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Gasperini v. Center for Humanities

June 24, 1996

WILLIAM GASPERINI, PETITIONER

v.

CENTER FOR HUMANITIES, INC.



SYLLABUS BY THE COURT

Certiorari to the United States Court of Appeals for the Second Circuit.

No. 95-719.

Argued April 16, 1996

Decided June 24, 1996

Under the law of New York, appellate courts are empowered to review the size of jury verdicts and to order new trials when the jury's award "deviates materially from what would be reasonable compensation." N. Y. Civ. Prac. Law and Rules (CPLR) Section(s) 5501(c). Under the Seventh Amendment, which governs proceedings in federal court, but not in state court, "the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law." The compatibility of these provisions, in an action based on New York law but tried in federal court by reason of the parties' diverse citizenship, is the issue the Court confronts in this case.

Petitioner Gasperini, a journalist and occasional photographer, loaned 300 original slide transparencies to respondent Center for Humanities, Inc. When the Center lost the transparencies, Gasperini commenced suit in the United States District Court for the Southern District of New York, invoking the court's diversity jurisdiction. The Center conceded liability. After a trial on damages, a jury awarded Gasperini $1,500 per transparency, the asserted ``industry standard'' of compensation for a lost transparency. Contending, inter alia, that the verdict was excessive, the Center moved for a new trial. The District Court, without comment, denied the motion.

The Court of Appeals for the Second Circuit, observing that New York law governed the controversy, endeavored to apply CPLR Section(s) 5501(c) to evaluate the Center's contention that the verdict was excessive. Guided by New York Appellate Division decisions reviewing damage awards for lost transparencies, the Second Circuit held that the $450,000 verdict "materially deviates from what is reasonable compensation." The court vacated the judgment entered on the jury verdict and ordered a new trial, unless Gasperini agreed to an award of $100,000.

Held: New York's law controlling compensation awards for excessiveness or inadequacy can be given effect, without detriment to the Seventh Amendment, if the review standard set out in CPLR Section(s) 5501(c) is applied by the federal trial court judge, with appellate control of the trial court's ruling confined to "abuse of discretion." Pp. 5-23.

(a) To heighten the judicial check on the size of jury awards, New York codified the ``deviates materially'' standard of review, replacing the judge-made ``shock the conscience'' formulation previously used in New York courts. In design and operation, Section(s) 5501(c) influences outcomes by tightening the range of tolerable awards. Although phrased as a direction to New York's intermediate appellate courts, Section(s) 5501(c)'s "deviates materially" standard, as construed by New York's courts, instructs state trial judges as well. Pp. 5-9.

(b) In cases like Gasperini's, in which New York law governs the claims for relief, the Court must determine whether New York law also supplies the test for federal-court review of the size of the verdict. Federal diversity jurisdiction provides an alternative forum for the adjudication of state-created rights, but it does not carry with it generation of rules of substantive law. Under the doctrine of Erie R. Co. v. Tompkins, 304 U. S. 64, federal courts sitting in diversity apply state substantive law and federal procedural law. Classification of a law as "substantive" or "procedural" for Erie purposes is sometimes a challenging endeavor. Guaranty Trust Co. v. York, 326 U. S. 99, an early interpretation of Erie, propounded an "outcome-determination" test: "[D]oes it significantly affect the result of a litigation for a federal court to disregard a law of a State that would be controlling in an action upon the same claim by the same parties in a State court?" Id., at 109. A later pathmarking case, qualifying Guaranty Trust, explained that the "outcome-determination" test must not be applied mechanically to sweep in all manner of variations; instead, its application must be guided by "the twin aims of the Erie rule: discouragement of forum-shopping and avoidance of inequitable administration of the laws." Hanna v. Plumer, 380 U. S. 460, 468.

Informed by these decisions, the Court concludes that, although Section(s) 5501(c) contains a procedural instruction assigning decisionmaking authority to the New York Appellate Division, the State's objective is manifestly substantive. More rigorous comparative evaluations attend application of Section(s) 5501(c)'s "deviates materially" standard than the common law "shock the conscience" test. If federal courts ignore the change in the New York standard and persist in applying the "shock the conscience" test to damage awards on claims governed by New York law, "`substantial' variations between state and federal [money judgments]" may be expected. See id., at 467-468. The Court therefore agrees with the Second Circuit that New York's check on excessive damages warrants application in federal court, for Erie's doctrine precludes a recovery in federal court significantly larger than the recovery that would have been tolerated in state court. Pp. 9-14.

(c) Nonetheless, when the Second Circuit used Section(s) 5501(c) as the standard for federal appellate review, it did not attend to "[a]n essential characteristic of [the federal court] system." Byrd v. Blue Ridge Rural Elec. Cooperative, Inc., 356 U. S. 525, 537. The Seventh Amendment, which governs proceedings in federal court, but not in state court, bears not only on the allocation of trial functions between judge and jury, the issue in Byrd; it also controls the allocation of authority to review verdicts, the issue of concern here. In keeping with the historic understanding, the Seventh Amendment's re-examination clause does not inhibit the authority of trial judges to grant new trials "for any of the reasons for which new trials have heretofore been granted in actions at law in the courts of the United States." Fed. Rule Civ. Proc. 59(a). In contrast, appellate review of a federal trial court's denial of a motion to set aside a jury's verdict as excessive is a relatively late, and less secure, development. Such review, once deemed inconsonant with the Seventh Amendment's re-examination clause, has not been expressly approved by this Court before today. See, e.g., Browning-Ferris Industries of Vt., Inc. v. Kelco Disposal, Inc., 492 U. S. 257, 279, n. 25. Circuit decisions unanimously recognize, however, that appellate review, confined to abuse of discretion, is reconcilable with the Seventh Amendment as a control necessary and proper to the fair administration of justice. The Court now approves this line of decisions. Pp. 14-20.

(d) In this case, the principal state and federal interests can be accommodated. New York's dominant interest in having its substantive law guide the allowable damages arising out of a state-law claim for relief can be respected, without disrupting the federal system, once it is recognized that the federal district court is capable of applying the State's "deviates materially" standard. The Court recalls, in this regard, that the "deviates materially" standard serves as the guide to be applied in trial as well as appellate courts in New York. Within the federal system, practical reasons combine with Seventh Amendment constraints to lodge in the district court, not the court of appeals, primary responsibility for application of Section(s) 5501(c)'s check. District court applications of the "deviates materially" standard would be subject to appellate review under the standard the Circuits now employ when inadequacy or excessiveness is asserted on appeal: abuse of discretion. Pp. 21-23.

(e) It does not appear that the District Court checked the jury's verdict against the relevant New York decisions. Accordingly, the Court vacates the judgment of the Court of Appeals and instructs that court to remand the case to the District Court so that the trial judge, revisiting his ruling on the new trial motion, may test the jury's verdict against CLPR Section(s) 5501(c)'s "deviates materially" standard. P. 23. Justice Ginsburg

On Writ of Certiorari to the United States Court of Appeals for the Second Circuit.

Under the law of New York, appellate courts are empowered to review the size of jury verdicts and to order new trials when the jury's award "deviates materially from what would be reasonable compensation." N. Y. Civ. Prac. Law and Rules (CPLR) Section(s) 5501(c) (McKinney 1995). Under the Seventh Amendment, which governs proceedings in federal court, but not in state court, "the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law." U. S. Const., Amdt. 7. The compatibility of these provisions, in an action based on New York law but tried in federal court by reason of the parties' diverse citizenship, is the issue we confront in this case. We hold that New York's law controlling compensation awards for excessiveness or inadequacy can be given effect, without detriment to the Seventh Amendment, if the review standard set out in CPLR Section(s) 5501(c) is applied by the federal trial court judge, with appellate control of the trial court's ruling limited to review for "abuse of discretion."

I.

Petitioner William Gasperini, a journalist for CBS News and the Christian Science Monitor, began reporting on events in Central America in 1984. He earned his living primarily in radio and print media and only occasionally sold his photographic work. During the course of his seven-year stint in Central America, Gasperini took over 5,000 slide transparencies, depicting active war zones, political leaders, and scenes from daily life. In 1990, Gasperini agreed to supply his original color transparencies to The Center for Humanities, Inc. (Center) for use in an educational videotape, Conflict in Central America. Gasperini selected 300 of his slides for the Center; its videotape included 110 of them. The Center agreed to return the original transparencies, but upon the completion of the project, it could not find them.

Gasperini commenced suit in the United States District Court for the Southern District of New York, invoking the court's diversity jurisdiction pursuant to 28 U. S. C. Section(s) 1332. *fn1 He alleged several state-law claims for relief, including breach of contract, conversion, and negligence. See App. 5-6. The Center conceded liability for the lost transparencies and the issue of damages was tried before a jury.

At trial, Gasperini's expert witness testified that the "industry standard" within the photographic publishing community valued a lost transparency at $1,500. See id., at 227. This industry standard, the expert explained, represented the average license fee a commercial photograph could earn over the full course of the photographer's copyright, i.e., in Gasperini's case, his lifetime plus 50 years. See id., at 228; see also 17 U. S. C. Section(s) 302(a). Gasperini estimated that his earnings from photography totaled just over $10,000 for the period from 1984 through 1993. He also testified that he intended to produce a book containing his best photographs from Central America. See App. 175.

After a three-day trial, the jury awarded Gasperini $450,000 in compensatory damages. This sum, the jury foreperson announced, "is [$]1500 each, for 300 slides." Id., at 313. Moving for a new trial under Federal Rule of Civil Procedure 59, the Center attacked the verdict on various grounds, including excessiveness. Without comment, the District Court denied the motion. See App. to Pet. for Cert. 12a.

The Court of Appeals for the Second Circuit vacated the judgment entered on the jury's verdict. 66 F. 3d 427 (1995). Mindful that New York law governed the controversy, the Court of Appeals endeavored to apply CPLR Section(s) 5501(c), which instructs that, when a jury returns an itemized verdict, as the jury did in this case, the New York Appellate Division "shall determine that an award is excessive or inadequate if it deviates materially from what would be reasonable compensation." The Second Circuit's application of Section(s) 5501(c) as a check on the size of the jury's verdict followed Circuit precedent elaborated two weeks earlier in Consorti v. Armstrong World Industries, Inc., 64 F. 3d 781, superseded, 72 F. 3d 1003 (1995). Surveying Appellate Division decisions that reviewed damage awards for lost transparencies, the Second Circuit concluded that testimony on industry standard alone was insufficient to justify a verdict; prime among other factors warranting consideration were the uniqueness of the slides' subject matter and the photographer's earning level. *fn2

Guided by Appellate Division rulings, the Second Circuit held that the $450,000 verdict "materially deviates from what is reasonable compensation." 66 F. 3d, at 431. Some of Gasperini's transparencies, the Second Circuit recognized, were unique, notably those capturing combat situations in which Gasperini was the only photographer present. Id., at 429. But others "depicted either generic scenes or events at which other professional photojournalists were present." Id., at 431. No more than 50 slides merited a $1,500 award, the court concluded, after "[g]iving Gasperini every benefit of the doubt." Ibid. Absent evidence showing significant earnings from photographic endeavors or concrete plans to publish a book, the court further determined, any damage award above $100 each for the remaining slides would be excessive. Remittiturs "presen[t] difficult problems for appellate courts," the Second Circuit acknowledged, for court of appeals judges review the evidence from "a cold paper record." Ibid. Nevertheless, the Second Circuit set aside the $450,000 verdict and ordered a new trial, unless Gasperini agreed to an award of $100,000.

This case presents an important question regarding the standard a federal court uses to measure the alleged excessiveness of a jury's verdict in an action for damages based on state law. We therefore granted certiorari. 516 U. S. __ (1996).

II.

Before 1986, state and federal courts in New York generally invoked the same judge-made formulation in responding to excessiveness attacks on jury verdicts: courts would not disturb an award unless the amount was so exorbitant that it "shocked the conscience of the court." See Consorti, 72 F. 3d, at 1012-1013 (collecting cases). As described by the Second Circuit:

"The standard for determining excessiveness and the appropriateness of remittitur in New York is somewhat ambiguous. Prior to 1986, New York law employed the same standard as the federal courts, see Matthews v. CTI Container Transport Int'l Inc., 871 F. 2d 270, 278 (2d Cir. 1989), which authorized remittitur only if the jury's verdict was so excessive that it `shocked the conscience of the court.'" Id., at 1012. See also D. Siegel, Practice Commentaries C5501:10, reprinted in 7B McKinney's Consolidated Laws of New York Ann., p. 25 (1995) ("conventional standard for altering the verdict was that its sum was so great or so small that it `shocked the conscience' of the court").

In both state and federal courts, trial judges made the excessiveness assessment in the first instance, and appellate judges ordinarily deferred to the trial court's judgment. See, e.g., McAllister v. Adam Packing Corp., 66 App. Div. 2d 975, 976, 412 N. Y. S. 2d 50, 52 (3d Dept. 1978) ("The trial court's determination as to the adequacy of the jury verdict will only be disturbed by an appellate court where it can be said that the trial court's exercise of discretion was not reasonably grounded."); Martell v. Boardwalk Enterprises, Inc., 748 F. 2d 740, 750 (CA2 1984) ("The trial court's refusal to set aside or reduce a jury award will be overturned only for abuse of discretion.").

In 1986, as part of a series of tort reform measures, *fn3 New York codified a standard for judicial review of the size of jury awards. Placed in CPLR Section(s) 5501(c), the prescription reads:

"In reviewing a money judgment . . . in which it is contended that the award is excessive or inadequate and that a new trial should have been granted unless a stipulation is entered to a different award, the appellate division shall determine that an award is excessive or inadequate if it deviates materially from what would be reasonable compensation." *fn4

As stated in Legislative Findings and Declarations accompanying New York's adoption of the "deviates materially" formulation, the lawmakers found the "shock the conscience" test an insufficient check on damage awards; the legislature therefore installed a standard "invit[ing] more careful appellate scrutiny." Ch. 266, 1986 N. Y. Laws 470 (McKinney). At the same time, the legislature instructed the Appellate Division, in amended Section(s) 5522, to state the reasons for the court's rulings on the size of verdicts, and the factors the court considered in complying with Section(s) 5501(c). *fn5 In his signing statement, then-Governor Mario Cuomo emphasized that the CPLR amendments were meant to rachet up the review standard: "This will assure greater scrutiny of the amount of verdicts and promote greater stability in the tort system and greater fairness for similarly situated defendants throughout the State." Memorandum on Approving L. 1986, Ch. 682, 1986 N. Y. Laws, at 3184; see also Newman & Ahmuty, Appellate Review of Punitive Damage Awards, in Insurance, Excess, and Reinsurance Coverage Disputes 1990, p. 409 (B. Ostrager & T. Newman eds. 1990) (review standard prescribed in Section(s) 5501(c) "was intended to . . . encourage Appellate Division modification of excessive awards").

New York state-court opinions confirm that Section(s) 5501(c)'s "deviates materially" standard calls for closer surveillance than "shock the conscience" oversight. See, e.g., O'Connor v. Graziosi, 131 App. Div. 2d 553, 554, 516 N. Y. S. 2d 276, 277 (2d Dept. 1987) ("apparent intent" of 1986 legislation was "to facilitate appellate changes in verdicts"); Harvey v. Mazal American Partners, 79 N. Y. 2d 218, 225, 590 N. E. 2d 224, 228 (1992) (instructing Appellate Division to use, in setting remittitur, only the "deviates materially" standard, and not the "shock the conscience" test); see also Consorti, 72 F. 3d, at 1013 ("Material deviation from reasonableness is less than that deviation required to find an award so excessive as to `shock the conscience.'"); 7 J. Weinstein, H. Korn, & A. Miller, New York Civil Practice, Para(s) 5501.21, p. 55-64 (1995) ("Under [Section(s) 5501(c)'s] new standard, the reviewing court is given greater power to review the size of a jury award than had heretofore been afforded . . . .").

Although phrased as a direction to New York's intermediate appellate courts, Section(s) 5501(c)'s "deviates materially" standard, as construed by New York's courts, instructs state trial judges as well. See, e.g., Inya v. Ide Hyundai, Inc., 209 App. Div. 2d 1015, 1015, 619 N. Y. S. 2d 440, 440 (4th Dept. 1994) (error for trial court to apply "shock the conscience" test to motion to set aside damages; proper standard is whether award "materially deviates from what would be reasonable compensation"); Cochetti v. Gralow, 192 App. Div. 2d 974, 975, 597 N. Y. S. 2d 234, 235 (3d Dept. 1993) ("settled law" that trial courts conduct "materially deviates" inquiry); Shurgan v. Tedesco, 179 App. Div. 2d 805, 806, 578 N. Y. S. 2d 658, 659 (2d Dept. 1992) (approving trial court's application of "materially deviates" standard); see also Lightfoot v. Union Carbide Corp., 901 F. Supp. 166, 169 (SDNY 1995) (CPLR 5501(c)'s "materially deviates" standard "is pretty well established as applicable to [state] trial and appellate courts."). Application of Section(s) 5501(c) at the trial level is key to this case.

To determine whether an award "deviates materially from what would be reasonable compensation," New York state courts look to awards approved in similar cases. See, e.g., Leon v. J & M Peppe Realty Corp., 190 App. Div. 2d 400, 416, 596 N. Y. S. 2d 380, 389 (1st Dept. 1993) ("These awards . . . are not out of line with recent awards sustained by appellate courts."); Johnston v. Joyce, 192 App. Div. 2d 1124, 1125, 596 N. Y. S. 2d 625, 626 (4th Dept. 1993) (reducing award to maximum amount previously allowed for similar type of harm). Under New York's former "shock the conscience" test, courts also referred to analogous cases. See, e.g., Senko v. Fonda, 53 App. Div. 2d 638, 639, 384 N. Y. S. 2d 849, 851 (2d Dept. 1976). The "deviates materially" standard, however, in design and operation, influences outcomes by tightening the range of tolerable awards. See, e.g., Consorti, 72 F. 3d, at 1013, and n. 10, 1014-1015, and n. 14.

III.

In cases like Gasperini's, in which New York law governs the claims for relief, does New York law also supply the test for federal court review of the size of the verdict? The Center answers yes. The "deviates materially" standard, it argues, is a substantive standard that must be applied by federal appellate courts in diversity cases. The Second Circuit agreed. See 66 F. 3d, at 430; see also Consorti, 72 F. 3d, at 1011 ("[CPLR Section(s) 5501(c)] is the substantive rule provided by New York law."). Gasperini, emphasizing that Section(s) 5501(c) trains on the New York Appellate Division, characterizes the provision as procedural, an allocation of decisionmaking authority regarding damages, not a hard cap on the amount recoverable. Correctly comprehended, Gasperini urges, Section(s) 5501(c)'s direction to the Appellate Division cannot be given effect by federal appellate courts without violating the Seventh Amendment's reexamination clause.

As the parties' arguments suggest, CPLR Section(s) 5501(c), appraised under Erie R. Co. v. Tompkins, 304 U. S. 64 (1938), and decisions in Erie's path, is both "substantive" and "procedural": "substantive" in that Section(s) 5501(c)'s "deviates materially" standard controls how much a plaintiff can be awarded; "procedural" in that Section(s) 5501(c) assigns decisionmaking authority to New York's Appellate Division. Parallel application of Section(s) 5501(c) at the federal appellate level would be out of sync with the federal system's division of trial and appellate court functions, an allocation weighted by the Seventh Amendment. The dispositive question, therefore, is whether federal courts can give effect to the substantive thrust of Section(s) 5501(c) without untoward alteration of the federal scheme for the trial and decision of civil cases.

A.

Federal diversity jurisdiction provides an alternative forum for the adjudication of state-created rights, but it does not carry with it generation of rules of substantive law. As Erie read the Rules of Decision Act: *fn6 "Except in matters governed by the Federal Constitution or by Acts of Congress, the law to be applied in any case is the law of the State." 304 U. S., at 78. Under the Erie doctrine, federal courts sitting in diversity apply state substantive law and federal procedural law.

Classification of a law as "substantive" or "procedural" for Erie purposes is sometimes a challenging endeavor. *fn7 Guaranty Trust Co. v. York, 326 U. S. 99 (1945), an early interpretation of Erie, propounded an "outcome-determination" test: "[D]oes it significantly affect the result of a litigation for a federal court to disregard a law of a State that would be controlling in an action upon the same claim by the same parties in a State court?" 326 U. S., at 109. Ordering application of a state statute of limitations to an equity proceeding in federal court, the Court said in Guaranty Trust: "[W]here a federal court is exercising jurisdiction solely because of the diversity of citizenship of the parties, the outcome of the litigation in the federal court should be substantially the same, so far as legal rules determine the outcome of a litigation, as it would be if tried in a State court." Ibid; see also Ragan v. Merchants Transfer & Warehouse Co., 337 U. S. 530, 533 (1949) (when local law that creates the cause of action qualifies it, "federal court must follow suit," for "a different measure of the cause of action in one court than in the other [would transgress] the principle of Erie"). A later pathmarking case, qualifying Guaranty Trust, ...


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