trial. In the meantime, the District Court set the trial for November 10, 1986. On November 7 plaintiff served on Pickwick a motion in limine to exclude from the trial all evidence on the issue of mitigation of damages. The parties briefed the issue, and the trial judge decided that while he would allow Pickwick (over plaintiff's objection) to present evidence and argue that Sayre had failed to mitigate damages, he would not instruct the jury on the mitigation issue. The trial judge ruled that Pickwick had waived the right to a mitigation instruction by neglecting to plead failure to mitigate damages as an affirmative defense under Fed.R.Civ.P. 8(c). On the third day of trial, Pickwick moved under Fed.R.Civ.P. 15(b) to amend its answer to include failure to mitigate damages. The judge rejected Pickwick's motion, ruling that plaintiff would be substantially prejudiced by the new matter, especially since Mr. Sayre was no longer alive to assist with rebuttal evidence. After a three-week trial, the jury rejected plaintiff's age discrimination claim, but found Pickwick liable for breach of contract, and awarded Sayre's estate $288,750.

In its principal claim on appeal, Pickwick alleges that the trial judge committed prejudicial error by denying its requested instruction on mitigation of damages. Pickwick attacks the court's rationale for refusing the instruction, asserting that failure to mitigate damages is not an affirmative defense in this case. We disagree.

Federal courts considering non-federal questions (in diversity actions, or, as here, when a state claim is heard under pendent jurisdiction) apply federal rules of procedure, and follow state law to resolve issues of substance. See Erie R.R. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938); Bank of St. Louis v. Morrissey, 597 F.2d 1131, 1134-35 (8th Cir.1979); 1A Moore's Federal Practice p 0.305, at 3050-51 (1987). The pleading of affirmative defenses is a procedural matter. ² Indeed, Fed.R.Civ.P. 8(c) is entitled "Affirmative Defenses." It states:

In pleading to a preceding pleading, a party shall set forth affirmatively accord and satisfaction, arbitration and award, assumption of risk, contributory negligence, discharge in bankruptcy, duress, estoppel, failure of consideration, fraud, illegality, injury by fellow servant, laches, license, payment, release, res judicata, statute of frauds, statute of limitations, waiver, and any other matter constituting an avoidance or affirmative defense.

Fed.R.Civ.P. 8(c) (emphasis added).

Failure to mitigate damages is not among the nineteen affirmative defenses enumerated in the non-exhaustive list in Rule 8(c). However, mitigation issues are usually regarded as affirmative defenses under the catchall clause "and any other matter constituting an avoidance or affirmative defense." For example, "[t]he general authority, and in fact the almost universal weight of authority, is that the burden of pleading and proving mitigation of damages in an employee's action for breach of an employment contract is upon defendant employer." 5 C. Wright & A. Miller, Federal Practice & Procedure Sec. 1273, at 322 n. 84 (1969) [hereinafter Wright & Miller] (citing dicta from Stinson v. Edgemoor Iron Works, 53 F.Supp. 864, 868 (D.C.Del.1944)). See also 2A Moore's Federal Practice p 8.27, at 8-197 n. 3 (1987); 28 U.S.C.A. Rule 8, at 309 n. 38b (West Supp.1988). But see 11 Am.Jur. Proof of Facts 2d 679, 695 Sec. 18 (1976) ("Probably a majority of courts have held that [mitigation after wrongful discharge] is an affirmative defense ... although a significant number of cases have held that the plaintiff's having obtained other employment or his failure to mitigate damages by doing so may be shown under the employer's general denial...."); 25 C.J.S. Damages Sec. 142, at 1225 (1966) (same).

A case decided by this Court, American Surety Co. of New York v. Franciscus, 127 F.2d 810 (8th Cir.1942), illustrates the long-established majority view that failure to mitigate is an affirmative defense. A defendant surety company contended on appeal that the plaintiff's recovery should be reduced because plaintiff had not mitigated his damages arising from the breach of a mechanic's lien bond. We rejected this argument, holding that "before the [defendant] could invoke the [mitigation] rule, the burden rested upon it to plead and prove the facts necessary to support the inference that the [plaintiff] was 'unreasonable' in neglecting to minimize the damages...." Id. at 816. See Ingraham v. United States, 808 F.2d 1075, 1078 (5th Cir.1987) ("In the years since the adoption of [Rule 8(c) ], the residuary clause has provided the authority for a substantial number of additional defenses which must be timely and affirmatively pleaded. These include ... failure to mitigate damages...."). See also 999 v. C.I.T. Corp., 776 F.2d 866, 870 n. 2 (9th Cir.1985); TCP Indus. v. Uniroyal, Inc., 661 F.2d 542, 550 (6th Cir.1981); Camalier & Buckley-Madison, Inc. v. Madison Hotel, 513 F.2d 407, 419-20 n. 92 (D.C.Cir.1975); White v. Bloomberg, 501 F.2d 1379, 1382 (4th Cir.1974); Consolidated Mortgage & Fin. Corp. v. Landrieu, 493 F.Supp. 1284, 1293 (D.D.C.1980).

Federal courts typically consider state court decisions on burdens of pleading or proof before concluding that mitigation is an affirmative defense. See 999, TCP, American Sur., supra. See also Seal v. Industrial Elec., 362 F.2d 788, 789 (5th Cir.1966) ("Whether a particular matter is to be regarded as an affirmative defense is to be determined by state law."). Reference to state law can be helpful, but it is certainly not required when a federal court decides a purely procedural question. 5 Wright & Miller, supra, Sec. 1271, at 304-05 ("State statutes and decisions often are utilized in deciding when certain defensive matters should be pleaded affirmatively. These are not binding on the federal courts but occasionally provide useful analogies.") (footnote omitted). See also id. Sec. 1272, at 320-21. ³

In light of the purpose of the Federal Rules of Civil Procedure to provide uniform guidelines for all federal procedural matters, such as the pleading of affirmative defenses, we discern no principled reason for basing the federal procedural decision before us on state law....