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Peardon v. Chapman

decided: September 2, 1948; As Amended September 20, 1948.


Author: Mclaughlin

Before BIGGS, Chief Judge, and McLAUGHLIN and O'CONNELL, Circuit Judges.

McLAUGHLIN, Circuit Judge.

This is an appeal from an order and judgment dismissing appellant's complaint with prejudice for lack of prosecution.

The action was instituted in December, 1945. Jurisdiction is based on diversity of citizenship. The complaint alleges that appellant and defendants-appellees, Chapman and Laford, are members of a co-partnership, Navigation Instrument Company, under written articles of co-partnership dated May 1, 1942. The purpose of Navigation was the development and promotion of an invention by defendant-appellee Peardon for the detection of torpedoes. Peardon is the former husband of appellant. Originally he assigned one third interest in the detection device to appellant, who in turn agreed to pay him one quarter of her net income from Navigation after taxes. That payment was increased to one half of the income on September 21, 1943. This increase allegedly was obtained from appellant by Peardon through fraud and deceit. Appellant alleges she attacked the agreement for this increase in the Nevada courts and that the decision against her is on appeal. Defendant-appellee, Electric Protective Corporation, is the sales agent for Navigation and is said to be controlled by Chapman and his family.

It is asserted that Electro has not accounted to Navigation for a large number of sales of the device and is withholding upwards of $1,000,000 which it collected as agent for Navigation. Electro is making no adverse claim to at least a large part of this. Chapman is said to have assumed direction of Navigation; to have ousted appellant from participation in its management and to have mismanaged the partnership's affairs, misappropriating Navigation's money for the payment of obligations not due from it, but, if due from anybody, due from Chapman or Electro, or both. Further misappropriation is stated to be threatened. Navigation is alleged to have no peace-time property or business. Electro is stated to be similarly situated and to be an unsafe custodian for Navigation's funds.

Appellant prayed for the dissolution of Navigation and for a receiver for the Navigation fund in possession of Electro, the receiver to disburse the fund to the parties entitled to it as their interests may be determined by "this court upon final judgment herein."

The answer of the defendants-appellees Chapman, Laford and Electro Protective Corporation, denies the controversial allegations of the complaint, except that it states all money due Navigation has been deposited in special accounts maintained in reputable banks and not co-mingled with other funds. The three defendants had a counterclaim alleging expense and time lost by them because of plaintiff's actions in connection with her personal affairs. Chapman had a separate claim for false and malicious accusations against him by appellant. Peardon could not be served. On November 24, 1947, as will hereafter be told, he appeared and filed an answer and counterclaim.

The first court hearing in the matter was January 7, 1946, on the petition of Chapman and Laford to have the court take over what they said was the amount in dispute. After a long hearing, the court concluded that it had no power to do this and that no purpose would be served by so doing. On the 28th of the same month a motion by plaintiff for partial summary judgment was heard and denied. The court ruled that if plaintiff's allegations that the partnership business was completed were true, then the partnership was already dissolved. Section 31, Uniform Partnership Act. This is the law of New Jersey, R.S. 42:1-31, N.J.S.A. 42:1-31. The court further held that plaintiff could under the partnership articles have dissolved the venture by notice. This point is here urged as error. We find no reason for so treating it.

The court's memorandum deciding the above motion was filed June 24, 1946. Thereafter there was a voluminous second motion for partial summary judgment by the plaintiff. The object of this was to force Chapman and Laford to deposit some $237,207.96 in the partnership account. The cross affidavits take up forty-three pages of the appendix. There was a hearing on this motion January 20, 1947. In the interval considerable time seems to have been spent by accountants for both sides in going over the company books, but at the hearing no agreement could be reached as to the amounts involved, and, in addition, defendants reiterated their uncertainty as to whom to pay. The hearing on the 20th apparently took all day. Regarding the trial situation the court commented that the case was then in a better position to be tried than it had been a year previously, because of word that the defendant Peardon would appear. The court considered Peardon an indispensable party. The motion was denied primarily because of the uncertainty of the figures involved. Our own examination of the record convinces us that this decision was justified. The plaintiff was allowed permission to renew the motion at a continuance of the hearing on February 7, 1947. On that day, after discussion, the denial of the motion was, in effect, affirmed. February 25 was set for the trial, but this was postponed until the 27th.

On February 27 plaintiff's New Jersey trial attorney, who is her attorney of record in the case, was engaged in his second week of a trial in the New Jersey Court of Chancery, and the district court said, "Now since I am convinced he is actually engaged, I can't let the defendants take any technical advantage of that." The court postponed the trial over opposition from defense counsel, who moved for dismissal under Rule 41(b) of the Federal Rules of Civil Procedure, 28 U.S.C.A. This motion was denied. The following colloquy between the Court and counsel for the defendants on the latter's motion to dismiss is informative of the Court's attitude respecting it:

"The Court: Well, you see, Mr. Margetts, you are actually in this position: A dismissal under the rule would hardly withstand attack on appeal * * * and it would engage ourselves in a very futile maneuver. It wouldn't terminate the litigation by any stretch of the imagination; because I am firmly convinced that nothing will terminate this litigation except a trial on the merits. Now there is no sense to our entering a dismissal - and it rests within the discretion of the Court - which will only result in a further litigation for the defendants. In other words, the defendants will gain little or nothing by that type of dismissal.

"The Court: Oh, they [the plaintiff] could appeal without filing anything. They could take an immediate appeal to the Circuit Court of Appeals.

"Mr. Margetts: Well, we are willing to do that.

"The Court: On the question of abuse of discretion. I mean that wouldn't terminate it. The difficulty with that is sometime along in September, or October, you would probably be arguing the appeal, and in the meantime your clients are still no better off; and assuming that the Circuit decides it within thirty or sixty days thereafter and it should come back, sometime about this time next year you would again be confronted with the trial problem and your clients would be one year delayed, perhaps on a trial on the merits.Now that's actually looking at it from the very practical standpoint. And during all that time their funds would still be practically tied up, and I suppose about this time next year we would be confronted by the same ...

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