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Fauber v. Kem Transportation and Equipment Co.


filed as amended august 21 1989.: May 31, 1989.


On Appeal from the United States District Court for the Middle District of Pennsylvania, D.C. Civil Action No. 85-1309.

Hutchinson, Scirica and Nygaard, Circuit Judges.

Author: Hutchinson


HUTCHINSON, Circuit Judge


Hughes Printing Company (Hughes) appeals from two orders of the United States District Court for the Middle District of Pennsylvania.*fn1 The first, dated September 1, 1988, imposed all taxable costs on Hughes and released the other defendants from the taxation of costs.*fn2 The second, dated September 21, 1988, granted plaintiff/appellee Claude R. Fauber, Jr.'s (Fauber's) motion to reconsider an order dated August 14, 1987 denying Fauber's motion for assessment of delay damages against Hughes and instead awarded Fauber delay damages of $20,073.60. In awarding delay damages, the district court reexamined and reversed its earlier analysis of Craig v. Magee Mem. Rehab. Center, 512 Pa. 60, 515 A.2d 1350 (1986). In Craig, the Supreme Court of Pennsylvania had suspended the mandatory feature of former Pennsylvania Rule of Civil Procedure 238; but reaffirmed the availability of delay damages in tort, upon a case specific examination of relevant factors, where the jury verdict is more than 125% of the settlement offer made by the defendant.

On the merits, Hughes contends that the district court's initial conclusion was correct because Craig requires us to reconsider our decisions holding that the mandatory imposition of delay damages under the suspended rule is a matter of state substantive law. We reject Hughes's argument and hold that the Pennsylvania law on delay damages in tort, whether awarded under the suspended rule, Craig or the present version of Rule 238 is substantive for purposes of Erie R.R. v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938). Therefore, under Erie, it must be followed by federal courts sitting in diversity cases. Consistent with the principles of Erie, we also hold that the current version of Rule 238 must be applied to all cases pending on or after November 7, 1988, the date it was promulgated.*fn3 Pa.R.Civ.P. 238(f). We will therefore affirm the district court's order granting delay damages, but will modify it to reflect the floating rate schedule provided in the November 7, 1988 version of the rule.*fn4


The district court had subject matter jurisdiction over Fauber's claim for personal injuries under 28 U.S.C.A. 1332(a) (West Supp. 1989). We have appellate jurisdiction pursuant to 28 U.S.C.A. 1291 (West Supp. 1989). Review of the applicability of Rule 238 in this diversity case is plenary.*fn5


On September 13, 1983, a motorcycle driven by plaintiff's decedent Bryan Fauber collided with a truck driven by James Pfautz while the truck was backing into Hughes's loading dock. The truck was owned by KEM Transportation Company, Inc. (KEM). Fauber filed a complaint against Pfautz, KEM, and Hughes on September 11, 1985. He concurred in Hughes's motion to continue trial from the November 1986 to the December 1986 trial list. All parties agreed on an extension of the time for discovery and trial was again continued until the March 1987 trial list. Counsel agreed to another continuance until April and the district court heard arguments on all outstanding motions on April 16, 1987.

Before jury selection, plaintiff had demanded a total of $1,000,000 in damages. Thereafter, his lowest demand was $400,000. Hughes was asked to contribute $200,000, one-half of the total. It offered only $50,000, and Fauber rejected that offer. The other defendants settled and signed releases absolving themselves of further liability. After a 10 day trial, in which all defendants participated, the jury was asked to determine Fauber's total damages, whether Hughes was liable and, if so, the extent of its liability in comparison with that of the other parties. The jury found that the decedent was 50% negligent, Pfautz was 20% negligent, (attributable also to KEM) and Hughes was 30% responsible. The district court awarded Fauber $89,805.40 against KEM and Pfautz and $134,708.27 against Hughes out of a total jury verdict of $449,027.36.*fn6

On May 7, 1987, Fauber filed a motion to assess delay damages against Hughes, relying on Craig. The district court denied this motion on August 14, 1987. Fauber filed for reconsideration on August 24, 1987. After argument on July 11, 1988, the district court granted reconsideration and awarded delay damages of $20,073.60 by order dated September 21, 1988.

Fauber then asked that costs be taxed against the defendants. The district court stayed this matter pending Hughes's appeal of the verdict to this court. We affirmed that verdict by judgment order on January 28, 1988. Fauber v. KEM Transp. and Equip. Co., 838 F.2d 1205 (3d Cir. 1988). Thereafter, Fauber filed an initial and supplemental bill of costs and, on March 24, 1988, the clerk of the district court assessed total costs against all defendants (KEM, Pfautz and Hughes) in the amount of $5,494.05. On September 1, 1988, the district court overruled Hughes's objection to this assessment of costs, released KEM and Pfautz from their payment and added to the costs taxed by the clerk stenographers' fees of $3,945.11, for a total of $9,439.16.


Former Rule 238 automatically provided delay damages in tort actions for personal injuries and death, without regard to the cause of the delay, whenever a jury awarded more than 125% of the settlement sum a defendant had offered. In Craig, the Supreme Court of Pennsylvania, citing Fourteenth Amendment concerns, suspended the provisions of Rule 238.*fn7 Craig, 512 Pa. at 65, 515 A.2d at 1253. The Craig court retained the 125% test and listed several factors to be considered in assessing responsibility for delay. Id. Craig stated that this procedure and these principles would remain in effect "until a new Rule on delay damages can be promulgated." Id.*fn8

Considerable confusion about the circumstances requiring delay damages followed in both federal and state courts. Here, Fauber argues that Craig only changed Rule 238 from "an uncontestable presumption" to a rebuttable presumption that the defendant caused the delay, and that this change did not affect its substantive nature for Erie purposes.

In Jarvis v. Johnson, 668 F.2d 740, 741 (3d Cir. 1982), we concluded that Rule 238 "must be applied by the federal courts sitting in Pennsylvania." We based our holdings on two district court decisions applying Rule 238,*fn9 the Supreme Court of Pennsylvania is decision in Laudenberger v. Port Auth. of Allegheny County, 496 Pa. 52, 436 A.2d 147 (1981) (upholding Rule 238 under the Pennsylvania Constitution), and the policies embodied in Erie.*fn10

In Salas v. Wang, 846 F.2d 897 (3d Cir. 1988), we dealt with an analogous New Jersey rule. Citing Jarvis, we concluded "[the] district court correctly determined that, under [Erie], it should apply the New Jersey prejudgment interest rule in this diversity action." Id. at 909 n. 13. In Poleto v. Consolidated Rail Corp., 826 F.2d 1270, 1274 n. 6 (3d Cir. 1987), also citing Jarvis, we contrasted personal injury actions under the Federal Employers' Liability Act (FELA) with "the situation where federal jurisdiction is predicated upon diversity of citizenship; there, matters of prejudgment interest are considered substantive and are governed by state law." Id. at 1274 n. 6.

In Monessen Southwestern Ry. v. Morgan, 486 U.S. 330, 108 S. Ct. 1837, 100 L. Ed. 2d 349 (1988), the United States Supreme Court observed that the Supreme Court of Pennsylvania "characterized Rule 238 as a mere 'rule of procedure'" but rejected that approach and reversed its Rule 238 award of delay damages to an FELA plaintiff, stating that the availability of prejudgment interest was a matter of federal law. Id. at 1841, 1842. The Court stated that "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.'" Id. at 1843 (footnote omitted).*fn11 We must be wary of importing the dichotomy of the substance/procedure label from one context to another. Nevertheless, while these FELA cases are not controlling, they inferentially support Fauber's position.

We believe neither the Pennsylvania Supreme Court's decision in Craig nor the November 7, 1988 version of Rule 238 deprives Pennsylvania law on delay damages in tort of their substantive character for Erie purposes.*fn12 The test of whether a rule of law is substantive or procedural for Erie purposes 15 neither its state label nor the purpose the state ascribes to it. Guaranty Trust Co., 326 U.S. at 109. The proper inquiry is

whether application of the rule would make so important a difference to the character or result of the litigation that failure to enforce it would unfairly discriminate against citizens of the forum State, or whether application of the rule would have so important an effect upon the fortunes of one or both of the litigants that failure to enforce it would be likely to cause a plaintiff to choose the federal court.

Hanna v. Plumer, 380 U.S. 460, 468 n. 9, 14 L. Ed. 2d 8, 85 S. Ct. 1136 (1965). A difference is significant if it induces litigants with a choice of forums to pick one over the other. In that sense, the availability of prejudgment interest strikes us as significant. Accordingly, we approve the view set out in the opinion of the district court. See also Salas, 846 F.2d at 909 n.13; Poleto, 826 F.2d at 1274 n. 6.

We can think of no better answer for Hughes's arguments than the statement in Jarvis analyzing the Erie decisions and explaining its rationale:*fn13

While Rule 238 may have been designed to expedite the processing of litigation in Pennsylvania, its application nevertheless results in increasing the amount of damages a plaintiff can receive and a defendant must pay, over the amount of damages that would be awarded in the absence of the Rule. As a consequence, even though adopted by Pennsylvania for control of litigation in the Pennsylvania state courts, the existence of Rule 238 has a clear and undeniable effect on the monetary outcome of a suit. Its applicability in a given forum is therefore an influence on decisions of plaintiffs and defendants as to the desirability of bringing or defending litigation in that particular forum. To this extent at least, it is clear that the decision of a federal court to apply or not to apply Rule 238 is "outcome determinative."

Jarvis, 668 F.2d at 745. We also noted in Jarvis, "[if] Rule 238 is applied in the federal courts as it is in the Pennsylvania courts, a federal plaintiff will have the opportunity to obtain additional damages in the form of prejudgment interest -- damages the plaintiff would not otherwise receive under present federal statutes and rules." Jarvis, 668 F.2d at 745 (footnote omitted) (emphasis added). That rationale continues to apply under Craig and has equal force under the November 7, 1988 version of Rule 238.


Hughes also argues that Rule 238 is in conflict with Federal Rules of Civil Procedure 11 and 37, which make no provision for prejudgment interest or delay damages as such.*fn14 We agree with Hughes that neither Rule 11 nor 37 make provision for delay damages. See Jarvis, 668 F.2d at 741 n. 1 ("[federal] statutory law currently makes no provision for prejudgment interest"). However, they are meant to sanction and thus deter litigator misconduct, a difference in purpose and effect from that served by Rule 238, which is designed to promote settlement and has the effect of compensating a plaintiff for the lost time value of money when a defendant fails to make a reasonable offer of settlement. We see no overriding or conflicting federal interest which would prohibit Rule 238 delay damages in federal diversity cases. Rules 11 and 37 do not authorize recovery of prejudgment interest, and the plaintiff seeking recovery under them is not favored with any Rule 238 presumption.

Rule 238, in all its versions, permits a successful tort plaintiff to recover prejudgment interest on his claim unless the defendant can show the plaintiff himself improperly caused the delay. It is substantive for Erie purposes.*fn15


Finally, we must determine whether delay damages in this case are governed by Criag or the November 7, 1988 version of Rule 238. Again, we look to Pennsylvania law for guidance. Rule 238(f) itself provides that "[this] rule shall apply to actions pending on or after the effective date of this rule in which damages for delay have not been determined."

The Pennsylvania Supreme Court has not yet decided whether the November 7, 1988 version of Rule 238 applies to cases pending on appeal as of that date. Therefore, we look to intermediate appellate court decisions which, while not conclusive, aid us in predicting how the state's highest court might decide the issue. McGowan v. University of Scranton, 759 F.2d 287, 291 (3d Cir. 1985); Wisniewski v. Johns-Manville Corp., 759 F.2d 271, 273-74 (3d Cir. 1985). The Pennsylvania Superior Court has held that the November 7 version applies to cases on appeal. King v. Southeastern Pa. Trans. Auth., 383 Pa. Super. 420, 5557 A.2d 11 (filed Apr. 5, 1989); Miller v. Wise Business Forms. Inc., 381 Pa. Super. 236, , 553 A.2d 443, 446 (1989). We find these cases persuasive and predict that the Pennsylvania Supreme Court, which issued the order promulgating the text of the rule, will do the same.

The key to the application of both the original and the current version of Rule 238 is the defendant's presentation of a reasonable offer to settle. In both versions a reasonable offer has been made when the eventual jury verdict is not more than 125% of this offer. The major non-procedural change of the new rule is its substitution of a floating interest rate for the former flat 10% rate.

We are persuaded by the text of Pennsylvania Rule of Civil Procedure 238(f) and the decisions of the Pennsylvania Superior Court that the Pennsylvania Supreme Court will apply the November 7, 1988 text of Rule 238 to all cases in which the issue of delay damages has not yet been finally determined. Accordingly, we will so apply it here.


The decision of the district court taxing costs against appellant of $3,945.11 in addition to those allowed by the Clerk in his original order of taxation is affirmed; its decision of September 28, 1988 is modified to award delay damages at the fluctuating rate provided by the November 7, 1988 version of Pennsylvania Rule of Civil Procedure 238, in the amount of $21,091.74, as calculated by the parties in their stipulation of February 6, 1988 and, as so modified, is affirmed.

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