Wrong jury instruction was not plain error

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A Jan. 17 opinion by the Seventh Circuit suggests a party will never be able to show plain error as a result of an erroneous jury instruction to which the party failed to object, notwithstanding a 2003 Amendment to Rule 51 providing otherwise.

According to the decision, Minsor Systems, Inc., and Minsor Powertrain Systems, LLC, (collectively “Minsor”) entered into a contract with Production Specialties Group, Inc., (PSG), a Wisconsin corporation, in which PSG agreed to make a machine that Minsor needed for manufacturing an automotive part.

Before bidding, Brett Stevenson, a vice-president of Minsor, told PSG that the machine would have to be able to remove 2.0 to 2.5 millimeters of excess material per side from the steel forgings to be made into the parts.

The machine PSG developed was not able to do this. According to PSG, Stevenson assured PSG that the forgings it was receiving were just preliminary prototypes and PSG would be able to make changes during the actual production process.

Based on this assurance, PSG signed the contract in April 2004. A couple of weeks later, PSG learned that the forgings could not be changed to eliminate the excess material, and it could not fulfill the contract. Minsor continued to work on producing an acceptable machine, but in June, Minsor cancelled the contract.

PSG brought suit in federal court in Milwaukee, alleging breach of contract and fraud in the inducement.

Minsor moved unsuccessfully for judgment as a matter of law at the close of PSG’s case, but did not renew the motion at the close of all the evidence.

The jury ruled in favor of PSG and awarded punitive damages.

After trial, Minsor moved for judgment notwithstanding the verdict and a new trial, on four grounds: (1) the economic-loss doctrine barred the fraud claims; (2) the district court erroneously instructed the jury that the standard of proof on the fraud claim was a preponderance of the evidence, instead of clear and convincing evidence; (3) insufficient evidence supported the jury’s verdict on the fraud claim; and (4) there was insufficient evidence to justify punitive damages.

District Court Judge Charles N. Clevert, Jr., denied the motions, and Minsor appealed, but the Seventh Circuit affirmed in a decision by Judge Ann Claire Williams.

Court Holdings

The court first held that Minsor could not appeal the denial of its motion for judgment notwithstanding the verdict, because Minsor failed to move for judgment at the close of the evidence. Although Rule 50 no longer requires such a motion, it did at the time of trial, and thus, Minsor waived the issue.

The court next held that Minsor waived its argument that the economic loss doctrine barred the fraud claim, by not raising it until its motion for a new trial.

The court found that the economic loss argument is a legal question that could have been brought at the summary judgment stage, or even as a motion to dismiss for failure to state a claim.

Because Minsor did not do so before trial, or even during trial, the court held the issue waived.

Burden of Proof

The court also declined to grant a new trial, even though the district court erroneously instructed the jury that, under Wisconsin law, PSG only need to prove the elements by a preponderance of the evidence.

Wisconsin law actually provides that each element must be proven by “clear, satisfactory, and convincing evidence.”

However, Minsor made no objection to the instruction as submitted by PSG. Accordingly, the Seventh Circuit reviewed for plain error only.

The court engaged in a lengthy discussion why the jury probably would have found that Minsor committed fraud, even if it had been instructed under the higher burden of proof, specifically concluding that PSG reasonably relied on Minsor’s representations, and that the representations were false.

However, having done so, the court suggested that it would not matter what the jury would likely have found if properly instructed, because Minsor bore significant responsibility for the error.

Quoting the First Circuit in Rivera Castillo v. Autokirey, Inc., 379 F.3d 4, 10 (1st Cir. 2004), the court called the erroneous jury instructions a “self-inflicted wound.”

Because Minsor had no good reason to excuse its mistake, the court concluded that the erroneous instruction did not “seriously affect the fairness, integrity or public reputation of judicial proceedings,” and thus, Minsor failed to show plain error.

Punitive Damages

Finally, the court affirmed the award of punitive damages, applying the standard set forth in Wischer v. Mitsubishi Heavy Indus. Am., Inc., 694 N.W.2d 320, 324-325 (Wis. 2005) – that Minsor intentionally disregarded PSG’s rights.

The court concluded, “There is evidence that Minsor was on a tight deadline to produce prototypes … and that PSG was the only company that said it could produce the prototypes on schedule. Therefore, the jury could have concluded that Minsor wanted to deceive PSG so PSG would continue producing the prototypes even if doing so meant that PSG might have trouble meeting its contractual obligations in the long term.”

Thus, the court held the intentional disregard of rights standard was satisfied, and affirmed the award of punitive damages.

Analysis

The case is noteworthy for the plethora of procedural mistakes attorneys need to avoid: failing to move for judgment at the close of the evidence; failing to timely raise the economic loss doctrine as a defense; and failing to request the proper jury instruction.

The first mistake is no longer an issue in cases tried after Dec. 1, 2006; and the second is easily avoided.

However, the third — an erroneous jury instruction — is a common mistake, one that requires diligent pre-trial preparation to avoid (although erroneously stating the burden of proof is of far greater magnitude than most such errors).

The court’s discussion of plain error is particularly noteworthy for two reasons: when such mistakes occur in the future, it will be all but impossible to distinguish this case; and the court is arguably applying an incorrect standard.

The court gave two reasons for finding the erroneous jury instruction was not plain error requiring a new trial; the jury would likely have reached the same verdict even if properly instructed; and the defendant bore responsibility for the error.

The first reason may not always be present; but the second reason will always be present. If an erroneous jury instruction is given, a party who did not object will always bear partial responsibility for the error, and so the second reason will always militate against a finding of plain error.

When arguing in future cases whether an erroneous jury instruction was plain error, attorneys should be aware that the Seventh Circuit may not be applying the correct standard.

Traditionally, the failure to object to a jury instruction was not reviewable in the Seventh Circuit, for plain error or otherwise. Deppe v. Tripp, 863 F.2d 1356, 1361 (7th Cir.
1988). Other circuits allowed for plain error review.

Effective Dec. 1, 2003, however, Rule 51 of the Federal Rules of Civil Procedure was amended to allow for plain error review.

In Higbee v. Sentry Ins. Co., 440 F.3d 408, 409 (7th Cir. 2006), cited by the court in the case at bar as authority, the court wrote, “The Advisory Committee notes to the new Rule 51 make clear that we should be guided by the principles of plain error in the criminal context, see Johnson v. United States, 520 U.S. 461, 466-67, 117 S.Ct. 1544, 137 L.Ed.2d 718 (1997) (explaining that unpreserved errors may be corrected when there is (1) an error, (2) that is plain, (3) that affects substantial rights, and (4) seriously affects the fairness, integrity, or public reputation of judicial proceedings), while keeping in mind that the application of the doctrine may differ in the context of civil litigation.”

However, the Advisory Committee notes actually provide a somewhat different standard: “Although the language is the same, the context of civil litigation often differs from the context of criminal prosecution; actual application of the plain-error standard takes account of the differences. The Supreme Court has summarized application of Criminal Rule 52 as involving four elements: (1) there must be an error; (2) the error must be plain; (3) the error must affect substantial rights; and (4) the error must seriously affect the fairness, integrity, or public reputation of judicial proceedings. Johnson v. U.S., 520 U.S. 461, 466-467, 469-470 (1997). (The Johnson case quoted the fourth element from its decision in a civil action, U.S. v. Atkinson, 297 U.S. 157, 160 (1936): ‘In exceptional circumstances, especially in criminal cases, appellate courts, in the public interest, may, of their own motion, notice errors to which no exception has been taken, if the errors are obvious, or if they otherwise substantially affect the fairness, integrity, or public reputation of judicial proceedings.’)

“The court’s duty to give correct jury instructions in a civil action is shaped by at least four factors.

“The factor most directly implied by a ‘plain’ error rule is the obviousness of the mistake. The importance of the error is a second major factor. The costs of correcting an error reflect a third factor that is affected by a variety of circumstances. In a case that seems close to the fundamental error line, account also may be taken of the impact a verdict may have on nonparties.”

Thus, the notes establish that the standard for civil and criminal cases is different, as it should be. If, in a criminal trial, the jury was instructed on some standard other than “beyond a reasonable doubt,” the defendant should get a new trial, even if he did fail to object. In a civil case, more should be required.

The Seventh Circuit, however, ignores the final paragraph of the Advisory Committee notes, and focuses solely on the four factors from Johnson.

More significantly, however, the court concluded that, there can be no miscarriage of justice, because it was Minsor’s own fault that the jury was improperly instructed.

Effectively, however, that is the same standard the court was applying prior to the 2003 amendment to Rule 51, which the amendment changed.

In every case when a party fails to object to a jury instruction in a civil case, and then complains on appeal, the error will always be “self-inflicted.”

Thus, for the court to hold that there can be no plain error, if the complaining party’s problem is self-created, the court is effectively ignoring the new Rule 51 and applying its pre-2003 law — that failure to object to a jury instruction is not reviewable for plain error at all (unless third parties would be unfairly affected).