Elfenbein v. Gulf & Western Industries, Inc.

• Citation: 590 F.2d 445
• Decision Date: 21 December 1978
• Docket Number: No. 197,D,197
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
• Parties: 1979-1 Trade Cases 62,451 Dorothy ELFENBEIN, Plaintiff-Appellant, v. GULF & WESTERN INDUSTRIES, INC., and Stelux Manufacturing Co., Defendants-Appellees, and Bulova Watch Co., Inc., Defendant. ocket 78-7342.

Page 445

590 F.2d 445

1979-1 Trade Cases 62,451

Dorothy ELFENBEIN, Plaintiff-Appellant, v. GULF & WESTERN INDUSTRIES, INC., and Stelux Manufacturing Co., Defendants-Appellees and Bulova Watch Co., Inc., Defendant.

No. 197, Docket 78-7342.

United States Court of Appeals, Second Circuit.

Argued Nov. 13, 1978.

Decided Dec. 21, 1978.

Mordecai Rosenfeld, New York City, for plaintiff-appellant.

La Porte & Meyers, New York City, for defendant Bulova Watch Co.

Willkie, Farr & Gallagher, New York City, for defendant-appellee Stelux Mfg. Co.

Aranow, Brodsky, Bohlinger, Benetar & Einhorn, New York City, for defendant-appellee Gulf & Western Industries, Inc.

Before OAKES and VAN GRAAFEILAND, Circuit Judges, and MISHLER, District Judge. ^*

PER CURIAM:

This is an appeal from a decision of the United States District Court for the Southern District of New York, Broderick, J., dismissing appellant's derivative action for failure to comply with Rule 23.1, Fed.R.Civ.P. On June 8, 1976 Dorothy Elfenbein, a shareholder of Bulova Watch Co., Inc. ("Bulova"), instituted a derivative action against Bulova, Gulf & Western Industries ("Gulf"), Stelux Manufacturing Co. ("Stelux"), and the directors of Bulova. The complaint alleged that prior to May, 1976 Gulf owned approximately 27% Of the then outstanding common stock of Bulova. On May 28, 1976, Gulf sold its shares (amounting to 1,006,100 shares) to Stelux at a price of $14 per share. The market price at the time was $7 per share. It was alleged that Gulf's sale constituted an improper transaction under § 16(b) of the Securities Exchange Act of 1934 and a breach of statutory and common-law duties which Gulf owed to Bulova's shareholders. Appellant also alleged that Stelux's purchase violated §§ 1 and 2 of the Sherman Act, § 1 of the Wilson Tariff Act and § 7 of the Clayton Act. By stipulation dated November 30, 1976 appellant agreed to discontinue the claim predicated on § 16(b) and to discontinue the claims against the individual defendants. Thereafter an amended complaint was filed.

In February of 1977, the defendants moved to dismiss the amended complaint on several grounds including plaintiff's failure to plead an adequate legal excuse for her failure to demand that Bulova's Board of Directors commence the action. The district court granted the motion on the sole ground that plaintiff had failed to comply with Rule 23.1. The complaint was "dismissed without prejudice to its renewal."

The sole issue presented for review on this appeal is whether the district court erred in granting the defendant's motion to dismiss because of the plaintiff's failure to comply with the demand requirements of Rule 23.1. However, before we turn our attention to this issue we face a crucial procedural question: Is the decision of Judge Broderick dismissing the complaint "without prejudice to its renewal" a final appealable order? 28 U.S.C. § 1291 grants the courts of appeals jurisdiction "from all final decisions of the district courts of the United States . . . ." The rationale behind this policy of finality was set forth fully by Mr. Justice Frankfurter in Cobbledick v. United States, 309 U.S. 323, 325, 60 S.Ct. 540, 541, 84 L.Ed. 460 (1940):

Congress from the very beginning has, by forbidding piecemeal disposition on appeal of what for practical purposes is a single controversy, set itself against enfeebling judicial administration. Thereby is avoided the obstruction to just claims that would come from permitting the harassment and cost of a succession of separate appeals from the various rulings to which a litigation may give rise, from its initiation to entry of judgment. To be effective, judicial administration must not be leaden-footed. Its momentum would be arrested by permitting separate reviews of the component elements in a unified cause.

It appears to be well established that a district court's order dismissing a complaint but granting leave to amend the complaint is not final and therefore not appealable. Kozemchak v. Ukrainian Orthodox Church of America, 443 F.2d 401 (2d Cir. 1971); Epton v. Hogan, 355 F.2d 203 (2d Cir. 1966). If the district court merely dismisses the complaint, without further comment, then the view, at least in this circuit, is that the district court intended to terminate the action and that the dismissal order is final. Weisman v. LeLandais, 532 F.2d 308, 309 (2d Cir. 1976). ¹

In the instant case, the district court dismissed the complaint "without prejudice to its renewal." We must confess a certain degree of uncertainty as to what Judge Broderick intended by the use of this phrase.

In Borelli v. City of Reading, 532 F.2d 950 (3d Cir. 1976) the court held a district court's dismissal "without prejudice" amounted to an implicit invitation to the plaintiff to amend the complaint. The court held that

(g)enerally, an order which dismisses a complaint without prejudice is neither final nor appealable because the deficiency may be corrected by the plaintiff without affecting the cause of action. Only if the plaintiff cannot amend or declares his intention to stand on his complaint does the order become final and appealable. Azar v. Conley, 480 F.2d 220 (6th Cir. 1973); Grantham v. McGraw-Edison Co., 444 F.2d 210 (7th Cir. 1971); Hurst v. California, 451 F.2d 350 (9th Cir. 1971).

Id. at 951-52. ²

Moore's Treatise rejects this view of a dismissal "without prejudice." "If . . . the motion (to dismiss) is sustained and the effect is to dismiss the action for want of jurisdiction, either of the person or subject matter, or because of improper venue, or for any other reason, although the dismissal is without prejudice, the judgment is final." 9 Moore's Federal Practice P 110.08(1), at 113.

This circuit has clearly rejected the view that "without prejudice" means "with leave to amend." In Allied Air Freight, Inc. v. Pan American World Airways, 393 F.2d 441 (2d Cir.), Cert. denied, 393 U.S. 846, 89 S.Ct. 131, 21 L.Ed.2d 117 (1968) the district court dismissed a civil antitrust complaint "without prejudice." On appeal the court held that "dismissals with and without prejudice are equally appealable as final orders. United States v. Wallace & Tiernan Co., 336 U.S. 793, 794, 69 S.Ct. 824, 93 L.Ed. 1042 (1949); Noonan v. Cunard Steamship Co., 375 F.2d 69 (2d Cir. 1967)." 393 F.2d at 444. The same conclusion was reached in Rinieri v. News Syndicate Co., 385 F.2d 818, 821 (2d Cir. 1967). The court held that "(a)lthough a dismissal without prejudice permits a new action (assuming the statute of limitations has not run) without regard to Res judicata principles, the order of dismissal, nevertheless, is a final order from which an appeal lies." ³

Our confusion results from Judge Broderick's expansion of the phrase " without prejudice." The district court's dismissal of the complaint "without prejudice to its renewal" could certainly be read as an order granting the plaintiff leave to amend her complaint. However, we find it impossible to determine to any real degree of certainty what the district court intended. Therefore, we choose to import no meaning to the phrase beyond the meaning repeatedly given by this court to the phrase "without prejudice." The action is terminated; however, a subsequent suit will not be barred by the doctrine of Res judicata.

In making this decision we rely, in part, on Rule 41(b) Fed.R.Civ.P. It provides, Inter alia :

For failure of the plaintiff to prosecute or to comply with These rules or any order of court, a defendant may move for dismissal of an action or of any claim against him. . . . Unless the court in its order for dismissal otherwise specifies, a dismissal under this subdivision And any dismissal not provided for in this rule, other than a dismissal for lack of jurisdiction, for improper venue, or for failure to join a party under Rule 19, operates as an Adjudication upon the merits. (emphasis added)

We assume that the district court did not intend for its decision to operate as a bar to a subsequent suit. Therefore, there was good reason, keeping in mind Rule 41(b), to specifically indicate that no adjudication upon the merits had occurred.

We are not unmindful of the fact that no judgment of the district court was ever set forth in a separate document. Indeed, the absence of such a document is a matter of genuine concern. Rule 54(a) Fed.R.Civ.P. defines a judgment as "a decree and any order from which an appeal lies." Rule 58 requires that "(e)very judgment shall be set forth on a separate document." It also states that "(a) judgment is effective only when so set forth and when entered as provided in Rule 79(a) (upon the docket sheet)." To be sure, it is now settled that the absence of a separate document entitled "judgment" does not foreclose appellate review. Bankers Trust Co. v. Mallis, 455 U.S. 381,98 S.Ct. 1117, 55 L.Ed.2d 357 (1978). However, in our view the better practice is to set forth a final judgment in a separate document. We reiterate our language in Turner v. Air Transport Lodge 1894, 585 F.2d 1180, at 1182 (2d Cir. 1978):

We suggest that, where the District Court makes a decision intended to be "final" (28 U.S.C. § 1291), the better procedure is to set forth the decision in a separate document called a judgment (Fed.R.Civ.P. 58).

We also strongly suggest to the district courts that they use the terms "with prejudice" or "without prejudice" only when making a determination as to the Res judicata effect of a dismissal. These terms are not substitutes for clear indications as to whether repleading will be allowed.

Application of these principles would have eliminated the difficult question of interpretation that has confronted us in this case. Thus, if the district court had intended that the plaintiff be given an opportunity to amend her complaint, the order should have clearly granted leave to replead. Indeed, we note that on facts such as these, this would have been the preferable disposition. We see...