Fitzgerald v. Expressway Sewerage

• Court: Court of Appeals for the First Circuit
• Decided: May 27, 1999
• Docket: 98-1473
• Status: Published

Opinion

USCA1 Opinion

                 United States Court of Appeals

                     For the First Circuit


No. 98-1473



                     SEAN FITZGERALD, P.P.A.

                  CYNTHIA A. FITZGERALD, ET AL.,



                     Plaintiffs, Appellants,



                                v.



         EXPRESSWAY SEWERAGE CONSTRUCTION, INC., ET AL.,



                      Defendants, Appellees.


APPEAL FROM THE UNITED STATES DISTRICT COURT



                FOR THE DISTRICT OF MASSACHUSETTS



           [Hon. William G. Young, U.S. District Judge]


Before



                      Selya, Circuit Judge,

                                

                Kravitch,* Senior Circuit Judge,

                                

                   and Lipez, Circuit Judge.


John T. Landry, III, with whom Glynn and Landry was on brief,

for appellants.

     Drew M. Elinoff for appellees.


May 27, 1999


__________

*Of the Eleventh Circuit, sitting by designation.  SELYA, Circuit Judge.  This single-issue appeal pivots

around the evidentiary implications of the collateral source rule. 

We conclude that, notwithstanding the rule, the trial court acted

within its discretion in admitting evidence anent payments made by

the plaintiffs' health-care insurer.  Consequently, we affirm the

judgment below.

  The facts of the underlying incident are of little

relevance to the issue on appeal, and we do not dwell on them.  It

suffices to say that, on August 6, 1994, six-year-old Sean

Fitzgerald sustained injuries while riding on a parade float in

Kingston, Massachusetts.  Sean, joined by his parents, thereafter

invoked diversity jurisdiction, see 28 U.S.C.  1332, and sued the

float's owner, Expressway Sewerage Construction, Inc., and its

operator, Roy Vaughn.  The substantive law of Massachusetts

governed this suit.  See Erie R. Co. v. Tompkins, 304 U.S. 64, 78

(1938).  At trial, the judge admitted the disputed evidence over

the plaintiffs' objection, and the jury subsequently returned a

verdict absolving the defendants of liability.  On appeal, the

plaintiffs contend that this evidentiary ruling contravened the

collateral source rule and constituted reversible error.

  The Commonwealth's iteration of the collateral source

rule is fairly typical.  It provides, in the large, that

compensation received from a third party unrelated to a tortfeasor-

defendant (the collateral source) will not diminish an injured

party's recovery from that tortfeasor.  See Jones v. Wayland, 374

Mass. 249, 262, 373 N.E.2d 199, 207 (1978); Goldstein v. Gontarz,

364 Mass. 800, 809, 309 N.E.2d 196, 203 (1974).  Implementation of

the rule necessarily gives rise to an evidentiary analogue.  See,

e.g., Corsetti v. Stone Co., 396 Mass. 1, 16-17, 483 N.E.2d 793,

802 (1985).  This analogue customarily bars the introduction of

proof of collateral source payments made to a plaintiff.  See id.

("Ordinarily, a defendant may not show that the plaintiff has

received other compensation for his injury, whether from an

accident insurance policy . . . or from other sources.") (citations

and internal quotation marks omitted).  An exception takes hold,

however, if evidence of payment from a collateral source is

relevant to some other material issue in the case.  See id. at 17,

483 N.E.2d at 802.

  The case law sometimes confuses these interrelated

principles, moving effortlessly from the substantive to the

evidentiary strands of the collateral source doctrine, and back,

with little differentiation.  See generally Joel K. Jacobsen, The

Collateral Source Rule and the Role of the Jury, 70 Or. L. Rev.

523, 525 (1991) (observing that most courts "assume, without

appearing to give the matter much thought, that the collateral

source rule functions both as a rule of evidence and as a rule of

damages," and stating that "deeming the rule hermaphroditic merely

obscures some of its more salient features and adds unnecessary

confusion").  This blurring has potentially deleterious

consequences in diversity cases, for those cases necessitate

disentangling substantive rules from procedural ones.  See Daigle

v. Maine Med. Ctr., Inc., 14 F.3d 684, 689 (1st Cir. 1994).

  The question raised but not clearly answered by the case

law is whether, in diversity cases, state evidentiary rules

regarding compensation from collateral sources should displace the

Federal Rules of Evidence.  Compare, e.g., DeMedeiros v. Koehring

Co., 709 F.2d 734, 740-41 (1st Cir. 1983) (analyzing the

evidentiary implications of certain collateral source payments

under Fed. R. Evid. 403 in a diversity case), with McInnis v.

A.M.F., Inc., 765 F.2d 240, 245 (1st Cir. 1985) (suggesting in

dictum, in a diversity case, that by adopting the Federal Rules of

Evidence, "Congress did not intend [them] to preempt so-called

'substantive' state rules of evidence such as the . . . collateral

source rule").  Although the end result in this appeal in all

probability would be the same under either approach, we see no

valid reason to treat the evidentiary prong of the collateral

source rule differently than any other state evidentiary doctrine. 

We explain briefly.

  It is axiomatic that, when parties litigate a case in a

federal court on the basis of diversity jurisdiction, state law

supplies the substantive rules of decision.  See, e.g., Blinzler v.

Marriott Int'l Inc., 81 F.3d 1148, 1151 (1st Cir. 1996); Daigle, 14

F.3d at 689.  Whether damages in a tort suit are mitigable by

payments originating with a third party depends, quite obviously,

on substantive principles.  Hence, the state-law collateral source

rule supplies the rule of decision.

  It is equally axiomatic, however, that federal

evidentiary rules govern in diversity cases.  See Fed. R. Evid.

101, 1101(b); Cameron v. Otto Bock Orthopedic Ind., Inc., 43 F.3d

14, 18 (1st Cir. 1994).  The applicability vel non of a specific

rule of evidence depends on whether Congress intended the rule to

obtain in a given context.  See 19 Charles Alan Wright, et. al.,

Federal Practice and Procedure  4512 (2d ed. 1996 & Supp. 1999). 

If the federal evidentiary rule is "sufficiently broad to control

a particular issue," the court must apply it.  Daigle, 14 F.3d at

689.

  So it is here:  the Federal Rules of Evidence (and in

particular Rules 401, 402, and 403) are malleable enough to deal

with the principal evidentiary issues contemplated by the

collateral source rule:  relevancy and unfairly prejudicial effect. 

That ends the choice-of-law inquiry.  See Wright et. al., supra 

4512 ("If a Federal Rule of Evidence covers a disputed point of

evidence, the Rule is to be followed, even in diversity cases, and

state law is pertinent only if and to the extent the applicable

Evidence Rule makes it so.").

  To sum up, the Massachusetts collateral source rule must

be given full credit in this case as a rule of damages.  The

evidentiary implications flowing from that rule, however, are

governed by the Federal Rules of Evidence.  Thus, we disavow the

McInnis dictum and proceed to examine the challenged ruling through

a federal prism.

  The parties agree that the Commonwealth's collateral

source rule prohibits mitigating damages by the amount of first-

party insurance proceeds received.  Because proof of such payments

is irrelevant to mitigation of damages (and, hence, inadmissible on

that issue), the threshold question is whether evidence of these

payments is relevant to some other contested issue in a particular

case.  Consequently, we focus on whether, in the circumstances at

bar, such evidence tended to make the existence of some other fact

"of consequence to the determination of the action more or less

probable than it would be without the evidence."  Fed. R. Evid.

401.

  The defendants argue here, as they did below, that

testimony by Sean Fitzgerald's mother (herself a plaintiff) on

direct examination furnished a valid basis for admitting evidence

of the insurance payments.  Under questioning by her attorney, Mrs.

Fitzgerald reported that Sean's medical bills and related expenses

exceeded $20,000.  The lawyer then asked her to "describe the

impact that this accident to Sean has had on your family."  She

replied that the accident had imposed "quite a strain both

emotionally and financially."

  When embarking on cross-examination, defense counsel

complained that this testimonial sequence created a false

impression that medical expenses were causing financial hardship

and sought leave to show the insurance payments as an antidote.  To

put matters into better perspective, the court kept the cross-

examiner on a short leash, permitting him at first to probe no

further than whether Mrs. Fitzgerald had meant that the medical

bills were a source of financial strain.  Only after the witness

had responded affirmatively to that effect did the court find

evidence of the insurance payments relevant and admissible.

  We review rulings of the district court admitting or

excluding evidence for abuse of discretion.  See Williams v. Drake,

146 F.3d 44, 47 (1st Cir. 1998).  The court's ruling here

encompassed two subsidiary determinations:  a finding that the

proffered evidence was relevant to the "financial strain" issue,

and a follow-on determination that the evidence's probative value

was not substantially overshadowed by its capacity unfairly to

prejudice the jury.

  We need not tarry over the first of these determinations. 

Under federal evidentiary standards, the relevancy hurdle is low,

see United States v. Saccoccia, 58 F.3d 754, 780 (1st Cir. 1995),

and the disputed evidence cleared it with room to spare.  Mrs.

Fitzgerald's testimony made the existence and degree of financial

strain caused by Sean's medical expenses a fact of consequence in

the litigation, independent of the amount of those expenses. 

Evidence that a third party (the health-care insurer) defrayed most

of those costs cast doubt upon (and, thus, tended to undermine) the

claim that the burgeoning medical bills produced financial strain. 

The evidence was, therefore, relevant.

  The second aspect of the district court's ruling presents

a somewhat closer call.  Evidence, though relevant, nonetheless

"may be excluded if its probative value is substantially outweighed

by the danger of unfair prejudice."  Fed. R. Evid. 403.  The

plaintiffs assert that this case falls into that category.  We do

not agree.

  To be sure, introduction of collateral source evidence

almost inevitably creates a risk that a jury, informed, say, that

a plaintiff has recourse to first-party insurance proceeds, may be

unduly inclined to return either a defendant's verdict or an

artificially low damage award.  This risk of prejudice is real, but

Rule 403 directs that a trial court balance it against the

evidence's probative worth, and exclude the evidence only when (and

if) the discerned risk substantially outweighs the anticipated

value.

  A trial judge has a unique coign of vantage in performing

this type of delicate balancing.  In calibrating the appellate

scales, therefore, the trial judge's first-hand assessment,

reflecting his or her "feel" for the case, is entitled to

considerable deference.  See United States v. Sutton, 970 F.2d

1001, 1008 (1st Cir. 1992); United States v. Tierney, 760 F.2d 382,

388 (1st Cir. 1985).  "Only rarely   and in extraordinarily

compelling circumstances   will we, from the vista of a cold

appellate record, reverse a district court's on-the-spot judgment

concerning the relative weighing of probative value and unfair

effect."  Freeman v. Package Mach. Co., 865 F.2d 1331, 1340 (1st

Cir. 1988).

  The circumstances here are not compelling.  The relevance

of the evidence is plain and its probative value on the relevant

issue is high.  Moreover, the defendants ameliorated the risk of

prejudice by making their point about the availability of other

funds with surgical precision, resisting the temptation to inflict

one thousand cuts.  The lower court also took steps to dispel any

incipient prejudice by giving an immediate prophylactic instruction

(the form of which elicited no complaint from the plaintiffs).  By

clarifying the limited significance of the insurance payments, the

court reduced the chance that the evidence would be misused by the

jury.  See United States v. Ladd, 885 F.2d 954, 959 (1st Cir.

1989).  The short of it is that, on this record, no justification

exists for us to second-guess the district court's skillful

handling of the situation.

  We need go no further.  In this case, the plaintiffs

opened the door for evidence of insurance payments.  Having done

so, they are hard put to complain that the defendants passed

through the portal.  Applying the Federal Rules of Evidence   which

furnish the benchmark for the admissibility of collateral source

evidence in a diversity action   we discern no abuse of discretion

in the court's admission of the challenged evidence.



Affirmed.