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Herzog & Straus v. GRT Corp.

decided: April 14, 1977.


Appeal from sua sponte grant of summary judgment for defendant in the United States District Court for the Southern District of New York, Whitman Knapp, Judge, following hearing on plaintiff's motion for preliminary injunction. Reversed and remanded.

Moore, Oakes and Timbers, Circuit Judges. Timbers, Circuit Judge, concurring specially.

Author: Oakes

OAKES, Circuit Judge:

This appeal is from a sua sponte grant of summary judgment against appellant by the United States District Court for the Southern District of New York, Whitman Knapp, Judge. The grant immediately followed appellant's unsuccessful attempt, at a hearing, to obtain a preliminary injunction. So swiftly did the door of justice revolve in this instance that appellant filed suit in state court on a Friday (June 18, 1976), was removed to federal court on the following Thursday (June 24), and found itself out on the street, with summary judgment granted to its opponent on the court's own motion,*fn1 the very next Monday (June 28). We reverse the judgment.

Appellant is a New York partnership of certified public accountants. Its state court complaint alleged four causes of action, premised factually on the claim that appellee, a California music tape manufacturer, refused to permit appellant access to appellee's books and records for audits on behalf of three of appellant's clients. Each of the clients was a song publisher who either contracted with appellee to manufacture and distribute prerecorded magnetic tapes of master recordings, the rights to which were owned by the publisher, or issued appellee licenses entitling it to sell such tapes, and each contract entitled the publisher to conduct an independent audit of appellee's books and records for purposes of verifying royalty payments thereunder. One of the contracts named appellant as the auditing firm, and the other two clients requested appellant to make their contractually authorized audits. Appellee, however, notified each of the clients, as well as appellant, that it would not permit appellant to do so.

Each of the first three "causes of action" in appellant's state court complaint referred to one of the three clients; the complaint as to each spoke of "malicious interference by defendant . . . done with the sole purpose of causing injury to plaintiff [that] cannot . . . inure to the benefit of or create a profit for GRT. . . ." The fourth state court "cause of action" referred to appellee's "course of conduct to prevent plaintiff from performing work for its clients" and to appellee's "engaging in acts and practices which have damaged plaintiff in its business."

At the time of the scheduled hearing on appellant's request for a preliminary injunction, the court below immediately commenced to "explore" the issue whether appellant had "a cause of action at all." Before appellant's counsel was able to address himself to this question, the judge ventured the view that the affidavit supporting the request for a preliminary injunction indicated that appellee was denying appellant access "to protect itself from [appellant's] expertise," because appellant had found "derelictions" in other audits. The judge went on to say that, if this were true, appellant had no cause of action because appellee was serving its own self-interest. Despite arguments by appellant's counsel to the effect that the complaint stated a cause of action for interference with advantageous business relations, the court was of the view that, because appellant made an "admission" that appellee "did this in order to keep your client from proving him a crook," there could be no "cause of action"*fn2 under the New York law*fn3 of "prima facie tort." See Advance Music Corp. v. American Tobacco Co., 296 N.Y. 79, 83-84, 70 N.E.2d 401, 402-03 (1946); Benton v. Kennedy-Van Saun Mfg. & Eng. Corp., 2 App. Div. 2d 27, 28-29, 152 N.Y.S.2d 955, 957-58 (1st Dep't 1956).

Whatever the merits of Judge Knapp's holding as to the New York law on prima facie tort, we think appellant should have been given an opportunity to develop its alternative theory based on interference with business or contractual relations.*fn4 The rush to judgment here was so rapid that appellant did not have a chance to develop the New York case law or brief the question whether New York law was even applicable, see note 2 supra ; to amend its pleadings if necessary; or to develop the facts sufficiently to enable it to sustain its case on any legal theory other than "prima facie tort." Because such an opportunity is vital if the court is to make an informed decision whether to grant summary judgment, Fed. R. Civ. P. 56(c) requires that a motion for summary judgment be served at least ten days before a hearing is held.*fn5 While this rule applies expressly only to summary judgment motions by a party, "we think the spirit of the rule requires the same notice and hearing where the court contemplates summary dismissal on its own motion." Bowdidge v. Lehman, 252 F.2d 366, 368-69 (6th Cir. 1958).

Appellee argues that one who seeks a preliminary injunction, as appellant did here, must be ready to show he is more likely than not to prevail on the merits and therefore must be fully armed with his legal theory and supporting factual premises. The Fifth Circuit, however, has rejected this proposition, and we agree with its reasoning:

Loss of a motion for preliminary injunction means only temporary lethality. Final judgment is not then a possibility. When such a limited adjudication is the order of the day, we cannot say with assurance that the parties will present everything they have. The very intimation of mortality when summary judgment is at issue assures us that the motion will be rebutted with every factual and legal argument available.

Georgia, Southern & Florida Railway v. Atlantic Coast Line Railroad, 373 F.2d 493, 498 (5th Cir.), cert. denied, 389 U.S. 851, 19 L. Ed. 2d 120, 88 S. Ct. 69 (1967). Cf. Capital City Gas Co. v. Phillips Petroleum Co., 373 F.2d 128, 131 (2d Cir. 1967) (error to grant permanent injunction following hearing on motion for preliminary injunction, because parties not aware prior to hearing that final relief was to be granted).

The judgment is reversed, without prejudice to the right of either party to move for summary judgment at a later, more appropriate stage of the litigation.*fn6

Reversed and ...

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