Steve's Homemade Ice Cream, Inc. v. Stewart

• Decision Date: 29 June 1990
• Docket Number: No. 1438,D,1438
• Citation: Steve's Homemade Ice Cream, Inc. v. Stewart, 907 F.2d 364 (2nd Cir. 1990)
• Parties: STEVE'S HOMEMADE ICE CREAM, INC., Plaintiff-Appellee, v. Roger K. STEWART, Joyce C. Stewart, and Howard N. Stewart, Defendants-Appellants. Roger K. STEWART, Joyce C. Stewart, and Howard N. Stewart, Plaintiffs-Appellants, v. STEVE'S HOMEMADE ICE CREAM, INC., Defendant-Appellee, Integrated Resources, Inc., Integrated Food Systems, Inc., Steve's Ice Cream, Inc., Steve's Franchise Company, Inc., and Defendants. ocket 90-7190.
• Court: U.S. Court of Appeals — Second Circuit

Page 364

907 F.2d 364

17 Fed.R.Serv.3d 29

STEVE'S HOMEMADE ICE CREAM, INC., Plaintiff-Appellee, v.Roger K. STEWART, Joyce C. Stewart, and Howard N. Stewart,

Defendants-Appellants.

Roger K. STEWART, Joyce C. Stewart, and Howard N. Stewart,Plaintiffs-Appellants, v.STEVE'S HOMEMADE ICE CREAM, INC., Defendant-Appellee,

Integrated Resources, Inc., Integrated Food Systems, Inc.,

Steve's Ice Cream, Inc., Steve's Franchise

Company, Inc., and Defendants.

No. 1438, Docket 90-7190.

United States Court of Appeals Second Circuit.

Argued June 6, 1990.

Decided June 29, 1990.

Alan S. Adolph, New York City(Cohen & Adolph, New York City, on the brief), for appellants.

Robert D. Fier, New York City(Kenyon & Kenyon, New York City, on the brief), for appelleeSteve's Homemade Ice Cream, Inc.

Before FEINBERG, NEWMAN and CARDAMONE, Circuit Judges.

JON O. NEWMAN, Circuit Judge:

This appeal presents the narrow issue of whether a partial summary judgment ruling that dismisses a claim against one party is eligible for certification under Rule 54(b) of the Federal Rules of Civil Procedure where neither the claim nor the party is completely dismissed from the case.The issue arises on an appeal, by three individuals holding a franchise to operate ice cream stores, from the January 31, 1990, judgment of the District Court for the Southern District of New York(John E. Sprizzo, Judge), dismissing as against Steve's Homemade Ice Cream, Inc., one of six claims set forth both in appellants' complaint and in their counterclaim in a related lawsuit.The dismissed claim alleges a violation of the New York Franchise Act, N.Y.Gen.Bus.Law Secs. 680-95(McKinney 1981).We conclude that an order dismissing a claim against one party but not completely dismissing either the claim or the party from the litigation is not eligible for entry of a final judgment under Rule 54(b).We therefore dismiss the appeal.

Background

The appellants, Roger K. Stewart, Joyce C. Stewart, and Howard N. Stewart("the Stewarts") obtained a franchise from Steve's Ice Cream, Inc.("Old Steve's") to operate ice cream stores in Arizona.The Stewarts contend that a major inducement to their becoming a franchisee of Old Steve's was the prospect of making ice cream in their local stores.After the Stewarts opened in Tucson the first of eight stores planned for their Arizona franchise territory, the assets of Old Steve's were purchased by Steve's Homemade Ice Cream, Inc.("New Steve's").New Steve's permitted the Stewarts to continue selling locally produced ice cream at the Tucson store but required the Stewarts to purchase factory-produced ice cream from New Steve's for sale at any franchise stores subsequently opened.Dispute over this requirement as well as nonpayment of franchise royalties led to the filing of two lawsuits.

New Steve's sued the Stewarts for breach of contract and trademark law violations.In their answer, the Stewarts asserted a counterclaim containing six counts and subsequently realleged these six counts in a complaint filed against Old Steve's (and its parent companies) and New Steve's.Count 2, as set forth in the Stewart's complaint, alleged that Old Steve's and New Steve's had committed "Per Se Violations" of New York's Franchise Act by filing with the New York State Department of Law a prospectus for the sale of franchises that was false in that, among other things, it failed to disclose an intent to promote factory-made ice cream to the detriment of in-store ("homemade") ice cream products sold by its franchisees.Though not formally consolidated, New Steve's suit and the Stewarts' suit have been treated in the District Court as a single unit of litigation; they were the subject of a joint pretrial order, and the ruling sought to be reviewed on this appeal was entered simultaneously in both actions.

New Steve's moved for partial summary judgment to dismiss as against it the Stewarts' second counterclaim and the similar claim of their complaint.New Steve's contended that, as a purchaser of assets, it had no successor liability under the New York Franchise Act for whatever fraudulent representations or omissions may have been contained in the prospectus filed by Old Steve's.Judge Sprizzo agreed, stating in an oral ruling that the allegedly fraudulent misrepresentations in the prospectus are not "covenants running with the assets ... that are enforceable against all successors."

The District Judge then turned to the appropriateness of entering a judgment under Rule 54(b), giving explicit consideration to the need for a reasoned explanation for such a step and to the general inappropriateness of using Rule 54(b) where "adjudicated and pending claims are closely related."SeeCullen v. Margiotta, 618 F.2d 226, 228(2d Cir.1980)(per curiam).Judge Sprizzo noted that the legal question of whether New Steve's, as a successor, could be liable for any franchise law fraud attributable to Old Steve's was distinct from any issue remaining in the case.He also observed that delaying appellate review of his partial summary judgment ruling until after trial of the remaining issues risked creating a need for a second trial, if his ruling should be reversed.He therefore ordered entry of judgment under Rule 54(b).At that point, Old Steve's orally renewed a request, previously denied, for partial summary judgment dismissing the Franchise Act claim against it.Judge Sprizzo denied the request, noting that a contract claim against Old Steve's remains for trial in any event.He did, however, agree to bifurcate the trial and try the contract claim first.

Discussion

Rule 54(b) permits a district court, in cases involving multiple claims or parties, to direct the entry of a final judgment "as to one or more but fewer than all of the claims or parties only upon an express determination that there is no just reason for delay."As the Supreme Court has recognized, an appellate court deciding whether to entertain an appeal certified under the Rule must determine first whether the judgment is eligible for Rule 54(b) certification and then whether the District Court acted within its discretion in directing entry of judgment;seeSears, Roebuck & Co. v. Mackey, 351 U.S. 427, 436-37, 76 S.Ct. 895, 900, 100 L.Ed. 1297(1956).See alsoCurtiss-Wright Corp. v. General Electric Co.446 U.S. 1, 7-8, 100 S.Ct. 1460, 1464, 64 L.Ed.2d 1(1980).Since it is clear whether a "party" has been dismissed, the issue of eligibility usually turns on whether the judgment has dismissed a "claim for relief," often a matter of some difficulty, see6 Moore's Federal Practicep 54.33 (2d ed. 1988).

Even if we assume in this case...