Michael Troknya etc. v. Cleveland Chiro. , 280 F.3d 1200 ( 2002 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 01-1360
___________
Michael Troknya, John M. Hafner, *
Scott Miller; Jennifer Allen, Jon *
Michael Wheat; Mitch Gadow; Don C. *
Wheeler, III; Carol Lister; Kevin *
Lehane; Eugene Johnson; Jonathan *
Lui; Brian Lane; Jason A. Hutchinson; *
Preston Wang; Laurie Rogers; Ron *
Muse; Timothy Laber; Chris Butler; *
Nicholas Calvino; Aubrey Gail, *
* Appeal from the United States
Appellees, * District Court for the
* Western District of Missouri
v. *
*
Cleveland Chiropractic Clinic, *
*
Appellant. *
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Submitted: September 14, 2001
Filed: February 21, 2002
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Before HANSEN,1 Chief Judge, and McMILLIAN and BEAM, Circuit Judges.
___________
McMILLIAN, Circuit Judge.
1
The Honorable David R. Hansen became Chief Judge of the United States
Court of Appeals for the Eighth Circuit on February 1, 2002.
Cleveland Chiropractic College (CCC) appeals from a final judgment entered
in the United States District Court for the Western District of Missouri, upon a jury
verdict finding it liable to nineteen former CCC students (plaintiffs) for negligent
misrepresentation and awarding them each $1.00 in actual damages and $15,000.00
in punitive damages. See Troknya v. Cleveland Chiropractic College, No. 99-0746-
CV-W-2 (W.D. Mo. Jan. 8, 2001) (Troknya v. CCC) (final order denying motion for
judgment as a matter of law); id. (Nov. 28, 2000) (judgment following trial). For
reversal, CCC argues that the district court: (1) abused its discretion in excluding
certain evidence at trial, (2) erred in upholding the jury’s negligent misrepresentation
finding and related actual damages awards of $1.00 per plaintiff, and (3) erred in
upholding the jury’s punitive damages awards of $15,000.00 per plaintiff. For the
reasons set forth below, we affirm in part, reverse in part, and remand the case to the
district court for further proceedings consistent with this opinion.
Jurisdiction in the district court was proper based upon 28 U.S.C. § 1332.
Jurisdiction in this court is proper based upon 28 U.S.C. § 1291. The notice of appeal
was timely filed pursuant to Fed. R. App. P. 4(a).
Background
The following is a brief summary of the relevant procedural history. Plaintiffs,
who each paid CCC approximately $50,000 in tuition and each graduated in 1997,
filed their original complaint on August 3, 1999, and an amended complaint on
October 18, 1999, alleging that CCC had failed to provide the quality and quantity
of clinical training promised to them prior to their enrollment at CCC. Plaintiffs
asserted, among other claims, breach of contract, fraud, and negligent
misrepresentation. They sought actual damages of at least $75,000 per plaintiff and
punitive damages of $1,000,000 per plaintiff, or any amount deemed appropriate.
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Following discovery, plaintiffs moved for partial summary judgment, arguing
that CCC was collaterally estopped from denying liability for fraud in light of a jury
verdict against CCC on a similar fraud claim brought by another CCC graduate in a
separate civil action. CCC filed a cross-motion for summary judgment, asserting
legal deficiencies as to each of plaintiffs’ claims. Upon review, the district court
denied plaintiffs’ motion for partial summary judgment, holding that the facts of the
prior case were not sufficiently identical to the facts of the present case for collateral
estoppel to apply. The district court partially granted CCC’s motion for summary
judgment, dismissing several claims not presently at issue on appeal. Troknya v.
CCC, slip op. at 7 (Nov. 10, 2000) (summary judgment order). The district court’s
summary judgment order left plaintiffs’ breach of contract, fraud, and negligent
misrepresentation claims remaining for trial.
Prior to trial, the parties submitted their lists of anticipated trial exhibits and
witnesses and thereafter filed several motions in limine. The district court entered an
order disposing of their motions which, among other things, sustained plaintiffs’
objection to any witnesses CCC had included in its trial list but failed to list in its
Fed. R. Civ. P. 26 disclosures or supplements thereto. The district court also
sustained plaintiffs’ objection to any exhibits not identified prior to the close of
discovery. Troknya v. CCC, slip op. at 2 (Nov. 9, 2000) (order disposing of pretrial
motions). CCC made an offer of proof on the record as to the evidence it otherwise
would have introduced at trial.
The case proceeded to trial. Plaintiffs presented evidence to show the
following facts. Prior to enrolling at CCC, plaintiffs were promised, orally and in
writing, that CCC would provide them with ample clinical training and experience –
a critical part of a chiropractic education and a requirement for graduation and
obtaining a license to practice. More specifically, CCC expressly promised in
writing that: (1) CCC would provide the clinical patients, (2) plaintiffs would see an
ample volume of clinical patients, and (3) plaintiffs would see a variety of clinical
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patients. See Appendix, Vol. 7, at 2130 (The CCC “Viewbook”) (“The Cleveland
Clinic provides ample volume and variety of patients.”). However, during their years
as CCC students in the 1990s, plaintiffs bore most of the burden of finding the
patients for their clinical training, the number of clinical patients they saw was
inadequate, and the variety of clinical patients they saw was inadequate. Indeed, a
significant portion of the “patients” seen by plaintiffs as part of their clinical training
were actually healthy people, such as family members, whom plaintiffs had recruited
to be stand-in patients. CCC knew as early as 1989 that it did not have the ability to
provide sufficient patients, as evidenced by a report dated May 21, 1989, sent by CCC
to the Council on Chiropractic Education (CCE), an accreditation body through which
chiropractic colleges monitor and certify themselves. See id. at 2136-38 (Progress
Report Prepared for the Commission on Accreditation of CCE). Responding to an
earlier letter from CCE expressing concerns about the insufficiency in volume and
variety of cases in the CCC clinic, CCC set forth its policy regarding patient
recruitment in that 1989 report, including the following statements: “patient
recruitment in the public clinic is a joint responsibility of the College [i.e., CCC] and
the intern [i.e., student]” and “individual contacts are the main responsibility of the
intern, under the guidance of the supervising clinicians.” Id. at 2138. CCC went on
to state: “This policy, or its successor, will be published in the next editions of
publications such as the Clinic Manual, Student Handbook, and College catalog, and
it is already being shared with entering students during Orientation.” Id. On the
contrary, however, this “joint responsibility” patient recruitment policy was not
disclosed to prospective students until after 1996, when a former student obtained a
jury verdict against CCC on a claim of fraud,2 and CCC thereupon changed its written
publications.3
2
This is in reference to the case upon which plaintiffs based their collateral
estoppel argument in their unsuccessful motion for partial summary judgment.
3
Plaintiffs admit that the Clinic Manual was changed before 1996. However,
plaintiffs allege, the Clinic Manual was not provided to CCC students until their
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In its defense, CCC presented evidence at trial to show the following facts.
Plaintiffs each successfully graduated from CCC, having met all the clinical
requirements to graduate. Each thereafter passed the board examination and obtained
a license to practice, except for one who did not apply for a license. At the time
plaintiffs were enrolling in CCC, the college had already been accredited by CCE for
many years. In March of 1992, a CCE evaluation team visited the school specifically
to evaluate CCC’s compliance with the 1991 standards for chiropractic colleges and
published a report referred to as “the 1992 CCE Accreditation Report.” See id., Vol.
3, at 868-934. The 1992 CCE evaluation team reported: “The number and variety of
patients seen in the [CCC] clinic is adequate to meet the learning requirements of the
graduate”; “[t]here is evidence . . . that the average number of out-patient visits is
about 30% greater than required”; and “[o]nly one or two student Interns voiced
concern as to the availability of adequate patients to meet the clinic requirements.”
Id. at 907. The 1992 CCE evaluation team also reported that: “Highly successful
evaluation systems have been developed by the [CCC] clinic which demonstrate that
students are becoming capable caregivers and meeting the minimum Standards of the
Clinical Competence Document.” Id. at 910. In addition, CCC had been accredited
since 1984 by the Commission of Institutions of Higher Education of the North
Central Association of Colleges and Schools (NCACS), which published a 1997
report favorably evaluating the CCC clinical program. See id., Vol. 4, at 1028-29.
The jury returned a verdict in favor of CCC on plaintiffs’ breach of contract
and fraud claims, but against CCC on plaintiffs’ negligent misrepresentation claim.
The jury awarded each plaintiff $1.00 in actual damages and $15,000.00 in punitive
damages. CCC filed a post-trial motion for judgment as a matter of law, challenging
the jury’s finding of liability for negligent misrepresentation and the damages awards.
The district court denied CCC's motion, and this appeal followed.
second or third year of school. See Brief for Appellee at 4 & n.3.
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Discussion
Exclusion of witnesses and exhibits
We first address CCC’s argument that the district court abused its discretion
in granting plaintiffs’ motion in limine requesting exclusion of all witnesses who
appeared on CCC’s trial exhibit list but had not been included in CCC’s disclosures
and supplements provided under Fed. R. Civ. P. 26. CCC relies, as it did in the
district court, upon Rule 26(e)(1), which states in part:
A party is under a duty to supplement at appropriate intervals its
disclosures under subdivision (a) if the party learns that in some material
respect the information disclosed is incomplete or incorrect and if the
additional or corrective information has not otherwise been made
known to the other parties during the discovery process or in writing.
Fed. R. Civ. P. 26(e)(1) (emphasis added).
CCC argues that it was not required to formally disclose the witnesses in
question pursuant to Fed. R. Civ. P. 26 because they were known to plaintiffs either
through plaintiffs’ own discovery disclosures and responses or through CCC’s
discovery responses. See Brief for Appellant at 46-47 & n.4. In support of this
argument, CCC cites cases which have interpreted Rule 26(e)(1) broadly. See id. at
44-45 (citing, e.g., Coleman v. Keebler Co., 997 F. Supp. 1102 (N.D. Ind. 1998)).
CCC also points out that “[e]rror may not be predicated upon a ruling which admits
or excludes evidence unless a substantial right of a party is affected.” Brief for
Appellant at 43 (quoting Fed. R. Evid. 103(a)). In the present case, CCC contends,
its substantial rights were affected by the district court’s evidentiary ruling because
the witnesses who were excluded were “critical” to CCC’s defense. See id. at 46 &
n.6 (listing and describing the “critical witnesses” who were excluded).
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We are not persuaded that the excluded witnesses were critical to CCC’s
defense; it appears that their testimony would have substantially duplicated
documentary evidence admitted at trial or would have been only marginally relevant
to the issues in dispute. More importantly, however, we hold that the district court
reasonably could have concluded that CCC’s use of the undisclosed witnesses and
exhibits would have unfairly prejudiced plaintiffs at trial, even if the witnesses and
exhibits had been identified or referenced somewhere in the course of discovery. We
therefore hold that the district court did not abuse its discretion in excluding the
evidence in question in an effort to avoid an unfair surprise and to achieve substantial
justice in the present case. See, e.g., Mawby v. United States, 999 F.2d 1252, 1254
(8th Cir. 1993) (noting that standard of review is abuse of discretion and that the
general purpose of the discovery procedures is to eliminate surprise and achieve
substantial justice).4
Denial of judgment as a matter of law
We now turn to the district court’s denial of CCC’s post-verdict motion for
judgment as a matter of law, which we review de novo. See Summit v. S-B Power
Tool, 121 F.3d 416, 420 (8th Cir. 1997) (“this Court uses the same standard as the
district court”), cert. denied, 523 U.S. 1004 (1998). Judgment as a matter of law is
appropriately granted, notwithstanding a jury verdict, when, upon viewing the
evidence in the light most favorable to the nonmoving party and without weighing
evidence or making credibility determinations, the court determines that the evidence
4
In Mawby v. United States, 999 F.2d 1252, 1254 (8th Cir. 1993), an appeal
from a bench trial, we held that it was not an abuse of discretion for the trial court to
permit an undisclosed witness to testify where there was no evidence of bad faith.
However, because of the element of surprise and because the evidence in question
turned out to be critical to the outcome of the trial court’s disposition of the case, this
court vacated the judgment and remanded the case to allow the opposing party an
opportunity to present rebuttal evidence as it had requested at trial.
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is not susceptible to any reasonable inference sustaining the nonmoving party’s
position. See id. at 420-21 (citing cases).
CCC argues that its motion for judgment as a matter of law should have been
granted because the evidence presented at trial did not reasonably support inferences
necessary to sustain the jury’s liability finding and damages awards. Regarding its
liability for negligent misrepresentation, CCC argues, among other things, that the
jury could not reasonably find that each plaintiff actually suffered a pecuniary loss
or that such losses were proximately caused by CCC’s alleged misrepresentations.
Regarding the $1.00 per plaintiff actual damages awards, CCC argues that nominal
damages may not be awarded on a negligent misrepresentation claim under Missouri
law5 or, alternatively, that the evidence at trial did not reasonably support a finding
that each plaintiff actually lost $1.00 as a proximate result of CCC’s
misrepresentations. Regarding the $15,000.00 per plaintiff punitive damages awards,
CCC argues that punitive damages may not stand in the absence of actual damages
under Missouri law or, alternatively, that the evidence at trial did not reasonably
support a finding of malice, as required for awarding punitive damages.
Upon de novo review, and for the reasons stated below, we hold that the district
court did not err in declining to set aside the jury’s finding of liability for negligent
misrepresentation or the jury’s actual damages awards in the amount of $1.00 per
plaintiff. However, we hold that the district court did err in failing to set aside the
$15,000.00 per plaintiff punitive damages awards.
5
We note that CCC’s argument is based upon the assumption that a $1.00 actual
damages award is a nominal award indicating that no pecuniary loss was actually
suffered. CCC does not argue, and we do not consider the argument, that plaintiffs’
actual losses were de minimis – in other words, that they were so small that they are
not compensable under the law.
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In order to find CCC liable for negligent misrepresentation under Missouri
law, the jury was required to find the following: (1) that CCC supplied information
in the course of its business; (2) that, because of CCC’s failure to exercise reasonable
care, the information was false; (3) that the information was intentionally provided
by CCC for a limited group of persons, including plaintiffs, in a particular business
transaction; (4) that plaintiffs justifiably relied on the information; and (5) that, due
to plaintiffs’ reliance on the information, they each suffered a pecuniary loss. See
Sanders v. Insurance Co. of North America, 42 S.W.3d 1, 9 (Mo. Ct. App. 2000)
(citing Wellcraft Marine v. Lyell, 960 S.W.2d 542, 546 (Mo. Ct. App. 1998) (citing
the Restatement (Second) of Torts § 552 (1997))). Upon viewing the evidence in the
light most favorable to plaintiffs, without weighing evidence or making credibility
determinations, we conclude that the jury reasonably could have drawn the necessary
factual inferences to satisfy each element of plaintiffs’ negligent misrepresentation
claim. The evidence readily showed that, in the course of recruiting students, CCC
intentionally provided prospective students (including plaintiffs) promotional
materials containing information regarding CCC’s clinical program, that those
materials gave false information about who would be responsible for recruiting
clinical patients, and that plaintiffs relied on that information. Moreover, viewing the
evidence in the proper light, we conclude that the jury reasonably could have inferred
from the evidence that CCC did not exercise reasonable care to ensure that its joint
responsibility policy was truthfully stated in its promotional materials and that
plaintiffs’ reliance upon those misleading materials was both justified and the
proximate cause of limited pecuniary losses – that is, the minor, but unexpected, costs
associated with having to find and recruit patients themselves for the clinic. We
therefore hold that the district court did not err in denying CCC’s motion for
judgment as a matter of law on the issue of CCC’s liability to plaintiffs for negligent
misrepresentation.
We now turn to CCC’s argument related to the jury’s actual damages awards.
In the present case, the district court instructed the jury on actual damages, not
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nominal damages. See Appendix, Vol. 7, at 2167 (Instruction No. 8). The verdict
form referred to actual damages, not nominal damages. See id. at 2166 (Verdict C-1).
However, because the jury awarded only $1.00 in actual damages to each plaintiff,
CCC argues that the jury was really awarding nominal damages, which are not
recoverable on a claim for negligent misrepresentation as a matter of Missouri state
law.
Interpretations of state law are reviewed on appeal de novo. See Salve Regina
College v. Russell, 499 U.S. 225, 231 (1991). In interpreting state law, we first
consider any pertinent decisions of the state’s highest court; if none are available, we
look to the lower courts’ decisions and other reliable state law authorities. Our task
is to determine how the state’s highest court would decide the issue at hand. See
Lindsay Mfg. Co. v. Hartford Accid. & Indem. Co., 118 F.3d 1263, 1267-68 (8th Cir.
1997). In the present case, no one disagrees with the proposition that, under Missouri
law, nominal damages are not recoverable on a negligent misrepresentation claim.
The critical question is whether, under the facts of this case, the jury’s awards of
$1.00 in actual damages to each plaintiff must be treated as awarding nominal
damages under Missouri law. CCC argues that Missouri case law suggests that they
must. We disagree.
Contrary to CCC’s argument, Walker Mobile Home Sales, Inc. v. Walker, 965
S.W.2d 271, 276-77 (Mo. Ct. App. 1998) (Walker), cannot be read for the blanket
proposition that “under Missouri law an award of $1.00 is nominal.” Reply Brief for
Appellant at 5 (emphasis original). In Walker, the jury had returned a verdict finding
no actual damages on a third-party fraud claim; then, after being ordered by the trial
court to reconsider, the jury returned a verdict of $1.00 in actual damages on the fraud
claim. Upon review, a Missouri appellate court held that the jury’s award of $1.00
“constituted nominal damages” because the party asserting the claim “was in the same
position he would have been in” absent the alleged fraud and he had “failed to
establish that he suffered any damages.” Id. at 277. Similarly, in MLJ Investments,
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Inc. v. Reid, 905 S.W.2d 900, 901-02 (Mo. Ct. App. 1995), a Missouri appellate court
vacated a $1.00 actual damages award on a claim of fraud, but explained: “[a]lthough
the instruction required the jury to find that there was damage, and we must assume
that it found damage, the finding is not supported by substantial evidence and cannot
stand.” Id. at 902 (emphasis added).6 No case cited by CCC, nor any other Missouri
case of which we are aware, holds that an award of $1.00 in actual damages must be
treated as an award of nominal damages without regard to the evidence of actual
damages.
As stated above, viewing the evidence in the light most favorable to plaintiffs,
and drawing all reasonable inferences in favor of the verdict, we conclude that the
jury could have found plaintiffs each entitled to a small amount of monetary
compensation for the costs of having to find and recruit patients for the clinic – costs
which plaintiffs would not have incurred had CCC provided an ample volume and
variety of clinical patients, as represented in the Viewbook. See Appendix, Vol. 7,
at 2130. Indeed, CCC recognizes that, under § 552B of the Restatement (Second) of
Torts, damages recoverable on a negligent misrepresentation claim may be measured
as the loss suffered as a result of the plaintiff’s reliance upon the misrepresentation.
See Brief for Appellant at 19-20. We therefore hold that the district court did not err
in denying CCC’s motion for judgment as a matter of law on the issue of actual
damages.
We now consider CCC’s argument that the jury’s $15,000.00 per plaintiff
punitive damages awards should be vacated, even if the actual damages awards are
not vacated, because the jury could not reasonably find, by clear and convincing
6
In MLJ Investments, Inc. v. Reid, 905 S.W.2d 900 (Mo. Ct. App. 1995), the
plaintiffs had asked for a verdict of $1.00 in actual damages and for punitive
damages. The jury returned a verdict finding $1.00 in actual damages, as requested,
and an additional $50,000 in punitive damages. The state court of appeals vacated
the actual damages award and the punitive damages award.
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evidence, that CCC consciously disregarded or was completely indifferent to the
rights of plaintiffs. See, e.g., Rodriguez v. Suzuki Motor Corp., 936 S.W.2d 104, 111
(Mo. 1996) (en banc) (clear and convincing standard of proof applies to claims for
punitive damages); Alack v. Vic Tanny Int’l of Missouri, Inc., 923 S.W.2d 330, 339
(Mo. 1996) (en banc) (Alack) (under Missouri law, punitive damages require
conscious disregard or complete indifference to the rights of others). Because the
jury found CCC liable for negligent misrepresentation, but not for fraud, CCC argues,
the jury had to have determined, by a preponderance of the evidence, that CCC failed
to exercise reasonable care, not that it engaged in deliberate or reckless wrongdoing.
It follows, CCC argues, that, if the jury did not find deliberate or reckless wrongdoing
under the preponderance standard, it could not have found conscious disregard or
complete indifference under the clear and convincing standard, as required to support
punitive damages under Missouri law. CCC additionally suggests that no reasonable
jury could have found grounds for awarding punitive damages in light of the evidence
of CCC’s good faith reliance on its CCE and NCACS accreditations.
Plaintiffs argue in response that they established a sufficient basis for the
punitive damages awards by showing that CCC deliberately concealed material
information from prospective students, knowing that, by the time students learned the
truth, they would be financially committed to CCC. For example, they argue, CCC’s
founder and president, Dr. Cleveland, testified that he could not explain why CCC
had promised CCE in 1989 that it would disclose in the student handbook that patient
recruitment was a “joint responsibility” between the school and student, and yet no
such disclosure was added to the handbook until 1996. Plaintiffs also maintain that
they sufficiently disproved CCC’s alleged good faith reliance on its CCE and NCACS
accreditations – by showing, for example, that the CCE evaluation teams did not
genuinely consider student input, that the CCE is a self-regulating coalition of
chiropractic colleges (which formerly had Dr. Cleveland as its president), and that
CCE has a history of rubber stamping its members’ accreditations.
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As stated above, we are of the opinion that the evidence at trial sufficiently
supported the jury’s findings, by a preponderance of the evidence, that CCC
disseminated false information to prospective students, that the information was false
as a result of CCC’s failure to exercise reasonable care, and that plaintiffs suffered
a pecuniary loss, albeit small, as a result of their justified reliance on that false
information. However, the standards under Missouri law for awarding punitive
damages required the jury to make the additional finding, by clear and convincing
evidence, that CCC knew or should have known that its dissemination of false
information would likely cause injury. We hold that a reasonable jury could not have
made such a finding even though, as plaintiffs emphasize, CCC knew or should have
known of the discrepancy between what was represented in its promotional materials
and what was stated in the clinic manual (which reflected the truth). See Brief for
Appellees at 19. The Missouri Supreme Court has explained that “[n]ot every
misrepresentation of fact justifies submission of punitive damages.” Kansas City v.
Keene Corp., 855 S.W.2d 360, 375 (Mo. 1993) (en banc) (per curiam) (affirming the
trial court’s decision to grant a motion for judgment notwithstanding the verdict and
vacate a punitive damages award based on fraud) (citing McDonald v. Ozark
Machinery Co., 720 S.W.2d 42, 44 (Mo. Ct. App. 1986) (affirming the trial court’s
decision to grant a motion for directed verdict for the defendant on the plaintiff’s
fraud claim and related punitive damages request)). “The evidence must show that,
at the time of the act complained of, the defendant had knowledge of a high degree
of probability of injury to a specific class or persons.” Alack, 923 S.W.2d at 339.
Upon careful review of the record in the present case, we conclude that the evidence
simply does not reasonably support a finding, by clear and convincing evidence, that
CCC knew or should have known of a high probability that its misrepresentations
regarding patient availability in its clinic would result in injury or loss to its students.
We therefore hold that the district court erred under Missouri law in denying CCC’s
motion for judgment as a matter of law on the issue of punitive damages.
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Conclusion
The judgment of the district court is affirmed in part and reversed in part, and
the case is remanded to the district court for further proceedings consistent with this
opinion.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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