court on September 11, 1985 and after several delays in the pleading and discovery stages, this matter was tried before a jury beginning on April 21, 1987. On May 4, 1987, a verdict for $ 449,027.35 was returned in favor of the Plaintiff. Of that amount, Defendant Hughes' obligation was calculated to be $ 134,708.20.
On May 7, 1987, Plaintiff motioned this court under Pa.R.C.P. 238 to impose delay damages since the jury award exceeded the Defendant's settlement offer by 125%.
Prior to trial, Plaintiff's settlement demands ranged from a high of $ 1,000,000.00 to a low of $ 400,000.00 of which Hughes Printing was to pay $ 200,000. On the other hand, Defendant Hughes Printing never made an offer that exceeded $ 50,000.00.
On August 14, 1987, this court entered an order denying the Plaintiff request for delay damages since it was found that the dilatory tactics and lack of good faith in settlement negotiations exhibited on both sides did not warrant Rule 238 sanctions. Specifically, we found that although Defendant Hughes requested the two continuances in this case, counsel for Plaintiff concurred in the first and helped trigger the second by failing to supply expert reports by the initial discovery deadline.
Moveover, since the Plaintiff's demands were unreasonable and the case was in trial before settlement proposals reached a point were serious negotiations could begin, we decided against Rule 238 damages.
Plaintiff has filed a motion to reconsider asserting that this court misinterpreted the Pennsylvania Supreme Court's application of Rule 238 and that state court precedent dictates that delay damages are appropriate in this case. Defendant counters by first asserting that Rule 238 damages no longer apply in federal court. Alternatively, the Defendant insists that if Rule 238 damages are available, the court properly applied the law to the facts when it found that since the Plaintiff's demands were unreasonable until after the trial started, damages should not apply. This court heard oral arguments on July 11, 1988, concerning Plaintiff's motion for reconsideration to resolve any factual disputes which may have been presented and weigh any final comments by the parties. After reviewing the supplemental briefs submitted by both parties, we are now prepared to rule on this matter.
The first issue that must be addressed by this court is whether Pennsylvania's Rule of Civil Procedure 238 applies in federal diversity actions in light of Craig v. MaGee Memorial Rehabilitation Center, 512 Pa. 60, 515 A.2d 1350 (1986), and its progeny.
Since the Plaintiff first requested this court to impose delay damages, several federal courts have found Rule 238 to be merely procedural and not applicable in federal court under the Erie Doctrine.
This strain of reasoning developed after the Supreme Court of Pennsylvania suspended the mandatory provisions of Rule 238 in October of 1986. See Craig, 515 A.2d at 1353. Previously, Rule 238 provided for the automatic addition of delay damages to jury awards which exceeded written settlement offers by 125%. That rule had been held applicable to diversity actions in federal courts. Jarvis v. Johnson, 668 F.2d 740 (3d Cir. 1982).
However, in the Craig case, the Pennsylvania Supreme Court suspended the mandatory provision of Rule 238 because it was found that the assessment of damages without regard to fault "runs too tight a gauntlet through Due Process. " The court found that, in practice, Rule 238 had become "an uncontestable presumption that all fault lies with a defendant." Craig at 1353. The mandatory provision of Rule 238 was suspended precisely because the rule had, in application, overstepped the limits of a procedural rule.
Shortly after the Craig decision, Chief Judge John Fullam stated in Locke v. Frank, Civ. No. 86-2087, slip op. at 4 (E.D. Pa. Jan. 16, 1988):
given the Craig decision, it is indeed difficult to view whatever remains of Pennsylvania's delay damage doctrine as a matter of substantive law for Erie purposes. Rather, it appears to be a procedural matter of imposing sanctions for litigation misconduct. Moreover, since the rule has been suspended, and has been replaced merely by directives of the Pennsylvania Supreme Court in exercising its supervisory power over the lower state courts, the new procedure plainly has no direct application in the federal courts; at most, the new arrangement may be looked to as comity.
This reasoning has been applied by several other judges in that district. See Holley v. Cincinnati-Forte Co., 1988 U.S. Dist. LEXIS 4960, Civ. No. 87-1779, slip op. (E.D. Pa. May 25, 1988) (available September 16, 1988, on LEXIS, Genfed library, Dist file); Salvatico v. Supermarkets General Corporation, 1988 U.S. Dist. LEXIS 3770, Civ. No. 86-4072, slip op. (E.D. Pa. April 29, 1988) (available September 16, 1988, on LEXIS, Genfed library, Dist file); Redmann v. Jefferis, 1988 U.S. Dist. LEXIS 3023, Civ. No. 87-4056, slip op. (E.D. Pa. April 1, 1988) (available September 16, 1988, on LEXIS, Genfed library, Dist file); DeMarchis v. Louisville Ladder, 1988 U.S. Dist. LEXIS 1001, Civ. No. 85-1494, slip op. (E.D. Pa. Feb. 4, 1988) (available September 16, 1988, on LEXIS, Genfed library, Dist file); Nabisco Brands, Inc. v. Hill Creek Farms, 1987 U.S. Dist. LEXIS 9670, Civ. No. 85-6726, slip op. (E.D. Pa. Oct. 22, 1987) (available September 16, 1988, on LEXIS, Genfed library, Dist file); Schmehl v. Sheraton Corp., 1987 U.S. Dist. LEXIS 1598, Civ. No. 85-3242, slip op. (E.D. Pa. March 3, 1987) (available September 16, 1988, on LEXIS, Genfed library, Dist file).
Although this court acknowledges the above cited decisions, on the appellate level, there have been three cases which indirectly address the application of Rule 238 damages to federal diversity actions. Two of them, Monessen Southwestern Railway Company v. Morgan, 486 U.S. 330, 56 U.S.L.W. 4494, 100 L. Ed. 2d 349, 108 S. Ct. 1837 (1988) (available September 16, 1988, on LEXIS, Genfed library, US file) and Poleto v. Consolidated Rail Corp., et al, 826 F.2d 1270 (3d Cir. 1987), interpret the application of Rule 238 to suits filed under the Federal Employers' Liability Act (FELA). The other case, Salas v. Wang, et al, 846 F.2d 897 (3d Cir. 1988), discusses an analogous New Jersey delay damages statute.
In Monessen and Poleto, the U.S. Supreme Court and the Third Circuit Court of Appeals found that when a state court hears a FELA case, "state substantive law, particularly Pennsylvania Rule of Civil Procedure 238," is not applicable. Poleto at 1274. In Monessen, the high court examined the same issue presented in Poleto, whether prejudgment interest, as outlined in Rule 238, applies FELA cases. The court found that "prejudgment interest is normally designed to make the plaintiff whole and is part of the actual damages sought to be recovered. . . . Moreover, prejudgment interest may constitute a significant portion of an FELA plaintiff's total recovery." Monessen, 486 U.S. at 335, 56 U.S.L.W. at 4495. Writing the opinion of the court, Justice White stated:
The Pennsylvania courts cannot avoid the application of federal law to determine the availability of prejudgment interest under FELA by characterizing Rule 238 as nothing more than a procedural device to relieve court congestion . . . Prejudgment interest constitutes too substantial a part of a defendant's potential liability under FELA for this Court to accept a State's classification of a provision such as Rule 238 as a mere "local rule of procedure.
" (Footnote 4: The Court of Appeals for the Third Circuit recognized in an FELA action that Rule 238 is substantive in nature. Poleto v. Consolidated Rail Corp., supra, at 1274. Indeed, even the Pennsylvania Supreme Court has acknowledged that Rule 238 has "both procedural and substantive elements." Laudenberger v. Port Authority of Allegheny County, 496 Pa. 52, 66, 436 A.2d 147, 154 (1981).