Merex A.G. v. Fairchild Weston Systems, Inc.

• Decision Date: 14 July 1994
• Docket Number: D,No. 1817,1817
• Citation: 29 F.3d 821
• Parties: MEREX A.G.; Merex Corporation and Peter C. Lachmann, Plaintiffs-Appellants, v. FAIRCHILD WESTON SYSTEMS, INC., Defendant-Appellee. ocket 93-9286.
• Court: U.S. Court of Appeals — Second Circuit

Page 821

29 F.3d 821

29 Fed.R.Serv.3d 560

MEREX A.G.; Merex Corporation and Peter C. Lachmann, Plaintiffs-Appellants, v. FAIRCHILD WESTON SYSTEMS, INC., Defendant-Appellee.

No. 1817, Docket 93-9286.

United States Court of Appeals, Second Circuit.

Argued June 14, 1993.

Decided July 14, 1994.

Daniel J. O'Callaghan, New York City, for plaintiffs-appellants.

Roy A. Klein, Old Bethpage, NY, for defendant-appellee.

Before: McLAUGHLIN and JACOBS, Circuit Judges, and WEINSTEIN, Senior District Judge. ^*

McLAUGHLIN, Circuit Judge:

Merex A.G. ("Merex") appeals from a judgment entered in the United States District Court for the Southern District of New York (Mary Johnson Lowe, Judge ) dismissing its complaint seeking damages under an oral commission agreement. Merex argues, among other things, that the district court abused its discretion by declaring the jury verdict on its promissory estoppel claim advisory only, under Federal Rule 39(c), and by waiting until Merex rested its case before announcing this ruling.

We hold that the Seventh Amendment did not guarantee Merex the right to a jury trial on its promissory estoppel claim. We also hold that the district court acted within its discretion when it declared the jury advisory. Accordingly, we affirm.

BACKGROUND

In the early 1980s, defendant Fairchild Weston Systems, Inc. ("Fairchild") planned to sell several multi-million dollar military surveillance systems to the Peoples' Republic of China (the "PRC"). Lacking the necessary Asian connections, Fairchild engaged Merex, a German brokerage company, to introduce Fairchild to representatives of the PRC and to broker the sale. The dispute now centers on how Fairchild was to compensate Merex for its middleman services.

Merex initially offered to work for a commission, calculated as a percentage of the sale price. According to Merex's president, Gerhard Mertins, a representative of Fairchild orally promised Mertins in the summer of 1982 that Fairchild would pay Merex an eight-percent (8%) commission on Fairchild's direct sale to the PRC.

Merex's proposed commission arrangement was not acceptable to Fairchild's executives, however; apparently, they were reluctant to deal directly with the PRC. Fairchild insisted that the parties structure the deal in a sale/resale format so that Fairchild would sell five systems to Merex, and Merex would then resell the systems (as Fairchild's exclusive distributor) to the PRC. Merex would thus assume the risk of collecting payment from the PRC, and would be compensated by charging the PRC a mark-up on the resale.

Negotiations among the three parties under this sale/resale format broke down in April, 1984. Shortly thereafter, Fairchild renewed the negotiations with the PRC--without Merex. Five months later, despite its earlier misgivings about dealing with the PRC, Fairchild consummated a direct sale to the PRC of two surveillance systems. The deal, of course, did not include Merex. When Fairchild refused to pay Merex for its prior services, Merex sued Fairchild in the district court, alleging an oral promise by Fairchild to pay Merex a commission on any direct sale to the PRC. Merex's complaint sought damages under theories of breach of contract, quantum meruit, and promissory estoppel. The complaint also sought a declaration of Merex's rights under the alleged commission agreement. Merex demanded a jury trial on all issues.

The jury trial began on April 13, 1992. Following Merex's case-in-chief, Judge Lowe granted, in part, Fairchild's motion for judgment as a matter of law. See Fed.R.Civ.P. 50(a). Judge Lowe found that, without a writing, both Merex's claims for breach of contract and quantum meruit were barred by New York's Statute of Frauds. See Merex A.G. v. Fairchild Weston Systems, Inc., 810 F.Supp. 1356 (S.D.N.Y.1993). Judge Lowe also dismissed Merex's claim for a declaratory judgment, and no issue is made of this. Characterizing the remaining promissory estoppel claim as "equitable," Judge Lowe then ruled that she would let it go to the jury, but only for an advisory verdict. Fed.R.Civ.P. 39(c). Merex, 810 F.Supp. at 1358 n. 2.

After Fairchild completed its case, the case went to the advisory jury, which returned a verdict in favor of Merex on the promissory estoppel claim. Judge Lowe rejected the jury's advice, however. After issuing findings of fact and conclusions of law, see Fed.R.Civ.P. 52(a), the court entered judgment for Fairchild, dismissing Merex's complaint.

Merex now appeals.

DISCUSSION

Merex raises a host of arguments on appeal; we find only one worthy of serious consideration.

Merex challenges the district court's decision to treat the verdict on its promissory estoppel claim as merely advisory. Merex believes that promissory estoppel is a legal claim, not an equitable one, and argues that the Seventh Amendment guaranteed Merex a jury trial on that issue. Alternatively, Merex argues that even if Merex was not entitled to a jury trial as a matter of right, the district court nevertheless abused its discretion under Rule 39(c) by waiting until mid-way through trial before telling the parties that the verdict would not be binding. We address these arguments in turn.

I. The Seventh Amendment and Promissory Estoppel

The Seventh Amendment provides that "[i]n suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved." U.S. Const. amend. VII. As Justice Story explained for the Supreme Court in 1830, the phrase "suits at common law" is not limited to "suits, which the common law recognized among its old and settled proceedings"; rather, the phrase embraces all "suits in which legal rights were to be ascertained and determined, in contradistinction to those where equitable rights alone were recognized, and equitable remedies were administered." Parsons v. Bedford, 28 U.S. (3 Pet.) 433, 447 To decide whether the Seventh Amendment's right to a jury trial extends to a cause of action born subsequent to the Amendment's adoption, we apply a twofold, historical analysis: "The standard test is to determine first whether the action would have been deemed legal or equitable in 18th century England, and second whether the remedy sought is legal or equitable in nature. The court must balance the two, giving greater weight to the latter." Germain v. Connecticut Nat'l Bank, 988 F.2d 1323, 1328 (2d Cir.1993). See Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 42, 109 S.Ct. 2782, 2790, 106 L.Ed.2d 26 (1989); Tull v. United States, 481 U.S. 412, 417-18, 107 S.Ct. 1831, 1835-36, 95 L.Ed.2d 365 (1987).

7 L.Ed. 732 (1830). Thus, "it has long been settled that the right [to a jury trial] extends beyond the common-law forms of action recognized" at the time the Seventh Amendment was adopted in 1791. Curtis v. Loether, 415 U.S. 189, 193, 94 S.Ct. 1005, 1007, 39 L.Ed.2d 260 (1974) (Seventh Amendment entitled plaintiff to jury trial in suit for violation of Title VIII of the Civil Rights Act of 1968).

A. The Nature of the Right

Although "promissory estoppel" per se was unknown to the courts of 18th-century England, see John D. Calamari & Joseph M. Perillo, Contracts Sec. 6-1, at 272 (3d ed. 1987), its modern uses have historical antecedents in both law and equity.

The modern doctrine of promissory estoppel may be invoked in two situations. First, and most traditionally, the doctrine allows for the enforcement of a promise in the absence of bargained-for consideration. See Restatement (Second) of Contracts Sec. 90 (1981) ("A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise."); see, e.g., Schmidt v. McKay, 555 F.2d 30, 36 (2d Cir.1977). This is known as the theory of detrimental reliance.

Promissory estoppel has also become increasingly available to provide relief to a party where the contract is rendered unenforceable by operation of the Statute of Frauds. See Restatement (Second) of Contracts Sec. 139(1) ("A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise."); see, e.g., Philo Smith & Co., v. USLIFE Corp., 554 F.2d 34, 36 (2d Cir.1977) (per curiam); see generally Jeffrey G. Steinberg, Note, Promissory Estoppel as a Means of Defeating the Statute of Frauds, 44 Fordham L.Rev. 114 (1975).

Precedent for the rule that detrimental reliance may render a gratuitous promise enforceable can be found in "the decisions of the courts of common law from the very beginnings of the action for assumpsit." 1A Arthur L. Corbin, Corbin on Contracts Sec. 194, at 193 (1963). See Ames, The History of Assumpsit, 2 Harv.L.Rev. 1, 14 (1888) ("a detriment has always been deemed a valid consideration for a promise if incurred at the promisor's request"); Restatement (Second) of Contracts Sec. 90 cmt. a ("enforcement of informal contracts in the action of assumpsit rested historically on justifiable reliance on a promise"); see generally Calamari & Perillo Sec. 6-2, at 277; see, e.g., Coggs v. Bernard, 92 Eng.Rep. 107 (K.B. 1703). This would suggest a legal root for the doctrine.

On the other hand, as its surname suggests, the doctrine of promissory estoppel is a direct descendent of equitable estoppel. See Calamari & Perillo Sec. 6-2, at 274, 281; 1 Samuel Williston, Williston on Contracts Sec. 140, at 607-09 (3d ed. 1957). Although equitable estoppel was ultimately recognized by the courts of common law, the doctrine was first fashioned in the courts of equity. See 2 Fred F. Lawrence, Equity Jurisprudence Sec. 1046, at 1132 (1929) ("Jurisdiction of equity courts to prevent fraud by the use...