State of Wis. Inv. Bd. v. Plantation Square Assoc., 88-1883-Civ.

• Decision Date: 06 April 1991
• Docket Number: No. 88-1883-Civ.,88-1883-Civ.
• Citation: 761 F. Supp. 1569
• Court: U.S. District Court — Southern District of Florida
• Parties: STATE OF WISCONSIN INVESTMENT BOARD, Plaintiff, v. PLANTATION SQUARE ASSOCIATES, LTD., et al., Defendants.

761 F. Supp. 1569

STATE OF WISCONSIN INVESTMENT BOARD, Plaintiff, v. PLANTATION SQUARE ASSOCIATES, LTD., et al., Defendants.

No. 88-1883-Civ.

United States District Court, S.D. Florida.

April 6, 1991.

COPYRIGHT MATERIAL OMITTED

Lawrence Metsch, Miami, Fla., for plaintiff.

Robert C. Kahrl, Cleveland, Ohio, for defendants Zaremba Plantation Square Co., Zaremba Jog Co., Zaremba Congress Co., Zaremba Corp., Walter Zaremba.

Richard E. Berman, J. O'Grady Fort Lauderdale, Fla., and Michael D. Katz, Miami, Fla., for defendants Plantation Square Associates Ltd., Jog Associates Ltd., Congress Associates Ltd., Wenal Jog Co., Wenal Congress Co., HSW Investments Inc., Harold Wenal.

Michael H. Gora, Boca Raton, Fla., for defendant Jerald Rosenbloom.

MEMORANDUM & ORDER

HOEVELER, District Judge.

THIS CAUSE IS before the court upon several motions of the parties relating to an attempt by the defendants to dismiss Plaintiff's claim for punitive damages and attorneys' fees.¹ Plaintiff State of Wisconsin Investment Board ("SWIB") is an independent state agency which invests and manages pension funds for the benefit of Wisconsin's public employees. SWIB has filed a four count Complaint asserting fraud, breach of fiduciary duty, and two separate breach of contract claims, all arising out of the sale of three shopping centers in Broward and Palm Beach counties. The slew of defendants named in Plaintiff's Complaint include the three limited partnerships which owned the shopping centers and the partners individually, along with several related individuals and corporations who also participated in the purportedly fraudulent sales. The court's jurisdiction is derived exclusively from the diverse citizenship of the parties.

I. Punitive Damages

The defendants have moved to dismiss SWIB's claim for punitive damages for failure to comply with Florida Statutes § 768.72.² That statute, which came into law as § 51 of the Tort Reform and Insurance Act of 1986, Chapter 86-160, 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.

Plaintiff has submitted a "proffer" of documents which it claims meets the statutory basis for asserting punitive damages but at the same time argues that the court need not examine the proffer in that, under Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) and its progeny, § 768.72 is a state procedural rule undeserving of application by a federal court sitting in diversity.

It is this latter argument of Plaintiff to which the court first turns, as the issue has been sharply disputed in Florida's district courts and, indeed, in other district courts throughout the country regarding similar state statutes. The Erie doctrine's mandate that federal courts sitting in diversity shall apply state substantive law while following federal procedure has proven itself an oft-visited but ill-defined by-product of our federalist system. The Supreme Court and lower courts have wrestled often over the years with highly elusive demarcations between substance and procedure when determining which state rules must be applied under Erie. Much of this struggle is likely owed to the fact that traditional notions of substance and procedure are of limited help in an analysis where a given rule is "rationally capable of classification as either," Hanna v. Plumer, 380 U.S. 460, 472, 85 S.Ct. 1136, 1144, 14 L.Ed.2d 8, 17 (1965), and, consequently, where a rule's substantive or procedural nature proves ultimately more a conclusion than a premise.

Initially, the Supreme Court adopted an "outcome determinative" test in Guaranty Trust Co. v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945), holding that "substantive" state laws under Erie were those which, when not enforced in federal court, would "significantly affect the result of a litigation." Id. at 109, 65 S.Ct. at 1470. Finding that it proved too much, the Court receded from the stringencies of York in Byrd v. Blue Ridge Rural Electric Co-op., 356 U.S. 525, 78 S.Ct. 893, 2 L.Ed.2d 953 (1956), adopting an approach which balanced the federal interest in uniform process against the state interest in uniformity of results. See Lundgren v. McDaniel, 814 F.2d 600, 606 (11th Cir. 1987). Yet perhaps not until Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965), did the Court make it clear how far from a priori truths are the concepts of substance and procedure under Erie. Hanna demonstrates that proper classification of a state rule can only be determined after a rigorous inquiry which engages two separate lines of analysis.

Under Hanna, the preliminary inquiry for a district court is whether the state provision directly conflicts with a Federal Rule of Civil Procedure. Id. at 470, 85 S.Ct. at 1143, 14 L.Ed.2d at 16. See also Walker v. Armco Steel Corp., 446 U.S. 740, 749-50, 100 S.Ct. 1978, 1985, 64 L.Ed.2d 659, 667 (1980). If a court determines that a direct conflict exists, it must then employ the Hanna analysis, which calls for application of the Federal Rule unless it (1) is beyond the scope of the Rules Enabling Act, 28 U.S.C. § 2072,³ or (2) is otherwise unconstitutional. Hanna, 380 U.S. at 470-71, 85 S.Ct. at 1143-44.

Where no direct collision between a Federal Rule and the state statute exists, the Hanna test does not apply. Walker, 446 U.S. at 752, 100 S.Ct. at 1986. Instead, the district court must pursue a second line of analysis directly under Erie. This analysis effectuates the Byrd balancing test by employing federal procedure unless doing so would violate the "twin aims" of Erie: (1) "discouragement of forum-shopping" and (2) "avoidance of inequitable administration of the laws." Hanna, 380 U.S. at 468, 85 S.Ct. at 1142; Walker, 446 U.S. at 752-53, 100 S.Ct. at 1986. Lundgren, 814 F.2d at 606.

Absent scrutiny under these two lines of analysis, deciding when to apply a state rule in federal court becomes a battle of divining rods and crystal balls. With these analyses in mind, then, the court turns its attention to § 768.72.

A. The Statute as Both a Pleading Rule and a Discovery Rule

Preliminarily, it must be conceded that § 768.72 is both a pleading rule and a discovery rule. The greater part of the statute addresses the standard for pleading a punitive damage claim. However the last sentence, permitting discovery of a defendant's financial worth only after a punitive damage claim has been permitted, is of an entirely different nature than the rest of the statute and, for Erie purposes, must be analyzed separately as a rule of discovery.⁴

B. The Pleading Aspects of § 768.72

Since the statute's adoption in 1986, other district courts in Florida have addressed the issue of whether § 768.72 is procedural or substantive under the Erie doctrine. With the notable exception of Citron v. Armstrong World Industries, Inc., 721 F.Supp. 1259 (S.D.Fla.1989), all reported cases have applied § 768.72 as substantive State law in federal diversity actions. See Bankest Imports, Inc. v. ISCA Corp., 717 F.Supp. 1537 (S.D.Fla.1989); Frio Ice, S.A. v. Sunfruit, 724 F.Supp. 1373 (S.D.Fla. 1989); Lancer Arabians, Inc. v. Beech Aircraft Corp., 723 F.Supp. 1444 (M.D.Fla. 1989); Dah Chong Hong Ltd. v. Silk Greenhouse, Inc., 719 F.Supp. 1072 (M.D. Fla.1989); Jerry W. Lewis v. Snap On Tools Corp., 708 F.Supp. 1260 (M.D.Fla. 1989); McCarthy v. Barnett Bank of Polk County, 750 F.Supp. 1119 (M.D.Fla.1990).

In other jurisdictions district courts facing virtually identical state statutes have been more divided in deciding whether to apply the state provision. See NAL II, Ltd. v. Tonkin, 705 F.Supp. 522 (D.Kan. 1989) (state statute conflicted with Federal Rules and would not be given effect in federal diversity case and even if no conflict were found, Erie analysis did not compel application of the state rule); Belkow v. Celotex Corp., 722 F.Supp. 1547, 1551-52 (N.D.Ill.1989), citing Berry v. Eagle-Picher, 1989 WL 77764, 1989 U.S.Dist. LEXIS 7671 (N.D.Ill.1989) (same); Kuehn v. Shelcore, Inc., 686 F.Supp. 233 (D.Minn.1988) (state statute does not conflict with federal rule and should be applied in federal court under Erie analysis); Zeelan Industries, Inc. v. de Zeeuw, 706 F.Supp. 702 (D.Minn. 1989) (same); Windsor v. Guarantee Trust Life Ins. Co., 684 F.Supp. 630 (D.Idaho 1988) (same).

The court is unaware of any appellate decision which has dealt with the issue now before it. Indeed, because a district court's decision of whether to apply a state punitive damage pleading rule is not immediately appealable, and because the district court's ruling would in all likelihood not affect the outcome of the litigation,⁵ appeal of such a ruling, though possible in some narrow contexts,⁶ has proven elusive as of yet.

(1) The Pleading Aspects of § 768.72 Under the Hanna Analysis

In addressing the first question under Hanna — whether § 768.72 directly collides with a Federal Rule — it is first necessary to discern the relevant rule. This initial task is one over which district courts facing state punitive damage pleading rules have differed. Some courts, including the only district court to identify a Rule conflicting with the Florida statute, see Citron, 721 F.Supp. at 1261, as well as the parties now before this court, have identified Federal Rule 9(g) as the focus of potential conflict with the state provision. See also, NAL...