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Cinerama Inc. v. Sweet Music

decided: June 14, 1973.


Moore, Friendly and Feinberg, Circuit Judges.

Author: Friendly

FRIENDLY, Circuit Judge:

These appeals present an example of how a successful litigant's effort at accelerating collection from an adversary, in a manner which on any view pressed the Rules of Civil Procedure to their limit, has produced substantial delay.

This action in the District Court for the Southern District of New York by Cinerama, Inc., a New York corporation, against two Swiss corporations, Sweet Music, S.A., and Union Bank of Switzerland, stemmed from a written guarantee delivered by Cinerama to the Bank of a loan to be made by the Bank to Sweet Music in order to finance the production of a film which Cinerama was to distribute. In a first cause of action, Cinerama sought a declaration that, for various reasons unnecessary here to detail, Cinerama had not entered into a guarantee and, in any event, was not liable under its terms; in a second, Cinerama sought to recover damages against Sweet Music. The Bank answered the first cause of action and counterclaimed for the principal of the loan, stated to be $2,100,000, together with interest thereon. Sweet Music also answered and counterclaimed for failure to distribute the film. The Bank moved, under F.R.Civ.P. 56, for an order granting its counterclaim, now limited to $1,825,000, together with interest which was alleged to amount, as of October 31, 1971, the due date of the loan, to 1,394,984 Swiss francs, and interest at what is referred to as the "contract rate of 8 1/2%" thereafter, and dismissing Cinerama's complaint insofar as the complaint sought a declaratory judgment of non-liability to the Bank.

In an opinion rendered on September 18, 1972, 355 F. Supp. 1113, Judge Tenney concluded that Cinerama's claim of non-liability on the guarantee raised no genuine issue of any material fact, that its complaint for a declaratory judgment should be dismissed, and that the Bank was entitled to partial summary judgment for $1,825,000, the principal amount of the guarantee. He added, 355 F. Supp. at 1121:

Fact issues still remain, however, with regard to the amount of interest for which Cinerama is liable to the Bank, specifically: (1) the amount of interest in Swiss Francs due on the principal amount of Cinerama's liability from October 15, 1969, to October 31, 1971; (2) the official exchange rate between dollars and Swiss Francs on the applicable date; and (3) interest at the "contract rate of 8 1/2%" referred to in the Bank's brief for the period after the loan became due.

Four days later, judgment was entered in a form proposed by the Bank. The judgment recited the motion for summary judgment and the decision thereon, and said there was "no just cause for delay for entry of judgment pursuant to Rule 54(b) of the Federal Rules of Civil Procedure." It thereupon ordered that the Bank recover $1,825,000 and costs from Cinerama; that Cinerama's claim for a declaratory judgment against the Bank be dismissed; and that "the remainder of the action [be] severed."

Evidently fearing that the Bank would endeavor to levy execution on the judgment but that an appeal on its part would be dismissed for lack of finality of the judgment, Cinerama promptly made a motion which, among other things, asked that an order be entered pursuant to F.R.Civ.P. 60(b) "vacating the judgment on the ground that it was improperly entered."*fn1 The motion also sought reargument on the merits. On October 30, 1972, the court granted the motion for reargument but adhered to its prior decision, and denied the motion to vacate. Cinerama promptly appealed both from the judgment and from the order refusing to vacate it. Cinerama did not file a supersedeas bond under F.R.Civ.P. 62(d), which would have provided an automatic stay during appeal.

Some months were then spent in negotiations, which turned out to be fruitless, that would have avoided a levy of execution by having Cinerama place the Bank on a parity with secured creditors. On May 1, 1973, another panel of this court heard a motion by Cinerama for a stay of execution; Cinerama claimed that it was unable to procure a supersedeas bond but that execution was likely to precipitate insolvency, with great harm to other creditors, employees, and stockholders. Being disturbed by the problem presented by the apparent unappealability of the judgment, the panel granted a stay pending expedited argument of the appeals. The stay was without prejudice to any proceedings the Bank might choose to take in the district court in order to have the amount of prejudgment interest determined. The Bank filed a motion for summary judgment on that issue, returnable May 24, 1973, before another judge to whom the case has now been assigned, but at this writing he has not yet rendered a decision.

The first sentence of Rule 54(b) provides:

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.

Since multiple parties were here involved, there is no doubt that the district court could properly have made the specified direction if it had fully disposed of the separate claim between Cinerama and the Union Bank although it has not determined the controversy between Cinerama and Sweet Music. The propriety of such a disposition, however, does not invest the district court with greater power to characterize a partial disposition of a claim between Cinerama and the Bank as final than if Sweet Music had not been a party. It is settled that, in making the requisite determination and direction under F.R.Civ.P. 54(b), "the District Court cannot, in the exercise of its discretion, treat as 'final' that which is not 'final' within the meaning of [28 U.S.C.] § 1291" (emphasis in original), and that "any abuse of that discretion remains reviewable by the Court of Appeals." Sears, Roebuck & Co. v. Mackey, 351 U.S. 427, 437, 76 S. Ct. 895, 900, 100 L. Ed. 1297 (1956).

We see no basis for the apparent belief of the district court that it could sever the Bank's claim for principal from its claim for prejudgment interest and render a "final" judgment only for the former. Since the same operative facts that created the right to recover principal gave rise to the right to recover interest, there was but a single claim, as would be evident if the Bank had counterclaimed only for principal and, after obtaining judgment, had endeavored to sue for prejudgment interest. See ALI, Restatement of Judgments 2d, § 61 (Tent. Draft No. 1, March 1973). We held long ago that a district court could not endow with finality a judgment which determined the merits of all of the contentions asserted by parties but had not yet fixed the damages sought by the prevailing ones, even though "the computation would now seem to be comparatively simple, if not ministerial in nature." Petrol Corp. v. Petroleum Heat & Power Co., 162 F.2d 327, 329 (2 Cir. 1947). We see no significant distinction when the court has determined part of the damages, here the principal, but has reserved, as raising fact issues, the amount of prejudgment interest. The matter might stand differently if computation of such interest were a purely ministerial act, with the clerk directed to compute the amount and include the total, compare N.Y. CPLR § 5001(c); see Mower v. Fletcher, 114 U.S. 127, 5 S. Ct. 799, 29 L. Ed. 117 (1885); Republic National Gas Co. v. Oklahoma, 334 U.S. 62, 68, 68 S. Ct. 972, 92 L. Ed. 1212 (1948).

Aetna Casualty & Surety Co. v. Giesow, 412 F.2d 468 (2 Cir. 1969), is directly in point. We there dealt with an agreement whereby the defendant undertook in a certain event to indemnify the plaintiff for "any and all liability, loss, costs, damages, attorneys' fees and expenses of whatsoever kind or nature" which plaintiff might sustain by reason of having issued performance and payment bonds. The district court had entered judgment for damages representing labor and material costs plus interest but severed so much of the claim as was for reasonable counsel fees. We held that "the issues of damages and counsel fees are so inexorably interconnected as to make this a single claim," 412 F.2d at 470, and consequently dismissed the appeal for lack of finality in the judgment.*fn2 The Bank's argument that nothing that can happen in the interest computation can affect Cinerama's liability for the principal, as determined by the district court, could have been made with equal force in Aetna ; nothing that could happen in the computation of the reasonable attorneys' fees to which Aetna was entitled could affect the amount owing for labor and materials. The final judgment rule is designed not merely to prevent an ...

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