Opposition Brief — Phenix Federal Savings & Loan Ass'n v. Shearson Lehman Hutton, Inc.
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No. 88-953
In THE
Supreme Court of the United States
OcrTosBer Term, 1988
—~<_>-
PHENIX FEDERAL SAVINGS & LOAN ASSOCIATION, F.A.
Petitioner,
anil acs
SHEARSON LEHMAN HUTTON INC.
Respondent.
ON A PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE EIGHTH CIRCUIT
BRIEF IN OPPOSITION TO A PETITION FOR
A WRIT OF CERTIORARI
STEPHEN GREINER
GERALD KERNER
DesoraH E. COOPER
Attorneys for Respondent
Shearson Lehman Hutton Inc.
One Citicorp Center
153 East 53rd Street
New York, New York 10022
(212) 935-8000
Of Counsel
JEROME BALSAM
WILLKIE Farr & GALLAGHER
One Citicorp Center
153 East 53rd Street
New York, New York 10022
(212) 935-8000
Davis, HOCKENBERG, WINE, BROWN,
KOEHN & SHORS
2300 Financial Center
Des Moines, Iowa 50309
(515) 243-2300
i
QUESTIONS PRESENTED
(1) Should this Court review the Eighth Circuit’s affirm-
ance of the District Court’s denial of a Rule 59 motion to
amend the judgment or, in the alternative, for a new trial, when
(i) the Court of Appeals considered the merits independently
of the jury instructions and ruled on the basis of the applicable
state law; (ii) in any event, Phenix failed to preserve its legal
issues for review and invited the purported error about which it
complains; and (iii) there is no conflict among the circuits with
respect to the circumstances under which a party may raise an
issue by post-trial motion following its failure to object to jury
instructions?
(2) Should this Court review a decision of the Eighth
Circuit that the plain error exception to Federal Rule of Civil
Procedure 51 did not require reversal of the judgment when the
Eighth Circuit applied the exception properly and in the same
manner as all the circuit courts that recognize the exception?
li
TABLE OF CONTENTS
SERINE PIII occas cisscscadersnnicatccstiencmmaaael
A Ge PIII aisvsicssiivisiincectonaiisceccccaeee
A. The Original Loan and Subsequent Advances
B. The MT} Bond Transact on ccncssccscccascssascssaies
GFN FI estvinscansnsstnitcticcinnacabaldeedepedee eee
>. FUel- TVG SOOO oiiiccccnvciodoianeeeae
E. The Appeal to the Eighth Circuit ......000000000000...
REASONS FOR DENYING THE WRIT.............cc0cccceesceeseeeeeeees
I. THis Case Does Not REFLECT A NEED FOR
GUIDANCE FROM THIS COURT ON THE
RELATIONSHIP BETWEEN JURY INSTRUC-
TIONS AND PosT-TRIAL MOTIONSG................-.
Il. THe EiGutTH Circuit APPLIED THE PLAIN
ERROR EXCEPTION TO FEDERAL RULE OF
CiviL PROCEDURE 51 PROPERLY AND IN A
MANNER CONSISTENT WITH THE OTHER
CIRCUITS THAT RECOGNIZE THE EXCEPTION.
COU RII os cis ness ssecs:ba cms dliceucheaa aaa ae
APPENDICES
1. Excerpts from Phenix Federal’s Brief to the
United States Court of Appeals for the
Eighth Circuit ( filed Aug. 29, 1986) .0...00.....
iV
15
19
iil
Excerpts from Shearson’s Brief to the United
States Court of Appeals for the Eighth
Circuit (filed April 15, 1987) ...............e ee
Excerpts from District Court’s Jury Instruc-
PIE fila dciiieh chawniiennanentnansontenenavswubenssbbimnnseanioie
Excerpts from Shearson’s Resistance to
Phenix Federal’s Post-Trial Motion ( filed
BE Be WE Bedivkrenisstcrincieneceiesssaxcnrsssdenstasiocssees
Excerpts from Shearson’s Response to
Phenix’s Post-Trial Motions (filed Dec. 27,
RA-3
RA-23
RA-26
iv
TABLE OF AUTHORITIES
CASES
All American Life & Casualty Co. v. Oceanic Trade
Alliance Council International, Inc., 756 F.2d 474
(6th Cir.), cert. denied, 474 U.S. 819 (1985) ............
Aspen Highland Skiing Corp. v. Aspen Skiing Co., 738
F.2d 1509 (10th Cir. 1984), aff'd, 472 US. 585
A SS RSESRENEELELER ICS Apron DOERR CE SRC To
Beardshall v. Minuteman Press International, Inc., 664
Ta Me SI HTD hecsishin cacipaadnisar chnnndiéabacensasieiaclaasis
Boag v. McDougall, 454 U.S. 364 (1982)... .ccccccceseeseees
Brett v. Hotel, Motel, Restaurant, Construction Camp
Employees & Bartenders Union, 828 F.2d 1409 (9th
Re ee Ps eiscsstecisusssniasnaadgplasbsicaaitetlshiicntileeiiacdbbeibiatadaiaNeain
City of Newport v. Fact Concerts, Inc., 453 U.S. 247
PaO asiseidcinentdalasatebdnsmnedininideatsctbedutcabbbncousbtanadiaiisibsiiiabanssdss
City of St. Louis v. Praprotnik, 108 S. Ct. 915 (1988) .....
Coca Cola Bottling Co. of Black Hills v. Hubbard, 203
Sane I i hbaselccl cio
Computer Systems Engineering, Inc. v. Qantel Corp., 740
gt ee: RRR a
Crockett v. Uniroyal, Inc., 772 F.2d 1524 (11th Cir.
RRR ERS cl Cae OUTROS ca REE
Davis v. United States, 417 U.S. 333 (1974) .cceecececeeee.
Director General of India Supply Mission v. Steamship
Maru, 459 F.2d 1370 (2d Cir. 1972), cert. denied,
Ts SN icici cecierinliy eect naitadnitietninteciinas
Dual Manufacturing & Engineering, Inc. v. Burris In-
dustries, Inc., 619 F.2d 660 (7th Cir.) (en banc),
cert. denied, 449 U.S. 870 (1980) oceeccecccccsecececeeeseees
Dubose v. Kansas City Southern Railway, 729 F.2d 1026
(Sth Cir.), cert. denied, 469 U.S. 854 (1984) oo...
Ebker v. Tan Jay International, Ltd., 739 F.2d 812 (2d
Ia I ea daticedieb aceasta ld ccaetaladdiagioas Mttntaesccnslaccadaate
Elmore v. United States, 843 F.2d 1128 (8th Cir. 1988) .
Elwood v. Pina, 815 F.2d 173 (1st Cir. 1987) 0.0...
Federal Crop Insurance Corp. v. Hester, 765 F.2d 723
SE I I hist ihc niccceg a pertitadectaiteeieeciecencdsars
Page
13-14
10
17
18
15 n.11
11 n.9, 17
11 n.8
9-10, 14
os
13
14
ua
10-11
CASES Page
Firestone Tire & Rubber Co. v. Pearson, 769 F.2d 1471
{ 1G Ry Cit, BSS) aseccccrnecnnessnnsndsnsssesecnscnsennesapscennsscnssbassanes 10-11 n.7
Gander v. Mr. Steak of Sun Ray, Inc., 774 F.2d 920
( Bthr Cir. 1965 ).......ccscrccrceccosscsscssccecsecsarsnrscsenassesssasvosense 16
Getty Petroleum Corp. v. Bartco Petroleum Corp., 858
F.2d 103 (2d Cie. 1968) 202...ccscriccscrscssccessensecsssanssssorcsness 11 n.9, 17
Gilchrist v. Jim Slemons Imports, Inc., 803 F.2d 1488
(Bele Cie, NGG) a nesscsssenssnnsecsssciisaiiasenensinoannnpnanininsnnnteannbante 13
Gundy v. United States, 728 F.2d 484 (10th Cir. 1984)... 14
Herman v. Hess Oil Virgin Islands Corp., 524 F.2d 767
(Bl Gir. UBT SY ssienneiensnrccrinserasimnvnsscnimcsinisiannmnasoiasnisitanannaen 14
House of Koscot Development Corp. v. American Line
Cosmetics, Inc., 468 F.2d 64 (Sth Cir. 1972) .............. 11
Hutches v. Renfroe, 200 F.2d 337 (Sth Cir. 1952)........... 12 n.10
Iervolino v. Delta Air Lines, Inc., 796 F.2d 1408 (11th
Cir. 1986), cert. denied, 479 U.S. 1090 (1987) ............ 17
James v. Beaufort County Board of Education, 465 F.2d
477 (Othe Cie. 1972) .nccccocessccasencsecsresecnoracssensccssesanesasenasees 14
Johnson v. United States, 434 F.2d 340 (8th Cir. 1970).. 10
Kerr v. State Farm Fire & Casualty Co., 731 F.2d 227
(GAB Cae, FI) nccecscnsncnnnscrrsisenccssnsnsssonsnnnnsensonticnnannasancsn 17
McDonald v. Federal Laboratories, Inc., 724 F.2d 243
( Bak Cae. 19GA) an senaccnncnscsrconaccacnsnsoontncescenenscasnasoesssapasoens 14
Mid-America Food Service, Inc. v. ARA Services, Inc.,
STE FB GOi CRG, UST) vsencvienncrrisscesecensccncnonstnsetienes 14
Miller v. Rykoff-Sexton, Inc., 845 F.2d 209 (9th Cir.
ROBY sasiseierieeicinsnencnnsissncrinssninsstinannscdihttiomguaanigsnnndsnncaminiachesiens 15n.11
Mitchell v. Volkswagenwerk, AG, 669 F.2d 1199 (8th
Cae, NID scisincnsercncccnccnnnsvavsinciniciaconnscennasomeninnwosnnendaniiinnten 16
Moore v. Telfon Communications Corp., 589 F.2d 959
( Dil C4. UDTB) nsenctisccncnacnassecnansanssasiocennnecssseraavaspnaisocaesnass 15 n.11
Morris v. Getscher, 708 F.2d 1306 (8th Cir. 1983) .......... 16
Morris v. Travisono, 528 F.2d 856 (Ist Cir. 1976)........... 16
Nimrod v. Sylvester, 369 F.2d 870 (1st Cir. 1966) ........... 16
O’Brien v. Willys Motors, Inc., 385 F.2d 163 (6th Cir.
NOG TD vsciincccrarcincsnsnoneciionscnticcnmmsinsnanenaicanesaanssbiaitmanbronsanaan 17
Patton v. Archer, 590 F.2d 1319 (Sth Cir. 1979) ............. 17
CASES Page
RCA/Ariola International, Inc. v. Thomas & Grayston
Co., 845 F.2d 773 (8th Cir. 1988) ................cccccccssssceees 13
Rakovich v. Wade, 850 F.2d 1180 (7th Cir.) (en banc),
cert. denied, 109 S. Ct. 497 (1988) ..........cccccccceeeseeeeeees 10, 13, 16 & n.12
Ratay v. Lincoln National Life Insurance Co., 37¢ *.2d
209 {3d Cir. ), cert. denied, 389 U.S. 973 (1967). ....... 17
Robert’s Waikiki U-Drive, Inc. v. Budget Rent-A-Car
Systems, 732 F.2d 1403 (9th Cir. 1984) .00.0...... ee. 1S n.11
Rowe International, Inc. v. J-B Enterprises, Inc., 647
ee CI GES TE D vssensessvcsenenstenisemnrnetibieestninte 15-16
Shearson Hayden Stone, Inc. v. Leach, 583 F.2d 367
IN SUPP iiiksiiicheksscaceusccsasolouceanecauntinneaennlanedlaalnabianental 16
Sheppard Federal Credit Union v. Palmer, 408 F.2d
ON als FOIE Piictinisnstissaciancehbenvavgteiiiapadéstdineibianines 17
Smith v. Honeywell, Inc., 735 F.2d 1067 (8th Cir. ), cert.
OE, SEP Us FETT C BOD sicssicescicnetenrsstnsensiovinen 16
Solomon v. United States, 276 F.2d 669 (6th Cir. ), cert.
IGE, SS Ue. Be CTI D ecvnccsnvsnsncnsstcnseninisninnncnsannnss 12 n.10
Swift v. R.H. Macy’s & Co., 780 F.2d 1358 (8th Cir.
IEEE Ik» senieiisnseinhihusccnipesitaaiidilssénnctsasiassebliaebeaaeiaunamaeanmdaantiad 16
Thomas v. Booker, 784 F.2d 299 (8th Cir. ), cert. denied,
ED SEs OLE F © COU P ncccsnsinsstsicnarnsnsiliciegebteaiddaneebenniaaoaiaes 16
United States v. 57.09 Acres of Land, More or Less,
Situate in Skamania County, State of Washington,
FE ee SOR CONE GO. TIO PB isiinsiceischcarissincneteemacions 1S n.11
United States v. Steele, 610 F.2d 504 (8th Cir. 1979) ..... 13
Watt v. Alaska, 451 U.S. 259 (1981) ....ccccccccccceeeseeeeeeees 18
Weinar v. Rollform Inc., 744 F.2d 797 (Fed. Cir. 1984),
cert. denied, 470 U.S. 1084 (1985) ooo... cececceeeeeeeeee 14
Wells Real Estate, Inc. v. Greater Lowell Board of
Realtors, 850 F.2d 803 (Ist Cir.), cert. denied, 109 S.
SE A ID wisinsstiseieietreciecsiiictnsitntsiamiiaihdapiscaaabancaianealbtaiians 16
Williamson v. Handy Button Machine Co., 817 F.2d
I, PH a: WME Dini accrnsncsssecssiinstsiccsntesomanlandacadanaton 13, 16 n.12
Wilson v. Sears, Roebuck & Co., 757 F.2d 948 (8th Cir.
1985), cert. denied, 474 U.S. 1059 (1986) oo... 10
ee
Page
STATUTES
re I I sa cia caineaaeiaieanendiannsnniabl 2
EE ee STS 2
eo iuedsaaninbens 11 n.9
a I I TTT sn cticnsscrennsotentinanpedoaniaennnneaiesinnenbataets 12
Se cs eladnialinmtipneanieiniansdabens 2, 8, 15-18
Soo ssn nueeesebesoniaielebanenanan 2 Dot Ba
BOOKS AND ARTICLES
Estreicher & Sexton, A Managerial Theory of the
Supreme Court’s Responsibilities: An Empirical Study,
Ne SS, | SER ee 18 n.13
Leventhal, A Modest Proposal for a Multi-Circuit Court
of Appeals, 24 Am. U.L. Rev. 881 (1975)...............0... 18 n.13
R. Stern, E. Gressman & S. Shapiro, Supreme Court
IS SINE citicetseibictiiatiannecteneratinesineisinnnniss 14, 17, 18
9C. Wright & A. Miller, Federal Practice and Procedure
Ce iia aaiisdibiiabadicccintndas idadanenibibinibeeiabaeiaiiitiedindirtitaiii 15
ee hp PL a
No. 88-953
IN THE
Supreme Court of the United States
OCTOBER TERM, 1988
te
PHENIX FEDERAL SAVINGS & LOAN ASSOCIATION, F.A.,
Petitioner,
—vV.—
SHEARSON LEHMAN HUTTON INC.
Respondent.
ON A PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE EIGHTH CIRCUIT
BRIEF IN OPPOSITION TO A PETITION FOR
A WRIT OF CERTIORARI
PRELIMINARY STATEMENT
The respondent Shearson Lehman Hutton Inc. (“‘Shear-
son”)! respectfully requests that the Court deny the petition for
a writ of certiorari seeking review of the judgment and opinion
of the United States Court of Appeals for the Eighth Circuit in
this case. As Shearson will demonstrate, there is no good
reason to grant the writ in this case.
OPINIONS BELOW
The opinion of the United States Court of Appeals for the
Eighth Circuit is reported at 856 F.2d 1125 (1988) and has
been reprinted in the appendix to the petition. P.A. 1.2
1 Pursuant to this Court’s Rule 28.1, Shearson’s corporate par-
ents, affiliates, and non-wholly owned subsidiaries were listed in Louis
A. Craco’s letter to the Court dated December 30, 1988.
2 The following abbreviations are used in this brief: P.A. for
Petitioner’s Appendix, Cert. Pet. for Petition for Certiorari, and R.A.
for Respondent’s Appendix.
|
2
JURISDICTION
Petitioner invokes the jurisdiction of this Court under 28
U.S.C. § 1254(1).
STATUTES INVOLVED
At issue on this petition for a writ of certiorari are the
Seventh Amendment to the United States Constitution, U.S.
Const. amend. VII, and Rules 51 and 59 of the Federal Rules of
Civil Procedure, Fed. R. Civ. P. 51 & 59.
STATEMENT OF THE CASE
A. The Original Loan and Subsequent Advances
In March 1981, Phenix Federal Savings & Loan Associ-
ation, the predecessor-in-interest of petitioner Phenix Federal
Savings & Loan Association, F.A. (collectively “Phenix’’), lent
$1.6 million to Van Buren County Alcohol, Inc. (“WBCA”’) as
interim construction financing for an ethanol plant in Iowa.
VBCA executed a demand promissory note and a mortgage on
the plant in favor of Phenix. By late 1981, Phenix learned that
Shearson Loeb Rhoades, Inc., the predecessor-in-interest of
respondent Shearson, had refused to provide permanent financ-
ing to VBCA. In May 1982, Phenix commenced an action
against Shearson in the United States District Court for the
Southern District of Iowa, initially claiming $1.6 million in
compensatory damages.
After learning that Shearson would not provide permanent
financing, Phenix continued to fund the plant’s operations
rather than foreclosing on its first mortgage, notwithstanding
that the plant had a market value at the time of $6.5 million,
substantially more than the indebtedness of $1.6 million. From
early 1982 through late 1984, Phenix provided VBCA with
additional loans of more than $3.7 million.
B. The MTJ Bond Transaction
By late 1984, the principal amount of VBCA’s in-
debtedness to Phenix had risen to $5,347,496. With interest,
3
the total was $7,241,061. At that time, Phenix decided to
participate in a transaction whereby VBCA transferred own-
ership of the ethanol plant to MTJ, Inc. (“MTJ’’), a newly
created corporation, and the city of Bonaparte, Iowa sold
$7.795 million in tax-exempt bonds for the purpose of financing
the plant. Of the bond proceeds, $6.5 million was used to repay
VBCA’s indebtedness to Phenix, while the remainder was used
to improve the plant and to cover the costs of financing. MTJ
was primarily liable to repay the bond interest and in-
debtedness and Phenix guaranteed MTJ’s repayment. The
transaction (the ““MTJ bond transaction”) closed on December
27, 1984. Thus, when trial began in the District Court in
January 1985, Phenix had been repaid the entire principal
amount of its loans to VBCA, but faced contingent liability on
its guarantee of the MTJ bond obligation.
C. The Trial
At trial, the damages sought by Phenix included not only
$1.6 million for the initial loan and more than $5 million for
subsequent loans and interest, but also $7,945,263, representing
the full amount of its guarantee in the MTJ bond transaction,
and a variety of other damages. As the Court of Appeals noted:
**Phenix claimed the risk it faced in this deal as an element of
consequential damages for which Shearson was responsible,
and it asked the jury to determine how much it would likely
lose on the letter of credit and award it that sum. The
[ District] Court accepted this theory... .” P.A. at 8.
Thus, the MTJ bond transaction, and the extent of Phenix’s
contingent liability on its guarantee, were put at issue by Phenix
in an effort to maximize its potential recovery. In implementing
this trial strategy, Phenix was the first party to bring the MTJ
bond transaction to the jury’s attention, in counsel’s opening
statement, R.A. at 6, and later introduced evidence designed to
show that the ethanol plant would not likely be profitable, id. at
19. For its part, Shearson introduced projections prepared by
Phenix’s own accountant that the plant would produce
sufficient revenue to cover principal and interest payments on
the MTJ bonds. I/d. at 18.
4
With Phenix seeking to recover consequential damages as
a result of its contingent liability on the MTJ bonds, the District
Court assigned to Phenix the burden of proving its entitlement
to recover such damages, just as it had assigned to Phenix the
burden of proving its other damages. See R.A. at 24-25. In
addition, the Court determined that because Phenix sought to
recover damages stemming from this contingent liability, the
$6.5 million realized by Phenix in the MTJ transaction must be
subtracted from any damages it might be awarded in order to
prevent duplicative recovery. This approach was embodied in
Instruction No. 41 to the jury, the text df which appears in the
Eighth Circuit’s opinion in this case. P.A. at 8-9.3
Having invited this approach by the way in which it
framed its damage claims, Phenix naturally failed to interpose
any objection to Instruction No. 41. Instead, Phenix repeatedly
expressed its full agreement with the $6.5 million set-off.
Responding to Shearson’s motion for a directed verdict, counsel
for Phenix told the District Court: “[Y]ou’ve already sub-
tracted, which we fully agree with, the six and a half million.”
R.A. at 6 (emphasis added ). Counsel for Phenix reiterated this
point three times during summation. First, he told the jury that
“the damages which we are claiming, totals $20,600,324.57,
and from that figure the Court will instruct you that you’re not
3In substance, the District Court informed the jury that a
damages award could include any payment Phenix established it
would be required to make over the life of the bonds for which it
would not be reimbursed, but that the Court would reduce any award
by the $6.5 million that Phenix had admittedly received in the
transaction. The Court specifically advised the jury that Phenix would
recover nothing if its total damages prior to the offset were less than
$6.5 million.
The Court also submitted to the jury, without objection by
Phenix, Special Interrogatory No. 6, which asked:
Has Phenix Federal established by a preponderance of the
evidence it [sic] claim for CONTINGENT LOSS CONSISTING
OF THE AMOUNT OF PRINCIPAL AND INTEREST ON
THE MTJ BONDS THAT PHENIX FEDERAL WILL PAY
FOR WHICH IT WILL NOT BE REIMBURSED UNDER
THE GUARANTEES OR THE PLANT MORTGAGES, RE-
DUCED TO PRESENT VALUE[?]
5
to consider the fact that he will subtract from this figure, and we
fully agree with this calculation.” Id. (emphasis added). Sec-
ond, he said that “the Court will instruct — which we agree with
this instruction, will subtract $6.5 million from that which
represents the money that we have received in the bond
transaction.” Jd. (emphasis added). Finally, in his rebuttal
summation, counsel for Phenix stated: ““When you look on the
board, those are the figures which reflect our damages as they
are today when you must consider them, and they total the 19
million, as I have stated; and when the Judge subtracts, as he
will instruct you he will do, the 6.5, you will have the figure that
we say we’re damaged today.” Id. (emphasis added ).
The jury awarded Phenix $5,148,554 on theories of negli-
gent misrepresentation and promissory estoppel. The jury also
determined, by answering Special Interrogatory No. 6, see
supra note 3, in the negative, that Phenix had not met its
burden of proving it would be required to expend any funds on
its contingent guarantee in the MTJ bond transaction for which
it would not be reimbursed. The District Court then subtracted
the $6.5 million Phenix received in the MTJ bond transaction,
as Phenix had previously agreed was appropriate.
D. Post-Trial Motions
Once the jury returned a verdict that did not meet Phenix’s
expectations, however, Phenix did an about-face. In its motion
to amend the judgment or for a new trial, pursuant to Federal
Rule of Civil Procedure 59, Phenix argued to the District Court,
inter alia, that the $6.5 million offset was improper. Shearson
responded, among other things, that there had been no error in
the assessment of damages. See R.A. at 26-31. The District
Court denied Phenix’s motion. P.A. at 47.
E. The Appeal to the Eighth Circuit
On appeal to the Eighth Circuit, Phenix argued that the
District Court had erred, under the lowa law of damages, in
admitting evidence of proceeds from the MTJ bond transac-
tion’ and in offsetting those proceeds against the jury’s damage
4The petition for certiorari does not challenge the District
Court’s evidentiary ruling.
6
award. See R.A. at 1. Phenix made a number of arguments on
appeal that it had not made in its Rule 59 motion as to why it
claimed the offset was improper under state law.5
In addition, Phenix introduced an alternative argument it
had not made in its post-trial motion: even if the MTJ bond
transaction was relevant, the District Court had misallocated
the burden of proof under Iowa law when it required Phenix to
prove how much it could be expected to lose on the transaction.
Id. at 2. Phenix conceded that the purported misallocation of
the burden of proof could not be reversed on appeal unless
there had been plain error, since there had been no objection to
the allocation at trial. Jd.
Shearson argued to the Eighth Circuit, among other things,
that the District Court had correctly applied the law of Iowa in
applying the $6.5 million offset and allocating the burden of
proof. Jd. at 10-22. Shearson also argued that Phenix was
precluded from challenging the judgment on the alternative
grounds that the jury instructions including the offset and the
allocation of the burden of proof had been invited by Phenix as
a result of tactical positions it took at trial, its express encour-
agement of and agreement with the instructions, and its failure
to object to the instructions. Jd. at 3-10.
On March 10, 1988, the Eighth Circuit filed an opinion
affirming the judgment of the District Court. Phenix Federal
Savings & Loan Ass’n, F.A. v. Shearson Loeb Rhoades, Inc.,
No. 86-1407 (8th Cir. Mar. 10, 1988). Phenix thereafter filed
a petition for rehearing and suggestion for rehearing en banc.
On May 3, 1988, the Eighth Circuit denied Phenix’s petition for
rehearing en banc. In an order dated September 9, 1988, the
Eighth Circuit also denied Phenix’s petition for rehearing by the
panel but simultaneously issued a slightly revised opinion.
5 For example, in its petition Phenix refers to its argument that
the $6.5 million offset was improper because it “was not reasonably
certain.” Cert. Pet. at 9. This argument was not made in Phenix’s
Rule 59 motion.
7
The September 9 opinion rejected Phenix’s arguments,
stating in part:
[U]nder the applicable law Phenix was entitled to what-
ever it had lost on the loans to Van Buren County Alcohol,
plus what it would lose on the letter of credit in the MTJ
deal, less what it had received from that deal, $6.5 million.
The jury found that Phenix had lost over $5 million on the
loan to Van Buren County Alcohol, but had not proved
that it would lose anything on the letter of credit. There-
fore Phenix got exactly what it was entitled to.
Only if the statement of the applicable law contained
in the jury instruction Phenix now complains of were
egregiously wrong, and that statement produced a result
substantially different from what would have resulted from
a correct instruction, would we find plain error in this civil
case. This did not happen here. The instruction at issue
was, at worst, arguable, and it resulted at least in part from
Phenix’s own tactical position at trial.
P.A. at Il.
REASONS FOR DENYING THE WRIT
Phenix’s petition makes two arguments: first, the Court of
Appeals erred in permitting Instruction No. 41 to bar post-trial
review of the $6.5 million offset; and, second, assigning to
Phenix the burden of proving damages stemming from the MTJ
bond transaction was plain error. As to both issues, Phenix
maintains that there is a split among the circuits requiring
resolution by this Court.
Phenix’s first point rests on the erroneous premise that the
Eighth Circuit treated Instruction No. 41 as the law of the case
for purposes of post-trial motions. In fact, the Court of Appeals
considered and rejected Phenix’s argument that the offset was
improper. Moreover, contrary to Phenix’s suggestion, there is
no confusion or lack of uniformity among the federal courts as
to how the failure to object to jury instructions should affect
post-trial motions. In cases in which a trial court erred in
denying a motion for a directed verdict, failure to object to a
jury charge will not bar post-verdict review. Although the
iii:
8
Court of Appeals did not treat Instruction No. 41 as the law of
the case, neither its prior precedents nor the decisions from
other courts of appeals entitled Phenix to the broad review on
the merits that it received. Unlike cases in which a party moved
for a directed verdict, but failed to object to jury instructions,
Phenix did not preserve an objection to the offset ruling in any
manner. To the contrary, Phenix invited that ruling and then
expressly approved it. Finally, if the Eighth Circuit did depart
from its precedents on the review of post-verdict motions, the
mere intra-circuit conflict does not merit review by this Court.
As to Phenix’s second point, there is similarly no need for
intervention by this Court. First, there is no significant split
among the circuits on this issue. The Eighth Circuit, in this case
and others, is in the mainstream of plain error jurisprudence.
Any disagreement among the circuits is irrelevant to the result
below and insufficiently serious to warrant review by this Court.
Second, contrary to Phenix’s suggestion, the Eighth Circuit did
not abrogate the plain error exception in this case. Instead, it
applied the exception properly under the facts presented here.
Finally, even if the Eighth Circuit erred in its application of the
plain error doctrine, there is no reason to grant the writ, since
this Court is not primarily concerned with the correction of
error.
I.
THIS CASE DOES NOT REFLECT A NEED FOR
GUIDANCE FROM THIS COURT ON THE
RELATIONSHIP BETWEEN JURY INSTRUCTIONS
AND POST-TRIAL MOTIONS.
Phenix contends that “both the district court and the court
of appeals held that by failing to object to [Instruction No. 41],
Fed.R.Civ.P. 51 precluded consideration of the propriety of the
$6.5 million offset — at the appellate level and at the trial level
under Fed.R.Civ.P. 59.” Cert. Pet. at 13. More generally,
Phenix argues that “[t]his case dramatizes a general confusion
in the lower courts on the relationship between jury instructions
and post-verdict motions.” Jd. Phenix is incorrect on both
counts.
9
In the first place, contrary to the essential premise of
Phenix’s petition, the Eighth Circuit never determined that
Instruction No. 41 was the law of the case. Instead, the Court
of Appeals considered and rejected the merits of Phenix’s
argument and in so doing went well beyond what it was
required to do under the circumstances of this case.
Specifically, the Court of Appeals stated: “[ U]nder the
applicable law Phenix was entitled to whatever it had lost on the
loans to Van Buren County Alcohol, plus what it would lose on
the letier of credit in the MTJ deal, less what it had received
from that deal, $6.5 million.” P.A. at 11 (emphasis added ).®
The Court of Appeals thus decided, as Shearson argued, that
the offset was proper under Iowa law and did not confine itself
to Phenix’s failure to object.
Furthermore, contrary to the other basic premise of the
first point of Phenix’s petition, there is no lack of consensus
among the federal courts of appeals “‘as to what role the failure
to object to jury instructions should play in post-verdict mo-
tions,” Cert. Pet. at 16. As the cases cited by Phenix demon-
strate, this issue has most often arisen when a party who has
moved for a directed verdict that has been denied subsequently
fails to object to jury instructions. While Phenix suggests that
the federal courts of appeals have taken three different ap-
proaches on the issue, the cases cited in Phenix’s petition and
many others demonstrate remarkable uniformity among the
circuits. They hold that when determining whether a trial court
erred in denying a motion for a directed verdict, it is the
applicable law — and not what the trial court announces in its
instructions to be the law — that controls.
The Eighth Circuit has been in the vanguard, and remains
in the mainstream, on this issue, going back to Coca Cola
Bottling Co. of Black Hills v. Hubbard, 203 F.2d 859 (8th Cir.
1953). In Coca Cola, the defendant contended that the trial
court erred in denying a motion for directed verdict and
permitting the case to go to the jury. The plaintiff responded
6 Although the Court of Appeals stated that it did “not need to
reach” Phenix’s legal arguments, P.A. at 10, it is clear that the Court
did not rest its decision on the procedural default and in fact did reach
the merits.
10
that the jury instructions, to which there had been no objection,
became the law of the case and foreclosed review of the
sufficiency of the evidence. The court disagreed:
{I]n determining whether a trial court has erred in
denying a motion for a directed verdict made at the close of
the evidence, it is the applicable law which is controlling,
and not what the trial court announces the law to be in his
instructions. This Court must ascertain for itself what the
applicable law is, whether the instructions were excepted to
or not. A proper motion for a directed verdict and its
denial will always preserve for review the question whether
under the law truly applicable to the case there was an
adequate evidentiary basis for the submission of the case ‘to
the jury.
Id. at 862 (emphasis added ); accord Wilson v. Sears, Roebuck
& Co., 757 F.2d 948, 953 (8th Cir. 1985) (district court
appropriately granted defendant’s motion for judgment n.o.v.,
notwithstanding prior inconsistent jury charge), cert. denied,
474 U.S. 1059 (1986); Johnson v. United States, 434 F.2d 340,
342-43 (8th Cir. 1970) (motions for directed verdict and
judgment n.o.v. should have been granted, notwithstanding
government’s failure to object to jury charge).
The Eighth Circuit’s rule in Coca Cola has been quoted
and followed by other circuits to consider the issue. See, e.g.,
Rakovich v. Wade, 850 F.2d 1180, 1203 (7th Cir.) (en banc),
cert. denied, 109 S. Ct. 497 (1988); Ebker v. Tan Jay Inter-
national, Ltd., 739 F.2d 812, 825-26 n.17 (2d Cir. 1984); Aspen
Highland Skiing Corp. v. Aspen Skiing Co., 738 F.2d 1509,
1517-18 (10th Cir. 1984) (defendant’s motions for directed
verdict preserved opportunity to challenge sufficiency of evi-
dence under truly controlling law, notwithstanding failure to
object to jury charge), aff'd, 472 U.S. 585 (1985);? Dual
7 Firestone Tire & Rubber Co. v. Pearson, 769 F.2d 1471 (10th
Cir. 1985), cited by Phenix, Cert. Brief at 16, is not contrary to the
Coca Cola principle, or to the Tenth Circuit decision in Aspen
Highland. In that case, Firestone moved for a directed verdict,
claiming that warehouse agreements containing an integration clause
superseded certain letters on which the counterclaimants relied. The
Court of Appeals determined that the motion for a directed verdict
was properly denied because the issue of whether the letters formed
_—
shanty
11
Manufacturing & Engineering, Inc. v. Burris Industries, Inc.,
619 F.2d 660, 661-63 (7th Cir.) (en banc) (issue of obvious-
ness preserved for appellate review, despite failure to object to
jury charge, because of motion for judgment n.o.v.), cert.
denied, 449 U.S. 870 (1980); House of Koscot Development
Corp. v. American Line Cosmetics, Inc., 468 F.2d 64, 65-66 (Sth
Cir. 1972) (failure to object to jury charge does not become
law of case for purposes of review of denial of motion for
directed verdict). There is simply no conflict among the
circuits. The circuits that have addressed the issue have held
that failure to object to a jury charge does not preclude a grant
of a motion for judgment n.o.v.9
an agreement separate from the warehouse agreements raised a
question of fact for the jury. Notwithstanding the factual question
whether the warehouse agreements precluded reliance on the earlier
letter agreements, Firestone submitted no instructions on the issue.
Instead, Firestone, without objection, permitted the jury to be in-
structed that the existence of the letter agreements was admitted.
Firestone therefore could derive no benefit from the Coca Cola line of
cases, because its motion for a directed verdict was properly denied
and did not preserve the issue it sought to raise on appeal.
8 This Court, too, has endorsed this rule. See City of St. Louis v.
Praprotnik, 108 S. Ct. 915, 922 (1988) (plurality opinion) ( failure to
object to jury instruction does not render instruction “law of the case”
for purposes of appellate review of denial of directed verdict or
judgment n.0o.v. ).
9 Phenix also relies upon twe cases that are very fact-specific and
presented important substantive questions of federal law. These cases
clearly do not support the granting of relief in this case. In City of
Newport v. Fact Concerts, Inc., 453 U.S. 247 (1981), this Court held
that municipalities were immune from punitive damages in actions
brought under 42 U.S.C. § 1983. The Court noted that while
Newport had failed to object to the punitive damages instruction at
trial, the district court had gone beyond the procedural default to
consider the merits when it denied Newport’s motion for a new trial.
453 U.S. at 253-55; see Elwood v. Pina, 815 F.2d 173, 176 (1st Cir.
1987). In light of the district court’s treatment of the merits, this
Court likewise reached the merits of the important federal issue
presented. See 453 U.S. at 256; accord Getty Petroleum Corp. v.
Bartco Petroleum Corp., 858 F.2d 103, 108 (2d Cir. 1988) (reaching
merits of whether punitive damages were available under Lanham
Act because, among other things, district court had reached this
important and novel legal issue ).
12
Although the Court of Appeals reviewed Phenix’s chal-
lenge to the offset, it was not required to do so under its prior
precedents or the law of any circuit. Phenix failed to show any
plausible entitlement to post-trial relief under the circumstances
here, which are fundamentally different from those present in
the Coca Cola line of cases upon which Phenix principally
relies. In those cases, the party who had failed to object to the
instructions had informed the district court of and had pre-
served its position by moving for a directed verdict in the
manner contemplated by the Federal Rules of Civil Procedure.
See Fed. R. Civ. P. 50(b). In the absence of a motion for a
directed verdict, denial of any post-trial relief from the er-
roneous jury instructions would have been mandated.
Under the Coca Cola line of cases, Phenix’s failure to
preserve its legal position in any manner was itself a sufficient
ground for denial of post-trial relief. Here, however, there was
a further basis for denial of the Rule 59 motion, since Phenix
affirmatively invited the purported error about which it now
complains. As found by the Court of Appeals, the alleged error
“resulted at least in part from Phenix’s own tactical position at
trial.” P.A. at 11. In an effort to increase its potential recovery,
Phenix made the tactical decision to claim “the risk it faced in
this deal as an element of consequential damages for which
Shearson was responsible, and it asked the jury to determine
how much it would likely lose on the letter of credit and award
it that sum.” Jd. at 8. Having taken this position, Phenix
necessarily accepted the offset — a concept that it expressly
approved on four occasions during the trial. Phenix has cited
no authority that would support the granting of Rule 59 relief
under these circumstances, much less conflicting authority
among the circuits on the question. 1°
10 Phenix relies upon Hutches v. Renfroe, 200 F.2d 337 (Sth Cir.
1952). Cert. Brief at 22. Hutches, however, does not implicate Rule
51 or the jury function in any way, since it was tried without a jury.
200 F.2d at 338.
Similarly, Solomon v. United States, 276 F.2d 669 (6th Cir.),
cert. denied, 364 U.S. 890 (1960), cited by Phenix, Cert. Brief at 19-
20, is distinguishable. Although the Sixth Circuit permitted the
defendants to raise a legal issue on a motion for a new trial where an
instruction based upon the wrong statute had been given inadvert-
ently, it held that the district court had properly denied the motion.
276 F.2d at 674.
a
13
Where, as here, a party, through its tactical positions or
other conduct, has invited or induced the purported error about
which it complains, the courts of appeals have held that the
error may not be raised on appeal. For example, in Federal
Crop Insurance Corp. v. Hester, 765 F.2d 723 (8th Cir. 1985),
both parties requested a jury instruction that the plaintiff need
prove its case by a preponderance of the evidence. On appeal,
the defendant urged reversal on the ground that the correct
burden of proof was “clear, unequivocal, and convincing
evidence.” He argued that his failure to object to the charge
should be excused under the plain error exception. Jd. at 727.
The court rejected this contention:
ee ei Lee i a
We are reluctant to review this issue even on plain
error grounds. Hester not only failed to object to the
court’s burden of proof instruction, see Fed.R.Civ.P. 51,
but submitted the preponderance of the evidence standard
in three of his requested instructions. Thus, we need not
search for plain error, for it is “fundamental that where the
defendant ‘opened the door’ and ‘invited error’ there can
be no reversible error.”
CE TUG Ses on andes
Id. (quoting United States v. Steele, 610 F.2d 504, 505 ( 8th Cir.
1979) ); accord, e.g., Rakovich v. Wade, 850 F.2d 1180, 1203
(7th Cir.) (en banc) (where party proposes jury instruction, he
cannot complain of error), cert. denied, 109 S. Ct. 497 (1988);
RCA/Ariola International, Inc. v. Thomas & Grayston Co., 845
F.2d 773, 778-79 (8th Cir. 1988) (plaintiff barred by invited
error doctrine from challenging finding of joint and several
liability since plaintiff contended that defendants jointly and
severally infringed copyright); Williamson v. Handy Button
) Machine Co., 817 F.2d 1290, 1295-96 (7th Cir. 1987) (failure
| to object to instruction as part of “trial strategy” not excused by
plain error doctrine ); Gilchrist v. Jim Slemons Imports, Inc., 803
F.2d 1488, 1493 (9th Cir. 1986) (party who requests instruc-
tion invites any error contained therein and, absent objection
before submission to jury, waives appellate review of its
correctness ); Crockett v. Uniroyal, Inc., 772 F.2d 1524, 1530 n.4
(llth Cir. 1985) (cardinal rule of appellate review that party
may not challenge ruling or other trial proceeding he invited );
All American Life & Casualty Co. v. Oceanic Trade Alliance
a rl
14
Council International, Inc., 756 F.2d 474, 479-80 (6th Cir.)
(where injection of evidence is attributable to action of party
seeking to exclude evidence, invited error doctrine applies),
cert. denied, 474 U.S. 819 (1985); Weinar v. Rollform Inc., 744
F.2d 797, 805 (Fed. Cir. 1984) (invited error doctrine bars
challenge to admissibility of testimony elicited by party’s cross
examination in absence of motion to strike), cert. denied, 470
U.S. 1084 (1985); Computer Systems Engineering, Inc. v.
Qantel Corp., 740 F.2d 59, 64 (Ist Cir. 1984) (defendant could
not invite error by requesting jury instructions based on state-
ment of law it would later challenge on appeal); Dubose v.
Kansas City Southern Railway, 729 F.2d 1026, 1033 & n.4 (Sth
Cir. 1984) cert. denied, 469 U.S. 854 (1984): Gundy v. United
States, 728 F.2d 484, 488 (10th Cir. 1984) (per curiam);
McDonald v. Federal Laboratories, Inc., 724 F.2d 243, 248 (lst
Cir. 1984) (“the ‘plain error’ doctrine has no application where
the party claiming error invited or elicited the alleged error’’);
Mid-America Food Service, Inc. v. ARA Services, Inc., 578 F.2d
691, 696 (8th Cir. 1978) (defendant invited error by telling
trial court that jury could find punitive damages without
awarding actual damages); Herman v. Hess Oil Virgin Islands
Corp., 524 F.2d 767, 772 (3d Cir. 1975) (counsel having
proposed that evidence be developed in summation rather than
in jury charge, invited error doctrine bars challenge to trial
court’s failure in jury instructions to relate relevant law to
disputed facts); James v. Beaufort County Board of Education,
465 F.2d 477, 479 (4th Cir. 1972); Director General of India
Supply Mission v. Steamship Maru, 459 F.2d 1370, 1377 (2d
Cir. 1972), cert. denied, 409 U.S. 1115 (1973).
Finally, even if the decision of the Court of Appeals
represents a departure from the rationale of Coca Cola, as
Phenix argued to the Eighth Circuit in its petition for rehearing
and suggestion for rehearing en banc, the decision below would
represent no more than an intra-circuit conflict, which should
be resolved by the Eighth Circuit rather than by this Court. See
R. Stern, E. Gressman & S. Shapiro, Supreme Court Practice
§ 4.6, at 204-05 (6th ed. 1986); see generally Davis v. United
States, 417 U.S. 333, 340 (1974) (Solicitor General opposed
certiorari petition on ground that intra-circuit conflict should be
resolved by circuit; petition was denied ).
peer
15
Il.
THE EIGHTH CIRCUIT APPLIED THE PLAIN ER-
ROR EXCEPTION TO FEDERAL RULE OF CIVIL
PROCEDURE 51 PROPERLY AND IN A MANNER
CONSISTENT WITH THE OTHER CIRCUITS THAT
RECOGNIZE THE EXCEPTION.
Taken literally, Rule 51 bars a party from assigning a jury
instruction as error unless objection to that instruction was
lodged before the jury retired to deliberate. Over the years,
however, courts have recognized a “plain error” exception to
that blanket rule in cases where literal application of Rule 51
would result in a miscarriage of justice. See 9 C. Wright & A.
Miller, Federal Practice and Procedure § 2558, at 672 (1971).
Phenix maintains that the Eighth Circuit has effectively
“abrogat[ed]” the plain error exception, thereby aligning itself
with the First, Seventh, and Ninth Circuits in opposition to the
other circuits. Cert. Pet. at 24. This argument rests on a
misunderstanding of the law and a misreading of what took
place below.
Contrary to Phenix’s suggestion, the Eighth Circuit is in the
mainstream of Rule 51 jurisprudence. It follows the same
approach as all other circuits that have considered adoption of
the plain error exception, except for the Ninth Circuit, the only
court of appeals to reject the exception.'! In this case, the
Eighth Circuit stated that the exception applies
where the alleged error “is plain error in the sense that a
miscarriage of justice would otherwise result.” Rowe
International, Inc. v. J-B Enterprises, Inc., 647 F.2d 830,
11 See, e.g., Brett v. Hotel, Motel, Restaurant, Construction Camp
Employees & Bartenders Union, 828 F.2d 1409, 1414 n.7 (9th Cir.
1987); Moore v. Telfon Communications Corp., 589 F.2d 959, 966
(9th Cir. 1978). Even the Ninth Circuit has recognized an exception
to Rule 51 when the district court is aware of a party’s position and
further objection would be futile. See, e.g., Miller v. Rykoff-Sexton,
Inc., 845 F.2d 209, 214 (9th Cir. 1988); United States v. 57.09 Acres
of Land, More or Less, Situate in Skamania County, State of
Washington, 757 F.2d 1025, 1027 (9th Cir. 1985); Robert’s Waikiki
U-Drive, Inc. v. Budget Rent-A-Car Systems, 732 F.2d 1403, 1410
(9th Cir. 1984).
16
835 (8th Cir. 1981). But we emphasize the extremely
narrow scope of this rule in civil cases; it lies “‘in only those
exceptional cases where the error has ‘seriously affected the
fairness, integrity or public reputation of judicial proceed-
ings.” Morris v. Getscher, 708 F.2d 1306, 1309 (8th Cir.
1983), quoting Rowe International, supra, at 835.
P.A. at il; see also Elmore v. United States, 843 F.2d 1128,
1132 (8th Cir. 1988); Thomas v. Booker, 784 F.2d 299, 307
(8th Cir.), cert. denied, 476 U.S. 1117 (1986); Swift v. R.H.
Macy’s & Co., 780 F.2d 1358, 1360-61 (8th Cir. 1985); Gander
v. Mr. Steak of Sun Ray, Inc., 774 F.2d 920, 923 (8th Cir.
1985); Smith v. Honeywell, Inc., 735 F.2d 1067, 1069 (8th
Cir.), cert. denied, 469 U.S. 1077 (1984); Mitchell v. Volks-
wagenwerk, AG, 669 F.2d 1199, 1209-10 (8th Cir. 1982).
Phenix is also incorrect in its assertion that the First and
Seventh Circuits reject the plain error exception. The First
Circuit accepts the doctrine in exceptional cases where neces-
sary to prevent a clear miscarriage of justice. See, e.g., Wells
Real Estate, Inc. v. Greater Lowell Board of Realtors, 850 F.2d
803, 809 (Ist Cir.), cert. denied, 109 S. Ct. 392 (1988); Elwood
v. Pina, 815 F.2d 173, 175-76 (list Cir. 1987); Morris v.
Travisono, 528 F.2d 856, 859 (Ist Cir. 1976); Nimrod vy.
Sylvester, 369 F.2d 870, 873 (Ist Cir. 1966). The Seventh
Circuit also recognizes an exception to the objection require-
ments of Rule 51 “in ‘very rare circumstances where necessary
tc prevent a miscarriage of justice.”” Rakovich v. Wade, 850
F.2d 1180, 1203 (7th Cir.) (en banc) (quoting Shearson
Hayden Stone, Inc. v. Leach, 583 F.2d 367, 370 (7th Cir.
1978) ), cert. denied, 109 S. Ct. 497 (1988). 12
Moreover, the approach taken in the First, Seventh, and
Eighth Circuits does not differ in any significant way from that
followed in the circuits that Phenix views as more lenient. See,
12 The Seventh Circuit has held, however, that the plain error
doctrine will not protect parties from the consequences of their
decisions where. as here, the failure to object may be part of their trial
strategy. See Williamson v. Handy Button Machine Co., 817 F.2d
1290, 1295-96 (7th Cir. 1987); see also Rakovich, supra, 850 F.2d at
1202-03 (refusing to apply plain error exception where party pro-
posed jury instruction it cited on appeal as error).
ieee
Pee See ee aes
17
e.g., Getty Petroleum Corp. v. Bartco Petroleum Corp., 858 F.2d
103, 107-08 (2d Cir. 1988) (plain error doctrine appropriate to
correct “obvious instances of injustice or misapplied law’’)
(quoting City of Newport v. Fact Concerts, Inc., 453 U.S. 247,
256 (1981) ); Zervolino v. Delta Air Lines, Inc., 796 F.2d 1408,
1414 (llth Cir. 1986) (doctrine applies “only in exceptional
cases where the error is “‘so fundamental as to result in a
miscarriage of justice””’”’) (quoting Patton v. Archer, 590 F.2d
1319, 1322 (Sth Cir. 1979)), cert. denied, 479 U.S. 1090
(1987); Kerr v. State Farm Fire & Casualty Co., 731 F.2d 227,
229 (4th Cir. 1984) (exception applies where error was
fundamental and highly prejudicial) (citing Ratay v. Lincoln
National Life Insurance Co., 378 F.2d 209, 212 (3d Cir. ), cert.
denied, 389 U.S. 973 (1967)); Beardshall v. Minuteman Press
International, Inc., 664 F.2d 23, 27 (3d Cir. 1981) (exception
applies when error is fundamental and highly prejudicial or
when instructions leave jury without adequate guidance and
failure to consider error would result in miscarriage of justice );
Sheppard Federal Credit Union v. Palmer, 408 F.2d 1369, 1371
(Sth Cir. 1969) (exception applies when “error has been
committed which results in a miscarriage of justice”); O’Brien v.
Willys Motors, Inc., 385 F.2d 163, 166 (6th Cir. 1967) (ex-
ception applies where error is obvious and prejudicial ).
In short, the Eighth Circuit applied in this case essentially
the same standard that prevails in all circuits but the Ninth. A
deviation from the prevailing rule by a single circuit does not
create a sufficiently serious conflict to justify certiorari, particu-
larly in a case where the petitioner received the benefit of the
standard favorable to its position and still lost. See generally R.
Stern, E. Gressman & S. Shapiro, Supreme Court Practice § 4.4,
at 201-02 (6th ed. 1986) (certiorari may be denied where
resolution of conflict is irrelevant to ultimate outcome of
case ).13
13 Even if there were a serious conflict among the courts con-
cerning the proper interpretation of Rule 51, such a disagreement
would not provide a strong basis for a grant of certiorari. Impor-
tantly, conflicting interpretations of Rule 51 will not lead to forum-
shopping, since no one will choose where to sue based on the
likelihood that an appeals court will reconsider a jury charge to which
no objection has been stated. Nor will a conflict on this issue pose
difficulties for individuals or corporations who conduct their activities
i8
There is also no substance to Phenix’s suggestion that the
Eighth Circuit, while paying lip service to the plain error
exception, effectively ignored it in this case. Cert. Pet. at 24.
The Court of Appeals correctly found that the instruction of
which Phenix complains did not fall within the plain error
exception because it was “at worst, arguable” and “resulted at
least in part from Phenix’s own tactical position at trial.” P.A.
at 11. As Shearson argued to the Eighth Circuit, the burden of
proof was properly assigned to Phenix because it affirmatively
sought more than $7.9 million in damages on the basis of its
guarantees in the MTJ bond transaction. Having made that
affirmative claim, Phenix assumed the burden of proving its
damages, i.e., that it would suffer a loss as a result of its
guarantee.
Finally, even assuming that the Eighth Circuit erred in its
application of the plain error doctrine, this would not be an
appropriate case for a grant of certiorari. “It has been
reiterated many times that the Supreme Court is not primarily
concerned with the correction of errors in lower court deci-
sions.” R. Stern, E. Gressman & S. Shapiro, Supreme Court
Practice § 4.17, at 221 (6th ed. 1986); see Boag v. McDougall,
454 US. 364, 368 (1982) (Rehnquist, J., dissenting) ( quoting
Address of Chief Justice Vinson before the American Bar
Association (Sept. 7, 1949)); Watt v. Alaska, 451 U.S. 259,
275-76 & n.5 (1981) (Stevens, J., concurring). If this Court
were to review application by the courts of appeals of the plain
error doctrine to the facts of particular cases as Phenix requests
here, it would deviate from its appropriate role.
in several states, because Rule 51 does not state a substantive
obligation with which they must comply. See generally Estreicher &
Sexton, A Managerial Theory of the Supreme Court’s Responsibilities:
An Empirical Study, 59 N.Y.U. L. Rev. 681, 725 (1984).
Indeed, there is some benefit to be derived from circuit-by-circuit
experimentation in procedural rules. See Leventhal, A Modest
Proposal for a Multi-Circuit Court of Appeals, 24 Am. U.L. Rev. 881,
898-99 & n.61 (1975).
19
CONCLUSION
For the reasons set forth above, respondent Shearson
Lehman Hutton Inc. respectfully requests that this Court deny
the instant petition for a writ of certiorari to the United States
Court of Appeals for the Eighth Circuit.
Dated: February 10, 1989
New York, New York
Respectfully submitted,
STEPHEN GREINER
GERALD KERNER
DEBORAH E. COOPER
Attorneys for Respondent
SHEARSON LEHMAN HUTTON INC.
One Citicorp Center
153 East 53rd Street
New York, New York 10022
(212) 935-8000
Of Counsel
JEROME BALSAM
WILLKIE Farr & GALLAGHER
One Citicorp Center
153 East 53rd Street
New York, New York 10022
(212) 935-8000
Davis, HOCKENBERG, WINE, BROWN,
KOEHN & SHORS
2300 Financial Center
Des Moines, Iowa 50309
(515) 243-2300
RESPONDENT'S APPENDIX 1
a Pe
En eee ee oe ee ee
RA-1
Excerpts From PHENIX FEDERAL’S BriEF To THE
UNITED StraTes Court OF APPEALS
For THE E1cutTuH Circuit
Filed August 29, 1986
[Caption and Material Omitted ]
[p. 25]
ARGUMENT
I. THE TRIAL COURT ERRED IN ADMITTING
EVIDENCE OF PROCEEDS FROM THE MTJ
BOND TRANSACTION AND OFFSETTING
THOSE PROCEEDS AGAINST THE JURY’S
DAMAGE AWARD.
[ Material Omitted ]
[p. 33]
Analysis of cases applying these principles in Iowa and
elsewhere demonstrate three distinct, yet interrelated reasons
the MTJ bond transaction was irrelevant in this case, each
legally sufficient in and of itself to bar admission: (1) the bond
transaction did not confer a “benefit” on Phenix Federal; (2)
the prospects of the bond issue were at best too speculative to
submit to the jury — a conclusion actually reached by the
District Court on a related issue — and (3) any benefit that
might have accrued to Phenix Federal had the plant been
successful over the next twenty years would clearly have
derived from a collateral source — an independent contract
entered into by Phenix Federal for substantial consideration
and at substantial risk.
RA-2
[ Material Omitted ]
[ p.43 ]
Finally, the $6.5 million would not have been a proper
offset even if the prospects of the plant had been amenable to
proof, the burden on that issue properly allocated (see Part II
infra), and sufficient evidence presented to prove the plant
would be successful.
{ Material Omitted ]
[p. 46]
Il. ASSUMING ARGUENDO THE MTJ BOND PRO-
CEEDS WERE ADMISSIBLE, THE TRIAL
COURT IMPROPERLY PLACED ON PHENIX
FEDERAL THE BURDEN OF PROVING HOW
MUCH IT WOULD LOSE ON THE LETTER OF
CREDIT
Even if the $6.5 million in proceeds and the prospects of
the ethanol plant through 2004 had been admissible as both
relevant and amenable to proof to a reasonable certainty, how
much Phenix Federal was likely to retain would necessarily be a
matter of mitigation, with the burden of proof on defendant
Shearson. Instead, the burden was placed on Phenix Federal in
the form of special interrogatory No. 6.
{ Material Omitted |
[p. 55]
If this court concludes the MTJ proceeds were admissible
as an Offset, analysis must then focus on allocation of the
burden of proof on the prospects of the bond issue. On that
issue there was admittedly no trial objection. It is therefore not
reviewable here unless misallocation of that burden constitutes
“plain error.”
{ Material Omitted |
RESPONDENT'S APPENDIX 2
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Excerpts From SHEARSON’S BRIEF
To Tue UNrrep States Court
Or APPEALS For THE EIGHTH CIRCUIT
Filed April 15, 1987
[Caption and Material Omitted ]
[pp. 7-11]
ARGUMENT
POINT I
PHENIX’S APPEAL MUST BE DENIED
A. Phenix Waived Its Right To Appeal The Offset, The
Introduction Of Evidence And The Allocation Of The
Burden Of Proof Relating To The MTJ Transaction, And
Thus Its Damage Judgment Is Not Reviewable By This
Court.
Phenix failed to preserve as issues for appeal any objec-
tions to the offset, burden of proof and evidentiary rulings
which it now claims constitute reversible error. As shown
below, Phenix’s waiver with respect to these issues could not be
more compelling.
1. Phenix’s failure to object at trial bars its present
appeal.
A party’s failure to object or otherwise inform the court of
its disagreement with the court’s action waives the objection
and precludes later appeal. See, e.g., Dehues v. Western
Electric Co., 710 F.2d 1344 (8th Cir. 1983); United States ex
rel. Planet Corp. v. McDonald Construction Co., 417 F.2d 687
(8th Cir. 1969). This waiver applies to all court actions,
whether rulings on questions of law, jury instructions or admis-
sion of evidence. See Fed. R. Civ. P. 51 (party must object to
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jury instruction before jury is charged in order to preserve
appeal); Fed. R. Civ. P. 46 (failure to make known to court
objection to ruling or grounds therefor or to inform court of
desired contrary ruling waives later appeal); Fed. R. Evid.
103(a)(1) (appeal on basis of erroneous decision concerning
admission or exclusion of evidence is barred by failure to object
at time of ruling).
To preserve an issue for appeal, a party must raise the issue
in the trial court before or at the time of the court’s decision.
Mid-America Food Service, Inc. v. ARA Services, Inc., 578 F.2d
691 (8th Cir. 1978); Morrow v. Greyhound Lines, Inc., 541 F.2d
7:3 (8th Cir. 1976). Issues which were “not raised in the trial
court cannot be considered by [an appellate court] as a basis
for reversal.” Edwards v. Hurtel, 724 F.2d 689, 690 (8th Cir.
1984); Kelley v. Crunk, 713 F.2d 426, 427 (8th Cir. 1983);
Rowe International, Inc. v. J-B Enterprises, Inc., 647 F.2d 830,
835 (8th Cir. 1981). See also Shepard v. General Motors Corp.,
423 F.2d 406 (1st Cir. 1970) (appellants cannot appeal from
trial court’s ruling that damages would be offset where they did
not contest or object to the ruling during trial).
The reasons for requiring a party to object to, or make
known its disagreement with, a court’s action at the time of that
action are twofold. First, it enables the court to “reconsider the
ruling and make desired changes”. Edwards v. Hurtel, 724 F.2d
689, 690 (8th Cir. 1984); Morrow v. Greyhound Lines, Inc., 541
F.2d 713, 724 (8th Cir. 1976). Second, it prevents a losing
party from unfairly obtaining a new trial or other relief by
relying on a possible error at trial which it should have sought
to correct. Johnson v. Houser, 704 F.2d 1049 (8th Cir. 1983);
Lange v. Schultz, 627 F.2d 122 (8th Cir. 1980). Otherwise a
party could secure a second opportunity to try its case if it
decided that it were dissatisfied with the first result.
Phenix offers no excuse for its failure to object below.
Phenix was given ample notice by Shearson of its position and
arena tha ibaciat Biel remind he
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by the District Court of its rulings and instructions. Shearson
made known its position concerning the effect of the MTJ bond
proceeds throughout the trial proceedings.? Similarly, Phenix
was given more than ample time to consider and object to the
jury instructions including the offset to be applied and the
allocation of the burden of proof. Early in the damages trial
the Court solicited proposed instructions from and thereafter
distributed its own draft instructions to all parties. [See Tr.
4277, 5460-61, 5740-41, J.A. 1412, 1651-52, 1682-83.] This
was followed by two conferences on June 7 and June 10 among
the Court and counsel to discuss the instructions, including the
offset and burden of proof instructions, and to afford the parties
opportunities to suggest changes and lodge objections. [Tr.
5824-25, 5890-959, J.A. 1695-96.] On June 12, 1985, the Court
read its instructions to the jury. At no point during this process
did Phenix make known any concern about, much less objec-
tion to, the District Court’s rulings or instructions.
2. Phenix’s agreement with the District Court’s actions
bars its present appeal.
Preclusion of appellate review is particularly apt when a
party not only failed to object by silence, but also encouraged
and agreed with the trial court’s action. See Mid-America Food
Service, Inc. v. ARA Services, Inc., 578 F.2d 691 (8th Cir.
1978); Cone v. Beneficial Standard Life Insurance Co., 388
F.2d 456, 459-60 (8th Cir. 1968). “[A] party cannot success-
fully complain of error for which he himself is responsible or of
rulings which he has invited the trial court to make.” Mach v.
Abbott Co., 136 F.2d 7, 10 (8th Cir. ), cert. denied, 320 U.S. 773
(1943). See also Federal Crop Insurance Corp. v. Hester, 765
F.2d 723, 727 (8th Cir. 1985) (“‘it is ‘fundamental that where
the defendant “opened the door” and “invited error” there can
3 It did so in its pretrial brief on damages [Shearson’s Brief on Damage
Issues at 37-41, J.A. 89-92]; at the outset of the damages trial in its opening
statement [ Tr. 4223, J.A. 1403]; again during the trial, in a memorandum of
law [Docket Number 658], and by its questioning of witnesses, without
objection, to demonstrate that Phenix had been repaid $6.5 million [ See Tr.
4341-44, 4969-70, J.A. 1440-43, 1539-40]; in its motion for a directed verdict
[ Tr. 5828-29, J.A. 1697-98]; and finally during summation. [Tr. 6112, 6114,
J.A. 1750, 1752.]
cae
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be no reversible error.’”) (quoting United States v. Steele, 610
F.2d 504, 505 (8th Cir. 1979)). Phenix’s conduct fits squarely
within this rule.
In his response to Shearson’s motion for a directed verdict,
Phenix’s counsel told the Court “you’ve already subtracted,
which we fully agree with, the six and a half million.” [Tr.
5843, J.A. 1708.] During summation, counsel for Phenix twice
told the jury that Phenix agreed with the $6.5 million offset. He
told the jury “the damages which we are claiming, totals
$20,600,324.57, and from that figure the Court will instruct you
that you’re not to consider the fact that he will subtract from
this figure, and we fully agree with this calculation” [Tr. 6041,
J.A. 1737] and later repeated that “the Court will instruct
— which we agree with this instruction, will subtract $6.5
million from that which represents the money that we have
received in the bond transaction.” [Tr. 6042, J.A. 1738.] And
during his rebuttal to Shearson’s summation, Phenix’s counsel
summarized both his client’s damages and, without dis-
agreement, the manner in which the offset would be applied:
When you look on the board, those are the figures
which reflect our damages as they are today when you
must consider them, and they total the 19 million, as I
have stated; and when the Judge subtracts, as he will
instruct you he will do, the 6.5, you will have the
figure that we say we’re damaged today.
[Tr. 6132, J.A. 1757. ]
Moreover, as explained more fully below, during the
damage trial Phenix did not claim the MTJ transaction was
irrelevent. Phenix used the MTJ guarantee offensively as a
basis to claim in excess of $7.9 million in damages. In that
connection, Phenix was the first party to bring the matter to the
jury’s attention in the opening statement of its counsel and
Phenix also introduced evidence concerning the transaction.
[Tr. 4216, 4923-28, J.A. 1402, 1522-27.] Finally, Phenix
affirmatively advised the Court that it had no objection to the
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jury instructions allocating the burden of proof. {Tr. 5934,
5946, J.A. 1714, 1718; see also Tr. 5950, J.A. 1719. j
[ Material Omitted ]
[pp. 14-28]
4. The plain error rule is inapplicable.
Secondly, Phenix argues that the plain error rule is appli-
cable. [Phenix Brief at 55-57.] As explained below, Shearson
strenuously urges that no error was committed. But. even if it
were, the plain error rule is not available to Phenix. The rule is
sparingly applied only “to the exceptional case in which error
has affected seriously the fairness, integrity or public reputation
of judicial proceedings.” Johnson v. Houser, 704 F.2d 1049,
1052 (8th Cir. 1983); Lange v. Schultz, 627 F.2d 122, 128 (8th
Cir. 1980); Figge Auto Co. v. Taylor, 325 F.2d 899, 907 (8th
Cir. 1964). This is not such a case.
In cases where, as here, the appellant did not merely
remain silent, but expressly told the court that it agreed with the
challenged ruling or affirmatively stated that it had no objec-
tion, considerations of fairness and finality overwhelmingly
demand that error should not give rise to appellate rights. See
Federal Crop Insurance Corp. v. Hester, 765 F.2d 723 (8th Cir.
1985); Cone v. Beneficial Standard Life Insurance Co., 388
F.2d 456 (8th Cir. 1968).9 As explained more fully below,
moreover, Phenix sought damages as a result of the MTJ
transaction. Having lost on that claim, Phenix should not be
permitted under the guise of the plain error rule now to reverse
its strategy and claim error because it is dissatisfied with the
result.
Insofar as Phenix contends that the burden of proof was
misallocated, Eight Circuit cases demonstrate that the plain
In Beardshall v. Minuteman Press International, Inc., 664 F.2d 23 (3d
Cir. 1981), a case cited by Phenix, the court found plain error in jury
instructions even though the appellant’s counsel had said that he had no
objections to the instructions. Phenix, however, did far more than simply
state its lack of objection to the District Court’s rulings. Moreover, the Eighth
Circuit, unlike the Third Circuit, refuses to find plain error under such
circumstances. See Cone v. Beneficial Standard Life Insurance Co., 388 F.2d
456 (8th Cir. 1968).
RA-8
error rule is not available here. In Fulton v. Chicago, Rock
Island & Pacific Railroad, 481 F.2d 326 (8th Cir.), cert. denied,
414 U.S. 1040 (1973), for example, a railroad counterclaimed
against a shipper for the collapse of the railroad’s bridge caused
when machinery loaded by the shipper struck the bridge during
transport. After judgment was entered for the shipper, the
railroad appealed on the ground that the trial court erred in
instructing the jury that the railroad bore the burden of proving
its freedom from contributory negligence. The Eighth Circuit
refused to determine the merits of the railroad’s appeal and
held that the railroad had waived the burden of proof issue
even though it had requested a specific instruction allocating the
burden of proof to the shipper: “regardless of the substantive
merits of this contention, [the railroad] failed to object after
the charge was delivered to this particular instruction and it is
therefore precluded from raising this issue on appeal.” Jd. at
338. Even the railroad’s requested instruction did not “obviate
the need for a specific statement of the alleged error.” Jd. See
also Farrar v. Cain, 756 F.2d 1148, 1150 (Sth Cir. 1985) (claim
of alleged error in burden of proof instruction summarily
rejected because no objection at trial).
In Federal Crop Insurance Corp. v. Hester, 765 F.2d 723
(8th Cir. 1985), the appellant contended that the trial court
erred in instructing the jury that the plaintiff needed to prove its
case only by a preponderance of the evidence rather than by
clear and convincing evidence. The Eighth Circuit, noting that
the appellant not only had not objected to but also had
included the preponderance standard in his requested instruc-
tions, held that the court “need not search for plain error, for it
is ‘fundamental that where the defendant “opened the door”
and “invited error” there can be no reversible error.’”’ Id. at
727 (quoting United States v. Steele, 610 F.2d 504, 505 (8th
Cir. 1979)). See also Goldsmith v. Diamond Shamrock Corp.,
767 F.2d 411, 415-16 (8th Cir. 1985); Cone v. Beneficial
Standard Life Insurance Co., 388 F.2d 456, 459-60 (8th Cir.
1968) (Rule 51 “cannot be circumvented under the guise of
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‘plain error’” where appellant specifically told court that he
had no objection to instructions ).1°
Finally, the plain error exception is not applicable unless
the Court is convinced that the result would have been different
if the burden of proof had been allocated differently. See
Castillo v. Givens, 704 F.2d 181, 195 (Sth Cir.), cert. denied,
464 U.S. 850 (1983); Sheppard Federal Credit Union v. Palmer,
408 F.2d 1369 (Sth Cir. 1969). See also Johnson v. Houser, 704
F.2d 1049 (8th Cir. 1983). Phenix has not demonstrated, as it
must, that if the burden had been allocated to Shearson, the
result would have been different. As explained in detail below,
the evidence adduced concerning the future prospects and the
value of the plant demonstrated that the plant would be
successful, that the plant had a substantial market value and,
10 Phenix states that “federal courts of appeals applying the plain error
standard have almost universally held that misallocation or mistatement [sic]
of the burden of proof on an important issue constitutes plain error.” [Phenix
Brief at 56.] As demonstrated by Federal Crop Insurance Corp. v. Hester, 765
F.2d 723 (8th Cir. 1985), and Fulton v. Chicago, Rock Island and Pacific
Railroad, 481 F.2d 326 (8th Cir.), cert. denied, 414 U.S. 1040 (1973), this
Circuit has never adopted such a rigid rule.
Moreover, in the three Eighth Circuit cases cited by Phenix where this Court
found plain error, Smith v. Updegraff, 744 F.2d 1354 (8th Cir. 1984), Morris
v. Getscher, 708 F.2d 1306 (8th Cir. 1983), and Mitchell v. Volkswagenwerk,
AG, 669 F.2d 1199 (8th Cir. 1982), none of which involved alleged errors in
the trial court’s allocation of the burden of proof, there was no indication that
the appellant had specifically told the trial judge, as Phenix did here, that it
had no objections to the manner in which the case was submitted to the jury.
Finally, in Teen-Ed, Inc. v. Kimball International Inc., 620 F.2d 399, 401-02
(3d Cir. 1980), the other main case on which Phenix relies, before vacating
the lower court judgment on the basis of an argument raised for the first time
on appeal, the appellate court noted that neither the appellant nor the
appellee had assisted the trial court in resolving the “very difficult evidentiary
problem” at issue. Moreover, the court stated, that “[u]nder ordinary
circumstances, perhaps, even this concert of activity would not be sufficient to
vacate a judgment,” but held that because the court’s erroneous ruling had
prevented appellant from presenting its damages case, a new trial was
required. Here, on the other hand, the issues of Phenix’s damage claims and
the MTJ transaction were fully presented and no evidence concerning
damages legally recoverable by Phenix was excluded from the jury.
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accordingly, it was unlikely that Phenix would suffer any loss
under its MTJ guarantee. See discussion at Point I(B)(3)(b)
and Point II(B), infra.
For all these reasons, the plain error rule, like the other
contentions Phenix makes to excuse its failure to object, is not
available to Phenix.
B. The Offset Of $6.5 Million Against Phenix’s Damages And
The Court’s Allocation Of The Burden Of Proof Con-
cerning Such Damages Were Legally Correct.
Relying upon several different strands of authority, Phenix
claims that as a matter of law it was error for the District Court
to offset against the damage award the $6.5 million which
Phenix received in the MTJ transaction. Additionally, Phenix
contends that if the offset were not improper as a matter of law,
the District Court erred in allocating to Phenix, rather than
Shearson, the burden of proving that it would suffer damage
under the MTJ guarantees. As demonstrated below, the rulings
of the District Court concerning the offset and the burden of
proof were correct and reversal would not be appropriate even
if Phenix had preserved its objections.
1. Phenix has fundamentally revised the approach it
took to the MTJ proceeds at trial.
In the opening page of its brief, Phenix criticizes the
District Court for rejecting “appellant’s contention that these
bonds proceeds were irrelevant” and for placing on appellant
“the burden to prove it would lose any of this money” under
the MTJ guarantee. It then concludes that “in so doing, the
District Court turned the law of mitigation of damages on its
head and denied appellant any remedy for Shearson’s wrong.”
These criticisms are based on the fundamental premise which
Phenix asserts much later in its brief that “plaintiffs agreed not
to claim any damages that occurred after December 26, 1984,
the day before the closing on the MTJ bond issue.” [Phenix
Brief at 54. ]
Based on that fundamental premise, in the remainder of its
brief Phenix attempts to demonstrate that its receipt of the $6.5
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million was irrelevant as a matter of law and could not be
considered in reduction of its damages or, alternatively, if the
MTYJ transaction was relevant, it was relevant only to mitigation
of damages and hence the burden of proving Phenix would not
lose the $6.5 million should have been placed on Shearson.
These contentions substantially and fundamentally mis-
characterize the positions Phenix took with respect to the MTJ
transaction during the damages trial.
During the damages trial Phenix in fact did not dispute
that it had received and enjoyed the use and benefit of the $6.5
million and that such funds should properly reduce any overall
recovery which Phenix obtained from the jury. Phenix con-
ceded that the $6.5 million was an asset and that it could use
such funds for any corporate purpose. [Tr. 4970, 5055, J.A.
1540, 1581.] It did not argue that it would lose part or all of
the $6.5 million which it had received. Thus, contrary to what
Phenix now suggests, the jury was not asked to determine
whether Phenix would lose part or all of the $6.5 million, and
the burden of proof was allocated to neither party on that issue.
Instead, Phenix contended that the MTJ guarantee gave
rise to a separate additional damage claim of more than $7.9
million. During his opening and closing statements, Phenix’s
counsel explicitly told the jury that Phenix was seeking dam-
ages based upon the MTJ transaction. [Tr. 4215-16, 6039-40,
J.A. 1401-02, 1735-36.] Consequently, the Court expressly
charged the jury that Phenix was seeking several different kinds
of consequential damages, including “the amount of principal
and interest on the MTJ bonds that Phenix Federal will pay for
which it will not be reimbursed.” [Damage Instruction No. 39,
J.A. 254-55.] Those damages were substantially more than
and were not directly related to the $6.5 million which it
concededly had received. Because Phenix was not contending
that it would lose the benefit of the $6.5 million, but instead
was pressing a separate claim for more than $7.9 million in
damages based on its guarantee, Phenix agreed to the offset
and accepted the burden of proof on the issue.
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The reason Phenix seeks to portray the positions it took at
trial in the way it now does is no mystery — it did not prevail
on its claim for approximately $7.9 million in consequential
damages for the MTJ transaction. Its indirect attempt to do so
now should be rebuffed. In pressing the claim for damages
under the guarantee, it was clearly Phenix’s hope and ex-
pectation that it would recover in excess of $7.9 million and
thus fare much better than if it merely claimed that the MTJ
transaction was irrelevant.11 Had Phenix prevailed on its MTJ
guarantee claim, it would readily have accepted the benefits
and presumably would not be complaining about the offset
today. Having lost on the claim, however, it must be charged
with the consequences of the positions it took. No blame can be
placed on the District Court for the “extraordinary denoue-
ment” which Phenix complains has been reached. [Phenix
Brief at 25.]
2. Neither the principles enunciated in the National Steel
case nor the collateral source rule affect the propriety
of the offset.
Phenix now claims that its receipt of $6.5 million was
irrelevant to any issue and that even if it had not given a
guarantee as part of the MTJ transaction it could retain that
$6.5 million and still recover the full amount of the VBCA loans
from Shearson. Phenix reaches this result by contending that its
damages became fixed no later than December 1981 when
11 Phenix could not reasonably have claimed that it was entitled to
damages under the MTJ guarantee and that Shearson was not entitled to
offset the $6.5 million which Phenix had received. If it had done so, Phenix
would have been seeking a possible recovery of not merely double but more
than triple the amount of its loans to VBCA. As Phenix structured its damage
claims, it sought approximately $7.2 million for the original and subsequent
advances, including interest, and, in addition, approximately $7.9 million
under the guarantee. If the offset had not been applied, Phenix would have
been in the position of seeking in excess of $15.1 million (not including its
other consequential damages) while at the same time retaining the $6.5
million it had received. As a result, if Phenix ultimately did not incur losses
under its guarantee, it could well have recovered $15.1 million from Shearson
although it had already received almost full repayment of its loans to VBCA.
And even if Phenix were called upon to make payment under the guarantee, it
would still be able to look to its mortgage on the plant.
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“VBCA was unable to pay-off the $1.6 million interim loan”
and that its damages could not have “un-accrued” as a result of
the MTJ transaction. [Phenix Brief at 27-28.] In support of
these contentions, Phenix relies principally upon National Steel
Corp. v. Great Lakes Towing Co., 574 F.2d 339 (6th Cir. 1978)
(“National Steel’). Phenix further contends that the pay-
ments received by Phenix were from a collateral source and
hence do not reduce its damages. [Phenix Brief at 43-46. ]
These contentions must be rejected for several reasons aside
from the fact that they ignore the positions Phenix took at trial,
including the way it structured its damage claims.
The National Steel case is inapposite. That case held that
damages for a three day loss of use of a steel mill which had
“already accrued” at the time plaintiff began its efforts to
mitigate could not be reduced by above normal production
after the three day period. National Steel thus holds that
certain types of damages, once having accrued, cannot be
reduced by subsequent events. National Steel did not hold that
payments made to a plaintiff after a cause of action has accrued
may never reduce plaintiffs damages or that a payee of
promissory notes such as Phenix can sue other parties such as
Shearson for damages equal to the face amount of the notes
without regard to payments received prior to trial. Such
subsequent payments up to the time of trial are relevant to
reduce damages.
Indeed, there are many instances in which payments made
to a plaintiff after a cause of action accrues and before the time
of trial eliminate or reduce damages. For example, although a
guarantor may be sued upon default of the primary obligor,
repayment of the indebtedness by the primary obligor or on its
behalf prior to trial relieves the obligation of the guarantor. See
Bledsoe v. Cargill, Inc., 452 So. 2d 1334 (Ala. Civ. App. 1984);
Industrial Development Corp. v. Rocca, 100 Idaho 228, 596
P.2d 100 (1978), later appeal, 102 Idaho 920, 643 P.2d 1090
(1982). Shearson’s liability to Phenix may be viewed as
analogous to that of a guarantor of the obligation of VBCA. It
arose only because the promissory notes were not paid in a
timely manner. Additionally, where more than one defendant
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may be liable to a plaintiff for the same injury, whether in tort,
contract or otherwise, payment by one defendant either in a
settlement prior to trial or in satisfaction of judgment, reduces
the liability of the other defendants to the plaintiff. See, e.g.,
Wadle v. Jones, 312 N.W.2d 510, 514 (Iowa 1981); Brigdon v.
Covington, 298 N.W.2d 279, 280 (Iowa 1980); Greiner v.
Hicks, 231 Iowa 141, 300 N.W. 727, 731 (1941); Mulinix v.
Saydel Consolidated School District, 376 N.W.2d 109, 111
(lowa Ct. App. 1985); see also Syverson v. Heitmann, 171 Cal.
App. 3d 106, 110, 214 Cal. Rptr. 581, 584 (3d Dist. 1985)
(“Where a plaintiff's settlement completely offsets the damages
assessed against a nonsettling joint tortfeasor, it reduces the
judgment to zero by operation of law.”). Phenix may not avoid
this rule simply because it did not sue VBCA, the primary
obligor under the promissory notes.
Indeed, there are other examples as well. Thus, in an
action for conversion, where payment has been made to the
injured party for the property converted by the person in
possession, the amount of that payment must be offset against
any damages awarded the plaintiff against a defendant found
liable for the conversion. See Keota Produce Co. v. Chicago,
Rock Island & Pacific Railroad, 189 lowa 1284, 179 N.W. 834,
835 (1920). See also Thornton & Co. v. Gwinnett Bank & Trust
Co., 151 Ga. App. 641, 260 S.E.2d 765, 769 (1979)(in an
action for conversion against bank which paid out funds on
forged instrument, bank was entitled to a setoff for amounts
repaid by forger); DoAll Dallas Co. v. Trinity National Bank,
498 S.W.2d 396, 404 (Texas Ct. App. 1973 — writ ref. n.r.e. )
(same).
Contrary to Phenix’s contention, its actual damages did not
accrue in respect of the $1.6 million loan in December 1981.
Instead, the amount of its damages, if any, could not be
determined until the time of trial. Accordingly, it would not
have been sufficient for Phenix to have shown that it had not
been paid in December 1981. Phenix was required to prove
that as of the time of trial its loans to VBCA had not been paid.
In recognition of this fact, Phenix’s principal witness, Carroll
Sasser, was not merely asked whether Phenix had been repaid
in December 1981, but whether VBCA’s indebtedness re-
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mained outstanding at the time of trial. [Tr. 4927, 5052-53,
J.A. 1526, 1578-79. ]
If it were assumed that VBCA had secured permanent
financing from a source other than Shearson in early 1982 or at
some other time before trial and had used that financing to
repay Phenix, the fallacy in plaintiffs argument becomes
apparent. In that event, Phenix could not have recovered from
Shearson or from VBCA. Phenix could not reasonably contend
in that event, as it seeks to do now, that its damage claims
against Shearson became fixed in December 1981, that repay-
ment was from a collateral source and, therefore, it could still
maintain an action against Shearson to obtain full recovery.
Yet, that is exactly what happened through the MTJ transac-
tion. Permanent financing was obtained which was used to
repay Phenix.
In addition, Phenix’s contention that its damages accrued
in December 1981, became fixed at that time and were not
subject to reduction is inconsistent with its claim for post-
December 1981 advances. At trial, Phenix contended that after
December 1981, it advanced more than $3.7 million in a
“reasonable effort from the standpoint of a prudent lender, to
recoup Phenix’s original loan of $1.6 million.” [Damage
Instruction No. 43, J.A. 261A.] Stated otherwise, Phenix
claimed that it made the subsequent advances to mitigate its
original $1.6 million loss. Thus, Phenix conceded that if it had
recovered the original $1.6 million as a result of the subsequent
advances — by making the plant successful and enabling
VBCA to repay the $1.6 million — it would have mitigated its
damages in respect of the $1.6 million and could not have
recovered those loans from Shearson. This makes clear that
Phenix’s damages were not fixed, absolute and immune from
reduction as Phenix now claims.
For the same reasons, the collateral source rule is also
inapplicable to the $6.5 million payment.'2 In addition, neither
12 This is not, as Phenix claims, “a classic collateral source payment”
situation. [Phenix Brief at 43.] The facts here are a far cry from the cases in
which the collateral source rule developed. The collateral source rule is an
RA-16
VBCA nor MTYJ are collateral sources. Phenix received the $6.5
million from the parties which owed the debt.13 Discharge of
loans by, or on behalf of, the borrower cannot be considered a
collateral payment. See Huber, Hart & Nichols, Inc. v. Moore,
67 Cal. App. 3d 278, 304, 136 Cal. Rptr. 603, 619 (Sth Dist.
1977).
In sum, neither the principles set forth in the National Steel
case nor the collateral source rule are applicable.
[ Material Omitted ]
[pp. 30-37]
b. Phenix’s contingent obligation under its MTJ
guarantee was not too speculative to be evaluated
by the jury.
The factors the jury was instructed to consider in eval-
uating Phenix’s potential loss under the guarantees, including
the value and success of the plant, were not too speculative.
{Damage Instruction No. 41, J.A. 258-59.] First, there was
ample evidence to support a jury finding that the plant had
substantial value to which Phenix could look if it had been
exception to the general principle that an injured party is entitled to recover
only for damages actually sustained. The rule typically applies to insurance
payments received by personal injury claimants which were contracted for in
advance or to employment benefits, such as sick leave payments, provided
voluntarily. See, e.g., Stewart v. Madison, 278 N.W.2d 284, 293-94 (lowa
1979) (rule applied to automobile insurance payments); Rigby v. Eastman,
217 N.W.2d 604, 609 (lowa 1974) (rule applied to workmen’s compensation
payments); Clark v. Berry Seed Co., 225 lowa 262, 271, 280 N.W. 505, 510
(1938) (rule applied to payment of medical expenses by employer). It is
intended primarily to preserve the rights of subrogation and the benefits of
insurance for those who have purchased coverage. D. Dobbs, Handbook on
the Law of Remedies § 3.5, at 185-86 (1973).
13 Phenix contends that the $6.5 million did not discharge VBCA’s
indebtedness and therefore VBCA still owes approximately $5.3 million plus
interest for the loans made before December 27, 1984. [Phenix Brief at 33-
34.] Phenix, however, is not entitled to keep and use the $6.5 million as an
asset without crediting it against the debts of the parties from which it was
received. Indeed, in apparent recognition of this fact, Phenix agreed that it
would not seek to recover for the VBCA loans unless MTJ defaulted on its
bond obligations. [Ex. 1654 at Art. 1.6 J.A. 647; Tr. 4343-44, J.A. 1442-43. ]
ee!
RA-17
called upon to make payments under the guarantees. Thus, the
jury determined that the market value of the plant was $6.5
million as of December 1981. [Phenix Damage Interrogatory
No. 8, J.A. 291.] As set forth below, there was overwhelming
evidence to support this determination. See discussion at Point
II(B), infra. Plaintiffs contended that by 1985, material
improvements had been made in the plant [| See Tr. 4290, 4297-
301, 4345, J.A. 1420, 1422-26, 1444] which must have in-
creased its value.
In addition, the future success or profitability of the plant
was not, as a matter of law, incapable of proof as Phenix now
contends. In 1984, the lowa Supreme Court overturned the
new business rule which previously barred recovery of damages
based on future profits of a new business. See Harsha v. State
Savings Bank, 346 N.W.2d 791 (Iowa 1984). Upon a proper
showing, courts in Iowa and in various other jurisdictions
permit recovery of lost future profits even though the proof of
such profits involves uncertainty. See, e.g., Autowest, Inc. v.
Peugeot, Inc., 434 F.2d 556 (2d Cir. 1970); Galindo v. Hibbard,
106 Idaho 302, 678 P.2d 94 (Ct. App. 1984); Cook Associates
v. Warnick, 664 P.2d 1161 (Utah 1983); Cardinal Consulting
Co. v. Circo Resorts, Inc., 297 N.W.2d 260 (Minn. 1980).15
15 Phenix relies on Rudolph v. Iowa Methodist Medical Center, 293
N.W.2d 550 (Iowa 1980), Groesbeck v. Napier, 275 N.W.2d 388 (lowa
1979), and Stanley v. State, 197 N.W.2d 599 (lowa 1972), for the proposi-
tion that the plant’s prospects were too speculative as a matter of law to be
capable of proof. None of those cases involved future lost profits which,
under Harsha, is now a matter capable of proof. In addition, here, Phenix
had already received the MTJ proceeds. None of the above cases involved a
comparable situation in which payment had aiready been made to the
plaintiff, but only situations in which funds might possibly be received in the
future.
Phenix also cites to Great Lakes Gas Transmission Co. v. Grayco Constructors,
Inc., 506 F.2d 498 (6th Cir. 1974), cert. denied, 420 U.S. 947 (1975), and
Randall v. Loftsgaarden, 106 S. Ct. 3143 (1986). In Great Lakes Gas, the
court held that the District Court properly excluded as speculative evidence
concerning a gas company’s pass-along to the public of repair costs resulting
from the appellant’s negligence through increased rates because the gas
company’s rates were highly regulated and could be readjusted. In Randall,
the court held that tax benefits realized by defrauded investors would not be
RA-18
Virtually the only proof adduced on the issue tended to
show that the plant would become profitable after it reopened
in 1985. For example, Leonard Conrad testified that he
believed that by January 1985, many of the plant’s problems
had been solved and that the plant would thereafter be
successful. Specifically, he testified that the equipment was
substantially improved, the interest rate on the plant’s in-
debtedness had been lowered and his ability to manage the
plant had improved because of the experience he had gathered
during the past three years. [Tr. 4297-301, 4303, 4341, 4345-
48, J.A. 1422-26, 1427, 1440, 1444-47.] Additionally, Shearson
introduced, without objection by Phenix, detailed MTJ projec-
tions prepared by Russel Ninas, the accountant employed by
both Phenix and Conrad. They projected that during 1986 the
plant would be able to fully cover payment of interest and
principal on the MTJ bonds, including that portion which was
past due.1® [Tr. 4357-58, 5255-57, J.A. 1451-52, 1641-43; Ex.
1699, J.A. 783-94.] Such projections can be sufficient to
support a jury verdict of lost profits. See, e.g., International
Wood Processors v. Power Dry, Inc., 792 F.2d 416, 431 (4th Cir.
1986); G.M. Brod & Co. v. U.S. Home Corp., 759 F.2d 1526,
1538-39 (llth Cir. 1985); Harsha v. State Savings Bank, 346
N.W.2d 791 (Iowa 1984). This is particularly true where, as
here, the projections are offered against the party that prepared
them or relied on them in making business decisions. See
Perma Research & Development Co. v. Singer Co., 402 F. Supp.
881, 900 (S.D.N.Y. 1975), aff'd, 542 F.2d 111 (2d Cir.), cert.
denied, 429 U.S. 987 (1976).
used to offset their damages because of the “substantial” burden of
reconstructing the investors’ tax histories. Here, by contrast, the possibility
that Phenix would sustain losses under its guarantee depended on the future
profitability of the plant, which the lowa Supreme Court in Harsha held was
not too speculative for proof, and on the value of the plant, about which there
was extensive evidence.
16 While Phenix now emphasizes the disclaimer included in the projec-
tions [Phenix Brief at 41 n.32], this argument misses the point. Shearson
does not contend that the projections were a guaranty of future success.
Presumably, however, they were conscientiously prepared by plaintiffs and
constitute one basis on which Phenix made important decisions concerning
the plant including its decision to make the interest payments on which MTJ
defaulted. The weight to be accorded to the projections was a matter for the
jury to determine.
RA-19
The principal evidence on which Phenix relied to show
possible losses under the guarantee was the fact that MTJ had
been unable to make the initial interest payment on the bonds
in January 1985.17 [Tr. 4929, 5041, 5047, J.A. 1528, 1572,
1577.] This evidence had almost no probative value. All of the
witnesses who addressed the issue testified that an alcohol plant
could not be expected to be profitable in its early months of
operations. [Tr. 4603-04, 4854, 5194, 5489, J.A. 1467-68,
1474, 1613, 1653.] Consistent with this testimony, the MTJ
projections predicted that the plant would incur losses in its
early months and would turn profitable thereafter. [Ex. 1699,
J.A. 783-94.] Phenix made no attempt to impeach the projec-
tions and offered not a scintilla of evidence that MTJ would not
be profitable following its shake-down phase.
Phenix relies heavily on the fact that the District Court
disallowed the jury awards of lost profits to VBCA for 1982 and
1983 as demonstrating that the plant’s prospects for the post-
1985 period must have been incapable of proof. [Phenix Brief
at 42-43.] Phenix misconstrues the rationale for the District
Court’s decision. The District Court did not hold that the 1982
and 1983 lost profits were incapable of proof as a matter of law.
Rather it held that VBCA had failed to introduce such proof
and that other proof which was offered demonstrated as a
matter of law that the plant could not have been profitable
during those years. The evidence concerning the plant’s post-
1985 prospects had none of those failings which the Court
found decisive in vacating the award for 1982 and 1983 lost
profits.18 [ See Decision at 7-8, J.A. 468-69. |
17 Phenix also briefly questioned Carroll Keim, Shearson’s expert, to
clarify his testimony that in his judgment an ethanol plant with a 2.5 million
gallon capacity, such as the Bonaparte plant, as a general matter is not
economically feasible. [Tr. 5506-08, J.A. 1655-57.] Even before the plant
reopened after the MTJ bond issue, however, its capacity had been increased
to 3.5 million gallons. [Tr. 4352, J.A. 1449.] Moreover, Keim qualified his
testimony by stating that the profitability of a plant depends in each case on
several variables and by citing to another plant with a 2.5 million gallon
capacity which had been “extremely successful.” [Tr. 5506-07, J.A. 1655-
56. }
18 Phenix refers to design and conception flaws in the plant and the fact
that Ninas’ projections concerning MTJ’s future operations could not be
RA-20
Finally, Phenix refers to statements of Shearson’s counsel
during summation as showing it was impossible for the jury to
determine the future success of the plant. [Phenix Brief at 40. ]
The thrust of those arguments was, as explained above, that
Phenix had offered no persuasive evidence to carry its burden
of proving that the plant would not be successful and that the
only available evidence tended to show the opposite. Those
arguments remain valid.
In sum, the likelihood that Phenix would sustain loss under
its guarantee was a factual matter capable of proof, which the
jury determined against Phenix. There was ample evidence to
support the jury’s finding.
4. The District Court correctly allocated the burden of
proof to Phenix.
Phenix now contends that if the receipt of the MTJ funds
was relevant, it was a matter of mitigation and that the burden
of proof should have been placed on Shearson to demonstrate
that it would not lose those funds. [Phenix Brief at 46-56.] It
further claims that because the future prospects of the plant and
its ability to repay the principal and interest on the bonds was
too speculative to be susceptible of proof, Shearson could not
have met that burden, that a new trial is not required and that
judgment should be entered in its favor for the full amount of
the jury award. [Phenix Brief at 58-59. ]
verified by actual operating data in arguing that “the prospects of the plant
through the year 2004 were not (and could not be) shown with reasonable
certainty.” [Phenix Brief at 43.] It is surprising, to say the least, that Phenix
would have participated in the MTJ transaction and assumed financial
exposure in that regard if it believed the plant had design flaws. In any event,
by 1985, any faulty equipment had been replaced and the plant upgraded.
[ Tr. 4298, 4300-01, 4344-47, J.A. 1423, 1425-26, 1443-46.] In addition, the
assumptions on which Ninas based his MTJ projections differed from the
assumptions in the original 1981 VBCA projections and reflected the plant’s
actual operations as well as Conrad’s three years of experience with ethanol
production. [Tr. 4359-60, J.A. 1453-54; Ex. 1699 at 2-3, J.A. 784-85.] Iowa
law does not require anything more. See Harsha v. State Savings Bank, 346
N.W.2d 791 (Iowa 1984).
RA-21
In the first place, Phenix concedes that “‘on [the burden of
proof] issue there was admittedly no trial objection.” [Phenix
Brief at 55.] As demonstrated above, Phenix may not invoke
the plain error rule to avoid this failure and consequently is
barred from raising the issue for the first time now. See
discussion at Point I(A)(4), supra.
Moreover, it is clear that because of the way Phenix
structured its damage claims, the burden of proof properly
rested with Phenix. As explained above, Phenix did not frame
the issue for jury determination in the way it now does. It did
not request that the jury be instructed to determine what
portion of the $6.5 million Phenix would retain. The jury was
not instructed to and did not resolve that issue and the burden
of proof on that issue was not allocated to either party. Instead,
Phenix affirmatively sought more than $7.9 million in damages
on the basis of the MTJ guarantees. That was the issue the jury
was instructed to and did determine. As with all of its damage
claims, Phenix bore the burden of establishing damage and the
amount thereof. [Damage Instruction Nos. 40 and 50 J.A. 256-
57, 265-66.] See Sedco International, S.A. v. Cory, 522 F.
Supp. 254, 322 (S.D. Iowa 1981), aff'd, 683 F.2d 1201 (8th
Cir.), cert. denied, 459 U.S. 1017 (1982).
The allocation of the burden of proof was correct for
another reason. Even if Phenix were allowed on this appeal to
rewrite what happened at trial and to characterize the MTJ
transaction as relevant only to affirmative defense issues, Shear-
son did meet its burden. Shearson’s burden was to demonstrate
that Phenix received the $6.5 million. This fact was demonstra-
ted without dispute and as a matter of law. [ See, e.g., Tr. 4341,
4969-70, J.A. 1440, 1539-40.] If Phenix had contended that it
would not retain the $6.5 million and therefore did not benefit
from its receipt of the funds, the burden rested with Phenix to
prove that contention.
Phenix has not cited a single case in which a defendant has
been required to prove not only receipt of funds by plaintiff
which mitigate damages, but that plaintiff will thereafter not
RA-22
lose the benefit of such funds.19 The cases relied on by Phenix
in which the burden-of proof has been placed on the defendant
to prove a mitigating offset to the plaintiffs damages support
this reasoning. [See Phenix Brief at 48-49.] In those cases in
which an offset was allowed, the burden of proof was met by
establishing that the credit or other offset payment was actually
paid to and received by the plaintiff. See, e.g., Cates v. United
States, 451 F.2d 411, 417-18 (Sth Cir. 1971). See also Wadle
v. Jones, 312 N.W.2d 510, 515 (lowa 1981). Shearson met its
burden in this regard when it demonstrated that Phenix re-
ceived a payment of $6.5 million in the MTJ bond offering.2°
| Material Omitted ]
19 National Steel did not reach this question. At most, the court held that
a defendant has the burden of proving the receipt of funds that mitigate the
plaintiffs damages, not that the funds received were not thereafter lost. See
574 F.2d at 344-45.
20 Phenix contends that if this Court were to accept its various con-
tentions, a new trial would not be necessary. Instead it asks the Court simply
_ to enter judgment on the jury verdict. [Phenix Brief at 58-59.] Because of
the importance of the MTJ transaction to the trial insofar as it concerned
Phenix’s damages and Phenix’s role in eliciting or, at a minimum, acquiescing
in the actions which it now challenges, Phenix’s request should be rejected.
Moreover, a new trial would also be required because it is impossible to know
that the jury instruction that Phenix’s damages would be reduced by $6.5
million had no effect on the jury’s deliberations.
pon NT'S APPENDIX 3
a ‘ ae eee ;
Se ; eR a
a Baa .
;
RA-23
Excerpts From Districr Court’s
JURY INSTRUCTIONS
INSTRUCTION NO. 39
Phenix Federal’s claim for general damages consists of the
1.6 million dollar construction loan it made before learning that
Shearson was not going to provide permanent financing for the
Van Buren County Alcohol plant. It is for you to determine the
amount of general damages Phenix Federal has sustained as a
result of Shearson’s failure to provide permanent financing.
In addition, Phenix Federal claims several different kinds
of consequential damages, as follows:
1. Loss of interest on the 1.6 million dollar loan that
accrued after Phenix Federal knew that Shearson was not going
to provide long-term financing for the Van Buren County
Alcohol plant.
2. Advancements and interest on the advancements to Van
Buren County Alcohol for equipment and operating expenses
after Phenix Federal knew that Shearson would not provide
permanent financing.
3. Expenses incurred by Phenix Federal in overseeing the
operations of the Van Buren County Alcohol plant.
4. Loss due to the decrease in the value of Phenix Federal
stock because of Shearson’s failure to provide long-term financ-
ing.
5. Losses that are contingent on success of the plant, the
value of the plant, and the guarantees of Leonard Conrad and
Van Buren County Alcohol, consisting of the amount of princi-
pal and interest on the MTJ bonds that Phenix Federal will pay
for which it will not be reimbursed under the guarantees or the
plant mortgages, reduced to present value.
RA-24
It is for you to determine which, if any, of these claims for
consequential damages were the result of Phenix’s reliance on
Shearson’s negligent misrepresentations as explained in instruc-
tions 38-48, or promissory estoppel, as explained in instructions
49-53. There will be a separate interrogatory for each claim of
consequential damages. You should place the amount of
damages you determine in the appropriate space.
INSTRUCTION NO. 40
In order to recover any amount of damages for negligent
misrepresentation, Phenix Federal must establish by a pre-
ponderance of the evidence each of the following propositions
as to each item of damages:
1. That Phenix Federa! acted in justifiable reliance in
taking the action that resulted in the damages as explained in
Instruction No. 42;
2. That the particular plaintiffs reliance on the negligent
misrepresentations was the proximate cause of the damages, as
explained in Instruction No. 4;
3. That Phenix Federal’s reliance on the negligent mis-
representations was the legal cause of the damages, as ex-
plained in Instruction No. 43;
4. That the amount of damages is reasonably certain, as
explained in Instruction No. 44; and
5. That the damages were sustained by the specific
plaintiff claiming the right to recover, as explained in Instruc-
tion No. 45-46.
Each of these propositions must be proved for each item of
damages. Where more detailed instructions are necessary with
reference to a particular item of damages, they will be included
in the appropriate place.
RA-25
If you find that Phenix Federal has established each of
these propositions by a preponderance of the evidence as to one
or more of the items of damages they claim, you must then
determine the amount to be awarded for each item, but in no
event can the amount be in excess of the amount claimed. If
you find that Phenix Federal has failed to prove any of these
propositions, by a preponderance of the evidence as to one or
more of the items of damages claimed, then your verdict must
be for Shearson as to that particular damage claim.
INSTRUCTION NO. 44
In order to recover damages on the negligent mis-
representation claim, Phenix Federal must prove the fact and
amount of damages in accordance with Instruction No. 23.
INSTRUCTION NO. 45
In order to recover any damages for negligent mis-
representation, Phenix Federal must show that it actually
suffered the damage claimed. No plaintiff is permitted to
recover for another plaintiffs losses. The plaintiffs have the
burden of proving which of them sustained each injury. If
Phenix Federal fails to prove that it sustained a particular loss
claimed, then it may not recover for that loss.
RESPONDENT'S APPENDIX 4
RA-26
Excerpts From SHEARSON’S BRIEF
IN RESISTANCE TO PHENIX’s MOTION
To AMEND JUDGMENT Or For A NEw TRIAL
Filed October 9, 1985
[Caption and Table of Contents Omitted ]
[p. 2]
Shearson has filed a Resistance to Phenix Federal’s Motion
to Amend Judgment or, in the alternative, for a New Trial.
This Brief sets forth Shearson’s position on the following issues:
(1) Phenix Federal did not object to the damages instructions
and thus has no standing to complain about those instructions,
(2) the Court correctly submitted the issue of Phenix Federal’s
general damages, (3) the Court properly ruled on Plaintiffs’
pretrial motions, and (4) the Court ruled correctly on the
evidentiary issues complained of by Phenix Federal and, in any
event, even if the rulings were incorrect, they do not provide a
basis for an amended judgment or a new trial under the facts of
this case.
RA-27
[Material Omitted]
[pp. 3-4]
Il. THE COURT CORRECTLY SUBMITTED THE
ISSUE OF PHENIX FEDERAL’S GENERAL
DAMAGES.
Paragraphs 1, 2, and 3 of Phenix Federal’s Motion and
pages 2-5 of its brief assert that the Court should have
submitted Phenix’s general damage claim in some different
way. As noted above, this argument is groundless because of
Phenix’s failure to object to the jury instructions. Second, this
argument is groundless because the Court properly submitted
all appropriate individual damage claims made by Phenix
Federal. The Court submitted these individual items of dam-
ages because these were the losses claimed by Phenix. Phenix
appears to argue that it is entitled to some amorphous general
damage claim that is not tied to any specific damage. The law
does not allow Phenix to present to the jury this type of
unspecified damages claim. See Restatement (Second) of
Torts § 552B. Cj. Lenard v. Argento, 699 F.2d 874, 888-92 (7th
Cir. 1983) ( Plaintiff cannot recover “substantial damages” that
are not tied to any specific actual damages). Clearly, Phenix
cannot recover on any such amorphous claim, and the Court
correctly submitted Phenix Federal’s general damage claim.
[ Material Omitted ]
RESPONDENT'S APPENDIX 5
RA-28
Excerpts From SHEARSON’S RESPONSE
To PHENIx’s Post-TRIAL MOTIONS
Filed December 27, 1985
[Caption and Table of Contents Omitted ]
[pp. 1-5]
On October 10, 1985, Phenix Federal filed an ““Amend-
ment to Brief in Support of Motion to Amend Judgment or, In
the Alternative, Motion for a New Trial.” Because this
Amendment was filed one day after Shearson’s Resistance to
Phenix Federal’s Motion, Shearson files this Response to
Phenix Federal’s Brief.
Phenix Federal asserts two principal bases for its post trial
motions — the Court’s failure to submit an interrogatory
allowing the jury to award an amorphous amount of “general
damages” and the Court’s jury instruction providing that the
$6.5 million received from the MTJ bond issue must be set off
from Phenix Federal’s damages. However, as Shearson point-
ed out in its Resistance, Phenix Federal cannot now raise these
complaints because they were not made at the appropriate time
— at trial. See Shearson’s Resistance at pages 2-3. Phenix
Federal’s failure to make any objections it had at the time
clearly required by Rule 51 of the Federal Rules of Civil
Procedure and the cases decided thereunder precludes it from
now raising this issue and claiming error. Even if Phenix
Federal could somehow ignore the dictates of Rule 51 and
assert its claims at this time, Phenix Federal would still be
unable to obtain the post judgment relief it seeks.
A. General Damages
Phenix Federal complains that it was not allowed to
recover all of its “general damages” because the Court sub-
RA-29
mitted as individual items of damage all of Phenix Federal’s
claimed specific losses. Phenix Federal’s assertion that it was
entitled to more than the sum of its individual damage claims
indicates a misunderstanding of the Iowa law on “general
damages”. The cases cited in Phenix Federal’s brief in support
of its general damages proposition are cases decided pursuant
to Georgia statutory definitions, and they have no relevance to
this case. See Hood v. Dunn & Bradstreet, Inc., 486 F.2d 25
(1973); Hayes v. Irwin, 541 F. Supp. 397 (S.D. Ga. 1982).
Iowa damages cases specifically provide that “no rule of law
should permit an injured party ... to receive more than has
been lost as the result of some tortious act.” Adams v. Deur,
173 N.W.2d 100, 105 (Iowa 1969).
Additionally, Phenix Federal’s argument misconstrues the
meaning of the term “general damages”. General damages are
not some additional, amorphous category of damages in a fact
situation such as the case at bar. Instead, general damages are
those suffered by all injured parties in the same circumstances
— a category of damages distinguished from special or con-
sequential damages, which are those additional damages suf-
fered by a particular injured party as‘a result of the breach. See
R. Hillman, Contract Remedies, Equity, and Restitution in Iowa
§ 6.1, at 126 (1979). In this case Phenix Federal was allowed
to assert claims for any and all damages that would be suffered
by all injured parties in the same circumstances. Phenix
Federal made claims for loss of principal and interest — loss of
the “‘value” of its expectation from Shearson — and that is all
that Phenix Federal is entitled to recover under the principal of
general damages.' See id. The principle of general damages,
then, does not allow Phenix Federal to recover any additional
damages under the facts of this case.
‘The court (correctly) submitted the damages issue on special inter-
rogatories. This submission resulted in the general damages being broken
into specific damage figures. However, a totalling of these specific figures stil!
results in a total that constitutes general damages as provided for by law.
RA-30
B. Collateral Source Rule
Further, the collateral source rule clearly does not provide
Phenix a basis for a new trial in this action. In this case, actions
were taken by the plaintiffs to mitigate damages by obtaining
new funding for the plant. See Iowa Power & Light Co. v.
Board of Water Works Trustees, 281 N.W.2d 827, 833 (lowa
Ct. App. 1979); Nizzi v. Lavery Sprayers, Inc., 143 N.W.2d 312,
317-18 (Iowa 1966) (Iowa law requires parties to mitigate their
damages). The result of these actions was the repayment of
most of the contractual debt owed to Phenix.? See Sasser
Testimony at 4969-70. Having- been repaid $6.5 million,
Phenix could not recover these funds a second time from VBCA
or MTJ, the principal obligors, much less a second time from
Shearson, a party who became liable to Phenix only because
VBCA had initially defaulted on its promissory notes.3 In short,
through the bond issue Phenix has received $6.5 million in
repayment of the contractual indebtedness owed to it and it is
not entitled to a double recovery of these sums from any party,
be it VBCA or Shearson. See Team Central, Inc. v. Teamco,
271 N.W.2d 914, 925 (Iowa 1978).
It is apparent that the facts here are a far cry from the cases
in which the collateral source rule developed. That rule has
2In its Brief, Phenix refers to the MTJ bond issue as a “loss spreading
mechanism” instead of a repayment. Phenix Brief at 4. Phenix’s character-
ization is just that, as the evidence demonstrated that Phenix received $6.5
million as a result of the bond issue. To refer to the receipt of this money as
simply “ioss spreading” is not an accurate reflection of the facts.
3 As indicated, Shearson became liable to repay the debt to Phenix only
as a result of the default of the primary obligors. It is black letter law that
repayment of an obligation discharges a party secondarily liable to the extent
of repayment. Bledsoe v. Cargill, Inc., 452 So. 2d 1334 (Ala. Civ. App.
1984); Industrial Investment Corp. v. Rocca, 596 P.2d 100 (Idaho 1978),
appeal after remand, 643 P.2d 1090 (1982); Spencer v. American Advisory
Corp., 338 So. 2d 62 (Fla. App. 1976), cert. denied, 348 So. 2d 953 (Fla.
1977). This is true whether the payment is made by the primary debtor or by
a third party on behalf of the primary debtor. 38 C.J.S. Guaranty § 77
(1943); see also Brunson Bonding & Insurance Agency, Inc. v. Floyd Electric
Co., 416 So. 2d 558 (La. App. 1982). Moreover, because MTJ was a primary
obligor it was not a collateral source and, hence, the collateral source rule
could not be applicable to any funds received by Phenix from MTJ. Huber,
Hunt & Nichols, Inc. v. Moore, 136 Cal. Rptr, 603, 619 (Cal. App. 1977).
RA-31
generally been applied to payments received by personal injury
claimants from insurance companies, which payments had been
contracted for in advance, or from employers on a voluntary
basis. As Dan Dobbs has noted in his treatise on remedies, the
collateral source rule “finds its most common application in
personal injury cases” and is intended to preserve the rights of
subrogation and the benefits of insurance for those who have
purchased coverage. D. Dobbs, Handbook on the Law of
Remedies, § 3.5, at 185-86. Dobbs notes that the rule “‘is in fact
retained less on the basis of the arguments [in its favor] than
on the basis of its value in financing personal injury litigation.”
Id. § 8.10, at 584. The rule clearly has no application to the
facts presented here for all of the reasons indicated.
[ Material Omitted ]
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