Allis-Chalmers Corp. v. Philadelphia Electric Co.

521 F.2d 360, 32 A.L.R. Fed. 751

• Court: Court of Appeals for the Third Circuit
• Decided: July 10, 1975
• Docket: No. 74-1936
• Status: Published

Opinions

OPINION OF THE COURT

GARTH, Circuit Judge.

In this diversity case the district court: (1) granted summary judgment on the plaintiff’s complaint before adjudicating the defendant’s pending counterclaim; and (2) certified that judgment as final under Fed.R.Civ.P. 54(b). This appeal challenges the district court’s grant of summary judgment, its 54(b) certification, and its refusal to stay enforcement of the judgment. We dismiss the appeal and hold that the certification of the district court’s grant of summary judgment as final under Rule 54(b) of the Federal Rules of Civil Procedure must be vacated because of the failure of the court to articulate reasons for the certification.¹

I.

The plaintiff, Allis-Chalmers Corporation (hereinafter “AC”), having sold eight transformers to the defendant, Philadelphia Electric Corporation (hereinafter “PECO”), and having received payment for only five, commenced this action to compel payment for the remaining three transformers and for the cost of certain repairs made by AC to PECO’s equipment. PECO’s answer admitted the amounts claimed by AC ² but asserted as a set-off and counterclaim unrelated claims which, if established, would exceed in amount the sums claimed by AC.³

After issue had thus been joined, the plaintiff moved “. . . pursuant to Rule 56 and 54(b) of the Federal Rules of Civil Procedure, for summary judgment against defendant. . . . ” AC accompanied its motion with affidavits establishing that it was due $497,742.70. As indicated supra note 2, PECO filed no affidavit disputing this claim but rather argued that its set-off and counterclaim barred the entry of summary judgment in favor of AC. The district court held that, since PECO’s counterclaim was factually unrelated to the plaintiff’s cause of action and since there were no genuinely disputed issues of material fact concerning plaintiff’s claim, “. the entry of summary judgment on plaintiff’s claim is not only proper but is required under Federal Rule 56. . . ” Therefore, on July 19, 1974, the district court entered an order granting summary judgment for plaintiff. The order recites in relevant part:

“. . . The Court, finding that no just cause exists for delaying the entry of this judgment, hereby directs that such judgment be entered pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, in the amount of four hundred ninety seven thousand seven hundred forty-two dollars and seventy cents ($497,742.70) plus interest and costs.”

This appeal requires us in the first instance to consider the propriety of the district court’s 54(b) certification. Although both AC and PECO have focused on the summary judgment disposition as the central issue on this appeal, we cannot reach that issue unless our jurisdiction has been properly invoked by an appealable order. This Court obtains jurisdiction only when an appeal is taken from a final order (28 U.S.C. § 1291) or from an appealable interlocutory order (28 U.S.C. § 1292). As the Supreme Court stated in Sears, Roebuck & Co. v. Mackey, 351 U.S. 427, 437-38, 76 S.Ct. 895, 900-01, 100 L.Ed. 1297 (1956):

“. . . The District Court cannot, in the exercise of its discretion, treat as ‘final’ that which is not ‘final’ within the meaning of § 1291. But the District Court may, by the exercise of its discretion in the interest of sound judicial administration, release for appeal final decisions upon one or more, but less than all, claims in multiple claims actions. .

******

Rule 54(b) . . . scrupulously recognizes the statutory requirement of a ‘final decision’ under § 1291 as a basic requirement for an appeal to the Court of Appeals. . . .”

Hence, our jurisdiction depends upon whether the district court properly granted 54(b) certification. If that court abused its discretion in certifying the summary judgment as final, we are without jurisdiction to entertain this appeal. See B. B. Adams General Contractors, Inc. v. Department of Housing and Urban Development, 501 F.2d 176 (5th Cir. 1974). Since we cannot consider the merits of a non-final order, we turn first to the threshold question of the propriety of the 54(b) certification.

II.

Fed.R.Civ.P. 54(b)⁴ is designed to facilitate the entry of judgment on one or more claims, or as to one or more parties, in a multi-claim/multi-party action. The rationale for its adoption was stated by the Supreme Court in Sears, Roebuck & Co. v. Mackey, supra 351 U.S. at 432, 76 S.Ct. at 898, as follows:

“With the Federal Rules of Civil Procedure, there came an increased opportunity for the liberal joinder of claims in multiple claims actions. This, in turn, demonstrated a need for relaxing the restrictions upon what should be treated as a judicial unit for purposes of appellate jurisdiction. Sound judicial administration did not require relaxation of the standard of finality in the disposition of the individual adjudicated claims for the purpose of their appealability. It did, however, demonstrate that, at least in multiple claims actions, some final decisions, on less than all of the claims, should be ap-pealable without waiting for a final decision on all of the claims . . .”

The rule attempts to strike a balance between the undesirability of piecemeal appeals and the need for making review available at a time that best serves the needs of the parties. Aetna Insurance Co. v. Newton, 398 F.2d 729, 734 (3d Cir. 1968); RePass v. Vreeland, 357 F.2d 801, 804 (3d Cir. 1966); Panichella v. Pennsylvania Railroad Co., 252 F.2d 452, 454 (3d Cir. 1958); see Wright & Miller, Federal Practice and Procedure: Civil § 2654 (1973). “. . . [T]he District Court is used as a ‘dispatcher.’ It is permitted to determine, in the first instance, the appropriate time when each ‘final decision ’ upon ‘one or more but less than all’ of the claims in a multiple claims action is ready for appeal. . . . ” Mackey, supra 351 U.S. at 435, 76 S.Ct. at 899. In Panichel-la, supra at 455, we previously addressed the proper exercise of the district court’s discretion with respect to 54(b) certification. We said:

“. . . ordinarily an application for a 54(b) order requires the trial judge to exercise considered discretion, weighing the overall policy against piecemeal appeals against whatever exigencies the case at hand may present. Indeed, the draftsmen of this Rule have made explicit their thought that it would serve only to authorize ‘the exercise of a discretionary power to afford a remedy in the infrequent harsh case * * V 28 U.S.C.A., Federal Rules of Civil Procedure, 118— 119 note. It follows that 54(b) orders should not be entered routinely or as a courtesy or accommodation to counsel. The power which this Rule confers upon the trial judge should be used only ‘in the infrequent harsh case’ as an instrument for the improved administration of justice and the more satisfactory disposition of litigation in the light of the public policy indicated by statute and rule. See 6 Moore, Federal Practice, 1953, 264 — 65.”

A proper exercise of discretion under Rule 54(b) requires the district court to do more than just recite the 54(b) formula of “no just reason for delay.” The court should clearly articulate the reasons and factors underlying its decision to grant 54(b) certification.⁵ “. . It is essential . . . that a reviewing court have some basis for distinguishing between well-reasoned conclusions arrived at after a comprehensive consideration of all relevant factors, and mere boiler-plate approval phrased in appropriate language but unsupported by evaluation of the facts or analysis of the law. . . . ” Protective Committee v. Anderson, 390 U.S. 414, 434, 88 S.Ct. 1157, 1168, 20 L.Ed.2d 1 (1968) (compromise of claims in bankruptcy). In the same vein, the Second Circuit in Gumer v. Shearson, Hammill & Co., Inc., 516 F.2d 283 (2d Cir. 1974) said:

“We suggest to the district courts that in the future it would be helpful to us in reviewing the exercise of discretion in granting a Rule 54(b) certificate if the court, rather than incorporating in the certificate [footnote omitted] the conclusory language of Rule 54(b), would make a brief reasoned statement in support of its determination that, ‘there is no just reason for delay’ and its express direction for ‘the entry of a final judgment as to one or more but fewer than all of the claims or parties’ where the justification for the certificate is not apparent. . .

Accord, Schwartz v. Compagnie General Transatlantique, 405 F.2d 270, 275 (2d Cir. 1968) (“. . . the trial court [should] marshall the competing considerations and state the ones considered to be most important.”). See Wright & Miller, Federal Practice and Procedure: Civil § 2659 (1973).

We endorse the suggestion contained in Gumer as a most desirable practice. Because it will convey to litigants the reasons for the court’s decision and will afford the appellate court a meaningful basis for review, we incorporate that practice as a requirement for all Rule 54(b) certifications.

In reviewing 54(b) certifications, other courts have considered the following factors,⁶ inter alia : (1) the relationship between the adjudicated and unadjudicated claims;⁷ (2) the possibility that the need for review might or might not be mooted by future developments in the district court;⁸ (3) the possibility that the reviewing court might be obliged to consider the same issue a second time; ⁹ (4) the presence or absence of a claim or counterclaim which could result in set-off against the judgment sought to be made final;¹⁰ (5) miscellaneous factors such as delay, economic and solvency considerations, shortening the time of trial, frivolity of competing claims, expense, and the like.¹¹ 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).

The variety and number of factors which may be present in any one case highlights the importance of the district court’s evaluation and articulation of those factors leading to its grant of 54(b) certification. Since final certification of an interlocutory order should occur only “in the infrequent harsh case,” Panichella, supra, it is vital that the reviewing court be completely apprised of the reasons supporting the district court’s exercise of discretion and of those factors which have weighed the scales most heavily in favor of certification.

The guiding principles established by Panichella, supra, and succeeding cases, may therefore be summarized: (1) the 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;¹² (2) the district court must balance the competing factors present in the case to determine if it is in the interest of sound judicial administration and public policy to certify the judgment as final; (8) the district court must marshall and articulate the factors upon which it relied in granting certification so that prompt and effective review can be facilitated.

III.

Because of the absence of a reasoned explanation for the court’s action, demonstrating that the foregoing guidelines were considered, we are unable to conclude that the granting of the Rule 54(b) certification was proper in this case.

The absence of a genuine dispute as to any material fact regarding AC’s claim may have made it appropriate for the district court to grant summary judgment on that claim. However, the considerations which resulted in a grant of summary judgment are not the same considerations relevant to an order of final certification under Rule 54(b). Under summary judgment procedure, the essential inquiry is whether material facts are disputed. Under 54(b) procedure, the essential inquiry is whether, after balancing the competing factors, finality of judgment should be ordered to advance the interests of sound judicial administration and public policy.

Here, the district court made no independent analysis of the factors which led it to certify its summary judgment order as final. The only reference in the district court opinion to factors relevant to the 54(b) certification appears in a summary judgment context. The district court was apparently of the view that a counterclaim, factually unrelated to the subject matter of the main claim, should neither bar summary judgment nor should it bar 54(b) certification. While the factual relationship between the claims is one factor to be considered in granting 54(b) certification, see Cold Metal Process Co., supra n. 7, it is not in itself determinative of the 54(b) issue. The failure of the district court to refer to any supporting or countervailing factors leaves us without assurance that this is indeed “the infrequent harsh case” in which final certification should be granted.

The district court’s Memorandum and Order leaves us, at the least, with the following unanswered questions: 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? 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? Is PECO’s counterclaim frivolous, facially defective or otherwise legally insufficient? What would be the effect of, and the necessity for, immediate execution prior to the complete adjudication of all claims? 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 in favor of AC?¹³ 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? The absence of any discussion of these considerations, among others, in the district court’s opinion demonstrates to us that the district court did not undertake the “factor-balancing-analysis” required by Rule 54(b); or, if it did perform such an analysis, it failed to articulate the factors it relied upon in reaching the decision to grant certification.

In the absence of unusual or harsh circumstances,¹⁴ we believe that the presence of a counterclaim, which could result in a set-off against any amounts due and owing to the plaintiff, weighs heavily against the grant of 54(b) certification. In TPO Incorporated, supra, we stated:

“. . . In our view the counterclaim is compulsory, and its presence weighs the scales against the grant of summary judgment.”

487 F.2d at 134. We recognize that TPO Incorporated is distinguishable from this case in that the TPO counterclaim was compulsory within the, meaning of Fed. R.Civ.P. 13(a) while here PECO’s counterclaim is clearly permissive under Fed. R.Civ.P. 13(b).¹⁵ Nevertheless, we are concerned here, as we were in TPO Incorporated, with the possibility that a defendant will have to pay over monies to a plaintiff only to be reimbursed if defendant prevails on its as yet unadju-dicated counterclaim. As stated in Wright & Miller, Federal Practice and Procedure: Civil § 2659 (1973):

“. . . [T]he possibility of a set-off if defendant recovers on a counterclaim may indicate that an immediate appeal should not be allowed, [footnote omitted] presumably because of the undesirability of awarding an amount that may be reduced by a subsequent judgment on defendant’s counterclaim."

Thus, as we stated previously, we view the presence of a counterclaim seeking a set-off as one factor weighing against the grant of 54(b) certification in a case such as this one. See Schroeter v. Ralph Wilson Plastics, Inc., 49 F.R.D. 323 (S.D. N.Y.1969).

In addition to the failure of the district court to specify those factors upon which it relied in granting certification and, thereby, to furnish us with the benefit of its analysis in marshalling the relevant factors, we also note the complete absence of any affirmative demonstration by the plaintiff as to why there was “no just reason for delay.” In its “Memorandum ... in Support of its Motion for Summary Judgment” AC argued that from the pleadings and affidavits summary judgment should be granted. However, AC never presented any facts or demonstrated any reasons why, if summary judgment was granted, it should be made final under Rule 54(b). In our discussion of Panichella, supra, we emphasized that AC had the burden of showing some danger of hardship or injustice through delay which would be alleviated by immediate 54(b) certification. AC’s failure to satisfy its burden of demonstrating why final certification should be granted, coupled with the failure of the district court to analyze the relevant factors and to set forth its reasons for granting AC’s motion, compel the conclusion that it was an abuse of discretion, under the facts of this case, to certify the summary judgment in favor of Allis-Chalmers as final under Rule 54(b).¹⁶

For lack of a competent Rule 54(b) certification, and therefore, for lack of finality, the appeal will be dismissed with a direction to the district court that it vacate so much of its July 19, 1974, order as entered judgment pursuant to Rule 54(b). The case will be remanded to the district court for further proceedings consistent with this opinion. Each party to bear its own costs.

1 . This disposition makes it unnecessary for us to reach the merits of the grant of summary judgment. Nor do we consider defendant’s challenge to the district court’s apparent refusal to stay execution of the judgment. We note, however, that although the district court referred to defendant’s request for a stay of execution in its Memorandum Opinion of July 19, 1974, no order denying the defendant’s motion for a stay was ever entered.

2 . The record before us contains two affidavits submitted by AC in support of its motion for summary judgment. These affidavits establish the total amount claimed by AC as $497,-742.70. PECO filed no answering affidavit addressed to this claim. See Tunnell v. Wiley, 514 F.2d 971 (3d Cir. April 1, 1975).

3 . In its answer to PECO’s counterclaim, AC denied PECO’s allegations of negligence and breach of warranty. AC also impleaded Westinghouse Electric Corporation as a third-party defendant. The third-party claim, as well as the counterclaim, has yet to be adjudicated in the district court and remains pending.

4 . Fed.R.Civ.P. 54(b) provides:

* * * * * *

(b) Judgment upon Multiple Claims or Involving Multiple Parties. When more than one claim for relief is presented in an action, whether as a claim, counterclaim, cross-claim, or third-party claim, or when multiple parties are involved, the court may direct the entry of a final judgment as to one or more but 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 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.

5 . This is not the only occasion on which we have referred to the requirement that the district court specify the reasons for a discretionary judgment. See, e. g., Plum Tree, Inc. v. Stockment, 488 F.2d 754, 756 (3d Cir. 1973) (factors affecting a transfer of venue); Lindy Bros. Inc. v. American Radiator & Standard Sanitary Corp., 487 F.2d 161 (3d Cir. 1973) and Merola v. Atlantic Richfield Co., 483 F.2d 292 (3d Cir. 1974), following remand, 515 F.2d 165 (3d Cir. April 29, 1975) (factors affecting an award of attorney’s fees); Bryan v. Pittsburg Plate Glass Co., 494 F.2d 799 (3d Cir. 1974) (factors affecting court approval of class action settlement). Accord, City of Detroit v. Grinnel Corp., 495 F.2d 448 (2d Cir. 1974).

6 . Our listing of these factors is for purpose of illustration and should not be considered all-inclusive.

7 . See Cold Metal Process Co. v. United Engineering & Foundry Co., 351 U.S. 445, 76 S.Ct. 904, 100 L.Ed. 1311 (1956), Panichella, supra.

8 . Panichella, supra at 455.

⁹

10 . TPO Incorporated v. Federal Deposit Insurance Corporation, 487 F.2d 131, 134 (3d Cir. 1973).

11 . See Campbell v. Westmoreland Farm, Inc., 403 F.2d 939 (2d Cir. 1968); 6 J. Moore, Federal Practice ¶ 54.41(3) (2d ed. 1974).

12 . See Wright & Miller, Federal Practice and Procedure: Civil § 2659 (1973).

13 . In opposing summary judgment, PECO argues that, as a matter of substantive law, Pennsylvania’s Defalcation Act, 12 P.S. § 601, requires that PECO’s counterclaim must be “netted’ against AC’s main claim; and, accordingly, that no judgment could be entered on the main claim prior to the counterclaim’s determination. We neither reach nor resolve this issue.

14 . In referring to “unusual or harsh circumstances”, in this context, we have particular reference to our previous discussion of factors involving considerations of solvency, economic duress, etc. which bear upon the district court’s discretion in granting final certification. See p. 364, supra.

15 . There is the further distinction that in TPO Incorporated the precise issue was whether summary judgment was improvidently granted while in the present case we do not question the grant of summary judgment but only the 54(b) certification.

16 . Notwithstanding the stridency of the dissent, our holding is not that this was an improper case for Rule 54(b) certification. We have remanded only for a statement of reasons so that this Court may properly determine if this was “the infrequent harsh case” warranting final certification within the meaning of Panichella, supra at 455. Such review by this Court is not, as the dissent suggests, “. an unprecedented and unwarranted interpretation of Rule 54(b) . This precise practice has been followed by this Court for over a quarter of a century. Panichella, supra. Indeed, the dissent’s statement, that Rule 54(b) does not give this Court authority to decline to hear an appeal from a final decision in a separate claim as to which the district court has directed the entry of judgment is not only a misstatement of controlling case law, but is also contradicted by the dissent in its later, grudging recognition of the viability of the Panichella rule. See p. 363, supra.

We express no opinion on the dissent’s analysis of the factors to be considered by the district court because, in the view we take, that is a proper function for the district court. Our consideration of such factors is only to determine whether the district court abused its discretion in granting final certification. Insofar as the dissent suggests that our holding will have the effect of requiring a written opinion for every Rule 54(b) certification” containing a “laundry list” of “specific findings”, we note only that we require no more than a statement of the reasons for granting final certification. This is no more or less than we have required in other areas where the district court’s exercise of discretion is subject to appellate review. See n. 5 supra.