Unpublished Disposition, 895 F.2d 1417 (9th Cir. 1988)

MEMORANDUM^* 

The Hillhaven Corporation and Hillhaven West Corporation (collectively "Hillhaven") appeal the district court's judgment in favor of Carol Mathison on her wrongful discharge and defamation claims against Hillhaven. It argues that the district court erred in excluding evidence of Mathison's alleged abuse of patients at another facility subsequent to her discharge; in allowing the jury to consider a tape recording of Mathison's unemployment compensation proceeding; and in refusing to permit Hillhaven to depose Mathison's expert witness. Hillhaven also appeals the district court's decision to grant Mathison a jury trial in spite of the parties' stipulation to a nonjury trial. Further, Hillhaven contends that the court erred in instructing the jury that it could award Mathison the value of lost employee benefits as well as the present value of future losses. We reverse the district court's award of compensatory damages and remand for retrial solely on that issue.

* The defendant, Hillhaven, owns a nursing home in Red Lodge, Montana. On August 1, 1984, the plaintiff, Mathison, was hired by the nursing home as a nurse's aide. Hillhaven terminated her employment on December 9, 1985.

Hillhaven argues that it properly discharged Mathison for physically abusing patients. David Murphy, the Administrator of the nursing home, testified that, on or about December 7, 1985, he heard Mathison slap a patient, Mr. Suomi, on the face. He further testified that, immediately after hearing the slap, he looked up and saw Mathison's hand a few inches from Suomi's face and observed the red imprint of her hand on his face. Mathison's coworker and personal friend, Joan Gappert, also testified that she observed Mathison slap the patient.

Murphy testified that he discussed the incident with Mathison and advised her that she was subject to discharge, but that until he had an opportunity to discuss the matter with his Director of Nursing Services, she could continue working, provided she teamed up with another employee.

Murphy further testified that two days later, on December 9, 1985, Ms. Shirley Pfeiffer, the nursing home's Social Services Director, reported to him complaints that Mathison had abused a second patient. Pfeiffer reported that patient Mae Walimaki complained to Pfeiffer that Mathison had left her alone on the bathroom floor and did not return to assist her.

Mathison denies the allegations of abuse. Although she admits occasionally placing her hand over Suomi's mouth, she denies striking him. In the case of Walimaki, she claims that she acted properly. She claims that she could not lift her from the toilet, so she slid her down her leg to the floor and went to get help.

Mathison admits speaking with Murphy on December 7, but contends that it was in regard to a workmen's compensation matter. Mathison testified that she also spoke with Murphy during the week of December 2, 1985 to request a leave of absence to assist her husband after his operation scheduled to take place on December 11, 1985. She contends that this was the actual reason for her discharge.

Both parties agree that on December 9, 1985, Murphy called Mathison into his office and told her of the allegations and evidence against her and ultimately fired her. The parties disagree on the extent to which she was given an opportunity to defend herself.

On February 24, 1986, Mathison filed this action in the United States District Court for the District of Montana. The complaint alleged: (1) wrongful discharge as a result of breach of contract; (2) breach of the implied covenant of good faith and fair dealing resulting from Hillhaven's alleged negligent failure to investigate adequately the basis of Mathison's discharge; (3) defamation; and (4) a blacklisting of Mathison from subsequent employment.

In its answer, Hillhaven raised several defenses, including the defense that it properly discharged Mathison because she abused two of its patients. Hillhaven also demanded a jury trial. However, the parties later stipulated to a nonjury trial.

On September 21, 1987, Judge James F. Battin presided over the nonjury trial of this action. On September 23, 1987, after two days of motions and testimony, Judge Battin ordered a mistrial and transferred the case to another judge within the District of Montana.

On retrial, Judge Paul G. Hatfield granted Mathison's motion for a jury trial under Fed. R. Civ. P. 39(b). On June 21, 1987, the jury returned a verdict in favor of Mathison in the amount of $55,830.00 compensatory damages and $54,100.00 punitive damages. The causes of action which the court allowed the jury to deliberate were breach of the implied covenant of good faith and fair dealing, negligent discharge, and defamation.

On July 11, 1988, Hillhaven filed its motion for a new trial on liability and damages, or alternatively to remit damages. The court denied Hillhaven's motion on October 24, 1988. On November 17, 1988, Hillhaven filed its notice of appeal.

II

In her statement of jurisdiction, Mathison argues that Hillhaven failed to file a timely appeal and that, therefore, this court lacks jurisdiction. This argument is without merit. The district court entered judgment on June 23, 1988. Hillhaven filed its motion for a new trial on July 11, 1988. However, it served its motion by mail on July 8, 1988.

Fed. R. Civ. P. 59(b) requires that such motions be served within ten days of the entry of judgment. However, Fed. R. Civ. P. 6(a) states that in computing the time prescribed, the day of entry, weekends and holidays are not counted. In Hoffman v. Gen. Motors Acceptance Corp., 814 F.2d 1385, 1387-88 (9th Cir. 1987) (per curiam), we held that Rule 6(a) applies to motions under Rule 59.

Pursuant to Rule 6(a), the tenth day following the entry of judgment was July 8, 1988. Under Fed. R. Civ. P. 5(b) service by mail is complete upon mailing. Therefore, Hillhaven complied with Rule 59, thus tolling the time in which to file its notice of appeal. See Fed. R. App. P. 4(a) (4). Contrary to Mathison's assertions, Hillhaven was not required to file its motion for a new trial within ten days. Instead, under Fed. R. Civ. P. 5(d), Hillhaven was merely required to file its motion "before service or within a reasonable time thereafter...."

The district court denied Hillhaven's motion for a new trial on October 24, 1988. Hillhaven's notice of appeal, filed November 17, 1988, was well within the thirty days permitted under Fed. R. App. P. 4(a).

III

Hillhaven argues that the district court erred in excluding evidence of Mathison's alleged patient abuse at Yellowstone County Nursing Home subsequent to her discharge from Hillhaven's nursing home. Hillhaven argues that this evidence is admissible: (1) under Fed.R.Evid. 404(b) to show Mathison's intent or absence of mistake or accident; (2) under Fed.R.Evid. 406 to demonstrate a pattern of abusive conduct; (3) to impeach Mathison; (4) under 404(a) because Mathison opened the door to the introduction of such evidence by making her character an issue; and (5) to mitigate the damages awardable to Mathison because of Hillhaven's alleged defamatory conduct.

Evidentiary rulings are reviewed for an abuse of discretion. Roberts v. College of the Desert, 870 F.2d 1411, 1418 (9th Cir. 1988); Jauregui v. City of Glendale, 852 F.2d 1128, 1132 (9th Cir. 1988). Under this standard, a reviewing court cannot reverse unless it has a definite and firm conviction that the court below committed a clear error of judgment in the conclusion it reached upon a weighing of the relevant factors. Abatti v. Commissioner, 859 F.2d 115, 117 (9th Cir. 1988).

The district court did not abuse its discretion. The evidence in question is inadmissible under Fed.R.Evid. 404(b):

Evidence of other crimes, wrongs, or acts is not admissible to prove the character of a person in order to show action in conformity therewith. It may, however, be admissible for other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident.

In the cases cited by Hillhaven, the disputed evidence was offered to establish the intent or motive of a party to the suit, which was relevant to the underlying issues in the case. See Hill v. Bache Halsey Stuart Shields, Inc., 790 F.2d 817, 825-26 (10th Cir. 1986) (Evidence of customer's subsequent trades with other brokerage firm is admissible in a suit by the customer against his former broker as it shows his intentions and degree of sophistication--mental elements at issue in the case.); Dial v. Travelers Indem. Co., 780 F.2d 520, 523-24 (5th Cir. 1986) (Evidence of subsequent fires is admissible as evidence of insured's motive or intent in allegedly setting fires to his property intentionally rather than through negligence.); Farmers' Co-op Ass'n of Talmage, Kan. v. Strunk, 671 F.2d 391, 395 (10th Cir. 1982) (Evidence of bankrupt's continuing to write checks on his account is admissible to show his having acted knowingly and fraudulently in concealing assets.). Mathison's intent is not at issue in this case, though Hillhaven's is. Hillhaven seeks to introduce the evidence of subsequent abuse to show that Mathison acted in conformity on two occasions at Hillhaven's nursing home. This is exactly what Fed.R.Evid. 404(b) is intended to prevent. See Hirst v. Gertzen, 676 F.2d 1252 (9th Cir. 1982) (Evidence of deputy's previous acts of violence against Native Americans is not admissible in Sec. 1983 action for murder of a Native American prisoner.).¹ 

Additionally, the court did not abuse its discretion in refusing to allow the use of the evidence of subsequent abuse to impeach Mathison. Although the evidence is arguably inconsistent with her answer to one interrogatory the interrogatory and answer were not admitted into the trial record. None of her testimony at trial was directly inconsistent. Therefore, the evidence could only serve to impugn her credibility in general. The district court appropriately held that the evidence was inadmissible for impeachment purposes because its probative value was substantially outweighed by the danger of unfair prejudice. See Fed.R.Evid. 403. In fact, the district judge believed that the evidence was so prejudicial that permitting its use would be tantamount to directing the verdict for Hillhaven.

Further, contrary to Hillhaven's contentions, Mathison did not open the door to the introduction of the evidence by raising the issue of her character. Hillhaven argues that Mathison's testimony such as: "Well, I was shocked and naturally hurt and very upset to think that they would ever accuse me of something like this ..." as well as her unemployment compensation testimony: "I consider myself a very good aide and I did not do anything wrong, and I am awfully tired of being degraded and treated like a criminal," and her attorney's closing argument that "We are as we are. We don't change in a week, and we don't change in two weeks. It is inconceivable that Mrs. Mathison would have done the things that she's accused of ..." all served to put her character at issue and opened the door for Hillhaven's rebuttal under Fed.R.Evid. 404(a) (1). However, such statements are only indirect assertions of good character at best and hardly " [e]vidence of a pertinent trait of character offered by an accused." Fed.R.Evid. 404(a) (1). Further, even if Rule 404(a) is met, the district court was within its discretion in excluding the evidence under Fed.R.Evid. 403. As previously described, "Rule 403 gives the court the discretion to exclude otherwise admissible evidence when the probative value of that evidence is 'substantially outweighed' by, among other things, 'unfair prejudice.' " V. Gold, Federal Rule of Evidence 403: Observations on the Nature of Unfairly Prejudicial Evidence, 58 Wash.L.Rev. 497 (1983).

Finally, it was also within the court's discretion to refuse the use of the evidence to mitigate the damages awardable to Mathison due to Hillhaven's defamatory conduct. Again, the risk of prejudice was great in relation to the probative value of the evidence. Further, there was no evidence that the information was published or released to others or of a negative impact on Mathison from the Yellowstone Nursing Home incident.

IV

Following her discharge by Hillhaven, Mathison applied for unemployment compensation. Consequently, she and Murphy participated in a telephone hearing to determine her eligibility. Such proceedings are privileged under Mont.Code.Ann. Sec. 27-1-804(2). This statute provides: "A privileged publication is one made ... (2) in any legislative or judicial proceeding or in any other official proceeding authorized by law...." Mont.Code Ann. Sec. 27-1-804(2). Hillhaven argues that the district court erred in ruling that the unemployment compensation proceeding was privileged only with respect to Mathison's defamation claim.

The court did not abuse its discretion in admitting the recording and transcript of the proceeding for purposes other than Mathison's defamation claim. The Montana statute appears in "Part 8. Libel and Slander" of the Montana Code. The preceding sections define libel and slander as false and unprivileged publications other than certain enumerated exceptions. Mont.Code Ann. Secs. 27-1-802, -803 (1989). Section 27-1-804 then defines what statements are privileged. The statutes thus confer immunity from suit for defamation. This immunity or privilege has been construed as being absolute and "therefore unaffected by the presence of malice." Skinner v. Pistoria, 633 P.2d 672, 675-76 (Mont.1981).

Every recorded case construing this statute has involved the issue of whether such evidence was admissible to establish a person's liability for defamation. There are no cases regarding the use of such testimony for impeachment. In other contexts, courts have held that otherwise privileged testimony is admissible for impeachment. See Harris v. New York, 401 U.S. 222 (1971) (statements to police may be used to impeach defendant even though obtained in violation of Miranda); United States v. Neal, 743 F.2d 1441 (10th Cir. 1984), cert. denied, 470 U.S. 1086 (1985) (Otherwise inadmissible testimony involving the marital communications privilege can be used to impeach a defendant who testified on his own behalf.). The district court prohibited the jury from considering the evidence with regard to Mathison's defamation claim. The court was within the bounds of its discretion in refusing to extend the privilege so as to preclude the use of the testimony for purposes of impeachment.

V

Hillhaven also argues that the court erred in refusing to permit Hillhaven to depose Mathison's expert witness.²  Hillhaven claims that " [Mathison] knowingly and calculatingly waited to identify her expert until after both the discovery deadline had passed and discovery had expired." Therefore, "Hillhaven had insufficient knowledge of the substance of the testimony of Mathison's expert and could not adequately prepare its defense, cross-examine, or impeach Mathison's expert." Hillhaven's claims are without merit.

"A district court is vested with broad discretion to make discovery and evidentiary rulings conducive to the conduct of a fair and orderly trial." Campbell Industries v. M/V Gemini, 619 F.2d 24, 27 (9th Cir. 1980). The court found "no facts in the record indicating [Mathison's] counsel knowingly concealed the name of the expert witness" in violation of Fed. R. Civ. P. 26(e). There is certainly nothing in the record on appeal to contradict the district court's finding.

Additionally, despite Hillhaven's claims that it had insufficient time to prepare and that it was surprised by elements of the expert's testimony, the record indicates otherwise. Mathison disclosed her employment expert to the defendants in accordance with Rule 26(e) on August 5, 1987, forty-five days before the trial. Further, she also disclosed the substance of the facts and opinion to which the expert later testified. Contrary to Hillhaven's assertions, the areas of the expert's testimony it describes as not having been articulated by Mathison in her supplemental interrogatory answer were in fact more than adequately articulated in that document. Given Mathison's supplemental interrogatory answer, Hillhaven's employee manuals, and access to its own management, Hillhaven had adequate time and prior warning to prepare for the expert's testimony. Its decision not to hire its own employment expert to assist in its preparation may have been improvident but is hardly a basis for finding an abuse of discretion by the court.

The district court held that it had granted sufficient time for discovery. See Fed. R. Civ. P. 26(b) (1) ("use of the discovery methods set forth in subdivision (a) shall be limited by the court if it determines that ... (ii) the party seeking discovery has had ample opportunity by discovery in the action to obtain the information sought"). It had already granted one continuance at Hillhaven's request. It did not abuse its discretion in refusing to permit further discovery. See Kyle Engineering Co. v. Kleppe, 600 F.2d 226, 231 (9th Cir. 1979) (district court did not abuse "the very wide discretion it is allowed in handling pretrial discovery" in vacating a notice of deposition and setting a date for the end of discovery).

VI

Further, Hillhaven contends that the district court erred in granting Mathison's motion for a jury trial pursuant to Fed. R. Civ. P. 39(b). Although Hillhaven initially demanded a jury trial, it subsequently waived its demand and the parties stipulated to a nonjury trial. Hillhaven argues that the court abused its discretion in releasing Mathison from this stipulation and that Fed. R. Civ. P. 39(b) does not apply to situations where a party has stipulated to a nonjury trial. It alleges that it was prejudiced by the court's decision because it had based its preparation on the expectation of a nonjury trial.

We have stated that:

Stipulations are entered into in order to dispense with proof over matters not in issue, thereby promoting judicial economy at the convenience of the parties. Courts thus enforce stipulations as a general rule, absent circumstances tending to negate a finding of informed and voluntary assent of a party to the agreement. [However] [a] district court's decision to relieve a party from a stipulation will not be reversed when the party has entered into it by inadvertence and the opposing party would not be prejudiced (i.e., treated unfairly) by setting the agreement aside.

United States v. McGregor, 529 F.2d 928, 931-32 (9th Cir. 1976) (citations omitted). "The rule is that ' [r]elief can be granted from a stipulation to prevent manifest injustice.' " United States v. Montgomery, 620 F.2d 753, 757 (10th Cir.), cert. denied, 449 U.S. 882 (1980).

When Mathison consented to a nonjury trial, she apparently did not know that the Yellowstone County Nursing Home evidence would be an issue in the case. The evidence is highly prejudicial. Its disclosure to Judge Battin may well have instigated the mistrial. Judge Hatfield stated that admitting the evidence would be tantamount to directing a verdict for Hillhaven. It is unlikely that a trier of fact could resolve motions involving this evidence and remain untainted by its prejudicial effect. Therefore, it might have resulted in "manifest injustice" to have held Mathison to this stipulation. The district court was in the best position to make this determination. It did not abuse its discretion in releasing Mathison from the stipulation. See Morrison v. Genuine Parts Co., 828 F.2d 708, 709 (11th Cir. 1987), cert. denied, 484 U.S. 1065 (1988) ("the district court has broad discretion in determining whether to hold a party to its stipulation") (citing Coastal States Marketing, Inc. v. Hunt, 694 F.2d 1358, 1369 (5th Cir. 1983)); In re Westinghouse Elec. Corp., 570 F.2d 899, 902 (10th Cir. 1978) ("The court may relieve a party from an improvident agreement or one that might work injustice."); Cates v. Morgan Portable Bldg. Corp., 780 F.2d 683, 690 (7th Cir. 1985) ("Although stipulations are to be encouraged in order to economize on the costs of litigations, a judge has the power to relieve a party from a stipulation when it is reasonable to do so....").

In addition to its general discretionary power to release Mathison from her stipulation, the court also has discretionary authority to grant a motion for a jury trial pursuant to Fed. R. Civ. P. 39(b). Other circuits have held that district courts should grant such motions absent strong and compelling reasons to the contrary. Parrott v. Wilson, 707 F.2d 1262, 1267 (11th Cir.), cert. denied, 464 U.S. 936 (1983); United States v. Unum, Inc., 658 F.2d 300, 303 (5th Cir. 1981). However, this circuit has held that the court's "discretion is narrow ... and does not permit a court to grant relief when the failure to make a timely demand results from an oversight or inadvertence." Lewis v. Time, Inc., 710 F.2d 549, 556-57 (9th Cir. 1983).

It is ironic under the circumstances that we have held that a party may be released from a stipulation entered into inadvertently but have also held that a party may not be granted a jury trial when he has failed to make a demand due to his inadvertence. However, our use of the word "inadvertence" should not stymie the district court from taking measures necessary to prevent manifest injustice. Mathison did not simply forget to demand a jury trial. She apparently believed a nonjury trial would be less expensive and time consuming. However, when it became apparent that certain highly prejudicial evidence was going to be before the court, the decision to waive a jury trial and stipulate to a nonjury trial was found to be highly improvident. Further, Hillhaven has failed to show that it was prejudiced by the court's decision. Hillhaven originally demanded a jury trial and the motion was granted over four months before the trial. The district court acted within its discretion in granting Mathison's motion for a jury trial.

VII

Finally, Hillhaven argues that the district court erred in instructing the jury with regard to damages. First, Hillhaven argues, the court erred in instructing the jury that damages "may include ... reasonably expected pay raises, interest and inflation ..." as well as "employee benefits including pension benefits, medical insurance, [and] life insurance...." Hillhaven claims that the giving of the instruction was error because Mathison failed to introduce evidence on such employment benefits.

Second, Hillhaven argues that the court erred in instructing the jury that it could award damages "for any loss of earning capacity reasonably certain to be lost in the future as a result of the termination." The court further instructed the jury that "in considering the loss of future earnings sustained by Carol Mathison, if any, you should first reduce these future damages to present value, using a reasonable rate of discount for this purpose." Hillhaven claims that the giving of the instructions was improper because Mathison failed to introduce any evidence regarding whether any future losses would occur and how to derive the present value of any such future losses.

"Jury instructions are considered as a whole to determine if they are misleading or inadequate." United States v. Beltran-Rios, 878 F.2d 1208, 1214 (9th Cir. 1989). "The trial judge has substantial latitude in tailoring the instructions, and challenges to the formulation adopted by the court are reviewed for abuse of discretion." Id. The reviewing court's inquiry is "whether, considering the charge as a whole, the court's instructions fairly and adequately covered the issues presented, correctly stated the law, and were not misleading." Thorsted v. Kelly, 858 F.2d 571, 573 (9th Cir. 1988). Further, an error in instructing the jury in a civil case does not require reversal if it is more probably than not harmless. Coursen v. A.H. Robins Co., 764 F.2d 1329, 1337 (9th Cir. 1985) (citing Haddad v. Lockheed California Corp., 720 F.2d 1454, 1459 (9th Cir. 1983)).

The district court erred in giving the instructions. With respect to the first set of instructions--those concerning employee benefits--the court apparently considered Mathison's pay stubs from Hillhaven's nursing home to be sufficient evidence to support an award for the loss of employment benefits, including medical insurance benefits. However, we have held that a plaintiff may recover for lost insurance benefits only where he has purchased substitute insurance coverage or incurred out-of-pocket medical expenses that would otherwise have been covered. Galindo v. Stoody Co., 793 F.2d 1502, 1517 (9th Cir. 1986). There was no evidence that Mathison purchased other insurance or incurred previously covered medical expenses during her period of unemployment.

The court also erred in instructing the jury to consider inflation and to reduce future losses to present value. We have held that the burden is on the defendant to introduce evidence of an appropriate discount rate and on the plaintiff to introduce evidence regarding inflation. Absent such evidence the jury should not be instructed to make the relevant adjustment. See Alma v. Manufacturers Hanover Trust Co., 684 F.2d 622, 626 (9th Cir. 1982); accord Little v. Grizzly Mfg., 636 P.2d 839, 843 (Mont.1981) ("there was insufficient evidence on which the jury could have considered inflation"). In this case neither party introduced evidence of inflation or of an appropriate discount rate.

Because the jury did not specify the components of its award for compensatory damages, it is impossible to determine the degree to which the award reflects the erroneous instructions. The Montana courts have held that " ' [o]n appeal, prejudice is never presumed, and a judgment will not be reversed merely because the lower court erred....' " State Highway Commission v. Churchwell, 403 P.2d 751, 754 (Mont.1965) (quoting Conway v. Fabian, 89 P.2d 1022, 1037 (Mont.1939). However, a reviewing court will not disregard an error where " 'substantial rights' might well have been affected." Id. In this case, it is likely that the jury's award of compensatory damages was affected by the erroneous instructions. Although the instruction regarding employment benefits included the qualifying words "if any," the jury was never instructed that the plaintiff must actually incur medical or insurance expenses to be eligible for such compensation. Instead, the jury was shown the plaintiff's pay stubs which indicated the premiums for these benefits. This invited the jury to err by awarding an amount derived from these premiums. Consequently, the erroneous instruction cannot be considered harmless error.³ 

Further, the jury was instructed to adjust the award of future losses for inflation and to reduce the award to present value. It is very likely that the jury followed this instruction in arriving at its award for compensatory damages. It was reversible error for the jury to make this adjustment "in the absence of specific guidelines derived from the evidence." Little, 636 P.2d at 843. Consequently, we reverse the district court's judgment and remand for retrial solely on the issue of compensatory damages. We affirm the judgment on all other counts.

AFFIRMED in part; REVERSED and REMANDED in part.