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State Mutual Life Assurance Co. v. Andersen

decided: August 8, 1978.

STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA, CITIZENS MUTUAL INSURANCE COMPANY, WORCESTER MUTUAL FIRE INSURANCE COMPANY AND THE BEACON MUTUAL INDEMNITY COMPANY, PLAINTIFFS-APPELLEES,
v.
ARTHUR ANDERSEN & CO., DEFENDANT-APPELLANT. ARTHUR ANDERSEN & CO., DEFENDANT AND THIRD-PARTY PLAINTIFF-APPELLANT AND PETITIONER-APPELLANT, V. JOSEPH A. BONURA, EMPIRE NATIONAL BANK (AS SUCCESSOR IN INTEREST TO COUNTY NATIONAL BANK), JACK R. DICK AND HERMAN L. MECKLER, THIRD-PARTY DEFENDANTS, EMPIRE NATIONAL BANK, DEFENDANT, THIRD-PARTY DEFENDANT AND PETITIONER-APPELLANT.



Appeals pursuant to 28 U.S.C. § 1292(b) from an order of the Southern District of New York, Henry F. Werker, Judge, in a multi-party action involving third-party and cross-claims directing a non-jury "bench" retrial of issues as to which a jury had disagreed upon an earlier jury trial (Nos. 78-7028, 7031 and 7037), and from a judgment dismissing claims asserted by Arthur Andersen & Co., a defendant and third-party plaintiff, against Herman L. Meckler, whom the jury had found not liable directly to the plaintiffs (No. 77-7385).

Before Waterman, Hays and Mansfield, Circuit Judges.

Author: Mansfield

Two issues are presented by these appeals pursuant to Title 28 U.S.C. § 1292(b) from orders entered by Judge Henry F. Werker of the Southern District of New York in this multi-party action involving third party and cross claims. The first, raised by Arthur Andersen & Co. ("Andersen"), a defendant and third-party plaintiff, is whether, after a jury trial of all issues between all parties has been held pursuant to court order, despite a prior jury waiver by some parties, and the jury is unable to agree upon a verdict with respect to certain claims, those parties who previously waived a jury are entitled to a jury retrial of those claims. We hold that under the unusual circumstances of this case they are so entitled and reverse the district court's order for a non-jury trial of those claims.

The second issue, raised by defendant and third-party plaintiff Andersen, is whether, after the jury returned a verdict in favor of third-party defendant Herman L. Meckler ("Meckler") against plaintiffs and third-party Empire National Bank ("Empire"), the trial judge erred in entering a judgment dismissing the claims of Andersen, a defendant and third-party plaintiff, against Meckler. We find no error in this action and accordingly affirm the judgment.

The action was instituted against Andersen by various insurance companies for recovery as damages of approximately $10 million loaned by them between 1967 and 1969 to Black Watch Farms, Inc. ("Black Watch"), a cattle breeding business audited by Andersen.*fn1 Plaintiffs claimed that Andersen violated its duties under the federal securities statutes and common law in its auditing of Black Watch's accounts. Andersen, in turn, filed a third-party complaint against various parties, including Empire, which had functioned as Black Watch's principal banker, and Meckler, who had been chairman and chief executive of Black Watch. Andersen claimed that Empire and Meckler had failed to disclose certain financial information to it, and sought contribution from them in the event it should be found liable to the plaintiffs.

Neither plaintiffs nor Andersen initially demanded a jury trial. However, both Meckler and Empire, upon answering Andersen's third-party complaint against them, demanded a jury trial of the third-party claims, and Empire, exercising its right under Rule 14(a), F.R.Civ.P.,*fn2 filed an answer demanding a jury trial of that claim.

In January, 1973, plaintiffs filed a separate complaint naming Empire as a defendant, thereby making Empire a co-defendant with Andersen. In March, 1973, Empire answered this complaint, cross-claimed against Andersen, Meckler and others, and again demanded a jury trial of all issues. In April, 1973, plaintiffs filed a complaint against Meckler, who demanded a jury in his answer, which also included contribution cross-claims against Andersen.

The result of this flurry of filings, which then-District Judge Gurfein characterized as "somewhat reminiscent of Chitty's book on common law pleadings,"*fn3 was that plaintiffs had claimed directly against Andersen, Empire, and Meckler as defendants. Andersen had claimed as a third-party plaintiff against Empire, Meckler and others not relevant here. Empire had demanded a jury trial of all issues in plaintiffs' original complaint against Andersen; and Empire and Meckler had demanded a jury trial of all issues arising out of plaintiffs' claims against them as defendants. Moreover, Empire and Meckler had demanded a jury trial as to all issues arising out of Andersen's third-party claims against them, including the issue of Andersen's liability to plaintiffs, the initial dispute as to which neither plaintiffs nor Andersen had made a jury demand. Finally, Empire had also demanded a jury trial of its cross-claims against Andersen and Meckler.

After an extended period of discovery, Judge Werker scheduled a pre-trial conference for January 15, 1976, one purpose of which was to determine the format of the upcoming trial. At this conference Andersen took the position that a jury trial was "required by the Federal Rules with respect to all claims and issues between any and all of the parties," even though it had never demanded a jury trial. The plaintiffs, though somewhat more equivocal as to whether a jury trial of their claims against Andersen was required, argued as follows in a memorandum submitted to the court prior to the conference:

"While it has been and remains plaintiffs' preference that all of their claims against Andersen, Empire and Meckler be tried to the Court, it seems clear that the jury demands of Empire and Meckler have foreclosed that prospect. Under the circumstances, therefore, Plaintiffs wish to be relieved of their jury waiver. See Rule 39(b), Fed.R.Civ.P.

To proceed with a bench trial of the Andersen issues, as between plaintiffs and Andersen, would thus be to invite inconsistent findings by Court and jury on identical issues. . . .

It seems clear that Meckler and Empire can insist, as to themselves, on a jury determination of the issue of Andersen's liability to plaintiffs. Not so clear is whether the jury demands of the third-party defendants have either relieved plaintiffs and Andersen from their jury waivers or otherwise converted plaintiffs' case against Andersen into a jury case for plaintiffs and Andersen.

On one view probably the correct position the jury demands of the impleader defendants have the effect of requiring that a jury decide the issue of Andersen's liability even as between Andersen and plaintiffs. However, it can be argued that the jury demands operate solely to require that a jury determine, as between Andersen and the third-party defendants, the issue of Andersen's liability to plaintiffs, while as between Andersen and plaintiffs the Court would theoretically still decide that issue." (emphasis added)

Thus Judge Werker was confronted with multiple parties asserting a complex series of claims, and no possibility of avoiding a jury trial as to all of them, at least with respect to some parties (Empire and Meckler). Of the two principal parties to the litigation (plaintiffs and Andersen), one (Andersen) argued that a jury trial of all issues was required, while the other (plaintiffs) argued that even if a trial of all issues to a jury was not required, it was certainly the most desirable alternative. Empire and Meckler, by reason of their jury demands, were certainly entitled to a jury trial of the plaintiffs' direct claims against them and of the third-party claims asserted by Andersen against them. In addition, Empire was entitled to a jury trial of the plaintiffs' claims against Andersen, the establishment of which, in turn, constituted an essential element of Andersen's third-party claim against Empire. Empire thus had a vital ...


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