Canning v. STAR PUBLISHING COMPANY

• Decision Date: 14 February 1956
• Docket Number: Civ. A. No. 1647.
• Court: U.S. District Court — District of Delaware
• Parties: Harold M. CANNING, Plaintiff, v. STAR PUBLISHING COMPANY, a corporation of the State of Delaware, Alexis I. DuPont Bayard, Erwin M. Budner and William E. Taylor, Jr., Defendants.

138 F. Supp. 843

Harold M. CANNING, Plaintiff, v. STAR PUBLISHING COMPANY, a corporation of the State of Delaware, Alexis I. DuPont Bayard, Erwin M. Budner and William E. Taylor, Jr., Defendants.

Civ. A. No. 1647.

United States District Court D. Delaware.

February 14, 1956.

Daniel O. Hastings and Clarence W. Taylor (of Hastings, Lynch & Taylor), Wilmington, Del., for plaintiff.

William E. Taylor, Jr., and Donald C. Taylor, Wilmington, Del., for defendants.

LEAHY, Chief Judge.

This cause arises from plaintiff's motion to strike defendants' demand for jury trial with respect to the issue of the validity of a release. The facts of this litigation may be found in D.C.Del., 130 F.Supp. 697.

In 1952 plaintiff entered into a five-year employment contract with defendant corporation. In 1954 for valuable consideration plaintiff executed with defendants a release under seal. In his complaint plaintiff alleges defendants secured the release by the use of false and fraudulent misrepresentations and seeks relief in the nature of rescission of the release and judgment under the contract. In its answer defendants demand jury trial of all fact issues. Plaintiff moved to strike the demand on the ground the cause of action is not one to which defendant is entitled to jury trial.

1. In the federal courts, in both federal and non-federal cases, mode of trial may be considered either a procedural matter removed from Erie-Tompkins Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, or a matter of substance within the power of Congress to regulate pursuant to Article III of the Constitution but subject to the Seventh Amendment.¹ As a measure in determining right of trial by jury, Fed.Rules Civ.Proc. rule 38, 28 U.S.C., stresses characterization of issues rather than the form of case. Consequently, issues formerly equitable are for the court; and issues formerly legal are for the jury if timely demand is made.

The issue of fraud in relation to releases has been difficult for the courts to characterize mainly due to the variety of its common-law and equity background. Generally, if a release was not under seal, fraud was available as a defense to an action at law. Where, however, the release was sealed, fraud was termed either in the execution or in the inducement. Fraud in the execution became a defense at law, whereas fraud in the inducement was remedial only in equity. Thus, where fraud in the execution was raised as a defense to a release, the courts found no necessity to decide the issue apart from the jury.² But where rescission was sought for fraud in the consideration of a release, an equitable issue was found to exist with trial to the court.³ And in actions on insurance policies an even different practice emerged.⁴

Notwithstanding these careful distinctions, I think the better view, and one more widely accepted by the courts, is to try the issue of fraud, whether in the execution or inducement, in an instrument under seal or not, before a jury where the issues are otherwise legal. This Circuit has, to some extent, taken that position in Ettelson v. Metropolitan Life Insurance Company, 3 Cir., 137 F.2d 62. There, defendant sought in his counterclaim, rescission for fraud in the inducement of insurance policies sued upon by plaintiffs. Demand for trial by jury was filed by plaintiffs, along with a motion to dismiss the counterclaim. The district court denied the motion and ordered preliminary consideration of the counterclaim without a jury. D.C.N.J., 42 F.Supp. 488. The Court of Appeals, in reversing the order, recognized, although fraud is an issue equitable in origin, it has long been treated in the courts of the common law.⁵ Said the Court (per Judge Goodrich), 137 F.2d at page 64: "The practical result of the determination of the present issue is whether the plaintiffs are to have a jury trial, or whether the defendant may have the fraud issue tried by the judge." And at pages 65-66 of 137 F.2d "Our conclusion is, therefore, that the federal rule is as broad as its statement and covers all that may be included in the term fraud, whether characterized by the adjective `legal' or `equitable'. The issue on such a defense was tried by a jury prior to the present rules; it continues to be so triable since." Certiorari was subsequently denied by the Supreme Court in 320 U.S. 777, 64 S.Ct. 92, 88 L.Ed. 467.⁶

2. At times, particularly where claims on insurance policies are concerned, a separate trial on the issue of validity of the release has been granted under FR 42(b) to avoid inconvenience or prejudice. In such cases the issue of fraud, whether in the execution or in the inducement, has been argued before a jury.⁷

In the situation where defendant raises the defense of a release in his answer, and plaintiff replies on the ground of fraud, trial by jury has been conceded along with the other legal issues in the action. But, it is contended in the instant case, where plaintiff affirmatively seeks equitable relief in the complaint, as was done here, the issue should be tried to the court. While there is some authority to sustain this differentiation, it has been refuted by recent decisions.

In Thorla v. Louisiana Midland Railway Co., D.C.W.D.La., 90 F.Supp. 553, the complaint sought damages for personal injuries under the FELA and cancellation of a release allegedly obtained by fraud. Defendant requested the release issue initially disposed of without a jury. The question posed by the court was whether the pleading of a defense and its avoidance in the complaint should change the mode or number of times an action should be tried or, in effect, make it two actions. Finding "no useful purpose would be served in trying this civil action in a piecemeal fashion", the court ruled both issues triable to a jury. Similarly, in Larsen v. Powell, D.C.Colo., 16 F.R.D. 322, the prayers for relief included damages for personal injuries and cancellation of a release on the ground of fraud. Plaintiff demanded trial by jury. Defendant requested trial to the court on the issue of validity of the release. Trial to a jury was ordered on both issues. The court ruled plaintiff does not change the mode of trial by asking affirmatively for the cancellation of the release on the ground of fraud. And in Dickinson v. General Accident Fire & Life Assurance Corporation, Ltd., 9 Cir., 147 F.2d 396, the Court refused to permit a party to deprive another of the right to have his cause determined by a jury by merely anticipating a possible defense.⁸ Therefore, plaintiff here derives no advantage from the fact he affirmatively seeks cancellation of the release on the ground of fraud.

Plaintiff's motion to strike defendants' demand for jury trial will be denied. All issues will be tried by jury.

1 Prior to Erie-Tompkins: Herron v. Southern Pacific Co., 283 U.S. 91, 51 S. Ct. 383, 75 L.Ed. 857; thereafter: Ettelson v. Metropolitan Insurance Co., 3 Cir., 137 F.2d 62, certiorari denied 320 U.S. 777, 64 S.Ct. 92, 88 L.Ed. 467; Diederich v. American News Co., 10 Cir., 128 F.2d 144; Bowie v. Sorrell, 4 Cir., 209 F.2d 49, 43 A.L.R.2d 781. Generally, see 5 Moore, Federal Practice 90-101.

2 Mutual Beneficial Health & Accident Ass'n v. Warrell, 8 Cir., 96 F.2d 447, citing repeated decisions of the Supreme Court; Panama Agencies Co. v. Franco, 5 Cir., 111 F.2d 263, and cases cited.

3 Hollingsworth v. General Petroleum Corp. of California, D.C.Or., 26 F.Supp. 917, relying on language in Radio Corp. of America v. Raytheon Manufacturing Co., 296 U.S. 459, 56 S.Ct. 297, 80 L.Ed. 327, and what it considered "the majority Federal rule"; Ross v. Service Lines, Inc., D.C.Ill., 31 F.Supp. 871, following state practice under Erie R. Co. v. Tompkins.

4 Fraudulent statements inducing the issuance of insurance could be raised as a defense at law in an action on the policies. Enelow v. New York Life Ins. Co., 293 U.S. 379, 55 S.Ct. 310, 79 L.Ed. 440; Adamos v. New York Life Ins. Co., 293 U.S. 386, 55 S.Ct. 315, 79 L.Ed. 444. And where the remedy at law was inadequate, it was heard in equity. American Life Ins. Co. v. Stewart, 300 U.S. 203, 57 S.Ct. 377, 81 L.Ed. 605. See State Farm Mutual Auto Insurance Co. v. Mossey, 7 Cir., 195 F.2d 56, where fraud as a defense in an action on an insurance policy was held an inadequate remedy at law not precluding an action for rescission under the Federal Declaratory Judgments Act, 28 U.S.C.A. § 2201, with trial before the court. Also see Liberty Mutual Insurance Co. v. Gerald, 5 Cir., 170 F.2d 917; Fitzpatrick v. Sun Life Assurance Co. of Canada, D.C.N.J., 1 F.R.D. 713.

5 Similar language in Garman v. Metropolitan Life Insurance Co., 3 Cir., 175 F. 2d 24; Dickinson v. General Accident Fire & Life Assurance Corp., Ltd., 9 Cir. 147 F.2d 396; Logan v. Holman, D. C.N.J., 7 F.R.D 596; and Larsen v. Powell, D.C.Colo., 16 F.R.D. 322.

6 Followed in Ettelson v. Metropolitan Life Insurance Co., 3 Cir., 164 F.2d 660; Garman v. Metropolitan...