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Colby v. Klune

December 27, 1949


Author: Frank

Before L. HAND, Chief Judge, and SWAN and FRANK, Circuit Judges.

FRANK, Circuit Judge.

1. We have in this case one more regrettable instance of an effort to save time by an improper reversion to "trial by affidavit," improper because there is involved an issue of fact, turning on credibility*fn1 Trial on oral testimony, with the opportunity to examine and cross-examine witnesses in open court, has often been acclaimed as one of the persistent, distinctive, and most valuable features of the common-law system*fn2 For only in such a trial can the trier of the facts (trial judge or jury) observe the witnesses' demeanor; and that demeanor - absent, of course, when trial is by affidavit or deposition - is recognized as an important clue to witness' credibility. When, then, as here, the ascertainment (as near as may be) of the facts of a case turns on credibility, a triable issue of fact exists, and the granting of a summary judgment is error. It did not cure the error that each side moved for such a judgment in its favor*fn3

We hear much of crowded trial dockets as the cause of deplorable delays in the administration of justice. The way to eliminate that congestion is by the appointment of a sufficient number of judges, not by doing injustice through depriving litigants of a fair method of trial*fn4

2. That there is here a triable issue of fact appears from the following:

(a) Assuming for the moment that Rule X-3b-2, issued by the S.E.C., is not authorized by the statute, we construe "officer," as used in Section 16(b) of the Securities Exchange Act*fn5, thus: It includes, inter alia, a corporate employee performing important executive duties of such character that he would be likely, in discharging these duties, to obtain confidential information about the company's affairs that would aid him if he engaged in personal market transactions. It is immaterial how his functions are labelled or how defined in the by-laws, or that he does or does not act under the supervision of some other corporate representative. As we think that, at this stage of the case, it is well to reserve decision concerning the statutory power of the S.E.C. to issue Rule X-3b-2*fn6, we think that the plaintiff should be allowed at a trial to produce oral testimony in open court (by examination or cross-examination of witnesses), or other evidence, relevant under the foregoing definition of officer.

For the affidavits do not supply all the needed proof. The statements in defendants' affidavits certainly do not suffice, because their acceptance as proof depends on credibility; and - absent an unequivocal waiver of a trial on oral testimony - credibility ought not, when witnesses are available, be determined by mere paper affirmations or denials that inherently lack the important element of witness' demeanor. As we observed in Arnstein v. Porter, 2 Cir., 154 F.2d 464, 471: "It will not do, in such a case, to say that, since the plaintiff, in the matter presented by his affidavits, has offered nothing which discredits the honesty of the defendant, the latter's deposition must be accepted as true." For the credibility of the persons who here made the affidavits is to be tested when they testify at a trial. Particularly where, as here, the facts are peculiarly in the knowledge of defendants or their witnesses, should the plaintiff have the opportunity to impeach them at a trial*fn7; and their demeanor may be the most effective impeachment*fn8 Indeed, it has been said that a witness' demeanor is a kind of "real evidence"*fn8a; obviously such "real evidence" cannot be included in affidavits. In Sartor v. Arkansas Natural Gas Corp., Kansas Group, 321 U.S. 620, 628, 64 S. Ct. 724, 729, 88 L. Ed. 967, the Court said that a summary judgment may not be used to "withdraw these witnesses from cross-examination, the best method yet devised for testing trustworthiness of testimony"; the Court, in that connection, quoted with approval from Aetna Life Insurance Co. v. Ward, 140 U.S. 76, 88, 11 S. Ct. 720, 724, 35 L. Ed. 371: "There are many things sometimes in the conduct of a witness upon the stand, and sometimes in the mode in which his answers are drawn from him through the questioning of counsel, by which a jury are to be guided in determining the weight and credibility of his testimony."

Nor is the situation different because the trial will be before a trial judge without a jury*fn9 For how can the judge know, previous to trial, from reading paper testimony, what he will think of the testimony if and when, at a trial, he sees and hears the witnesses*fn10? It is because of the crucial element of demeanor-observation that a trial judge's findings are usually binding unless "clearly erroneous"; his findings have not that effect when he has not observed the witnesses*fn11

"All manner of expedients," says Dean Pound, "have been resorted to * * * to arrive at a written settlement of the facts not dependent on the credit to be accorded witnesses or the impression they may make on the particular trial court. * * * But experience has shown that we cannot be sure that in getting a clear-cut statement of facts in this way, to which the law may be applied, we are not cutting out too much, so in the end to be trying an artificial case instead of the real controversy."*fn12

It may happen (although we do not know) that, because of their unavailability at the trial, plaintiff will be obliged to obtain the testimony of some or all of the defendants' witnesses by deposition. If so, the demeanor-aspect of their testimony will be lost; however, he will at least have the chance to cross-examine them, an opportunity he has not yet had*fn12a. In reversing a summary judgment, the Third Circuit cogently said: "This case illustrates the danger of founding a judgment in favor of one party upon his own version of facts within his sole knowledge as set forth in affidavits prepared ex parte. Cross-examination of the party and a reasonable examination of his records by the other party frequently bring forth further facts which place a very different light upon the picture."*fn13

(b) It may be that the S.E.C. had such statutory authority to issue the Rule that it binds the courts*fn14 Even so, there remains much room for inquiring into the facts at a trial. For the functions of a "vice-president" or "comptroller" are not so well settled as to be self-evident, and there is need for evidence concerning those functions. Under that Rule as we interpret it, it does not matter whether or how the by-laws of this particular company define the duties of such officers. The question is what this particular employee was called upon to do in this particular company, i.e., the relation between his authorized activities and those of this corporation. Again, under this Rule, it is not decisive whether or not some other person supervised his work*fn15

Counsel for the S.E.C., in a memorandum filed with us, says that it is significant that the employee has or has not "responsibility for the policy of at least a substantial segment of the corporation's affairs" and participates "in executive councils of the corporation as an officer." We think the trial court should receive evidence pertinent to that issue but should reserve decision as to its legal significance until after the trial.

Reversed and ...

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