Opinion ID: 3035486
Heading Depth: 1
Heading Rank: 4

Heading: Motion to Bifurcate the Trial

Text: PwC challenges the District Court’s denial of its motion to bifurcate the trial and to try the Commissioner’s claims against PwC and Chait separately. Federal Rule of Civil Procedure Rule 42(b) governs a request by a party to bifurcate a trial and provides: “[f]or convenience, to avoid prejudice, or to expedite and economize, the court may order a separate trial of one or more separate issues [or] claims . . . .” Fed. R. Civ. P. 42(b). We review the denial of a motion to bifurcate a trial pursuant to Federal Rule of Civil Procedure 42(b) for abuse of discretion. Barr Laboratories, Inc. v. Abbott Laboratories, 978 F.2d 98, 105 (3d Cir. 1992); see also Idzojtic v. Pennsylvania R.R. Co., 456 F.2d 1228, 1230 (3d Cir. 1972) (“The district court is given broad discretion in reaching its decision whether to separate the issues of liability and damages”). PwC argues that because the District Court entered a default against Chait’s estate six weeks before trial for failure to respond to a court order, it was improper that he remained a defendant at the trial on PwC’s liability. According to PwC, the District Court’s failure try the claims against the Commissioner separately resulted in an unfair trial, forcing PwC to defend Chait because of the 26 doctrine of joint and several liability.14 PwC contends that its liability, as the non-defaulting defendant, should have been determined in a separate trial. PwC also asserts that the District Court’s charge regarding the default judgment against Chait’s estate made it impossible for the jury to find PwC not liable. In denying PwC’s motions for separate trials the District Court ruled that: (1) the entry of a default rather than a default judgment, which the Court did not enter until the close of evidence, left certain issues to the jury for a final judgment; (2) the proper apportionment of fault against all parties was an appropriate consideration for the jury; and (3) evidence relating to the audit environment and Chait’s conduct was relevant and properly before the jury. In denying PwC’s post-judgment motion for a new trial based, in part, on the denial of its bifurcation request, the District Court found that “[m]uch of the evidence [regarding Chait’s culpability] was admissible to establish the particulars of PwC’s alleged negligence.” (App. 291-92.) PwC’s arguments that it was prejudiced by Chait’s presence at the trial and was forced to defend his actions are unpersuasive. Eliminating Chait as a defendant would have eliminated little of the evidence presented at trial. As PwC’s counsel conceded at oral argument, the jury would have heard evidence of Chait’s wrongdoing even in a bifurcated trial. PwC chose to defend Chait not only because of joint and several liability, but also to defend 14 PwC asserts that the District Court’s failure to order a separate trial as to PwC forced PwC to “[d]efend the absent Chait due to the claim of joint and several liability” and caused PwC to suffer “guilt by association” with Chait. (Appellant Br. at 55.) PwC further asserts that the Commissioner’s liability theories against Chait and PwC were inextricably linked. That is, the Commissioner contended that Coopers was negligent in failing to discover and report Chait’s mismanagement of Ambassador. Thus, according to PwC, with Chait included as a defendant, the Commissioner was able to focus on the allegations of mismanagement by Chait and PwC suffered the “spillover” harm from “guilt by association.” (Appellant Br. at 59 (quotations omitted).) 27 PwC’s conclusion that at the time of the audit Ambassador was properly managed. Moreover, PwC sought to reverse course and distance itself from Chiat only after the District Court found him liable. Further, contrary to PwC’s argument that the liability of Chait, a defaulted defendant, was given to the jury to determine, the District Court issued a limiting instruction, informing the jury that Chait’s estate was liable to the Commissioner as a matter of law and guilty of gross negligence and breach of fiduciary duty. The District Court emphasized the jury’s sole responsibility with respect to Chait was to assess his proportionate fault. Specifically, the District Court instructed the jury that: Although Mr. Chait’s Estate is a Defendant in this case, I have entered a default judgment against the estate. Default judgment is a technical term that simply means that I have determined that Mr. Chait’s estate is liable to the Vermont Commissioner on the claims made against Mr. Chait in this case. Therefore, you are to accept for purposes of your deliberations that Mr. Chait is guilty of gross negligence and breach of fiduciary duty in his role as director and officer of Ambassador. Your responsibility as triers of fact will be to assess damages against Mr. Chait’s estate in accordance with the evidence you have heard and, as I will instruct later, to apportion fault as between Mr. Chait and others for what happened to Ambassador. I must stress, however—and I cannot stress this enough—that you are not to assume the liability of [PwC]. I repeat that simply because I have found Mr. Chait to be liable to the Vermont Commissioner does not automatically mean that [PwC] is similarly liable. Your job as jurors will be to determine whether you believe, on the basis of the evidence you have heard, that [PwC] was negligent in auditing the year-end 1981 financial statements of Ambassador Group, Inc., and whether their 28 negligence was a proximate cause of any damages which may have been incurred by Ambassador. (App. 1493-94.) Given the explicit jury charge, PwC’s argument that it was prejudiced by the District Court’s entry of default judgment against Chait’s estate at the close of evidence is unpersuasive. Considering this portion of the District Court’s charge, we believe it was possible for the jury to have determined that PwC had no liability and was not negligent in auditing the financials even in light of the Court’s default judgment against the Estate. Furthermore, the jury verdict sheet questions were directed solely to PwC’s conduct and only made reference to Chait in the context of determining his percentage of fault, if any. PwC’s reliance on In re Uranium Antitrust Litigation, 617 F.2d 1248 (7th Cir. 1980) is unavailing. Although the Seventh Circuit held that a damages hearing should not be held until the liability of each defendant had been resolved, it reasoned that holding one damages hearing for a defaulting defendant prior to the resolution of the liability of joint and severally liable nondefaulting defendants could result in inconsistency and possibly two distinct damages awards on a single claim. Id. at 1262. The Court found this to be a concern of “possible inconsistency and judicial economy, rather than actual prejudice.” Id. Here, there was no attempt by the District Court to inquire into or have Chait’s damages determined before PwC’s liability was determined. Furthermore, the District Court in the instant case noted its “strong desire to try all of [the Commissioner’s] claims together” for judicial economy. (App. 173.) Similarly unavailing is PwC’s reliance on Fehlhaber v. Indian Trails, Inc., 425 F.2d 715, 717 (3d Cir. 1970), which only held that it was within the discretionary authority of the court to hold a Rule 55(b)(2) hearing to determine the amount defendant was entitled to by reason of the third party defendants’ default. There was no issue of joint and several liability in Fehlhaber nor did the court hold that such a hearing was required when there was a defaulting defendant. 29 Based on the record before us and the District Court’s multiple rulings on PwC’s motions for separate trials, we find that the District Court did not abuse its discretion by denying the motions for separate trials.