Case Name: AUDI VISION INC., et al. v. RCA MFG. CO., Inc.
Court: United States Court of Appeals for the Second Circuit
Jurisdiction: United States
Decision Date: 1943-06-10
Citations: 136 F.2d 621
Docket Number: No. 278
Parties: AUDI VISION INC., et al. v. RCA MFG. CO., Inc.
Judges: Before SWAN, CLARK, and FRANK, Circuit Judges.
Reporter: Federal Reporter 2d Series
Volume: 136
Pages: 621–628

Head Matter:
AUDI VISION INC., et al. v. RCA MFG. CO., Inc.
No. 278.
Circuit Court of Appeals, Second Circuit.
June 10, 1943.
Harry A. Gordon, of New York City (Harry A. & Eric C. Gordon and Abraham Lillienthal, all of New York City, on tha brief), for plaintiffs-appellants.
Fred J. Knauer, of New York City (Wright, Gordon, Zachry, Parlin & Cahill and Lawrence J. McKay, all of New York City, on the brief), for defendant-appellee.
Before SWAN, CLARK, and FRANK, Circuit Judges.

Opinion:
CLARK, Circuit Judge.
Plaintiff Audi Vision Incorporated and defendant entered into a written contract on November 19, 1941, whereby plaintiff agreed to produce certain slide films, recordings, and supplementary material — all constituting a proposed educational program for defendant's distributors and dealers in promoting the sale of defendant's phonograph records — for which defendant agreed to pay $16,200 in three installments. The first installment of $3,240 was paid upon the making of the contract. A clause of the contract entitled "Cancellations," in addition to a provision for cancellation, by Audi Vision, not here material, stipulated as follows as to defendant, called "the Sponsor": "Orders for productions may be cancelled by the Sponsor on written notice at any time prior to approval of the frame-by-frame script but not thereafter; provided, however, that the Sponsor in such event shall pay at fair and customary rates for time and expense already devoted to the production, not to exceed 25% of the minimum price." In this action for breach of the contract it is alleged that defendant on or about February 2, 1942, notified plaintiff Audi Vision that it would not perform the contract, and then, to meet the expected defense of cancellation, it is set forth that until February 1, 1942, plaintiff Audi Vision had in its employ one Singer as its general manager, who had worked out the preparation of plans for the agreed educational program, and who was familiar with all details and its expected manner of completion; that defendant and Singer entered into an agreement to deprive Audi Vision of the benefits of this contract pursuant to which Singer resigned from plaintiff's employ and entered that of defendant in order to make use of all the plans and benefits of the contract; and that in consequence defendant had received all the benefits of the contract, notwithstanding its claimed cancellation. The plaintiffs other than Audi Vision were a copartnership to whom the second installment, payable January 2, 1942, had been assigned. Plaintiffs asked judgment for the contract price remaining unpaid, less the reasonable cost and value of completion of the work, estimated to be about $4,700.
In its answer defendant stressed its reliance upon its cancellation of the contract, under the clause quoted above, of which it claims first to have given Audi Vision notice on or about December 23, 1941, with final written notice on February 2, 1942, both before preparation or presentation of a frame-by-frame script. It also pleaded a first counterclaim, in which it relied on this same clause to say that the expenses incurred by Audi Vision before cancellation did not exceed $1,500 and that, therefore, it was entitled to a refund out of the sum initially paid by it of $1,740 with interest; and for a second counterclaim it set up an account of goods and merchandise delivered, showing $1,454.61 still due. Plaintiffs' reply, in addition to reiterating their claims upon the contract, challenged only the first counterclaim. Depositions were taken by both sides, and thereafter defendant moved for summary judgment dismissing the complaint and for judgment on the pleadings as to the second counterclaim. The court granted the motion and this appeal followed.
On this appeal plaintiffs do not attack the judgment given defendant on the second counterclaim, but do contest the district court's conclusions that defendant's privilege of cancellation was unrestricted and that their allegations of defendant's taking Audi Vision's general manager into its employ, in order to get the benefits of the contract notwithstanding the cancellation, did not present any issue of fact. They also object to the failure to allow judgment at least for the second, or assigned, installment due January 2, 1942, or, in the alternative, for a balance of $810 due for time and expense already devoted to the production.
At the outset we are presented with the question of the finality of the judgment entered below. Since the judgment appearing of record does not mention the first counterclaim, that portion of the action remains standing. This is made quite clear by the statement in the court's opinion that defendant's liability to pay for time and expense incurred before cancellation "is put at issue by the first counterclaim and the reply and will be determined by a trial of that issue." Indeed, the original motion papers stated that the action was on the jury calendar for immediate trial, and that the issues would be much simplified if restricted only to the claim involved in defendant's first counterclaim. And defendant's brief here shows that it never sought summary disposition of that counterclaim. The question, therefore, arises whether the judgment, which leaves this issue undetermined, is final as to the matters it purports to adjudicate. Our only concern, of course, is as to the dismissal of the original claim on the contract; the judgment on the uncontested second counterclaim is final under the principles hereafter discussed, although the district court may still wish to stay execution upon it, pending disposition of the other matters, as provided in the last sentence of Rule 54(b), Federal Rules of Civil Procedure, 28 U.S. C.A. following section 723c.
Even when the parties have not raised the issue, it is the duty of the court to determine whether a "decision" is "final" under Judicial Code, § 128, 28 U. S.C.A. § 225. Collins v. Miller, 252 U.S. 364, 40 S.Ct. 347, 64 L.Ed. 616; Cory Bros. & Co. v. United States, 2 Cir., 47 F.2d 607; National Nut Co. of California v. Kelling Nut Co., 7 Cir., 134 F.2d 532. This is a matter for the appellate court to decide, whatever may have been the view of the trial court. Potter v. Beal, 1 Cir., 50 F. 860; The Attualita, 4 Cir., 238 F. 909. In the present case, however, it is interesting to note that, while plaintiffs did not make a formal motion to dismiss the appeal and contested most strenuously the district court's view that the facts they alleged did not nullify the effect of the written cancellation, nevertheless they do attack the piecemeal determination of the case by the court. Notably in their third point, dealing with the counterclaim, they argue that determination is not possible in this way, stressing that they are entitled under their allegations of performance, even if the attempted cancellation is valid, to a refund up to 25 per cent of the total purchase price or $810 more than they have been paid, for the value of Audi Vision's time and expenses.
Plaintiffs seem, therefore, to be on unassailable ground that on the trial yet to be had herein they are entitled to show in any event a basis of recovery for at least $810. That they had originally claimed a substantially greater amount has no bearing on the actual recovery to be had after answer filed and at trial. See Rule 54(c). Defendant essentially concedes the justice of this contention by saying in its brief that defendant's first counterclaim is now on the trial calendar awaiting trial, and that "defendant is perfectly willing to stipulate that plaintiff's claim to the $810 shall be tried together with the counterclaim, so the jury can decide whether defendant has overpaid or underpaid." That is a concession most significant in the light of the governing principle, set forth in Rule 54(b), that for a separate final judgment there must be "a determination of the issues material to a particular claim and all counterclaims arising out of the transaction or occurrence which is the subject matter of the claim."
Before the adoption of the federal rules it was clear that the dismissal of a counterclaim where the action was left pending would not be a final judgment. General Electric Co. v. Marvel Rare Metals Co., 287 U.S. 430, 432, 53 S.Ct. 202, 77 L.Ed. 408; Radio Corporation of America v. J. H. Bunnell & Co., 2 Cir., 298 F. 62. In Jefferson Electric Co. v. Sola Electric Co., 7 Cir., 122 F.2d 124, 126 (in which the final judgment in 125 F.2d 322, resting on a different ground, was reversed by the Supreme Court in 317 U.S. 173, 63 S.Ct. 172, 87 L.Ed. -), it was held that this rule had been changed by Rule 41(b) and (c), 28 U.S.C.A. following section 723c, allowing dismissal of a counterclaim, though "we think this is an unfortunate result of the rule for the reason that it requires separate appeals from very closely related cases which would much better be combined for hearing on one appeal." But the decision fails to note that this rule dealt with the district court's control over the dismissal of actions, not with the time of entry of final judgment, which is governed by Rule 54(b) quoted above; and hence it did not consider the background of this latter rule. See 3 Moore's Federal Practice, Cum.Supp.1942, 48, 122. Rule 54 (b) purports only to modify the previously existing law that a final judgment must finally dispose of all matters at issue in the case, see Collins v. Miller, supra, to one requiring complete disposition of a single transaction and all matters connected with it; in other respects it leaves the former law untouched. Unless, therefore, the circumstances stated in the rule exist, the judgment is not final.
The reason for the modification made by Rule 54(b), as Professor Moore well states, 3 Federal Practice 3155-3158, is, of course, one naturally following from the wide extent of joinder of actions, parties, and counterclaims permitted under the new procedure. Since widely separated transactions may be joined together, even though the court has discretion to sever them or to try them separately, it would be highly undesirable to prevent finality as to such separate matters. In fact, Rule 54(b) is essentially nothing more than the pre-existing rule in equity providing for split judgments in extended cases (see Advisory Committee's Notes to Rule 54(b)), and it merely enforces what had previously been termed an "exception" for matters "distinct from the general subject of the litigation." United States v. River Rouge Improvement Co., 269 U.S. 411, 414, 46 S.Ct. 144, 145, 70 L.Ed. 339; Collins v. Miller, supra, 252 U.S. at page 371, 40 S.Ct. 347, 64 L.Ed. 616. This must necessarily be so, because the rules do not affect jurisdiction or deal with the powers of appellate courts. Rules 1, 82; Moore, op. cit. supra.
Rule 54(b) has recently been authoritatively interpreted in Reeves v. Beardall, 316 U.S. 283, 285, 62 S.Ct. 1085, 1087, 86 L.Ed. 1478, where the Court has adopted and enforced the test that it is "differing occurrences or transactions, which form the basis of separate units of judicial action." In that case different claims of a plaintiff based on differing facts were held to permit of final judgment, and that has been the basis of similar opinions in this court, of which Collins v. Metro-Goldwyn Pictures Corp., 2 Cir., 106 F.2d 83, is perhaps the most conspicuous example. Whatever differences may have arisen in this court in some of these cases have concerned only the application of the rule to different fact situations upon which a plaintiff has based his claim, and not the rule itself or its application to the present situation. We think it is clear, therefore, that, as so aptly put by Mr. Justice Van Devanter in Rexford v. Brunswick-Balke-Collender Co., 228 U.S. 339, 346, 33 S.Ct. 515, 518, 57 L.Ed. 864, the taking of a case to the appellate court "in fragments by successive appeals" is a result which the law still "wisely prevents by postponing the right of appeal until there is a final decree disposing of the whole case." United States v. 243.22 Acres of Land, 2 Cir., 129 F.2d 678, 680, certiorari denied Lambert v. United States, 317 U.S. 698, 63 S.Ct. 441, 87 L.Ed. -; Leonard v. Socony-Vacuum Oil Co., 7 Cir., 130 F.2d 535.
In the present case it can hardly be questioned that the tests of finality have not been met. In fact the claims are so connected that they turn upon the proper meaning and application of a single sentence in a lengthy written contract — the cancellation clause quoted above. Clearly the counterclaim here involved was a compulsory one within the meaning of Rule 13(a), which had to be pleaded in this action if it was to be pressed at all. Having been pleaded, it takes its force entirely from this provision of the contract, which is a vital element of plaintiffs' case, first as a possible bar to recovery of the contract price, and second as a basis for the claim of an additional allowance for expenses. Complete adjudication of either claim or counterclaim, therefore, cannot be had without continued resort to this sentence. In fact in the light of our necessary conclusion that the ruling heretofore made has been provisional only, the district court may well conclude hereafter upon further reflection that compliance with the cancellation provision may depend in part upon matters of fact as asserted by the parties, rather than exclusively upon the conclusion of law which it has heretofore made. Cf. 4 Williston on Contracts, Rev.Ed., § 1027A; Restatement, Agency, § 454;. White Co. v. W. P. Farley & Co., 219 Ky. 66, 292 S.W. 472, 52 A.L.R. 541; Philadelphia Storage Battery Co. v. Mutual Tire Stores, 161 S.C. 487, 159 S.E. 825; 17 Corn.L.Q. 479 ; 45 Harv.L.Rev. 378.
Interlocutory appeals in cases other than those provided by statute at times seem appealing as affording- opportunity for the quick correction of errors which may have occurred in the course of the proceeding's below. And since any general rule is always subject to exceptions, undoubtedly there will be times when in the actual posture of a case a short-cut-ruling- may be helpful. But there seems no question that in the long run fragmentary disposal of what is essentially one matter is unfortunate not merely for the waste of time and expense caused the parties and the courts, but because of the mischance of differing dispositions of what is essentially a single controlling issue. Moreover, as experience under certain practices permitting- such appeals shows, there is an unfortunate tendency under such a system to stress decisions on pure points of procedure in the hope that these may shorten or evade a trial, but with the unfortunate consequence of shifting- emphasis from merits to form. In fact, the inducement to interlocutory appeals often appears to come from an attempt oí a trial court to press the abbreviation of a lawsuit beyond what is really feasible. If such abbreviation is denied, it seems clear that appeal does not lie, In re Finkelstein, 2 Cir., 102 F.2d 688; Jones v. St. Paid Fire & Marine Ins. Co., 5 Cir., 108 F.2d 123; Florian v. United States, 7 Cir., 114 F.2d 990; 3 Moore, op. cit. supra at pag-e 3192; and the same result must follow its grant where this does not settle all matters arising out of a single transaction or occurrence. Leonard v. Socony-Vacuum Oil Co., supra.
It should be clearly recognized that orders of the district court of the type entered in this action below are in essence only pre-trial orders, as explicitly provided for in Rule 16 and again in the summary judgment rule, Rule 56(d), when a complete summary judgment is not granted. But such an order is expressly subject to modification "at the trial to prevent manifest injustice." If the district court will take care in cases such as this to make it clear that its order is of the pre-trial type as authorized under these rules, the parties will then more fully recognize their rights and the court will have retained full power, as it should, to make one complete adjudication on all aspects of the case when the proper time arrives.
Appeal dimissed.
While the court changed its decision on rehearing, its original view is restored by the decision of the Supreme Court reversing for want of jurisdiction because of no final judgment below, 312 U.S. 656, 61 S.Ct. 713, 85 L.Ed. 1305. Cf. Farley v. Abbetmeier, 72 App.D.C. 260, 114 F.2d 569, under special statutory procedure; 3 Moore, op. cit. supra, Cum.Supp.1942, 164, 165.
Discussion of legislative reform to authorize interlocutory appeals by permission should perhaps be beyond the scope of this opinion; the writer would like to suggest, however, Ms doubt of the desirability of such a step. If, as he believes — and with this case as an example in point — that attempts at piecemeal adjudication usually turn out to he unsuccessful and undesirable, he cannot but think that so direct an invitation to litigants to bring up their eases before complete adjudication is unfortunate. Appellate courts will need to be hardy, indeed, to resist lending an ear to litigants who have gone to all the time and expense of bringing such issues before them. Moreover, a hearing to decide upon hearing an appeal is almost as burdensome as hearing the appeal itself. Even a restricted privilege of interlocutory appeals, hedged about with proper limitations, such as a first request to the lower court, appears to be quite other than a real labor-saving device, to judge by the quite extensive annotations to N.Y. Civil Practice Act, § 588, 589.