Dairy Queen, Inc v. Wood, 244

• Decision Date: 30 April 1962
• Docket Number: No. 244,244
• Citation: 8 L.Ed.2d 44,82 S.Ct. 894,369 U.S. 469
• Parties: DAIRY QUEEN, INC., Petitioner, v. Hon. Harold K. WOOD, Judge, et al
• Court: U.S. Supreme Court

369 U.S. 469

82 S.Ct. 894

8 L.Ed.2d 44

DAIRY QUEEN, INC., Petitioner,

v Hon. Harold K. WOOD, Judge, et al.

No. 244.

Argued Feb. 19 and 20, 1962.

Decided April 30, 1962.

Michael H. Egnal, Philadelphia, Pa., for petitioner.

Owen J. Ooms, Chicago, Ill., for respondents.

Mr. Justice BLACK delivered the opinion of the Court.

The United States District Court for the Eastern District of Pennsylvania granted a motion to strike petitioner's demand for a trial by jury in an action now pending before it on the alternative grounds that either the action was 'purely equitable' or, if not purely equitable, whatever legal issues that were raised were 'incidental' to equitable issues, and, in either case, no right to trial by jury existed.¹ The petitioner then sought mandamus in the Court of Appeals for the Third Circuit to compel the district judge to vacate this order. When that court denied this request without opinion, we granted certiorari because the action of the Court of Appeals seemed inconsistent with protections already clearly recognized for the important constitutional right to trial by jury in our previous decisions.²

At the outset, we may dispose of one of the grounds upon which the trial court acted in striking the demand for trial by jury—that based upon the view that the right to trial by jury may be lost as to legal issues where those issues are characterized as 'incidental' to equitable issues—for our previous decisions make it plain that no such rule may be applied in the federal courts. In Scott v. Neely, decided in 1891, this Court held that a court of equity could not even take jurisdiction of a suit 'in which a claim properly cognizable only at law is united in the same pleadings with a claim for equitable relief.'³ That holding, which was based upon both the historical separation between law and equity and the duty of the Court to insure 'that the right to a trial by a jury in the legal action may be preserved intact,'⁴ created considerable inconvenience in that it necessitated two separate trials in the same case whenever that case contained both legal and equitable claims. Consequently, when the procedure in the federal courts was modernized by the adoption of the Federal Rules of Civil Procedure in 1938, 28 U.S.C.A., it was deemed advisable to abandon that part of the holding of Scott v. Neely which rested upon the separation of law and equity and to permit the joinder of legal and equitable claims in a single action. Thus Rule 18(a) provides that a plaintiff 'may join either as independent or as alternate claims as many claims either legal or equitable or both as he may have against an opposing party.' And Rule 18(b) provides: 'Whenever a claim is one heretofore cognizable only after another claim has been prosecuted to a conclusion, the two claims may be joined in a single action; but the court shall grant relief in that action only in accordance with the relative substantive rights of the parties. In particular, a plaintiff may state a claim for money and a claim to have set aside a conveyance fraudulent as to him, without first having obtained a judgment establishing the claim for money.'

The Federal Rules did not, however, purport to change the basic holding of Scott v. Neely that the right to trial by jury of legal claims must be preserved.⁵ Quite the contrary, Rule 38(a) expressly reaffirms that constitutional principle, declaring: 'The right of trial by jury as declared by the Seventh Amendment to the Constitution or as given by a statute of the United States shall be preserved to the parties inviolate.' Nonetheless, after the adoption of the Federal Rules, attempts were made indirectly to undercut that right by having federal courts in which cases involving both legal and equitable claims were filed decide the equitable claim first. The result of this procedure in those cases in which it was followed was that any issue common to both the legal and equitable claims was finally determined by the court and the party seeking trial by jury on the legal claim was deprived of that right as to these commonissues. This procedure finally came before us in Beacon Theatres, Inc. v. Westover,⁶ a case which, like this one, arose from the denial of a petition for mandamus to compel a district judge to vacate his order striking a demand for trial by jury.

Our decision reversing that case not only emphasizes the responsibility of the Federal Courts of Appeals to grant mandamus where necessary to protect the constitutional right to trial by jury but also limits the issues open for determination here by defining the protection to which that right is entitled in cases involving both legal and equitable claims. The holding in Beacon Theatres was that where both legal and equitable issues are presented in a single case, 'only under the most imperative circumstances, circumstances which in view of the flexible procedures of the Federal Rules we cannot now anticipate, can the right to a jury trial of legal issues be lost through prior determination of equitable claims.'⁷ That holding, of course, applies whether the trial judge chooses to characterize the legal issues presented as 'incidental' to equitable issues or not.⁸ Consequently, in a case such as this where there cannot even be a contention of such 'imperative circumstances,' Beacon Theatres requires that any legal issues for which a trial by jury is timely and properly demanded be submitted to a jury. There being no question of the timeliness or correctness of the demand involved here, the sole question which we must decide is whether the action now pending before the District Court contains legal issues.

The District Court proceeding arises out of a controversy between petitioner and the respondent owners of the trademark 'DAIRY QUEEN' with regard to a written licensing contract made by them in December 1949, under which petitioner agreed to pay some $150,000 for the exclusive right to use that trademark in certain portions of Pennsylvania.⁹ The terms of the contract pro- vided for a small initial payment with the remaining payments to be made at the rate of 50% of all amounts received by petitioner on sales and franchises to deal with the trademark and, in order to make certain that the $150,000 payment would be completed within a specified period of time, further provided for minimum annual payments regardless of petitioner's receipts. In August 1960, the respondents wrote petitioner a letter in which they claimed that petitioner had committed 'a material breach of that contract' by defaulting on the contract's payment provisions and notified petitioner of the termination of the contract and the cancellation of petitioner's right to use the trademark unless this claimed default was remedied immediately.¹⁰ When petitioner continued to deal with the trademark despite the notice of termination, the respondents brought an action based upon their view that a material breach of contract had occurred.

The complaint filed in the District Court alleged, among other things, that petitioner had 'ceased paying * * * as required in the contract;' that the default 'under the said contract * * * (was) in excess of $60,000.000;' that this default constituted a 'material breach' of that contract; that petitioner had been notified by letter that its failure to pay as alleged made it guilty of a material breach of contract which if not 'cured' would result in an immediate cancellation of the contract; that the breach had not been cured but that petitioner was contesting the cancellation and continuing to conduct business as an authorized dealer; that to continue such business after the cancellation of the contract constituted an infringement of the respondents' trademark; that petitioner's financial condition was unstable; and that because of the foregoing allegations, respondents were threatened with irreparable injury for which they had no adequate remedy at law. The complaint then prayed for both temporary and permanent relief, including: (1) temporary and permanent injunctions to restrain petitioner from any future use of or dealing in the franchise and the trademark; (2) an accounting to determine the exact amount of money owing by petitioner and a judgment for that amount; and (3) an injunction pending accounting to prevent petitioner from collecting any money from 'Dairy Queen' stores in the territory.

In its answer to this complaint, petitioner raised a number of defenses, including: (1) a denial that there had been any breach of contract, apparently based chiefly upon its allegation that in January 1955 the parties had entered into an oral agreement modifying the original written contract by removing the provision requiring minimum annual payments regardless of petitioner's receipts thus leaving petitioner's only obligation that of turning over 50% of all its receipts; (2) laches and estop- pel arising from respondents' failure to assert their claim promptly, thus permitting petitioner to expend large amounts of money in the development of its right to use the trademark; and (3) alleged violations of the antitrust laws by respondents in connection with their dealings with the trademark. Petitioner indorsed upon this answer a demand for trial by jury in accordance with Rule 38(b) of the Federal Rules of Civil Procedure.¹¹

Petitioner's contention, as set forth in its petition for mandamus to the Court of Appeals and reiterated in its briefs before this Court, is that insofar as the complaint requests a money judgment it presents a claim which is unquestionably legal. We agree with that contention. The most natural construction of the respondents' claim for a money judgment would seem to be that it is a claim that they are entitled to recover whatever was owed them under the contract as of the date of its purported termination plus damages for infringement of their trademark since that date. Alternatively, the complaint could be construed to set...