Petition — Granite Investment Co. v. Federal Savings & Loan Insurance

Supreme Court brief1981

Ask Donna

What actually matters in this document.

Text

80-1625 | FILED

MAR 23 (981

IN THE SUPREME COURT OF THE UNITED STATRSEXANDER L. STEVAS,

OCTOBER TERM, 1980 barman

Office-Supreme Court, U.S. ]

GRANITE sNVESTMENT COMPANY, a Limited Partmer-

ship; JAMES C. GREEN; CAPITOL INDEMNITY CORPOR-

ATION, a corporation; and HOWARD STEELE CONSTRUC-

TION OO.,

Defendants-Petitioners, vs.

FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION,

an agency of the United States of America,

Plaintiff-Respondent , vs.

PSL REALTY CO., a corporation, et al,

Defendants-Respondents ,

THE HON. CHARLES E. JONES; THE HON. JOHN M.

KARNES; THE HON. GEORGE W. KASSERMAN, JR.;

and all other JUSTICES OF THE ILLINOIS APPELLATE

COURT FOR THE FIFTH DISTRICT; THE HON. VICTOR J.

MOSELE, and all JUDGES OF THE THIRD JUDICIAL

CIRCUIT OF ILLINOIS.

Respondents .

FETTTION FOR WRIT OF CERTIORARI TO THE UNITED

East St. Louis, Illinois 62201

(618) 274-0434

ATTORNEYS FOR PETITIONERS

PETITION FOR WRIT OF CERTIORARI TO THE

"IHS SEVENTH CIRCUIT COURT

QUESTIONS PRESENTED FOR REVIEW

1. Subsequent to the granting of a

Petition for a Writ of Temporary Injunction,

the Circuit Court of Madison County, Illinois,

appointed the Federal Savings and Loan

Insurance Corporation receiver of certain

oubeerctes which were the subject of dispute

between the parties to the injunction.

Extended proceedings in the state and federal

courts ensued, culminating in the United

States District Court for the Southern

District of Illinois’ exercise of its

injunctive powers to enjoin the Illinois state

courts from interference with its jurisdiction

over certain property subject to a mortgage

foreclosure action instituted in the district

court nearly four years earlier but some 4 1/2

years subsequent to the state court order

appointing FSLIC receiver. On interlocutory

appeal from the district court order granting

the injunction, the Court of Appeals for the

Seventh Circuit affirmed the district court's

order, holding that the state courts had never

acquired jurisdiction over the properties in

the first instance, and thus, the district

court, having obtained exclusive possession *

and control of the properties by virtue of the

mortgage foreclosure proceeding, properly

exercised its discretion in invoking its

injunctive powers to protect its jurisdiction.

The questions presented therefore are:

1. Whether the Court of

Appeals’ holding that the Illinois

state courts never acquired

jurisdiction over certain

properties pursuant to the state

court's appointment of the Federal

Savings and Loan Insurance

Corporation as receiver of those

g properties is contrary to the

provisions of Section 9, Article

VI, Constitution of Illinois 1970,

the statutes of the State of

Illinois, and the decisional law

of this Court and the Supreme

Court of the State of Illinois.

2. Whether this Court should

exercise its supervisory authority

and reverse the District Court's

injunction, sanctioned by the

Court of Appeals, which

constitutes an improper intrusion

upon the powers of the Courts of

the State of Illinois to police

the integrity of its officers.

TABLE OF CONTENTS

Questions Presented for Review

Table of Contents

Table of Authorities

Opinions Below

Jurisdiction

Constitutional Provisions Involved

Statutes Involved

Statement of The Case

Argument |

Appendix A (Opinion of Court of Appeals)

Appendix B (Order of Court of Appeals

Denying Rehearing)

\Appendix C (Opinion of District Court)

Appendix D (Opinion of Illinois Appellate

Court - 1976)

Appendix E (Opinion of Illinois Appellate

Court - 1979)

TABLE OF AUTHORITIES

American Surety v. Baldwin, 287 U.S. 156

Anderson v. Macek, 350 Ill. 135

City of Chicago v. Hart Building Corp., 116

IIT. App.2d 39

Cicero v. Otgaati. 410 F.Supp. 1080

Cousing v. Wigoda, 463 F.2d 603 (7th Cir. 1972)

Donovan v. Dallas, 377 U.S. 408

Duke v. State of Texas, 477 F.2d 244 (5th

Cir. 1973)

Firebaugh v. McGovern, 404 Ill. 143

Goodrich v. Supreme Court of State of

south Dakota, SIT F.2d 316 (Sth cir. 1975)

Jackson v. Smith, 254 U.S. 586

Juidice v. Vail, 430 U.S. 327

Knaus _v. Chicago Title and Trust oe

365 Ill. 588

Kneisel v. Ursus Motor Co. 316 2) Ome

Miller v. Rowan, 251 Ill. 344

Palmer v. Texas, 212 U.S. 118

People v. Berof, 367 Ill. 454

The People v. Leavens, 288 Ill. 447

People v. Leonard, 279 Ill. 159

Lkcea Sel

People v. White,- 334 Ill. 465

reople v. Western Tire and Auto Stores, Inc.,

People v. Zimmer, 238 I1l. 607

Phelan v. Middlestates Oil Corp., 154 F.2d

r. 1946)

Sherman v. The People, 210 Ill. 552

Princess Lida v. Thomspon, 305 U.S. 456

U.S. v. Maragas, 390 F.2d 88 (6th Cir. 1968)

Wilson Bros. v. Haege, 347 I1l. 140

U.S. Sup. Ct. Rule 19 1(b), 28 U.S.C. Rule 19

Ill. Const. 1970, Art. VI, §9

28 U.S.C. §1738

Ill.Rev.Stat. 1971, Ch. 69, pars. 1, 3

14 I.L.P. Courts §16

| OPINIONS BELOW

The opinion of the Court of Appeals is

reported at 603 F.2d 515 (1980), Appendix A,

infra. The opinion of the United States

District Court for*the Southern District of

Illinois is reported at 482 F.Supp. 77 (1979),

Appendix C, infra. The opinions of the

Appellate Court of Illinois, Fifth Judicial

District, are reported at 42 I1l1.App.3d 697, l

I11.Dec. 417, 356 N.E.2d 605 (1976), Appendix

D, infra, and 76 111.App.3d 978, 32 I11.Dec.

411, 395 N.E.2d 641 (1979), Appendix E, infra.

JURISDICTION

The judgment of the United States Court

of Appeals for the Seventh Circuit was entered

‘on September 12, 1980. Appendix A, infra. A

timely-filed Petition for Rehearing and

Suggestion for Rehearing En Banc was denied by

order filed on December 23, 1980. Appendix B,

infra. This Petition for Certiorari was filed

less than 90 days from the date of the order

denying the Petition for Rehearing and

Suggestion for Rehearing En Banc. The

jurisdiction of the Court is invoked under 28

U.S:C. 1254(1).

CONSTITUTIONAL PROVISIONS INVOLVED

Constitution of the United States,

Article IV, §1:

Section i. Full Faith and Credit

shall be given in each State to the

public Acts, Records, and judicial

Proceedings of every other State. And

the Congress may by general Laws

prescribe the Manner tn which such Acts,

Records and Proceedings shall be proved,

and the Effect thereof,

Constitution of Illinois 1970,

Article VI, §9:

Circuit Courts shall have original

jurisdiction of all justiciable

matters except when the Supreme

Court has original and exclusive

jurisdiction relating to redistrict-

ing of the General Assembly and to the

ability of the Governor to serve or

resume office, Circuit Courts shall

have such power to review administrative

action as provided by law,

STATUTES INVOLVED

28 U.S.C., Sec, 1738:

"Such Acts, records and

judicial proceedings or copies

thereof, so authenticated, shall

have the same full faith and credit

in every court within the United

States and its Territories and

Possessions as they have by law or

usage in the courts of such State,

Territory or Possession from which

they are taken,"

Tll.Rev.Stat, 1971, Ch, 69, pars, 1,

§l1. The circuit courts shall

have power to grant writs of

injunction,

kkk

§3. No court or judge shall

grant a preliminary injunction

without previous notice of the time

and place of the application having

been given the adverse party unless

it clearly appears, from specific

facts shown by the verified

complaint or by affidavit

accompanying the same, that

immediate and irreparable injury,

loss or damage will result to the

applicant before notice can be

served and a hearing had thereon.

STATEMENT OF THE CASE

On April 11, 1972, Illini Federal Savings

and Loan Association and PSL Realty Co., Inc.,

its wholly owned subsidiary, obtained a

preliminary injunction against James C. Green

and Granite Investment Company. Granite

Investment Company is a limited partnership of

which James C. Green is the principal. Illini

Federal Savings and Loan Association is the

successor to Piasa Federal Savings and Loan

Association pursuant to a supervisory merger

procured by the Federal Savings and Loan

Insurance Corporation in 1970. PSL Realty is

a corporation originally formed by Piasa to

hold legal title to certain properties

formerly owned by Green and subject to

mortgage loans to Piasa. The events leading

up to Illini/PSL's petition for injunctive

relief are set forth in the Court of Appeals'

opinion (Appendix A, infra). Although some of

the facts in the Court of Appeals’ opinion are

disputed, it is undisputed that the Federal

Savings and Loan Association's involvement in

the litigation which ultimately led to the

petition now before this Court arose as a

result of FSLIC's relationship with Illini

under a Contribution Agreement entered into

between FSLIC and Illini pursuant to the

Piasa-Illini merger in 1970 and the subsequent

appointment of FSLIC as state court receiver

for certain properties which had become the

subject of dispute between Illini-PSL and

Granite Investment and Green.

Granite and Green appealed from the order

of the Circuit Court of Madison County,

Illinois, granting the preliminary injunction.

On July 23, 1976, the Appellate Court of

Illinois, Fifth District, filed.an opinion

stating "Temporary injunction and receivership

dissolved." (Appendix D, infra). On August

13, 1976, PSL and Illini filed a petition for

rehearing in the Appellate Court. On August

18, 1976, FSLIC purchased first lien mortgages

on all properties of which it was receiver

pursuant to the state circuit court's order,

and on August 26, 1976, without notice to

Granite or Green, the trial court or the

Appellate Court, FSLIC filed a mortgage

foreclosure action in the United States

District Court for the Southern District of

Illinois on all mortgages of which it was

receiver under the circuit court order.

(Appendix E, infra). The Appellate Court's

mandate reinvesting jurisdiction in the

circuit court did not issue until October 13,

1976. (Appendix E, infra, Bi

Upon appeal after remand to the Circuit

Court of Madison County, Illinois, the

‘s

Appellate Court, when made aware of the fact

that FSLIC had proceeded with mortgage

foreclosure proceedings at a time when it had

not been discharged as the state court's

receiver for the properties and of its actions

in pursuit of the foreclosure action, ordered

FSLIC to "... stay any further action of any

nature whatsoever in regard to the 48

mortgages, including, but not limited to, the

prosecution of any action to foreclosure (sic)

upon the 48 mortgages in Federal District

Court for the Southern District of Illinois,

or any other court ..."". The Appellate Court

also ordered certain other prohibitions

against FSLIC. (Appendix E, infra,).

The proceedings in the United States

District Court are set forth in its opinion

(Appendix C). For purposes of this petition,

it is sufficient to note that the District

Court considered that an injunction of the

state court proceeding was required to

effectuate the District Court's jurisdiction

’%

(Appendix C, infra,). The District Court's

order for injunction was made permanent on

October 11, 1979.

Granite, Green, Howard Steele

Construction Co., Inc., and the justices of

the Illinois state courts appealed to the

United States Court of Appeals for the Seventh

Circuit pursuant to 128 U.S.C., §1291(a) (1),

raising issues concerning the District Court's

failure to give full faith and credit to the

state courts’ decisions, the District Court's

intrusion upon the power of the state courts

to police the integrity of its own officers,

the matter of jurirdiction over the District

Court's jurisdiction over the property and the

parties, and whether FSLIC could unilaterally

confer jurisdiction on the federal court after

having put its rights in issue in the state

court. The Court of Appeals for the Seventh

Circuit affirmed the District Court on the

ground that the state courts never acquired

jurisdiction in the first instance and,

therefore, the Madison County, Illinois

Circuit Court's order appointing FSLIC

receiver was void ab initio. Petitions for

rehearing were denied and this petition

follows.

BASIS OF FEDERAL JURISDICTION

IN THE COURT OF FIRST INSTANCE

12 U.S.C. §1730(k) (1)

ARGUMENT

By its holding that the Illinois state

courts never acquired jurisdiction of the

properties in this case the Court of Appeals

has avoided reaching serious questions

concerning the District Court's failure to

give full faith and credit to the decisions

of the Illinois state courts and has like-

wise avoided equally serious questions ccri-

cerning the District Court's intrusion upon

the powers of the state courts to police the

integrity of its officers. This Court should

reverse the Court of Appeals' holding on the

jurisdictional question and reverse the

District Court's order under this Court's

supervisory powers.

ARGUMENT

The Court of Appeals' holding that the

Illinois courts never acquired jurisdiction is

contrary to constitutional, Statutory and

decisional law.

The Court of Appeals' opinion recognizes

that because the Federal Savings and Loan

Insurance Corporation has not yet been

discharged as receiver, under the general law

of receivership, the receivership property

involved in this case would remain with the

state court to this day but for the Court of

Appeals' conclusion that the Circuit Court of

Madison County, Illinois failed to acquire

possession of the properties in the first

instance. (Appendix A). Relying upon

Firebaugh v. McGovern, 404 Ill. 143, 88 N.E.2d

473 (1949), however, the Court of Appeals

concluded that the Circuit Court of Madison

County, Illinois, lacked jurisdiction to

adjudicate the "principal matter", and

therefore the Circuit Court's order purporting

to grant the ancillary relief of temporary

receivership was beyond its jurisdiction and

as such was void ab initio (Appendix A,

infra).

Petitioner respectfully submits that this

conclusion is in error.

The issue upon which the Court of

Appeals' opinion turned, i.e. whether or not

the 1972 order of the Madison County Circuit

Court creating the receivership was in excess

of the jurisdiction of that court and,

therefore, void ab initio, was never

suggested, briefed or argued by any party to

that action nor was such a ruling issued by

the District Court. The FSLIC has always

maintained that the state court had

jurisdiction. And heretofore it has argued

only that the state court lost jurisdiction in

1976 at which time, it argued below, the

Federal Court was free to assume jurisdiction.

The opinion of the Court of Appeals that

the 1972 receivership was void ab initio is

directly contrary to a year earlier judgment

made by the Appellate Court for the Fifth

District of the State of Illinois which under

the full faith and credit provisions of the

constitution is binding upon the Federal

Courts. |

The Appellate Court found, on September

13, 1979:

"While receiver of the extensive

properties involved in this case the

receiver purchased mortgages on the

properties and filed suit to foreclose

them. This at a time when the receiver

was the legal custodian of the property

tor the court. A receiver is an officer

or the court, and his possession is the

ssession of the court.” (Emphasis

za d.) (76 Ill. App.3d 978, 995; 395

adde

N.E.2d 641, 654)

In the Order issued by Justice Jones on

September 26, 1979, the Appellate Court

reiterated:

"This court does, however, have

jurisdiction over the parties and over

the subject matter of this cause of

action as described in the September 13,

1979 opinion.'' (Emphasis added.) (76

sor 978, 1002; 395 N.E.2d 641,

59)

In its supplemental opinion filed on

October 2, 1979, the Appellate Court stated:

"At the time of the purchase and

commencement of the foreclosure action,

this court had full jurisdiction of the

entirety of the action, part, parcel,

parties and receiver." (Emphasis

added.) (76 I11.App.3d 978, 1000;

395 N.E.2d 641, 658)

The Court of Appeals, at page 521 of its

Opinion, incorrectly interpreted the

Appellate Court's rulings:

"Since the Circuit Court of

Madison County was found to be

without jurisdiction to award the

ancillary remedy of receivership,

its order placing the properties

in receivership and appointing

FSLIC as receiver was void. Since

the state court was not a court of

competent jurisdiction exercising

control over the properties which

would preclude the institution of

an action concerning the properties

in Federal Court, the District

Court was free to assert its

exclusive jurisdiction over the

properties in the foreclosure suit,

and appropriately did so by its

order effective October 13, 1976."

In point of fact, no court ever had found

that the Circuit Court of Madison County "was

without jurisdiction", prior to the opinion

filed by the Court of Appeals. No such lan-

guage appears in the Appellate Court opinions.

To be sure, the order establishing the re-

ceivership was found to be "ancillary", but

the Illinois Appellate Court did not find this

to be a void ab initio order issued by a court

with no jurisdiction. Nowhere does it appear

that the Illinois Appellate Court "found the

Circuit Court of Madison County to be with-

out jurisdiction" or that the order appoint-

ing the FSLIC as receiver was void. Instead,

it found possession to be in the state

court and that it had and continues to have

jurisdiction.

28 U.S.C., Sec. 1738, states:

"Such Acts, records and

judicial proceedings or copies

thereof, so authenticated, shall

have the same full faith and

credit in every court within

the United States and its

Territories and Possessions

as they have by law or usage

in the courts of such State,

Tecritory or Possession from

which they are taken."

Without question, a long line of cases

requires the Federal Courts to give full

credit to the Appellate Court's prior find-

ings of September 13, 1979 (reaffirmed on

September 26 and on October 2, 1979) that

the state court had possession of the

property; that the receiver was its "legal

custodian"; and that the state court had

"jurisdiction of the entirety of the action,

part, parcel, parties and receiver".

In American Surety v. Baldwin, 287 U.S.

156, 77 L.Ed, 231, 237, the Court said:

"The full faith and credit

clause, together with the vie, PP

lation pursuant thereto, applies

to judicial proceedings of a

state court drawn in question in

an independent proceeding in the

federal courts. Act of May 26,

L970, chap. 11, ZT Stat. ac i. 422;

Act of March 27, 1804, chap. 56,

§2, 2 Stat. at L. 299; Rev. Stat

§905, U.S.C. title 28, §687; Mills

v. Duryee, 7 Cranch, 481, 485,

. ed. 411, 413; Mutual L. Ins.

Co. v. Harris, 97 U. S. SII, 336,

. ed. , 962. Compare

Bradford Electric Light Co. v.

planer 286 U.S rs: 155, 76

ed. 1026, 1032, 52 S. Ct. 571.

The principles of res judicata ‘)

apply to questions of jurisdic-

tion as well as to other issues.

Baldwin v. Iowa State Travelin

Men's Aso., 283 U.S. 522, 75'L.

ed. 1244, 51S. Ct. 517. They

are given effect even where the

proceeding in the federal court

is to enjoin the enforcement of

a state judgment, if the issue

was made and open to litigation

in the original action, or was

determined in an independent

proceeding in the state courts.

See Marshall v. Holmes, 141 U.S.

589, 596, 35 L. ed. 870, 872,

12 S. Ct. 62; Fidelity & D. Co.

v. Gaston, Williams & Wigmore

es : ; e

principles of res judicata may

apply, although the proceeding

was begun by motion. Thus, a

decision in a proceeding begun

by motion to set aside a judg-

ment for want of jurisdiction

is, under Idaho law, res judicata,

and precludes a suit to enjoin

enforcement of the judgment.

Bernhard v. Idaho Bank & T. Co.,

aho, . ac. n.

Cas. 1913E, 120. Since the

decision would formally consti-

tute res judicata in the courts

of the state; since it in fact

satisfies the requirements of

prior adjudication; and since

the constitutional issue as to

jurisdiction might have been

presented to the state Supreme

Court and reviewed here, the

decision is a bar to the present suit

insofar as it seeks to enjoin the

enforcement of the judgment for want

of jurisdiction."

This case, we believe, controls. The

rule enunciated there has always been the

law. The Court of Appeals' opinion which

ignores directly contrary state court

rulings on issues between identical parties

is in opposition to a lie of cases long in

existence and consistently followed.

In Palmer v. Texas, 212 U.S. 118, 53

L.Ed. 435, 29 S.Ct. 230, the court said at

53 L.Ed. 441:

"The Texas courts have the

right to construe their own

statutes, and their judgment in

such matters is conclusive upon

the Federal Courts."

See also Jackson v. Smith, 254 U.S.

65 L.Ed. 418,

Granite had, in 1976, filed a

petition seeking to have the receiver

punished for its contemptuous actions in

the trial court in purchasing the

mortgages and in filing the foreclosure

action thereon. The trial court refused

to consider the petitions, saying that it

had no jurisdiction so to do under the

mandate of the Appellate Court which

remanded with directions. Upon a sub-

sequent appeal to the Appellate Court,

that court found the actions of the

receiver wrongful and in blistering

language termed the conduct "reprehensible",

That it should be disciplined for such

action is obvious and clear,

Granite sought a contempt finding

in the Appellate Court on the 28th. day

of September, 1979. That court said, in

its supplementary opinion issued that

date: 3

"At the September 28, 1979, re-

hearing the defendants filed with this

court a petition for an order of

court finding the receiver and the

plaintiff in contempt of court and

for assessment of a fine of

$10,000,000.00 as punishment

therefor. We decline to consider

this petition at this time. If

appropriate it may be refiled in

the Circuit Court upon issuance

of the mandate of this court."

The court did issue that mandate

but it was recalled by the Illinois

Supreme Court and petition for leave to

appeal by FSLIC and Illini-PSL was

later allowed. Should the Illinois

Supreme Court affirm, the parties,

including Granite, are nevertheless

forever barred from proceeding with a

contempt action against the receiver by

the District Court order of October 2,

1979. This order, if allowed to remain

in effect, will completely immunize and

insulate the receiver from any disciplin-

ary proceedings, whatsoever, on account

of its breach of trust and loyality

committed in the summer of 1976 and con-

tinuing from that date to the present

time. That the District Court's order

has interfered with the integrity of the

state court judicial process is

abundantly clear.

This Court, in a 1977 opinion,

Juidice v. Vail, 430 U.S. 327, 51 L.Ed.

2d 376, 97 S.Ct. 1211, said in dis-

cussing Younger v. Harris, 401 U.S. 37:

"We now hold, however, that the

principles of Younger and Huffman

are not confined solely to the

types of state actions which were

sought to be enjoined in those cases.

As we emphasize in Huffman, the

"more vital consideration” behind

-the Younger doctrine of non

intervention lay not in the fact

that the state criminal process

was involved but rather in 'the

notion of comity, that is a proper

respect for state functions, a

recognition of the fact that the

entire country is made up of a

union of separate state governments,

and a continuance of the belief that

the national government will serve

best if the states and their

institutions are left free to perform

their separate functions in their

separate ways.’ ..."

And at page 51 L.Ed. 384, the court

said:

"But the federal court cannot of

course, interfere in a case where

the proceedings were already pending

in a state court. ...”"

"These principles apply to a

case in which the State's contempt

process is involved. A State's

interest in the contempt process

through which it vindicates the

regular operation of its judicial

system, so long as that system

itself affords the opportunity to

pursue Federal claims within it,

is surely an important interest.

Perhaps it is not quite as important

as is the State's interest in the

enforcement of its criminal laws.

Younger, Supra, or even its interest

in the maintenance of a quasi-

criminal proceeding such as was in-

volved in Huffman, Supra. But we

think it is of sufficiently great

import as to require application of

the principles of those cases.

The contempt power lies at the core

of the administration of a State's

judicial system, ... Whether

disobedience of a court-sanctioned

subpoena, and the resulting

process leading to a finding of

contempt of court, is labeled

civil, quasi-criminal, or criminal

in nature, we think the salient

fact is that Federal court inter-

ference with the State's contempt

process is ‘an offense to the

State's interest’... likely to be

every bit as great as it would be

were this a criminal proceeding. '

Moreover, such interference with

the contempt process not only

"unduly interferes with the

legitimate activities of the

State’ ... but also ‘can readily

be interpreted as ‘reflecting

negatively upon the State Court's

ability to enforce constitutional

principles."

In Cicero v. Olgiati, 410 F.Supp.

1080 (U.S. Ct. S.D. N.Y., 1976), the

court in analyzing Younger v. Harris and

its meaning from a comity aspect said

that:

"The Supreme Court held that

absent extraordinary circumstances,

deference to the federal system

of government, particularily respect

for state judiciary's ability to

determine federal issues arising

before it, bars a federal district

court from enjoining a pending

state criminal prosecution.

"The mandate to abstain for

reasons. of comity has also been

extended to pending civil proceed-

ings where the state is a party to

a pending and uncompleted proceed-

ing which is "both in said of and

closely related to criminal

Statutes’ and ‘akin to a criminal

prosecution',"

The Court further said:

‘Noting that the Supreme Court

characterized disbarment proceed-

ings as 'quasi-criminal' in nature

--. the court emphasized that the

interest of the state court in

policing the integrity of its

officers is ‘at least as great as

7 >

the interest of the state in Huffman

v. Pursue, because state courts are

the only bodies which ‘can impose

sanctions upon those admitted to

practice in its courts."

In Goodrich v. Supreme Court of

State of South Dakota, 511 F.2d 316

(8th Cir. 1975), the court affirmed the

District Court's denial of an injunction

in which the petitioner sought to prevent

the State of South Dakota from conducting

a disbarment proceeding. The court held

there:

"Before exercising its equit-

able power to enjoin the state pro-

ceeding, the District Court must

find the plaintiff threatened

with great and immediate irrepar-

able injury that cannot be eliminated

by his defense to the state proceed-

ing. Younger v. Harris, 41 U.S. 37."

In Duke v. State of Texas, 477 F.2d

244 (5th Cir. 1973), the court, when

asked to enjoin a proceeding in the state

court, said, at page 248:

"We iterate that the Younger

principles of equity, comity and

federalism apply to federal inter-

vention in state ‘civil’ as well

as 'criminal' proceedings, even

where the exercise of First Amend-

ment rights is involved; two of

our sister Circuits have so held,

Cousins v. Wigoda, 7 Cir. 1972,

463 F.2d 603, application for stay

denied, 409 U.S. 1201, 92 S.Ct.

2610, 34 L.Ed.2d 15 (Rehnquist,

Circuit Justice); Lynch v. Snepp,

4 Cir. 1973, 472 Pod 769. In

Younger, the Supreme Court made it

clear ‘that the normal thing to do

when federal courts are asked to

enjoin pending proceedings in state

courts is not to issue such

injunctions.’ 401 U.S. at 45,

91 S.Ct. at 751, 27 L.Ed.2d at 676.

This interdiction of federal

interference in state judicial

proceedings is based on federalism

concepts of comity and respect for

state functions, op. cit. 401 U.S.

at 44, 91 S.Ct. at 750, 27 L.Ed.2d

at 675-676. In order to overcome

it two express pre-conditions must

be shown before relief may be grant-

ed to a federal plaintiff. First,

the moving party must demonstrate

that he will suffer irreparable

injury if the federal court stays

its hand, and second the moving

party must demonstrate that he

does not have an adequate remedy at

law in the state courts, op. cit.

401 U.S. at 43-44, 91 S.Ct. at

750, 27 L.Ed.2d at 675."

In a Seventh Circuit case,

decided in 1972, the court, in Cousins v.

Wigoda, 563 F.2d 603, in vacating a

District Court injunction said at page

606:

"Although a federal court has

power to grant an injunction to

stay litigation in a state court,

--.- principles of equity, comity

and federalism dictate restraint

in the responsible exercise of

that power."

As the Illinois Appellate Court has

found and reaffirmed, the FSLIC has committ-

ed a grievous wrong and continuing harm

upon. these defendants. The Appellate

Court has made certain orders which, if

that court is to have any integrity

whatsoever, must be obeyed by its own

receiver, the custodian of the property

for the State of Illinois. The receiver

is contumaciously defying the state court

and has sought refuge in the U. S. District

Court. That court has granted that refuge

and made the injunction permanent on

the 1lth of October, 1979. The Court of

°°.

Appeals has sanctioned the injunction

by its erroneous holding on the jurisdic-

tional question. If this Court does not

dissolve that injunction, the FSLIC will

have successfully thwarted the Appellate

Court of the State of Illinois and will

have successfully breached its duty as

receiver, in effect, thumbing its nose

at the courts of Illinois. The U. S.

District Court has undertaken to

determine, without hearing, that the

FSLIC is not guilty of the wrongful,

reprehensible conduct as charged by the

Appellate Court. It seeks to enter a

permanent "not guilty" order in conformance

with its own finding. We urge this court

to protect the Appellate Court of Illinois,

the other courts, and attorneys similarly

enjoined, by striking down this injunction.

The order which prevents Granite and its

attorneys from resorting to legitimate

judicial processes of the State of

Ellinois is improper. Clearly, the

interference between the Circuit Court

of Madison County and its receiver is

improper. The disregard for the

specific findings of the Appellate

Court of the State of Illinois is

improper. This Court should exercise

its supervisory power to prevent the

United States District Court from

exonerating FSLIC of its wrongful acts

as state court receiver.

CONCLUSION

For the foregoing reasons, a Writ

of Certiorari should issue to review the

judgment and opinion of the United States

Court of Appeals for the Seventh Circuit.

March 23, 1981

Respectfully submitted,

REX CARR

COHN, CARR, KOREIN, KUNIN,

SCHLICHTER & BRENNAN

412 Missouri Avenue

East St. Louis, Illinois

62201

(618) 274-0434

Attorneys for Petitioner

NO.

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1980

GRANITE INVESTMENT COMPANY, a Limited Partner-

ship; JAMES C. GREEN; CAPITOL INDEMNITY CORPOR-

ATION, a corporation; and HOWARD STEELE CON-

STRUCTION ©O.,

Defendants-Petitioners, vs.

FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION,

an agency of the United States of America,

Plaintiff-Respondent, vs.

PSL REALTY ©O., a corporation, et al,

Defendants-Respondents ,

THE HON. CHARLES E. JONES; THE HON. JOHN M.

KARNES; THE HON. GEORGE W. KASSERMAN, JR.; and

all other JUSTICES OF THE ILLINOIS APPELLATE

COURT FOR THE FIFTH DISTRICT; THE HON. VICTOR

J. MOSELE, and all JUDGES OF THE THIRD JUDICIAL

CIRCUIT OF ILLINOIS.

. Respondents.

ENTRY OF APPEARANCE

Now comes Rex Carr, a member of the Bar of

this Court, entering his appearance as counsel

for petitioners Granite Investment Company and

James C. Green in the above captioned cause.

412 Missouri Avenue

East St. Louis, Illinois 62201

Attomey for Petitioners

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1980

GRANITE INVESTMENT COMPANY, a Limited Partner-

; JAMES C. GREEN; CAPITOL INDEMNITY CORPOR-

» & corporation; and HOWARD STEELE OON-

STRUCTION ©O.,

Defendants-Petitioners, vs.

FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION,

an agency of the United States of America,

Plaintiff-Respondent, vs.

PSL REALTY ©O., a corporation, et al,

Respondents

AFFIDAVIT

Rex Carr, a member of the Bar of this

Court, being first duly sworn, deposes and states

that he has knowledge that forty (40) copies of

a Petition for Writ of Certiorari to the United

States Court of Appeals for the Seventh Circuit

in the above cause were enclosed in an envelope

addressed to the Clerk of the Supreme Court of

the United States, Supreme Court Buil , Wash-

412 Missouri Avenue

East St. Louis, Illinois 62201

Attorney for Petitioners

SUBSCRIBED and SWORN TO before me this 23rd

day of March, 1981.

a ee

tee

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1980

GRANITE INVESTMENT COMPANY, a Limited

Partnership; JAMES C, GREEN; CAPITOL

INDEMNITY CORPORATION, a corporation;

and HOWARD STEELE CONSTRUCTION CO.,

Defendants-Petitioners, vs.

FEDERAL SAVINGS AND LOAN INSURANCE

CORPORATION, an agency of the United

States of America,

Plaintiff-Respondent, vs.

PSL REALTY CO., a corporation, et al,

Defendants-Respondents,

THE HONORABLE CHARLES E. JONES; THE HON.

JOHN M. KARNES; THE HON. GEORGE W.

KASSERMAN, JR.; and all other JUSTICES

OF THE ILLINOIS APPELLATE COURT FOR THE

FIFTH DISTRICT; THE HON. VICTOR J. MOSELE,

and all JUDGES OF THE THIRD JUDICIAL

CIRCUIT OF ILLINOIS,

Respondents,

CERTIFICATE OF SERVICE

Rex Carr, a member of the Bar of

this Court, hereby certifies that three

copies of a Petition for Writ of

Certiorari to the United States Court of

Appeals for the Seventh Judicial Circuit

was served on the parties named below by

depositing the same in the United States

Mail at St. Louis, Missouri on March 4a;

1981, in envelopes plainly addressed as

shown below, with prepaid first class

postage affixed thereto;

Solicitor General of the United States

Department of Justice

Washington, D.C. 20530

Mr. W. Stanley Walch

Thompson & Mitchell

ONe Mercantile Center, Suite 3400

St. Louis, Missouri 63101

Attorneys for Respondent, PSL Realty Co,

Mr. Robert W. Patterson

Hopkins, Sutter, Mulroy, Davis & Cromartic

One First National Plaza, Suite 5200

Chicago, Illinois 60603

Attorneys for Respondent, Federal Savings

and Loan Insurance Corporation.

Hon. Tyrone C. Fahner

Attorney General

State of Illinois

300 South Second Street

Springfield, Illinois 62706

Attorney for the Justice of the

Illinois Appellate Court for

the Fifth District and all

Judges of the Third Judicial

Circuit of Illinois.

The above constitutes service on

counsel for all parties known to be

interested in this cause.

sieeve 7

COHN, CARR, KOREIN, KUNIN,

SCHLICHTER & BRENNAN

412 Missouri Avenue

East St. Louis, Il. 62201

(618) 274-0434

APPENDICES

APPENDIX A

In the

Guited States Court of Appeals

For the Seventh Circuit

Nos. 79-2134, 79-2211, 79-2212 and 79-2303,

Frpera, Savines Anp Loan Insurance CorRPORATION, an

_ agency of the United States of America,

Plaintiff-Appellee,

PSL Rezaury Co., a corporation, et al.,

Defendants-A ppellees,

Grantrz Investment Company, a limited partnership;

James C. Green; Carrrou Inpemmiry CoRPORATION, @ cor-

poration; and Howarp Srezte Construction Co.,

Defendants-Appellants,

Te Hon. Canes E. Jonzs; Toe Hon. Joun M. KarNeEs;

Tae How. Gzorce W. Kasszrnman, Jz.; and all other Jus-

Ticks Or THe Ittiom Appettate Court For Tae Fira

District; Tue Hon. Victor J. Moszzz, and all Jupczs Or

Tae Tamp Jupicun Cmourr Or Inuion,

Appellants.

Interlocutory Appeal from the United States District Court

for the Southern District of Illinois—No. A-CIV-76-79,

J. Waldo Ackerman, Judge.

ARGUED Jawvany 25, 1980—Dzcwep Szpremser 12, 1980

Before Swrczet, Cummrnes and Baus, Circuit Judges.

Bauer, Circuit Judge. These consolidated appeals pre-

sent for review a decade of litigation, whose odyssean

2 Nos. 79-2134, 79-2211, 79-2212 & 79-2303

journey through the various state and federal courts sit-

ting in Illinois was ultimately destined on a collision course

between the two court systems and which achieved that

destiny in a rather dramatic interim finale when, on Octo-

ber 2, 1979, the United States District Court for the South-

ern District of Illinois invoked its injunctive powers to

enjoin the Illinois state courts from furthe interference

with its jurisdiction over certain property subject to a

shy foreclosure action instituted in the district court

nearly four years earlier. Our jurisdiction is founded on

28 U.S.C. § 1292(a)(1), permitting an interlocutory appeal

as a matter of right from the granting of an injunction. The

sole issue before us is whether the district court erred in

issuing the injunction. We affirm.

Although the final chapter of this case remains to be

written, its history to date stands as a compelling testi-

monial to the maximum utilization of the American juris-

aD ey system, embracing as it does both the state and

et trial and appellate courts as. — as eB federal

tey courts. For our purposes, the story begins in

the oui 1960’s when a pallens James C. Green entered

into a debtor-creditor re tionship with the Piasa Federal

Savings-and Loan Association (‘‘Piasa’’), in which first

lien mortgages were executed in favor of Piasa to finance

the development and consiruction by Green and his asso-

ciates of several apartment complexes situated in Madison,

Clinton, St. Clair, and Sangamon Counties, Illinois. Finan-

cial difficulties were encountered in the completion and op-

eration of the units and restructuring of the debt and pro-

vision of additional construction funds became necessary.

To that end, the parties entered into a lengthy and detailed

agreement, termed the Base Agreement, on August 1, 1970.

Under its terms, title to the Pm rties was conveyed to

a newly formed corporation, PSL Realty Company, wholly:

owned by Piasa. PSL Realty Pg ge (**PSL’’) then en-

tered into contracts for deed to the same properties with

Granite Investment Company (‘*Granite’’), a limited part-

nership of which James Green was the principal. Granite

was to manage the properties until such time as the pro-

Nos. 79-2134, 79-2211, 79-2212 & 79-2303 3

vided payments were made and the other conditions im-

oo by the contracts for deed were fulfilled, upon which

L would reconvey the properties to Granite. During this

time PSL had an absolute right to all income generated by

the properties. Piasa continued to hold the first lien mo

gages as mortgagee. !

The Granite management arrangement was not success-

ful. The properties continued to — grave financial

difficulties and in 1971, the Fede Savings and Loan In-

surance Corporation (‘‘FSLIC’’) determined that Piasa

was on the verge of insolvency. Pursuant to its es

under Section (f) of the National Housi ct, 12

U.S.C. § 1729(f), FSLIC procured the merger of Piasa into

the Illini Federal Savings and Loan Association (‘*Tllini’’).

gsc the — of the frye ae: ee owner of

mo orty-eight in number, upon the apartment

units and a residence of James Green. Illini also became

the sole owner of PSL which, under the Base Agreement,

was the holder of legal title to the properties, subject to

the contracts for, deed with Granite, and entitled to the

gross rentals from the operation of the units. At the time

of the merger, the Green loans were in the area of $14 mil-

lion and were seriously delinquent. As the principal in-

ducement to Illini, FSLIC Illini entered into a Con-

tribution ent, which provided that FSLIC would

os ini for —_— ype 9 te “ a

wi e non-earning assets it would acquire from Piasa.

The : ae be granted ee the option to —

nate subsidy purchasing the non-earning Piasa

assets from Illini at book value.

After the merger, the economic situation * gegiaemncen to

the financial management and operation of the properties

continued to deteriorate. Granite remained manager of

the properties, but the units were incurring losses of ap-

proximately $30,000 per month. Mo delinquencies

continued to mount, and matters reached a climax in March

1972. On March 27, PSL and Illini demanded the books

and records from Granite, but they were refused. On April

11, 1972, PSL and Illini filed a four count complaint in

the Circuit Court of Madison pps 4 Illinois seeking an

injunction requiring Granite and James Green to turn

’%

4 Nos. 79-2134, 79-2211, 79-2212 & 79-2303

over the books and records of Granite for examination, to

refrain from collecting further rents, and to cease inter-

ference with PSL’s collection of the rents. A temporary

restraining order was issued to that effect upon posting

of a $50, sas Ream waived. On April 28, 1972, the

trial court denied Granite’s motion to dissolve the tem-

rary injunction and granted the motion of PSL and

filini i to appoint FSLIC, without objection by Granite, as

receiver of a ae e lite. Pursuant to the

powers accorded to it by the receivership order, FSLIC

esignated Illini as its local agent in the management of

the receivership properties.

On May 23, 1972, Granite and Green commenced an in-

re srs uppeal raster jy ayaa issuance of the injunc-

tion and the appointment of the receiver. The matter was

continued at the request of the parties and was finally

argued to the Illinois Appellate Court for the Fifth Dis-

trict on March 31, 1976. On July 23, 1976 the appellate

court reversed the order appealed from and dissolved the

temporary injunction and receivership on the ground that

these ancillary remedies were inappropriate in the absence

of a complaint stating an underlying cause of action. The

case was remanded to the circuit court solely for an ac-

counting of the income and expenses of the receivership,

for a determination of the distribution of the net income,

and for the award of a fee to the receiver. PSL Realty Co.

st AaTO) Investment Co., 42 Tll. App. 3d 697, 356 N.E.2d

On August 13, 1976, PSL and Illini filed a petition for

rehearing with the appellate court. On August 18, 1976,

FSLIC exercised its contractual right under the Contribu-

tion Agreement to purchase the mort s from Illini at

the agreed price of $10,673,000, in eer to reduce its ob-

ligation to indemnify Illini for losses on Piasa’s non-

Par assets. On August 26, 1976, FSLIC filed a suit in

federal court to foreclose on the notes and mo 8 en-

cumbering the properties, and the subsequent actions of

the federal and state courts precipitated the injunction

order which is the subject matter of the instant appeal.

On August 31, 1976, Granite and Green also petitioned

the Illinois Appellate Court for rehearing of its decision

Nos. 79-2134, 79-2211, 79-2212 & 79-2303 5

dissolving the temporary injunction and receivership, as-

serting, among other claims, that FSLIC had acquired the

mortgages and was prosecuting a foreclosure action in

federal court, and that Granite was entitled to possession

of the properties. On the same day, FSLIC petitioned the

district court for an order authorizing it to remain in pos-

session of the subject real estate as eg go Granite

opposed the petition on the grounds that FSLIC was es-

top “nd i its conduct, from proceeding with foreclosure

an t

SLIC had no legal right to the mort-

gages in light of the state court’s juriediston On Septem-

r 2, 1976, the district court entered an order authorizing

FSLIC to remain in possession of the properties as mort-

gagee, but providing specifically:

That this order shall become operative upon the ef-

fective date of the mandate from the Illinois Appellate

Court for the Fifth District dissolving FSLIC’s status

as receiver of the subject properties.

Order of September 2, 1976 at 2-3. On September 13, 1976,

the Illinois Appellate Court denied the petitions for re-

hearing in a supplemental opinion and the mandate issued

on October 13, 1976. Having decided that it had the power

to and would in fact assume jurisdiction over the properties

of the then-dissolved receivership, the district court pro-

ceeded with the foreclosure action.

The focus of the litigation returned to the Cirenit Court

of Madison County, Illinois. On April 28, 1977, the circuit

court denied the petitions of Granite and Green challenging

the conduct tig PSLIC as se ye sell et an age

approving receiver’s report rey’ ing the

receiver effective retroactively to September 30, 1976.

While the ap by Granite and Green from this order

was pending before the Illinois Appellate Court, the trial

on the merits of the foreclosure case in federal court com-

menced. On November 16, 1978, FSLIC rested its case and

Granite’s motion for a directed verdict was denied. The

trial was subsequently recessed and in the ring of 1979, |

the district court advised the parties that trial would

resume on September 24, 1979. On September 13, 1979, the

Illinois A te Court entered its now controversial

judgment the appeal of the circuit court order dis-

6 Nos. 79-2134, 79-2211, 79-2212 & 79-2303

charging the receiver. The appellate court held that FSLIC

bre its fiduciary duty as a receiver by acquiring the

notes and ees to the property and directed the cir-

cuit court to order FSLIC to credit its receiver’s fee to the

pores and to convey the notes and mo 8 back to

Illini. In all other respects the order appealed from was

affirmed. PSL Realty Co. v. Granite Investment Co., No.

77-125 (September 13, 1979). ?

On September 26, 1979, the district court entered an

order confirming its jurisdiction over the parties and the

possession of the properties and noted that it was com-

lied to do whatever was necessary to protect that juri

iction. On the same day, the Honorable Charles E. Jones,

Justice of the Illinois Appellate Court for the Fifth Dis-

trict, entered an order staying the September 13, 1979

decision of the appellate cou:t. The Order for Stay en-

_ joined FSLIC and PSL from proceeding with the fore-

closure case in federal court and also restrained Illini,

which was not a party to that action and against whom

no relief had been awarded in the September 13, 1979 opin-

ion. The Order for Stay further that any at- |

tempted future transfer of title to the ne by FSLIC

ini, or the current legal title holder, PSL, would be void

and di that this cloud on the titles to the properties

be recorded with the recorder of deeds in the respective

counties in which the properties were situated.

On September 27, 1979, the district court was presented

with the Order for Stay issued by Justice Jones of the Illi-

nois Appellate Court. The district court admonished the

evans to make every effort to avoid an unseemly conflict

tween the two court systems and, upon ’s re

resentation that it would seek a reconsideration of the

Order for Stay by the three justices of the Illinois Appel-

late Court, the trial of the foreclosure action was again

recessed to October 1, 1979.

On Friday, September 28, a special session of the Illi-

peg ogee Court was convened to entertain arguments

on C’s motion to reconsider and vacate the Order for

Stay. Granite gyi a petition to the court asking that

C be held in contempt for ing the mortgages

in 1976 and fined $10,000, farther that it be fined

Nos. 79-2134, 79-2211, 79-2212 & 79-2303 7

$1,000,000 per day if it continued to prosecute the fore-

closure case in federal court. On October 1, the appellate

court issued an order ‘y telephone to the parties which

sustained the injunctio.. against FSLIC, PSL and Illini

from proceeding in federal court, but only until the issu-

ance of the mandate, which was directed to issue imstanter.

Later that day the parties were advised that the court had

decided to revise its order and that the telephone order

was inoperative.

After being advised on October 1 of the pA court’s

refusal to withdraw its Order for Stay, the district court re-

luctantly decided that an injunction pursuant to 28 U.S.C.

§ 2283 was necessary in aid of its jurisdiction. The dis-

trict court found that the actions of the Illinois Appellate

Court interfered with the Jonesy in its possession by

threatening the pre with contempt and by P oncom a

cloud upon the titles to the properties. The court drew upon

the authority of 28 U.S.C. § 2283 and carefully tailored

an injunction to prevent any further interference with its

ive possession. The injunction restrained, among

others, all Justices of the Illinois Appellate Court for the

Fifth District and all Judges of the [linois Circuit Courts

receiving actual notice of the injunction,

... from taking any action, without prior written per-

mission of this court, which in any way, directly or

indirectly, impinges upon, limits or otherwise inter-

feres with the jurisdiction of this court in this cause

vy mma Order and Injunction of October 2, 1979 at

On October 3, 1979 the Illinois Appellate Court entered

an order in the form of a Brg ecg Opinion,’’ sus-

taining the injunction against FSLIC, PSL and Illini, to

be operative after the issuance of the mandate which agai

was ‘lirected to issue instanter. Furthermore, the appellate

court declined to remove its absolute restraint on the alien-

ability of the properties.

On October 3, 1979, the parties to the foreclosure action

appeared before the district court B erigr amy to its order

for the resumption of the trial. At that time, Granite filed

8 Nos. 79-2134, 79-2211, 79-2212 & 79-2303

a notice of ap from the injunction order of the dis-

trict court to this Court. It also filed a motion requesting

a stay of the enforcement of that order and a postpone-

ment of the foreclosure proceedings pending Granite’s ap-

peal. The district court denied the motion for stay, but

allowed Granite until October 5 to obtain a postponement

of the primes. directly from this Court, and ordered

the trial to resume on October 9. On October 5, 1979, we de-

nied Granite’s application for a stay of the proceedings.

On October 9, 1979, Granite filed a debtor’s petition to

reorganize under Chapter 11 of the Bankruptcy Act in the

United States Bankruptcy Court for the Southern Dis-

trict of Illinois. Later that day, Granite advised the dis-

trict court of the petition oa asserted that under Sec-

tion 362(a) of the Act, the foreclosure proceedings were

automatically stayed. The district court recessed the trial

to determine whether or not it had jurisdiction to pro-

ceed with the foreclosure action under the Bankruptcy Act.

On October 11, 1979, the district court convened a sched-

uled hearing to show cause why the temporary injunction

entered on ber 2 should not be made permanent. The

Attorney General for the State of Illinois appeared in be-

half of the Justices of the Illinois Appellate Court for the

Fifth District and the Judges of the Third Judicia)] Cir-

cuit of Illinois, and filed a motion to vacate the order

and gr ong teary of the district court. The district court de-

nied the motion to vacate and, after ei | argument

from the Attorney General and from counsel for ranite,

made the injunction permanent by order entered October

11, 1979. The Attorney General, in behalf of the foregoin

named judges, and counsel for Granite filed notices o

appeal from that order to this Court. These appeals have

been consolidated for decision by this Court.

The sole issue for review in these interlocutory appeals

is whether the district court erred in entering the per-

manent injunction order. Appellate review of an injunction

order is limited to the determination of whether the dis-

trict court abused its discretion in deciding that the cir-

cumstances of the case justified injunctive relief. Doran v.

Nos. 79-2134, 79-2211, 79-2212 & 79-2308 9

Salem Inn, Inc., 422 U.S. 922, 931-932 (1975); Kole v.

Bd. of Ed. of the City of Chicago, 576 F.2d 747, 748 (7th

Cir. 1978). We conclude that the circumstances in this case

fully warranted injunctive relief and that the injunction

entered by the district court constituted the sound exer-

cise of its judicial discretion.

As a preliminary matter, we address the appellant’s

argument that the district court lacked subject matter

jurisdiction in this case since such a finding would be

dispositive of the remaining claims of error asserted on

appeal. The appellants argue that the Illinois Circuit Court

for Madison County acquired jurisdiction over the prop-

erties by its appointment of a receiver on April 28, 1972,

and that, under the common law of receivers, the ea

erties have remained in the exclusive possession of the

state court because the receiver has not been discharged

and the receivership i oe has not been returned to

the original owner or to another party pursuant to court

order. Accordingly, the appellants contend that the district

court was incapable of obtaining exclusive jurisdiction over

the properties in the foreclosure action and ‘was therefore

without power to enter an 7s ong in aid of jurisdiction

it never acquired. The appellees, also in reliance on the

law of receivers as well as the opinions of the Illinois Ap-

pellate Court in this case, contend that the state court’s

control over the properties was surrendered no later than

October 13, 1976, the date the mandate of the Illinois A

pellate Cory dissolving the receivership was filed in the

circuit vou... With the dissolution of the receivership on

October 13, the appellees argue that the district court prop-

erly acquired | rigs over the res by its order effec-

tive on that date, and that what remained in the state

court was an exclusively in personam proceeding based on

that court’s residual jurisdiction over its receiver to re-

quire an accounting.

As a general rule, wher a court of competent jurisdic-

tion has, by appropriate proceedings, taken property into

its possession in receivership and appointed a receiver,

the property is in custodia legis and is thereby withdrawn

from the jurisdiction of all other courts. The receiver is

an officer of the court and subject to its orders in relation

10 Nos. 79-2134, 79-2211, 79-2212 & 79-2303

to the property for which he is gr agen until discharged

by the court. Moreover, unless the receiver has made a

disposition of the property by order of the court to the

original owner or to another party, upon the receiver’s

the property remains in the custody of the court.

When the receiver in obedience to a court order has so

disposed of the property in receivership, his liability and

responsibility as receiver to that oy sb ceases and since

the property is no longer in custodia legi , the receivership

is terminated. However, an in personam action against the

receiver concerning a breach of his fiduciary duties to the

receivership property may nevertheless be maintained sub-

sequent to his discharge. See Clark, Law of Recewers, Sec-

tion 692.1 (3d ed. 1959) ; Chicago Title & Trust Co. v. Fou

Theatres Corp., 164 F.Supp. 655 (S.D.N.Y. 1958), aff’d,

277 F.2d 462 (2d Cir. 1960) (per curiam). —

In the instant case, although the Illinois Ape Court

dissolved the receivership by its mandate o October 13,

1976, the receiver was not discharged because the appellate

court, in its opinion of September 13, 1979, reversed and

remanded the April 1977 order of the circuit court dis-

charging the receiver. However, no further action was

taken by the circuit court because the appellate cour! sub-

sequently stayed its decision rendered on September 13.

Thus, under an application of the foregoing rinciples to

the circumstances in this case, the receivership property

would be deemed to remain in the custody of the circuit

court until such time as the receiver is discharged and the

receivership 9 Tg terminated by a court order di-

recting a disposition of the property.

However, we find the appellants’ reliance on these prin-

ciples to be misplaced in the context of this case for the

reason that the state court failed to acquire possession of

the properties in the first instance. On October 13, 1976,

the fino is Appellate Court issued its mandate dissolving

the state trial court’s injunction and appointment of the

receiver on the ground that no i te existed as

to the control or ownership of the properties or the mort-

gages encumbering them. PSL Realty Co. v. Granite In-

vestment Co., 42 App. 3d 697, N.E.2d 605 (1976).

Since no complaint relating to the merits of the case had

Nos. 79-2134, 79-2211, 79-2212 & 79-2303 11

been filed in the trial court before or after it ordered in-

junctive relief and a receivership, the appellate court held

that these orders were improvidently granted under the es-

tablished rule that such ancillary remedies are inappropri-

ate in the absence of a substantive cause of action. 356 NE.

2d at 607-609. It is equally settled that where, as here, the

court lacks jurisdiction to adjudicate the principal matter,

its orders purporting to grant the ancillary relief of tem-

porary receivership are likewise beyond its jurisdiction and

as such are void a mitio. Firebaugh v. McGovern, 404 Ill.

143, 88 N.E.2d 473 (1949). Since the Circuit Court of Madi-

son County was found to be without jurisdiction to award

the ancillary remedy of receivership, its order placing the

properties in receivership and appointing FSLIC as re-

ceiver was void. Since the state court was not a court of

competent jurisdiction exercising control over the prop-

erties which would preclude the institution of an action

concerning the properties in federal court, the district court

was free to assert its exclusive jurisdiction over the prop-

erties in the foreclosure suit, and appropriately did so by

its order effective October 13, 1976.

This result is consistent with Doyne v. Saettele, 112 F.

2d 155 (8th Cir. 1940), a remarkably analogous case. In

that case, the St. Louis City Circuit Court entered a decree

finding a partnership had been dissolved and appointed a

receiver for the assets. The Missouri Supreme Court or-

dered the receivership dissolved on the ground that the

petition upon which the receiver had been appointed failed

to state a cause of action and thus the circuit court was

without jurisdiction to appoint a receiver. Before the man-

date of the supreme court was filed, an action was com-

menced in the federal court seeking an accounting, a liqui-

dation of the assets, and a distribution of the net income.

Shortly thereafter, the district court issued an injunction

restraining the parties from interfering with its jurisdic-

tion over the assets which had previously been in the pos-

session of the state court.

The Court of Appeals for the Eighth Circuit affirmed

the district court’s exercise of its injunctive powers in

aid of its jurisdiction, and specifically rejected the appli-

cability of the principle that because the state courts had

12 Nos. 79-2134, 79-2211, 79-2212 & 79-2308

first acquired jurisdiction of the property involved they

were entitled to retain it exclusively against all other

courts. Doyne, supra at 160. The court of appeals rea-

soned that because the Missouri Supreme Court had ruled

that the receivership must be dissolved, the state court

was not a court of competent jurisdiction pe it to

exercise exclusive control over the property which barred

an action in federal court concerning the same property.

This conclusion was reached despite the fact that the fed-

eral court had acted before the mandate of the Missouri

Supreme Court had been issued and that ‘‘certain acts re-

mained to be done by the Missouri courts to make the writ

(dissolving the receivership] completely effective.’’ Doyne,

supra at 161.

Having determined that the district court properly ac-

quired subject matter jurisdiction over the properties in-

volved in this case, it remains to be determined whether

the district court properly invoked its injunctive powers

to prevent interference with its exclusive possession by

the state courts of Illinois.

That the district court has the power to enjoin a party

to an action before it in aid of its jurisdiction cannot be

disputed. 28 U.S.C. § 1651; Ex Parte Baldwin, 291 U.S.

610 (1934). It is also clear that the district court has the

eta to enjoin the state courts of Dlinois pursuant to

itle 28, United States Code, Section 2283, which provides:

A court of the United States may not grant an injunc-

tion to stay proceedings in a State court except as ex-

pressly authorized by Act of Congress, or where neces-

sary in aid of its jurisdiction... .

28 U.S.C. § 2283. See 14 Wright, Miller & Cooper Federal

Practice and Procedure, § 3631 at p. 16 (1976); Toucey v.

New York Life Insurance Co., 314 U.S. 118 (1941).

The mere power to take such action is not, of course,

sufficient to sustain the entry of the injunction. The cir-

cumstances precipitating the injunction must elso be ap-

propriate for injunctive relief. In this case the district

court found itself compelled to invoke its injunctive powers

Nos. 79-2134, 79-2211, 79-2212 & 79-2303 13

to protect its jurisdiction under the established principle

that ‘‘when a court of competent jurisdiction has obtained

possession, custody, or control of property, that possession

may not be disturbed by any other court.’’ 14 Wright,

Miller & Cooper, Federal Practice and Procedure, § 3631

at p. 6 (1976). See, e.g., Palmer v. Texas, 212 U.S. 118, 129-

130 (1909).

The Illinois Appellate Court, in its Order for Stay of

September 26, 1979 nonce | enjoins FSLIC and PSL

Realty Company, — to the foreclosure action, from

3 ing with t action in federal court. Further,

SLIC is restrained by that order from transferring the

properties, which are subject to the jurisdiction of the dis-

trict court, although the gy ig court’s order of Sep-

tember 13, 1979 directed FSLIC to reconvey the properties

to its predecessor. Finally, the appellate court decreed that

all further attempts to convey title to the properties would

be void and ordered that this cloud on the titles be recorded

in each of the Illinois counties in which the properties are

located. It requires no citation of authority to support the

district court’s conclusion that these acts interfered with

its exclusive possession and control of the same properties

and mortgages. We therefore hold that the district court,

in the sound exercise of its discretion, a invoked its

injunctive powers to okt age its jurisdiction from further

interference by the Illinois state courts.

We have carefully considered the other arguments ad-

vanced by the appellants and in view of the record find

them to be equally without merit. For the foregoing rea-

sons, the judgment appealed from is affirmed and the Clerk

of this Court is directed to enter judgment accordingly.

AFFIRMED.

A true Copy:

Teste:

Clerk of the United States Court of

Appeals for the Seventh Circuit

USCA 4512—Midwest Law Printing Co., Inc., Chicago—9-12-80—350

APPENDIX B

APPENDIX B.

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

December 23, 1980.

Before

Hon. LUTHER M. SWYGERT, Circuit Judge

Hon. WALTER J. CUMMINGS, Circuit Judge

Hon. WILLIAM J. BAUER, Circuit Judge

FEDERAL SAVINGS AND

LOAN INSURANCE COR-

PORATION, an agency

of the United States

of America,

Plaintiff-Appellee,

Nos. 79-2134, 79-2211,

79-2212 v.

PSL REALTY CO., a cor-

poration, et al.,

Defendants-Appellees,

GRANITE INVESTMENT

COMPANY, a limited

partnership; JAMES C.

GREEN; CAPITOL INDEM-

NITY CORPORATION, a

corporation; and

HOWARD STEEL CON-

STRUCTION CO.,

Defendants-Appellants,

THE HON. CHARLES E.

JONES; THE HON. JOHN M.

KARNES; THE HON. GEORGE

W. KASSERMAN, JR., and

le ee ee te he a he a a he a et eae

On Petition

for Rehearing

and Suggestion

for Rehearing

En Banc.

all other JUSTICES OF )

THE ILLINOIS APPELLATE )

COURT FOR THE FIFTH )

DISTRICT; THE HON. VIC- )

TOR J. MOSELE, and all )

JUDGES OF THE THIRD )

JUDICIAL CIRCUIT OF )

ILLINOIS, )

Appellants. )

On consideration of the petition for

rehearing and suggestion for rehearing en

bane filed in the above-entitled cause by

Defendants-Appellants James C. Green,

Granite Investment Company and Howard

Steele Construction Company, Inc. and by

Appellants The Hon. Charles E. Jones,

The Hon. John M. Karnes, the Hon. George

W. Kasserman, Jr., and all other Justices

of the Illinois Appellate Court for the

Fifth District, The Hon. Victor J. Mosele,

and all Judges of the Third Judicial Cir-

cuit of Illinois, no judge in active ser-

vice has requested a vote thereon, */

and all of the judges on the original

panel have voted to deny a rehearing.

Accordingly,

IT IS ORDERED that the aforesaid

petition for rehearing be, and the same

is hereby, DENIED.

*/ The Hon, Harlington Wood, If <5

did not participate in consideration of

the petition for rehearing en banc.

APPENDIX C

FEDERAL SAVINGS AND LOAN INSURANCE

CORPORATION, an agency of the

United States of America,

Plaintiff,

Vv.

PSL REALTY CO., a corporation, et al,

Defendants.

No. A-Civ-76-79,

United States District Court,

S. D. Illinois,

Alton Division.

OCS. 2, L979.

MEMORANDUM ORDER AND INJUNCTION

ACKERMAN, District Judge.

I. Factual Background

This is a mortgage foreclosure action

relating to several apartment complexes

located in Madison, Clinton, St. Clair and

Sangamon Counties of Illinois. A brief

factual analysis is necessary to fully

appreciate the delicate issues which now

confront this Court.

As relevant here, all parties agree

the properties here involved experienced

grave financial difficulties. One of the

defendants in this action, James C. Green,

has reportedly admitted that in March of

1972 the apartments were losing about

$30,000 per month. As a result of these

financial problems, an action relating

to the properties was. filed in the Circuit

Court of Madison County, Illinois, and

during the course of that litigation the

Federal Savings and Loan Insurance

Corporation (FSLIC) was appointed by the

circuit court as receiver of all the

properties here involved. On appeal,

however, the Illinois Appellate Court

for the Fifth District ordered the

receivership dissolved because the

plaintiffs there had sought only ancillary

and temporary relief--no attempt had

been made to obtain relief on the merits

of any claimed cause of action. PSL

Realty Co. v. Granite Investment Co.,

42 I11.App.3d 697, 1 I1l.Dec. 417,

356 N.E.2d 605 (5th Dist.1976). The case

was ordered remanded to the circuit court

for action relating to the receiver's

final report and discharge.

Both plaintiffs and defendants in

the state court proceedings filed motions

asking the Illinois Appellate Court to

consider its order in which, inter alia,

the receivership was dissolved, While

motions to reconsider were pending and

before the Illinois Appellate Court's

mandate issued, FSLIC purchased the

mortgages on all the apartments in the

receivership for a purchase price of

approximately $10.5 million. Following

this purchase, on August 26, 1976, FSLIC

filed this mortgage foreclosure action

in federal court.

By order of September 2, 1976, this

Court granted FSLIC possession of the

properties here involved as mortgagee in

possession. That order, however, was

specifically conditioned upon the mandate

of the Illinois Appellate Court in

dissolving the receivership becoming

effective. That mandate of the Illinois

Appellate Court effectively dissolving

the receivership was issued on October

13, 1976, and FSLIC took possession of

the properties as mortgagee in possession

under the auspices of this Court at

that time. This fact was recognized in

the Madison County Circuit Court's

order of April 13, 1977 when that

court stated "that foreclosure proceedings

have been f: led upon properties presently

the subject matter of this receivership

and said properties are now possessed

by FSLIC, as mortgagee, in the Federal

Court." Since the dissolution of the

receivership, this Court has entertained

several weeks of seccasdinan: including

both testimony of witnesses and oral

argument by counsel, in what has obviously

evolved into an extremely complicated

foreclosure action. FSLIC remains in

possession of the properties as the

mortgagee in possession of this Court,

II. Current Controversy

The current controversy before this

Court stems from an order of the

Illinois Appellate Court for the Fifth

District entered on September 13, 1979.

The case was there before the Appellate

Court for consideration of matters

relating to the receiver's final report

and discharge. In its opinion, the

Appellate Court, speaking through Justice

Charles E. Jones, condemns as “repre- .

hensible” the actions of FSLIC in pur-

chasing the mortgages and filing this

foreclosure action while it was serving

as receiver of the properties for the

state court. The Appellate Court

orders the case remanded to the Circuit

Court of Madison County, Illinois with

directions for that court to enter an

order requiring that FSLIC reconvey

the property to its predecessor before

it can be discharged as the court's

receiver. Further, FSLIC is denied all

fees and compensation for its services

as receiver because of its "misconduct

and indiscretions incompatible with

its position as an officer of the [state]

court,"

On September 24, 1979, this Court

heard arguments related to the effect,

if any, of the Appellate Court's September

13 order upon this Court's ability to

proceed in this action, By order of

September 26, 1979, after careful con-

sideration of the pleadings, oral

arguments and applicable law, this

Court found that it had properly

acquired jurisdiction of this fore-

closure action and indicated that it was

therefore incumbent upon this Court to

protect that jurisdiction.

This Court recognized in its

September 26 order the wisdom and neces-

sity of the well-established rule of law

providing that "when a court of competent

jurisdiction has obtained possession,

custody or control of property, that

possession may not be disturbed by any

other court."’ 14 Wright, Miller &

Cooper, Federal Practice and Procedure:

Jurisdiction §3631, at 6 (1976). See,

e. g., Palmer v. Texas, 212 U.S. 118, ‘

129-30, 29 S.Ct. 230, 53 L.Ed. 435

(1909). However, I found that this

principle did not preclude this action

in this court under the facts here

presented, Accord, Doyne v. Saettele,

112 F.2d 155 (8th Cir. 1940).

I specifically rejected the conten-

tion that because a final accounting of

the state court receiver was outstanding,

and therefore the receiver had not been

discharged, this Court could not exercise

its jurisdiction over the subject

matter of this action. Rather, I there

found the tetting factor to be the

control of the property. See Ryan v.

First Pennsylvania Banking & Trust Co.,

aa9 Vad O12, Bld. Cae Bats bel oye: 1

further found that the state courts had

relinquished all control or possession

of the properties on October 13, 1976

when the Illinois Appellate Court mandate

dissolving the receivership issued. At

that point, in accordance with this

Court's order of September 2, 1976,

this Court assumed jurisidction over

the properties and FSLIC took possession

as mortgagee in possession.

Thus, this Court did not interfere

with the state court's jurisdiction

over the properties here involved so

as to violate the rule requiring that only

one court control the property. Instead,

this Court exercised its jurisdiction

over the property when the state courts

had relinquished such control with

the dissolution of the receivership,

notwithstanding the fact that a final

report of the receiver remained out-

standing,

Finally, in this Court's September

26 order, this Court indicated its

reluctance to enter into a conflict with

its sister courts of the State of Illinois.

At the same time, however, it was made

abundantly clear that this Court believed

it had jurisdiction of this action and

all necessary steps would be taken to

protect that jurisdiction.

Substantial problems are presented

by the "Order for Stay" entered by the

Illinois Appellate Court on September

26, 1979. While purporting to recognize

that court's inability to limit the

jurisdiction of this Court, the Illinois

Appellate Court proceeds to effectively

enjoin FSLIC and PSL Realty Company,

both of which are parties here, from

proceeding with this action in the federal

court. The Appellate Court's action is

premised on the tenet that the state

court controls its own receiver, an

officer and arm of that court. The

crucial inquiry here presented is whether

this state court action improperly

impinges upon the jurisdiction of this

Court.

III. Analysis

First, counsel for defendants

James C. Green and Granite Investment

Company urges this Court to reconsider

its September 26 order finding that this

Court has jurisdiction over the subject

matter of this cause. This motion is

grounded upon the precept, earlier

rejected by this Court, that because the

state court receiver has not yet been

discharged, that court retains first and

therefore exclusive jurisdiction of the

Property here involved. See 14 Wright,

Miller & Cooper, Federal Practice and

Procedure: Jurisdiction § 3631, at 6

(1976); Palmer v. Texas, 212 U.S. 118,

129-30, 29 S.Ct. 230, 53 L.Ed. 435 (1909).

Having once again carefully

considered the issues here involved in

light of the applicable law, I conclude

the defendants’ motion must be denied

and hereby reaffirm the findings of this

Court's order of September 26 for the

reasons stated therein and briefly

reiterated above. In so ruling, I

note the distinguishing factors which

counsel suggests renders Doyne v. Saettele,

112 F.2d 155 (8th Cir. 1940), inapposite,

but nevertheless adhere to the analogy

between the two cases. Again I emphasize

the controlling factor and the basis

for the Palmer rule, control over the

property, is absent in the state court

proceedings here following the Illinois

Appellate Court's dissolution of the

receivership.

To hold this Court lacks jurisdiction

as suggested by counsel for James C,

Green and Granite Investment Company

would prove untenable. Such a determin-

ation would mean that no court was

exercising control over the properties

here involved, but would also preclude

FSLIC from foreclosing on the allegedly

defaulted mortgages. This is true

despite the fact FSLIC, the owner of

the mortgages, had invested substantial

amounts of money into the failing

properties in an effort to make them

succeed, This would mean, in effect,

that the properties were beyond reach

of the mortgage holder because of its

"reprehensible" conduct, even though

the mortgages were allegedly in default.

This anomaly is highlighted by the

fact that counsel for defendants Green

and Granite Investment Company apparently

filed on September 28 a petition in

state court seeking an order finding

FSLIC and PSL Realty Company in contempt

of that court for proceeding with this

foreclosure action. In light of this

Court's September 26 order, and

especially in light of this Court's

September 24 discussion with counsel

_ of the suggestion that the parties

here may be subject to contempt in

state court for proceedings here, I

find this action by counsel, if true,

to be a direct affront to the jurisdic-

tion of this Court. Such actions

themselves might be labeled reprehensible

but, whatever the label, will not be

countenanced by this Court. However,

in light of this order and the fact

that the parties here have not been

irreparably harmed, no action will be

taken by this Court at this time. Counsel

is duly warned, however, that any similar

conduct in the future will be dealt with

summarily by this Court.

I note, parenthetically, that all

of the facts relating to this foreclosure

proceeding, including the conduct of

FSLIC which the Illinois Appellate

Court has found to be reprehensible, are

before this Court. It is up to this

Court, not the state courts, to determine

whether the federal party can proceed

with this foreclosure proceeding. This

Court will make the necessary determina-

tions after considering all of the

evidence here involved. Without

intimating any view on the merits of

this question, I note there is apparently

at least grounds for dispute as to the

impropriety of these acts based upon

the fact that the Circuit Court of Madison

County originally approved the receiver's

final report, although the same actions

now said to be "reprehensible" were also

presented to that court. Further, I

believe there is a serious question as

to whether, after the outlay of millions

of dollars, FSLIC could, even if it so

desired, simply walk away from this

action and thereby, in effect, forfeit

the properties to the parties who are

alleged to be in default under the

mortgages,

Finally, this Court takes little

consolation from counsel's suggestion

that FSLIC's alternative to its

"reprehensible" conduct was simply to ask

the state court to approve its actions

in purchasing and foreclosing on the

mortgages. First, the Illinois Appellate

Court had ordered the receivership

dissolved and, as discussed above, there-

by relinquished control of the properties.

Further, in light of the Appellate Court's

order of September 13, this would

apparently have been a futile task. In

any event, as stated above, I believe a

determination of whether FSLIC can proceed

with this foreclosure action is a matter

for this Court's consideration, not that

of the state court.

IV, Protection of this Court's Jurisdiction

For the foregoing reasons and

based upon the rationale of this

Court's order of September 26, 1979, this

Court remains convinced that it has

properly acquired jurisdiction of this

foreclosure action. Given this finding,

it is now incumbent upon this Court to

protect that jurisdiction even if, as

is apparently true in this case, a

party or another court disagrees with

this determination. This Court necessar-

ily has the power to determine its own

jurisdiction. See Fauntleroy v. Lun,

210 U.S. 230, 28 S.Ct. 641, 52 L.Ed. 1039

(1908). If parties or others subject to

this Court's orders disagree with this

Court's conclusion, their remedy is to

appeal and they cannot be allowed to

simply pursue other avenues in conflict

with this Court's orders. They must

either abide by this Court's order or

appeal.

First, it is clear to me that recent

events in the Illinois Appellate Court

for the Fifth District do in fact

impinge upon this Court's jurisdiction.

For example, the contempt ee a

reportedly filed in the state court amply

illustrates the untenable predicament

confronting FSLIC and PSL Realty Company.

If they choose to proceed with this

action, which is properly before this

Court, these parties fact the potential

of being held in contempt of the state

court. Certainly the real possibility

of facting contempt charges chills the

participation of those parties in this

proceeding. Further, the Appellate

Court's order of September 13, 1979,

ordering FSLIC to reconvey the properties,

though apparently not yet final, arguably

impinges upon this Court's jurisdiction

which is based upon the status of the

federal entity, FSLIC, as a party.

Certainly the Illinois Appellate

Court's order of September 26, 1979, is

a direct attempt to limit the proceedings

in this Court. FSLIC and PSL Realty

Company, parties to this action, are

there effectively enjoined from proceed-

ings in this action. Further; FSLIC

is precluded by that order from trans-

ferring the properties which I have found

to be within the jurisdiction of this

Court, although as noted above the

Appellate Court's order of September 13

directs FSLIC to reconvey the property

to its predecessor. Finally, title

to the property under the control of this

Court may have already been clouded by

the recording of the Appellate Court's

order of September 26 in each of the

Illinois counties in which this property

is located in accordance with that

court's order.

I note also that, as if the above

infringements upon this Court were not

enough, this Court has lost two weeks

of trial time which had been set aside

specifically for this foreclosure

action. This fact alone would justify

action by this Court to protect its

jurisdiction.

Having thus found that this Court

properly has jurisdiction of this action,

and that this jurisdiction is being

improperly impinged upon, the question

‘becomes what needs to be done to eliminate

this interference and thereby allow this

action to proceed. As indicated

in this Court's order of September 26,

the power of this Court to protect its

jurisdiction under these circumstances

derives from two sources.

First, somewhat ironically, the

rule illustrated by Palmer v. Texas

discussed above and relied upon by

counsel for Green and Granite Investment

Company in support of the argument for

exclusive state court jurisdiction now

applies to protect this Court's

jurisdiction in dealing with the subject

matter of this case. That is, based

upon this Court' determination that

jurisdiction is proper here, this Court's .

possession of the property is exclusive

and may not be disturbed by any other

court. See generally, 14 Wright, Miller

& Cooper, Federal Practice and Procedure:

Jurisdiction §3631, at 6 (1976). See

Toucey v. New York Life Insurance Co.,

314 U.S. 118, 62 S.Ct. 139, 86 L.Ed. 100

(1941); lA(pt.2) Moore's Federal

Practice 440.214-0.218 (1979). Secondly,

a specific provision of the United

States Code empowers this Court to

enjoin state court proceedings where

such action is necessary in aid of the

federal court's jurisdiction. 28

U.S.C. § 2283. See generally, 1A (pt. 2)

Moore's Federal Practice 440.208[3.-1],

[3.-4] (1979).

Having afforded due regard to the

general principle that state judicial

proceedings should be free from federal

interference if at all possible, I

nevertheless conclude that an injunction

of the state court proceedings is

required in this case to effectuate this

Court's jurisdiction. I enter this order

indi reluctantly because of my high

regard for my colleagues on the state

courts of Illinois. However, I do so

only because I am left with no

alternative.

V. Injunctive Relief

Accordingly, IT IS HEREBY ORDERED

that Justices Charles E. Jones, John

Karns, and George W. Kasserman, Jr.,

and all other justices of the Illinois

Appellate Court for the Fifth District,

and all parties to this action, together

with their officers, agents, servants,

employees, and attorneys as well as

persons acting in their stead or in active

concert or participation with them,

including judges of the state courts of

Illinois, who receive actual notice of

this order, by personal service or other-

wise, are hereby enjoined from taking

any action, without prior written permis-

sion of this Court, which in any way,

directly or indirectly, impinges upon,

limits, or otherwise interferes with

the jurisdiction of this Court in this

cause, including but not limited to:

Enforcing or attempting to enforce

the "Order for Stay" entered by

Justice Charles E. Jones of the

Illinois Appellate Court for

the Fifth District on September

26, 1979 in PSL Realty Co. v.

Granite Investment Co., No.

77-125 or any prior or subsequent

order relating to the subject

matter of said order;

Enforcing or attempting to enforce

the order entered by Justice

Jones, with Justices Kunce and

Kasserman concurring, in the

Illinois Appellate Court for the

Fifth District on September 13,

1979 in PSL Realty Co. v,

Granite Investment Co., No. 77-

125;

Restraining, limiting or otherwise

preventing the parties and

attorneys in this action before

this Court, for any reason what-

soever, from further proceeding

with this cause, by use of con-

tempt proceedings, trial, fine,

punishment, imprisonment or by

means of any other sanction

whatosever.

IT IS FURTHER ORDERED that the parties to

this action and those individuals subject

to the above-referenced injunctions shall

SHOW CAUSE, if any there be, why this

injunction should not be made permanent

at a hearing to be held on Thursday,

October 11, 1979, at 3:00 p. m. in

the United States District Court at

Springfield, Illinois. At that hearing,

this Court will also address the issue of

whether the scope of this injunction

need be broadened or narrowed in order

to accomplish its purpose.

IT IS FURTHER ORDERED that a copy of

this order be personally served upon the

parties to this action, or their

attorneys, in open court on Wednesday,

October 3, 1979,

IT IS FURTHER ORDERED that the United

States Marshall shall forthwith cause a

true copy of this injunction and order

to be personally served upon each of the

above-named Justices of the Illinois

Appellate Court for the Fifth District,

F 43

and upon all other Justices of the

Illinois Appellate Court for the Fifth

District by delivering a true copy of

this injunction and order to the

Honorable Walter Simmons, Clerk of said

Appellate Court in Mt. Vernon, Illinois,

and upon all judges of the Third

Judicial Circuit of Illinois by deliver-

ing a true copy of this injunction and

order to Chief Circuit Judge Victor J.

Mosele in Edwardsville, Illinois.

APPENDIX D

42 Ill. App.3d 697

356 N.E.2d 605

PSL REALTY COMPANY, a corporation, and

Illini Federal Savings & Loan Association,

a corporation of the United States of

America, Plaintiffs-Appellees,

GRANITE INVESTMENT COMPANY, a lim-

ited a et al, Defendants-

Appellants.

No. 72-158.

Appellate Court of Illinois,

Fifth District.

July 23, 1976.

Supplemental Opinion on Denial of

Rehearing

Sept. 23, 1976.

JONES, Justice.

This is an appeal from an order of

the trial court denying defendants' mo-

tion to dissolve a temporary injunction

and appointing a receiver. This case

presents the question: May a party seek

the relief of a temporary injunction and

the appointment of a receiver pendente

lite without concurrently seeking a de-

termination of the merits and the ultimate

rights of the parties regarding the cause

in issue?

On April 11, 1972, plaintiffs, P.S.L.

Realty and Illini Federal Savings and

Loan Association (hereinafter "Illini"),

filed a four-count complaint seeking an

immediate temporary injunction, without

notice and without bond, against defend-

ants, Granite Investment Company (herein-

after "Granite"), James C. Green, Darryl

Layman, and First National Bank in Madi-

son (hereinafter "Bank"). Granite is a

real estate firm consisting of a general

partner, Green, and several limited part-

ners, including Layman. Bank is the de-

pository of certain funds of Granite.

P.S.L. Realty is the seller, and Illini

the financing institution, with respect

to the. sale of Granite of certain proper-

ty (valued at approximately sixteen mil-

lion dollars) under several contracts

°°".

for deeds.

On the date the complaint was filed,

the court, without notice to defendants,

granted the temporary injunction exactly

as requested by plaintiffs, upon plain-

tiffs' posting bond of fifty thousand

dollars, "security waived." The injunc-

tion ordered Granite, Layman, and Green

to refrain from collecting or attempting

to collect any rents due or to become

due on the properties in question and

from interfering with the attempts of

plaintiffs to collect such rents, and

directed Granite, Layman, and Green to

turn over to plaintiffs any rents already

collected. The court also directed Gran-

ite, Layman, and Green to turn over their

books and records for examination by

plaintiffs, and directed Bank to hold any

funds in the account of Granite until fur-

ther order of the court.

Granite and Green were served with

the writ of injunction on April 17, 1972.

They then filed a motion for change of

venue and a motion to dissolve the tem-

porary injunction. The change of venue

was granted and on April 21, 1972, a

hearing commenced on the motion to dis-

solve. On April 26, during a resumed

session of the hearing, plaintiffs made

an oral motion for appointment of a re-

ceiver. By its order entered on April 28,

1972, the court denied the motion to dis-

solve and appointed the Federal Savings

and Loan Insurance Gorporation temporary

receiver of Grarite. Granite and Green

filed their notice of interlocutory ap-

peal pursuant to Supreme Court Rule 307

(a) on May 23, 1972. At the same time,

Layman filed a motion to dissolve the

injunction issued against him. The next

day this motion was allowed. Plaintiffs

were subsequently allowed leave to file

an amended complaint as to Layman, which

they did. However, we need not concern

ourselves with that matter, since only

Granite and Green are appellants in the

cause presently before us.

Defendants have raised several is-

sues in this appeal. However, because of

the nature of this case and the manner in

which we have chosen to deal with it, we

need not discuss all those issues. Ini-

tially we note that this case was first

set for oral argument in October of 1972,

and thereafter was again set for oral ar-

gument on several occasions. However,

upon the occasion of each setting the or-

al argument was continued at the request

of the parties because a settlement of

the matters involved was imminent. The

negotiations for a settlement proved

fruitless, and the parties requested that

the case again be set for oral argument.

Consequently, the case was finally orally

argued on March 31, 1976.

Although approximately four years

had passed from the time the temporary

injunction was issued and the receiver

appointed until the time of the oral

argument, during the argument the attor-

neys for the respective parties made it

clear to this court that no further ac-

tion had been taken in the trial court

with respect to the substantive matter

in dispute. Although the trial court be-

low had issued what it termed a "tempor-

ary injunction," no complaint relating

to the merits of this case had been filed

at or before the time the injunction was

granted and, apparently, none has been

filed since. Plaintiffs' complaint for

injunction made no reference to a pending

or contemplated action upon the merits of

the disputed matter. From the fact of

plaintiffs' complaint and plaintiffs'

subsequent oral motion for the appoint-

ment of a receiver, it appears that the

injunctive relief and receivership consti-

tuted the only relief plaintiffs wanted.

The lack of further action during the four

years that have elapsed since the time

plaintiffs' requested relief was granted

clearly indicates that the injunction and

receivership, although termed by the court

"temporary,'' amounted to the only relief

plaintiffs wanted, and, for that matter

the only relief they would ever want.

It is established that a temporary

or preliminary injunction should not be

granted where its effect would be to give

all the relief that could be obtained af-

ter a final hearing on the merits of the

dispute. (People's Gas Light & Coke Co.

v. Cook Lumber Terminal Co., 256 I1l. App.

357; Cassidy v. Triebel, 337 Ill. App. 117,

85 N.E.2d 461; Knuppel v. Adams, 12 I11.

App.3d 708, 298 N.E.2d 767..) The purpose

of a preliminary injunction is not to

finally decide the controverted facts or

mexits of a case. (Lonergan v. Crucible

Steel Co. of America, 37 I11.2d 599, 229

N.E.2d 536.) The preliminary injunction

is merely provisional in nature and con-

cludes no rights (Nestor Johnson Mfg. Co,

v. Goldblatt, 371 Ill. 570, 21 N.E.2d 723;

Schuler v. Wolf, 372 Ill. 386, 24 N.E.2d

162), its office being merely to preserve

the status quo until a final hearing on

the merits. (Dunne v. Rock Island County,

288 Ill. 359, 123 N.E. 501; Duval v. Sev-

erson, 15 Ill. App.3d 634, 304 N.E.2d 747.)

That a receivership is of the same

nature and serves a similar function has

been well established.

"By the weight of authority

it is a well-recognized province

of equity jurisdiction to give

aid to an action in another court

either by injunctive process or

by appointment of a receiver,

whenever either or both of these

remedies are necessary to pre-

serve the existing status of the

property until the proper distri-

bution of the property has been

determined in litigation then

pending respecting the property,

provided irreparable damage may

result if the existing status

of the property is not preserved.

Such an injunction is merely a

mode by which the court preserves

the property in dispute, with the

least injury to all parties, un-

til it can finally determine their

respective rights and upon such a

hearing, if a perpetual injunction

is ordered, the defendant may be

required to restore the status."

2 Puterbaugh, Chancery Pleading

and Practice (7th Ed.), p. 626.

"By the weight of authority it

is a well-recognized province of

equity jurisdiction to give aid

to an action in another court,

either by injunctive process or

by the appointment of a receiver

whenever either or both of these

remedies are necessary to pre-

serve the existing status of pro-

perty until the proper disposi-

tion of the property has been de-

termined in litigation then pend-

ing respecting the property, pro-

vided irreparable damage may re-

sult if the existing status of

the property is not preserved."

Kulwin v. Harsh, 232 I1l. App.

419, 423-424.

To the same effect is People ex rel. Hoag-

land v. Streeper, 12 I11.2d 204, 211, 145

N.E2d 625, 628-629. To say that a "tem-

porary" injunction and receivership are

"provisional" in nature, or that they are

used "in aid to" an action, or that their

function is "to preserve the existing

status of property until" some litigation

determines the proper disposition of the

property, is merely to say that a "ten-

porary" injunction and a receivership are

ancillary remedies and cannot be main-

tained as the sole relief sought. That

this is so, subject to a few specific ex-

ceptions in cases of waste and other simi-

lar torts, has been often stated.

"/S/uch matters as a receiver-

ship and preliminary injunction

cannot per se be the subject of

suit in equity." De Rees v.

Costaguta, 2 Cir., 275 F.' 172,

175-176.

As to the appointment of a receiver, the

court in Davis v. Jacksonville & P. Ry.

Co., 180 Ill. App. 1, 12 pronounced:

"That the general rule is, that

the appointment of receivers is

an ancillary remedy in aid of

the primary object of litigation

between the parties, and such

relief must be germane to the

principal suit; and a suit can-

not be maintained under this

general rule where the appoint-

ment of a receiver is the sole

primary object of the suit and

no cause of action or ground

for equitable relief otherwise

is stated."

A similar statement was made in Gauer v.

Voltz, 190 Ill. App. 189.

As to a preliminary injunction, some-

times referred to as an injunction pen-

dente lite, the court in Lambert v. Al-

corn, 144 111. 313, 330, 33 N.E. 53, 58,

stated:

"/A/n injunction pendente lite

was a mere ancillary writ, which

the complainants were at liberty

to apply for or not, as they saw

fit. Its only office was to pre-

serve the status quo until a

final hearing could be had."

Numerous other authorities support the

proposition that a preliminary injunction

and a receivership are merely ancillary

remedies and cannot constitute the ulti-

mate relief afforded in a particular dis-

pute, except, as we have already stated,

in cases of certain torts such as waste.

For example, see: Baker v. Backus' Ad-

ministrator, 32 Ill. 79; Chicago Ry.

Equip. Co. v. Nat'l. Hollow Brake Beam

Co., 141 Ill. App. 572, aff'd 239 I11.

111, 87 N.E. 872; Hillmer Co. v. Behr,

196 Ill. App. 363; Crenshaw v. Looker,

185 Mo. 375, 84 S.W. 885; Bledsoe v.

Grand Lodge of United Bros. of Friendship,

(Tex. Civ. App.) 53 S.W.2d 73; 26 A.L.R.

33, sec. I, p. 35; 77 A.L.R. 717; 27 Am.

Jur.2d Equity, sec. 11, p. 529; 42 Am.

Jur.2d Injunctions, sec. 1l, So. gor: 65

Am. Jur.2d Receivers, sec. 25, p. 878;

75 C.J.S. Receivers § 5, p. 662-665; 1

High, Injunctions, sec. 7 and 8, p. 7-8.

Having determined that a receiver-

ship and a preliminary injunction are

merely ancillary remedies which cannot

stand alone as the full and ultimate re-

lief afforded with respect to the matter

in dispute, the question arises as to

what should be done when these remedies

are pursued not as ancillary remedies but

as the only relief sought. We think this

question was properly answered long ago

in the case of Patterson v. Miller, 57

N.C. (4 Jones' Equity) 451. In that

case an interlocutory appeal was taken

from the refusal of the lower court to

dissolve an injunction. The North Caro-

lina Supreme Court held that the injunc-

tion, not having been sought as ancil-

lary to some full relief upon the merits

of the dispute, had been improvidently

granted and dissolved the injunction.

The court stated:

"The relief by injunction

does not per se constitute an

equity; except when it is to

prevent torts, as to stay waste,

destructive trespass, and the

like; but is ancillary to some

primary equity which the bill

seeks to enforce; * * * It

follows that to entitle a plain-

tiff to this ancillary relief,

the bill must contain matter

sufficient to make out some

primary equity, in aid of which

the injunction is asked for. * * *

What primary equity does the

bill seek to establish? It lays

the foundation for none. There

is no averment of an offer to

rescind the contract and recon-

vey, because of the defect in

the title, or of a willingness

on the part of the plaintiff to

do so, and without it, the pray-

er for general relief is unmean-

ing. No further proceeding seems

to be contemplated in this Court

except the injunction; no other

order is asked for; there is not

even an intimation that the plain-

tiff wishes a reference in res-

pect to the title, or a sugges-

tion of what action is to be taken

in regard to it, supposing the

plaintiff is entitled to have

such an order after the contract

has been executed by his accept-

ing a conveyance, and relying

on the covenants of seizin and

Warranty. Nor is there an aver-

ment, that the plaintiff has in-

stituted a suit at law, or intends

to do so, upon the covenants of

seizin, so as to try, in the

courts of common law, the vali-

dity of the defendant's title.

In short, without laying the

foundation for any further action

in this Court; and without pro-

posing to proceed in any other

court, the plaintiff, being in

possession under a deed with

full covenants, desires to hold

the land without paying for it!

and to enjoin the collection of

the purchase-money, for an inde-

finite time, or until those claim-

ing under one Cathcart, who are

not parties to this proceed-

ing, and over whom the Court

has no control may see proper

to institute an action of eject-

ment: It is not according to

the course of this Court, to al-

low litigation to be commenced

and left in a condition, inde-

finite, unfinished, and depend-

ent upon the action of strangers."

57 N.C. at 453-454.

To the same effect is Washington v. En-

ery, 57 N.C. (4 Jones’ Equity) 29.

In the instant case, plaintiffs

brought a complaint for a temporary in-

junction and later made an oral motion

for the appointment of a receiver. There

was no averment that a further proceeding

was pending or contemplated; and in fact,

no further proceeding seems to be con-

templated. Granite has been forced to

turn over its records, its books, and

ics funds and to cease collecting rents

on the property involved. Since 1972

the Federal Savings and Loan Insurance

Corporation has managed the business of

Granite as a court appointed receiver.

Plaintiffs, we presume, have been paid

the regular installments pursuant to the

contracts for deed. They need no further

relief and do not appear ready to seek

any. Regardless of whether plaintiffs

should or should not ultimately prevail

on the merits of this dispute, they

should not be allowed to obtain full

and ultimate relief by way of the an-

cillary remedies they have been afforded.

We, therefore, have concluded that the

temporary injunction and the receiver-

ship must be dissolved.

One further point need be con-

sidered, however. As we pointed out

previously, the four years delay between

the first setting for oral argument of

this case and the oral argument, result-

ed from the stipulations of the parties

that a settlement of the dispute was

contemplated and imminent. In that res-

pect defendants acquiesced in the con-

tinued receivership status. And not on-

ly did they acquiese in the continuation

of the receivership, defendants agreed

to the appointment of a receiver initi-

ally. At the hearing on April 26, 1972,

counsel for defendants stated:

"We also have no objection

to the Court appointing the

Federal Savings and Loan Insur-

ance Corporation as a receiver,

or any other party, or any other

person who is not a party to

this directly at this time as

a receiver."

Therefore, although we have concluded

that the temporary injunction and the

receivership should be dissolved, we do

not feel that defendants are entitled to

have had the services of the receiver at

no cost to defendants. Rather, the fees

and expenses of the receivership property

and the income derived therefrom; and

we remand this cause to the circuit

court to determine what amount should

be properly assessed as expenses and

’%

fees of the receivership.

Temporary injunction and receiver-

ship dissolved. Cause remanded with

directions.

KARNS, P.J., and EBERSPACHER, J.,

concur,

SUPPLEMENTAL OPINION UPON

DENIAL OF PETITIONS FOR

REHEARING

In the opinion filed in this case

we stated that we presumed that plain-

tiffs had been paid the regular install-

ments pursuant to the contract for deed.

Subsequent to the filing of the opinion

each of the parties have filed a petition

for rehearing. Plaintiffs point out in

their petition, supported by affidavit,

that they in fact have not been receiv-

ing payments pursuant to the contract

and request an order of this court di-

recting the receiver to apply accumulated

moneys in its hands to payments to the

plaintiffs pursuant to the contract.

Granite and Green in their petition for

rehearing have asserted, supported by

affidavit, that there are equities upon

their part to be considered and that

plaintiffs are accordingly not entitled

in toto to the payments upon the contract

which they seek from the receiver.

In view of the apparent factual dis-

pute regarding plaintiffs' entitlement

to payments on the contract it is neces-

sary that the question be determined in

the first instance by the trial court

after pleadings and a hearing on the

merits.

We accordingly correct our original

opinion wherein it states that we pre-

sumed that plaintiffs have been paid the

regular installments pursuant to the

contract for deed. Such presumption was

unwarranted.

Upon remand, the trial court should

‘19

-*%

call for pleadings upon the issue of

plaintiffs' entitlement to receive from

funds in the hands of the receiver the

accrued, unpaid installments upon the

contract for deed, and after a hearing,

should determine the plaintiffs' entitle-

ment upon the merits of the question.

The direction to the trial court to con-

duct a hearing on the fees and expenses

of the receivership, as provided in the

original opinion, stands. -

KARNS, P.J. and EBERSPACHER, J.,

concur,

APPENDIX E

PSL REALTY COMPANY, a corporation

and Illini Federal Savings and Loan

Association, a corporation of the

United States of America,

Plaintiffs-Appellees,

Vv.

GRANITE INVESTMENT COMPANY, a

Limited Partnership, James C, Green,

an Individual, Darryl Layman, an

Individual, and First National Bank

in Madison, a corporation,

Defendants,

Granite Investment Company, a Limited

Partnership, and James C. Green,

Defendants-Appellants.

No. 77-125.

Appellate Court of Illinois,

Fifth District

Sept. 13, 1979,

Supplemental Opinion Oct. 2, 1979,

JONES, Presiding Justice:

We consider this case on appeal a

second time. On the first appeal (42

Ill.App.3d 697, 1 Ill.Dec. 417, 356 N.E.

2nd 605) we dissolved a preliminary in-

junction and a receivership for the

reason that the plaintiffs in their com-

plaint had sought only ancillary and

temporary relief; no attempt was made to

obtain relief on the merits of any

claimed cause of action. We remanded

the cause for a hearing to determine the

proper expenses of the receivership, and,

after appropriate pleadings on the mat-

ter, for a determination of the plain-

tiffs entitlement to be paid accrued,

unpaid installments upon the contracts

for deed which gave rise to this lawsuit.

This second appeal considers the

propriety of the action of the trial

court in striking certain petitions

filed by the defendants and the final

order of April 29, 1977 discharging the

receiver and denying other petitions

filed by defendants.

Since our disposition of the first

appeal was upon procedural grounds the

facts attending this case were rather

: 2

sparsely stated. For disposition of

this appeal a more complete statement of

a complicated factual situation must be

furnished.

Prior to August 1, 1970 the defen-

dant, James Green, in conjunction with

others, developed and constructed sev-

eral apartment complexes in Madison,

Clinton, St. Clair and Sangamon Coun-

cies, Illinois. To obtain funds for

the projects first lien mortgages were

executed in favor of Piasa Savings and

Loan Association (Piasa). Financial

difficulties were encountered in the

completion and operation of the units

and restructuring of the debt and pro-

vision of additional construction funds

became necessary. To accomplish this

the parties entered into a lengthy and

detailed agreement, termed the base

agreement, on August 1, 1970. Under its

terms title to the units was conveyed to

a newly formed corporation named PSL

Realty Co... wholly owned by Piasa Sav-

ings and Loan Association, and PSL

Realty Co. (PSL) then entered into con-

tracts for deed to the same properties

with Granite Investment Company (Granite)

a limited partnership of which James

Green (Green) was the principal, to

recovery when the provided payments were

made and conditions fulfilled. Piasa

Savings and Loan Association continued

to hold the first lien mortgages as

mortgagee.

By the terms of the base agreement

all rental proceeds of the units were to

be delivered to PSL by Granite, 20% of

which were to be used for expenses of

operating the properties, such as utili-

ties, taxes, repairs, etc., and 80% of

which were to be applied to debt service

on the mortgages. Financial matters

apparently did not go well for either

party. Assertedly Piasa was so adver-

sely affected by the situation that in

order to protect its depositors it was

merged with Illini Savings and Loan

Association (Illini) and ceased to exist

aS a separate operating entity. The

merger was procured by the Federal Sav-

ings and Loan Insurance Corporation

(FSLIC) to prevent losses to Piasa's

depositors and avoid insurance payments

to cover those losses. As part of the

merger Illini became the owner of the

mortgages, 48 in number, upon the apart-

ment units and a residence of James

Green. They also became the sole owner

of PSL Realty Co. which, under the base

agreement, was holder of legal title to

the units, subject to the contracts for

deed with Granite, and entitled to the

gross rentals from operation of the

units.

Matters pertaining to the financial

management and operations of the units

reached a climax in March 1972. In

later testimony Green admitted that the

apartments were losing about $30,000 per

month at the time. On March 27 PSL and

Illini demanded the books and records

from Granite, but they were refused. On

April 11 PSL and Illini sought, and

received, a temporary injunction, with-

out notice but with a bond of $50,000

security waived. The injunction ordered

Granite and Green to refrain from col-

lecting rents and to not interfere with

plaintiffs collecting rents. Granite and

Green were also directed to turn over

their books for examination. Notice of

default and forfeiture of the contracts

for deed between PSL and Granite were

served upon Granite's Attorney on April

20 and upon Green me April 21. On

April 21 Granite and Green filed a motion

to quash the temporary injuncti@y and a

counterclaim for an injunction against

PSL and Illini that would prevent their

interference with defendants’ opera-

tions. Herings were held on April 21,

24 and 26. During the hearing on the

26th the plaintiffs made an oral motion

for the appointment of a receiver for

all the units. Green and Granite voiced

no specific objection to the appoint-

ment of FSLIC. On April 28, 1972 the

court entered an order denying the motion

of Green and Granite to dissolve the

temporary injunction and appointing

FSLIC receiver. The April 28 order :

delineated the powers and duties of the

receiver as follows:

"IT IS FURTHER ORDERED,

ADJUDGED AND DECREED that

the Federal Savings and

Loan Insurance Corporation

be appointed Receiver herein,

with the usual powers of

Receiver in Chancery, with-

out bond, to manage, lease,

rent, pay all bilis:

collect rents, issues and

profits from the premises,

pay all wages due or to

become due to employees,

supervise, repair, rehabili-

tate, insure and to perform

all duties of Receiver in

connection with the real

estate involved in this

suit and described in the

exhibits attached to the

complaint herein, and to

report to this Court by the

15th of each month commen-

cing May 15, 1972, and

each thirty (30) days there-

after the income received

from said properties by it,

and the expenditures made

in connection with the

management of said premises.

Said Receiver is herewith

authorized and empowered

to designate as its local

agent to act on its behalf,

in connection with the fore-

going, any person, firm or

corporation, including any

of the parties to this liti-

gation."

Pursuant to the last sentence of the

above FSLIC designated Illini as its

local agent in the management of the

receivership properties. As agent it

collected the rents, paid the expenses,

selected managers, kept the books on the

transactions, etc.

Green and Granite appealed the

April 28, 1972 order and we reversed for

the reasons already stated. In our

original opinion we presumed that plain-

tiffs had been paid the installments on

the contracts for deed which had come

due while the case was pending settle-

ment negotiations and appeal. We dis-

solved the temporary injunction and the

receivership and remanded the cause for

a hearing to determine the fees and

expenses of the receiver.

Both plaintiffs and defendants filed

petitions for rehearing. The plaintiffs

pointed out that they had received no

installment payments on the contracts

for deed and requested an order of this

court directing the receiver to apply

accumulated moneys in its hands to the

contracts. Granite and Green asserted

certain considerations due them and that

as a result the plaintiffs were not

entitled to have the accumulated moneys

in the hands of the receiver applied to

the contracts. After reconsideration

we stated: "In view of the apparent

factual dispute regarding plaintiffs'

entitlement to payments on the contract

it is necessary that.the question be

determined in the first instance by the

trial court after pleadings and a hear-

ing on the merits."" We thereon directed

that upon remand the trial court should

call for pleadings upon the issue of

plaintiffs' entitlement to receive from

funds in the hands of the receiver the

accrued, unpaid installments of the con-

tracts for deed, hold a hearing and ren-

der a decision upon the merits,

The original opinion of this court

dissolving the injunction and receiver-

ship was filed July 23, 1976. On

August 13, 1976 PSL and Illini filed

their petition for rehearing. On

August 18, 1976 FSLIC purchased the

first lien mortgages on all units in the

receivership for $10,673,000 from Illini.

On August 26, 1976, without notice to

the defendants, the trial court or this

court, the receiver, FSLIC filed a mort-

gage foreclosure action in the Federal

District Court for the Southern District

of Illinois on all 48 mortgages pur-

chased from Illini. The foreclosure com-

plaint alleged that no Payments on prin-

cipal or interest had been made on the

notes since March 31, 1972. On August

31, 1976 Granite and Green filed their

petition for rehearing in this court.

The supplemental opinion upon rehearing

was filed on September 23, 1976 and the

mandate issued October 13, 1976.

On October 28, 1976 the receiver

filed a petition in the trial court for

an order directing it to file a final

report and setting a hearing thereon.

On November 1, 1976 Granite and Green

filed a petition alleging that FSLIC had

wilfully represented to the court. that

it was an impartial third party, neutral

in all respects, and capable of adminis-

tering the properties without favoritism

and without self-interest or profit. It

was further alleged that such represen-

tations were false in that FSLIC did in

fact have a substantial self-interest in

the properties, had contributed $6,000,

000 to the plaintiffs and was contract-

ually liable to contribute much more in

certain events directly related to the

subject matter of the lawsuit. The pet-

ition further asserted that FSLIC was

the instigator of the wrongful forfei-

tures of the contracts for deed by PSL,

that it had the right to purchase assets

of Piasa, predecessor of Illini, at book

value; that FSLIC as receiver expended

hundreds of thousands of dollars toward

capital improvements of the properties,

thus adding to their value, and expended

hundreds of thousands of dollars in re-

novation, upgrading and maintenance of

the properties, thus adding to their

value, all of which funds were taken

from rental receipts, and notwithstand-

ing that it collected over $6,000,000

in rents it made no payments of princi-

pal or interest on the mortgages on the

properties, The petition finally alleg-

ed that in breach of its fiduciary duty

‘%

it purchased the 48 mortgages on the

properties of which it was receiver,

without notice to or approval of the

court, accelerated the payments due upon

such mortgages, and, on August 26, 1976,

without notice to or permission of the

court, filed suit to foreclose all 48

mortgages, all contrary to its fiduciary

duty to the parties and adverse to the

specific rights of the petitioners. The

petition concluded with a prayer that

the receiver be ordered to immediately

reassign the mortgages to Illini, account

for all its expenditures, pay into the

rental fund all money paid to officers

and employees of Illini and PSL, pay any

excess of money to Granite for use in

paying its obligations, turn over all

books and records. and return physical

possession and management of the proper-

ties to eetitioners, Granite and Green

also filed an objection to the petition

of FSLIC for authority to file a final

report on the grounds that they had

filed a petition for affirmative relief

against the receiver and the case had

not reached the stage for a final report.

FSLIC filed a response to the Novem-

ber 1, 1976 petition of Granite and

Green in which they denied any wrong-

doing in their actions as receiver.

With regard to the allegations of wrong-

ful purchase of the mortgages from

Illini it asserted that the purchase was

made, not as receiver, but in its capa-

city as an agency of the United States

acting pursuant to the supervisory

duties and powers granted it by federal

law. It further asserted that at no

time had the notes and mortgages been

in the possession of the receiver since

the receiver was appointed "to perform

all duties of receiver in connection

with the real estate involved in this

suit * * *,." (Their emphasis.) As

Count II FSLIC incorporated an affirma-

tive response to the November 1, 1976

petition. In this FSLIC asserted that

it did not seek the receivership and

accepted the office only on condition

that it be permitted to appoint Illini

as its local agent. It made no repre-

sentations regarding its qualifications

to act and’no questions were asked or

objections raised although its super-

visory interest underlying the subject

litigation was well known. In its

supervisory capacity, and pursuant to

its statutory duties, it Suggested and

implemented the merger of Piasa into

Illini and as an incident of such mer-

ger entered into a financial agreement

designed to minimize the danger to

Illini's stability caused by the absorp-

tion of Piasa'a assets and liabilities,

and no secret has ever been made of

FSLIC's involvement. It further assert-

ed that its supervisory interest did not

in any way disqualify it from serving

as receiver and section 10-1 of the I11l-

inois Savings and Loan Act (I11.Rev. Stat.

1975, ch. 32,par.921) specifically

authorizes the appointment of FSLIC as

receiver of closed associations. FSLIC

finally asserted that it purchased the

48 mortgages for $10,673,000 under the

terms of its financial assistance agree-

ment with Illini which gave it the right

to purchase at book value any asset of

Piasa held by Illini which had not been

liquidated. FSLIC purchased the mort-

gages and filed the foreclosure after the

appellate court ruled that the receiver-

ship had to be dissolved and that these

actions were not taken as receiver but

as an agency of the United States acting

-y.

i '

in accordance with its functions under

federal law.

On December 22, 1976, acting on its

own motion, the court struck the Granite

and Green petition of November 1, 1976

and the response of FSLIC thereto for

the reason that neither of the plead-

ings were responsive to the mandate of

the appellate court. The order called

for the final report of the receiver to

be filed by February 10, 1977 and any

objections thereto by February 25, 1977.

On January 3, 1977 Granite filed a

petition charging plaintiffs with wrong-

ful dispossession from the premises and

wrongful procurement of a receiver, they

asserted that plaintiffs had paid them-

selves and their agents large fees for

management and prayed that the court

order the receiver to pay petitioner a

reasonable sum for loss of profits they

would have derived from management. On

the same day Green filed a petition for

accounting in which he alleged he was

the owner of laundry equipment in the

Spencer Gardens apartment unit, that the

plaintiffs and the rece‘ver utilized

such equipment in their operations,

thereby converting them to their own

uses. The petition further alleged that

Green was the owner of all stoves, refri-

gerators and miscellaneous appliances in

all units in the receivership and that

the plaintiffs have refused to account

for the profits therefrom. The petition

prayed that the plaintiffs be ordered to

account for all monies received from the

laundromat and for all profits from

rental of the appliances. Also filed on

January 3, 1977 was a Motion in Aid of

Appellate Court Mandate by Granite in

which it was alleged that the plaintiffs

and the receiver have refused to restore

petitioners to the status quo that

existed at the time the temporary in-

junction was issued by returning posses-

sion of the units to petitioner. The

prayer of the motion was for an order

of court placing Granite in possession

of the units.

The final report of the receiver was

filed on February 9, 1977. It recited

that FSLIC had served for 54 months and

had filed with the court monthly reports

of all monies collected and expended.

Attached to the report was a consolidated

statement which reflected income from

rentals and expenditures for various

categories such as taxes, utilities,

‘Management fees, legal fees, etc., all

items being related to the several dif-

ferent rental units comprising the re-

ceivership property. The summary showed

gross rentals of $5,734,933.89 and

expenses of $4,149,835.79 and an undis-

bursed balance of $2,158,313. The ex-

cess over the arithmetical balance was

interest earned on the receiver's

account and certain adjustments. The

final report concluded with a prayer

for an award of fees to be paid from

the balance on hand and the discharge

of the receiver effective September 30,

1976.

On February 25, 1977 FSLIC filed a

response to the Green petition of Janu-

ary 3, 1977 in which it denied his as-

sertions regarding ownership of the

laundry facilities at Spencer Gardens

unit and the refrigerators, stoves and

appliances at all units and alleged them

to be attached to and part of the real

estate. The response also alleged that

the matters asserted in the Green peti-

tion were a duplication of a prior suit

pending in the circuit court of St.

Clair County, No. 73 L 1676 and the

petition should accordingly be dismissed

pursuant to section 48(c) of the Civil

Practice Act (I1l.Rev.Stat. 1975, ch.

110, par.48(c)).

Also on February 25, 1977 FSLIC filed

a peupeaan to the Granite petition of

January 3, 1977. It denied paying man-

agement fees to Illini or PSL and admit-

ted paying monthly fees to resident unit

Managers. It further denies that Granite

has been deprived of any profits since

Granite had admitted to losing $30,000

per month by its management of the pro-

perties prior to appointment of the

receiver. It concluded by stating that

no management services were provided by

Granite since the appointment of the

receiver and therefore they were not

entitled to fees.

FSLIC filed on February 25, 1977 its

motion to strike Granite's Motion for an

Order in Aid of Appellate Court Mandate

on the grounds that only the appellate

court could render such an order, the

motion was premature, and, in any event,

FSLIC obtained possession of the units

from PSL, not Granite, a fact it asser-

ted was admitted by Granite in its

petition and in two complaints filed in

St. Clair County Circuit Court, Case

Nos. 73 L 1674 and 73 L 1677.

On February 25, 1977 the plaintiffs

filed a response to the receiver's final

report coupled with a petition for dis-

tribution of undistributed receipts. By

this pleading the plaintiffs called upon

the court to approve the final report of

the receiver and order the undistributed

balance of $2,158,313 applied to payment

of past due mortgage payments which then

aggregated $3,996.417.96.

The final filing on February 25,

1977 was plaintiffs' response to the

January 3, 1977 petitions of Green and

Granite and the Motion in Aid of Appel-

late Court Mandate of Granite. They

moved to strike, pursuant to sections

45 and 48 of the Civil Practice Act (Ill.

Rev.Stat.1975, ch. 110, pars. 45 and 48),

all three pleadings upon the grounds that

they raised issues that were outside the

- scope of the appellate court mandate and

that the same issues were previously

raised in suits previously filed in the

circuit court of St. Clair County en-

titled Granite Investment Company v. PSL

Realty, et al., No. 73 L 1677 and Granite

Investment Company and James C. Green v.

PSL Realty Co., No. 73 L 1676.

On February 28, 1977 the defendants

filed a motion to strike and objections

to the receiver's final report. The

objections were that approval of the

final report would be tantamount to

approving all of the actions of the

receiver from April 28, 1972 to the

present, thus immunizing the receiver

from any subsequent action for wrong-

doing despite the fact that defendants'

petition of November 1, 1976 alleged

misfeasance on the part of the receiver

in that it had acted contrary to duties

imposed by law. They further objected

that their two petitions and motion

filed January 3, 1977 were still pend-

ing and until they have been determined

the court should not accept a final

report.

A hearing was held on March 31 and

April 4, 1977 on the final report of the

receiver and all other pending pleadings

filed on January 3, 1977 and subsequent

thereto. The receiver, the plaintiffs

and the defendants were present, present-

ed evidence and made closing arguments.

Findings of court were made and filed on

April 13, 1977, the substance of which

is as follows:

The Court is limited by the

mandate of the appellate court

which read:

"Upon remand, the trial

court should call for

pleadings upon the issue

of plaintiff's entitlement

to receive from funds in

the hands of the receiver

the accrued, unpaid install-

ments upon the contract for

deed, and after a hearing,

should determine the plain-

tiffs' entitlement upon

the merits of the question.

The direction to the trial

court to conduct a hearing

on the fees and expenses

of the receivership, as

provided in the original

opinion, stands."

No monies are due Granite as prayed

in its petition for reasonable profit,

the petition of James Green for account-

ing for use of laundromat facilities is

stricken for the reason that there is a

companion case pending in St. Clair

County Circuit Court and the matter is

outside the purview of this court;

The Motion in Aid of the Appellate

Court Mandate filed by Granite is outside

the jurisdiction of the court and out-

side the purview of these proceedings;

The final report filed by the recei-

ver represents a consolidation of the

394 monthly reports of the income and

expenses of the receivership which have

herto been submitted to and accepted by

this court;

The receiver discharged its fiduciary

responsibility in a prudent, business-

like and non-prejudicial manner having

sought and received court approval for

extraordinary expenditures and other

activities; and Granite offered no

evidence challenging the need for or

appropriateness of any expenditures made

by the receiver;

The order appointing the receiver

did not authorize it to make any payment

on the outstanding indebtedness and at

no time during the original appeal of

the case did any party make such a

request that the income from the proper-

ties be disbursed in a manner other than

as provided in the order of the circuit

court of April 28, 1972;

The final report should be approved

and all undistributed funds paid to

FSLIC in its capacity as mortgagee, for

- application on mortgages encumbering

the properties, from which funds were

derived, together with a pro rata appli-

cation of interest monies to each pro-

perty on the ration of income generated

by each individual property to the aggre-

gate income generated by all of the pro-

perties, subject to a receiver's fee,

which the court fixed in the sum of 4%

of the income received by it;

The appellate court in the original

appeal determined that the original pro-

ceedings herein were ancillary remedies

only and in the absence of a substantive

action, could not stand alone and should

be dissolved. Defendants apparently

recognized and pursued other substantive

relief in three separate legal actions

filed in the St. Clair County court for

damages by reason of contract forfeiture,

wrongful possession of laundromat facili-

ties, alleged breach of contract, mis-

application of rental incomes and speci-

fic performance;

Since the decision of the appellate

court this court has been advised, and

pleadings disclose, that Suuiiclasiinn

proceedings have been filed upon proper-

ties presently the subject matter of

this receivership and said properties

are now possessed by FSLIC, as mortgagee

in the Federal Court, Southern District,

Illinois;

Considerable legal services were

rendered to the receiver in this cause

by its attorneys and the receiver has

not sought any compensation therefor.

The foregoing findings produced an

order which was entered by the court on

April 29, 1977, the pertinent portions

of which:

(1) Approved and adopted the final

report of the receiver, including all

actions taken by the receiver and its

Managing agent.

(2) Awarded the receiver a fee of

4% of the gross receipts generated by

the receivership and directed payment

from the undistributed proceeds available

for distribution.

(3) Directed the balance of the un-

distributed funds be paid to the mortga-

gee for application to the indebtedness

encumbering the property, said applica-

tion to be made to the paroperty from

which the funds were derived. After

payment of the fee and application to

each mortgage any remaining portion of

interest earned on the receivership

account was to be applied on a pro rata

basis to the properties. The pro rata

application to each property was to be

the ratio of income generated by each

individual property to the aggregate

income generated by all the properties.

| (4) Granite's motion to strike and

objections to the receiver's final

report, the petition, petition for

accounting, and Motion in Aid of

Appellate Court Mandate were denied.

(5) The receiver and its agents

‘%

were fully discharged and released

effective September 30, 1976,

(6) The order was declared final

and a finding made that there was no

just reason for delaying enforcement of

or appeal therefrom.

Defendants filed a notice of appeal

from the order of court entered December

22, 1976 striking the defendants’ peti-

tion of November 1, 1976, and a notice

of appeal from the order of court enter-

ed April 29, 1977. The two appeals are

consolidated for opinion.

As may be seen from a review of the

Pleadings described above many issues

and arguments were advanced to the trial

court and they are renewed here. How-

ever, the scope of the issues to be con-

sidered is strictly controlled by the

nature of the proceeding. The only con-

cern we have is with the windup of the

receivership following the dissolution

of the temporary injunction and the re-

ceivership. Only issues necessarily

related to that process may be consider-

ed. We may not be concerned with the

ultimate rights of the parties with

regard to the merits of the substantive

claims made. The absence of substantive

claims from the case caused the dissolu-

tion of the temporary injunction and the

receivership. No hearing has ever been

held concerning substantive claims and

we would refrain from making any remark

that would indicate an opinion regarding

any substantive rights of the parties.

However, the contricted area of con-

cern cannot be so narrow as to preclude

consideration of any and all matters

reasonably and properly pertaining to

the closing out of the receivership.

Accordingly, we deem it proper to review

’%

claims of misfeasance and malfeasance

by the receiver throughout the term of

its office. Such actions are naturally

brought into the focus of concern at the

time of hearing on the final report. The

defendants must at some time have an

opportunity to be heard in court regard-

ing their charges against the receiver

in the management of the properties,

They likewise must be afforded opportun-

ity to make a full inquiry into the

accounting given by the receiver. It is

to be noted that FSLIC was not acting as

receiver in this case pursuant to any

federal statute or because of any duty

arising out of its supervision of savings

and loan associations or because of any

duty owed to the public as provided in a

federal statute. For the purposes of

this case it must be regarded the same as

any other receiver, personal or corporate.

Although there are three other actions

pending in the circuit court of St.

Clair County wherein defendants Granite

and Green are plaintiffs, and the relief

sought in those cases involves the same

property as the receivership, none of

those cases either names FSLIC as a

party defendant nor seeks affirmative

relief against it. This is the only

action where defendants can question the

conduct of the receiver; by failing to

do so they would very likely be confront-

ed with claims of res judicata, collater-

al estoppel or waiver in any future

action.

The foregoing generalized discussion

of the permissible scope of review must

now yield to the particular. The trial

court and the parties were proscribed in

their actions by the mandate of this

court following our opinion in the first

appeal. After a judgment is reversed by

an appellate court, the appellate court

judgment is final upon all questions

decided and those questions are no long-

er open to consideration, and the court

to which the cause is remanded can take

only such proceedings as conform to the

judgment of the appellate tribunal.

Berry v. Lewis (1963), 27 Ill.2d 61, 187

N.E.2d 688; Thomas v. Durchslag (1951),

410 Ill. 363, 102 N.E.2d 114; People v.

Bain (1973), 10 I11.App.3d 363, 293

N.E.2d 758.

The mandate directed the trial court

to call for pleadings upon the issue of

Plaintiffs' entitlement to receive from

funds in the hands of the receiver the

accrued, unpaid installments upon the

contract for deed, and after a hearing,

decide the question on the merits. The

mandate also directed the court to con-

duct a hearing on the amount to be allow-

°°.

ed as expenses and: fees of the receiver-

ship.

What issues, then, may properly be

encompassed within the plaintiffs' en-

titlement to payment on its contracts

for deed with Granite and the receiver's

entitlement to expenses and fees for

its services? And, under the posture of

the case before the trial court, were

there other matters or issues that were

undetermined in the first appeal or

arose following the first appeal over

which the trial court retained jurisdic-

tion? These questions control the deter-

mination of the case.

Twenty-one days after the filing of

the original opinion by this court, FSLIC,

the still acting receiver, purchased 48

mortgages from Illini. All the property

of the receivership was covered by these

mortgages. Eight days later the receiv-

er filed suit in Federal District Court

ti foreclose on these mortgages. FSLIC

did not seek permission of the trial

court or the appellate court, or even

notify them of its actions regarding

the purchase and foreclosure.

On October 28, 1976 the receiver

filed a petition for leave to file its

final report.

Neither the action by the receiver

in purchasing the mortgages and institu-

ting foreclosure thereon, nor the filing

of a final report by the receiver were

‘ directly addressed by this court in its

opinion on the first appeal or in its

Mandate. Nevertheless it cannot be

argued that the trial court was without

jurisdiction to consider any issues

these actions presented. The basis for

jurisdiction to consider issues arising

from the purchase and foreclosure of the

mortgages arises because the transactions

occurres following the first appeal and

the basis for jurisdiction of matters

arising from the filing of a final report

is present because it is a necessary

concomitant of the windup of a receiver-

ship.

"If a cause is remanded the

court to which it is remand-

ed can take only such pro-

ceedings as conform to the

judgment of the appellate

tribunal, and if specific

directions are given the

court can do nothing but

carry out such directions,

but if directions are not

abe it must be determined

rom the nature of the case

what further proceedings

would be proper and not in-

consistent with the opinion."

Town of Kaneville v. Meredith

(1935), 361 I11. 556, 198

N.E. 857.