Summary
holding that "[b]ifurcation [of punitive damages] is the wisest course" when the opposing party has "not identified any prejudice that will come to him from bifurcation" and the moving party "has made convincing assertions of prejudice."
Summary of this case from Wagoneka v. KT&G U.S. Corp.Opinion
No. 1:95-CV-260
September 13, 1995.
Clint Wayne Lewis, Lewis Henry, Beaumont, TX, for plaintiff.
John H. Seale, Seale Stover Coffield Bisbey, Jasper, TX, for defendant.
MEMORANDUM ON PLAINTIFF'S MOTION TO BIFURCATE
Plaintiff insurance company ("State Farm") brings this action seeking a declaratory judgment that it has no liability to the defendant ("Woods") for losses in connection with a December, 1994 fire in Jasper County. Woods has counterclaimed for benefits under the policy and for punitive damages premised on gross negligence and fraud. Woods alleges there was no investigation by State Farm before the claim was denied and alleges other unconscionable settlement practices.
State Farm moves for bifurcated trial on the issue of punitive damages on Woods' counterclaim, claiming that this result is mandated by Texas law.
Discussion
It is clear that Texas law does require bifurcation when the issue of punitive damages is raised in a suit such as this. However, this is a diversity case, and it typically would first be necessary to consider whether bifurcation of the punitive damages issue is a substantive or procedural matter. Prior to Moriel, the Fifth Circuit in one case assumed that the issue of bifurcating punitive damages in a cause of action premised on state law is procedural and should be determined under Rule 42(b). However, the case law in the Circuit is not entirely consistent.
Transportation Ins. Co. v. Moriel, 879 S.W.2d 10, 29-30 (Tex. 1994). The purpose of bifurcation is to prevent consideration of a party's net worth (which is relevant to the amount of punitive damages) in the jury's determination of liability for punitive damages in the first instance.
See generally Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965).
O'Malley v. United States Fidelity Guar. Co., 776 F.2d 494 (5th Cir. 1985). O'Malley was an insurance case applying the procedural technique of Rule 42(b) to bifurcate a punitive damages claim of bad faith from the coverage claim. This was done to avoid prejudice to the insurance company and to avoid needless waste of time, as the "substantive law of Mississippi" would have forbade the bad faith claim to proceed if there were no insurer liability on the policy. Cf. Sanford v. Johns-Manville Sales Corp., 923 F.2d 1142, 1146 n. 7 (5th Cir. 1991) (stating in dictum that the mode of trial is procedural under Rule 42(b) and that trifurcation of liability, punitive damages, and compensatory damages is generally permissible "as long as substantive state law is not impinged").
Both the Second and Ninth Circuits clearly hold that bifurcation of punitive damages is not the kind of rule that "would substantially affect . . . primary decisions respecting human conduct," Hanna, 380 U.S. at 475, 85 S.Ct. at 1146 (Harlan, J., concurring), and is thus rightly decided as a procedural matter under rule 42(b). Hayes v. Arthur Young Co., 34 F.3d 1072 (9th Cir. 1994); Simpson v. Pittsburgh Coring Corp., 901 F.2d 277 (2d Cir. 1990); Getty Petroleum Corp. v. Island Transp. Corp., 862 F.2d 10 (2d Cir. 1988), cert. denied, 490 U.S. 1006, 109 S.Ct. 1642, 104 L.Ed.2d 157 (1989).
See, e.g., Industrias Macon v. Bacchus Indus., 19 F.3d 15 (5th Cir. 1994) (vacating district court's award of punitive damages and remanding for failure to "comport with the [Texas Supreme Court's] announces procedural guidelines or substantive criteria for imposition of punitive damages"); Jenkins v. Raymark Indus., 782 F.2d 468 (5th Cir. 1986) (seemingly applying substantive Texas case law to condone bifurcation of the amount of punitive damages awards from issues of liability in class action suit); Satcher v. Honda Motor Co., 855 F. Supp. 886, 891 n. 10 (S.D.Miss. 1994) (surmising in dictum that if judgment were set aside and a new trial granted, a newly-enacted state law requiring bifurcation of punitive damages would apply, yet — strangely — referring to this as a "procedural" aspect of the new law); Adams v. Shell Oil Co., 136 F.R.D. 588 (E.D.La. 1991) (purporting to rely on Jenkins and state law concerning bifurcation to authorize bifurcation of punitive damages in a class action suit, but then incongruously citing Fed.R.Civ.P. 42(b) as authority).
However, the court need not take a definitive stance on the matter in order to grant the motion to bifurcate. If bifurcation under these circumstances is deemed a substantive matter, then Moriel mandates this result. If it is ultimately determined to be a procedural matter, the court nevertheless has broad discretion over the mode of trial under the federal rules of civil procedure. Rule 42(b) permits the trial court to order bifurcation when the interests of judicial economy would be furthered or when prejudice could result to one party from a simultaneous determination of all issues.
Bifurcation is the wisest course here, especially since Woods has not identified any prejudice that will come to him from bifurcation. State Farm, on the other hand, has made convincing assertions of prejudice. While State Farm's net worth will be relevant to a determination of punitive damages, that same information could severely prejudice the plaintiff in the calculation of actual damages.
In choosing to bifurcate, the undersigned is acting, according to an informal sampling, in harmony with the mode of trial employed by other judges in the Beaumont Division of the Eastern District.
While defendant's response argues that bifurcation of punitive damages is a procedural matter to be determined under Fed.R.Civ.P. 42(b), it does not go any further and recite why the court should reach the result it desires in applying that rule.
Conclusion
For the foregoing reasons, the plaintiff's motion will be granted. Defendant will be disallowed to introduce any evidence at trial bearing only on punitive damages. If the jury answers the punitive damages liability question in favor of the defendant, defendant may then present evidence relevant to the amount of punitive damages.