Al-Site Corp. v. VSI Intern., Inc.

• Decision Date: 20 December 1993
• Docket Number: No. 91-0847-CIV-ATKINS,92-2016-CIV-ATKINS and 93-0035-ATKINS.,92-0523-CIV-ATKINS,91-0847-CIV-ATKINS
• Citation: 842 F. Supp. 507
• Parties: AL-SITE CORP., Plaintiff, v. VSI INTERNATIONAL, INC., and Myron Orlinsky, Defendants (Two Cases). PENNSYLVANIA OPTICAL COMPANY, Plaintiff, v. AL-SITE CORP., Defendant. AL-SITE CORP., Plaintiff, v. PENNSYLVANIA OPTICAL CO., a Texas Corporation, and David Ray Moore, an individual, Defendants.
• Court: U.S. District Court — Southern District of Florida

842 F. Supp. 507

AL-SITE CORP., Plaintiff, v. VSI INTERNATIONAL, INC., and Myron Orlinsky, Defendants (Two Cases).

PENNSYLVANIA OPTICAL COMPANY, Plaintiff, v. AL-SITE CORP., Defendant.

AL-SITE CORP., Plaintiff, v. PENNSYLVANIA OPTICAL CO., a Texas Corporation, and David Ray Moore, an individual, Defendants.

Nos. 91-0847-CIV-ATKINS, 92-0523-CIV-ATKINS, 92-2016-CIV-ATKINS and 93-0035-ATKINS.

United States District Court, S.D. Florida.

December 20, 1993.

John C. Malloy, III, Miami, FL, and Peter T. Corbin, and Jonathan Hudis, Corbrin Gittes & Samuel, New York City, for Al-Site Corp.

Alan G. Greer, Floyd Pearson Richman, Greer Weill Brumbaugh & Russomanno, Miami, FL, and John M. Cone and Robert Keith Drummond, Strasburger & Price, LLP, Dallas, TX, for defendants Pennsylvania Optical Co. and David Moore.

Richard L. Horn, Keck, Mahin & Cate, Chicago, IL, for VSI Intern. and Myron Olinsky.

ORDER ON APPEAL OF MAGISTRATE'S ORDER

ATKINS, Senior District Judge.

THIS CAUSE comes before the Court on plaintiff Al-Site Corporation's ("Al-Site") January 20, 1993 Appeal (d.e. 88) from paragraph 2 of the Magistrate Stephen T. Brown's Order, filed January 3, 1993 (d.e. 87). Defendants have filed a reply to the appeal (d.e. 118).

On November 17, 1992, Al-Site filed a Motion Seeking an Order Compelling Defendants to Respond to Certain Document Requests as Contained in Plaintiff's Second Notice of Examination (d.e. 76). The documents requested included:

14. All financial statements of each of the Defendants, including, but not limited to, those generated on an annual, quarterly or monthly basis for the period January 1989 through the present.

15. All Federal and State tax returns of each of the Defendants, including all schedules and supporting documentation, for tax reporting periods, 1989, 1990 and 1991, and any applications for extensions thereof.

Motion to Compel at 3. The Magistrate denied the Motion with respect to the above-mentioned requests as overbroad and granted the Motion for all other requests. Al-Site now appeals the portion of the Magistrate's order denying production of defendants' financial and tax records.

Al-Site contends that these materials are essential to prove punitive damages for its second cause of action arising under the Florida common law of unfair competition. Second Amended Complaint at 3-8 (d.e. 24). While this contention may be accurate, Fla. Stat. § 768.72 (1992) sets out certain conditions which must be met before a claimant may plead a claim for punitive damages. The statute provides:

In any civil action, no claim for punitive damages shall be permitted unless there is a reasonable showing by evidence in the record or proffered by the claimant which would provide a reasonable basis for recovery of such damages. The claimant may move to amend his complaint to assert a claim for punitive damages as allowed by the rules of civil procedure. The rules of civil procedure shall be liberally construed so as to allow the claimant discovery of evidence which appears reasonably calculated to lead to admissible evidence on the issue of punitive damages. No discovery of financial worth shall proceed until after the pleading concerning punitive damages is permitted.

Fla.Stat. § 768.72 (1992). Therefore, if federal district courts must apply the Florida statute, the claimant must first show that evidence exists to support recovery of punitive damages before the trial court will allow a request for such damages. Wolper Ross Ingham & Co. v. Liedman, 544 So.2d 307, 308 (Fla. 3rd DCA 1989). Similarly, no discovery of financial worth can be made without a comparable showing. Wisconsin Invest. Bd. v. Plantation Square Assoc., Ltd., 761 F.Supp. 1569, 1576-81 (S.D.Fla.1991).

After an extensive analysis, this Court concludes that all of Fla.Stat. § 768.72 must be applied here. This Court agrees with the court in Plantation Square, concluding that there are two elements to § 768.72: a pleading element and a discovery element. However, the two elements cannot be separated from each other as Plantation Square urges.

A. Florida Court Decisions

The Florida Supreme Court has interpreted Fla.Stat. § 768.72 as "substantive" in terms of whether the Florida state legislature encroached on the court's rule-making authority in approving the Tort Reform Act. Smith v. Department of Insurance, 507 So.2d 1080, 1092 n. 10 (Fla.1987). See also, Key West Convalescent Ctr., Inc. v. Doherty, 619 So.2d 367, 369 (Fla. 3rd DCA 1993) (section creates a positive legal right not to be subject to financial worth discovery until court has made determination); Henn v. Sandler, 589 So.2d 1334, 1335, aff'd, en banc, (Fla. 4th DCA 1991) (section creates a positive legal right). Nevertheless, in Smith, the Court did not consider the substantive aspects as applied in federal courts in light of the Erie doctrine. Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Federal courts are not bound by state court decisions as to the effect of the United States Constitution, Red Cross Line v. Atlantic Fruit Co., 264 U.S. 109, 120, 44 S.Ct. 274, 279, 68 L.Ed. 582 (1924), or federal statutes. Tipton v. Atchison, T & S.F.R. Co, 298 U.S. 141, 151-52, 56 S.Ct. 715, 718-19, 80 L.Ed. 1091 (1936); Union P.R. Co. v. United States, 313 U.S. 450, 468, 61 S.Ct. 1064, 1074, 85 L.Ed. 1453, reh'g denied, 314 U.S. 707, 62 S.Ct. 51, 86 L.Ed. 565 (1941). Federal courts are bound only by a decision of the highest court of a state when the decision matches the precise issue at bar. Commissioner v. Estate of Bosch, 387 U.S. 456, 463, 87 S.Ct. 1776, 1781, 18 L.Ed.2d 886 (1967); King v. Order of United Commercial Travelers, 333 U.S. 153, 157-62, 68 S.Ct. 488, 490-93, 92 L.Ed. 608, reh'g denied, 333 U.S. 878, 68 S.Ct. 900, 92 L.Ed. 1153 (1948). When a state court makes a determination about the interpretation of a state substantive statute, federal courts are bound by that decision except when the decision would run counter to the U.S. Constitution or federal statutes. See, e.g., Red Cross and Tipton, supra, and Baird v. Koerner, 279 F.2d 623, 627 (9th Cir.1960) ("the Erie rule excepts `matters governed by the Federal Constitution or by Acts of Congress'") (citation omitted).

If the Florida Supreme Court's decision in Smith is read to interpret § 768.72 as substantive when applying the Erie doctrine, then the opinion encroaches on the boundaries established by the Rules Enabling Act, 28 U.S.C. § 2072,¹ and the United States Constitution Article VI, Clause 2, the Supremacy Clause. The Constitution leaves the federal courts as the final arbiter of federal law, a role which cannot be usurped by state courts. Therefore, a state court may not construe section 768.72 in light of the Erie doctrine without infringing upon a federal court's authority to interpret the limits of federal law.²

Practically, if federal courts were not the final arbiters of Erie concerns, one state could rule a provision procedural while another could hold that an identical provision is substantive, thereby binding the federal courts on two different interpretations of an identical provision. Federal courts in the first state would apply the federal rule, while federal courts in the second state would be required to apply the substantive state statute. This scenario is not permissible. Smith, therefore, is not dispositive on the question of whether the statutory section is substantive or procedural, but does lend weight to the argument that the State of Florida intended to create a substantive right.³

Plantation Square provides an extensive analysis of the Erie doctrine and its progeny, including Guaranty Trust Co. v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945), Byrd v. Blue Ridge Rural Electric Co-op, 356 U.S. 525, 78 S.Ct. 893, 2 L.Ed.2d 953 (1958), and Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965), to arrive at the conclusion "that § 768.72 is both a pleading rule and a discovery rule." 761 F.Supp. at 1572. The Court agrees with Plantation Square's conclusion and defers to that reasoning.

B. Plantation Square Analysis

1. Discovery Aspect

This Court also agrees with Plantation Square's conclusion that federal courts must give effect to the discovery provision of Fla.Stat. § 768.72. Id. at 1580; see also, Key West Convalescent, 619 So.2d 367. In brief, the court concluded that there is no conflict between § 768.72 and Federal Rule of Civil Procedure 26.⁴ Id. at 1576-79. The analysis continued under the twin aims of Erie: forum shopping and preventing a change of the character or result of the litigation. Hanna, 380 U.S. at 468, 85 S.Ct. at 1142. Under this analysis, if one of the aims was violated, then the court must apply the statute as substantive law. Plantation Square, 761 F.Supp. at 1579-81. The Plantation Square court applied the discovery aspects of § 768.72 as substantive law because to do otherwise would lead to forum shopping.

The United States Court of Appeals for the Eighth Circuit is the only appellate court to refer even tangentially to the discovery issue under a similar South Dakota statute.⁵ In comparison, the South Dakota law does not contain a provision requiring a claimant to move to amend his complaint in order to assert a claim for punitive damages, and no appellate court has ruled on that issue. In Bierle v. Liberty Mut. Ins. Co., 792 F.Supp. 687 n. 5 (D.S.D.1992), aff'd, 992 F.2d 873 (8th Cir.1993), the district court stated that "being a diversity case, the Court must apply the substantive law of the state of South Dakota." (citation omitted). The district court continued, holding that "SDCL 21-1-4.1 reflects legislative intent that punitive damages be awarded only for willful, wanton, or malicious conduct on the part of the party claimed against." Id. at 691-92. The court viewed the provision regarding discovery as creating a substantive right. Thus, a party was not subject to discovery until after a hearing...