Schine v. Schine

367 F.2d 685
Court of Appeals for the Second Circuit·Decided October 26, 1966·No. No. 117, Docket 30614·Published·Cited by 17 cases

Opinions

LUMBARD, Chief Judge:

The defendants appeal from an order of Judge Frankel in the District Court for the Southern District of New York which denied their motion for a prior separate trial of their counterclaim for an injunction against the trial of plaintiffs’ action on the ground that it is barred by a release. We hold that the order is not appealable, and dismiss the appeal.

This action stems from the sale by plaintiffs, all members of the Schine family, of their 87.6% of the common stock of Schine Enterprises, Inc. to the defendants, other members of the Schine family who owned the remainder of Enterprises’ common, for the sum of $5,-332,000. The first and third claims of plaintiffs’ complaint charge that defendants brought about the sale for a “wholly inadequate sum” by conspiratorial and fraudulent acts and failures to disclose, in violation of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and of Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5. Plaintiffs’ second and fourth claims set cut that the same acts and failures to disclose violated the fiduciary duty which defendants, as officers, directors, and majority stockholders of Enterprises, owed to plaintiffs. The first and second claims seek damages of $15,000,000, and the third and fourth seek an accounting of profits.

Defendants initially moved before Judge Weinfeld, inter alia, for summary judgment based upon a release given by plaintiffs to defendants at the closing of the sale, which released defendants from all claims, “including but not limited to any claims arising by reason of any willful misrepresentation of the values of properties (or of any offers made for the purchase of the same) owned by [Enterprises and its affiliated corporations],” and “including but not limited to contract and tort, including fraud, liability.” Judge Weinfeld denied summary judgment, holding that the intended scope of the release was ambiguous and could be clarified by parol evidence at trial. 250 F.Supp. 822 (S.D.N.Y.1966).

Defendants then amended their answer, and added the counterclaim for specific performance of the release through the injunction against plaintiffs’ prosecution of this or any other action against defendants, and moved for a separate trial of their counterclaim before trial of the main action. Judge Frankel denied this motion on the ground that all the facts alleged in plaintiffs’ complaint bore upon the interpretation and validity of the release, so that a separate trial of the counterclaim promised waste, not economy, of litigation. 254 F.Supp. 986 [687] (S.D.N.Y.1966). It is from this denial that defendants have appealed.

Appellants argue that Judge Frankel’s order is appealable under 28 U.S.C. § 1292(a) (1) as an order refusing an injunction. In practical effect, Judge Frankel did not refuse an injunction; he merely refused to try defendants’ defense before plaintiffs’ action. His ruling was a matter of common, garden-variety district court housekeeping, an exercise of the district court’s broad discretion in controlling the order of developing facts and issues at trial.

Appellants contend, however, that Judge Frankel’s order should be treated as one refusing an injunction under the doctrine of Enelow v. New York Life Ins. Co., 293 U.S. 379, 55 S.Ct. 310, 79 L.Ed. 440 (1935). Enelow held that a grant or refusal of a stay of the trial of a legal action so that an equitable counterclaim may be tried first is appeal-able, because before the (then partial) merger of federal law and equity the action would have been pending in a court of law and the counterclaim in a court of equity, and

“[t]he power to stay proceedings in another court appertains distinctively to equity in the enforcement of equitable principles, and the grant or refusal of such a stay by a court of equity of proceedings at law is a grant or refusal of an injunction within the meaning of [§ 1292].”

293 U.S. at 382, 55 S.Ct. at 311. It has been argued that this concept of such a .stay as an interlocutory injunction is anomalous after the subsequent complete merger of law and equity in 1938 by the Federal Rules of Civil Procedure. See, e. g., 5 Moore, Federal Practice jf 39.13 [2] (2d ed. 1964); Note, Appealability in the Federal Courts, 75 Harv.L.Rev. 351, 373-375 (1961). Nevertheless, the Supreme Court reaffirmed the Enelow doctrine after the promulgation of the Federal Rules. Ettelson v. Metropolitan Life Ins. Co., 317 U.S. 188, 63 S.Ct. 163, 87 L.Ed. 176 (1942).

The Supreme Court has refused, however, to extend the Enelow-Ettelson doctrine beyond the limits indicated by the rationale of the Enelow opinion. In particular, it has not analogized the grant or refusal of a stay to an injunction where the whole case, before the merger of law and equity, would have been before a court of equity, so that no stay of “proceedings in another court” would have been involved. Thus, where plaintiff’s action would have been in equity, the grant or denial of a stay pending trial of a counterclaim, legal or equitable, is not appealable under the Enelow-Ettelson doctrine. Baltimore Contractors, Inc. v. Bodinger, 348 U.S. 176, 182-185, 75 S.Ct. 249, 99 L.Ed. 233 (1955) (equitable counterclaim); City of Morgantown v. Royal Ins. Co., Ltd., 337 U.S. 254, 69 S.Ct. 1067, 93 L.Ed. 1347 (1949) (legal counterclaim).

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Schine v. Schine
367 F.2d 685 (Second Circuit, 1966)