Loral Corporation v. McDonnell Douglas Corporation Opinion

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UNITED STATES COURT OF APPEALS

F oe the  S econd C ircuit

Nos. 1555, 1556— September Term, 1976. 

(Submitted June 27, 1977 Decided July 29, 1977.)

Docket Nos. 77-7311, 77-3034

In R e : L oral C orporation,
Petitioner,

L oral C orporation,

Plaintiff-Appellant,
v.

M cD onnell  D ouglas C orporation,

Defendant-Appellee.

B e f o r e  :
L umbakd, S m it h  and O akes,

Circuit Judges.

Appeal and petition for mandamus seeking review of 
orders striking jury demand and referring military sub­
contract action to magistrate as special master in the 
United States District Court for the Southern District of 
New York, Marvin E. Frankel, Judge.

Appeal dismissed. Mandamus denied.

W il l k ie , F arr & Gallagher, New York, N.Y., 
David L. Foster, Alvin A. Simon, William



G. Scarborough and Francis J. Menton, of 
counsel, for Plaintiff-Appellant Loral Corp.

W h ite  & Case, New York, N.Y., Thomas Mc- 
Ganney and Todd B. Sollis, New York, N.Y. 
and Bryan, Cave, McPheeters & McRoberts, 
■St. Louis, Mo., George S. Heeker and Charlie 
A. Weiss, St. Louis, Mo., of counsel, for De­
fendant-Appellee McDonnell Douglas Corp.

B abbaba A llen  B abcock, Assistant Attorney 
General, Department of Justice, Washing­
ton, D.C., Robert E. Kopp, David J. Ander­
son and R. John Seibert, Attorneys, Dept, 
of Justice, of counsel, for United States as 
Amicus Curiae.

S m it h , Circuit Judge:

Loral Corporation, a subcontractor designing and pro­
ducing classified equipment for the Air Force, in August 
1973 sued the prime contractor, McDonnell Douglas Cor­
poration, on the subcontract in the United States District 
Court for the Southern District of New York. McDonnell 
Douglas counterclaimed for alleged breaches by Loral. 
After extensive discovery over a long period a pretrial 
order was prepared under the supervision of a magistrate 
and adopted by the court.

The court, Marvin E. Frankel, Judge, struck the demand 
of Loral for a jury trial, found the case suitable for 
reference to a magistrate in view of its complexity and 
probable length of trial, the heavy demands on the court’s 
time in the foreseeable future of criminal cases under the 
Speedy Trial Act, and the necessity for protection of much 
classified material which would be essential to trial of the

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issues on the complaint and counterclaims. The court or­
dered the case referred generally to a magistrate as special 
master for hearing and the preparation and submission 
of proposed findings and conclusions.

Loral sought review of the orders by application for writ 
of mandamus and later filed what it termed a “protective 
appeal” which McDonnell moved to strike. The motion to 
dismiss the appeal is granted. The order of reference is 
not a final judgment or order and is not reviewable on 
appeal. See United States Tour Operators Ass’n v. Trans 
World Airlines, Inc., —  F.2d —— , slip op. 3903, 3906 
(2d Cir. May 27, 1977); EcJdes v. Furth, ——  F.2d — —, 
slip op. 4213, 4219 (2d Cir. June 16, 1977). See also 
American Express Warehousing, Ltd. v. Transamerica In­
surance Co., 380 F.2d 277, 280 (2d Cir. 1967).

We dismiss the appeal since it was taken from orders 
not final and not presently appealable. The application 
for an extraordinary writ is properly before us. LaBuy v. 
Howes Leather Co., 352 U.S. 249, 254-55 (1957). We deny 
on the merits the petition for mandamus or other extraor­
dinary relief.

We have examined the material submitted to us suffi­
ciently to determine that a large amount of material prop­
erly classified confidential and secret must be submitted to 
the trier of fact in the case. We are persuaded that this 
circumstance is enough to make it inappropriate for jury 
trial. United States v. Reynolds, 345 U.S. 1, 10 (1953). '

The Department of Defense has cleared, or can and will 
clear, for access to the material the judge and magistrate 
assigned to the case, the lawyers and any siipporting per­
sonnel whose access to the material is necessary. The 
United States as amicus curiae objects, however, to any 
requirement for jury clearance in like manner. Id, at 7-8.

We are satisfied that jurors may not feasibly be handled 
by such a process. Long delays through investigation of

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prospective jurors, the lack of the usual job-related in­
ducements and training for long-term commitments to 
secrecy by jurors picked from the general population and 
the difficulty in monitoring long-term compliance on the 
one hand, and the chilling effect of clearance investigations 
on proper functioning of the jurors as triers of fact on the 
other, support the court’s conclusion that jury trial is not a 
practicable possibility. In any case, we note that both 
parties, in the contracts which are the subject matter of the 
litigation, have bound themselves to preserve the confiden­
tiality of classified material.1 Under the circumstances 
they have effectively waived the right to jury trial of 
issues involving the contracts. We will not disturb the 
order striking the claim for jury trial.

The determination of the propriety and necessity of a 
general reference to a magistrate presents questions of 
even greater difficulty. We are satisfied, however, that the 
reference, even though without the consent of both parties, 
was within the expanded powers of the court under the 
Federal Magistrate’s Act of 1968, 28 U.S.C. §631 et seq., 
as amended,2 and that it was a proper determination under 
those circumstances. Mere length and complexity of the 
prospective trial and the great demands of the pending

1 Compare E.W. Bliss Co. v. United States, 248 U.S, 37, 46 (1918) ; 
United States v. Marchetti, 466 F.2d 1309 (4th Cir.), cert, denied, 409 
U.S. 3063 (1972).

2 90 Stat. 2729 (Oct. 21, 1976), 2 TJ.S. Code Cong. & Ad. News amended 
§ 636(b) (2) of Title 28 to read as follows:

A judge may designate a magistrate to serve as a special master 
pursuant to the applicable provisions of this title and the Federal 
Buies of Civil Procedure for the United States district courts. A 
judge may designate a magistrate to serve as a special master in 
any civil case, upon consent of the parties, without regard to the 
provisions of rule 53(b) of the Federal Buies of Civil Procedure 
for the United States district courts.

The amended provision apparently is intended to allow reference with 
the consent of the parties even where there is an uncomplicated ease and 
no exceptional conditions.

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case load, particularly criminal, would not be enough under 
the ruling of LaBuy v. Howes Leather Co., supra, to 
justify such a reference. The length and complexity, of 
course, are elements complicating the problem of the trier 
in preserving the confidentiality of the classified material 
and in this sense support the necessity of the reference. 
There are additional elements involved here, moreover, 
in the nature of the required evidence and the difficulty in 
preserving its confidentiality.

In today’s version of what Winston Churchill termed the 
Wizard War, the courts are faced with the problem of re­
solving private civil disputes and at the same time pre­
serving the confidentiality of developments by or for 
governmental defense agencies. One alternative in the 
most sensitive cases would be long-term postponement or 
complete denial of the forum to the litigants. However, 
Buie 53(b) of the Federal Rules of Civil Procedure pro­
vides another alternative. The rule permits reference to 
a master on a showing that some exceptional condition 
requires it. Moreover, the Congress has provided pro­
fessional, experienced officers in the magistrates available 
to serve as special masters3 and encouraged the “district

3 See H.B. Bep. No. 94-1609 at 5 tl.S. Code Cong. & Ad. News 6162, 
6172 (1976):

Enactment of this new subsection 636(b)(2) and experience in 
the use of magistrates as special masters, may serve to occasion a 
reappraisal of the power of the court to appoint a special master, 
i.e., the magistrate, to serve where one of the parties objects to the 
reference. [See, LaBuy v. Bowes Leather Co. (1957), 352 U.S. 249.] 
Indeed, the magistrate is not an attorney in private practice "ap­
pointed on an ad hoe basis” and the magistrate is experienced in 
judicial work.

The Senate report contains identical language. S. Eep. No. 94-625, 94th 
Cong., 2d Sess. (1976), at 10.

Both the Senate and the House Committees apparently invite a re­
appraisal by the Supreme Court of the LaBuy rule where a magistrate 
is available for appointment as special master even in the ordinary 
LaBuy situation.

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courts to continue innovative experimentations in the use 
of this judicial officer.” 4 S. Eep. No. 94-625, 94th Cong., 2d 
Sess. (1976), at 10. Courts of equity have the power and 
duty to adapt measures to accommodate the needs of the 
litigants with those of the nation, where possible.5 The 
court here has properly utilized the tools provided in Rule 
53(b) and the expanded Magistrate’s Act.

We recognize the constitutional problem posed by the 
limitation of review of findings of a master under the rule 
by the “clearly erroneous” standard. See Mathews v. 
Weber, 423 U.S. 261, 269, 273 (1976). The ultimate respon­
sibility, however, remains with the court. At least as 
presently limited we perceive no deprivation of an article 
III court or of due process.6

Further long-term delay in this case to await the avail­
ability of a judge would compound the problems of pro­
tecting the confidentiality of the classified material. There 
already exists a dispute in the parties’ affidavits as to the 
possible exposure in the office of the clerk of the district 
court. The case should proceed promptly to resolution. 
We approve the striking of the jury demand and reference 
to the magistrate as special master. We decline to issue 
the extraordinary writ sought.

The briefs, appendices and other papers filed with the 
court are ordered sealed subject to further order of the 
court.

4 28 TJ.S.C. § 636(b) (3) says:
A magistrate may be assigned such additional duties as are not 

inconsistent with the Constitution and laws of the United States.

5 See C.A.B. v. Carefree Travel, Inc., 513 U.2d 375, 379-81 (2d Cir. 
1975).

6 Crowell v. Benson, 285 U.S. 22, 51 (1932). Note, Masters and Magis­
trates in the Federal Courts, 88 Harv. L.Kev. 779 (1975).

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