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Provident Tradesmens Bank and Trust Co. v. Lumbermens Mutual Casualty Co.

decided: April 2, 1969.


Kalodner, Ganey and Freedman, Circuit Judges. Ganey, Circuit Judge (concurring). Kalodner, Circuit Judge (dissenting).

Author: Freedman


FREEDMAN, Circuit Judge.

This diversity action is before us now on the Supreme Court's vacation of our prior judgment and its remand for our consideration of the issues we had found it unnecessary to decide on the earlier appeal.

Edward S. Dutcher, the named insured in a policy issued by Lumbermens Mutual Casualty Company, was the owner of a passenger car which he lent to Donald Cionci. While driving the car Cionci collided with a truck driven by Thomas W. Smith, and as a result Smith, Cionci and John R. Lynch, a passenger of Cionci, were killed and John Landis Harris, another passenger of Cionci, was injured.

Lynch's estate*fn1 obtained a default judgment of $50,000 against Cionci's estate in the United States District Court for the Eastern District of Pennsylvania*fn2 after Lumbermens refused to defend Cionci's estate, asserting lack of coverage under the omnibus clause of its policy*fn3 because Cionci had deviated from the use authorized by Dutcher.

Before the entry of the default judgment Lynch's estate brought this separate action for declaratory judgment under 28 U.S.C. § 2201 against Lumbermens and Cionci's estate, in which it challenged Lumbermens' denial of coverage of Cionci's estate. On Lumbermens' motion, Harris, the injured passenger of Cionci, and the estate of Smith, the driver of the truck, were joined as plaintiffs. The joinder was sought and presumably granted because Harris and Smith's estate had brought separate damage actions in the Common Pleas Court of Delaware County, Pennsylvania, in which Cionci's estate, Lynch's estate and Dutcher were defendants, and common to these claims was the question whether Lumbermens' policy covered Cionci's estate. Although the accident happened on January 17, 1958, the two state court actions remain untried.

The trial judge excluded Dutcher's testimony as against the Lynch and Smith estates regarding the terms on which he had loaned his car to Cionci, on the ground that he was incompetent under Pennsylvania's so-called Dead Man's Act. Act of May 23, 1887, P.L. 158, § 5(e), 28 Purdon's Pa.Stat.Annot. § 322.*fn4 The trial judge, however, permitted Dutcher to testify as against Harris, who survived the accident. The factual dispute between Harris and Lumbermens on whether Cionci had deviated from the terms of Dutcher's consent to the use of the car was submited to the jury, which found in favor of Harris. As to the Lynch and Smith estates, the trial judge granted motions for directed verdicts against Lumbermens on the ground that with Dutcher's testimony excluded there was no evidence to rebut the presumption of permission to Cionci which flowed under Pennsylvania law from the proof of Dutcher's ownership and Cionci's admitted operation of the automobile.*fn5 Motions for new trial and for judgment n.o.v. filed by Lumbermens were denied. 218 F. Supp. 802 (E.D.Pa.1963).

Lumbermens appealed, and at the argument before a panel of this court we raised the question whether Dutcher who had not been joined was an indispensable party under Rule 19 of the Federal Rules of Civil Procedure. A majority of the panel held that Dutcher's joinder was not required, but after a rehearing before the court en banc the judgment of the district court was vacated and a remand ordered with direction to dismiss the action on the grounds that the district court could not decide the claims because Dutcher was an indispensable party and also that the district court in the exercise of its discretion should have denied declaratory judgment relief without regard to the merits because of the pendency of the state court actions in which all the parties were present. 365 F.2d 802 (3 Cir. 1966).

The members of the original panel majority dissented on the ground that the jury's factual decision on Harris' claim should have been preserved because it was reached after hearing Dutcher's testimony. In their view Lumbermens was collaterally estopped by Harris' judgment from contesting the issue of deviation as to the Lynch and Smith estates, regardless whether there was any error in the exclusion of Dutcher's testimony against the two decedents. In their view it was inappropriate to cancel belatedly the declaratory judgment relief after the case had already been decided by the jury. The dissent therefore went on to consider the merits of Lumbermens' objections to the judgment, which the majority, of course, had not found it necessary to reach. 365 F.2d at 816 et seq. The Supreme Court granted certiorari (Provident Tradesmens Bank & Trust Co., Administrator v. Patterson, Administrator, 386 U.S. 940, 87 S. Ct. 972, 17 L. Ed. 2d 872 (1967)) and unanimously reversed. 390 U.S. 102, 88 S. Ct. 733, 19 L. Ed. 2d 936 (1968).

On remand from the Supreme Court we ordered a hearing before the panel which had originally considered the case.



1. The Dead Man's Act.

At the trial it was shown that Dutcher's policy had a fixed limit, although a pretrial ruling prevented disclosure of its amount. Dutcher was held incompetent as a witness against the Lynch and Smith estates under the Pennsylvania Dead Man's Act*fn6 because Dutcher had an interest in maintaining the policy for himself, whereas the purpose of the Lynch and Smith estates was to subject Dutcher's policy to Cionci's liability. The trial judge reasoned that since the combined amount of the judgments which might be recovered against Cionci's estate and Dutcher respectively was as yet unknown, the claims against Cionci's estate might reduce the protection available to Dutcher under the policy and Dutcher therefore had an interest adverse to that of the Lynch and Smith estates which barred him from testifying against them.

The seemingly simple language of the Dead Man's Act has been the subject of many decisions in Pennsylvania which show how difficult at times is its application in particular circumstances. There are no Pennsylvania decisions which clearly decide whether in the present circumstances Dutcher was competent to testify against the Lynch and Smith estates, although the Act has been held inapplicable*fn7 in an action brought under the Pennsylvania Wrongful Death Act,*fn8 and, also inapplicable to a survival action under the Pennsylvania Fiduciaries Act of 1949,*fn9 when it is joined with an action for wrongful death.*fn10 It has not yet been decided, however, whether these principles would apply in a separate proceeding such as this action for declaratory judgment. Nor is it possible to found a solid judgment on whether the competing claims of coverage by Cionci's estate and Dutcher are too remote to forbid the barring of Dutcher's testimony on the ground that he has an interest adverse to the decedents.

We do not believe it is necessary or even desirable for us to decide the issue of Dutcher's competency under the Dead Man's Act, for the circumstances call strongly for the estoppel of Lumbermens from raising the issue now. Lumbermens had full opportunity to present Dutcher's testimony in the Harris claim and the jury there decided against it the issue whether Cionci had gone beyond Dutcher's consent.

2. Collateral Estoppel.*fn11

Dutcher was permitted to testify fully on behalf of Lumbermens against Harris because the Dead Man's Act was held inapplicable. The issue in Harris' claim, whether Cionci deviated from the terms of the loan, was identical with that in the claims of the Lynch and Smith estates, which were tried at the same time before the same judge and jury.

Lumbermens argues, however, that since it could not have asserted against the Lynch and Smith estates a judgment in the Harris claim if it had gone in its favor, because the estates were neither parties to Harris' claim nor in privity with him, it cannot be bound as to the estates by the judgment which it lost to Harris. In support of this position Lumbermens invokes the well-known principle of mutuality.

The principle of mutuality has yielded with time to many piecemeal exceptions and they have multiplied while the rule itself seemingly remained intact. Justice Traynor, in the pioneer case of Bernhard v. Bank of America National Trust and Savings Association, 19 Cal.2d 807, 122 P.2d 892 (1942), opened the door to a frontal reconsideration of the requirement of mutuality. In a well-known passage*fn12 he pointed to the constitutional requirement of due process which prohibits use of the plea against a party unless he was bound by the earlier judgment as a party to it or in privity with a party.*fn13 No such reason, however, requires that the party who relies on the prior judgment for his claim must have been a party or in privity with a party to the earlier litigation.*fn14 Since Bernhard many cases have reconsidered the rule of mutuality with results reaching as extreme a view as that which would abolish mutuality entirely.*fn15

We had occasion to consider the problem in Bruszewski v. United States, 181 F.2d 419 (3 Cir.), cert. denied, 340 U.S. 865, 71 S. Ct. 87, 95 L. Ed. 632 (1950), where an injured longshoreman's suit against the United States for negligence of the crew and unseaworthiness of the vessel was held barred by a prior judgment against the same plaintiff in favor of the steamship company which serviced the vessel under an agreement with the United States. The plaintiff was not permitted to litigate in the second suit, against a different defendant, the issues which he had litigated and lost in the first suit. Judge Hastie, speaking for the Court, said:

"The countervailing consideration urged here is lack of mutuality of estoppel. * * * But * * * no unfairness results here from estoppel which is not mutual. In reality the argument of appellant is merely that the application of res judicata in this case makes the law asymmetrical. But the achievement of substantial justice rather than symmetry is the measure of the fairness of the rules of res judicata." (181 F.2d at 421). We have continued, however, to recognize the impropriety of holding bound by a prior judgment one who was not a party to the prior action nor in privity to a party and who therefore had no opportunity to assert his legal rights or to have his day in court. See Makariw v. Rinard, 336 F.2d 333 (3 Cir. 1964), reversing 222 F. Supp. 336 (E.D.Pa.1963).

Just as changes have been wrought by the re-examination of the rigid principle of mutuality, so it has been recognized that hardships would flow from the complete abolition of mutuality. Professor Currie in an influential article*fn16 pointed out that a disaster such as a railroad or airplane accident may give rise to numerous suits against the same defendant and on accepted principle any judgments for the defendant, no matter how numerous, will not bind absent plaintiffs. To give full scope to the Bernhard case in such circumstances would offend against the most common notions of fairness. For no amount of victories by the defendant would conclude the remaining plaintiffs, whereas a single victory by any one of the plaintiffs anywhere along the line would collaterally estop the defendant as to its negligence in all the succeeding cases.*fn17 Currie has suggested that this difficulty can be avoided by a rule which would retain mutuality where the party sought to be estopped did not have a full and fair opportunity to litigate the issue effectively because his former adversary had the initiative.*fn18

It is clear therefore that mutuality is neither to be retained as a rigid rule nor completely jettisoned.*fn19 As we recognized in Bruszewski, in this area the need is not for symmetry but rather for a recognition of the practical realities which surround the parties. A perceptive writer who has recently reviewed the state of the law on this subject and pointed out the difficulties inherent in either a complete rejection or a complete retention of the requirement of mutuality suggests the desirability of an increasing use of the liberal power of joinder of parties in order to bring as many as possible into the field of the first suit.*fn20

In the present case it is not necessary to adopt any rigid formula. Here the facts uniquely combine to remove any possible element of unfairness or hardship on the party who lost the first suit if mutuality is not required. Indeed, in this case fairness requires the imposition of a collateral estoppel. The object of the present action was to secure a judicial decision that Lumbermens' disclaimer of coverage of Cionci's estate was unjustified. The primary adversaries, therefore, were Cionci's estate and Lumbermens, and it was through Cionci's estate, which was a named party, that the plaintiffs, including Harris, claimed. In Harris' claim Lumbermens had full opportunity of which it availed itself to present Dutcher's testimony regarding his loan of the car to Cionci. The jury, disbelieving Dutcher's testimony that Cionci had exceeded the scope of his permission, decided on the evidence that Lumbermens' policy covered Cionci's estate. Lumbermens therefore is bound by that determination and may not raise it now against the Lynch and Smith estates.

Moreover, at Lumbermens' initiative the three claims against it were joined and tried together. All sought the same relief of a declaration of coverage of Cionci by the policy. They were dealt with as three claims in one action, and were tried before the same judge and jury at the same time. As happens in innumerable instances where there are multi-parties or multi-issues, one went to the jury and the others resulted in directed verdicts. The use of the judgment in the Harris claim as a collateral estoppel in the other claims presents no surprise, unfairness or hardship to Lumbermens. On the contrary, it is clear that Lumbermens, which was a party in all three claims, should be bound by Harris' judgment against it from retrying in the claims of the Lynch and Smith estates the issue which the jury decided in Harris' claim. Even if Dutcher's testimony had been erroneously excluded on a misinterpretation of the Dead Man's Act, a new trial should not be awarded to Lumbermens to require the Lynch and Smith estates to resubmit to a jury the issue of fact which on full trial of the merits Lumbermens lost to Harris.

Of course, in this diversity action we must apply Pennsylvania law.*fn21 We are confronted, however, with a question which has never been considered by the Pennsylvania courts. The Pennsylvania Supreme Court has given significant recognition to the Restatements, especially the Restatement of Torts, which it has looked to in abandoning many of the older tort doctrines in that state in favor of the views fashioned by modern scholarship. But Pennsylvania's reliance on the Restatement of Torts in liberalizing its law does not require us to assume that it would follow the strict view of mutuality expressed in the old Restatement of Judgments,*fn22 which was promulgated before the modern erosion of mutuality occurred. Indeed, very recently in Posternack v. American Casualty Co. of Reading, 421 Pa. 21, 218 A.2d 350 (1966), Pennsylvania recognized, albeit indirectly, a departure from the requirement of mutuality. There a fire insurance company sought to invoke collateral estoppel against a claimant who had lost an earlier case against another company on a different policy. The lower court refused to allow the company to amend its answer by pleading the earlier judgment, solely because of the absence of mutuality. On appeal the Court, while recognizing that factual elements might prove significant, nevertheless reversed and ordered the amendment to be allowed. The defendant thus would have the benefit of an earlier verdict in favor of another insurer in a claim on another policy where both policies appeared to have been written by the same agent under similar circumstances and both companies had made similar defenses of lack of authority and fraud. Mr. Justice Eagen said: "The Pennsylvania rule on mutuality of estoppel is by no means so rigid that the mere mention of it, without more, will defeat the right to assert res judicata as a defense in an amendment to the pleadings. Several recent cases have recognized exceptions to the general rule * * * thus showing a tendency by this Court, at least in limited areas, not to allow the technical formalities of res judicata to stand in the way of justice."*fn23

It is, of course, not possible to be assured on the ultimate limit to which Pennsylvania courts may go in loosening the requirement of mutuality. It is clear, however, that they will not be rigidly bound by it. We, therefore, entertain no doubt that the Pennsylvania courts would recognize collateral estoppel in a case such as this, where the actual circumstances remove any uncertainty whether Lumbermens, against whom estoppel is asserted, had a full and fair opportunity to try the factual issue and lost it before the same jury which would indubitably have decided the same way on the Lynch and Smith claims if Dutcher had been permitted to testify, as it did on Harris' claims. To relieve Lumbermens now of this determination on the claim that Dutcher's evidence was improperly excluded in the Lynch and Smith claims would be to ignore any rational basis for the use of collateral estoppel. It is, after all, simply a device to prevent relitigation of issues which have been fairly decided, where the parties are not the same but the circumstances are such that no significant harm results from its invocation.



Lumbermens seeks a new trial as to Harris on the ground that it was prejudiced before the jury by the grant of directed verdicts against it in favor of the Lynch and Smith estates.

It is difficult to see how Lumbermens could have suffered any prejudice in fact. The directed verdicts in favor of the Lynch and Smith estates were ordered at the conclusion of all three cases. The jury heard Dutcher's testimony in the Harris claim and knew that he had been barred from testifying against the Lynch and Smith estates. Indeed, the trial judge explained to the jury the basis on which he was ordering a directed verdict in favor of the two estates.

The charge of prejudice therefore is reduced to no more than a claim that in a multi-claim or a multi-party trial some issues or some parties may not be eliminated by direction of the court without prejudicing the decision regarding the other issues or parties. Every day's experience is to the contrary. It is common practice for a ...

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