Fidelity & Deposit Co. of Maryland v. USAFORM Hail Pool, Inc., 74-1492

• Decision Date: 20 November 1975
• Docket Number: No. 74-1492,74-1492
• Parties: FIDELITY AND DEPOSIT COMPANY OF MARYLAND, Plaintiff-Appellee, v. USAFORM HAIL POOL, INC., et al., etc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

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523 F.2d 744 FIDELITY AND DEPOSIT COMPANY OF MARYLAND, Plaintiff-Appellee,
v.
USAFORM HAIL POOL, INC., et al., etc., Defendants-Appellants. No. 74-1492. United States Court of Appeals,
Fifth Circuit. Nov. 20, 1975.

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W. Warren Cole, Jr., Thomas T. Cobb, Daytona Beach, Fla., for defendants-appellants.

George Stelljes, Jr., Jacksonville, Fla., Elmer W. Beasley, Hartford, Conn., for plaintiff-appellee.

Appeal from the United States District Court for the Middle District of Florida.

Before MURRAH ^* and WISDOM, Circuit Judges, and GORDON, District Judge.

WISDOM, Circuit Judge:

This is the third appeal of this case. First, we held that representatives of individuals and companies doing business with various corporations in a corporate complex controlled by one dominant shareholder could not maintain an action as third party beneficiaries on a fidelity bond insuring those corporations. American Empire Insurance Co. of South Dakota v. Fidelity & Deposit Co. of Maryland, 5 Cir. 1969, 408 F.2d 72. This litigation focuses on the collapse of that corporate complex. In the second appeal we held that even though it was clear that the dominant shareholder had fraudulently diverted monies held in trust for these individuals and companies, that fact in itself did not make out a "loss" within the meaning of the bond. Fidelity & Deposit Co. of Maryland v. USAFORM Hail Pool, Inc., 5 Cir. 1972, 463 F.2d 4. In this appeal, we hold, first, that we have appellate jurisdiction, and, on the merits, that the district court misapprehended the mandate of the 1972 opinion. Much as we regret the Jarndyce v. Jarndyce aspect of this case, we vacate the 1972 judgment and remand the case for further proceedings consistent with this opinion.

I.

Fidelity & Deposit Co. (Fidelity) argues that this appeal must be dismissed for lack of appellate jurisdiction.

The district court held a hearing in compliance with the mandate of this Court on remand from the second appeal of this case on January 26, 1973. The court took the case under advisement. About six months later, it entered an order dismissing the claims of the appellants against Fidelity on the merits with prejudice. On the same day, the clerk of the court entered the judgment on the docket. It is undisputed, however, that the clerk failed to notify any of the parties of the entry of the judgment, as the clerk is required to do by F.R.Civ.P. 77(d). This rule provides:

Notice Of Orders Or Judgments.

Immediately upon the entry of an order or judgment the clerk shall serve a notice of the entry by mail in the manner provided for in Rule 5 upon each party who is not in default for failure to appear, and shall make a note in the docket of the mailing. Such mailing is sufficient notice for all purposes for which notice of the entry of an order is required by these rules; but any party may in addition serve a

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notice of such entry in the manner provided in Rule 5 for the service of papers. Lack of notice of the entry by the clerk does not affect the time to appeal or relieve or authorize the court to relieve a party for failure to appeal within the time allowed, except as permitted in Rule 4(a) of the Federal Rules of Appellate Procedure.

On November 13, 1973, one hundred and three days after the judgment had been entered, counsel for the appellants learned of the entry of the judgment for the first time. On November 19, 1973, the appellants moved the district court for a new trial or, in the alternative, for judgment under F.R.Civ.P. 60(b), or for leave to file the notice of appeal instanter. On the same day, the appellants also filed a notice of appeal from the original judgment. On January 14, 1974, the district court, after a hearing, denied the motions for new trial and leave to file the notice of appeal instanter, but granted the motion for relief from judgment under F.R.Civ.P. 60(b), and entered an order vacating and reentering its original findings of fact, conclusions of law, and judgment. On February 4, 1974, the appellants filed a second notice of appeal, this one from the newly entered judgment.

From the supplemental briefs this Court has requested on the point, it appears that after the hearing on January 26, 1973, counsel for the appellants diligently made repeated inquiries of the district court to determine whether judgment had been entered. The appellants' counsel made his last inquiry some time in July 1973. The court, through a member of its staff, informed him that no further inquiry should be made because the clerk would notify the parties of the judgment when it was entered. In reliance upon this assurance, counsel did not inquire further. After several months had passed, however, counsel renewed his inquiry, and, for the first time, on November 13, 1973, was informed that judgment had been entered.

The third paragraph of F.R.App.P. 4(a) provides:

Upon a showing of excusable neglect, the district court may extend the time for filing the notice of appeal by any party for a period not to exceed 30 days from the expiration of the time otherwise prescribed by this subdivision. Such an extension may be granted before or after the time otherwise prescribed by this subdivision has expired; but if a request for an extension is made after such time has expired, it shall be made by motion with such notice as the court shall deem appropriate.

This portion of F.R.App.P. 4(a), along with the final sentence of F.R.Civ.P. 77(d), was apparently intended to avoid the result reached in Hill v. Hawes, 1944, 320 U.S. 520, 64 S.Ct. 334, 88 L.Ed. 283. The 1946 advisory committee note to the amended F.R.Civ.P. 77(d) stated:

In (Hill v. Hawes ), an action instituted in the District Court for the District of Columbia, the clerk failed to give notice of the entry of a judgment for defendant as required by Rule 77(d). . . . (D)ue to lack of notice of the entry of judgment the plaintiff failed to file his notice of appeal within the prescribed time. On this basis the trial court vacated the original judgment and then re-entered it, whereupon notice of appeal was filed. The Court of Appeals dismissed the appeal as taken too late. The Supreme Court, however, held that although Rule 77(d) did not purport to attach any consequence to the clerk's failure to give notice as specified, the terms of the rule were such that the appellant was entitled to rely on it, and the trial court in such a case, in the exercise of a sound discretion, could vacate the former judgment and enter a new one, so that the appeal would be within the allowed time. . . .

See 7 Moore's Federal Practice P 77.01(4).

The primary concern of the advisory committee in proposing the amendment was that results such as those

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reached in Hill v. Hawes seriously affected the finality of judgments. The rationale of the amendment was to enhance the finality of judgments by placing the entire burden of determining whether a judgment had been entered upon the parties. Under amended Rule 77(d), they could place no justifiable reliance upon the fact that no notice of entry of judgment had been received from the clerk, but rather they were obliged to inquire periodically of the clerk or of the district court to determine whether judgment had been entered. The potential hardship to parties whose counsel, through inadvertence or lack of diligence, failed to learn of the entry of judgments is apparent. Less apparent is whether the benefit of enhanced finality outweighs these cases of hardship, and the burden on all concerned with respect to the periodic inquiries the amended rule implicitly contemplates. The courts, however, have generally enforced F.R.Civ.P. 77(d) and F.R.App.P. 4(a) strictly according to their letter, regardless of the hardship involved. As this Court recently said in In re Morrow, 5 Cir. 1974, 502 F.2d 520, 523, "To permit an appeal where there is failure to notify, without more, would be opposed to the clear wording and intent of Rule 77(d)." Morrow finds support for its analysis in a number of earlier decisions in this and other circuits. See, e. g., Jackson v. Decker, 5 Cir. 1971, 451 F.2d 348; Lord v. Helmandollar, D.C.Cir.1965, 348 F.2d 780; Richland Knox Mutual Ins. Co. v. Kallen, 6 Cir. 1967, 376 F.2d 360; Nichols-Morris Corp. v. Morris, 2 Cir. 1962, 279 F.2d 81; Sonnenblick-Goldman Corp. v. Nowalk, 3 Cir. 1970, 420 F.2d 858; Files v. City of Rockford, 7 Cir. 1971, 440 F.2d 811; Lathrop v. Oklahoma City Housing Auth., 10 Cir. 1971, 438 F.2d 914.

An exception, however, has grown up in cases presenting mitigating circumstances or special hardships. In Smith v. Jackson Tool & Die, Inc., 5 Cir. 1970, 426 F.2d 5, the district court had circulated its opinion to the parties before entering judgment. Counsel for the appellant, upon reviewing the opinion, requested the court to delay entering final judgment because he would be away from town on a trip. Opposing counsel was notified of this request, and informed the court that he had no objection to a delay in entering judgment. The parties also informed the court that an appeal would be taken. The court, however, did not respond to this request for a delay in entering its judgment, but proceeded to enter the judgment thirteen days after sending the opinion to counsel. Moreover, the court did nothing to advise counsel that the request for delay was being denied. Counsel for the appellant learned of the entry of judgment only after the time for filing notice of appeal had expired. He promptly moved that the judgment be vacated, and the district court, apparently realizing that its treatment of the matter had led counsel to believe that there would be a delay in entering judgment, granted the motion, relying on F.R.Civ.P. 60(b), which provides:

Mistakes; Inadvertence; Excusable Neglect; Newly Discovered Evidence; Fraud, Etc. On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final...