Irving P. Seidman, New York City (Joel L. Hecker, Thomas F. Ryan, Allen P. Rosiny, Seidman & Dochter, P. C., Hess, Segall, Guterman, Pelz & Steiner, New York City, of counsel), for defendants-appellants.

Walter E. Rutherford, New York City (Alan D. Reitzfeld, Haight, Gardner, Poor & Havens, New York City, of counsel), for plaintiffs-appellees.

Before FEINBERG, Chief Judge, WINTER, Circuit Judge, and MISHLER, District Judge.*

Plaintiff-appellees instituted this diversity action in federal district court in June 1980. The amended complaint stated three claims for relief arising out of a course of dealings between the parties in connection with the now released motion picture entitled "VENOM".

Plaintiff Frank P. Rosenberg ("Rosenberg") and defendant Martin T. Bregman ("Bregman") at all relevant times have been engaged in the production of motion pictures. In the winter in 1977, Rosenberg and Bregman competed in a bidding for an option contract on the motion picture rights to an unpublished novel upon which the film Venom is based.1 Shortly after Bregman outbid Rosenberg on the option contract, Rosenberg telephoned him about the possibility of their working together on the film's production. The conversations and writings between the parties concerning that subject occurring over the two and one-half years following Rosenberg's March 1977 telephone call to Bregman constituted the major part of Rosenberg's case at trial in support of his breach of contract claim. Plaintiffs' pleading stated that Rosenberg and Bregman had "entered into an oral agreement and joint venture to jointly produce" VENOM. Plaintiffs sought an accounting as well as punitive damages for defendants' alleged malicious and fraudulent breach of the joint venture which culminated in Bregman's unilateral termination of the relationship on February 19, 1980.

In response to the special interrogatories given to the jury after eight days of trial which had generated some 1500 pages of transcript, the jury rejected plaintiffs' contention that defendants had breached an oral partnership agreement to co-produce VENOM.2 However, in affirmatively answering Interrogatory 2(a) of the special interrogatories3 and thereafter rejecting defendants' Statute of Frauds defense,4 the jury found that defendants had breached "an (enforceable) oral agreement, though not a partnership" to co-produce VENOM. Finally, the jury found that plaintiffs were not entitled to an award of punitive damages.

At trial and on appeal, defendants contend that the manner in which the theory of a non-partnership oral agreement was submitted to the jury injected a degree of confusion and prejudice into the case constituting reversible error. We agree. We also believe that (1) defendants were unfairly prejudiced by the failure of the district court to disclose the contents of the special interrogatories to counsel before summation and (2) the interrogatories, as drawn by the district court, improperly withdrew from the case a valid theory of defense which had been urged by defendants throughout the trial. Defendants presented a number of other challenges to the judgment entered below which we do not reach.5

Plaintiffs' contention throughout the case was that the parties had orally entered into a joint venture agreement to co-produce VENOM. They cited the enormous quantity of paper produced by Rosenberg and his attorneys as evidence of their efforts to reduce the existing oral joint venture agreement to a writing. Bregman consistently denied that there ever had been an agreement. Instead, he characterized the deluge of written correspondence from Rosenberg and the various conversations admitted into evidence as proof only of the on-going negotiations concerning an offer to Rosenberg to serve in his employment when the picture was actually shot in London.6 The corollary to Bregman's position was that if the jury were to find an agreement, it was an employment contract, not a partnership contract, and under its terms Rosenberg could be discharged for cause. At trial Bregman conceded that Rosenberg was entitled to the reasonable value for such contributions as he had made to the VENOM project prior to his termination.

After both sides had rested, the district court endeavored to sharpen the issues presented by the case. Specifically, it was unclear to the district court whether plaintiffs had attempted to establish alternative contract claims. It had conceived of two different contracts, each containing essentially the same terms (e.g., with respect to Rosenberg's share in the proceeds of the film as well as his management control over the business and creative aspects of the project).

The district court properly elicited the assistance of plaintiffs' counsel for the purpose of crystalizing the theory of their case. Plaintiffs' counsel had substantial difficulty in discerning a meaningful distinction between the two hypothetical contracts as propounded by the court and therefore resisted the court's view of the case.7 Nevertheless, either having been convinced that the non-partnership contract claim was a genuine alternative claim or sensing that submission was the more prudent course, plaintiffs' counsel ultimately adopted the court's view of the case.

Defendants timely objected to the submission of the non-partnership contract theory contending that, as presented in the special interrogatories, it was confusing because it failed to comprehensibly and fairly define the issues for the jury to resolve.8 Further, defendants argued that Interrogatory 2(a) effectively withdrew from the case its theory of defense that, as a mere employee, Rosenberg could be discharged for just cause.

The single difference between the two contract claims, as framed by the district court, was that only one was based on a theory of partnership. After much searching, we believe the distinction was wholly irrelevant except insofar as plaintiffs might have proved their partial performance of an oral partnership agreement thereby defeating defendants' Statute of Frauds defense. Sanger v. French, 157 N.Y. 213, 51 N.E. 979 (1898); Green v. Le Beau, 281 A.D. 836, 118 N.Y.S.2d 585 (2d Dep't. 1953). However, the district court did not present to the jury these alternative contract claims with that significance in mind.

Rule 49(a) of the Federal Rules of Civil Procedure provides for special verdicts and interrogatories and, in relevant part, states that "the court may submit to the jury written questions susceptible of categorical or other brief answer or may submit written forms of the several special findings which might properly be made under the pleadings and evidence; or it may use such other method of submitting the issues and requiring the written findings thereon as it deems most appropriate." Needless to say, in order to preserve the right of the litigants to a jury trial of all factual issues, the wide discretion afforded the district court in submitting issues to the jury by way of special interrogatories is circumscribed by the requirement that they clearly present the material fact issues raised by the pleadings and evidence.9 See Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 279 (2d Cir. 1979), cert. denied, 444 U.S. 1093, 100 S. Ct. 1061, 62 L. Ed. 2d 783 (1980); Simien v. S. S. Kresge Co., 566 F.2d 551, 555 (5th Cir. 1978). In the instant case, we believe that the special interrogatories submitted to the jury, considered in conjunction with the district court's charge, failed to conform to this standard.

Interrogatory 2(a), set out in the margin at note 3, presented a legal theory which had never been argued by the parties and which we had been unable to understand in the context of this case. A logical and unavoidable corollary to our confusion is that the jury also was incapable of distinguishing "an oral partnership agreement" (Interrogatory 1(a)) from "an oral agreement, though not partnership," (Interrogatory 2(a)) and we so find.

Based upon the pleadings and the evidence, we believe that the following three contractual issues should have been submitted to the jury:

(1) Was there an agreement between the parties to co-produce VENOM?

(2) Was there an employment contract between the parties in connection with the production of VENOM? and

(3) Was there an agreement to hire Rosenberg as an independent contractor in connection with the production of VENOM?10

Had the jury answered any of the foregoing questions affirmatively, then it should have been submitted additional questions concerning the following ancillary issues:

(1) the nature of the responsibilities of the parties,

(2) whether there was a provision for termination, and(3) the nature of plaintiffs' injury, i.e., a loss in the share of profits,11 quantum meruit or some other formula.

Interrogatory 2(a) addressed none of these subordinate fact issues.12 The omission of these material issues and the confusion inherent in Interrogatory 2(a) concerning the nature of the legal theory supporting the judgment entered each independently constitute reversible error.13

B. The Withdrawal of Defendants' Theory of Defense

The district court submitted the special interrogatories to the jury after the jury had been in deliberation for more than four hours. Prior to their submission, defendants' counsel objected to the format in which the special interrogatories were presented. The objection was articulated in sufficient detail stating that, as presented, Interrogatory 2(a) was prejudicial because it withdrew from the case one theory of defense asserted throughout the trial. Indeed, Bregman took the position at trial that it had been his prerogative to terminate Rosenberg from the VENOM project because of his insubordination in connection with his unauthorized communications with Orion Pictures.14 However, an affirmative answer to Interrogatory 2(a), while establishing defendants' liability, would not have been inconsistent with defendants' theory of the case assuming that the jury believed the parties had entered into an employment contract. Defendants' counsel timely requested that the issue of "discharge for cause" be specifically presented in the interrogatories. The request was denied.

In its post-trial opinion, the district court explained that the general charge to the jury "more than adequately explained defendants' theory of defense." After carefully reviewing the instructions given to the jury, we disagree. We cannot say that the district court's brief reference to defendants' contention that Rosenberg was Bregman's employee reasonably apprised the jury of the issue of "discharge for cause."

As previously stated, defendants' objections to the special interrogatories came approximately four hours after the jury had retired. The hour was late in the day and the court had been in session for nearly twelve hours. The court rejected defendants' argument out of hand because it would have required the court to recharge the jury. Nevertheless, the circumstances did not justify the court's refusal to modify Interrogatory 2(a). While we recognize that the trial court is given broad discretion in framing interrogatories under Rule 49(a), see, e.g., Cann v. Ford Motor Co., 658 F.2d 54, 58 (2d Cir. 1981), cert. denied, --- U.S. ----, 102 S. Ct. 2036, 72 L. Ed. 2d 484 (1982); Ajax Hardware Manufacturing Corp. v. Industrial Plants Corp., 569 F.2d 181, 187 (2d Cir. 1977), such discretion cannot be exercised in a manner which withdraws from the jury's consideration a valid theory of defense upon which defendant has produced sufficient evidence. See e.g., Ajax Hardware Manufacturing Corp. v. Industrial Plants Corp., 569 F.2d at 187; Kornicki v. Calmar S.S. Corp., 460 F.2d 1134, 1139 (3d Cir. 1972). The submitted question (Interrogatory 2(a)) "created an unfair obstacle to the jury's returning an answer favorable to the (defendants)." Cann v. Ford Motor Co., 658 F.2d at 58.15 Accordingly, the judgment entered in favor of plaintiffs must be vacated and the case remanded for a new trial.16

Plaintiffs contend that defendants' objection to the failure to charge on the defense of "discharge for cause" has been waived since it was made subsequent to the time the jury had retired. Rule 51, Fed.R.Civ.P.; see e.g., Clark v. John Lamula Investors, Inc., 583 F.2d 594, 602 (2d Cir. 1978). Plaintiffs' claim is without merit. Their argument serves to highlight the error committed by the district court in not presenting the special interrogatories to counsel until after the jury had retired. In pertinent part, Rule 49(a) deprives a litigant of his right to a jury trial on issues not presented in the special interrogatories "unless before the jury retires he demands its submission to the jury." (emphasis added). To prohibit defendants from preserving their objections under these circumstances would result in a denial of their right to a trial by jury. Defendants' objections to the form of the special interrogatories have been preserved for appeal. Cf. Bentley v. Stromberg-Carlson Corp., 638 F.2d 9, 12 (2d Cir. 1981).

C. The Untimely Disclosure of the Special Interrogatories

In its post-trial motion for a judgment n.o.v., defendants argued that the district court erred in failing to apprise counsel of the contents of the special interrogatories prior to summation. The district court rejected the challenge to its procedures since it had generally informed the attorneys during the requests to charge as to the issues which would be submitted to the jury.

The decision not to supply counsel with the special interrogatories before summation rested within the district court's broad discretion. See Cramer v. Hoffman, 390 F.2d 19, 23 (2d Cir. 1968). However, contrary to the ruling below, we believe that defendants were severely prejudiced by their inability to review the special interrogatories prior to summation. It is clear that the alternative theory of contractual liability, first articulated on the seventh day of trial, created considerable confusion for both counsel and the district court. The difficulty in defining the issues on the eve of submitting the case to the jury is one factor which persuades us that the district court should have supplied counsel with the special interrogatories before summation.

As fashioned by the district court, Interrogatory 2(a) presented to the jury the issues of whether the parties had entered a non-partnership agreement and, if so, whether defendants breached the agreement. The jury's attention was never directed, either by Interrogatory 2(a) or by the district court's general charge, to the issue of whether plaintiffs had committed a prior breach of the agreement. This issue was the linchpin of Bregman's defense in the event the jury found that the parties had entered into an employment contract, a relationship fairly encompassed by the phrase "an oral agreement, though not a partnership." Although defendants chose not to allot any of their limited time for summation to the issue of "discharge for cause," it would be inappropriate under the circumstances to speculate why this topic was not addressed. We are convinced that defendants would have argued this vital trial issue had the district court disclosed the contents of Interrogatory 2(a) prior to summation. The non-disclosure prejudiced defendants in planning an effective closing argument and constituted reversible error.

While the panel in Cramer v. Hoffman did indicate that whether jury interrogatories should be presented to counsel in advance of summation rests in the discretion of the trial court, the panel went on to make clear that no prejudice had resulted from non-disclosure in advance of summation. We believe it is the better practice under Rule 49(a) to submit special interrogatories to counsel prior to summation.17

The judgment is vacated, the special verdict is set aside and the case remanded for a new trial.18 The parties shall bear their own costs.