Simmons, Inc., a Corporation v. Pinkerton's, Inc., a Corporation and National Surety Corporation, a Corporation

SWYGERT, Senior Circuit Judge,

dissenting.

I respectfully disagree that the errors of giving Instruction No. 5, incorporating the entire Indiana Detective Licensing Law, and of admitting evidence regarding Hayne’s background and Pinkerton’s training and supervisory procedures were harmless. In my view, either error alone constitutes sufficient ground for granting Pinkerton’s a new trial.

At the outset, I note that a serious question has been raised in this case of whether federal law as set forth in 28 U.S.C. § 2111 (1982) or Indiana law governs the issue of whether the giving of an erroneous jury instruction requires that Pinkerton’s be granted a new trial. Pinkerton’s argues that Indiana law governs and, if it is correct, this case surely would have to be reversed. Indiana law is clear that when an instruction is “radically erroneous,” it must appear from the record beyond doubt that it did not prejudice the complaining party. Otherwise, the judgment should be reversed. Callahan v. New York Central RR, 134 Ind.App. 232 , 183 N.E.2d 93 (1962); Southern Indiana RR v. Moore, 29 Ind.App. 52 , 63 N.E. 863 (1902). Thus in Indiana there is a presumption that a “radically erroneous” jury instruction is prejudicial and requires that a new trial be granted.

It cannot be doubted that Instruction No. 5 was “radically erroneous.” All but one section of the Indiana Detective Licensing Law were clearly irrelevant to this case. Even the one relevant provision — the good conduct provision — had no relevance after Pinkerton’s stipulated that Hayne was acting within the scope of his employment for all acts committed on the night of the fire. As the majority notes, the good conduct provision simply expands the liability of the detective service employer to cover acts committed by the employee for which the employer could not be held liable under the traditional principles of respondeat superi- or, regardless of whether the employee was negligently hired. See Stewart Warner Corp. v. Burns International Security Services, Inc., 353 F.Supp. 1387 (N.D.Ill.1973). Once Pinkerton’s stipulated that Hayne was acting within the scope of his employment, it was liable for Hayne’s intentional or negligent acts regardless of whether Hayne was negligently hired. Thus, Pinkerton’s stipulation obviated the necessity of instructing the jury on even that small section of the statute. Moreover, as the majority concedes, that statute imposes no duties on the employer with respect to checking a job applicant’s background. Thus the trial judge was not warranted in giving any part of Instruction No. 5. And nothing in the record demonstrates beyond doubt that Pinkerton’s was not prejudiced by this instruction. Under Indiana law, Pinkerton’s is entitled to a new trial.

I agree with Pinkerton’s that state law governs the issue of whether the erroneous jury instruction constitutes reversible er *609 ror. 1 The harmless error rule is substantive in nature. Traynor, The Riddle of Harmless Error at 47-48 (1970). As Professor Ely has observed, a substantive rule is “a right granted for one or more non-procedural reasons, for some purpose or purposes not having to do with the fairness or efficiency of the litigation process.” Ely, The Irrepressible Myth of Erie, 87 Harv.L.Rev. 693, 724 (1974). Here, the Indiana Supreme Court has granted its citizens a substantive right to have their claims properly adjudicated by a jury without fear that a reviewing court will speculate as to the proper outcome in the event of an egregious jury instruction. As such, the Indiana rule is inextricably linked to the issue of burden of proof in diversity actions because the noncomplaining party must demonstrate that the record evidence overwhelmingly establishes that absent the erroneous instruction the result would not have been different. And it is clear that in diversity actions the burden of proof is governed by state law. Product Promotions, Inc. v. Cousteau, 495 F.2d 483, 489 (5th Cir.1974). It is also beyond doubt that the harmless error rule controls the outcome. Hence, under the analysis of Byrd v. Blue Ridge Rural Cooperative, 356 U.S. 525 , 78 S.Ct. 893 , 2 L.Ed.2d 953 (1958), a federal court should apply the state rule to determine if the complaining party is entitled to a new trial. See also Southern v. Plumb Tools, 696 F.2d 1321, 1324 (11th Cir.1983); Semler v. Psychiatric Institute of Washington, D.C., 575 F.2d 922 (D.C.Cir.1978); Conway v. Chemical Tank Lines, Inc., 525 F.2d 927, 930 (5th Cir.1976) (although court determines that federal harmless error rule applies, in determining if harmless error has occurred, court looks to result that would have obtained under state law). But see 11 C. Wright & A. Miller, Federal Practice and Procedure, § 2883 at 279 (1973).

Even if the erroneous jury instruction is subject to analysis under 28 U.S.C. § 2111 , I would find that the instruction affected Pinkerton’s “substantial rights” and that there was a possibility that “the jury’s understanding of the issues was seriously affected to the defendant’s prejudice.”

I am not as confident as is the majority that the irrelevant provisions of Instruction No. 5 — apart from the good conduct section — were so irrelevant that the jury could not have been confused or misled. They specifically refer to detective service agencies, and, in my view, it is possible that the jury could have believed that the provisions applied to Hayne. The jury’s chain of reasoning identified by Pinkerton’s, while tenuous, was not so inherently implausible that it should be dismissed out of hand. Indeed, the majority’s suggestion that the jury could not possibly have been confused is belied by the fact that the majority itself feels the need to define the term “licensee.”

In addition, the majority’s “doubtful assumptions,” see ante at 598, themselves rest on the doubtful assumption that the jury considered Instruction No. 5 in careful detail. At oral argument, this court was informed that the jury did not receive a copy of the instructions; thus, it is unlikely that the jury would have been able to reflect upon the instructions sufficiently to discount them as clearly inapplicable. True, one might argue that the jury would simply ignore instructions it did not understand or have before them. But Instruction No. 5 was not convoluted garble, and, in my view, it can be assumed that the jury would attempt to fulfill its obligations to *610 apply a reasonably coherent law that the judge thought was applicable.

Even if the majority were correct that these provisions did not substantially prejudice Pinkerton’s, the giving of the “good conduct provision” of Instruction No. 5 constituted prejudicial reversible error. As I have already noted, supra at 608, unlike in Stewart Warner Corp., in this case the statutory good conduct instructions should not have been given. Notwithstanding, Simmons argued at trial that Pinkerton’s was liable under the good conduct provision because that law imposed a duty on Pinkerton’s to check into its job applicants’ backgrounds and police records. The district judge understood that this was one of Simmons’ theories of liability and accepted it as a permissible ground for relief. As a result, he permitted Simmons to introduce substantial evidence regarding Pinkerton’s failure to check Hayne’s background. True, in its opening and closing arguments, Simmons did not argue this theory in considerable detail, but it did argue that Pinkerton’s was liable under this theory, and the jury reasonably could have interpreted Pinkerton’s failure to check into Hayne’s background as a violation of that provision and, hence, as negligence per se causing Simmons’ damage.

The error in giving Instruction No. 5 was further compounded by the introduction of highly prejudicial, irrelevant evidence: extensive evidence regarding Pinkerton’s hiring, training, and supervisory practices as well as evidence of industry standards and Hayne’s background. Under Indiana law, see Lange v. B & P Motor Express, Inc., 257 F.Supp. 319 (N.D.Ind.1966); Tindall v. Enderle, 162 Ind.App. 524 , 320 N.E.2d 764 (3d Dist.1974), once Pinkerton’s stipulated that Hayne was acting within the scope of his employment, the statutory and contract theories were no longer viable and could not be used as the foundation for the improper introduction of this evidence, because proximate cause would only have resulted if Hayne failed to act as a reasonable guard would have acted under the circumstances. The majority admits this insofar as the statutory theory of liability is concerned. 2

I am willing to concede, however, that because the district judge instructed the jury that the “reasonable man standard” and not the “reasonable guard standard” governed the case, Simmons was properly allowed to admit evidence that Hayne was not trained how to use the fire hose or fire extinguisher, that Pinkerton’s failed to recommend an additional security guard when the door was broken, and that Hayne’s supervisors allegedly failed to inform him that several of the fire extinguishers were empty. Simmons’ sole argument under the contract theory was that had Hayne been properly trained to use this equipment or had Hayne been informed about the empty extinguishers or had an additional security guard been on duty, Hayne could have extinguished the fire before extensive damage occurred.

However, all of the other information, as the majority concedes, was not relevant to Hayne’s alleged inability to effectively combat the fire. This included information that Pinkerton’s paid low salaries to its guards, but charged customers a much higher price for the guards’ services, that it hired “marginal personnel,” and that it gave its guards little or no training, and little, if any, opportunity for promotion. Simmons’ magnified the egregiousness of Pinkerton’s hiring practices by showing the jury an inane training film that Pinkerton’s showed to its new employees, and by constantly referring to the procedures that Pinkerton’s should have employed according to Pinkerton’s own manual and to Pinkerton’s allegedly inadequate supervision of all of its guards. In addition, there was irrelevant evidence that Pinkerton’s, in con *611 travention of industry and Pinkerton’s standards, failed to investigate Hayne’s background, and that Hayne was a transient who could not hold down a job, who lied extensively in his employment application, who had gone AWOL from the military at least twice, who was convicted for driving while intoxicated and for passing bad checks, and who previously had been employed at a location where a suspicious fire occurred. This evidence undoubtedly reflected poorly on Pinkerton’s and Hayne, and it did not support in the least Simmons’ claim that Pinkerton’s was liable for the damage caused by the fire.

I disagree with the majority that this evidence is not prejudicial. The jury was more likely to find Pinkerton’s liable because it is a miserly employer who overcharged its customers, who employed “marginal personnel,” and who failed to live up to its promises to its guards; or because Hayne was a bad person. This is particularly true because plaintiff continually referred to this evidence throughout the trial and in its opening and closing arguments and because the other evidence presented at trial did not lead ineluctably to the conclusion that Hayne deliberately set the fire or failed to fight it effectively. Thus, in my view, there is a substantial probability that this highly prejudicial irrelevant evidence so impermissibly infected the jury verdict that defendant is entitled to a new trial.

I would reverse the judgment and remand for a new trial.

. The majority simply assumes that federal law applies. It characterizes the error in giving Instruction No. 5 as one of form, not substance, presumably because the verbatim recitation of the Indiana Detective Licensing Law was correct. However, the giving of the instruction was incorrect ás a matter of substance because neither the Indiana Detective Licensing Law nor the concept of negligence per se were applicable to the merits of this case. It was not a correct statement of Indiana law as applied to the facts of this case, particularly in light of Lange v. B & P Motor Express, Inc., 257 F.Supp. 319 (N.D.Ind. 1966), and Tindall v. Enderle, 162 Ind.App. 524 , 320 N.E.2d 764 (3d Dist.1974). Cf. Jones v. Goodlove, 334 F.2d 90, 92-93 (8th Cir.1964). The instruction would have been erroneous as a matter of form if, for example, the trial judge had recited the relevant jury instruction backwards or out of order.

. I do not agree with the majority that the rationale of Lange and Tindall should not apply solely because a contract claim is involved. See ante at note 5. The rationale of both of those cases — that highly prejudicial evidence regarding an employer’s hiring and firing practices should be excluded when it is irrelevant to establishing the employer's liability for an employee's acts — is broad enough to encompass all of the claims in this case.