Opposition Brief — Explosives Corp. of America v. Garlam Enterprises Corp.

No. 87-332 ee

IN THE JOSEPH F. SPANO

Supreme Court of the United States —

October Term, 1987

GARLAM ENTERPRISES CORPORATION,

Petitioner,

.

EXPLOSIVES CORPORATION OF AMERICA,

RoOcKCOR, INC., and

GENERAL INSURANCE COMPANY OF AMERICA,

Respondents.

BRIEF IN OPPOSITION

TO PETITION FOR WRIT OF CERTIORARI

STUART G. OLES

Counsel of Record, and

ARTHUR D. McGARRY

DOUGLAS S. OLES

OLES, MORRISON, RINKER,

STANISLAW & ASHBAUGH

3300 Columbia Seafirst Center

701 Fifth Avenue

Seattle, WA 98104

(206) 623-3427

SALVADOR ANTONETTI

FIDDLER, GONZALEZ & RODRIGUEZ

G.P.O. Box 3507

San Juan, Puerto Rico 00936

(819) 753-3113

September 25, 1987 Attorneys for Respondents

sACD) Legal Pomere Seattle WA

a

QUESTIONS PRESENTED

1. Does the conflict between several circuit courts of

appeal as to the date from which interest should run in the

case of reinstatement by the appellate court of a verdict and

judgment based thereupon, following its reversal of a district

court’s grant of judgment n.o.v., justify review by certiorari

in this case where there was no jury verdict or judgment n.o.v.,

but where prolongation of the case after the district court’s

quantification of damages instead resulted from plaintiff

Garlam’s own post ‘‘judgment”’ claims against a third party,

and when Garlam never sought a Fed. R. Civ. P. 54(b) order

of finality?

2. Does allowance of interest on Garlam’s judgment in

this diversity action, in accordance with 28 U.S.C. § 1961,

conflict with either Klaxon Co. v. Stentor Electric Mfg. Co.,

313 U.S. 487 (1941) or Erie Railroad Co. v. Tompkins, 304

U.S. 64 (1938)?

3. Does the district court’s exercise of discretion both

against awarding attorney's fees under a contract provision

allowing for their recovery, and against an award of pre-

judgment interest and attorney’s fees under Puerto Rico law,

involve an impermissible impairment of contract or represent

a departure from the accepted and usual course of judicial

proceedings?

il

LIST OF PARTIES

Petitioners identify Explosives Corporation of America

(‘‘Explo”’), General Insurance Company of America (““GICA”’),

and Rockcor, Inc. (‘‘Rockcor’’), as respondents. Pursuant to

Supreme Court Rule 28.1, we advise that Safeco Corporation

wholly owns General Insurance Company of America. Olin

Corporation wholly owns Rockcor, Inc. Explosives Corpo-

ration of America has been dissolved in accordance with

Washington law, and its claim against Garlam Enterprises

Corporation (‘‘Garlam’’) in this litigation was assigned to

Rockcor.

ill

TABLE OF CONTENTS

Page

er ere i

ds pape nce ok vies os 2a Rs il

ee eg gs ea es ak et vee l

Statutory Provisions and Court Rules Involved........ l

Statement of the Case............. 4

I ee 7

I er ee 7

ey. de Ge Glades ee ee: 9

ET Ir ee 19

APPENDICES:

Memorandum Opinion And Order (November 16,

a 1-27

Motion for Substitution of Party Pursuant to Rule

25(c) of the Federal Rules of Civil Procedure... . 23-31

Motion to Dismiss for Lack of Appellate

SE Ra ee 32-35

iv

TABLE OF AUTHORITIES

Cases Page

Affiliated Capital Corp. v. City of Houston,

Tee £.20 Toe (6th Cir. 1908).................. 11,12

Briggs v. Pennsylvania Railroad Co.,

ge a ee 11,12

Buck v. Burton, 768 F.2d 285 (8th Cir. 1985)....... 11,12

Cable Marine, Inc. v. M/V Trust Me II, 632 F.2d

I I ere PG es kp Ghia dk sea ss 17

Caputo v. United States Lines Co., 311 F.2d 413

(2d Cir. 1963), cert. denied sub nom. Imparato

Stevedoring Corp. v. United States Lines Co.,

tk fa ae 11,12,13,14

Carrillo v. Sameit Westbulk, 514 F.2d 1214,

IRS RS rel a are 18

Erie Railroad Co. v. Tompkins, 304 U.S.

sna iay Sa Vis br ds a 8/6 a 1,8,14,15

Felix v. Victory Carriers, Inc., 342 F.Supp. 1386,

I, <2 ey Wg dod ial Psat ok 18

G.M. Brod & Co. v. U.S. Home Corp., 759 F.2d

a I MS ey Cs Aloe pede dere 5 ka a 16

Gregg v. U.S. Industries, Inc., 715 F.2d 1522, 1542

(11th Cir. 1983), cert. denied, 466 U.S. 960 (1984). . .17

Heddinger v. Ashford Memorial Community Hospital,

ae Ue SU I oe ke eee eens 17

Hooks v. Washington Sheraton Corp.,

oan oe OL4 GA. Ue. BOG... ... «2. ee ees. 12

TABLE OF AUTHORITIES, cont.

Cases Page

Howell v. Sinclair Refining Co., 20 F.R.D. 623

te Sa oe ane area aree 11,13

Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S.

ee ah he aerhie aaa ee i,14

La Playa Santa Marina, Inc. v. Chris-Craft Corporation,

ge Be os 3. rere 18

Louisiana & Arkansas Ry. Co. v. Pratt,

143 F.2d 647 (6th Cie. 1946... ..-.. 2... .5.... 11,12

Marston v. American Employers Insurance Company,

430 F.Oe 1006 {iat Gar. WOT)... . . «oc cw iin... 18

New Amsterdam Casualty Co. v. Soileau, 167 F.2d 767,

772 (5th Cir. 1948), cert. denied, 335 U.S. 822 (1948). . .14

Ohio-Sealy Mattress Mfg. Co. v. Sealy, Inc., 585 F.2d

821 (7th Cir. 1978), cert. denied, 440

ES 5 oh i pu el ea ve eens 11,12,13,14

Paul N. Howard Company v. Puerto Rico Aqueduct &

Sewer Authority, 110 F.R.D. 78

Se Cr sn et erase iwin die 18

Perry v. Stewart Title Company, 756 F.2d 1197

(5th Cir. 1985), reh’g granted in part and

denied in part, 761 F.2d 237 (1985)............... 17

Powers v. New York Central Railroad Co.,

TES Fe Be Gee Gate We ook ee ed ha ks 24.13

vi

TABLE OF AUTHORITIES, cont.

Cases Page

Santiago Martinez v. Compagnie Generale

Transatlantique, 517 F.2d 371 (1st Cir. 1975),

cert. denied sub nom. Fred Imbert, Inc. v.

Compagnie Generale Transatlantique,

ks skewer cweseedsrsees 18

Turner v. Japan Lines, Ltd., 702 F.2d 752 (9th Cir.

EIS URES a i ae, Cea og I a 11,12

United States ex rel. DeBlasio Constr., Inc., v.

Mountain States Construction Co., 588 F.2d

ee Pe >

Weitz Company, Inc. v. Mo-Kan Carpet, Inc., 723

ES 14,15

Statutes and Court Rules

ETE Tree 7,8,9,14,15

a. ui vd gu cu emo dsevreavndl 14

mn Ol. P. 64)... i,8,9,10,11,12,13,14

Fed. R. Civ. P. 25(c)........ inca bee 5,10

CS ee -5,8,9,11,13

Fed. R. Civ. P. 79(a)....... 9

Wed. R. Civ. P. 54(a)..................... 9

Muri, © 441d). ...................00.6. 17

em, ae, ©. 44.5 ........... 16,17

IN THE

Supreme Court of the United States

October Term, 1987

GARLAM ENTERPRISES CORPORATION, ‘

Petitioner,

Vv.

EXPLOSIVES CORPORATION OF AMERICA.

ROCKCOR, INC., and

GENERAL INSURANCE COMPANY OF AMERICA,

Respondents.

BRIEF IN OPPOSITION

TO PETITION FOR WRIT OF CERTIORARI

OPINIONS BELOW

Garlam’s listing of the opinions below is incomplete

without reference to the Memorandum Opinion and Order of

the district court dated November 16, 1982, a copy of which

is reproduced in respondents’ appendix (R.A.) hereto. R.A.

1-27.

STATUTORY PROVISIONS AND

COURT RULES INVOLVED

The following supplements the list of statutes and rules

commencing at 167a of the petition.

28 U.S.C. § 1961 (this is the text of the statute prior to the

1982 amendment [prior to 1948, the predecessor statute of 28

U.S.C. § 1961 was codified at 28 U.S.C. § 811)):

Interest

Interest shall be allowed on any money judgment in

a civil case recovered in a district court. Execution

therefor may be levied by the marshal, in any case where,

by the law of the State in which such court is held, execu-

tion may be levied for interest on judgments recovered

in the courts of the State. Such interest shall be calculated

from the date of entry of the judgment, at the rate allowed

by State law.

(June 25, 1948, c. 646, 62 Stat. 957.)

Rule 25(c), Fed. R. Civ. P.:

Rule 25. Substition of Parties

(c) Transfer of Interest. In case of any transfer of

interest, the action may be continued by or against the

original party, unless the court upon motion directs the

person to whom the interest is transferred to be sub-

stituted in the action or joined with the original party.

Service of the motion shall be made as provided in sub-

division (a) of this rule.

Rule 54(a), Fed. R. Civ. P.:

Rule 54. Judgments, Costs

(a) Definition; Form. ‘‘Judgment” as used in these

rules includes a decree and any order from which an appeal

lies. A judgment shall not contain a recital of pleadings.

the report of a master, or the record of prior proceedings.

Rule 58, Fed. R. Civ. P.:

Entry of Judgment

Subject to the provisions of Rule 54(b): (1) upon a

general verdict of a jury, or upon a decision by the court

that a party shall recover oniy a sum certain or costs or

that all relief shall be denied, the clerk, unless the court

otherwise orders, shall forthwith prepare, sign, and enter

the judgment without awaiting any direction by the court;

(2) upon a decision by the court granting other relief, or

upon a special verdict or a general verdict accompanied

by answers to interrogatories, the court shall promptly

approve the form of the judgment, and the clerk shall

thereupon enter it. Every judgment shall be set forth

on a separate document. A judgment is effective only

when so set forth and when entered as provided in Rule

79(a). Entry of the judgment shall not be delayed for the

taxing of costs. Attorneys shail not submit forms of

judgment except upon direction of the court, and these

directions shall not be given as a matter of course.

Rule 79(a), Fed. R. Civ. P.:

Rule 79. Books and Records Kept by the Clerk and

Entries Therein

(a) Civil Docket. The clerk shall keep a book known

as ‘‘civil docket’’ of such form and style as may be pre-

scribed by the Director of the Administrative Office of

the United States Courts with the approval of the Judicial

Conference of the United States, and shall enter therein

each civil action to which these rules are made applicable.

Actions shall be assigned consecutive file numbers. The

file number of each action shall be noted on the folio of

the docket whereon the first entry of the action is made.

All papers filed with the clerk, all process issued and

returns made thereon, all appearances, orders, verdicts,

and judgments shall be entered chronologically in the civil

docket on the folio assigned to the action and shall be

marked with its file number. These entries shall be brief

but shall show the nature of each paper filed or writ issued

and the substance of each order of judgment of the court

and of the returns showing execution of process. The

4

entry of an order of judgment shall show the date the

entry is made. When in an action trial by jury has been

properly demanded or ordered the clerk shall enter the

word ‘‘jury”’ on the folio assigned to that action.

Puerto Rico Rule of Civil Procedure 44.1(d):

Attorney’s fees. Where a party has been obstinate,

the court shall in its judgment impose on such person the

payment of a sum for attorney’s fees.

Puerto Rico Rule of Civil Procedure 44.3:

44.3 Legal Interest

(a) Every judgment ordering the payment of money

shall include legal interest to be computed on the amount

of the judgment from the date it was entered up to the

time of satisfaction thereof, without including costs and

attorney's fees.

(b) Except when the defendant is the Commonwealth

of Puerto Rico, its municipalities, agencies, instrumen-

talities or officers acting in their official capacity, the court

may impose on an obstinate party the payment of legal

interest to be computed on the amount of the judgment

from the time the cause of action accrues in actions of

debt, and in actions for damages, from the time the com-

plaint is filed until judgment is entered. The provisions

of this paragraph shall be applicable to the causes of

action filed after May 26, 1967.

STATEMENT OF THE CASE

With respect to the central issue of Garlam's petition as

to when interest should commence accruing on its judgment

amount, respondents adopt and incorporate by reference the |

procedural history summary found in the First Circuit's April

30, 1987 Opinion at 34a-38a (‘‘a’’ references petitioner's

appendix). Respondents here only highlight : ne critical

procedural matters and incomplete statements by Garlam.

Garlam emphasizes that on November 16, 1982, the dis-

trict court executed and filed a separate document denomi-

nated ‘‘Judgment’”' (165a) purportedly in compliance with Fed.

R. Civ. P. 58. That judgment was in favor of Garlam and

against Explo in the amount of $2,423,177.00, and against

GICA for $1,230,000. Garlam neglects, however, to report that

also on November 16, 1982, the district court executed and

filed a ‘‘Memorandum Opinion and Order”’ (which is missing

from Garlam’s appendix, but attached hereto at R.A. 1-27).

That Memorandum Opinion and Order addressed Garlam's

motion to reconsider the district court’s prior dismissal of

Garlam’s amended complaint joining Rockcor as an additional

party defendant. R.A. 3-10, 24. The district court denied

reconsideration and instead authorized Garlam to file a motion

pursuant to Fed. R. Civ. P. 25(c) for substitution of Rockcor

as judgment debtor. R.A. 10, 26. In so doing, the district

court forewarned Garlam its pursuit of a new claim against

Rockcor would prolong the litigation:

We are painfully aware that the end result of this ruling

may well be an additional dilation of this ten year old case,

yet to leave the matter as it stands is a blow to fairness

and by doing so we would be inviting more delay and

appeals.

(Footnote omitted; R.A. 26.)

' Garlam's Table of Contents at p. V of its petition incorrectly

states the judgment date as November 16, 1986. It also there

incorrectly states the date of the district court's November 16,

1982 “Opinion and Order’’ as November 16, 1986.

In order to eliminate any confusion, we note that on Novem-

ber 16, 1982, the district court executed three documents: (1) a

‘‘Judgment”’ (found at 165a-166a); (2) an ‘‘Opinion and Order”

(found at 116a-164a) explaining the basis of its adoption of the

Special Master's findings as to the amount of damages; and (3) a

‘‘Memorandum Opinion and Order” (found in respondents’ appen-

dix at R.A. 1-27) concerning the substitution issue.

Garlam nevertheless filed its substitution motion on

December 15, 1982. R.A. 28-31. Meanwhile, Explo appealed

the district court’s November 16, 1982 ‘“‘Judgment.’’ A

ground upon which Garlam in April 1983 successfully argued

for dismissal thereof to the First Circuit is most relevant to

its present petition. Garlam stated that:

The judgment entered by the court below is not a final

decision since the judgment appealed does not contain the

certification required under Rule 54(b), F. R. Civ. P, in that

there are claims which affect the rights of the parties

pending resolution by the court below.

Therefore, this court lacks appellate jurisdiction since a

final order has not been entered. See Coulter v. Sears

Roebuck & Company, (5th Cir-1969) 411 F.2 1189; A.O.

Smith Corporation-vs-Simms Consolidated Ltd. (10th

Cir-1981) 647 F.2 118.

(Emphasis added, footnote omitted; R.A. 33-34.)

With respect to the issues raised in Garlam's petition

concerning the lack of any award to it of attorneys’ fees or

prejudgment interest, the district court’s November 16, 1982

Opinion and Order (116a-164a) made several relevant findings

(particularly at 153a-156a). The district court noted that the

Special Master had reduced Garlam’s claimed damages by

‘‘almost three million dollars’’ {(153a) and that ‘‘the master’s

task could have perhaps been made easier if Garlam had

conducted the cross-section field measurements” (155a) as

required under the parties’ subcontract. The court also

referred to Garlam's ‘‘customary diffuse manner of argu-

mentation”’ (160a) and noted Garlam’s ‘repeated efforts to

cloak its relationship with PRHA and its pending claims”

(127a) in related litigation in the Puerto Rico Superior Court.

Most significantly, the district court expressly found (at

156a):

For these same reasons,'> we conclude that Explo has

not conducted the litigation in an obstinate manner and

that imposition of prejudgment interest, cost and attor-

ney’s fees is not justified.

Note 15: The Master's findings prove that Explo’s claim was

not frivolous unless one can consider the defense of almost

three million dollars of liability as obstinate litigation. The

damages were certainly not uncontested and there was no in-

dication of any misuse of legal procedures to delay the case.

See Ferrer Delgado v. Sylvia de Jesus, 440 F. Supp. 979, 982

(DPR 1976).

As developed infra, these findings are fatal to Garlam's

claim under Puerto Rico law.

RELATED PETITION

Respondents argue below that Garlam’'s petition for cer-

tiorari should be denied. Nevertheless, respondents believe

that certiorari is appropriate with respect to issues raised in

their previously filed petition in Supreme Court No. 87-204.

SUMMARY OF ARGUMENT

1. The Conflict Between Circuits Concerning Application

of 28 U.S.C. § 1961 in the Context of Reversal of n.o.v.

Judgments, Is Inapposite to This Case Which Instead

Involved an Unresolved Third Party Claim.

Garlam argues that there is a conflict between several

circuit courts of appeal as to the date from which interest

should accrue under 28 U.S.C. § 1961, when post-judgment

motions are made. This conflict is narrower than suggested

by Garlam, and — most importantly — is inapposite to the

facts of this case.

Specifically, several circuit courts differ as to when

interest should begin accruing, after an appellate court has

reinstated a jury verdict and judgment based thereupon

following its reversal of a district court grant of a judgment

n.o.v. Some courts think interest should run from the date

of the original verdict, others from the date of the appellate

court mandate, and one favors a case by case approach.

In this case, however, there was no jury, nor any judgment

n.o.v. Instead, following the initial trial court entry of

‘judgment’ against Explo, Garlam itself injected into the

litigation a claim against Rockcor seeking to substitute it as

judgment debtor. Moreover, it did so without making any

request to the trial court for a Fed. R. Civ. P. 54(b) certification

of finality. Under these circumstances, as even cases relied

upon by Garlam recognize, judgment was not properly entered

under Fed. R. Civ. P. 58, nor would interest begin accruing,

until resolution of the third party claim against Rockcor.

2. 28 U.S.C. § 1961, Which Provides for Post-Judgment

Interest in All Federal (Including Diversity) Cases at

a Rate Tied to the Price of Treasury Bills, Has Been

Held to be Constitutional Under the Doctrine of Erie

Railroad Co. v. Tompkins, 304 U.S. 64 (1938), Because

the Matter of Post-Judgment Interest is Rationally

Capable of Classification as Procedural.

3. In Enforcing a Contract Providing for an Award of

Attorneys’ Fees, and in Assessing Prejudgment

Interest or Attorneys’ Fees Under Puerto Rico Law,

the Court May Deny an Award in Its Sound Discretion.

ARGUMENT

I. Review by Certiorari Is Not Justified With Respect to the

First Circuit Court of Appeals’ Application of 28 U.S.C.

§ 1961, Because No Final Judgment Was Entered Until

March 6, 1986, As a Result of Garlam’s Own Raising of

Claims Against an Additional Party, and the Conflict

Between the Circuit Courts of Appeal Relied Upon By

Garlam Is Inapposite to the Facts of This Case.

A. There Was No Final Judgment Until March 6, 1986,

Because the ‘‘Judgment’’ Entered on November I6,

1982, Left Unadjudicated Garlam's Claim Against

Rockcor, Inc., and There Was No Certification of

Finality Under Fed. R. Civ. P. 54(b).

Garlam's first question presented at page I of its petition,

as well as its supporting argument, assert and assume that

the district court’s “‘judgment’’ of November 16, 1982 (165a-

166a) was entered “‘pursuant to rules 58 and 79(a), Fed. R. Civ.

P."’ Garlam's argument fails precisely because the November

16, 1982 judgment was demonstrably not effectively entered

pursuant to Fed. R. Civ. P. 58. The First Circuit Court of

Appeals’ Opinion pertinently states (at 38a-39a):

‘‘Interest shall be allowed on any money judgment in a

civil case recovered in a district court... . Such interest

shall be calculated from the date of the entry of the judg-

ment.’ 28 U.S.C. § 1961 (Supp. 1987) (emphasis added

[by the First Circuit}).

A judgment ‘‘includes a decree and any order from

which an appeal lies.” Fed. R. Civ. P. 54(a). It is clear

from this court’s prior dimissals that the November 1982

judgment was not final because other issues remained to

be resolved.

The district court never made a Rule 54(b) determina-

tion as to the November 1982. judgment nor did Garlam

10

ask for one. Moreover, the district court’s order of August

8, 1985 — allowing the proceedings to continue in that

court despite a pending notice of appeal — sugges*s that

the judgment of November 16, 1982, was not intended

to be final.

As developed above in the Statement of the Case, the

district court contemporaneously with its November 16, 1982

‘‘Judgment”’ entered a ‘‘Memorandum Opinion and Order”

(R.A. 1-27) authorizing Garlam to file a Fed. R. Civ. P. 25(c)

motion to substitute Rockcor as judgment debtor for Explo,

commenting that ‘‘the end result of this ruling may well be

an additional dilation of this ten year old case,.. .”’ R.A. 26.

As Garlam itself pointed out to the First Circuit Court

of Appeals in April of 1983, in successfuily arguing for a

dismissal of Explo’s appeal from the November 16, 1982

judgment:

the judgment entered by the court below is not a ‘‘final

decision”’ since the judgment appealed does not contain

the certification required under Rule 54(b), F.R.Civ.P., in

that there are claims which affect the rights of the parties

pending resolution by the court below.

(Emphasis added, R. A. 33.)

Garlam was exactly right. Then, and now, Fed. R. Civ.

P. 54(b) pertinently provides:

In the absence of such determination and direction, an

order or other form of decision, however designated, which

adjudicates fewer than all the claims or the rights and

liabilities of fewer than all the parties shall not terminate

the action as to any of the claims or parties, and the order

or other form of decision is subject to revision at any time

before the entry of judgment adjudicating all the claims

and the rights and liabilities of all the parties.

11

Because Fed. R. Civ. P. 58 is expressly ‘‘subject to the

provisions of Rule 54(b)’’, and because there was no Rule 54(b)

order of finality, there was no judgment effectively entered

‘‘pursuant to Rule 58’’, notwithstanding Garlam's repeated

assertions.? Moreover, as will be developed infra, several cases

relied on by Garlam support this same analysis, and none are

inconsistent with the result appealed from by Garlam.

B. The Conflict Between the Circuit Courts of Appeal Relied

Upon by Garlam Involves When Interest Should Com-

mence Accruing When There Has Been a Reinstatement

of a Jury Verdict and Judgment Based Thereupon, After

Reversal of a Trial Court n.o.v. Judgment, But Such

Conflict Is Inapposite to this Case Where There Was No

Jury, or Judgment n.o.v., and Where Instead a Prolonga-

tion of the Litigation Resulted From Garlam’s Additional

Claim Therein Against Rockcor.

Garlam's argument at pages 10-17 of its petition that a

conflict among circuit courts of appeal justifies certiorari, cites

nine cases which evidence the conflict. Six of those cases’ arise

? “Until and unless the court does so [makes a Rule 54(b) certifica-

tion], as the courts in Caputo [v. United States Lines Co., 311 F.2d

413 (2d Cir. 1963), cert. denied sub nom. Imparato Stevedoring

Corp. v. United States Lines Co., 374 U.S. 833 (1963)] and Howell

[v. Sinclair Refining Co., 20 F.R.D. 623 (N.D. Ala. 1957)] empha-

sized, the clerk has no authority to enter judgment, for Rule 58

is expressly made subject to the provisions of Rule 54(b).”’ Ohio-

Sealy Mattress Mfg. Co. v. Sealy, Inc., 585 F.2d 821, 846 (7th Cir.

1978), cert. denied, 440 U.S. 930 (1979).

> Powers v. New York Central Railroad Co., 251 F.2d 813 (2d Cir.

1958); Turner v. Japan Lines, Ltd., 702 F.2d 752 (9th Cir. 1983);

Buck v. Burton, 768 F.2d 285 (8th Cir. 1985); Affiliated Capital

Corp. v. City of Houston, 793 F.2d 706 (5th Cir. 1986); Louisiana

& Arkansas Ry. Co. v. Pratt, 142 F.2d 847 (5th Cir. 1944); Briggs

v. Pennsylvania Railroad Co., 334 U.S. 304 (1947).

12

judgment notwithstanding the verdict, and the subsequent

reinstatement of the jury verdict and judgment thereupon by

the appellate court. Some of those cases hold that interest

should run from the date of the original jury verdicts;‘ others

hold that interest should run from the date of appellate court

mandate;* one holds that a case by case analysis is appro-

priate;® and one found it unnecessary to address the issue.’

While it may one day be appropriate for this Court to

address and resolve that conflict, we respectfully submit that

it should wait for a case which facts turn upon and illustrate

that conflict, which the present case plainly does not. The

distinguishing element of the present case is highlighted by

the other three cases discussed by Garlam, Caputo v. United

States Lines, Co., 311 F.2d 413 (2d Cir. 1963), cert. denied sub

nom. Imparato Stevedoring Co. v. United States Lines Co.,

374 U.S. 833 (1963), Hooks v. Washington Sheraton Corp., 642

F.2d 614 (D.C. Cir. 1980), and Ohio-Sealy Mattress Mfg. Co.,

v. Sealy, Inc., 585 F.2d 821 (7th Cir. 1978), cert. denied, 440

U.S. 930 (1979). As now developed, those cases teach that the

pendency of unresolved third party claims, such as are in-

volved here, combined with the absence of a Fed. R. Civ. P.

54(b) certification, precludes accrual of interest prior to entry

of a final judgment.

In Caputo, a clerk’s form of judgment was entered on

November 6, 1961 based upon the jury’s verdict. However.

at that time there had been no determination of a third party

claim by the court. It was not until March 20, 1962 that finai

judgment was entered. The Second Circuit held that the

pendency of unresolved third party claims precluded accrual

of interest from the earlier judgment, because of the absence

* Turner, supra; Buck, supra; Louisiana & Arkansas Ry. Co., supra.

> Powers, supra.

" Affiliated, supra.

’ Briggs. supra, 344 U.S. at 307.

13

of a Rule 54(b) certification. 311 F.2d at 416-417. Similarly,

in Hooks, supra, the District of Columbia Circuit held that

a May 27, 1975 clerk-entered judgment upon a jury verdict

could not accrue interest when no finality order was entered

under Rule 54(b) and a claim by the judgment debtor over

against a third party remained unadjudicated. 642 F.2d at

617.

Finally, Ohio-Sealy, supra, involved the question as to

whether interest should accrue on a judgment for damages

based upon a jury verdict in favor of a licensee against its

licensor, when there remained pending for adjudication the

licensee's request for equitable relief against the licensor. The

Seventh Circuit concluded that interest should accrue from

the earlier date of jury verdict and judgment, prior to resolu-

tion of the equitable claim, because there were no separate

claims within the meaning of Rule 54(b), ‘but merely one claim

for two types of relief."’ 585 F.2d at 846.

Significantly, however, the court did approve the result

in Caputo, supra, which had denied interest until resolution

of a third party claim, in the absence of a Rule 54(b) certifica-

tion of finality. The Ohio-Sealy court recognized that when

there are separate claims (or, as must also be noted, claims

against third parties, as in this case) which are unresolved,

then no judgment which will bear interest can be entered

barring a Rule 54(b) order. The Seventh Circuit stated at 585

F.2d 846:

Until and unless the court does so [makes a Rule 54(b)

certification] as the courts in Caputo and Howell [v.

Sinclair Refining Co., 20 F.R.D. 623 (N.D. Ala. 1957)]

emphasized, the clerk has no authority to enter judgment.

for Rule 58 is expressly made subject to the provisions

of Rule 54(b).

In summary, the conflict discussed by Garlam is inap-

posite to this case. Garlam’'s discussion distorts the true

14

judgment motions for relief’ category, without addressing the

vital distinction between judgment n.o.v. cases, and those

involving unresolved claims against third parties. While there

is a conflict between the judgment n.o.v. cases, those involving

unresolved third party claims unanimously deny interest in

the absence of a Rule 54(b) finality order. Moreover, as the

Seventh Circuit’s discussion in Ohio-Sealy, supra, makes clear,

even those cases allowing interest in the n.o.v. cases from the

date of the original verdict, do not support the result here

urged by Garlam. Indeed, the Ohio-Sealy court expressly

approved the result in Caputo, supra, relied upon by the First

Circuit in denying interest until the resolution of the third

party claim against Rockcor.

II. The Circuit Court of Appeals Properly Awarded Interest

in Accordance with 28 U.S.C. § 1961, and Neither Klaxon

Co. v. Stentor Electric Mfg. Co., 313 U.S. 487 (1941), Nor

Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938), Require

a Contrary Result.

Garlam’s petition asserts at page 18 that the Court of

Appeals opinion directly conflicts with Klaxon Co. v. Stentor

Electric Mfg. Co., 313 U.S. 487 (1941). It argues that Klaxon,"

supra, and New Amsterdam Casualty Co. v. Soileau, 167 F.2d

* Klaxon held that in a diversity case, a district court was bound

under Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938), to apply

the conflict of law rules of the state in which it sat. Consequently,

the Delaware district court’s ‘independent determination” (313

U.S. 496) as to what law governed the matter of prejudgment

interest, was reversed and remanded for a decision based on

Delaware law. The court noted that this accorded with the pro-

vision in 28 U.S.C. § 811, the predecessor statute to 28 U.S.C. $

1961, that the post-judgment interest rate was per the statute

determined according to state law. 313 U.S. 497. As noted in

Weitz Company, Inc. v. Mo-Kan Carpet, Inc., 723 F.2d 1382,

1385-86 (8th Cir. 1983), 28 U.S.C. § 1961 was amended in 1982 to

tie the post-judgment interest rate to the price of Treasury bills.

15

767, 772 (5th Cir. 1948), cert. denied, 335 U.S. 822 (1948),

demonstrate that in diversity actions, interest is computed

according to state law. Garlam then argues that Puerto Rico

law allows for interest from the date of breach of contract

(Garlam cites no Puerto Rico authority) and that such rule

must be applied in this case under Erie Railroad Co. v.

Tompkins, 304 U.S. 64 (1938).

Respondents concede that state law governs the avail-

ability of prejudgment interest in diversity actions, and that

Puerto Rico law allows therefor in certain exceptional cases.

However, as developed under III below, the district court

properly exercised discretion against an award. With respect

to post-judgment interest, the sufficient answer is provided

by Weitz Company, Inc. v. Mo-Kan Carpet Inc., 723 F.2d 1382

(8th Cir. 1983), which specifically rejects Garlam’s argument

that state law governs under the Erie doctrine. Periinent

discussion upholding the application of 28 U.S.C. § 1961 in

diversity cases is found at 723 F.2d 1385-1386:

The final issue concerns the cross-appeal of Weitz. Weitz

argues that, in this diversity suit, the district court erred

in applying the federal interest statute rather than the

Iowa interest statute. We hold that federal law governs

the award of post-judgment interest in this case while

state law governs the award of prejudgment interest.

The federal judgment interest statute was amended and

became effective October 1, 1982. Federal Courts Improve-

ment Act of 1982, Pub.L. 97-164, § 302(a), 96 Stat. 25.

55-56 (codified at 28 U.S.C.A. $ 1961(a) (Supp. 1983)).

Federal law now provides for interest from the date of

judgment at a floating rate determined by the coupon yield

of United State Treasury bills. The provision covers ‘‘any

judgment in a civil case recovered in a district court.”

Id. No exemption is made for actions based on diversity

of citizenship. This court must apply an applicable federal

provision over a conflicting state provision, unless the

federal provision is found unconstitutional. See Hanna

16

v. Plumer, 380 U.S. 460, 471, 85 S.Ct. 1136, 1144, 14

L.Ed.2d 8 (1965); U.S. Const. art. VI, Cl. 2. We believe

that the new federal interest statute is constitutional and

therefore governs the award of postjudgment interest in

this case. Accord Rose Hall, Ltd. v. Chase Manahattan

Overseas Banking Corp., 566 F.Supp. 1558, 1574 n. 46

(D.Del. 1983); Lake Tahoe Sailboat Sales & Charter, Inc.

v. Douglas County, 562 F.Supp. 523, 524 (D.Nev. 1983);

Interstate Fire & Casualty Co. v. Hartford Fire Insurance

Co., 548 F.Supp. 1185, 1189 (E.D.Mich. 1982). We affirm

this portion of the district court’s order.

The Erie doctrine does not require a different result. Even

if the rate of interest that a judgment will bear is in some

sense “substantive,” in that it is a part of the damages

recovered by the winning side, it is also easily susceptible

of characterization as ‘‘procedural,’’ since it has to do

exclusively with events that occur after a dispute gets to

court. The question of interest, therefore, is at most in

‘the uncertain area between substance and procedure, ”

and “‘rationally capable of classification as either.” Hanna

uv. Plumer, supra, 380 U.S. at 472, 85 S.Ct. at 1144. It is

therefore a subject with respect to which Congress has

full power to legislate, even as to cases that get into the

federal courts only because of diversity of citizenship.

Accord, G.M. Brod & Co. v. U.S. Home Corp., 759 F.2d 1526,

1542 (11th Cir. 1985). We are aware of no conflicting authority.

As indicated in Weitz, supra, state law governs the award

of prejudgment interest in diversity actions. Puerto Rico Civil

Rule 44.3 does allow award of prejudgment interest (from the

date of filing the complaint) against parties whose conduct

of litigation is found to have been ‘‘obstinate."’ In our case,

the district court expressly declined to authorize an award

against Explo under Rule 44:

The new light cast by the Master's findings on the real

damages suffered convinces us that Explo was not ob-

stinate in its defense of the case.

|

17

(154a.) As now developed, ample authority establishes the

trial court’s discretion to deny prejudgment interest or attor-

ney’s fees to Garlam.

III. The Trial Court’s Exercise of Sound Discretion Against

an Award of Attorney’s Fees and Prejudgment Interest

Does Not Unconstitutionally Impair a Contractual Obli-

gation, or Depart From the Accepted and Usual Course

of Judicial Proceedings.

Even when a written agreement provides for an award of

attorney's fees in disputes between the parties, the trial court

has discretion to decline such an award if it would be inequi-

table or unreasonable (as determined in this case). See, e.g.,

Perry v. Stewart Title Company, 756 F.2d 1197, 1211 (5th Cir.

1985), reh’g granted in part and denied in part, 761 F.2d 237

(1985); Gregg v. U.S. Industries, Inc., 715 F.2d 1522, 1542 (11th

Cir. 1983), cert. denied, 466 U.S. 960, 104 S.Ct. 2173, 80

L.Ed.2d 556 (1984); Cable Marine, Inc. v. M/V Trust Me II,

632 F.2d 1344, 1345 (5th Cir. 1980); United States ex rel.

DeBlasio Constr., Inc., v. Mountain States Construction Co.,

588 F.2d 259, 263 (9th Cir. 1978).

The district court also had discretion to deny Garlam’s

requests for attorney’s fees and prejudgment interest under

Puerto Rico Civil Rule 44.1(d) or 44.3 (permitting such awards

against parties whose conduct of litigation is found to be

‘‘obstinate’’):

The Puerto Rico Rule provides that such awards are left

to the court’s discretion, and that in the case of a:torneys’

fees and prejudgment interest, the judge must find that

the party against whom such award is requested has been

obstinate.

Heddinger v. Ashford Memorial Community Hospital, 734

F.2d 81, 86 (1st Cir. 1984). It has clearly been held that. ‘‘[a]

18

determination of obstinacy must necessarily rest heavily on

the discretion of the trial court.’’®

Based on the facts and procedural history of this case (as

summarized earlier in this brief), the district court had ample

justification for an exercise of discretion against award of

attorney's fees and prejudgment interest. Obviously such an

exercise is not an unconstitutional impairment of contractual

obligation or a departure from the accepted course of judicial

proceedings.

* Marston v. American Employers Insurance Company, 439 F.2d

1035, 1042 (ist Cir. 1971); see also, Paul N. Howard Company v.

P.R. Aqueduct & Sewer Authority, 110 F.R.D. 78, 83 (D. P.R. 1986)

(‘The matter of whether or not to award attorney fees for ob-

stinacy is discretional’’); Felix v. Victory Carriers, Inc., 342

F.Supp. 1386, 1388 (D. Puerto Rico 1972). See also Santiago

Martinez v. Compagnie Generale Transatlantique, 517 F.2d 371,

375 (1st Cir. 1975), cert. denied sub nom. Fred Imbert, Inc. v.

Compagnie Generale Transatlantique, 423 U.S. 1048 (1976). The

First Circuit has expressed concern about the ‘‘dangers”’ of over-

applying Rule 44. See, e.g., Carrillo v. Sameit Westbulk, 514 F.2d

1214, 1219 (1st Cir. 1975), cert. denied sub nom. Westbulk v. Caribe

Shipping Co., 423 U.S. 1014 (1975) (vacating and remanding for

the district court to provide ‘‘more explicit’’ findings to support

an award of counsel fees). Where a case ‘‘presented close questions

and sharp conflicts in the evidence on both liability and damages,”

the First Circuit reversed an award of attorneys’ fees despite a

trial court finding of ‘‘obvious temerity."’ La Playa Santa Marina,

Inc. v. Chris-Craft Corporation, 597 F.2d 1, 7 (1st Cir. 1979).

19

CONCLUSION

Garlam’s petition for certiorari should be denied. Respon-

dents submit, however, that certiorari should be granted with

respect to the issues raised in their petition for certiorari filed

in Supreme Court number 87-204.

DATED this 25th day of September, 1987.

Respecurully submitted,

STUART G. OLES

Counsel of Record, and

ARTHUR D. McGARRY

DOUGLAS S. OLES

OLES, MORRISON, RINKER,

STANISLAW & ASHBAUGH

SALVADOR ANTONETTI

FIDDLER, GONZALEZ & RODRIGUEZ

Counsel for Respondents

* Marston v. American Employers Insurance Company, 439 F.2d

1035, 1042 (1st Cir. 1971); see also, Paul N. Howard Company v.

Puerto Rico Aqueduct & Sewer Authority, 110 F.R.D. 78, 83 (D.

Puerto Rico 1986) (““The matter of whether or not to award attor-

ney fees for obstinacy is discretional”’); Felix v. Victory Carriers,

Inc., 342 F.Supp. 1386, 1388 (D. P.R. 1972). See also Santiago

Martinez v. Compangnie Generale Transatlantique, 517 F.2d 371,

375 (ist Cir. 1975), cert. denied sub nom. Fred Imbert, Inc. v.

Compagnie Generale Transatlantique, 423 U.S. 1048 (1976). The

First Circuit has expressed concern about the ‘‘dangers’’ of

overapplying Rule 44. See, e.g., Carillo v. Sameit Westbulk, 514

F.2d 1214, 1219 (1st Cir. 1975), cert. denied sub nom. Westbulk v.

Caribe Shipping Co., 423 U.S. 1014 (1975) (vacating and remanding

for the district court to provide “more explicit’’ findings to sup-

port an award of counsel fees). Where a case ‘presented close

questions and sharp conflicts in the evidence on both liability and

damages,” the First Circuit reversed an award of attorneys’ fees

despite a trial court finding of ‘‘obvious temerity."’ La Playa Santa

Marina, Inc. v. Chris-Craft Corporation, 597 F.2d 1, 7 (1st Cir. 1979).

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

EXPLOSIVES CORPORATION

OF AMERICA,

Plaintiff

CIVIL

vs . 72-0001CC

GARLAM ENTERPRISES

CORPORATION & FEDERAL

INSURANCE COMPANY

Defendants

MEMORANDUM OPINION AND ORDER

On September 9, 1977 Garlam

Enterprises Corporation, defendant and

counterclaimant, filed 4 motion

requesting substitution of parties under

Rule 25(c), Fed. R. Civ. P. on the

grounds that Explo had been dissolved in

1975 by merger with Excoa, Inc. which, in

turn, was “liquidated or dissolved" into

Rocket Research Corporation, now called

Rockor, Inc. (Rocket). Movant stated

that Excoa and Explo were both wholly-

owned by Rocket and that the latter was

oe

now paying the attorneys' fees for Explo

in this case. Plaintiff opposed this

contending that to bring Rocket at such a

late stage of the proceeding and to hold

it liable before having had its day in

court would violate the due process

clause of the Constitution. It also

argued that Rocket had not been served in

accordance with the requirements of Rule

251/ and cited Ransom v Brennan, 437 F.2d

1/ Rule 25 Fed. R. Civ. P. in its per-

tinent part states:

(a) Death

es . . The motion for substitution

together with the notice of

hearing shall be served on the parties

as provided in Rule 5 and upon persons

not parties in the manner provided in

Rule 4 for the service of summons and

may be served in any judicial

district.

(2)

(b)

(See next pace. )

oe

513 (5th Cir. 1971) cert. denied 403 US

904, in support of the proposition that a

Rule 5, Fed. R. Civ. P. service was not

sufficient to invest the Court with per-

sonal jurisdiction over ae substituted

party. The request for substitution of

parties was subsequently withdrawn and a

petition to amend the counterclaim2/ to

join Rocket as a party liable to Garlam

was granted. Rocket then filed a Motion

to Dismiss for lack of personal jurisdic-

tion alleging that since it had no

contacts with this forum prior to

(Continued from previous page.)

(c) Transfer of interest. .. . Service

of the motion shall be made as pro-

vided in subdivision (a) of this

te a ee

2/ Although referred to as a third-

party complaint, the pleadings reveal

that Garlam's amended complaint is in

reality an amended counterclaim joining

Rocket as counterdefendant with Explo,

Excoa and General Insurance Company of

America; see: R. 13(h) Fed. R. Civ. P.

~~

acquiring Explo's interest in this

action, the order permitting its joinder

as a party liable to Garlam constitutes a

violation of the due process principles

outlined in International Shoe Co. v

Washington, 326 US 310 (1945), particu-

larly since Explo, its predecessor, had

already been found liable to Garlam.

See: Partial Judgment issued on April 4,

1976. t urges that this would be tanta-

mount to a determination on .the merits

that it was the alter ego or corporate

shell of Explo and, thus, responsible for

the latter's liabilities. Finally, it is

suggested that Rocket was not properly

served and that, assuming arguendo that

Garlam's allegations are true, dismissal

of the amended counterclaim is warranted

under the doctrine of forum non

conveniens. The affidavit of

Dr. George S. Sutherland, movant's

aBn

Chairman of the Board and Chief Executive

Officer, filed in support of dismissal

states that in 1973 Explo was merged into

Excoa which was dissolved in 1976 and

that it conveyed its assets to Rocket3/

in partial satisfaction of its debts.

3/—s In 1973, Excoa, Inc. was formed as a

Washington Corporation for the purpose of

developing and manufacturing explosives

and all forms of chemicals. Shortly

thereafter, Explo was merged into Excoa,

Inc. The merger was undertaken by a

short form merger procedure through which

the sole shareholder of Excoa, ime.

bought out the interests of Explo share-

holders. Since there was no public market

for the stock, the offering price was

based upon a valuation made by an inde-

pendent consultant. From 1973 to until

the time of its dissolution, Excoa, Inc.

was maintained distinct from Rocket, with

the business of the two companies contin-

uiug to be separate; Rocket continued in

the rocket engine and propellant business

and Excoa attempted to remain in the

explosives business. At the time of

Excoa's dissolution in 1976, Excoa owed

Rocket several millions of dollars as a

result of its losing operations. As par-

tial satisfaction of those debts, Excoa

conveyed its assets in partial satisfac-

(See next page. )

a6-

Rocket's Motion to Dismiss was ini-

tially denied but, upon reconsideration,

it was decided that there was no personal

jurisdiction over it and the action

against it was dismissed. In its revised

ruling the court emphasized that most of

the alleged contacts with the forum were

not supported by the record and that oth-

ers were irrelevant--for example, that

Rocket was paying the attorney's fees for

Explo's defense in this action--since

they occurred in 1976 after Rocket had

acquired the cause of action and not when

the suit was instituted. Dragor Shipping

Corp. v Union Tank Car Co., 361 F.2d 43

(7th Cir. 1966) cert. denied Union Tank

(Continued from previous page.)

tion of such obligations. However, due

to the financial condition of Excoa, no

distribution of assets could be made to

Rocket as & shareholder of Excoa.

(Affidavit of George Sutherland pp. 3 and

4.)

a Pe

Car Co. v Dragor Shipping Corp., 385 US

831, was cited in support of the proposi-

tion that personal jurisdiction over a

party must exist at the time the conm-

plaint is filed and cannot be acquired by

later contacts with the forum.

Thereafter, Garlam filed a motion for

reconsideration which was opposed by

Rocket. However, the court by footnote

order of December 28, 1979, determined

that the motion for reconsideration was

moot since Garlam had already appealed

the dismissal order.4/ On May 27, 1981

Garlam requested that the motion for

reconsideration be reinstated. The mat-

ter concerning the request to reconsider

was referred to Chief Judge Pesquera who

4/ The appeal was dismissed for lack of

appellate jurisdiction on December 10,

1979. Garlam contends that this footnote

order was never notified and there is no

indication in the record that it was.

subsequently disqualified himself. The

parties then filed other motions

requesting reinstatement of the motion,

on the one hand, and dismissal as moot

and untimely, on the other.

If we consider the procedural frame-

work against which the court was

determining the issue of personal juris-

diction, the findings and legal standards

contained in its order are correct. By

focusing the matter as a request to amend

the counterclaim to add a new party

responsible to Garlam on the merits of a

prior determination of contractual lia-

bility in its favor, the conclusion that

there was no personal jurisdiction over

Rocket was correct. If one considers the

possible retroactive effect of the

amended counterclaim, the lack of any

indication as to Rocket's involvement

with this forum prior to the transfer of

See

assets, and the fact that liability had

already been determined, the court, if it

was to reconcile its ruling with the due

process considerations of International

Shoe and its progeny (see: World-Wide

Volkswagen Corp. v_ Woodson, 444 US 286

(1980), had no alternative but to dis-

miss. As Rocket correctly contends, to

have ruled otherwise would have entailed

a determination without any type of

hearing that Rocket was Explo's alter ego

all throughout. Viewed within the proce-

dural backdrop of Garlam's request, the

determination that there was no personal

jurisdiction over Rocket so as to join it

as a party according to the criteria of

Rules 13(h), 15, 17 and 19, Federal Rules

of Civil Procedure, that is, directly

liable to Garlam on the action for breach

of contract for the reasons already

determined by Judge Bootle, the order of

=10-

October 29, 1979 is entirely correct and

reconsideration is unwarranted. If the

issues, however, had been defined within

the context of 2 Rule 25(c)

substitution>’ the ensuing consequences

as well as the court's determination,

would have been different.

In considering the propriety of a

Rule 25(c) substitution it is of para-

mount importance to recognize that the

substitution or joinder does not affect

the substantive rights of the

transfer([or] or of the transferee.

af

S/ Garlam contends that it abandoned

its request for substitution at the

request of Judge Pesquera. There is

nothing in the record to sustain this. We

must assume that these decisions are vol-

untarily made and that counsel understand

the consequences of the procedural strat-

egy they wish to follow.

oij-

Television Reception Corporation

v_ Dunbar, 426 F.2d 174, 178 (6th Cir.

1970): Federal Deposit Ins. Corp.

v Tisch, 89 FRD 446, 448 (EDNY 1961).

This consideration is essential in order

to understand that the possible substitu-

tion of Rocket as Explo's transferee is

not a determination of Rocket's liabil-

ity. In the first place, as both Explo

and Rocket have suggested, it would be

hasty to arrive at this conclusion at a

moment when we do not know if Explo will

not satisfy the judgment. Of yet greater

importance are the possible violations to

the due process clause that such a deter-

mination would entail if made without an

adequate hearing. Likewise, it is neces-

Sary to realize that the answers to the

question of Rocket's liability are not

found in the court's decision concerning

Explo's contractual liability to Garlam,

ere ren

aj 2e

but rather, are best approached by exam-

ining the applicable criteria to

determine in what situation a transfer of

corporate assets also includes the trans-

fer of the corporation's liabilities.&/

This is so for Rocket was brought to this

action as a possible successor in inter-

est of Explo which would be liable to

Garlam on the basis of the judgment and

not on the basis of the contractual rela-

6/ Without advancing the applicable law

to the present circumstances we note that

the general view is that when one corpo-

ration sells or otherwise transfers all

of its assets to another corporation the

latter is not liable for the debts and

liabilities of the transferor, except if

the purchaser expressly or impliedly

agreed to assume such debts, if the

transaction amounts to a consolidation or

merger of the corporations, if the pur-

chasing corporation is merely a

continuation of the selling corporation

or if the transaction is entered into

fraudulently to avoid liability. PR.J.

Enstrom Corp. v_ Interceptor Corp., 555

F.2d 277, 281-2 (10th Cir. 1977).

o13-

tionship liability that originated the

case.

In Panther Pumps & Equipment Co. v

Hydrocraft,., iInc., $66 F.2d 86 (7th Cir.

1977) cert. denied Beck v Morrison Pump

Co., 435 US 1013 (Panther Pumps), the

district court accepted the argument

raised by a party brought under Rule

25(c) that to join it would violate the

due process clause since judgment had

already been entered. The. appellate

court reversed stating that the lower

court had misconceived the charge against

the party to be substituted and the rea-

sons for bringing him to the action at

that stage, stating://

Beck, in the motion to substi-

tute, was not charged with 'the

original patent infringement. '

7/ Opinion by Howard Thomas Markey,

Chief Judge of the United States Court of

Customs and Patent Appeals, sitting by

designation.

=lé@<

Beck was charged with acts by

which he became the successor in

interest of Hydrocraft, a judg-

ment debtor. The nature of the

original tort that resulted in

the judgment is immaterial. It

could have been libel, slander,

assault, battery, patent

infringement or some other tort.

The charge was (and is) that

Beck is the successor in inter-

est of the judgment and debtor

and therefore liable on the

judgment. Against this charge

Beck was entitled under the Due

Process Clause to an opportunity

to defend himself. Id. at 24.

The Court then determined that Beck had

that opportunity at the hearing where the

charge that he was defendant's successor

in interest was fully discussed. The

question of personal jurisdiction in this

case, viewed in its proper perspective,

is not one of determining whether per-

sonal jurisdiction over the party to be

substituted existed since the filing of

the complaint but rather whether the rea-

sons adduced for a Rule 25 substitution

«4$-

are sufficient to persuade the court8/

that at this stage of the proceedings

there is cause to issue an order to bring

into the action the party to be

substituted2/ and then to determine if

8/ On the matter of the exercise of

discretion in granting a Rule 25 substi-

tution see: Prop-Jets, Inc. v Chandler,

379 F.424 1322, 1326 (10th Cir. 1978) and

Froning's Inc. v Johnston Feed Serv.,

Inc., 568 F.2d 108, 110 n.@ (8th Cir.

1978); cf. United States v.F.D. Rich

Company, 437 F.2d 549 (9th Cir. 1970)

(ample discretion to substitute parties

where a corporate dissolution or some

other act affecting the capacity to sue

has occurred).

In a similar fashion, a court may

accept as a legal fiction subject to

later challenge that specific allegations

of a complaint as to an out of state par-

ent corporation officer's negligent acts

are sufficient to determine at an early

stage in the proceeding that personal

jurisdiction exists and that the Court

has authority to summon that party, see:

Escude Cruz v_ Ortho Pharmaceutical Corp.

619 F.2d 902 (lst Cir. 1980). It has

also been recognized as an inherent

attribute of a court that it has the

power or authority to determine jurisdic-

tion. See generally: a3, ©. Weignt,

A. Miller and E. Cooper, Federal Practice

and Procedure, Sec. 3566 (1975 ed.).

aig<

substitution is proper. The crucial

period then to determine as to when per-

sonal jurisdiction over the substituted

party must exist is at the moment when

substitution is requested.

The two cases that Rocket has brought

to our attention which discuss issues

related to the present situation do not

support the proposition that personal

jurisdiction must exist over the party to

be substituted since the filing of the

complaint. In Panther Pumps, the court

denied the motion for substitution of a

corporation (Universal) that had received

the assets oof defendant corporation

Hydrocraft because it faced the

"insurmountable obstacle" of lack of per-

sonal jurisdiction. Id. at 23. However,

this holding, when examined in its par-

ticular factual situation, does not

necessarily govern our decision today. In

ye

that case the court did impose liability

of the judgment-debtor upon a

successori9/ thus, allowing plaintiff to

obtain an effective judgment, whereas in

our situation there is a real possibility

that Explo's assets may be insufficient

to cover part of Garlam's judgment and

that there would be no other entity or

person from whom recovery can be had.

Panther Pumps merely states that the dis-

trict court had not . acquired

jurisdiction. The reasons why the trial

court did not exercise personal jurisdic-

tion over Universal,i1/ while doing so as

10/ Mr. Louis Beck (Beck) whom the

Court found to be Hydrocraft's successor

in interest.

The court said at page 23:

The motion to substitute Universal faces

an insurmountable obstacle: lack of per-

sonal jurisdiction. "The consistent

constitutional rule has been that a

(See next page.)

«18-

to Beck, were not discussed nor was any

explanation given as to why there was no

personal jurisdiction over the corpora-

tion. All that was said was that the

lower court's order was only directed to

Beck and did not include Universal. The

lack of elaboration in Panther Pumps on

this particular matter serves to provide

little, if no guidance.

In any event, it should be noted that

the district court's decision on the mat-

ter of substituting parties under Ruie

(Continued from previous page. )

court has no power to adjudicate a per-

sonal claim or obligation unless it had

jurisdiction over the person of the

defendant. ' zenith Radio Corp. Vv

Hazeltime Research, Inc., 395 US 100,

[sic] 110, 89 S.Ct. 1562, 1569, 23 L.Ed.

2d 129 (1969). The district court's

order to show cause was directed only to

Beck, it did not bring Universal before

the lower court. Although we have held,

supra, that Universal is merely Beck's

alter ego, that fact cannot alone confer

personal jurisdiction over Universal.

=19-

25{(c) was taken after a two week

evidentiary hearing. Id. at 24. In con-

trast to our case, an opportunity was

given to fully discuss the arguments and

to present evidence in support of the

need to pubbetitete. Also significant is

the fact that, although the Circuit Court

felt that it was unnecessary to rule on

the lower court's determination of per-

sonal jurisdiction over Beck,12/ the

facts of that case reveal that Beck was

not an original defendant and that the

court acquired personal jurisdiction over

him because of acts he committed after

the complaint was filed. The other case

relied upon by Rocket, Ransom v_ Brennam,

12/ "Respecting Beck, however, the

lower court held that it had personal

jurisdiction over Beck and he has not

appealed that ruling. It is res judicata

that the order to show cause was properly

issued by the district court and that it

subjected Beck to the district court's

Surieasecion. .. .” Id.

“237 F.2@6 3id (3th Git. ifr), oeet,

denied 403 US 904 (Ransom), serves only

to further strengthen the position that

personal jurisdiction over a substituted

party does not necessarily have to exist

from the moment the complaint is filed.

In Ransom, after the defendant died

plaintiffs moved to substitute the

decedent's executrix pursuant to Rule

25(a)(1). The executrix was notified

according to Rule 5, Fed. R. Civ. P., by

mailing the motion to decedent's attor-

ney. The court found the notice improper

and dismissed the motion for substitu-

tion. The question was posed as to what

a court "having subject matter jurisdic-

tion must do to obtain personal

jurisdiction over the party sought to be

substituted. ..." Id. at 516. It was

held that, in order for the court to

acquire personal jurisdiction, Rule 4,

Se

Fed. R. Civ. P., had to be used when the

party to be substituted had not previ-

ously appeared in the action. Discussing

the trial court's reliance on the holding

of Butsch v Canterbury, 18 FRD 23 (SDCal.

1955), to the effect that once personal

jurisdiction was acquired over the origi-

nal party it continued over the

substituted party, the Circuit Court com-

mented:

If this second clause is

construed otherwise, as a state-

ment that in personam

jurisdiction over the original

party so continues over. the

party named as a potential sub-

stitute as to subject him to the

power of the court without the

necessity of service of process,

then in our opinion it is wrong,

and we decline to adopt any such

principle. Ransom at 518.

Thus, Ransom stands for the proposition

that if the substituted party has never

before appeared he must be served pursu-

ant to Rule 4, Fed. R. Civ. P. To infer

a22e

from this holding what Rocket pretends is

a misinterpretation. On the contrary,

the court in Ransom suggested that it

could acquire personal jurisdiction over

the executrix by the proper service of

summons even though she had no relation-

ship or contacts with the forum. It

interpreted the wording in Rule 25(a)(1)

permitting service of the motion and

notice of hearing "in any judicial dis-

trict" and Rule 4(f) Fed. R.. Civ. P.,

which provides that service of process

may be made beyond the territorial limits

of the state in which the district court

is held when authorized by the rules, to

support its authority te serve summons

outside its territorial limits. However,

since the executrix had not been summoned

properly the motion for substitution was

denied. In any event, Rocket's involve-

ment with our forum upon acquiring an

«33<

interest in an ongoing judicial pro-

ceeding and the fact that it is paying

for Explo's attorney's fees in this

action, i3/ coupled with the real possi-

bility that a party could be deprived of

its right to obtain an effective judg-

ment, are more than sufficient, even

assuming the dubious minimum contacts

requirement, to determine if substitution

should be made and to consider if Rocket

is liable as a successor in interest.

See: American Renaissance Lines, Inc. v

Saxis Steamship Co., 71 FRD 703, 705 EDNY

1976); Wainwright v Kraftco Corporation,

58 FRD 9, 13 (NDGa. 1973). Rocket's vol-

untary decision to acquire Explo's

13/ Although the Court mentioned in its

order of October 29, 1979 that this fact

was not adequately proven, counsel for

Explo, later admitted by sworn statement

that Rocket had been paying the

attorney's fees incurred in this action

since it acquired the interest.

-24-

interests in this litigation and to moni-

tor its course by paying the attorneys

afforded it sufficient actual notice of

the exact nature and complexities of the

case and of the probable risks in order

to prepare itself beforehand for the rea-

sonable anticipation cf being brought

into the action as a successor in inter-

est. Thus, any possible violations to the

due process clause are absent. See:

World-Wide Volkswagen Corp. v_ Woodson,

444 US 286, 292 (1980) and Keeton v

Hustler Magazine, No. 81-1489, slip op.

at 2 (lst Cir., June 16, 1982).

Therefore, although the order dis-

missing the amended counterclaim was

correct within the procedural framework

that the court utilized, we deem that

fairness requires that Garlam be given an

opportunity to move for a Rule 25 substi-

tution, if the circumstances so

92$-

dictate.14/ Both parties must be given

an opportunity to gather information and

explore the issue of liability thus

framed and to present their position as

to the applicable law on corporate lia-

bility; see note six, the convenience of

the forum, the possibility of a transfer,

the type of summons required or whatever

other arguments they deem relevant to the

situation. We forewarn Garlam that if it

decides to request substitution it must

adequately support its motion,15/ and, in

view of our rather extensive considera-

tion of these issues, we expect Garlam,

as well as the other parties, to come

14/ If Explo assets are insufficient to

satisfy that part of the judgment

exceeding the policy, for example.

Cf Marcano v Offshore Venezuela,

i OF 7 F. Supp. 204 £4(EDLa. 1980)

(individual seeking to prosecute action

as legal representative of deceased had

to make proper showing to that effect

before Rule 25(a) substitution was

granted).

=26<

forth with well researched and adequately

grounded positions. We are painfully

aware that the end result of this ruling

may well be an additional dilation of

this ten year old case, yet to leave the

matter as it stands is a blow to

fairnessi®/ and by doing so we would be

inviting more delay and appeals.

Accordingly, the Motion for

Reconsideration is DENIED. Defendant

counterclaimant Garlam is ORDERED to file

within fifteen (15) days after notice of

this Order a motion for substitution in

accordance with Rule 25(c) Fed. R. Civ.

P., at which time the Court shall order

that summons be served on Rocket and

thereafter a hearing shall be held to

16/ It is only fair to at least permit

Garlam to enter the "dark and dismal for-

est known to all as the corporate

reshuffle." Moody v_ Albemarle Paper

Company, 50 FRD 494 (EDNC 1970). ;

——e

aZFa

determine if Rocket is in fact the suc-

cessor in interest of Explo, Garlam's

judgment debtor.

SO ORDERED.

At San Juan, Puerto Rico, on

November 16, 1982.

CARMEN CONSUELO CEREZO

United States District Judge

73545/A-1

o3Qq

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

EXPLOSIVES CORPORATION

OF AMERICA,

Plaintiff

CIVIL

vs 72-0001 CC

GARLAM ENTERPRISES

CORPORATION AND FEDERAL

INSURANCE COMPANY

Defendants

MOTION FOR SUBSTITUTION OF PARTY

PURSUANT TO RULE 25(C) OF THE

FEDERAL RULES OF CIVIL PROCEDURE

TO THE HONORABLE COURT:

COMES NOW defendant, GARLAM ENTER-

PRISES CORPORATION, and respectfully sets

forth:

ae That this Court substitute the

name of plaintiff, Explosives Corporation

of America, for Rocket Research Corpo-

ration, now called Rockcor, Inc.

(hereinafter called Rockcor).

a.

That

o29-

substitution is proper,

pursuant to the provisions of Rule 25(c),

of the Federal Rules of Civil Procedure

because:

b)

Plaintiff herein, Explo-

sives Corporation of

America, is no longer a

legai entity and has no

assets with which to pay a

judgment ;

Rockcor, through its con-

tinuous conduct and acts,

has become the successor in

interest of plaintiff here-

in, Explosives Corporation

of America;

Rockcor is the successor,

assignee, or guarantor of

Explo and thus ae proper

party for substitution.

i

atO=

iF A supporting brief is attached

hereto.

‘

WHEREFORE, Garlam Enterprises

Corporation respectfully prays this

Honorable Court that:

a) It order the name of plain-

a SG and counter-defendant to be

substituted by the new party in interest,

Rockcor, Inc. in all pleadings and writ-

ings that have been filed in this court,

and;

b) That it order the Clerk of

this Court to issue summons”) against

Rockcor so that same may be served upon

Rockcor, with a notice of hearing, pursu-

ant to Rule 4 of the Federal Rules of

Civil Procedure, along with copy of this

Motion for Substitution of Parties.

¢) That Rockcor be ordered to

appear for a hearing before this Court to

ee

set forth its opposition for the substi-

tution, if any there should be.

At San Juan, Puerto Rico, this 15th

day of December, 1982.

I HEREBY CERTIFY that a true copy of

this document has been mailed to Salvador

Antonetti, Esq. c/o Fiddler, Gonzalez and

Rodriguez, G.P.O. Box 3507, San Juan,

Puerto Rico 00936.

Respectfully submitted,

CORDERO, COLON & MIRANDA

P.O. Box S-1581

Old San Juan,

Puerto Rico 00903

Tels: 721-5554 & 721-5750

By: [signed]

CHARLES A. CORDERO

73545/A-2

o34<

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

NO. 83-1218

EXPLOSIVES CORPORATION OF AMERICA

Plaintiff

-vs-

GARLAM ENTERPRISES CORPORATION,

et als.

Defendants and Third Party

Plaintiffs, Appellees

MOTION TO DISMISS FOR LACK OF

APPELLATE JURISDICTION

TO THE HONORABLE COURT:

COMES NOW appellee, Garlam Enter-

prises Corporation, and respectfully sets

forth:

1- That attached hereto is a copy of

the Order entered below on February 18,

19831/ which appellants mention in their

i/ Said order is marked as Appellee's

Exhibit I.

oe RR

«33

"Statement Pursuant to Local Rule 8(a)"

dated March 29, 1983.

2- That pursuant to the Order of the

court below, it is clear that this court

lacks jurisdiction since the judgment was

entered on November 16, 1982, and the

notice of appeal was not filed until

March 17,1983.

3- In the alternative appellee pleads

that the judgment entered by the court

below is not a "final decision" since the

judgment appealed does not contain the

certification required under Rule 54(b),

F.R.Civ. P., in that there are claims

which affect the rights of the parties

pending resolution by the court below.

Therefore, this court lacks’ appellate

jurisdiction since a final order has not

been entered. See Coulter -vs- Sears

Roebuck & Company (5th Cir - 1969) 411 F2

1189; A.O. Smith Corporation -vs- Sims

Consolidated Ltd. (10th Cir - 1981) 647

F2 118.2/

4- That the conduct of appellant man-

dates attorney's fees and costs since the

appeal can only be considered as evidence

of further delay tactics used by appel-

lants. This case involves an action

which was first filed in January 1972 and

appellees (who are counter-claimants)

have been seeking relief since that time.

WHEREFORE, appellees pray this

Honorable Court that the appeal be dis-

missed for lack of appellate

jurisdiction.

At San Juan, Puerto Rico, this

day of April 1983.

I CERTIFY that a copy of the fore-

going has been mailed to: Salvador

2/ Copy of Judgment is attached as

Exhibit II for Appellee.

eee

=3$$-

Antonetti, c/o Fiddler, Gonzalez &

Rodriguez, GPO Box 3507, San Juan, Puerto

Rico 00936; Oles, Morrison, Rinker,

Stanislaw & Ashbaugh, 3208 Seattle First

National Bank Bldg., Seattle, Washington

98154.

Respectfully submitted,

CORDERO, COLON & MIRANDA

P.O. Box S-1581

Old San Juan,

Puerto Rico 00903

Tels: 721-5554 & 721-5750

By: [signed]

CHARLES A. CORDERO

73545/A-3