Court Opinion

ID: 8897216
Source: CourtListenerOpinion
Date Created: 2022-11-27 00:17:04.360336+00
Date Added: 2024-06-11T17:07:34.572385
License: Public Domain

GIBBONS, Circuit Judge
(dissenting).
In times of tight money and high interest rates the ingenuity of debtors in devising reasons for not paying liquidated indebtedness is limited only by the willingness of courts to countenance delaying tactics. Usually in such disputes the fundamental issue is which party will be required to bear the cost of financing the indebtedness during the delay. The majority, by an unprecedented and unwarranted interpretation of Rule 54(b), Fed.R.Civ.P., has tilted the judicial process in favor of debtors. In this case the debtor is a large electric utility and the creditor is a large equipment manufacturer. But the sweeping pronouncements of the majority opinion, which have the effect of requiring a written opinion for every Rule 54(b) certification, will have the practical consequence of destroying the utility of that rule. The draftsmen of Rule 54(b) never intended such a result, and the authorities relied upon do not justify it. Moreover, the majority, by imposing upon the district court the obligation to make specific findings upon its laundry list of requirements for the exercise of discretion, and suggesting that we will then review the exercise of discretion, has blurred the distinction between appeals from final decisions disposing of separate claims and those from interlocutory appeals of nonfinal orders. Rule 54(b) does not give this court authority to decline to hear an appeal from a final decision on a separate claim as to which the district court has directed the entry of judgment. Under 28 U.S.C. § 1292(b) we may decline to hear an interlocutory appeal. The majority would prefer that we have the same power under Rule 54(b) and has devised an improper construction of the rule to achieve that result. It has done so, moreover, in a case in which neither party urged the ground on which dismissal of the appeal has been made to turn, and in which the grounds for appeal actually tendered have been ignored.
*368I. ALLIS-CHALMERS’ CLAIM HAS BEEN FINALLY DETERMINED
Allis-Chalmers seeks $497,742.70 for goods sold and delivered and for services rendered. Philadelphia Electric Company admits it received the goods, that the services were rendered, and that it must in some form at some time pay $497,-742.70. It asserts an entirely unrelated, unliquidated, and disputed counterclaim growing out of a fire loss. The fire took place in January 1972 before the delivery of the goods — electric transformers — and before the rendition of the services. Thus what we are dealing with is an undisputed claim for $497,742.70 which can in no way be reduced or changed by any subsequent event in the district court, and which, when it comes before us years from now in an appeal following the litigation over the fire loss, will be before us in exactly the same posture of total finality as at present. But the majority holds that before the district court may direct the entry of a final judgment for the undisputed $497,742.70, which can never come before us other than undisputed, and which by any test imaginable is separable from and independent of the fire loss claim, it must write an opinion. The practical effect of the decision is to put in the hands of Philadelphia Electric Company the power of self-help in financing repair of the fire damage to its electric generating plant by purchasing goods and services, declining payment and when sued, asserting a permissive counterclaim growing out of events which antedated the purchases. If this is not the case for which Rule 54(b) was intended then none is.
II. THE HISTORY AND STRUCTURE OF RULE 54(b)
Prior to the adoption of the Federal Rules the federal courts followed the rule of Metcalfe’s Case1 that a writ of error would not lie to bring up a judgment that did not completely dispose of the action.2 As multi-party litigation became more complex the Metcalfe rule evolved into the single judicial unit rule of finality. A judgment was not final that disposed of less than all claims of one plaintiff against one defendant.3 Where the defendant interposed a claim over against the plaintiff both claim and counterclaim had to be resolved for finality.4 If an order terminated the action against one defendant alleged to be jointly or secondarily liable with others, but not as to all, it was not final.5 And where liability in multi-party cases arose out of the same set of facts the entire case was treated as a judicial unit.6 But in multi-party cases an order adjudicating a separate and distinct claim or terminating the action as to a separate and distinct claim was deemed to be final.7
As originally adopted the first two sentences of Rule 54(b) provided:
“When more than one claim for relief is presented in an action, the court at any stage, upon 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, may enter a judgment disposing of such claim. The judgment shall terminate the action with respect to the claim so disposed of and the action shall proceed as to the remaining claims. *3696 J. Moore, Federal Practice f 54.01[5][3], at 51 (2d ed. 1974).
The judicial unit defined by this language was delimited by a transaction or occurrence and all counterclaims arising out of that transaction or occurrence.8 In contrast to the common law, Rule 54(b) recognized that a claim to which a permissive counterclaim was asserted could be separately and finally adjudicated.9 This modification of the rule of Metcalfe’s Case was an obviously necessary accommodation to the wide open joinder rules of the Federal Rules of Civil Procedure. But while it was clear enough that a noncompulsory counterclaim (as in the instant case) was from a separate judicial unit,10 it was not so clear in other situations what orders were final judgments or what judgments covered separate judicial units. A party might neglect taking an appeal from an order disposing of part of the case only to find that when he took an appeal at the end of the entire case it was untimely. See Dickinson v. Petroleum Conversion Corp., 338 U.S. 507, 70 S.Ct. 322, 94 L.Ed. 299 (1950). Since a losing party had to determine finality at the peril of losing an opportunity to appeal, the rule as originally drafted encouraged cautious litigators to err in favor of seeking interlocutory appellate review. These and other difficulties led the Advisory Committee on the Federal Rules of Civil Procedure to propose amendments to Rule 54(b) in 1946 and again in 1961.11 The 1946 amendment redefined the treatment of multiple claims, and the 1961 amendment redefined the treatment of multiple parties. The text of the first two sentences of the 1946 revision with the 1961 additions in italics and the 1961 deletions in brackets, reads:
“When more than one claim for relief is presented in an action, whether as a claim, counterclaim, eross-claim or third-party claim, or when multiple parties are involved, the court may direct the entry of a final judgment [upon] as to one or more but [less] fewer than all of the claims or parties only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment. In the absence of such determination and direction, any order or other form of decision, however designated, which adjudicates [less] fewer than all the claims or the rights and liabilities of fewer than all the parties shall not terminate the action as to any of the claims or parties, and the order or other form of decision is subject to revision at any time before the entry of judgment adjudicating all the claims and the rights and liabilities of all the parties. . . .”
6 J. Moore, Federal Practice ¶ 54.01[6 — 4] (2d ed. 1974).
This is Rule 54(b) today. The principal change which the 1946 amendment wrought in the rule was to place in the district court, rather than in the appellate courts, the determination of finality, and thus of appealability. This eliminated the potential trap of the holding in Dickinson v. Petroleum Conversion Corp., supra. Another change, however, was the redefinition of judicial unit from “claim for relief” and “counterclaims arising out of the transaction or occurrence” to “one or more but fewer than all of the claims.” Neither the original nor the amended rule attempts to make final a partial12 or tentative adjudication of a single claim for relief. But clearly, the amended language now permits the district court to treat as final an adjudication of a claim to which even a com*370pulsory counterclaim has been filed.13 Since the definition of judicial unit was thus broadened in 1946 the rule can hardly be construed to exclude finality from the decision of a separate claim as to which a merely permissive counterclaim has been filed. The adjudication of the Allis-Chalmers claim to which a permissive counterclaim has been filed is the type of adjudication which at all times since 1938 had been afforded Rule 54(b) finality.
III. RULE 54(b) AND THE POLICIES FAVORING THE FINAL JUDGMENT RULE
Obviously in some instances the broad definition of judicial unit embodied in the 1946 amendment can lead to a possible conflict with the policies which favor appealability of final judgments only. Those policies I perceive to be (1) the avoidance of appellate adjudications which by virtue of the disposition of other parts of the case may become unnecessary, and (2) the avoidance of fragmentation in the adjudication of related legal or factual issues.
A paradigm of the first policy is Pani-chella v. Pennsylvania Railroad Co., 252 F.2d 452 (3d Cir. 1958). In that case a district court entered an order making the disposition of a third-party claim in favor of the third-party defendant immediately appealable. In Panichella the court was dealing with a case which before 1938 would not have been appeala-ble, and which between 1938 and 1946 probably would not have fallen within the Rule 54(b) definition of judicial unit. The liability of the third-party defendant, an alleged joint tortfeasor, grew out of the very transaction or occurrence which gave rise to the plaintiff’s claim. If the third-party defense of a release were to be rejected on appeal the third-party liability could not, in the absence of a factual record on the underlying claim, be adjudicated. If, on the other hand, the jury should find the facts favorably to the initial defendant or the third-party defendant, the release issue would never come before the appellate court. The effect of the district court’s decision was to force the court of appeals to adjudicate the effect of a release, which adjudication might be mooted by the subsequent disposition on the main claim, in a context in which the appellate decision on the issue might not terminate the case even as to the party advancing it. This court held that the entry of a Rule 54(b) order in such circumstances was an abuse of discretion. It remanded with a direction to vacate the order appealed from. Contrast the instant case in which the debt to Allis-Chálmers from Philadelphia Electric Company is in no way dependent upon or related to the counterclaim, and in which because of the admission of liability the only record which could ever be presented to an appellate court has been fully developed. In the permissive counterclaim situation the first policy favoring the final judgment rule is not implicated.
A model of the second policy — avoiding fragmentation in adjudication of related legal or factual issues — -is presented by TPO Inc. v. FDIC, 487 F.2d 131 (3d Cir. 1973), although that case actually turned on Rule 56 rather than on Rule 54(b). To a suit to recover on a cashier’s check the defendant receiver for an insolvent bank filed an affirmative defense and a compulsory counterclaim for fraud on the part of the payee holder. We held that the liability of the drawee bank should not be finally determined until the affirmative defense and compulsory counterclaim growing out of the same transaction were adjudicated. Obviously in such a case it would make no sense to fragment the litigation over a single completely interrelated transaction. Associated Hardware Supply Co. v. Big Wheel Distributing Co., 355 F.2d 114 (3d Cir. 1966) involved a similar attempt to fragment litigation over a single transaction. Contrast this case, however, where the plaintiff’s claim is entirely unrelated to the counterclaim, where liability for the $497,742.70 has *371been conceded, and where the only real effect of the remand is to delay execution on that admitted liability.
The policies favoring the final judgment rule are simply inapplicable to this case. The Allis-Chalmers’ claim is as separate as it could possibly be and as finally determined as it ever can be.
IV. THE MAJORITY STANDARDS
The majority lists five factors which it says courts have considered in reviewing Rule 54(b) certifications.14 It then lists several questions which it says the district court left unanswered. We consider first the five factors:
(1) “The relationship between the adjudicated and unadjudicated claims.” Patently there is none. The claim is for an undisputed bill for goods sold and delivered and services rendered. The counterclaim is for a fire loss allegedly caused by other equipment. The fire occurred before the goods were sold and delivered or the services rendered. This factor relates only to attempts to fragment litigation over single claims or single transactions.
(2) “The possibility that the need for review might or might not be mooted by future developments in the district court.” The appeal will not be mooted until the undisputed bill is paid. It will not be paid so long as there is any possibility that the assertion of the unrelated counterclaim can delay execution. This is not a Pani-chella. situation.
(3) “The possibility that the reviewing court might be obliged to consider the same issue a second time.” There is no such possibility. The only significant issue tendered by the appeal of Philadelphia Electric Company, which the majority relegates to footnote 13, and leaves undecided, is by its very nature incapable of dual consideration.
(4) “The presence or absence of a claim or counterclaim which could result in a set-off against the judgment sought to be made final.” This “factor” is not a factor, but the issue. As authority for this “factor” the majority cites TPO Inc. v. FDIC, supra, which deals with Rule 56, not Rule 54(b), and with an affirmative defense and a compulsory counterclaim alleging fraud in the inducement of the very transaction.
(5) “Miscellaneous factors such as delay, economic and solvency considerations, shortening the time of trial, frivolity, competing claims, expense, and the like.” Distributing these miscellaneous factors we observe:
(a) “delay”. Certainly Allis-Chal-mers is being delayed in collecting an undisputed bill. No one else is being delayed at anything.
(b) “economic and solvency considerations”. To whose economic and solvency considerations does the majority refer? And how would those considerations, whatever they may be, militate against the payment of an undisputed past due bill? If the utility has economic problems that make payment of its bills difficult, it can resort either to the public utility commission or to a reorganization court. If the economic and solvency considerations relate to Allis-Chalmers, to which the undisputed bill is past due, certainly it should not be forced to wait, thus aggravating its situation.15
*372(c) “shortening the time of trial”. In this case since the Allis-Chalmers bill is undisputed the trial will be neither longer nor shorter. Satisfaction of the undisputed bill, however, will be later.
(d) “frivolity of competing claims”. There are no “competing” claims. The two claims are separate and unrelated. If the district judge had found the counterclaim to be frivolous he would have entered summary judgment on it and disposed of the whole litigation. The court can not find the Allis-Chal-mers’ claim frivolous since on the pleadings in response to the Rule 56 motion it was conceded.
(e) “expense and the like”. The only “expense” of which I am aware is the interest expense to Allis-Chal-mers for carrying on its books, unpaid, a $497,742.70 undisputed account receivable. That factor points in only one direction.
Turning to the majority’s questions:
(1) “Is PECO’s financial condition such that AC might in any way be prejudiced by postponing execution on its judgment until PECO’s counterclaim was fully adjudicated?” Will the answer to this question require an evidentiary hearing? When the determination is made, how will it bear, if at all, upon the policies assumed to favor the final judgment rule?
(2) “Conversely, is AC’s financial condition such that PECO might be prejudiced if AC was allowed immediate execution on its judgment before adjudication of PECO’s counterclaim?” To restate the question, would PECO, which had a fire in January 1972, and which after the fire prevailed on Allis-Chalmers to deliver $497,742.70 in goods and services, now be heard to assert that it should be permitted to withhold payment as security for an unliquidated and disputed claim growing out of the fire, and thus by self-help put itself in the position of a preferred creditor over other creditors of Allis-Chalmers? If this court is a court of conscience I hardly think so. Nor would we be enlightened by the district court’s view on that issue.
(3) “Is PECO’s counterclaim frivolous, facially defective, or otherwise legally deficient?” If it was, we would not have this case because a Rule 56 or Rule 12 motion would have been granted. This question is simply irrelevant.
(4) “What would be the effect of, and the necessity for, immediate execution prior to the complete adjudication of all claims?” The effect would be that Philadelphia Electric Company would pay the undisputed bill and litigate the unrelated counterclaim. The effect of such payment on the financial condition of Philadelphia Electric Company would be considered in proceedings under Rule 62(h), Fed.R. Civ.P., and Rule 8, Fed.R.App.P.
(5) “Is there any reason why the PECO claim should not be fully adjudicated, and to the extent of any recovery, be set-off against the judgment of AC?” The treasurers of the respective litigants can suggest one; the prevailing interest rates. But more significantly, if a utility company has a fire in the future what equipment supplier whose equipment may have been somehow involved in the fire will run the risk of supplying it with replacement equipment on any but a C.O.D. basis? Clearly Allis-Chal-mers will not be burned twice.
(6) “Do these considerations of solvency, equity (regarding potential priorities in judgment), or other economic factors (including possible duress) weigh for or against final certification of the AC judgment?” To put the question another way, in deciding whether a final judgment should be *373entered on an undisputed claim for payment for goods and services, to which a permissive unrelated counterclaim has been filed, must the district court, in making a Rule 54(b) determination, conduct a trial within a trial on issues such as the relative solvency of the parties, the competing interests of secured and unsecured creditors of the parties, and the general economic climate?
It is interesting that none of the majority’s factors or questions were tendered to the district court in opposition to the entry of a final judgment, and none of the majority’s factors or questions were tendered to us by the appellant. Yet the majority chooses to relegate to footnote 13 the only real issue tendered by appellant, and to write an advisory interpretation of Rule 54(b)' completely unrelated to that actual issue.
V. THE PRINCIPAL ISSUE TENDERED BY THE APPELLANT
The gravamen of Philadelphia Electric . Company’s appeal is that under Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) the federal courts in a diversity case must accept the Pennsylvania definition of judicial unit for purposes of finality, rather than apply federal standards. Relying on the Defalcation Act of 1705, 12 P.S. § 601, it asserts that in Pennsylvania a defendant can set-off a contractual claim, whether related or not, so that only one judgment is entered. The contractual claim is that Allis-Chalmers supplied switching gear which in breach of an implied warranty failed and caused the fire in January 1972. Acknowledging that by federal standards the Allis-Chalmers claim was ripe for summary judgment pursuant to Rule 56, appellant argues that Erie v. Tompkins requires the application of Pennsylvania not federal law. This is the main issue which was tendered to and decided by the district court, and which the majority relegates to a footnote.
The district court concluded that the case was controlled by Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965) rather than by Erie v. Tompkins. I agree. I know of no case invalidating a provision of the Federal Rules of Civil Procedure in a diversity context because of a conflict with a state rule of practice. If, as appellant urges, state practice will in diversity cases control the definition of judicial unit for purposes of finality, then state practice will in effect control the appellate jurisdiction of this court. In this case the appellant urges a state law definition of judicial unit which would result in nonfinality. But if we must accept the Pennsylvania definition of judicial unit for purposes of nonfinality we must also, I would assume, accept the Pennsylvania definition for purposes of finality. Federal law as to what orders are final and thus appealable cannot turn on the vagaries of state law. A uniform federal standard is required.
VI. THE RULE 62(h) CONTENTION
As an alternative to its Erie v. Tompkins position, Philadelphia Electric Company urges that even if federal rather than Pennsylvania law controlled the definition of judicial unit, the district court should, pursuant to Rule 62(h) Fed. R.Civ.P., stay enforcement of the judgment. The Rule 62(h) contention is interrelated with the Rule 54(b) contention, since when Rule 54(b) was amended in 1946 the last sentence of that rule became Rule 62(h). See 7 J. Moore, Federal Practice ¶ 62.10, at 62.40-42 (2d ed. 1974). The Rule 62(h) motion was alternative, and assumed the propriety of the Rule 54(b) order. The district court held that the pendency of a permissive and unrelated counterclaim was not alone a reason for staying execution. No other reason for a stay of execution was tendered by appellant. None of the comparative solvency grounds which fascinate the majority were urged. Philadelphia Electric urged in the district court, and urges now, that it is entitled to a stay as a matter of law principally *374because of the pendency of the permissive counterclaim. It did not even tender conditions which would secure to Allis-Chalmers the benefit of its judgment, as Rule 62(h) suggests. It did not do so for the obvious reason that the comparative solvency issues of which the majority makes so much were not thought to be relevant to its legal position. The district court certainly did not abuse its discretion in refusing to stay execution of the final judgment on the Allis-Chalmers undisputed claim for the reason that a permissive counterclaim was pending. That, aside from the Erie v. Tompkins point, is the only issue before this court.
Rule 62(h) serves to illuminate the degree to which the majority opinion will bring total confusion to the area of the Federal Rules which it addresses. Many of the factors and questions which it propounds might be appropriate to the review of a Rule 62(h) determination. That rule must be considered in the light of Rule 8, Fed.R.App.P. But the standards relating to stay of execution and the standards relating to finality have by the majority opinion been reduced for this circuit to a hopeless jumble. The separation of the two problems in the 1946 amendments to the Federal Rules obviously was intended to discourage just such a result.
VII. CONCLUSION
I would affirm the district court holding that federal law rather than Pennsylvania law provided the appropriate rule of decision for defining a judicial unit under Rule 54(b). I would affirm, as well, the district court holding that a separate claim to which a permissive counterclaim has been filed is an appropriate judicial unit. I would hold that the district court did not abuse its discretion in denying appellant’s Rule 62(h) motion for a stay of execution on the sole ground that a permissive unrelated counterclaim was pending.

. 77 Eng.Rep. 1193 (K.B.).

. Holcombe v. McKusick, 61 U.S. (20 How.) 552, 15 L.Ed. 1020 (1857); United States v. Girault, 52 U.S. (11 How.) 22, 13 L.Ed. 587 (1850).

. Collins v. Miller, 252 U.S. 364, 40 S.Ct. 347, 64 L.Ed. 616 (1920); Ex parte National Enameling & Stamping Co., 201 U.S. 156, 26 S.Ct. 404, 50 L.Ed. 707 (1906).

. Bowker v. United States, 186 U.S. 135, 22 S.Ct. 802, 46 L.Ed. 1090 (1902).

. Hohorst v. Hamburg-American Packet Co., 148 U.S. 262, 13 S.Ct. 590, 37 L.Ed. 443 (1893) (joint liability); United States v. Girault, 52 U.S. (11 How.) 22, 13 L.Ed. 587 (1850) (secondary liability).

. Cf. Bank of Rondout v. Smith, 156 U.S. 330, 15 S.Ct. 358, 39 L.Ed. 441 (1895).

. United States v. River Rouge Co., 269 U.S. 411, 46 S.Ct. 144, 70 L.Ed. 339 (1926); Republic of China v. American Express Co., 190 F.2d 334, 335-36 (2d Cir. 1951).

. See Reeves v. Beardall, 316 U.S. 283, 62 S.Ct. 1085, 86 L.Ed. 1478 (1942).

. See Audi Vision Inc. v. RCA Mfg. Co., 136 F.2d 621 (2d Cir. 1943).

. See Toomey v. Toomey, 80 U.S.App.D.C. 77, 149 F.2d 19, 20 (1945).

. See generally 6 J. Moore, Federal Practice H 54.26, at 301 et seq. (2d ed. 1974).

. RePass v. Vreeland, 357 F.2d 801 (3d Cir. 1966), relied on by the majority, is a case of partial adjudication of a single claim.

. The Supreme Court so held in Cold Metal Process Co. v. United Eng’r & Foundry Co., 351 U.S. 445, 76 S.Ct. 904, 100 L.Ed. 1311 (1956).

. The rule refers to a direction to enter final judgment rather than to a certification. Contrast 28 U.S.C. § 1292(b).

. Since the ground of decision is the majority’s own frolic, there is no suggestion in the record that economic or solvency considerations of either party have anything to do with the case. It is interesting to speculate how the district court will make a record on this “factor.” Perhaps a hearing on the comparative solvency of the parties will be necessary. If Allis-Chalmers is insured for liability for the fire loss must it nevertheless wait to collect its account receivable? Will its carrier be liable for interest? What will be the effect of a determination that Philadelphia Electric Company is insured in whole or part for the fire loss and the counterclaim is in whole or part a subrogation claim? How do these factors in*372terrelate? All that is certain is that compliance with the court’s interpretation of Rule 54(b) will not simplify things for the district courts.