Gasperini v. Center for Humanities, Inc. – Case Brief Summary

Summary of Gasperini v. Center for Humanities, Inc., 518 U.S. 415, 116 S. Ct. 2211, 135 L. Ed. 2d 659 (1996).

Relevant Law

In reviewing the amount of jury awards under New York law, the court must determine if an award deviates materially from what would be reasonable compensation.

Federal courts are bound by the Reexamination Clause of the Seventh Amendment which requires that findings of fact by the jury must only be reexamined according to federal common law. Under federal common law a jury verdict is not overturned unless it shocks the conscience of the court. This is a higher standard of review and under federal law it is more difficult to alter jury awards.

Under Erie Railroad Co. v. Tompkins, federal courts must apply state statutes and common law in actions brought under diversity jurisdiction. Guaranty Trust Co. v. York established an “outcome-determination” test for determining whether a particular law was substantive, in which case state law must apply, or merely procedural in which case federal law would apply. The test is to determine whether the difference between applying state law or federal law would significantly affect the outcome of the litigation.

Facts

Gasperini (P), a journalist, loaned 300 slide transparencies of conflicts in Central America to the Center for Humanities for use in the creation of an educational video. The Center for Humanities lost the slides and Gasperini brought this lawsuit in diversity in federal district court.

An expert witness for Gasperini testified that according to the photography “industry standard”, the accepted compensation for a lost slide transparency was $1,500. Although Gasperini testified that he had only earned $10,000 through photography work from 1984 to 1993, the jury applied the industry standard of compensation and awarded him $450,000.

The Center for Humanities moved for a new trial on the grounds that the award was excessive. It argued that the review of jury awards was substantive and that New York state law should apply. Gasperini contended that federal law should apply and that the jury award could only be amended if it shocked the conscience of the court. He argued that it would be a violation of the Reexamination Clause for the federal court to apply the New York standard.

The Court of Appeals for the Second Circuit found that New York law applied and held that the verdict deviated from what is reasonable compensation. The Court ordered a new trial unless Gasperini agreed to a reduced award of $100,000 (remittitur). Gasperini appealed and the Supreme Court granted certiorari.

Issue

  • Does the Seventh Amendment preclude the application of a state law standard of review of jury awards in diversity actions, if that standard of review is lower than the standard that would apply under federal law?

Holding and Rule (Ginsburg)

  • No. The lower state law standard of review of jury awards may be applied by federal courts consistent with the Seventh Amendment if the standard is applied by the federal trial court judge, and the standard of review by the federal appellate court shall be “abuse of discretion”.

Under Hanna v. Plumer, the application of the outcome determinative test must be guided by the aims of the Erie Doctrine to discourage forum shopping and to avoid the inequitable administration of the law.

The review of jury awards is a matter of substantive law. If federal courts apply the more stringent “shock the conscience” test under federal law in reviewing jury awards for claims governed by New York law, there will be substantial variations in money judgments depending on whether they are brought in New York state courts or federal courts in diversity.

Although the New York law is phrased as a direction to New York appellate courts, in practice the “deviates materially” also applies to state trial courts. The trial court must therefore apply the standard under state law, and the standard of review in federal court shall be “abuse of discretion”.

Disposition

Vacated and remanded for new trial.


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