Court Opinion

ID: 9466774
Source: CourtListenerOpinion
Date Created: 2023-08-05 01:27:19.14315+00
Date Added: 2024-06-11T17:39:57.098659
License: Public Domain

SWYGERT, Circuit Judge,
dissenting.
I believe that the district court erred in entering judgment under Fed.R.Civ.P. 54(b). Therefore, I respectfully dissent.
My disagreement with the majority is twofold. First, I question the procedure by which the judgment was entered by the district court. Specifically, the certification was made by the district court sua sponte without a clear statement of the various interests at stake in this controversy. Second, I disagree with the substantive interpretation of the proper balancing of the interests and equities at stake. These factors are inextricably tied together. Adhering to the proper procedure in entering a judgment under Rule 54(b) will ease the task of the reviewing court. Also, it will ensure that the district court will consider the appropriate factors in making the Rule 54(b) determination.1
I.
After Federal filed its answer, the district court noted that liability and damages were admitted. Concluding that there was no just reason for delay, the district court directed entry of judgment pursuant to Fed.R.Civ.P. 54(b).
This procedure deviates from proper 54(b) certification in several ways. First, a 54(b) certification should not be made as a convenience to counsel, but only “in the infrequent harsh case,” Advisory Committee Note, 5 F.R.D. 473 (1946). The district *953court’s sua sponte entry of judgment ignored the requirement that a burden rests on the party seeking 54(b) entry to convince the court that such action is necessary. By entering judgment sua sponte the district court alleviated Lincolnwood of this burden and instead shifted the burden to Federal to demonstrate why such an entry should not be made. Such a shift in the burden is supported by neither the case law nor the policy of the rule. See Allis-Chalmers Corp. v. Philadelphia Electric Co., 521 F.2d 360 (3d Cir. 1975). As the court stated in Allis-Chalmers Corp.,
[Tjhe burden is on the party seeking final certification to convince the district court that the case is the “infrequent harsh case” meriting a favorable exercise of discretion.
Id. at 365.2
The district court also failed to state its reasons for entry of the 54(b) certification at the time of entry. In U. S. General, Inc. v. City of Joliet, 598 F.2d 1050 (7th Cir. 1979), we stated:
A proper exercise of the trial court’s discretion under Rule 54(b) also requires more than a recital of the statutory formula. The considerations underlying the exercise of that discretion should be articulated. ... In spite of the lack of expression of the reasons underlying the exercise of the trial court’s discretion, after an independent review of the record for the purposes of this case we hold the Rule 54(b) certificate was not improvidently granted. Future 54(b) certifications with similar deficiencies may not be expected to survive in this court.
Id. at 1051 n.1. Cf. Arlinghaus v. Ritenour, 543 F.2d 461 (2d Cir. 1976) (preferable practice is to give statement of reasons).
Admittedly, this statement in U. S. General is dictum. Also, as the majority opinion highlights, the district judge, after his entry of judgment, did state for the record some of the reasons for his decision. Yet, from the perspective of obtaining proper judicial review and ensuring that 54(b) certificates are properly granted, such a method should not be countenanced.
*954The second reason for requiring a statement of reasons at the time of certification is to ensure that the district court properly exercises its discretionary function under the rule. As is clear from the majority opinion, as well as other authority, 6 Moore’s Federal Practice 154.22, at 364 (2d ed. 1976), our review of the district court’s decision is limited to a determination of whether there was an abuse of discretion. Such a relaxed standard of review is in recognition of the district court’s ability to assess and balance the mix of factors at issue. Id. If no reasons are stated at the time of entry and instead we are to rely on the statements of the district court which are scattered throughout the record, our standard of review becomes even more relaxed. We must speculate as to what factors the district court considered. For instance, in the present case the district judge emphasized the prejudice which would be suffered by Lincolnwood if entry were delayed. Such a finding is an implicit rejection of the prejudice to Federal or the possibility that the structure of the transaction was such that Lincolnwood expected to receive payments from Lloyd’s rather than Federal. Yet nowhere in the record did the district court explicitly inquire into Federal’s financial condition or the structure of the transaction. Some facts relating to these matters were before the district court but nowhere are we told why, on balance, they were rejected.
I agree that this court must assess the district court’s action by the abuse of discretion standard. But unless we require an explicit statement of reasons and considerations, we will be unable to determine whether the discretion was even exercised, much less if it was abused.
II.
Some of the relevant factors in reviewing 54(b) certifications have been stated as:
(1) the relationship between the adjudicated and unadjudicated claims; (2) the possibility that the need for review might or might not be mooted by future developments in the district court; (3) the possibility that the reviewing court might be obliged to consider the same issue a second time; (4) the presence or absence of a claim or counterclaim which could result in setoff against the judgment sought to be made final; (5) miscellaneous factors such as delay, economic and solvency considerations, shortening the time of trial, frivolity of competing claims, expense, and the like. Depending upon the facts of the particular case, all or some of the above factors may bear upon the propriety of the trial court’s discretion in certifying a judgment as final under Rule 54(b).
Allis-Chalmers Corp., 521 F.2d at 364. In the present case the relationship between the adjudicated action (Lincolnwood’s action on the note), the unadjudicated claim (Federal’s action against Lloyd’s)3, and Federal’s solvency considerations are of primary importance in reviewing the 54(b) certification. The district court either disregarded these factors or considered them insignificant in entering judgment. For this alone I would hold that the district court abused its discretion.4
*955The crucial issue, and one which is almost completely ignored by the majority opinion, is to what extent did Lincolnwoood look to Federal in the event of a lease termination. In my judgment a 54(b) certification could not have been made without a detailed analysis of the financing arrangement. If Lincolnwood looked solely to Federal for payment I would tend to agree with the majority’s conclusion. But likewise, if Lincolnwood expected payment through the Lloyd’s policy, I cannot see how the bank would suffer prejudice. In requiring the bank to wait until Lloyd’s pays over, the bank is indeed harmed by the delay in payment (or eventual lack thereof). But it is a responsibility it must assume for entering a transaction structured in such a manner. To the extent the majority allows immediate collection by Lincolnwood, it gives Lincolnwood an unfair advantage over other creditors — an advantage the bank does not deserve, because of the nature of the transaction it chose to enter.
The propriety of a 54(b) certification, thus, must include an assessment of the relationship between the adjudicated and unadjudicated claims. Allis-Chalmers Corp., 521 F.2d at 364. The majority’s treatment of this crucial matter ignores the clear business practicalities of the matter. The majority reasons that a note exists between Lincolnwood and Federal and thus Lincolnwood can sue and collect on the note. It cannot be denied that the record contains these documents. Yet such reasoning ignores several important questions about the transaction. Did Lincolnwood know that Federal apparently had millions of dollars in contingent liabilities with a net worth far below this amount? Considering this discrepancy, would a commercially prudent bank lend over $500,000 secured only by computer equipment and a lease which could be terminated at will? And ultimately, would Lincolnwood have lent the money absent the Lloyd’s policy? It seems highly improbable that Lincolnwood entered the transaction not knowing Federal’s financial condition. Good business sense would dictate it would not lend $500,000 without acquiring proper security. Therefore it stands to reason that Lincolnwood knew that Lloyd’s was its true source of payment and that the policy with Lloyd’s was the sine qua non of the transaction.5
Once it becomes clear that Lincolnwood looked to Lloyd’s for payment, the 54(b) analysis becomes entirely different. No prejudice is suffered by Lincolnwood’s being forced to wait. It is only getting what it bargained for. At the same time, it becomes clear that Federal is suffering extreme prejudice. It is apparent that Federal never expected to secure its many liabilities with its rather meager assets.6 Rather, *956it looked to Lloyd’s for payment; and entry of judgment in this ease imposes an unexpected liability upon Federal and may well force it into bankruptcy.7
I am well aware that our procedural rules can be used as a tactic to delay the payment of a judgment owed.8 Allis-Chalmers Corp., 521 F.2d at 367 (Gibbons, J., dissenting). However, the statement of such a truism lends little to a fair or equitable resolution of the legal issues at stake. Indeed, it would be just as easy to point a finger at the Bank of Lincolnwood and state that our procedural rules should not be utilized to rescue companies from their own business miscalculations. I believe that Lincolnwood expected payment from the Lloyd’s policy and not to recognize this is to ignore the business realities of the transaction and attribute a business naivete to Lincolnwood.

. The twofold justification has been stated as such:
The benefit of such a reasoned statement is not merely that ... it will aid us in discharging our duty to review the district court’s exercise of discretion in issuing the certificate, . . . but that it will aid the district judge himself. A decision maker obliged to give reasons to support his decision may find they do not; “the opinion will not write.”
Arlinghaus v. Ritenour, 543 F.2d 461, 464 (2d Cir. 1976).

. The majority opinion states that the district court did no more than anticipate Lincoln-wood’s next motion and cites 10 C. Wright & A. Miller, Federal Practice and Procedure § 2660 at 85-86 (1973) for the proposition that the question may be raised on the court’s own motion. It follows this citation with the comment that such action was in the district court’s discretion.
There are several problems with this analysis in the present case. First, the majority does not reconcile such a sua sponte action with the burden placed on the party receiving the entry under Rule 54(b). While there may be certain cases which are so clear that carrying such a burden would be an exercise in futility, this is certainly not the case. Federal is in the position of suffering serious damage by the possibility of immediate execution of the judgment.
Second, the majority citation is to Wright and Miller; and Wright and Miller cite three cases in support of this proposition. A reading of these three cases indicates that they are distinguishable from the present case. In McNellis v. Raymond, 287 F.Supp. 232 (N.D.N. Y.1968), rev’d on other grounds, 420 F.2d 51 (2d Cir. 1970), the court considered the matter sua sponte but refused to certify the judgment. The matter at issue was the ability of the trustee in a bankruptcy to void a transfer as a fraudulent conveyance. The court stated that he could not and allowed the trustee to proceed on a theory of usury. In Combined Bronx Amusements, Inc. v. Warner Bros. Pictures, Inc., 132 F.Supp. 921 (S.D.N.Y.1955) a 54(b) judgment was entered sua sponte without discussing whether the district court had the power to act on its own motion. The judgment was entered in favor of the defendant on a defense of release. Finally, in Pierce v. Hewlett-Packard Co., 125 F.Supp. 329 (D.Mass.1954) (Wyzanski, J.) affd on other grounds, 220 F.2d 531 (1st Cir.), cert. denied, 350 U.S. 833, 76 S.Ct. 69, 100 L.Ed. 744 (1955) a 54(b) judgment was entered in favor of the defendant. Judge Wyzanski certified the matter because he wished to have the court of appeals review his decision on the merits.
Thus, all three cases are distinguishable from the present case. In none of the cases was a judgment which imposed a large financial burden entered sua sponte. Also, none of the cases provides even a superficial analysis of the propriety of acting sua sponte; rather, each court assumed its power to so act.
The third objection I have to the majority’s view on this point is its final statement that “the district court’s action . . . was within its discretion.” Apparently, the majority has concluded that it is within the discretion of the district court to act sua sponte. Even if I were to agree with such a conclusion, the majority sets forth no criteria by which to judge the exercise of such discretion.

. The majority states that the fact that a cross-claim arises out of the same transaction as the principal claim does no more than restate the requirement for a proper cross-claim under Fed.R.Civ.P. 13(g). I do not understand Federal’s argument as being merely that the claim against Lloyd’s arose out of the deal between Federal and Lincolnwood. Instead, I read Federal’s argument as being that besides arising from the same transaction, it was inextricably bound up with the loan from Lincolnwood. This goes beyond the test of Rule 13(g) as arising out of the same transaction and more properly should be characterized as consisting of one single transaction.

. The Supreme Court’s recent decision in Curtiss-Wright Corp. v. General Elec. Co.,-U.S. -, 100 S.Ct. 1460, 64 L.Ed.2d 1 (1980) provides guidance for circuit court review of 54(b) certifications. As the quotation in the majority opinion notes, our role is not to “reweigh the equities or reassess the facts but to make sure that the conclusions derived from those weighings and assessments are juridically sound and supported' by the record.” Curtiss-Wright Corp., - U.S. at -, 100 S.Ct. at 1466.
*955As is discussed infra, the district court failed to properly weigh the equities at stake by almost ignoring the prejudice to Federal and erroneously concluding that Lincolnwood expected payment from Federal, and not Lloyd’s. Also, the conclusion that Lincolnwood looked to Federal for payment is not supported by the record. The relevant information in the record indicates that Lincolnwood expected payment from Lloyd’s. See note 5 infra.

. Besides the financing documents, the only evidence in the record on this matter is an affidavit of Federal’s Corporate Counsel, Sidney M. Wilson, Jr. This affidavit states that the insurance policy was an integral part of the transaction and that Lincolnwood was aware of Federal’s liabilities being far in excess of its net worth. The affidavit concludes that Lincoln-wood would not have entered the deal absent the Lloyd’s policy.
I acknowledge that some of these assertions are made on information and belief. However, this is the only information relevant on this matter contained in the record. Lincolnwood came forward with no evidence to demonstrate the contrary. This highlights the problems attendant to a sua sponte entry which absolves the party of marshalling evidence to show why a 54(b) certification should be made.

. The affidavit of Mr. Wilson states that Federal’s liability is over $100 million with $40 million now due. The net worth of Federal appears to be approximately $1,500,000. While the numbers may be slightly off, Lincolnwood has offered nothing to demonstrate the contrary and it appears to be conceded that Federal’s liabilities far exceed its assets.

. The majority opinion observes that Federal never formally moved the trial court to issue a stay under Fed.R.Civ.P. 62(h). A reading of the colloquy between the district court and Federal’s counsel leaves little doubt as to how this matter would have been resolved. Federal did move under Rule 59 to amend the judgment to omit the finding of finality. This motion was denied.

. Mention must be made of the majority’s discussion of United Bank of Pueblo v. Hartford Accident & Indemnity Co., 529 F.2d 490 (10th Cir. 1976) and Norris Mfg. Co. v. R. E. Darling Co., 315 F.2d 633 (4th Cir. 1963). I do not disagree with the general principles stated in these decisions. The district court can consider the hardship which occurs when awaiting execution of a judgment. My quarrel is with the conclusion that Lincolnwood had an expectation of payment from Federal. United Bank of Pueblo and Norris Manufacturing properly concluded that the unadjudicated claims were not so related to the adjudicated claims as to require delay of entry of the judgment. As noted above, I do not believe this is such a case.