Bank of Lincolnwood v. Federal Leasing, Inc., 79-2186

CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)
Citation622 F.2d 944
Docket NumberNo. 79-2186,79-2186
PartiesBANK OF LINCOLNWOOD, an Illinois banking corporation, Plaintiff-Appellee, v. FEDERAL LEASING, INC., a Maryland Corporation, Defendant-Appellant.
Decision Date22 May 1980

John Doar, New York City, for defendant-appellant.

Nathan H. Dardick, Chicago, Ill., for plaintiff-appellee.

Before FAIRCHILD, Chief Judge, and SWYGERT and SPRECHER, Circuit Judges.

SPRECHER, Circuit Judge.

The major issue in this appeal concerns the finality of the district court's judgment. No issue is raised about the correctness of the trial judge's determination of the rights and liabilities of the parties. Indeed, the defendant admitted in its answer its liability on the plaintiff's claim to collect on a promissory note. Instead, the defendant here urges that the trial court abused its discretion in making its determination final by certifying it pursuant to Fed.R.Civ.P. 54(b). 1 A corollary of the appellant's position were we to accept it, would seem to be that this court lacks jurisdiction to review the judgment and thus must dismiss the appeal for want of a final decision. See 28 U.S.C. § 1291. We need not decide this issue, however, because we hold that the entry of judgment pursuant to Rule 54(b) was within the trial court's discretion. Because no issue is raised as to the merits, we affirm the district court's judgment.

The several parties to this action were participants in a computer financing transaction which is apparently typical of most in the industry. The defendant-appellant, Federal Leasing, Inc., is in the business of leasing computer equipment to commercial and governmental users. To purchase equipment for subsequent lease, Federal obtained financing from banks such as the plaintiff-appellee, Bank of Lincolnwood. Federal executed a promissory note providing for payment in installments to the bank and containing an acceleration clause in the event of default. The note was secured by a related security agreement. Federal then leased the equipment to a user, in this case Dial Financial Corporation. The lease provided for rental payments equal to Federal's installment obligations on the note, which the user paid directly to the bank.

Among the lease agreement's provisions was one which precipitated the controversy here. The lease provided that the user could terminate the lease at its convenience without penalty. This obviously left Federal with a substantial contingent liability which Federal sought to insure against by obtaining a policy with Lloyd's Underwriters and British Companies. The policies issued by Lloyd's provided that it would indemnify Federal for losses arising out of early lease termination. Apparently rapid technological advances in the computer industry have prompted a substantial number of computer users to take advantage of the early termination clauses in Federal's leases. Lloyd's, however, has refused to indemnify Federal for its losses from the cancellations because of Federal's alleged failure to adhere to provisions in its policy of insurance.

The computer financing arrangement thus involves five participants: (1) The lessor purchases equipment from (2) the seller with financing from (3) the bank. The lessor then leases the equipment to (4) the lessee, with the possibility of losses insured by (5) the underwriter. This action has as parties four of the five participants all except the computer seller and arises out of financing arranged in 1976. In early 1979, Dial, the lessee, notified Federal of its intent to cancel its lease. Federal notified Lloyd's which refused to pay, and Federal, therefore, was unable to meet its obligations on the promissory note held by Lincolnwood. Lincolnwood, in turn, exercised its option to accelerate the note and commenced this suit on June 8, 1979.

Lincolnwood's complaint comprises three counts. Count I is solely against Federal and seeks to collect on the promissory note. Count II seeks to enforce Lincolnwood's security interest in the computer equipment and names as defendants Dial, Federal, and another defendant. Count III is a claim against Lloyd's and two of its brokers seeking recovery as a loss payee on the policy between Lloyd's and Federal.

Summons were issued the same day the complaint was filed. Federal, however, did not immediately answer the complaint. Instead

(o)n July 6, 1979, prior to answering Lincolnwood's Complaint, Federal moved to transfer the case to the District of Maryland, where Federal had, on June 12, 1979, filed a complaint against Lloyd's based upon its failure to indemnify Federal for its losses with respect to the Lincolnwood transaction and with respect to 23 other similar transactions where the lessee had terminated the lease prior to its stated term.

Appellant's Brief at 10-11. The district court deferred ruling on Federal's motion until it filed its answer. Federal answered on August 13, 1979. The answer admitted liability under Count I, apparently denied the allegation in Count II, and did not respond to Count III since that count was not directed against it. Federal's answer also included a cross-claim against Lloyd's for indemnity for all amounts due under the accelerated note held by Lincolnwood.

On August 27, 1979, the trial court denied Federal's motion to transfer as to Counts I and II and granted the plaintiff's motion for judgment on the pleadings as to Count I. 2 The court noted that liability and the amount of liability were admitted, a conclusion Federal does not challenge here. Moreover, the court, sua sponte, found there was no just reason for delay and directed entry of judgment on Count I pursuant to Fed.R.Civ.P. 54(b). On September 5, 1979, the trial court denied Federal's motion to amend the judgment by deleting the 54(b) certification. Other post-judgment proceedings before Judge Marshall finally resulted in the entry of a stay pending appeal pursuant to Fed.R.Civ.P. 62(d) upon Federal's filing of a supersedeas bond in the amount of $452,000.

Because the only issues in this appeal concern Civil Rule 54(b), some review of that rule's purpose and requirements is necessary. On the theory that prompt, efficient justice would be better served by broadening the previously accepted scope of lawsuits, the drafters of the Federal Rules of Civil Procedure included numerous provisions permitting the liberal joinder of parties and claims. To counterbalance what could be the occasional harsh effects of these joinder rules, the drafters also included rules vesting in the district court the discretion to provide some relief from their effects. Under Rule 42(b) the trial court may order separate trials for properly joined claims, so that, for example, a plaintiff's suit is not swamped by generally unrelated claims between defendants. Rule 54(b) serves a similar purpose. Ordinarily, a final judgment will not be rendered by a trial court on an adjudicated claim until the court has resolved all of the issues between all of the parties to the action.

The liberalization of our practice to allow more issues and parties to be joined in one action and to expand the privilege of intervention by those not originally parties has increased the danger of hardship and denial of justice through delay if each issue must await the determination of all issues as to all parties before a final judgment can be had. In recognition of this difficulty, . . . Rule 54(b) . . . was promulgated.

Dickinson v. Petroleum Conversion Corp., 338 U.S. 507, 511-12, 70 S.Ct. 322, 324, 94 L.Ed. 299 (1950). The rule thus gives the district court the power to render a final judgment as to a portion of a lawsuit provided that certain requirements are satisfied.

The requirements of the rule are easily stated, although their application has caused occasional difficulties. First, there must be an action involving multiple claims for relief or multiple parties. See Liberty Mutual Insurance Co. v. Wetzel, 424 U.S. 737, 96 S.Ct. 1202, 47 L.Ed.2d 435 (1976) (certification is improper when action presents only variants of a single claim). Second, there must be a final decision by the district court as to at least one claim or the rights and liabilities of at least one of the parties. Third, the district court must make "an express determination that there is no just reason for delay." Finally, the court must expressly direct the entry of judgment.

Federal only questions the district court's compliance with the third requirement of Civil Rule 54(b) the "express determination that there is no just reason for delay." The appellant challenges that determination on two grounds. First, Federal argues that the trial court erred in failing to provide a statement of reasons for its determination. Second, Federal insists that the trial court abused its discretion in making that determination. 3

Whether there is no just reason for delay is a question addressed primarily to the discretion of the trial court. The district court is "the one most likely to be familiar with the case and with any justifiable reasons for delay." Sears, Roebuck & Co. v. Mackey, 351 U.S. 427, 437, 76 S.Ct. 895, 901, 100 L.Ed. 1297 (1956). Nevertheless, because the Rule 54(b) procedure, if misused, can generate needless or duplicative appeals, the appellate court will review the district court's determination. The appellate court's review, however, is limited. It may reject a 54(b) certification and dismiss an appeal only if it finds an abuse of the district court's discretion. See Cold Metal Process Co. v. United Engineering & Foundry Co., 351 U.S. 445, 452, 76 S.Ct. 904, 908, 100 L.Ed. 1311 (1956). This is in contrast, for example, to the procedure for certification for interlocutory review of controlling questions of law pursuant to 28 U.S.C. § 1292(b). There, by statute, the appellate court may in its discretion decline to review issues certified by the district court. Thus, as...

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