Dairy Queen, Inc. v. Wood
133 U.S.P.Q. (BNA) 294 · 1962 U.S. LEXIS 2307 · 369 U.S. 469 · 5 Fed. R. Serv. 2d 632
April 30, 1962 · Docket 244
Opinion
delivered the opinion of the Court.
The United States District Court for the Eastern District of Pennsylvania granted a motion to strike petitioner’s demand for a trial by jury in an action now pending before it on the alternative grounds that either the action was “purely equitable” or, if not purely equitable, whatever legal issues that were raised were “incidental” to equitable issues, and, in either case, no right to trial by jury existed.
At the outset, we may dispose of one of the grounds upon which the trial court acted in striking the demand for trial by jury — that based upon the view that the right to trial by jury may be lost as to legal issues where those issues are characterized as “incidental” to equitable issues — for our previous decisions make it plain that no such rule may be applied in the federal courts. In Scott v. Neely, decided in 1891, this Court held that a court of equity could not even take jurisdiction of a suit “in which a claim properly cognizable only at law is united in the same pleadings with a claim for equitable relief.”
The Federal Rules did not, however, purport to change the basic holding of Scott v. Neely that the right to trial by jury of legal claims must be preserved.
Our decision reversing that case not only emphasizes the responsibility of the Federal Courts of Appeals to grant mandamus where necessary to protect the constitutional right to trial by jury but also limits the issues open for determination here by defining the protection to which that right is entitled in cases involving both legal and equitable claims. The holding in Beacon Theatres was that where both legal and equitable issues are presented in a single case, “only under the most imperative circumstances, circumstances which in view of the flexible procedures of the Federal Rules we cannot now anticipate, can the right to a jury-trial of legal issues be lost through prior determination of equitable claims.”
The District Court proceeding arises out of a controversy between petitioner and the respondent owners of the trademark “DAIRY QUEEN” with regard to a written licensing contract made by them in December 1949, under which petitioner agreed to pay some $150,000 for the exclusive right to use that trademark in certain portions of Pennsylvania.
The complaint filed in the District Court alleged, among other things, that petitioner had “ceased paying ... as required in the contract;” that the default “under the said contract . .. . [was] in excess of $60,000.00;” that this default constituted a “material breach” of that contract; that petitioner had been notified by letter that its failure to pay as alleged made it guilty of a material breach of contract which if not “cured” would result in an immediate cancellation of the contract; that the breach had not been cured but that petitioner was contesting the cancellation and continuing to conduct business as an authorized dealer; that to continue such business after the cancellation of the contract constituted an infringement of the respondents’ trademark; that petitioner’s financial condition was unstable; and that because of the foregoing allegations, respondents were threatened with irreparable injury for which they had no adequate remedy at law. The complaint then prayed for both temporary and permanent relief, including: (1) temporary and permanent injunctions to restrain petitioner from any future use of or dealing in the franchise and the trademark; (2) an accounting to determine the exact amount of money owing by petitioner and a judgment for that amount; and (3) an injunction pending accounting to prevent petitioner from collecting any money from “Dairy Queen” stores in the territory.
In its answer to this complaint, petitioner raised a number of defenses, including: (1) a denial that there had been any breach of contract, apparently based chiefly upon its allegation that in January 1955 the parties had entered into an oral agreement modifying the original written contract by removing the provision requiring minimum annual payments regardless of petitioner’s receipts thus leaving petitioner’s only obligation that of turning over 50% of all its receipts; (2) laches and estop-pel arising from respondents’ failure to' assert their claim promptly, thus permitting petitioner to expend large amounts of money in the development of its right to use the trademark; and (3) alleged violations of the antitrust laws by respondents in connection with their dealings with the trademark. Petitioner indorsed upon this answer a demand for trial by jury in accordance with Rule 38 (b) of the Federal Rules of Civil Procedure.
Petitioner’s contention, as set forth in its petition for mandamus to the Court of Appeals and reiterated in its briefs before this Court, is that insofar as the complaint requests a money judgment it presents a claim which is unquestionably legal. We agree with that contention. The most natural construction of the respondents’ claim for a money judgment would seem to be that it is a claim that they are entitled to recover whatever was owed them under the contract as of the date of its purported-termination plus damages for infringement of their trademark since that date. Alternatively, the complaint could be construed to set forth a full claim based upon both of these theories — that is, a claim that the respondents were entitled to recover both the debt due under the contract and damages for trademark infringement for the entire period of the alleged breach including that before the termination of the contract.
The respondents’ contention that this money claim is “purely equitable” is based primarily upon the fact that their complaint is cast in terms of an “accounting,” rather than in terms of an action for “debt” or “damages.” But the constitutional right to trial by jury cannot be made to depend upon the choice of words used in the pleadings. The necessary prerequisite to the right to maintain a suit for an equitable accounting, like all other equitable remedies, is, as we pointed out in Beacon Theatres, the absence of an adequate remedy at law.
Nor is the legal claim here rendered “purely equitable” by the nature of the defenses interposed by petitioner. Petitioner’s primary defense to the charge of breach of contract — -that is, that the contract was modified by a subsequent oral agreement — presents a purely legal question having nothing whatever to do either with novation, as the district judge suggested, or reformation, as suggested by the respondents here. Such a defense goes to the question of just what, under the law, the contract between the respondents and petitioner is and, in an action to collect a debt for breach of a contract between these parties, petitioner has a right to have the jury determine not only whether the contract has been breached and the extent of the damages if any but also just what the contract is.
We conclude therefore that the district judge erred in refusing to grant petitioner’s demand for a trial by jury on the factual issues related to the question of whether there has been a breach of contract. Since these issues are common with those upon which respondents’ claim to equitable relief is based, the legal claims involved in the action must be determined prior to any final court determination of respondents’ equitable claims.
Reversed and remanded.
McCullough v. Dairy Queen, Inc., 194 F. Supp. 686.
140 U. S. 106, 117. See also Cates v. Allen, 149 U. S. 451, in which the principles expressed and applied in Scott v. Neely were explicitly reaffirmed.
Id., at 110.
“Subdivision (b) [of Rule 18] does not disturb the doctrine of those cases [Scott v. Neely and Cates v. Allen] but is expressly bottomed upon their principles. This is true because the Federal Rules abolish the distinction between law and equity, permit the joinder of legal and equitable claims, and safeguard the right to jury trial of legal issues.” 3 Moore, Federal Practice, 1831-1832.
“It is therefore immaterial that the case at bar contains a stronger basis for equitable relief than was present in Beacon Theatres. It would make no difference if the equitable cause clearly outweighed the legal cause so that the basic issue of the case taken as a whole is equitable. As long as any legal cause is involved the jury rights it creates control. This is the teaching of Beacon Theatres, as we construe it.” Thermo-Stitch, Inc., v. Chemi-Cord Processing Corp., 294 F. 2d 486, 491.
There are two groups of respondents in this case in addition to the district judge who is formally a respondent by reason of the procedural posture of the case. H. A. McCullough and H. F. McCullough, a partnership doing business as McCullough’s Dairy Queen, are the owners of the trademark and are entitled under the contract to payment for its use. B. F. Myers, R. J. Rydeen, M. E. Montgomery, and H. S. Dale are the original licensees under the contract through
The full text of the letter sent to petitioner is as follows:
“This letter is to advise you that your failure to pay the amounts required in your contract with McCullough’s Dairy Queen for the ‘Dairy Queen’ franchise for the State of Pennsylvania, as called for in your contract with your assignors, constitutes in our opinion a material breach of that contract.
“This will advise you that unless this material breach is completely satisfied for the amount due and owing, your franchise for ‘Dairy Queen’ in Pennsylvania is hereby cancelled.
“Copies of this letter are being sent to your assignors.”
“Any party may demand a trial by jury of any issue triable of right by a jury by serving upon the other parties a demand therefor in writing at any time after the commencement of the action and not later than 10 days after the service of the last pleading directed to such issue. Such demand may be indorsed upon a pleading of the party.”
This seems to be the construction given the complaint by the district judge in passing on the motion to strike petitioner’s jury demand. See 194 F. Supp., at 687-688.
This last possible construction of the complaint, though accepted as' the correct one in the concurring opinion, actually seems the least likely of all. For it seems plain that irrespective of whatever else the complaint sought, it did seek a judgment for the some $60,000 allegedly owing under the contract. Certainly, the district judge had no doubt that this was the ease: “Incidental to this relief, the complaint also demands the $60,000 now allegedly due and owing plaintiffs under the aforesaid contract.” 194 F. Supp., at 687.
“In the case before us the debt due the complainants was in no respect different from any other debt upon contract; it was the subject of a legal action only, in which the defendants were entitled to a jury trial in the Federal courts.” Scott v. Neely, 140 U. S. 106, 110. See also Thompson v. Railroad Companies, 6 Wall. 134.
Cf., e. g., Arnstein v. Porter, 154 F. 2d 464; Bruckman v. Hollzer, 152 F. 2d 730.
359 U. S., at 506-510. See also Thompson v. Railroad Companies, 6 Wall. 134, 137; Scott v. Neely, 140 U. S. 106, 110.
Kirby v. Lake Shore & Michigan Southern R. Co., 120 U. S. 130, 134.
Even this limited inroad upon the right to trial by jury “ ‘should seldom be made, and if at all only when unusual circumstances exist.’ ” La Buy v. Howes Leather Co., 352 U. S. 249, 258. See also In re Watkins, 271 F. 2d 771.
It was settled in Beacon Theatres that procedural changes which remove the inadequacy of a remedy at law may sharply diminish the scope of traditional equitable remedies by making them unnecessary in many eases. “Thus, the justification for equity’s deciding legal issues once it obtains jurisdiction, and refusing to dismiss a case, merely because subsequently a legal remedy becomes available, must be re-evaluated in the light of the liberal joinder provisions of the Federal Rules which allow legal and equitable causes to be brought and resolved in one civil action. Similarly the need for, and therefore, the availability of such equitable remedies as Bills of Peace, Quia Timet and Injunction must be reconsidered in view of the existence of the Declaratory Judgment Act as well as the liberal joinder provision of the Rules.” 359 U. S., at 509.
This does not, of course, interfere with the District Court’s power to grant temporary relief pending a final adjudication on the merits. Such temporary relief has already been granted in this ease (see McCullough v. Dairy Queen, Inc., 290 F. 2d 871) and is no part of the issues before this Court.