NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Lumber Co., 200 U. S. 321, 337.

SUPREME COURT OF THE UNITED STATES

Syllabus

GASPERINI v. CENTER FOR HUMANITIES, INC.

certiorari to the united states court of appeals for the second circuit

No. 95–719. Argued April 16, 1996—Decided June 24, 1996

Under the law of New York, appellate courts are empowered to review the size of jury verdicts and to order new trials when the jury's award "deviates materially from what would be reasonable compensation." N. Y. Civ. Prac. Law and Rules (CPLR) §5501(c). Under the Seventh Amendment, which governs proceedings in federal court, but not in state court, "the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law." The compatibility of these provisions, in an action based on New York law but tried in federal court by reason of the parties' diverse citizenship, is the issue the Court confronts in this case.

Petitioner Gasperini, a journalist and occasional photographer, loaned 300 original slide transparencies to respondent Center for Humanities, Inc. When the Center lost the transparencies, Gasperini commenced suit in the United States District Court for the Southern District of New York, invoking the court's diversity jurisdiction. The Center conceded liability. After a trial on damages, a jury awarded Gasperini $1,500 per transparency, the asserted ``industry standard'' of compensation for a lost transparency. Contending, inter alia, that the verdict was excessive, the Center moved for a new trial. The District Court, without comment, denied the motion.

The Court of Appeals for the Second Circuit, observing that New York law governed the controversy, endeavored to apply CPLR §5501(c) to evaluate the Center's contention that the verdict was excessive. Guided by New York Appellate Division decisions reviewing damage awards for lost transparencies, the Second Circuit held that the $450,000 verdict "materially deviates from what is reasonable compensation." The court vacated the judgment entered on the jury verdict and ordered a new trial, unless Gasperini agreed to an award of $100,000.

Held: New York's law controlling compensation awards for excessiveness or inadequacy can be given effect, without detriment to the Seventh Amendment, if the review standard set out in CPLR §5501(c) is applied by the federal trial court judge, with appellate control of the trial court's ruling confined to "abuse of discretion." Pp. 5–23.

(a) To heighten the judicial check on the size of jury awards, New York codified the ``deviates materially'' standard of review, replacing the judge-made ``shock the conscience'' formulation previously used in New York courts. In design and operation, §5501(c) influences outcomes by tightening the range of tolerable awards. Although phrased as a direction to New York's intermediate appellate courts, §5501(c)'s "deviates materially" standard, as construed by New York's courts, instructs state trial judges as well. Pp. 5–9.

(b) In cases like Gasperini's, in which New York law governs the claims for relief, the Court must determine whether New York law also supplies the test for federal-court review of the size of the verdict. Federal diversity jurisdiction provides an alternative forum for the adjudication of state-created rights, but it does not carry with it generation of rules of substantive law. Under the doctrine of Erie R. Co. v. Tompkins, 304 U. S. 64, federal courts sitting in diversity apply state substantive law and federal procedural law. Classification of a law as "substantive" or "procedural" for Erie purposes is sometimes a challenging endeavor. Guaranty Trust Co. v. York, 326 U. S. 99, an early interpretation of Erie, propounded an "outcome-determination" test: "[D]oes it significantly affect the result of a litigation for a federal court to disregard a law of a State that would be controlling in an action upon the same claim by the same parties in a State court?" Id., at 109. A later pathmarking case, qualifying Guaranty Trust, explained that the "outcome-determination" test must not be applied mechanically to sweep in all manner of variations; instead, its application must be guided by "the twin aims of the Erie rule: discouragement of forum-shopping and avoidance of inequitable administration of the laws." Hanna v. Plumer, 380 U. S. 460, 468.

Informed by these decisions, the Court concludes that, although §5501(c) contains a procedural instruction assigning decisionmaking authority to the New York Appellate Division, the State's objective is manifestly substantive. More rigorous comparative evaluations attend application of §5501(c)'s "deviates materially" standard than the common law "shock the conscience" test. If federal courts ignore the change in the New York standard and persist in applying the "shock the conscience" test to damage awards on claims governed by New York law, "`substantial' variations between state and federal [money judgments]" may be expected. See id., at 467–468. The Court therefore agrees with the Second Circuit that New York's check on excessive damages warrants application in federal court, for Erie's doctrine precludes a recovery in federal court significantly larger than the recovery that would have been tolerated in state court. Pp. 9–14.

(c) Nonetheless, when the Second Circuit used §5501(c) as the standard for federal appellate review, it did not attend to "[a]n essential characteristic of [the federal court] system." Byrd v. Blue Ridge Rural Elec. Cooperative, Inc., 356 U. S. 525, 537. The Seventh Amendment, which governs proceedings in federal court, but not in state court, bears not only on the allocation of trial functions between judge and jury, the issue in Byrd; it also controls the allocation of authority to review verdicts, the issue of concern here. In keeping with the historic understanding, the Seventh Amendment's re-examination clause does not inhibit the authority of trial judges to grant new trials "for any of the reasons for which new trials have heretofore been granted in actions at law in the courts of the United States." Fed. Rule Civ. Proc. 59(a). In contrast, appellate review of a federal trial court's denial of a motion to set aside a jury's verdict as excessive is a relatively late, and less secure, development. Such review, once deemed inconsonant with the Seventh Amendment's re-examination clause, has not been expressly approved by this Court before today. See, e.g., Browning-Ferris Industries of Vt., Inc. v. Kelco Disposal, Inc., 492 U. S. 257, 279, n. 25. Circuit decisions unanimously recognize, however, that appellate review, confined to abuse of discretion, is reconcilable with the Seventh Amendment as a control necessary and proper to the fair administration of justice. The Court now approves this line of decisions. Pp. 14–20.

(d) In this case, the principal state and federal interests can be accommodated. New York's dominant interest in having its substantive law guide the allowable damages arising out of a state-law claim for relief can be respected, without disrupting the federal system, once it is recognized that the federal district court is capable of applying the State's "deviates materially" standard. The Court recalls, in this regard, that the "deviates materially" standard serves as the guide to be applied in trial as well as appellate courts in New York. Within the federal system, practical reasons combine with Seventh Amendment constraints to lodge in the district court, not the court of appeals, primary responsibility for application of §5501(c)'s check. District court applications of the "deviates materially" standard would be subject to appellate review under the standard the Circuits now employ when inadequacy or excessiveness is asserted on appeal: abuse of discretion. Pp. 21–23.

(e) It does not appear that the District Court checked the jury's verdict against the relevant New York decisions. Accordingly, the Court vacates the judgment of the Court of Appeals and instructs that court to remand the case to the District Court so that the trial judge, revisiting his ruling on the new trial motion, may test the jury's verdict against CLPR §5501(c)'s "deviates materially" standard. P. 23.

66 F. 3d 427, vacated and remanded.

Ginsburg, J., delivered the opinion of the Court, in which O'Connor, Kennedy, Souter, and Breyer, JJ., joined. Stevens, J., filed a dissenting opinion. Scalia, J., filed a dissenting opinion, in which Rehnquist, C. J., and Thomas, J., joined.