Jurisdictional Statement — Pennzoil Co. v. Texaco Inc.
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8 5 - 1 r 9 8 () Supreme Court, U.S. —_
No. 85-___ Pine o
MAY 86
IN THE JOSEPH F. SPANIOL, JR.
Supreme Court of the United States
OCTOBER TERM, 1985
>
PENNZOIL COMPANY,
lant,
—against— Aap
TEXACO, INC.,
Appellee.
ON APPEAL FROM THE UNITED STATES
COURT OF APPEALS FOR THE SECOND CIRCUIT
JURISDICTIONAL STATEMENT
LAURENCE H. TRIBE
Counsel of Record
1525 Massachusetts Avenue
Cambridge, Massachusetts 02138
(617) 495-1767
Of Counsel:
JOSEPH D. JAMAIL JOHN L. JEFFERS
JAMAIL & KOLIUS G. IRVIN TERRELL
3300 One Allen Center BAKER & BOTTS
Houston, Texas 77002 3000 One Shell Plaza
HARRY M. REASONER Houston, Texas 77002
VINSON & ELKINS W. JAMES KRONZER
3300 First City Tower 1001 Texas, Suite 1030
1001 Fannin Houston, Texas 77002
Houston, Texas 77002 PAUL M. BATOR
ARTHUR L. LIMAN DOUGLAS A. POE
MARK A. BELNICK MAYER, BROWN & PLATT
PAUL, WEISS, RIFKIND, 231 South LaSalle Street
WHARTON & GARRISON Chicago, Illinois 60604
345 Park Avenue
New York, New York 10154 May |, 1986
oe
QUESTIONS PRESENTED
The judgment below, which authorized a federal district
court to interfere with pending state court proceedings by
enjoining recourse to the statutes a state has adopted for
adjusting the competing interests of judgment winners and
losers pending appeal, presents the following questions:
1. May a federal court treat an injunction of state court
proceedings as “expressly authorized” by 42 U.S.C. § 1983,
and therefore exempt from the Anti-Injunction Act, by trans-
forming into “the state” every private litigant who invokes
state judicial proceedings and may call on state officers to help
enforce the resulting judgment?
2. Having declared that enforcement of a private litigant’s
state court judgment is actionable under § 1983, may a federal
court avoid the comity principles of Younger v. Harris by
declaring that the state has no cognizable interest in such
enforcement proceedings inasmuch as the underlying action
was between private parties?
3. Do Younger principles permit a federal court to excuse
deliberate bypass of judicial remedies in a state’s appellate
system where there is no procedural bar to full and fair state
court consideration of a litigant’s constitutional challenges?
4. Under this Court’s Rooker and Feldman decisions, may a
federal court that concededly lacks appellate authority under
28 U.S.C. § 1257 nonetheless review the validity of alleged
state barriers to effective appeal on the theory that the private
litigant’s deliberate bypass of state judicial relief from those
supposed barriers permits treating the federal case brought by
that litigant as original rather than appellate in character?
5. May a federal court intervene in a pending state court
appeal to invalidate and enjoin the state’s judgment lien and
supersedeas bond provisions on the theory that the Due
Process Clause entitles a civil judgment debtor to an afforda-
ble stay of judgment pending appeal?
ii
PARTIES TO THE PROCEEDING
In addition to the parties listed in the caption of this case,
the State of Texas participated in the proceeding before the
Court of Appeals for the Second Circuit as an Intervenor-Ap-
pellant. Pennzoil Company has no parent company or affili-
ates as those terms are used in Supreme Court Rule 28.1.
Pennzoil’s non-wholly-owned subsidiaries are:
National Transit Company
The Eureka Pipe Line Company
Proven Properties, Inc.
ili
TABLE OF CONTENTS
CONSTITUTIONAL PROVISIONS, STATUTES AND
Ee
THE QUESTIONS ARE SUBSTANTIAL............
A. THE SECOND CIRCUIT’S RULING EVIS-
CERATES THE ANTI-INJUNCTION ACT ....
(1) The Holding Below Makes Every Judgment
Winner a State Actor Suable Under § 1983...
(2) So Sweeping a View of § 1983 Cannot Have
Been Contemplated by Mitchum vy. Foster ...
B. THE SECOND CIRCUIT’S JUDGMENT REPU-
DIATES THE COMITY RULES DEVELOPED
UNDER YOUNGER V. HARRIS..............
(1) Younger’s Abstention Rules Are Applicable
EE En
(2) Remedies Under Texas Law Meet the Younger
Cee
PAGE
13
16
iv
PAGE
C. THE SECOND CIRCUIT’S DECISION IN-
FRINGES UPON THIS COURT’S EXCLUSIVE
JURISDICTION TO REVIEW STATE COURT
JUDGMENTS UNDER 28 U.S.C. § 1257....... 20
D. DUE PROCESS DOES NOT ENTITLE A CIVIL
JUDGMENT DEBTOR TO A STAY PENDING
Fg, | SPPPTTTITITOLTLIT TTL TTT TT LTTE Tee 23
E. THERE IS NO PRINCIPLED WAY TO CON-
TAIN THE EXPANSION OF FEDERAL JURIS-
DICTION WROUGHT BY THE DECISION
TABLE OF AUTHORITIES
Cases PAGE
Atlantic Coast Line R.R. Co. v. Brotherhood of Loco-
motive Engineers, 398 U.S. 281 (1970) ............ 9, 20
Brown v. Texas, 443 U.S. 47 (1979) .............005- 19
City of New Orleans v. Dukes, 427 U.S. 297 (1976) (per
I, a a nS ee x
Chicago v. Atchinson, T. & S. F. R. Co., 357 U.S. 77
I ak sl x
Cobb. v. Georgia Power Co., 757 F.2d 1248 (11th Cir.
I a ak ah i i a 11, 12
Costarelli v. Massachusetts, 421 U.S. 193 (1975) (per
SE Suh eCuethCdak det ccathectacdeis oe wade ¢d< 8
Cruz v. Donnelly, 727 F.2d 79 (3d Cir. 1984) ......... 11, 12
Dennis v. Sparks, 449 U.S. 22 (1980) ................ 11
Dillingham v. Putnam, 109 Tex. 1, 14 S.W. 303 (1890) 18
District of Columbia Court of Appeals v. Feldman, 460
ktin decades hada es ceuneseeennt passim
Earnest v. Lowentritt, 690 F.2d 1198 (Sth Cir. 1982) ...11, 12
Edwards v. California, 314 U.S. 160 (1941) .......... 25
Evitts v. Lucey, 105 S.Ct. 830 (1985) ................ 24
FE GO, Fey Be Gis SD edccceccdcccccceses 22
Flagg Bros., Inc. v. Brooks, 436 U.S. 149 (1978) ...... 23
Fuentes v. Shevin, 407 U.S. 67 (1972) ............... 10
Hale v. Harney, No. 85-1472 (Sth Cir. April 7, 1986),
NR SESE At See Ee 21
Henry v. First Nat’l Bank, 595 F.2d 292 (Sth Cir. 1979),
cert. denied, 444 U.S. 1074 (1980) ................ 12
vi
PAGE
Huffman v. Pursue, Ltd., 420 U.S. 592 (1975) ....... passim
Juidice v. Vail, 430 U.S. 327 (1977) .............. 14, 15, 22
Lindsey v. Normet, 405 U.S. 56 (1972) ...........0.. 24
Louisville & Nashville R. Co. v. Stewart, 241 U.S: 261
en bakdb iS uletan teks cndecsnnk des cblraides 24
Lugar v. Edmondson Oil Co., 457 U.S. 922 (1982) ...passim
Lynch v. Household Finance, 405 U.S. 538 (1972) ....10, 11
M.1I.C. Ltd. v. Bedford Township, 463 U.S. 1341 (1983)
I en I ee cscccceceues 19
Middlesex Ethics Comm. v. Garden State Bar Ass’n, 457
I 5 i a a 18
Migra v. Warren City School District, 465 U.S. 75
DE Se eewetindue &cuubceniudbh sbucutessssaahe 22
Mitchum v. Foster, 407 U.S. 225 (1972) ............. passim
Monroe v. Pape, 365 U.S. 167 (1961) ............... 4, 20
Moore v. Sims, 442 U.S. 415 (1979) ............. 17, 19, 22
National Union of Marine Cooks Stewards v. Arnold,
I ne ae 24
National Socialist Party v. Skokie, 432 U.S. 43 (1977)
I Od is le a eek 19
Nebraska Press Ass’n vy. Stuart, 423 U.S. 1319 (1975)
Geer, 5., 0 GRMN nnn cccccccéccccccccs 19
Nelson v. Krusen, 678 S.W.2d 918 (Tex. 1984) ........ 18
Ohio v. Akron Park District, 281 U.S. 74 (1930) ...... 24
Pace v. McEwen, 604 S.W.2d 231 (Tex. Civ. App.
Ee e6605440 ho nahead eyed as oui dats backed 18, 19
Parson’s Steel Inc. v. First Alabama Bank, 106 S.Ct.
SE ts 4's OE tc ol deckeaanaaabiae koe atided 14
vii
PAGE
Patsy v. Florida Board of Regents, 457 U.S. 496 (1982) . 4
Reyes v. Atkins, 619 S.W.2d 26 (Tex. Civ. App. 1981) . 19
Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923) ....passim
Sniadach v. Family Finance Corp., 395 U.S. 337 (1969). 10
Texaco v. Pennzoil, No. 01-86-00216-CV ............ 21
Texaco v. Pennzoil, 784 F.2d 1133 ...........000005- |
Thomas v. Kadish, 748 F.2d 276 (Sth Cir. 1984), cert.
denied, 105 S.Ct. 3531 (1985) ........ cc cece eee eee 21
United Benefit Fire Ins. Co. v. Metro. Plumbing Co.,
FE ee ED oc co cecccsessccccceccsecece 17
Wainright v. Sykes, 433 U.S. 72 (1977) .........-05- 22
Yandell v. Tarrant State Bank, 538 S.W.2d 684 (1978) . 17
Younger v. Harris, 401 U.S. 37 (1971) ..........+--- passim
Vail v. Juidice, 406 F.Supp. 951 (S.D.N.Y. 1976) ...... 15
Volkswagenwerk A.G. v. Falzon, 461 U.S. 1303 (1983)
(O’Conner, J., in chambers) ......cccccsccccccees 8
Constitutional Provisions
U.S. Constitution, Fifth Amendment ..............-. 28
U.S. Constitution, Fourteenth Amendment .......... passim
Texas Constitution, Art. 1. § 13 ...........-..000 eee 18
Statutes
innocence ctensceesnienesnnsaneed passim
PD case nsdeessbednedectssensseseel passim
Es o.6 6.504060 a ncsbSipeencccnsnved passim
Texas Civ. Prac. & Rem. Code § 65.013 ............. 18
Vili
PAGE
Texas Gov’t Code § 22.002(a) (1986) ................ 19
Texas Prop. Code Ann. § 52.001 ................4.. 2
Rules -
MD tk oe ie ci dbedanete 2, 17
es Cs UD ewicuneekes ced deened SeGbuceoed passim
ix
OPINIONS BELOW
The opinion of the United States Court of Appeals for the
Second Circuit, dated February 20, 1986, is reported at 784
F.2d 1133, aid is repriuted as Appendix A. The opinion of the
United States District Court for the Southern District of New
York, dated January 10, 1986, is reported at 626 F.Supp. 250,
and is reprinted as Appendix D.
JURISDICTION
Texaco brought this action for injunctive relief in the United
States District Court for the Southern District of New York
under 42 U.S.C. § 1983 and 28 U.S.C. §§ 1331 and 1343. The
District Court granted a preliminary injunction on January 16,
1986, see Appendix B, against enforcement of certain Texas
bond and lien statutes, on the ground, inter alia, that their
application to Texaco would vioiate the Due Process Clause of
the Fourteenth Amendment to the United States Constitution.
See Appendix D.* The United States Court of Appeals for the
Second Circuit, affirming in part and reversing in part, sus-
tained the injunction against the Texas provisions on due
process grounds. See Appendix A. The judgment was entered
on February 20, 1986, see Appendix F, and the mandate issued
on March 13, 1986. Appellant’s motion to recall the mandate
and to clarify, modify or stay the judgment was denied by the
Court of Appeals on March 27, 1986. See Appendix G.
Appellant filed a timely Notice of Appeal to this Court in the
United States Court of Appeals for the Second Circuit on
March 21, 1986. See Appendix H. After remand, on April 8,
1986, the District Court entered an amended injunction barring
enforcement of Pennzoil’s Texas judgment until the comple-
tion of all appeals in Texas and to this Court under 28 U.S.C.
§ 1257. See Appendix C.
The Second Circuit, by affirming the grant of a preliminary
injunction against Pennzoil, has conclusively held the Texas
supersedeas bond and judgment lien provisions unconstitu-
tional as applied, leaving no federal issue to be resolved below.
This Court therefore has jurisdiction of this appeal under 28
U.S.C. § 1254(2). City of New Orleans v. Dukes, 427 U.S. 297,
302 (1976) (per curiam); Chicago v. Atchison, T. & S.F-R. Co.,
357 U.S. 77, 82-83 (1958).
° The District Court’s Supplemental Findings of Fact are set forth in
Appendix E.
xi
CONSTITUTIONAL PROVISIONS, STATUTES
AND RULES INVOLVED
The Fourteenth Amendment to the United States Constitu-
tion provides in relevant part that:
No State shall . . . deprive any person of life, liberty, or
property, without due process of law; nor deny to any
person within its jurisdiction the equal protection of the
laws.
Title 28, § 2283 of the United States Code provides that:
A court of the United States may not grant an injunction
to stay proceedings in a State court except as expressly
authorized by Act of Congress, or where necessary in aid
of its jurisdiction, or to protect or effectuate its judg-
ments.
Texas Rule of Civil Procedure 364 provides:
(a) May Suspend Execution. Unless otherwise pro-
vided by law or these rules, an appellant may suspend the
execution of the judgment by filing a good and sufficient
bond to be approved by the clerk, or making the deposit
provided by Rule 14c, payable to the appellee in the
amount provided below, conditioned that the appellant
shall prosecute his appeal or writ of error with effect and,
in case the judgment of the Supreme Court or Court of
Appeals shall be against him, he shall perform its judg-
ment, sentence or decree and pay all such damages as said
court may award against him.
(b) Money Judgment. When the judgment awards re-
covery of a sum of money, the amount of the bond or
deposit shall be at least the amount of the judgment,
interest, and costs.
xii
Texas Property Code, § 52.001 provides that:
A first or subsequent abstract of judgment, when it is
recorded and indexed in accordance with this chapter,
constitutes a lien on the real property of the defendant
located in the county in which the abstract is recorded and
indexed, including real property acquired after such re-
cording and indexing.
Texas Const. Art. I, § 13 is reprinted as Appendix K.
42 U.S.C. § 1983 is reprinted as Appendix L.
28 U.S.C. § 1257 is reprinted as Appendix M.
Texas Govt. Code § 22.002 is reprinted as Appendix N.
Fed.R.Civ.P. 62 is reprinted as Appendix O.
STATEMENT OF THE CASE
At issue in this case is the authority of federal district courts,
notwithstanding the Anti-Injunction Act and judicially-crafted
comity principles, to interfere with pending state court pro-
ceedings by enjoining recourse to the statutes a state has
adopted for adjusting the competing interests of judgment
winners and losers pending appeal. Apart from its intrinsic
interest as a matter.of judicial federalism, this issue is of
surpassing practical significance not only in cases like this one,
involving enormous sums, but in the thousands of routine
cases in which litigants cannot afford to post a bond that
would stay an adverse judgment pending appeal.
Pennzoil Company sued Texaco Inc. in a Texas state court in
February 1984 for intentionally inducing the breach of Penn-
zoil’s binding agreement to acquire 3/7 of Getty Oil Company.
In a 4-% month trial, Pennzoil, in the words of the Second
Circuit Court of Appeals (A41),'
established to the satisfaction of a Texas jury and judge
that it was unlawfully injured by Texaco’s tortious con-
duct, that as a reasult Pennzoil suffered enormous dam-
ages, and that Texaco’s conduct was sufficiently egregious
to require it in addition to pay punitive damages to the
victim.
The jury awarded Pennzoil compensatory damages of $7.53
billion, based on Pennzoil’s evidence of what it would cost to
replace the vast oil reserves that Pennzoil would have acquired
under its lost agreement with Getty. (Texaco introduced no
evidence on the issue of damages.) The jury also awarded $3
billion in punitive damages, bringing the total judgment en-
tered on December 10, 1985, including prejudgment interest
and costs, to $11.12 billion. (A126-27).
Texas law, like that of most states, provides that a party
wishing to appeal from a money judgment “may suspend the
execution of the judgment by filing a good and sufficient bond
1. Citations to the separately paginated appendices will be styled
“ A I
2
.” Texas R. Civ. P. 364(a). To protect the rights of the
prevailing r \rty while the appeal is pending, Texas, like 30
other jurisdictions,’ requires that the bond equal “at least the
amount of the judgment, interest, and costs,” id. 364(b),
“[uJnless otherwise provided by law,” id. 364(a).
A judgment debtor may appeal in Texas even without post-
ing a supersedeas bond, but the prevailing party may then take
steps to enforce its judgment while the appeal is pending. In
particular, the judgment creditor may record its judgment in
any Texas county and thereby acquire a lien on any property of
the judgment debtor located in that county. Texas Prop. Code
Ann. § 52.001.
No such threat of immediate enforcement existed with re-
spect to Pennzoil’s judgment against Texaco, however, for that
judgment included, with the consent of both parties, so-called
“stand-still” provisions carefully balanced to protect the in-
terests of both litigants. See Appendix I. These provisions
prohibited Pennzoil from taking any steps to enforce its
judgment, and also barred Texaco from transferring or encum-
bering its assets except in the ordinary course of business, as
long as the trial court retained jurisdiction of the case. (A127).
During this post-trial period, which lasted through March
25, 1986, Texaco was free to seek further relief in the Texas
trial and appellate courts from the appeal bond and judgment
lien provisions of Texas law, but it made no attempt to do so.
Indeed, to this day, Texaco has never raised in a Texas court its
objections to the validity or reasonableness of the Texas bond
and lien provisions. Nor has Texaco moved in the Texas courts
to obtain suitable alternative security :arrangements, not-
withstanding the fact that, after the judgment was entered,
Pennzoil made a stipulation (Appendix J) in the Texas trial
court waiving its right to a full bond and asking that court to
fashion fair and suitable security under standards such as those
contained in Fed.R.Civ.P. 62.
Several hours before the Texas court had even entered its
judgment, Texaco, which had just given its consent to the
stand-still provisions, filed suit against Pennzoil in the United
2. See n.17 infra.
3
States District Court for the Southern District of New York
(White Plains Division). Purporting to rely on 42 U.S.C.
§ 1983, and alleging that the Texas bond and lien provisions
violated the Due Process and Equal Protection Clauses of the
Fourteenth Amendment (Complaint, Claims 3 and 6), Texaco
asked the federal court in White Plains (a) to invalidate these
wholly conventional security provisions, (b) to decide for itself
what would be suitable security, and (c) to impose these
arrangements on the Texas litigants and the Texas courts by
means of an injunction. Texaco also sought immediate appel-
late review in the federal district court of the merits of the
Texas judgment, alleging that that judgment burdened inter-
state commerce, frustrated the Williams Act, permitted Penn-
zoil to violate the Securities Exchange Act, and violated the
Full Faith and Credit and Due Process Clauses of the Constitu-
tion (Claims 1, 2, 4, 5, and 7). (AS, All, A57-58).
On December 17, 1985, Judge Brieant issued a temporary
restraining order, and on January 16, 1986, he entered a
preliminary injunction prohibiting Pennzoil from “taking any
action of any kind whatsoever to enforce or attempt to en-
force” its Texas judgment. (A52). The district court ruled that
every one of Texaco’s claims “raise[d] serious questions” about
the “merits of the [Texas] judgment” (A63), that Texaco was
likely to be successful in its Texas appeal (A62, A66), that no
punitive damages should have been awarded (A64), and that
compensatory damages “should in no event exceed $800 mil-
lion” (A66). The court held the Texas statute requiring a
supersedeas bond in the full amount of the judgment unconsti-
tutional as applied to Texaco because it burdened Texaco’s
right to appeal to the Texas appellate courts, and to this Court
under 28 U.S.C. § 1257, in violation of the Fourteenth Amend-
ment. The district court required Texaco to post security of $1
billion as a condition for injunctive relief (A78), but otherwise
left Texaco free to transfer or encumber the assets upon which
Pennzoil would have to rely to collect its judgment.
On appeal, the United States Court of Appeals for the
Second Circuit, on February 20, 1986, directed dismissal of all
of Texaco’s claims other than those attacking the Texas lien
and bond provisions (Claims 3 and 6), holding that al! but
4
those two claims could not be adjudicated by the federal courts
since they had been litigated in the Texas courts. (A19-20). The
court ruled that district court consideration of these claims
would constitute an impermissible arrogation of appellate
power: “reviewability of these claims by the Texas appellate
courts and ultimately by the Supreme Court pursuant to 28
U.S.C. § 1257 precludes an inferior federal court from exercis-
ing jurisdiction over them.” (A20). |
But the Second Circuit reached a different conclusion with
respect to Texaco’s Claims 3 and 6—the claims challenging the
Texas bond and lien provisions. The court reasoned that
Texaco’s deliberate decision not to raise the question of the
validity of these provisions in the Texas state courts gave
Texaco the right to raise that question in a federal court. (A21).
It stated that cases such as Monroe v. Pape, 365 U.S. 167
(1961), and Patsy \. Florida Board of Regents, 457 U.S. 496
(1982)—holding that a plaintiff with a constitutional claim
under § 1983 may, as an original matter, choose to bring a
federal action rather than having to sue as a plaintiff in the
state courts—also give a defendant in a pending state court
proceeding the option to carve out federal issues and take them
to the “concurrent” jurisdiction of a federal court. (A21-22).
This is permitted, the court concluded, whenever a state court
litigant decides not to submit to the state courts the issue of the
validity of any state rule that is not “inextricably intertwined”
(A22) with claims that have been adjudicated in the state
courts.
The Second Circuit held that the Anti-Injunction Act, 28
U.S.C. § 2283, was likewise no bar to Texaco’s Claims 3 afid 6,
because these claims were properly brought pursuant to 42
U.S.C. § 1983. Relying upon this Court’s decision in Lugar v.
Edmondson Oil Co., 457 U.S. 922 (1982), the court below
declared Pennzoil to be acting “under color of” state law
because “[e]nforcement of the state court judgment .. .
necessarily involves a panoply of activities undertaken together
by Pennzoil and state officials, which constitute joint action
for the purposes of § 1983.” (A26).
On the other hand, the court of appeals ruled that, although
there was “an ongoing state proceeding” (A32), the principles
5
of federalism and comity animating Younger v. Harris, 401
U.S. 37 (1971), did not prevent the district court from issuing
its injunction against Pennzoil, because Pennzoil—even
though held to be an arm of the state for “state-action”
purposes—was, for Younger purposes, merely a “private liti-
gant” and its dispute with Texaco merely “a suit between two
private parties” (A34). An injunction against Pennzoil thus did
not prevent action by “any arm of the state” (A34); and
neither Texas’ interest in “protecting the rights of its citizens to
obtain and enforce judgments in the Texas Courts,” nor its
“interest in the constitutionality of its statutes,” was “impor-
tant” or “substantial.” (A32).
The Second Circuit further held that abstention was not
required because, in its opinion, the Texas state courts do not
provide “adequate procedures for adjudicating Texaco’s fed-
eral claims” (A35). Without identifying a procedural bar to
such adjudication, the court simply observed that “[t]here is no
assurance” that the Texas appellate courts would grant Texaco
an “immediate stay of execution” pending a ruling on the
federal claim, nor that they would fix security in an amount
that the court of appeals would deem “reasonable” (A37-38).
As to the merits of Texaco’s attack on the Texas lien and
bond statutes, the Second Circuit concluded, in effect, that a
judgment debtor has a Fourteenth Amendment right to an
affordable bond, and thus “declare[d] the Texas lien and bond
provisions to be unconstitutional . . . as applied” (A35):
“(Denial of a stay of execution unless a supersedeas bond in
the full amount of the judgment is posted ... [would]
amount[ ] to a confiscation of the judgment debtor’s property
without due process. . . [and] reduce its appeal to a meaning-
less ritual[ ,] [s]ince Texaco would be bankrupt or in liquidation
by the time its appeals were decided. . . .” (A44). The Second
Circuit proceeded to affirm the district court injunction pro-
hibiting Pennzoil from taking any steps in the Texas courts to
facilitate the enforcement of its judgment (A47-51), whether by
invoking the lien and bond provisions, or by requesting other
forms of protection to preserve the status quo.
6
Having affirmed injunctive relief for Texaco and having
sustained the $1 billion bond ordered by the district court, the
Second Circuit stated that further proceedings in the district
court were “unnecessary” pending the disposition of the Texes
appeal. (A48). The district court was to retain jurisdiction
solely for the purpose of ruling on “any application with
respect to the security terms of the injunction arising out of
changed circumstances.” (A51).
On March 21, 1986, contending that the decision below
threatened to make its state court judgment uncollectable,
Pennzoil moved the court of appeals to clarify, modify, or stay
its judgment so that Pennzoil would at least be free to ask the
Texas courts to extend the Texas trial court’s “stand-still”
order (see p. 2 supra) or otherwise to seek security in Texas
apart from the Texas lien and bond provisions. The court of
appeals denied this motion on March 27, 1986. See Appendix G.
THE QUESTIONS ARE SUBSTANTIAL
The judgment of the court below sanctions an unprece-
dented intrusion by a federal court into ongoing state court
proceedings, opening a yawning breach in the wall of statutes
and judicial doctrines erected by Congress and this Court as a
barrier to just such intrusions. Despite that barrier, the Second
Circuit ruled that a federal district court in New York may
entertain a collateral attack on the validity of the application,
in a Texas lawsuit, of Texas statutes governing security ar-
rangements pending the appeal being pursued in that suit, and
that the district court may displace those statutes and decide
for itself what security is “reasonable” to protect the Texas
judgment that Pennzoil won before a Texas jury and judge.
The court of appeals turned the law on its head by insisting
that the New York federal courts have this authority because
Texaco deliberately bypassed the state courts and declined to
present its constitutional objections in the ongoing Texas litiga-
tion.
The district court in White Plains has been given carte
blanche to supplant the courts of Texas and to exercise con-
tinuing supervision over pendente lite security arrangements
throughout the Texas litigation—preventing Pennzoil, on pain
7
of contempt, from pursuing any remedy in any Texas tribunal
to protect its existing and—unless and until reversed—wholly
lawful Texas judgment.
The Second Circuit accomplished this intrusion by construct-
ing a contrived complex of exceptions to every one of the
statutory and judicially elaborated comity rules that, in com-
bination, embody the overarching principle that the state and
federal judicial systems are independent and parallel, both
subject to the governance of this Court, but without power—
apart from exceptional and rigorously cabined circumstances—
to supervise or interfere with each other’s proceedings. By
ruling that every state-court judgment winner becomes “an
arm of the state” whenever there is any prospect that the
State’s judgment enforcement machinery will actually be
engaged, the court below radically expanded the scope of
§ 1983’s application to the private sector, while simultaneously
contracting the application of the Anti-Injunction Act, 28
U.S.C. § 2283; it thus dramatically reduced the impact of the
Statute through which Congress, ever since 1793, has voiced its
steadfast insistence that the federal courts may not interfere
with state court proceedings.
Then, in an abrupt about-face, the court of appeals also
took out of play the judicially-crafted rule of comity ex-
pounded in Younger v. Harris, on the ground that Pennzoil,
having just been ruled a state actor for § 1983 purposes, is
magically transformed into a purely private actor for Younger
purposes. The court thereby created a capacious zone within
which comity is simply inapplicable because neither § 2283 nor
abstention is operative—the former being suspended because
the federal action seeks relief under § 1983 against a state-
court litigant who is deemed to wield the power of the State,
and the latter because that same state court litigation is
nevertheless said to involve merely private parties and private
interests and therefore to be undeserving of comity.
Finally, the court of appeals ruled that Texaco’s deliberate
bypass of the Texas state courts af firmatively justified Texaco’s
excursion to the federal courts, rather than constituting a
decisive obstacle to the exercise of federal jurisdiction. What
had been vice thus became virtue: the very same failure to
exhaust state procedures and appeals that would have denied
8
Texaco access to this Court pursuant to 28 U.S.C. § 1257, see,
e.g., Volkswagenwerk A.G. v. Falzon, 461 U.S. 1303 (1983)
(O’Connor, J., in chambers); Costarelli v. Massachusetts, 421
U.S. 193 (1975) (per curiam), was viewed by the Second Circuit
as providing Texaco a privileged entree to a federal district
court under § 1983. For Texaco’s deliberate bypass was seized
on by the court below as rendering inapplicable to this case the
rule of Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and
District of Columbia Court of Appeals v. Feldman, 460 U.S.
462 (1983), which hold that only this Court has authority,
under 28 U.S.C. § 1257, to review any judgment of a state
court. According to the Second Circuit, this rule can be eluded
by the simple expedient of failing to raise a question in a state
proceeding and slicing it out for separate collateral litigation in
a federal district court, thereby undermining the carefully
articulated system devised by Congress for the orderly raising
of federal questions in pending state court litigation, with
review first in the state courts and ultimately in this Court.
The Second Circuit’s ruling surely warrants plenary review.
It invites all losing state court litigants to invent new ma-
neuvers for side-swiping ongoing state court proceedings. It
creates a no-man’s land within which none of the relevant
comity statutes and rules is operative—a jurisdictional darkling
plain where litigants shanghaied from state courts clash by
night. At a minimum, the decision below authorizes every
State-court judgment debtor who is unable to satisfy a state’s
pendente lite security requirements to bypass the state courts
and mount a collateral attack on those requirements. The court
below created for the first time a right, enforceable in a federal
district court, to an affordable bond pending an appeal from a
state court judgment.
The attempt of the court of appeals to limit its ruling to the
“unique” circumstances at hand—to fashion a special Rule in
Texaco’s Case—has no principled basis and, if accepted, would
create substantial equal protection problems. Moreover, the
Second Circuit’s ruling-cannot be limited to issues concerning
the validity of state laws governing security pending appeal.
Numerous state procedural and structural rules governing the
processing of litigation from initial filing to final appellate
judgment are vulnerable to imaginative constitutional objec-
9
tions. Under the ruling below, a// of these are now subject to
collateral attack by state court litigants who will exploit the
Second Circuit’s no-man’s land unless this Court acts now to
eliminate it.
A. THE SECOND CIRCUIT’S RULING EVISCERATES
THE ANTI-INJUNCTION ACT.
The Anti-Injunction Act, in force since 1793, provides that a
federal court may not enjoin state court proceedings “except as
expressly authorized by Act of Congress, or where necessary in
aid of its jurisdiction, or to protect or effectuate its judg-
ments.” 28 U.S.C. § 2283. The Act is a linchpin of federal-
state judicial relations, for “[o]bviously this dual system could
not function if state and federal courts were free to fight each
other for control of a particular case.” Atlantic Coast Line
R.R. Co. v. Brotherhood of Locomotive Engineers, 398 U.S.
281, 286 (1970). The “lines of demarcation” contained in the
Act are designed to permit each court system to function
“independently of the other with ultimate review in this Court
of the federal questions raised in either system.” /d. The
effectiveness of the Act, and thus the integrity of the dual
court system, are seriously threatened by the Second Circuit’s
decision in this case.’
The Second Circuit held the Anti-Injunction Act inapplica-
ble on the ground that Texaco’s due process claim against
Pennzoil constituted an action authorized by 42 U.S.C. § 1983
and therefore, under this Court’s ruling in Mitchum v. Foster,
407 U.S. 225 (1972), an action in which an injunction is
“expressly authorized by Act of Congress.” By this holding,
the court below effected an unprecedented expansion in the
application of § 1983 to private defendants and thereby im-
periled the continued vitality of the Anti-Injunction Act.
3. Although the injunction issued in this case was directed solely
against Pennzoil, the Anti-Injunction Act—like the application of Younger
abstention principles-—“cannot be evaded by addressing the order to the
parties or prohibiting utilization of the results of a completed state proceed-
ing.” Atlantic Coast Line R.R. Co., supra, 398 U.S. at 297.
10
1. The Holding Below Makes Every Judgment Winner A
State Actor Suable Under § 1983. ~
For Texaco’s federal action t qualify as a § 1983 action,
and thus one exempted from § 2283 under Mitchum v. Foster,
Pennzoil must be deemed “a person who may fairly be said to
be a state actor.” Lugar v. Edmondson Oil Co., 457 U.S. 922,
937 (1982). Relying on Lugar, the court of appeals held that
Pennzoil fits into this category because, in order to enforce its
judgment, “Pennzoil would have to act jointly with state
agents by calling on state officials to attach and seize Texaco’s
assets.” (A25).
This conclusion, which transforms into “the state” every
state-court judgment winner who may call on state officers to
help enforce his judgment, radically expands this Court’s
holding in Lugar—itself a decision that had extended the
State-action concept. Lugar sustained a § 1983 claim against a
private party who had invoked a state prejudgment attachment
statute before any judicial proceedings had occurred in the
case. The Lugar majority repeatedly stressed that the private
party’s joint action with state officials in that case involved a
prejudgment attachment procedure, 457 U.S. at 927, 927 n.6,
932, and thus the judicially unsupervised seizure by an alleged
"creditor of disputed property,” id. at 933, 941 (emphasis
addea); the Court twice expressly stated that its holding “was
limited to the particular context of prejudgment attachment.”
Id. at 939 n.21; see id. at 942.
In equating Texas’ post-judgment, post-jury trial lien proce-
dures with Lugar’s pre-judgment, pre-trial,.ex parte attach-
ment procedures, the Second Circuit completely ignored a
fundamental and principled limitation on Lugar. When the
State delegates to a private person the awesome power to
interfere with others’ property before there have been any
judicial proceedings whatever, exercise of that power is subject
to constitutional constraints.* But where a private person
4. Lugar thus falls within the line of cases including Sniadach v. Family
Finance Corp., 395 U.S. 337 (1969), Lynch v. Household Finance, 405 U.S.
$38 (1972), and Fuentes v. Shevin, 407 U.S. 67 (1972), which hold that the
Due Process Clause requires a fair opportunity to be heard in connection
with private creditors’ resort to pre-judgment attachment, garnishment and
11
merely asks the state to help enforce a judgment duly rendered
by a jury and confirmed by the courts, a holding that that
private person has become the state simply because he has
invoked normal state procedures completely obliterates the
distinction between private and state action.
The critical line is between a state delegation permitting
private parties “to substitute their judgment for that of [aj
state official or body,” Cruz v. Donnelly, 727 F.2d 79, 82 (3d
Cir. 1984), and a system that allows a private person to invoke
state process after the state has itself determined the relevant
rights and liabilities.* Under the Second Circuit’s reasoning, all
trial winners who may at some point seek to enforce their
judgments become state actors fully subject to all the substan-
tive constraints of the Due Process and Equal Protection
Clauses and vulnerable to suit under § 1983 with respect to any
constitutional claims that can be conjured by disgruntled trial
losers. But as this Court noted in Dennis v. Sparks, 449 U.S.
24, 28 (1980), “merely resorting to the courts and being on the
winning side of a lawsuit” does not make a private party into a
state actor under § 1983, any more than merely filing a
complaint does. Accord, Lugar, supra, 457 U.S. at 939 n.21.
The Second Circuit’s decision conflicts both with that basic
teaching and with the holdings of other courts of appeals.°
replevin procedures. Federal relief is available only because such pre-judg-
ment procedures—which involve no assertion of judicial authority and
indeed often occur before a complaint as been served—do not constitute
“proceeding[s] in state court.” Lynch, supra, 405 U.S. at 553; see id. at
554-55.
S. The Second Circuit reasoned that, since “state officials can act only
upon Pennzoil’s unilateral determination” (A28) to collect the damages
awarded it by a judge and jury, this is not a case in which “the independent
judgment of the state judiciary is called into play” (A27-28). Apparently a
4% month trial does not, in the opinion of the court below, sufficiently
involve “the independent judgment of the state judiciary.”
6. See Earnest v. Lowentritt, 690 F.2d 1198, 1201 (Sth Cir. 1982)
(initiation of mortgage foreclosure proceedings does not constitute state
action); Cobb v. Georgia Power Co., 757 F.2d 1248, 1252 (11th Cir. 1985)
(regulated utility does ‘not act “under color of” state law by obtaining a
temporary restraining order from a state court). See also Cruz v. Donnelly,
12
2. So Sweeping a View of § 1983 Cannot Have Been Con-
templated by Mitchum v. Foster.
By vastly expanding the application of § 1983 to private
conduct, the holding below retroactively pumps new meaning
into the exemption authorized by Mitchum v. Foster and
thereby drastically erodes the force of the Anti-Injunction Act.
That Act by its very terms comes into play only where state
judicial proceedings have been invoked. But if the invocation
of state judicial proceedings makes a private litigant a state
actor whose conduct is actionable under § 1983 whenever a
constitutional complaint against him can be invented, § 2283
will be cannibalized. Even if the Second Circuit’s ruling is
limited to state-court judgment winners, the result will be to
render § 2283 inoperative with respect to federal court interfer-
ence with state post-trial and appellate processes. Surely this is
not what this Court contemplated when it decided Mitchum v.
Foster, which was a real § 1983 action against a real govern-
ment officer whose official activities constituted the sort of
action at the core of Congress’ concern when it “expressly
authorized” injunctive relief under § 1983.
When asked to expand the coverage of § 1983, courts must
consider what the expansion would do to the policies animat-
ing the Anti-Injunction Act. Such consideration is entirely
missing from the analysis of the court of appeals. The court’s
approach entices state court judgment losers to mount collat-
eral federal attacks on state court procedures regulating the
enforcement of state judgments and other aspects of the state
appeal process. It gives the lower federal courts a large and
727 F.2d 79, 82 (3d Cir. 1984) (a store operator and employee were not “state
actors” when they summoned police officers who strip-searched plaintiff).
Henry v. First Nat’l Bank, 595 F.2d 292 (Sth Cir. 1979), cert. denied, 444
U.S. 1074 (1980), rendered prior to Lugar and animated by the now
discredited notion that every state-court litigant has a right to have a federal
court adjudicate his federal claims, is no longer good law even in the circuit
in which it was decided. See Cobb v. Georgia Power Co. (\\th Cir.) and
Earnest v. Lowentritt (Sth Cir.), supra. Moreover, the Henry court stressed
that “the federal plaintiffs had exhausted all avenues of emergency state
relief available to them,” 595 F.2d at 302; id. at 296, before filing their
federal suit, and they therefore confronted an “immediately enforceable”
judgment. /d. at 299. Texaco, not having exhausted such avenues, confronts
no such thing.
13
wholly unjustified zone within which to enjoin ongoing state
proceedings.’ The Second Circuit’s holding therefore merits
plenary review by this Court.
B. THE SECOND CIRCUIT’S JUDGMENT REPUDI-
ATES THE COMITY RULES DEVELOPED BY THIS
COURT UNDER YOUNGER v. HARRIS.
Even if ‘the Anti-Injunction Act is held not to bar the
injunction issued at Texaco’s behest, the “national policy
forbidding federal courts to stay or enjoin state proceedings
except under special circumstances” would compel the same
result here. Younger v. Harris, 401 U.S. 37, 41 (1971). For
Mitchum v. Foster, supra, expressly held that the fact that a
case is brought unde: § 1983 (and thus is technically exempt
from § 2283) does not “qualify in any way the principles of
equity, comity and federalism that must restrain a federal court
when asked to enjoin a state court proceeding,” 407 U.S. at
243. The Second Circuit’s failure to heed this admonition
undermines Younger and plainly deserves plenary review.
1. Younger’s Absention Rules Are Applicable Here.
The court of appeals escaped its obligation to follow
Younger by ruling that the Pennzoil v. Texaco lawsuit was a
purely “private” dispute that did not implicate any important
state interests. After forcing Pennzoil into the garb of a § 1983
Me The breadth of the injunction affirmed below illustrates the range of
federal judicial intrusions portended by the Second Circuit’s holding. For the
injunction that the Second Circuit refused even to modify, see Appendix G,
enjoins Pennzoil from going to the courts of Texas for any form of
protection of its interests during the pendency of Texaco’s appeal on the
meriis—even a mere extension of the bilateral stand-still that expired on
March 26, 1986. Yet the only exception to § 2283 even suggested in this
case—§ 1983—bears af most upon the injunction against the lien and bond
provisions, the only Texas laws ever challenged by Texaco. Any bootstrap
plea for jurisdiction over unchallenged Texas procedures as a means of
effectuating the judgment against those that were challenged is powerful
evidence that Texaco’s purported § 1983 claim against the bond requirement
is nothing more than a subterfuge for a collateral federal attack on the Texas
judgment itself, resting on undifferentiated disdain and hostility toward the
Texas judiciary.
14
&
state actor in order to evade the strictures of § 2283, the
Second Circuit stripped Pennzoil of that same attire in order to
escape the federal court abstention compelled in this case by
Younger. Having previously declared that, for the purposes of
§§ 1983 and 2283, “Pennzoil cannot be divorced from [the
Texas] enforcement procedure merely because a.court author-
ized execution of the judgment” (A26), the court below pro-
ceeded to divorce Texas itself from its own enforcement
procedures by holding that “the state has no interest in the
underlying action” in this case (A34).
The court of appeals thus created a zone within which al/
rules of comity are rendered entirely inoperative. It thereby
made nonsense of the law. If Pennzoil is to be deemed “the
state” for § 1983 purposes, this must be because its activities
implicate the public powers of the state. But if the public
powers of the state are in fact implicated, Younger concerns
come into play for that very reason: the point of the Younger
doctrine is to assure that the use of state courts for the
effectuation of the state’s public policies not be subject to
federal interference, except in narrowly defined extraordinary
-circumstances. To conclude, as the court below did, that a
§ 1983 action is so private that it escapes Younger is a contra-
diction in terms: by definition the § 1983 action is an action
against public authorities to curb the exercise of public
power—power “under color. . . of state law”—and sensitivity
to comity interests therefore becomes absolutely imperative.*
In holding Younger inapplicable, the court of appeals also
disregarded both the specific holdings and the animating phi-
losophy of this Court’s cases in the Younger line.’ Thus, in
8. For this reason, the Court does not in this case have to decide the
much-controverted question whether Younger should apply to “purely”
private litigation. That question would, of course, be important only where
§ 2283 would not itself be a bar to an injunction. Cf. Parson’s Steel Inc. v.
First Alabama Bank, 106 S.Ct. 768, 773 (1986), where this Court directed the
district court on remand of a private civil case “to decide the propriety of a
federal-court injunction under the general principles of equity, comity, and
federalism discussed in Mitchum v. Foster.”
9. In Juidice v. Vail, 430 U.S. 327 (1977), this Court expressly warned
against narrow and wooden interpretations of the Younger rule: “We now
hold . . . that the principles of Younger and Huffman are not confined
15
Juidice v. Vail, 430 U.S. 327 (1977), the federal plaintiff was,
like Texaco, a state court judgment debtor, and the judgment
was also entered in a private civil lawsuit. There, as here, the
federal claim was a § 1983 action challenging state laws and
procedures enabling a successful plaintiff to protect his interest
in the judgment—in that case, by moving for contempt in the
event the adjudged debtor failed to appear for a deposition
about the assets for satisfaction of the judgment. 430 U.S. at
329-30.
The Second Circuit’s conclusion that “[h]ere the state has no
interest in the underlying action” (A34), would have been just
as apt—or inapt—in Juidice, where New York had no particu-
lar interest in the private financial dispute underlying the
privately-taken deposition and the privately-issued subpoena.
But just as New York had a substantial interest—requiring
federal abstention—in “civil contempt proceedings . . . initi-
ated by private parties to enforce compliance with subpoenas
issued by private attorneys,” Vail v. Juidice, 406 F.Supp. 951,
958 (S.D.N.Y. 1976), so Texas has a vital interest in the
functioning and enforcement of its bond and lien laws,
“process[es] through which [it] vindicates the regular opera-
tions of its judicial system,” Juidice v. Vail, 430 U.S. at 335.
The court of appeals opined that to allow Younger to
operate here “would broaden Younger to cover almost every
§ 1983 case and thus undermine the Supreme Court’s holding
in Mitchum that federal courts are empowered by § 1983 to
enjoin ongoing state proceedings.” (A32). But Mitchum itself
made it absolutely clear that its ruling is not in any way
“undermined” by the applicability of Younger; in fact, the
Court justified its conclusion in Mitchum by noting that
Younger comity principles will be operative even though § 2283
is not. Mitchum thus clearly stands for the proposition that, in
real § 1983 actions seeking to enjoin real state officials and
agencies from litigating in state courts, Younger is fully appli-
cable.
The court below now holds that, when a self-styled § 1983
action is brought against private persons, federal injunctions
solely to the type of state actions which were sought to be enjoined in those
cases,” 430 U.S. at 334.
16
may be granted entirely without comity constraints. This has
the perverse result of making § 1983 a far more radical instru-
ment for federal intervention against private litigants—who are
at the margins of the policies of § 1983—than against the state
officials who are the central focus of those policies.
When combined, the Second Circuit’s § 1983 and Younger
holdings spawn an entirely new and populous breed of federal
lawsuits aimed at the actions of ordinary citizens and corpora-
tions who happen to have garnered an enforceable judgment in
a state court. Since fundamental principles of comity do not
apply in the no-man’s land inhabited by this species of litiga-
tion, nothing remains to prevent such lawsuits from repeatedly
disrupting pending state judicial proceedings. The Second
Circuit’s holding that Younger is entirely inapplicable to this
case flies in the face of this Court’s governing cases and creates
an ominous gap in fundamental principles of comity. It conse-
quently merits plenary review by this Court.
2. Remedies Under Texas Law Meet The Younger
Requirements.
The Second Circuit held that Pennzoil had not satisfied
another requirement for Younger abstention—namely, that the
Texas state courts provide adequate procedures for the adjudi-
cation of Texaco’s federal claims. (A35). Yet to this day,
Texaco has made no attempt to raise its objections to the
application of the Texas lien and bond provisions in the Texas
courts. Texaco had three full months, during which the judg-
ment was stayed by the stand-still order, to obtain a ruling
from the trial court on the constitutionality of the lien and
bond provisions and, absent a favorable ruling, to seek review
in the Texas appellate courts, either by expedited direct appeal
or by mandamus. The Second Circuit nevertheless concluded
that it was unreasonable to ask Texaco initially to present its
complaint about a Texas rule to the Texas court in which it was
currently litigating. (A37-38).
The Second Circuit based its conclusion about lack of Texas
procedures on a series of distrustful speculations about Texas
law and Texas courts. The court below stated that it “appears
unlikely” that Texaco “could have been assured” of a decision
17
on the constitutional issues by the Texas trial court (A35), and
that there was “no assurance” that the Texas appellate courts
would have granted relief to Texaco in a timely fashion if
Texaco had sought that relief. (A37). The Second Circuit
further speculated that seeking relief from the bond require-
ment in Texas would have been futile since the rule had
consistently been enforced “as written,” and therefore “the
Texas trial judge would in all probability deny relief sought on
constitutional grounds” (A36).
The focus of these speculations is entirely misplaced. The
“pertinent inquiry” is mot when and how the Texas courts
might rule but whether “state procedural law barred presenta-
tion of [Texaco’s]} claims.” Moore v. Sims, 442 U.S. 415, 432
(1979) (emphasis added). In the absence of such a bar, Younger
abstention is required—and may not be waived on the basis of
self-serving predictions that recourse to the state courts would
be “futile” because those courts will rigidly apply as written the
statutes the state court litigant seeks to challenge. No such
procedural bar exists in this case, and the Second Circuit did
not even suggest otherwise. Indeed, there is no indication that
the Texas trial or appellate courts could not have fashioned an
arrangement like the stand-still order pending appeal, particu-
larly in view of Pennzoil’s express stipulation in the Texas trial
court that it would not demand the imposition of an appeal
bond in the full amount of the judgment.'°
10. The Second Circuit denigrated Pennzoil’s waiver of its state-created
right to a full bond as a mere “unilateral request” to the Texas trial court to
determine security pending appeal by applying the standards of Fed.R.Civ.P.
62. (A48). Yet if the challenged Texas lien and bond provisions indeed
operate only upon Pennzoil’s “unilateral determination” (A28), it is unclear
at best how the Second Circuit found any Article III “case” or “controversy”
over Pennzoil’s hypothetical invocation of those provisions against Texaco,
since Pennzoil expressly waived whatever “unilateral” rights those provisions
conferred upon it. Pennzoil’s waiver, duly filed in the Texas trial court as a
“stipulation” pursuant to Texas practice (Appendix J), is effective as a
matter of Texas law to bind Pennzoil. The lien and bond provisions were
intended for the benefit of judgment creditors such as Pennzoil, and their
waiver obviously does not adversely affect the rights of the judgment
debtor—just the opposite. See Yandell v. Tarrant State Bank, 538 S.W.2d 684
(1978); United Benefit Fire Ins. Co. v. Metro. Plumbing Co., 363 S.W.2d 843
(1962). Even the district court recognized that “consent” by Pennzoil would
remove the alleged constitutional defect in the lien and bond statutes. (A68,
A75).
18
If the burden the Texas bond requirement imposes on Texaco
is as unprecedented and uniquely devastating as the Second
Circuit evidently believed (see A39-40), there could be no
reason short of general mistrust of the Texas courts to assume
that those courts would remain unmoved and would blindly
apply other bond precedents. “Minimal respect for the state
processes, of course, precludes any presumption that the state
courts will not safeguard federal constitutional rights.”
Middlesex Ethics Comm. v. Garden State Bar Ass’n, 457 U.S.
423, 431 (1982) (emphasis in original). The Second Circuit
nevertheless indulged just that presumption—one which was
especially inappropriate here. The Texas Supreme Court has
repeatedly and emphatically held that the “open courts” provi-
sion of that State’s own Constitution, Art. I, § 13, see Appen-
dix K, requires a Texas court to suspend the literal operation of
any statutory or other condition that, as a practical matter,
renders unavailable the access to appellate courts that Texas
law secures. Thus, in Dillingham v. Putnam, 109 Tex. 1, 5, 14
S.W. 303, 305 (1890), the court stated:
“[AJn Act of the Legislature which makes the right. . .
to prosecute an appeal . . . depend on the giving of a
supersedeas bond, without reference to the ability or
inability. . . to give such bond, is violative of the [Texas]
Constitution.”
See Nelson v. Krusen, 678 S.W.2d 918, 921 (Tex. 1984) (re-
affirming Dillingham).''
11. In Pace v. McEwen, 604 S.W.2d 231 (Tex.Civ.App. 1980), the Texas
intermediate appellate court enjoined enforcement of a trial court order just
ten days after entry because that order, requiring a judgment debtor to turn
over real estate for sale in satisfaction of the judgment, effectively rendered
the appeal meaningless. The Pace court viewed its injunction as necessary to
preserve its own appellate jurisdiction, id. at 232-33, and further held that
the trial court itself had the power to grant the same injunctive relief “to
prevent damage to an appellant,” id. at 233.
That power is codified by statute: Texas Civil Practice and Remedies Code
§ 65.013 provides that “[aJn injunction may not be granted to stay a
judgment or proceeding at law except to stay as much of the recovery or
cause of action as the complainant in his petition shows himself equitably
entitled to be relieved against.” This statutory authorization is particularly
19
Even if the Second Circuit were correct that, as a practical
matter, the Texas courts could not or would not act with
sufficient speed,'? Texaco would have an available remedy in
this Court under 28 U.S.C. § 1257, because Texaco would then
have satisfied that statute’s requirement of exhausting remedies
in “the highest court of a state in which a decision could be
had.” See Brown v. Texas, 443 U.S. 47, 50 (1979). Thus, a
Circuit Justice of this Court could grant a stay of the judgment
pending appeal through the state system and review in this
Court. See, e.g., M.I.C. Ltd. v. Bedford Township, 463 U.S.
1341, 1342-43 (1983) (Brennan, J., in chambers). See also Nat’!
Socialist Party v. Skokie, 432 U.S. 43, 44 (1977) (per curiam);
Nebraska Press Ass’n v. Stuart, 423 U.S. 1319, 1327-29 (1975)
(Blackmun, J., in chambers).
It is the central teaching of this Court’s decisions that,
throughout state court proceedings, litigants must exhaust their
judicial remedies unless there is a clear “procedural bar” to the
raising of the federal issue in the state courts. Moore v. Sims,
supra, 442 U.S. at 430-31 n.13. This obligation includes the
duty to exhaust the state appellate system. Huffman v. Pursue,
Ltd., 420 U.S. 592 (1975). The court of appeals gutted this rule
by holding that a state litigant is free to withhold its federal
claim from the state courts and resort to a federal court on the
basis of abstract and hostile speculations about the effective-
ness and timeliness of the state’s remedial system. The result is
an open incentive to state court litigants to carve particular
issues out of pending cases and cart them to a federal district
court in search of what they perceive to be a more favorable
significant in light of the broadening language that was added to Rule 364
itself in 1984. As amended, that rule provides that execution of a judgment
may be suspended only by the filing of a full supersedeas bond, “[ujnless
otherwise provided by law. . . .” Tex.R.Civ.P. 364 (a).
12. Pace confirms that the Texas appellate courts are capable of hearing
and deciding Texaco’s petition for relief from Rule 364 in very short order
indeed. Additional avenues by which Texaco could seek relief from the
bonding requirement include a petition to the Texas Supreme Court for a
writ of mandamus (see Tex. Gov't Code, § 22.002(a) (1986), reprinted in
Appendix N), or an original proceeding for injunction in the Texas Court of
Civil Appeals. See Reyes v. Atkins, 619 S.W.2d 26 (Tex. Civ. App. 1981).
20
resolution. Precisely the same mode of analysis would support
piecemeal shopping trips to federal forums on numerous pro-
cedural and structural issues that can readily be labeled “collat-
eral” and made the basis of a supposedly independent cause of
action under § 1983. The upshot is to allow litigants to assem-
ble jurisdictional sandwiches to suit their tastes—a state slice
here, a federal slice there. This prospect is sufficient to merit
this Court’s plenary attention.
C. THE SECOND CIRCUIT’S DECISION INFRINGES
UPON THIS COURT’S EXCLUSIVE JURISDICTION
TO REVIEW STATE COURT JUDGMENTS UNDER
28 U.S.C. § 1257.
For more than sixty years, this Court has steadfastly main-
tained that “a United States District Court has no authority to
review final judgments of a state court in judicial proceed-
ings.” District of Columbia Court of Appews v. Feldman, 460
U.S. 462, 482 (1983); see also Rooker v. Fidelity Trust Co., 263
U.S. 413 (1923). Even with respect to federal constitutional
defects, “[rjeview of such judgments may be had only in this
Court.” Id. The sole recourse of the party alleging such a
defect is to present its constitutional questions to the state
courts in the first instance and ultimately to this Court on
review. Any other rule would be irreconcilable with the princi-
ples of comity inherent in our dual court system. See Atlantic
Coast Line R.R. Co., supra, 398 U.S. at 288.
The court below nonetheless held that the district court in
White Plains had jurisdiction to grant relief with respect to
Texaco’s arguments against the Texas bond and lien provisions
as applied to this $11 billion judgment because these arguments
had not been presented to the Texas trial court and were not
“inextricably intertwined” with claims that had been so pre-
sented. (A22-23). The Second Circuit reasoned that, as to
issues that are unrelated “to the merits of [a] judgment” (A23,
A41) and that the litigant has “chose[n] to withhold from the
state court” (A21), the rule of Monroe v. Pape gives the
federal courts an independent “concurrent” jurisdiction to
which dissatisfied parties may resort without exhausting state
remedies. That cannot be.
21
First, there is no authority whatever for the proposition that
Rooker-Feldman applies only to substantive claims concerning
the merits of a case and not to the numerous procedural and
structural issues posed by the processing of state court litiga-
tion. Under 28 U.S.C. § 1257, this Court reviews “judgments
or decrees”, not issues; the enforceability of the judgment
obtained by Pennzoil in Texas is the very matter that the courts
below purported to review, and the very matter that those
courts stayed.
Second, it is an error—and one placing the Second Circuit in
conflict with the Fifth'’—to suppose that the Rooker-Feldman
doctrine may be limited to instances in which a federal court is
literally asked to review the result of a state court adjudication.
The whole point of that doctrine is that Congress has never
conferred upon the lower federal courts the authority to
displace state courts (and ultimately this Court) in the appellate
process. It matters not whether such displacement takes the
form of direct review by a lower federal court of a state court
judgment, or the form of collateral federal attack on the
validity, as applied to that judgment, of the state laws render-
ing the judgment immediately enforceable. For only the courts
with jurisdiction to hear appeals have power to review and
correct procedural barriers that limit the value of those ap-
peals.
Third, this Court’s decision in Huffman v. Pursue, Ltd.,
supra, explicitly rejects the notion that § 1983 provides a
“concurrent” federal forum for constitutional claims even if
13. See Hale v. Harney, No. 85-1472 (Sth Cir. April 7, 1986), Slip Op.
(upholding dismissal of complaint under Rooker-Feldman even though some
of the constitutional challenges to Texas law had not been submitted to the
Texas courts); Thomas v. Kadish, 748 F.2d 276, 282 (Sth Cir. 1984), cert.
denied, 105 S.Ct. 3531 (1985).
14. On the Second Circuit’s theory, Yexaco should have been free to file
its request for additional argument time before the Texas Court of Appeals
not in that court, See Motion to Enlarge Time for Oral Argument in Texaco
v. Pennzoil, No. 01-86-00216-CV, but as a civil rights action in federal
district court, claiming that a 20-minute oral argument limit in a multibillion-
dollar case makes the appeal an exercise in futility.
22
interference with pending state court proceedings results. Al-
though a party normally need not exhaust state remedies
before bringing a § 1983 action as an original matter, the
Huffman Court noted that this principle has “nothing to do”
with the issue of “the deference to be accorded state proceed-
ings which have already been initiated and which afford a
competent tribunal for the resolution of federal issues.” 420
U.S. at 609 n.21.
Fourth, the Second Circuit’s erroneous conclusion that Tex-
aco’s deliberate bypass of the Texas courts opens—rather than
closes—the doors of the federal courthouse creates a looking-
glass inversion of federalism that is all the more bewildering in
the wake of this Court’s opinion in Feldman. There the Court
dealt with the bypass issue and concluded that bypassing the
state courts did not authorize otherwise impermissible federal
court litigation:
[T]he fact that we may not have jurisdiction to review a
final state-court judgment because of a petitioner’s failure
to raise his constitutional claims in state court does not
mean that a United States district court should have
jurisdiction over the claims. By failing to raise his claims
in state court a plaintiff may forfeit his right to obtain
review of the state-court decision in any federal court.
460 U.S. at 482-84 n.16 (emphasis added).
As this Court observed in Feldman, “[t]his result is emi-
nently defensible on policy grounds.” Jd. And the rule that
executing an end-run around the state courts may make a
federal forum unavailable for those constitutional claims is
hardly unique to Rooker-Feldman: the same rule prevails under
Younger; see, e.g., Moore v. Sims, supra, 442 U.S. at 432;
Huffman v. Pursue, Ltd., supra, 420 U.S. at 609; Juidice v.
Vail, supra, 430 U.S. at 337; in the area of federal habeas
corpus, see, e.g., Fay v. Noia, 372 U.S. 391 (1963); Wainright
v. Sykes, 433 U.S. 72 (1977); and with respect to res judicata
questions in § 1983 cases, see, e.g., Migra v. Warren City
School Dist., 465 U.S. 75 (1984). The contrary rule embraced
by the Second Circuit’s holding—begetting a species of “civil
habeas corpus” without any exhaustion requirement—replaces
23
federal comity with an anti-comity principle and legitimates the
familiar litigator’s trick of “sand-bagging” issues. This topsy-
turvy result, making-the district court in a collateral proceeding
a more potent and inviting forum than this Court on direct
revicw, merits the plenary attention of this Court.
D. DUE PROCESS DOES NOT ENTITLE A CIVIL JUDG-
MENT DEBTOR TO A STAY PENDING APPEAL.
In addition to violating three distinct but related jurisdic-
tional barriers in upholding the district court injunction, the
Second Circuit concocted a novel due process right that is at
odds with this Court’s decisions.
In order to state a claim under § 1983, Texaco was required
to show that it had been “deprived of a right ‘secured by the
Constitution and the laws’ of the United States.” Flagg Bros.,
Inc. v. Brooks, 436 U.S. 149, 155 (1978), quoting 42 U.S.C.
§ 1983. The court of appeals reasoned that conditioning a stay
of execution on Texaco’s posting of a $12 billion supersedeas
bond “would at least amount to a deprivation of [Texaco’s]
property in violation of its right to due process” (A24), since
such a bond could force Texaco into bankruptcy “by the time
its appeals were decided” (A44).
The Second Circuit’s conclusion that Texaco has a due
process right to avoid application of the Texas bond and lien
provisions is both unprecedented and unwarranted. First, it is
problematic whether any “deprivation” of a “judgment
debtor’s property” (A44) is at stake, since the amount in
question has been adjudicated to be a debt Texaco owes to
judgment creditor Pennzoil. Texaco cannot complain of being
“deprived” of property which it no longer unqualifiedly
“owns.” Second, the transfer of ownership of that sum of
money from Texaco to Pennzoil was hardly accomplished
“without due process” (A44), for Texaco had notice of the
claim against it and a full and fair opportunity to be heard:
after a 4-% month trial in a court of law, a jury found that
Texaco had tortiously deprived Pennzoil of billions of dollars
when it took away Getty’s assets; Texaco has enjoyed the
benefits of those wrongfully obtained billions for more than
two years.
24
Due process does not require a state to go further and
provide access to an appellate court. Lindsey v. Normet, 405
U.S. 56, 77 (1972); Ohio v. Akron Park District, 281 U.S. 74,
80 (1930). Of course, once Texas created an appellate system,
the Constitution foreclosed the option of limiting the right of
appeal by irrational or arbitrary requirements. Evitts v. Lucey,
105 S.Ct. 830, 840 (1985). But Texas has not limited Texaco’s
appeal rights: Texaco has in fact perfected its appeal by filing a
notice of appeal and posting a small bond to cover appeal
costs; and Texaco’s prosecution of that appeal in no way
depends upon its posting of any security for the judgment,
upon its obtaining a stay of the judgment’s execution, or upon
a suspension of the Texas judgment lien provisions.
What the court below really held is that the Fourteenth
Amendment denies Pennzoil the security Texas law deems
necessary to protect its trial victory by entitling Texaco to
avoid, pending appeal, the consequences of its trial loss. But
until the ruling below, it was well established that a civil
litigant has no due process right to be free from the execution
of a judgment pending its appeal. In fact, this Court has
expressly so held. In National Union of Marine Cooks Stew-
ards v. Arnold, 348 U.S. 37 (1954), a judgment debtor refused
to file a bond protecting the judgment creditor pending appeal
and, in order to “safeguard the collectability” of the judgment,
the state court dismissed the debtor’s appeal. Jd. at 41. This
Court concluded that there had been no violation of the Due
Process Clause, stating that “[w]here the effectiveness of a
money judgment is jeopardized by the judgment debtor, he has
no constitutional right to an- appeal extending that frustra-
tion.” Id. at 44. A fortiori Texaco, with its right to appeal
unaffected by the Texas appeal bond and judgment lien provi-
sions, has no right to be free from security requirements
pending appeal. There is “no obligation upon the State to
provide for suspension of judgment” pending whatever appeal
process it has made available. Louisville & Nashville R. Co. v.
Stewart, 241 U.S. 261, 263 (1916) (unanimously holding that a
state may require a 110% supersedeas bond pending appeal of
a money judgment).
The Second Circuit nonetheless insists that Texas has
imposed an irrational burden on Texaco’s right to appeal by
25
requiring Texaco to post a $12 billion bond as a condition of a
stay.'° But there is nothing irrational in Texas’ decision to
safeguard fully the interests of those who have won judgments
in Texas courts. States are free to strike their own balance
between the interests of judgment creditors and those of
judgment debtors. Some states, like Rhode Island, favor the
debtor and require the trial court automatically to stay execu-
tion upon the filing of a notice of appeal,’ without regard to
the fact that this may leave the debtor free to encumber or
transfer assets, rendering the judgment uncollectable in the
event it is upheld on appeal. Many other states, like Texas,
have decided that, once a trial is complete, the judgment
creditor is entitled to assurance that it will be able to collect the
award if it is ultimately affirmed. Nothing in the Due Process
Clause empowers a federal court to arrogate to itself the
authority to countermand that state policy choice simply
because the federal tribunal might strike the balance differently
or come to a different conclusion about the threat to the
judgment creditor’s interests.
For the Second Circuit to hold that Texaco is entitled, as a
matter of federal law, essentially to proceed with business as
usual, as though the Texas trial court had never entered a
judgment against Texaco, is to hold that the Texas judicial
system has no claim at all in the matter until all appeals within
and from that system have been exhausted. To state that
contention is to refute it: the most elementary axioms of
respect for state judicial proceedings preclude reducing state
court judgments, throughout the pendency of the state appel-
late process, to empty declarations of abstract rights—like so
many “bequest[s] in a pauper’s will,” Edwards v. California,
314 U.S. 160, 186 (1941) (Jackson, J., concurring).
The Second Circuit’s adherence to a dubious due process
theory which flies in the face of this Court’s long-settled
15. That is, if a full bond were in fact to be required—an issue that has,
of course, never been resolved because Texaco has successfully prevented its
resolution in the Texas courts.
16. R.I.R.Civ.P62(c). Other states providing for automatic stay of
execution upon appeal include Connecticut, Conn.R.Ct. § 3065; Maine,
Me.R.Civ.P.62(e); Massachusetts, Mass.R.Civ.P.62(d); New Hampshire,
N.H.Ct.R.Ann.74; and Vermont, Vt.R.Civ.P.62(e).
26
precedents is of more than academic interest. Texas is only one
of 30 states (plus the District of Columbia) that presumptively
require a supersedeas bond equal to or greater than the
judgment as a condition to a stay of execution pending
appeal.'’ ;
The threat to the orderly administration of justice in those
jurisdictions posed by the judgment below requires this Court’s
plenary attention.
E. . THERE IS NO PRINCIPLED WAY TO CONTAIN THE
EXPANSION OF FEDERAL JURISDICTION
WROUGHT BY THE JUDGMENT BELOW.
Apparently concerned that its ruling would open the doors
to numerous federal intrusions into ongoing state court litiga-
17. The law in 14 other states requires, like Texas Rule 364, the posting
of at least a full bond: Alabama, Ala.R.CivP.62(d), Ala.R.App.P.8(a);
Arkansas, Ark.R.Civ.P.62(d), Ark.R.App.P.8(c); Delaware, Del.Const.,
Art.IV, § 24, Del.R.Civ.P.62(d), Dei.Sup.Ct.R.32(c); lowa, lowa R.App.P.7;
Louisiana, La.Code Civ.P. Art. 2124 (West 1986); Michigan, Mich.R.Civ.P.
2.614(D), Mich.R.App.P. 7.101(H)(1)(c); Minnesota, Minn.R.Civ.P.62.03,
Minn.R.App.P.108.01(3); Nebraska, Neb.Rev.Stat. § 25-1916(1) (Supp.
1981); New Mexico, N.M.R.Civ.P.62(d); New York, N.Y Civ.Pract.Law
§ 5519(a)(2) (Consol.1978); Oklahoma, Okla.Stat.Ann. tit. 12, § 968 (West
Supp.1985), Okla.R.Civ.App.P. 1.13; Oregon, Or.Rev.Stat. §§ 19.038,
19.040 & 19.045 (1981), Or.R.Civ.P.72(a); South Dakota, S.D.Codified Laws
Ann. §§ 15-6-62(d), 15-26A-25, 15-26A-26 (1984); Virginia, Va.Code § 8.01-
676.1(a) & (c) (1985).
Sixteen additional jurisdictions have laws presumptively requiring a full
bond, but explicitly allowing the trial court some equitable discretion to
reduce the size of the bond: Alaska, Alaska R.Civ.P.62(d), Alaska
R.App.P.7(d); Arizona, Ariz.R.Civ.App.P.7(a); District of Columbia,
D.C.R.Civ.P.62-I1, D.C.R.App.P.8(b); Georgia, Ga.Code Ann. § 5-6-46(a)
(1985); Idaho, Idaho R.Civ.P.62(d), Idaho R.App.P.13(b)(14); Indiana,
Ind.R.Civ.P.62(d); Kansas, Kan.Stat.Ann. § 60-2103(d) (1983); Kentucky,
Ky.R.Civ.P. 62.03 & 72.04; Maryland, Md.R.App.P.1018(b)(1); Mississippi,
Miss.Code Ann. §§ 11-51-31 & 11-51-53 (Supp. 1985); Missouri,
Mo.R.Civ.P.81.09(b); New Jersey, N.J.R.App.P.2:9-5 & 2:9-6; Pennsylvania,
Pa.R.App.P.1731!; Tennessee, Tenn.R.Civ.P.62.04 & 62.05; Washington,
Wash.R.App.P.8.1(b); Wyoming, Wyo.R.Civ.P.62(d), Wyo.R.App.P.2.07.
Such provisos cannot distinguish the rule in those states from the rule at issue
here. For the nub of Texaco’s complaint here must be that the the particular
bond demanded in this case would work the same injury as immediate
execution of Pennzoil’s judgment. Had a $12 billion bond been set in the
discretion of a Texas judge after a full hearing, Texaco could still go to a
federal court to claim a violation of due process.
27
tion, the court of appeals purported to limit its decision to “the
extraordinary circumstances of this case, which are unlikely
ever again to recur,” including the large amount of the judg-
ment, the “clear inability” on the part of the judgment debtor
to comply with the supersedeas bond requirement, and the
“prospect” that the staie courts would not rule on Texaco’s
constitutional objections before the judgement was enforced.
(A50). The Second Circuit’s effort to create a Rule in Texaco’s
Case limited solely to the particular facts of this litigation is
unavailing.
Some 31! jurisdictions have statutory bond requirements as
demanding as those of Texas, and nearly every jurisdiction in
the nation requires a supersedeas bond under some circum-
stances. The judgment below exposes every one of these
provisions to collateral, post-trial attack in the federal courts.
Whenever a judgment debtor must post a bond—whether its
size is set by statute or by a state court’s discretion—large
enough to threaten that debtor with the same irreversible
injury that would accompany immediate execution of the
judgment, the rationale of the Second Circuit would justify
federal judicial intervention.
It is true, of course, that the size of the judgment against
Texaco is unprecedented. But it is no larger, in relation to
Texaco’s assets, than thousands of judgments entered against
less wealthy parties. It could be just as difficult or “impossi-
ble” for a “Mom-and-Pop” grocery store that had been held
liable for $100,000 or even $10,000 in damages in a slip-and-
fall tort action to post a bond in that amount as it is for Texaco
to secure the Pennzoil judgment. Mom and Pop could likewise
allege that execution of the judgment before the completion of
the appeals process would leave their business—and perhaps
their lives—-irreversibly altered.'* Such lawsuits and such judg-
18. And judgment creditors compelled by state courts to stay execution
of their hard-won victories pending appeal, without the security of what
those parties would deem an adequate bond, see n.16 supra, would no doubt
dash to federal court for injunctions compelling the state tribunals to
demand a larger bond or to permit immediate enforcement. A judgment
creditor denied adequate security can readily allege that the state court or
state rule which has risked making the judgment ultimately uncollectable has
indeed worked irreversible harm and wrought an unconstitutional depriva-
tion.
28
ments, accompanied by such circumstances, are quotidian, not
“rare.” Limiting the Rule to Texaco—or to large companies
with large judgments against them—would be blatantly arbi-
trary and would create a wealth-based classification that itself
would raise serious equal protection questions under the Due
Process Clause of the Fifth Amendment.'®
Indeed, the Rule in Texaco’s Case cannot be confined to
issues surrounding security pending appeal. The state statute
books are stuffed with procedural and structural rules govern-
ing the processing of private disputes through the state trial
and appellate courts, and the law reporters are filled with cases
attacking the fairness and reasonableness of such rules and
alleging that their enforcement would work irreparable harm.
Under the Second Circuit’s ruling, all these issues are easy prey
to federal collateral attack during ongoing state proceedings;
all that is needed is a deliberate bypass of the state courts and a
bit of artful pleading to make it appear that the federal
defendant is suable under § 1983 because his invocation of
state judicial proceedings—whether before or after judgment—
converts him into a state actor. Since that makes the Anti-
Injunction Act inapplicable and since, under the ruling below,
Younger is also inapplicable, the door is open to wide-scale
evasions of this Court’s comity rulings. Thus every litigant in
State court is given a fielder’s choice as to whether to pursue
his remedies directly in the state’s judicial system, with review
19. Nor can the rule propounded by the Second Circuit be confined in
any principled way to litigation resulting in money judgments. The minimal
principle for which the judgment below must stand is that federal! relief is
available under § 1983 whenever the losing party in state court civil litigation
is accorded a right to appeal but is prevented, by a combination of state law
and unavoidable circumstance, from staying execution of an adverse judg-
ment pending appeal—provided such execution may cause “irreversible
destruction” of some interest of the losing party (A50). But such irreversibil-
ity may be claimed whenever appellate victory could not wholly undo the
consequences of a judgment’s execution. Thus, in ordinary family disputes
resulting in visitation decrees or custody awards, in various contract or
property disputes ending in awards of specific performance with respect to
some unique item, and in myriad tort cases leading to judgments granting
equitable relief, the losing party may readily claim, just as Texaco did here,
that the right of appeal provided by the state is irrationally fettered and
-unfairly rendered futile unless the state makes it possible for the loser to stay
enforcement of the judgment pending appeal.
29
in this Court once state avenues have been exhausted, or to
commence a collateral federal action under rules that reward
deliberate bypass of the state’s judicial system.
CONCLUSION
In its haste to provide immediate and unprecedented relief to
Texaco notwithstanding the availability of the Texas state
courts and this Court under § 1257 as forums where Texaco
could present its constitutional claims in an orderly fashion,
the Second Circuit has fundamentally altered the jurisdictional
landscape. Weakened by the inconsistent and dubious excep-
tions pioneered by the court below, the Anti-Injunction Act,
Younger abstention, and the Rooker-Feldman doctrine no
longer clearly define the boundaries of the federal and state
judicial systems. Dissatisfied state court litigants are free to
roam across jurisdictional borders, disregarding comity and
manipulating federal tribunals into supplanting state courts
and state policies and supervising state procedures in pending
state litigation. The logic that generated this federal interven-
tion admits of no limiting principles and can be contained only
by the most arbitrary of parameters. For these reasons, the
Court should note probabie jurisdiction.
Respectfully submitted,
LAURENCE H. TRIBE
Counsel of Record
1525 Massachusetts Avenue
Cambridge, Massachusetts 02138
(617) 495-1767
Of Counsel:
JOSEPH D. JAMAIL JOHN L. JEFFERS
JAMAIL & KOLIUS G. IRVIN TERRELL
3300 One Allen Center BAKER & BOTTS
Houston, Texas 77002 3000 One Shell Plaza
Houston, Texas 77002
(continued on next page)
30
HARRY M. REASONER
VINSON & ELKINS
3300 First City Tower
1001 Fannin
Houston, Texas 77002
ARTHUR L. LIMAN
MARK A. BELNICK
PAUL, WEISS, RIFKIND,
WHARTON & GARRISON
345 Park Avenue
New York, New York 10154
W. JAMES KRONZER
1001 Texas, Suite 1030
Houston, Texas 77002
PAUL M. BATOR
DOUGLAS A. POE
MAYER, BROWN & PLATT
231 South LaSalle Street
Chicago, Illinois 60604
May 1, 1986
TABLE OF CONTENTS
PAGE
APPENDIX A
Opinion of United States Court of Appeals for the
Second Circuit, dated February 20, 1986 ........... Al
APPENDIX B
Order of United States District Court for the Southern
District of New York, dated January 16, 1986....... A52
APPENDIX C
Amended Order after remand of United States District
Court for the Southern District of New York, dated
EEE AS4
APPENDIX D
Opinion of United States District Court for the
Southern District of New York, dated January 10,
ete Mie e es Ce dedeaseetbececbereces A56
APPENDIX E
Supplemental Findings of Fact of United States Dis-
trict Court for the Southern District of New York,
sn os ic eces penseseeseestes A79
APPENDIX F
Judgment of United States Court of Appeals for the
Second Circuit, dated February 20, 1986 ........... A118
APPENDIX G
Order of United States Court of Appeals for the
Second Circuit Denying Motion for Recall of Man-
date/Clarification, Modification or Partial Stay of
Judgment, dated March 27, 1986.................. A120
ii
PAGE
APPENDIX H
Notice of Appeal to this Court, filed March 21, 1986 A121
APPENDIX I
Judgment of District Court of Harris County, Texas,
15ist Judicial District, dated December 10, 1985.... A123
APPENDIX J
Pennzoil Stipulation, dated December 20, 1985...... A129
APPENDIX K
Article 1, Section 13 of the Texas Constitution (in
ee ign gk kus nd pend enadenets abies ahdken Al31
APPENDIX L
Title 42, Section 1983 of the United States Code .... A132
APPENDIX M
Title 28, Section 1257 of the United States Code .... A133
APPENDIX N
Section 22.002(a) of the Texas Government Code.... A134
APPENDIX O
Rule 62 of the Federal Rules of Civil Procedure..... Al35
Al
APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
+
Nos. 883, 884—August Term 1985
Argued: February 11, 1986 Decided: February 20, 1986
Docket Nos. 86-7046, 86-7052
+
TEXACO INC.,
Plaintiff-A ppellee,
—against—
PENNZOIL COMPANY,
Defendant-Appellant,
STATE OF TEXAS,
Intervenor.
>
Before:
LUMBARD, MANSFIELD and PIERCE,
Circuit Judges.
os
Appeal by Pennzoil Company from an order of the
Southern District of New York, Brieant, Judge, granting
A2
to Texaco Inc. a preliminary injunction restraining Penn-
zoil from enforcing a Texas state court money judgment
in the sum of $11.12 billion pending appeals to the Texas
appellate courts and the United States Supreme Court.
The injunction was issued on the grounds that enforce-
ment of the Texas judgment pending appeal would violate
Texaco’s constitutional and federal statutory rights.
Affirmed in part and reversed in part.
+
ARTHUR L. LIMAN, New York, NY, and
LAURENCE H. TRIBE, Cambridge, MA
(Mark A. Belnick, Gerard E. Harper,
Brad S. Karp, Stephen M. Merkel, Paul,
Weiss, Rifkind, Wharton & Garrison,
New York, NY; John L. Jeffers, Jr., G.
Irvin Terrell, Baker & Botts, Houston,
TX; Paul M. Bator, Mayer, Brown &
Platt, Chicago, IL, of counsel), for
Appellant Pennzoil Company.
DAVID BOIES, New ‘York, NY, and PAUL J.
CURRAN, New York, NY (Thomas D.
Barr, Max R. Shulman, Francis P. Bar-
ron, Stephen S. Madsen, William F.
Duker, Stephen D. Poss, Robert B.
Silver, Rosemary Q. Barry, Richard L.
Crisona, Nicholas A. Gravante, Jr.,
Linda C. McClain, Dominic Surprenant,
Cravath, Swaine & Moore, New York,
NY; Milton J. Schubin, Randolph S.
Sherman, Ira S. Sacks, David R. Garcia,
A3
J. Clark Kelso, Kaye, Scholer, Fierman,
Hays & Handler, New York, NY, of coun-
sel), for Appellee Texaco Inc.
JIM MATTOX, Attorney General, State of
Texas, Austin, TX (Mary F. Keller, Ex-
ecutive Assistant, J. Patrick Wiseman,
Assistant Attorney General, W. Robert
Gray, Assistant Attorney General, of
counsel), for Intervenor State of Texas.
Amici briefs have been received from the
following:
State of Alabama
State of Alaska
State of California
State of Delaware
State of Florida
State of Kansas
State of Montana
NAACP
State of New Mexico
State of New York
U.S. Senator Alfonse M. D’Amato
Rep. Hamilton Fish, Jr. and 24 Other
Members of U.S. Congress from New
York
The Business Council of New York
State of Oklahoma
Attorney General of State of Oklahoma
Hon. Jack Brooks and 12 Other Mem-
bers of U.S. Congress from Texas
State of Washington
State of Wyoming
A4
Henry Fowler, W. Michael Blumenthal,
G. William Miller and William E.
Simon, former Secretaries of the U.S.
Treasury
The Committee of Concerned Employees
and Retirees (Stockholders) of Texaco
Inc.
——§
MANSFIELD, Circuit Judge:
Pennzoil Company (“Pennzoil”), a Delaware corpora-
tion with its principal place of business in Texas, appeals
an order of the Southern District of New York, Brieant,
Judge, granting to Texaco Inc. (“Texaco”), a Delaware
corporation based in New York, a preliminary injunction
restraining Pennzoil from seeking to enforce a judgment
entered on December 10, 1985, by the Texas state court
for the 151st Judicial District in the sum of $11.12 billion
(including punitive damages, pre-judgment interest and
costs) in Pennzoil’s favor against Texaco.' The Texas
judgment, handed down after a four-and-one-half month
jury trial, was based on the jury’s findings with respect to
special issues propounded by the court.
In substance the jury found that Texaco had knowingly
and intentionally interfered with a pending agreement
between Getty Oil Co. (“Getty”) and Pennzoil, which was
negotiated in New York, for the latter’s acquisition of
approximately 3/7ths of Getty’s Outstanding shares at
$110.00 per share plus certain additional consideration
i Upon the district judge’s invitation the State of Texas intervened as a
party pursuant to 28 U.S.C. § 2403(b) and has also appealed.
AS
and that Pennzoil was entitled to $7.53 billion compensa-
tory damages and $3 billion punitive damages. The stock
was eventually sold by Getty to Texaco at a higher price
($128 per share) than that found to have been agreed ~
upon between Getty and Pennzoil.
The present action was commenced by Texaco’s filing
of its complaint in the Southern District of New York on
December 10, 1985. The complaint set forth seven claims
(described infra at pp. 9-10) alleging that the Texas
judgment and enforcement of it through use of Texas lien
and supe:sedeas bond provisions (described infra at
pp. 6-7) would violate its rights under the Commerce,
Supremacy, Full Faith and Credit, Due Process and Equal
Protection Clauses of our federal Constitution, as well as
under the Civil Rights Act of 1871, 42 U.S.C. § 1983, the
Securities Exchange Act of 1934, 15 U.S.C. § 78, and
Rules promulgated by the S.E.C. under the latter Act.
We hold that the district court had jurisdiction over the
Third and Sixth Claims of Texaco’s Amended Complaint
(due process and equal protection) in the present action
and that the grant of preliminary injunctive relief based
on them'does not represent an abuse of judicial discretion
since it is supported by undisputed facts that satisfy
well-established standards for preliminary injunctive re-
lief. However, all other claims asserted in Texaco’s com-
plaint must be dismissed for lack of subject matter
jurisdiction since they seek appellate review on the merits
of the Texas judgment in violation of 28 U.S.C. § 1257 as
interpreted by the United States Supreme Court.’ See
: 28 U.S.C. § 1257 provides in pertinent part:
Ҥ 1257. State courts; appeal; certiorari
“Final judgments or decrees rendered by the highest court of a
(Footnote continued on following page)
A6
District of Columbia Court of Appeals v. Feldman, 460
U.S. 462 (1983): Atlantic Coast Line R. Co. v. Brother-
hood of Locomotive Engineers, 398 U.S. 281, 286 (1970);
Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923). The
injunctive relief issued by the ‘i<.rict court on the Third
and Sixth Claims of the Amended Complaint is affirmed.
The case is remanded with directions to dismiss the First,
Second, Fourth, Fifth and Seventh Claims.
The principal issues in the Texas case were whether
Getty had entered into an agreement with Pennzoil,
whether Texaco had according to the law of New York
tortiously interfered with that contract, and, if so, what
' damages were suffered by Pennzoil as a result of Texaco’s
conduct. Following the jury’s special findings in Penn-
zoil’s favor on these issues the Texas trial judge, Hon.
Solomon Casseb, denied Texaco’s motion for judgment
n.o.v., which was sought on various grounds, including
all of those alleged in the present federal action except
those alleged in the Third and Sixth Claims. On Decem-
ber 10, 1985, Judge Casseb entered judgment in favor of
Pennzoil against Texaco in the sum of $7.53 billion
compensatory damages, $3 billion punitive damages and
$624,753,662 prejudgment interest to December 9, 1985,
from which $33,777,551.17 was subtracted according to a
stipulation filed by Pennzoil. The judgment totalled
$11,120,976,110.83 and provided that post-judgment in-
(Footnote continued from previous page)
State in which a decision could be had, may be reviewed by the
Supreme Court as follows:
* . * * *
“(2) By appeal, where is drawn in question the validity of a
statute of any state on the ground of its being repugnant to the
Constitution, treaties or laws of the United States, and the decision
is in favor of its validity.”
A7
terest would be recoverable by Pennzoil at the rate of
10% per annum until the judgment was paid. Texaco’s
motion for a new trial remains pending before Judge
Casseb.
With the consent of the parties, Par. 7 of the judgment,
in order to preserve the status quo as long as the trial
court had jurisdiction of the case, prohibited Pennzoil,
during the pendency of the proceeding before the trial
judge, from seeking to enforce the judgment and barred
Texaco from encumbering its assets except “in the routine
and ordinary course of business”. The purpose of Par. 7
was to avoid the possible collapse and liquidation or
bankruptcy of Texaco that might be precipitated by the
sudden financial crisis it faced as a result of the as-
tronomical amount awarded against it. However, this
relief would be short-lived since it would expire when the
Texas trial court lost jurisdiction over the case, which
could occur as early as 30 days after the trial judge’s
denial of Texaco’s motion for a new trial and at the latest
on March 25, 1986.° Thus, Texaco could anticipate that if
3 If the Texas trial court denies Texaco’s motion for a new trial, it will,
under Tex. R. Civ. P. 329(b), retain jurisdiction over the case for, at
most, 105 days after December 10, 1985 (the date the trial court signed
the judgment). Its jurisdiction would therefore terminate on March 25,
1986. Under Tex. R. Civ. P. 329(b)(a) a party may move for a new trial
within 30 days after the judgment complained of has been signed.
Texaco complied with this procedure.
Under Tex. R. Civ. P. 329(b)(c) the trial judge then has 75 days from
the day he signed the judgment in which to rule on the motion. If he
does not rule within that period, i.e., by February 23, 1986, the motion
will be denied by operation of law. Regardless of the means by which
the motion is denied, the judge retains jurisdiction over the case for 30
days after its denial. Tex. R. Civ. P. 329(b)(e). After the 30-day period,
however, the trial court’s plenary jurisdiction ceases. Tex. R. Civ. P.
32%b)(f).
Accordingly if Judge Casseb denies the motion before February 23,
he will retain jurisdiction over the case for 30 days thereafter. If he
does not rule on the motion, Texas law will consider it to have been
A8
Judge Casseb denied the motion on the same day it was
filed, January 9, 1986 (as he did with respect to the
motion for judgment n.o.v.) Par. 7 would expire by
February 10, 1986.
Upon the expiration of Par. 7 of the Texas judgment,
Texaco would, absent injunctive relief, again face a finan-
cial crisis of staggering proportions, which could not
-under Texas law be avoided without Pennzoil’s consent.
Rule 364 of the Texas Rules of Civil Procedure requires
Texaco, in order to stay execution of the judgment
against it pending its appeal, to post a supersedeas bond,
payable to Pennzoil, “in at least the amount of judgment,
interest and costs,”* or more than $12 billion since interest
accumulates at the rate of approximately $3 million per
day. In addition, Tex. Prop. Code Ann. §§ 52.001 ef seq.
(Vernon 1983), provides that an abstract of judgment
presented by the judgment creditor (Pennzoil), when
properly recorded and indexed, constitutes a lien “on the
property of the defendant located in the county in which
_— denied on February 23. The court will then retain jurisdiction for 30
more days, i.e., until March 25.
4 Tex. R. Civ. P. 364 provides in part:
“Rule 364. Supersedeas Bond or Deposit
“(a) May Suspend Execution. Unless otherwise provided by law
or these rules, an appellant may suspend the execution of the
judgment by filing a good and sufficient bond to be approved by
the clerk, or making the deposit provided by Rule l4c, payable to
the appellee in the amount provided below, conditioned that the
appellant shall prosecute his appeal or writ of error with effect and,
in case the judgment of the Supreme Court or Court of Appeals
shall be against him, he shall perform its judgment, sentence or
decree and pay all such damages as said court may award against
him.
“(b) Money Judgment. When the judgment awards recover of
a sum of money, the amount of the bond or deposit shall be at least
_ the amount of the judgment, interest, and costs.”
A9
the abstract was recorded and indexed .. .”. /d.
§ 52.001. Texaco’s real property in the State of Texas is
estimated to be worth $5 billion.
Needless to say, Texaco could not possibly meet the
mandatory bond requirement. It is estimated that the
world-wide surety bond capacity ranges from $1 billion to
$1.5 billion under the best possible circumstances. In
addition, full collateralization would be required for a
bond of such huge proportions. Texaco does not have
sufficient liquid or immediately-liquidatable assets to post
$12 billion in cash or cash equivalents and still retain
sufficient liquid assets to operate its business. Moreover,
it would be unable, because of the terms of its unsubor-
dinated debt securities, to borrow $12 billion by mortgag-
ing or pledging its assets. A lien of such proportions
would seriously impair its ability to carry on its business
with the result that it would probably be forced into
bankruptcy or liquidation.
Under Texas law, relief from the harsh strictures of
Rule 364 is not immediately available to Texaco. The
Rule’s terms have repeatedly been declared by Texas
courts to be mandatory, requiring that the supersedeas
bond be in at least the amount of the judgment, interest
and costs and prohibiting the requirement from being
partially superseded. Mudd v. Mudd, 665 S.W.2d 128,
130 (Tex. Civ. App. 1983); Fortune v. McElhenney, 645
S.W.2d 934, 935 (Tex. Civ. App. 1983); Kennesaw Life &
Accident Ins. Co. v. Streetman, 644 S.W.2d 915, 917
(Tex. Civ. App. 1983); Haney Elec. Co. v. Hurst, 608
S.W.2d 355, 356 (Tex. Civ. App. 1980); Cooper v. Bow-
ser, 583 S.W.2d 805, 807 (Tex. Civ. App. 1979); Schrader
v. Garcia, 512 S.W.2d 830, 831 (Tex. Civ. App. 1974).
This interpretation has been adopted by the Texas Sub-
Al0
committee on Interpretation of Rules, 4 Tex. Civ. Code
Ann., pp. 159-60 (Vernon 1985). Although Texaco could
mount an attack in the Texas courts on the Rule, by
motion and mandamus, on the ground that it is unconsti-
tutional as applied in this case, the likelihood of obtaining
a definitive constitutional ruling in the short period of
time available to it appears extremely slim, at least
without full cooperation on the part of Pennzoil. In the
meantime Pennzoil, upon expiration of Par. 7 of the
judgment, would have the right to execute its judgment,
rendering even a favorable Texas court constitutional
ruling “too little, too late”.
Immediately following entry of the Texas judgment on
December 10, 1985, Texaco, because of uncertainties
regarding the meaning and effect of Par. 7 and the
knowledge that it would shortly expire when the trial
court lost jurisdiction, faced a serious crisis. Its bonds
were downgraded and its credit lines shrank. Unsecured
borrowing became unavailable and even secured financ-
ing uncertain. Suppliers, joint venturers, and purchasers
of Texaco assets shied away from dealing with it, in part
because many of those dealings would of necessity in-
volve commitments beyond March 25, 1986, the last date
when Par. 7 would be effective. An effort by Texaco on
December 13, 1985, to obtain a hearing from the Texas
trial court to consider modification of Par. 7 failed when
Pennzoil would not agree to meet on dates specified by
the court (Dec. 16, 17 or 18) and no alternative dates were
made available.
On December 17, 1985, Texaco moved by order to
show cause in the Southern District of New York, where
Texaco has its principal place of business and personal
jurisdiction over Pennzoil could be obtained, for a tem-
All
porary restraining order and preliminary injunction
against Pennzoil’s taking any action to enforce the Texas
judgment. The Amended Complaint alleged (1) that the
Texas judgment excessively burdened interstate commerce
in violation of the Commerce Clause and frustrated the
purposes of the Williams Act, 15 U.S.C. §§ 78m(d)-(e),
78n(d)(f), by deterring competitive tender offers after a
target company (in this case Getty) and a given bidder
(Pennzoil) had conducted negotiations (First and Second
Claims’); (2) that the Texas lien and supersedeas bond
provisions, by preventing Texaco from effectively prose-
cuting appeals to the Texas Court of Civil Appeals, the
Texas Supreme Court, and eventually to the United States
Supreme Court under 28 U.S.C. § 1257(2), were void
under the Supremacy, Due Process and Equal Protection
Clauses of the United States Constitution (Third and
Sixth Claims); (3) that the Texas judgment permitted
Pennzoil to engage in unlawful conduct in violation of the
Securities Exchange Act, 15 U.S.C. § 78j, 78m, 78n and
Rule 10b-13 thereunder, 17 C.F.R. § 240.10b-13, namely,
the purchase of Getty stock other than pursuant to
Pennzoil’s outstanding tender offer (Fourth Claim); (4)
that the judgment violated the Full Faith and Credit
Clause by disregarding the substantive law of New York,
which the parties agreed governed (Fifth Claim); and (5)
that the judgment was the product of fundamental un-
fairness in violation of the Due Process Clause (Seventh
Claim).
Pending a hearing on Texaco’s motion, Judge Brieant
on December 17, 1985, issued a temporary restraining
5 Although Texaco labels each claim as a “cause of action”, we prefer
to use the term “claim”, in accordance with the Federal Rules of Civil
Procedure. See, e.g., Fed. R. Civ. P. 8.
Al2
order. On December 20, 1985, Pennzoil cross-moved for
dissolution of the restraining order and dismissal of the
complaint for lack of jurisdiction and failure to state a
claim. On the same date Pennzoil tendered to Texaco for
filing in the Texas action a “stipulation” under which the
Texas trial judge’s power to issue a stay in that proceeding
would be governed by the same supersedeas bond provi-
sions as those governing federal actions under Fed. R.
Civ. P. 62. The offer, which was renewed upon argument
of this appeal, has not been accepted by the Texas trial
judge or by Texaco.
Both sides having waived the taking of oral testimony,
the district court on January 10, 1986, filed its findings
and conclusions in an opinion granting Texaco’s applica-
tion for preliminary relief and denying Pennzoil’s cross-
motion. The district court found that absent injunctive
relief Texaco would, pending appeal from the Texas
judgment, suffer irreparable injury from enforcement of
the Texas supersedeas bond and lien provisions since it
would be unable to post a bond in the sum of approxi-
mately $12 billion required by Tex. R. Civ. P. 364(b) or
continue to conduct business operations while subject to
liens under Tex. Prop. Code Ann. §§ 52.001 ef seq.
(Vernon 1983), with the result that it would probably be
forced into bankruptcy or liquidation. The result would
be catastrophic for thousands of Texaco employees,
stockholders and suppliers located throughout the United
States and world-wide and would threaten serious harm
to the national economy and the public.
The district court next concluded that Texaco’s appeal
of the Texas judgment stood a substantial likelihood of
success, at least in reducing the award of $11.12 billion
damages. It reasoned that the impropriety of awarding
Al3
punitive damages would be “quite obvious” to a Texas
reviewing court and that the award had a “negative
impact” on the federal policy expressed in the Securities
Exchange Act of insuring that stockholders (in this case
of Getty) derive the benefit of the best tender offer price.
Using market prices of Getty stock as an indicator, the
district court reasoned that, assuming the validity of the
Texas jury’s finding of tortious interference with the
Getty-Pennzoil contract, the compensatory damages to
Pennzoil “should in no event exceed $800 Million” if
Pennzoil’s bargain included the ultimate opportunity to
control Getty.
Turning to the claims asserted by Texaco in the present
federal suit, the district court, after using a balancing of
interests test derived from Mathews v. Eldridge, 424 U.S.
319, 335 (1976), concluded that Texaco’s claim that the
Texas bonding and lien provisions violated its Due
Process and Equal Protection rights had a clear probabil-
ity of success. The district court further held, on the basis
of the Supreme Court’s recent decision in Marrese v.
American Academy of Orthopaedic Surgeons, ___. U.S.
____, 105 S. Ct. 1327 (1985), that enforcement of Tex-
aco’s federal securities law claims would not be precluded
by the Texas judgment and that since federal courts had
exclusive jurisdiction over them, 15 U.S.C. § 78aa, they
would survive regardless of the ultimate outcome of the
Texas suit. In so holding, the court cited the Supreme
Court’s decision in Rooker, supra, but did not discuss its
applicability or that of 28 U.S.C. § 1257 to any of
Texaco’s claims in the present federal action.
The district court also refused Pennzoil’s request that
the court deny injunctive relief on grounds of federalism
and comity. The federal Anti-Injunction Statute, 28
Al4
U.S.C. § 2283, was held inapplicable for the reason that
actions under the Civil Rights Act, 42 U.S.C. § 1983,
such as the present one, are expressly excepted from its
application. Mitchum v. Foster, 407 U.S. 225 (1972). On
the question of whether the present complaint stated a
valid claim for relief under 42 U.S.C. § 1983, the district
court followed the Fifth Circuit’s decision in Henry vy.
First National Bank of Clarksdale, 595 F.2d 291 (Sth Cir.
1979), cert. denied, 444 U.S. 1074 (1980), in which that
court in a § 1983 action upheld a preliminary injunction
against private enforcement of a state court tort judgment
pending appeal on the ground, among others, that appli-
cation of a state supersedeas bond requirement would
violate the plaintiff’s federal constitutional rights.
Abstention under the principles of Younger v. Harris,
401 U.S. 37 (1971), was denied on the ground that no
impairment of a vital state interest was shown. The court
reasoned that an injunction would not adversely affect
the operation of the Texas judicial system but, on the
contrary, would facilitate its proper functioning by per-
mitting Texaco’s appeal to be heard and decided. Absten-
tion under the principle of Railroad Commission v.
Pullman Co., 312 U.S. 496 (1941), was denied on the
ground that, since the Texas bond and lien provisions
were clear and mandatory, the constitutional issues could
not be avoided by a state court interpretation of them.
In order to protect Pennzoil against Texaco’s transfer-
ring or encumbering assets that would otherwise be avail-
able to Pennzoil if an appeal of the Texas judgment
should end in Pennzoil’s favor, the district court’s Janu-
ary 16, 1986, order required Texaco as a condition of
injunctive relief to post security in the sum of $1 billion
subject to the proviso that additional security might be
Al5S
required after further hearing. The $1 billion figure was
arrived at on the basis of the district court’s determina-
tion that, at most, Pennzoil’s compensatory damages in
the Texas action should amount to $800 million, to which
the court added $200 million for interest, costs and
attorney’s fees. On February 5, 1986, Texaco posted
security in the sum of $1 billion.
DISCUSSION
The Existence of Federal Jurisdiction
The threshold questions are (1) whether federal juris-
diction exists that would permit a federal court to rule on
Texaco’s constitutional and federal law claims, and, if so,
(2) whether the district court should, in the interests of
comity and federalism, have abstained from exercising
that jurisdiction in order to permit Texas courts to rule on
those claims.
Pennzoil, relying on the Supreme Court’s decisions in
District of Columbia Court of Appeals v. Feldman,
supra, Atlantic Coast Line R. Co. v. Brotherhood of
Locomotive Engineers, supra, and Rooker v. Fidelity
Trust Co., supra, argues that the oniy courts empowered
to entertain claims of constitutional error in a Texas state
court judgment are the Texas appellate courts and the
Supreme Court of the United States. Texas law guaran-
tees a right to review by its appellate courts of lower state
court decisions. Texas State Constitution, Art. I, §§ 13
and 19; Stroud v. Ward, 36 S.W.2d 590, 591 (Tex. Civ.
App. 1931). Title 28 U.S.C. § 1257(2), in turn, grants to
the United States Supreme Court appellate review of state
court judgments. Huffman v. Pursue, Ltd., 420 U.S. 592,
605 (1975); Cohen v. California, 403 U.S. 15, 18 (1971).
Al6
In Rooker the Supreme Court, in refusing to permit a
losing state court litigant to invoke federal jurisdiction to
attack a state court judgment on the ground that it had
unconstitutionally misapplied state law, held that an ap-
peal through the state courts to the Supreme Court
constituted the exclusive procedure by which the judg-
ment might be reviewed for constitutional error and that
under the predecessor of § 1257 (Judicial Code, § 237, as
amended September 6, 1916, c. 448, § 2, 39 Stat. 726),
“If the constitutional questions stated in the bill
actually arose in the cause, it was the province and
duty of the state courts to decide them; and their
decision, whether right or wrong, was an exercise of
jurisdiction. If the decision was wrong, that did not
make the judgment void, but merely left it open to
reversal or modification in an <ppropriate and timely
appellate proceeding. . . . Under the legislation of
Congress, no court of the United States other than
this Court could entertain a proceeding to reverse or
modify the judgment for errors of that character.
. . . To do so would be an exercise of appellate
jurisdiction.” Rooker, supra, 263 U.S. at 415-16.
The Rooker doctrine has been reaffirmed by the Supreme
Court. In Atlantic Coast Line R. Co., supra, 398 U.S. at
296, the Court stated:
“Again, lower federal courts possess no power what-
ever to sit in direct review of state court decisions. If
[the party seeking the injunction] was adversely af-
fected by the state court’s decision, it was free to
seek vindication of its federal right in the [state]
appellate courts and ultimately, if necessary, in this
Court.”
Al7
In Feldman, supra, 460 U.S. at 476, the Court once again
recognized the viability of Rooker, stating:
“The District of Columbia Circuit properly ac-
knowledged that the United States District Court is
without authority to review final determinations of
the District of Columbia Court of Appeals in judicial
proceedings. Review of such determinations can be
obtained only in this Court. See 28 U.S.C. § 1257.”
In short, an inferior federal court established by Congress
pursuant to Art. III, § 1, of the Constitution may not act
as an appellate tribunal for the purpose of overruling a
state court judgment, even though the judgment may rest
on an erroneous resolution of constitutional or federal
law issues. The exclusive procedure for federal review is
that specified by 28 U.S.C. § 1257.°
The rationale behind the Rooker-Feldman principle is
clear and sound. In this nation we have two “essentially
separate legal systems.” Atlantic Coast Line R. Co.,
supra, 398 U.S. at 286. “[T]his dual system could not
function if state and federal courts were free to fight each
other for control of a particular case. Thus, in order to
make the dual system work and ‘to prevent needless
friction between state and federal courts,’ Oklahoma
Packing Co. v. Gas Co., 309 U.S. 4, 9 (1940), it was
necessary to work out lines of demarcation between the
two systems.” Jd.
Texaco contends that the Rooker-Feldman doctrine
does not apply to collateral federal attacks on state
6 The habeas corpus jurisdiction of the lower federal courts is a
constitutionally authorized exception to the principle of Rooker
Feldman. See Sumner v. Mata, 449 U.S. 539, 543-44 (1981) (“even a
single federal judge may overturn the judgment of the highest court of
a State” in adjudicating a petition for habeas corpus relief).
Al8
judgments that have not attained appellate finality. We
disagree and know of no decision so hoiding. Indeed,
courts, including the Supreme Court, have not hesitated
to apply the Rooker-Feldman doctrine to judgments
which Texaco would label as “non-final”. Atlantic Coast
Line R. Co., supra, 398 U.S. at 296 (remedy for party
adversely affected by lower state court judgment was to
appeal to the state appellate courts, not to seek a federal
injunction). Thomas v. Kadish, 748 F.2d 276, 282 (Sth
Cir. 1984), cert. denied, ____ U.S. ___, 105 S. Ct. 3531
(1985); Community Action Group v. City of Columbus,
473 F.2d 966, 973 (Sth Cir. 1973); Pilkinton v. Pilkinton,
389 F.2d 32, 33 (8th Cir.), cert. denied, 392 U.S. 906
(1968).
Although the state judgments in Rooker and Feldman
had survived appeal in the state court system, that fact
was not advanced by the Supreme Court as a basis for, or
as a condition to, its decisions. Rather the doctrine stems
from recognition that (1) state courts are just as obligated
and competent as federal courts to decide federal consti-
tutional questions, Moore v. Sims, 442 U.S. 415, 430
(1979); Huffman, supra, 420 U.S. at 610-11, (2) a path is
available through the state appellate system to the Su-
preme Court, and that (3) waste of judicial resources and
unnecessary friction between state and federal courts
might ensue if a federal district court intervened to
overrule a state court decision. Atlantic Coast Line R.
Co., supra, 398 U.S. at 286. Allowing lower federal
courts to review the judgments of state lower courts is as
intrusive and as likely to breed antagonism between state
and federal systems as allowing federal court review of
the judgments of the states’ highest courts. Indeed, if
Rooker-Feldman only barred federal review of judgments
Al9
which had been fully appealed through the state system, it
would foster federal/state rivalry by creating incentives
for disappointed state court appellants to forum-shop,
jumping over to federal courts instead of appealing their
cases to the states’ highest tribunals. Once a litigant has
received an adverse adjudication on a constitutional issue
from the state court, the state adjudication is just as final
for the purpose of applying the Rooker-Feldman doctrine
as it would be for purposes of appeal.
Applying the foregoing principles, we are satisfied that
the Rooker-Feldman doctrine was clearly violated by
much of the district court’s decision. Many of the judge’s
conclusions with respect to the merits of the Texas action,
despite his lip-service disclaimer, constitute what amounts
to an impermissible appellate review of issues that have
already been adjudicated by the Texas trial court. These
include his statements to the effect (1) that an award of
punitive damages in the Texas action was improper, which
a “reviewing court in Texas will find . . . quite obvious,”
(2) that the $3 billion punitive damage award violates the
policy expressed in federal securities laws, over which the
federal court has exclusive jurisdiction, (3) that the Texas
award of $7.53 billion was “absurd”, and (4) that the
compensatory damage award in the Texas action “should
in ne event exceed $800 Million”. The proper fora for
appellate review of these matters are the Texas appellate
courts and eventually the Supreme Court of the United
States. Moreover, the district court violated the Rooker-
Feldman doctrine in holding that it had jurisdiction over
all constitutional and federal statutory claims asserted by
Texaco and that it would retain jurisdiction of them
pending appeal through the Texas courts. Each of Tex-
aco’s constitutional and federal claims except those stated
A20
by it in its Third and Sixth Claims were raised by it as
defenses in the Texas lawsuit and adjudicated against it.’
The review-ability of these claims by the Texas appellate
courts and ultimately by the Supreme Court pursuant to
28 U.S.C. § 1257 precludes an inferior feder>! court from
exercising jurisdiction over them.®
7 Texaco raised its due Process challenges to the trial itself in its
motion to recuse Judge Farris, the Judge who presided over three-
fourths of the case, and in its motion for a mistrial. It raised each of its
other federal claims, except the due process and equal protection
challenges to the Texas bond and lien provisions, in its memorandum
in support of its motion for judgment notwithstanding the verdict.
That document’s Table of Contents reads:
THEREFORE, BE USED AS A PREDICATE FOR A TOR-
A. THE ALLEGED CONTRACT WOULD HAVE VIO-
LATED SEC RULE 10b-13
“IX. TEXACO IS ENTITLED TO JUDGMENT AS A MATTER
OF FEDERAL CONSTITUTIONAL LAW
A. ENTRY OF JUDGMENT AGAINST TEXACO WOULD
VIOLATE THE COMMERCE CLAUSE
B. ENTRY OF JUDGMENT AGAINST TEXACO WOULD
VIOLATE THE SUPREMACY CLAUSE
C. ENTRY OF JUDGMENT AGAINST TEXACO WOULD
VIOLATE THE FULL FAITH AND CREDIT CLAUSE
D
- ENTRY OF JUDGMENT AGAINST TEXACO WOULD
VIOLATE THE EQUAL PROTECT ION CLAUSE
E. ENTRY OF JUDGMENT AGAINST TEXACO WOULD
VIOLATE THE TAKINGS CLAUSE
F. ENTRY OF JUDGMENT AGAINST TEXACO WOULD
VIOLATE THE DUE PROCESS CLAUSE”
8 The district court held that Texaco’s claims under the Securities and
Exchange Act of 1934 are-not barred by res judicata because they are
matters of exclusive federal jurisdiction. 15 U.S.C. § 78aa. The court
relied on Marrese v. American Academy of Orthopaedic Surgeons,
— U.S. __ 105 S. Cr. 1327 (1985), for the proposition that 4
A21
Texaco’s Third and Sixth Claims stand on a different
footing from its other asserted grounds of relief—they
were not presented to the state trial court. Although a
state court judgment has claim-preclusive effect in federal
court, Migra v. Warren City School Dist., 465 U.S. 75
(1984); Allen v. McCurry, 449 U.S. 90 (1980), Pennzoil
does not contend that that rule bars Texaco’s claims here.
Rather, Pennzoil contends that Texaco’s claims are barred
because Rooker-Feldman should be read broadly to pre-
clude federal review of issues which a party could have
raised in the state court proceeding, but chose to withhold
from the state court. We disagree.
Aside from the absence of any support for Pennzoil’s
theory in any decision applying Rooker-Feldman, the
theory would read 28 U.S.C. § 1257 to severely impair,
perhaps negate, a litigant’s right to gain equitable or
other relief under 42 U.S.C. § 1983, Mitchum v. Foster,
407 U.S. 225 (1972), since most claims under § 1983,
especially requests to enjoin ongoing state proceedings,
could be raised in a related state proceeding. To relegate
the § 1983 claimant in such cases to the state court would
ignore Congress’ purpose in adopting that statute. Sec-
tion 1983 was intended “to provide dual or concurrent
U.S.C. § 78aa is such an exception and that the Texas court’s rejection
of Texaco’s defenses based on federal securities laws were therefore not
binding on a federal court. This was error.
In Murphy v. Gallagher, 761 F.2d 878 (2d Cir. 1985), we held that 15
U.S.C. § 78aa does not create an exception to the general requirement
of full faith and credit. Since federal law does not bar state courts
from exercising jurisdiction over defenses based on the Securities and
Exchange Act of 1934, see, e.g., Will v. Calvert Fire Ins., 437 U.S. 655
(1978); Weiner v. Shearson, Hammill & Co., 521 F.2d 817, 822 (9th
Cir. 1975); Shareholders Management v. Gregory, 449 F.2d 326, 327
(9th Cir. 1971); Aetna State Bank v. Altheimer, 430 F.2d 750, 754 (7th
Cir. 1970), state court determinations relating to those issues are
binding on subsequent federal court proceedings to the extent required
by 28 U.S.C. § 1738.
A22
forums in the state and federal system, enabling the
plaintiff to choose the forum in which to seek relief.”
Patsy v. Florida Board of Regents, 457 U.S. 496, 506
(1982). See also Allen v. McCurry, supra, 449 U.S. at 99.
Accordingly, it is settled law that a § 1983 litigant need
not first seek to vindicate his federal claims in state court
before turning to a federal court for relief. Patsy, supra;
Board of Regents v. Tomanino, 446 U.S. 478, 491 (1980);
Monroe v. Pape, 365 U.S. 167, 183 (1961). Indeed, the
Court has recognized, in the context of criminal proceed-
ings, that a litigant who is not collaterally estopped from
raising a § 1983 claim, is not precluded from raising the
same claim simply because he had an opportunity to raise
it in an earlier state proceeding. Haring v. Prosise, 462
U.S. 306, 318-23 (1983). Application of these principles is
appropriate here because Texaco did not choose the Texas
State court for resolution of the claims between the parties
but was summoned into that court by Pennzoil. Texaco
was not, therefore, engaged in forum-shopping when it
sought relief under § 1983 in the Southern District of New
York.
In accordance with the foregoing, we hold that the
district court is barred by the Rooker-Feldman doctrine
from exercising jurisdiction over the First, Second,
Fourth, Fifth and Seventh Claims of Texaco’s complaint
and that they must be dismissed for lack of subject matter
jurisdiction. Rooker, however, does not bar a federal
court from exercising jurisdiction over the Third and
Sixth Claims, which allege that the Texas automatic and
mandatory lien and supersedeas bond provisions deny
Texaco due process and equal protection as applied.
Those claims have never been presented to or adjudicated
by a state court. Nor are they “inextricably intertwined”
A23
with- the barred claims. Feldman, supra, 460 U.S. at
482-83 n.16. Aside from the fact that our adjudication of
the Third and Sixth Claims is not a collateral attack on
the merits of the Texas judgment, Texaco, which did not
choose the Texas state court forum, does not have a fair
opportunity to seek and obtain a timely final resolution
of those claims from the Texas courts and the Supreme
Court before it will suffer irreparable harm because of the
Texas lien and bonding provisions. See p. 35, infra. Wood
v. Orange County, 715 F.2d 1543, 1547 (11th Cir. 1983),
cert. denied, 104 S. Ct. 2398 (1984). Our decision, there-
fore, does not displace any state court adjudication or
offend basic principles of comity and federalism.
Whether the Complaint States a § 1983
Claim, Including State Action
The next question is whether the Third and Sixth
Claims, as illuminated by the affidavits of both sides with
respect to the need for preliminary relief, state the essen-
tial elements of an action under § 1983. That statute was
intended to “interpose the federal courts between the
States and the people, as guardians of the people’s federal
rights—to protect the people from unconstitutional! action
under color of state law.” Patsy, supra, 457 U.S. at 503
(quoting Mitchum, supra, 407 U.S. at 242). In order to
maintain a § 1983 claim, however, a litigant must allege
and show deprivation (1) of a right “secured by the
Constitution and laws of the United States”, (2) by a
defendant acting under color of state law. Flagg Bros.,
Inc. v. Brooks, 436 U.S. 149, 155 (1978).
The first element of a § 1983 action—threatened depri-
vation of a constitutional right—is adequately alleged in
the complaint and supported by the parties’ affidavits.
A24
The undisputed facts indicate that the automatic enforce-
ment of the Texas lien and bond requirements against
Texaco’s property to the extent of $12 billion lacks any
rational basis, since it would destroy Texaco and render
its right to appeal in Texas an exercise in futility. This
would at least amount to a deprivation of its property in
violation of its right to due process under the Constitu-
tion. Evitts v. Lucey, __. U.S. ___, 105 S. Ct. 830, 840
(1985).°
The presence of the second essential element of a
§ 1983 action is more difficult to resolve. The Supreme
Court has enunciated a two-step test for determining
whether conduct resulting in the deprivation of a federal
right is “fairly attributable to the State.” Lugar v. Ed-
mondson Oil Co., 457 U.S. 922, 937 (1982).
“First, the deprivation must be caused by the
exercise of some right or privilege created by the
State or by a rule of conduct imposed by the State or
by a person for whom the State is responsible... .
Second, the party charged with the deprivation must
be a person who may fairly be said to be a state
actor. This may be because he is a state official,
because he has acted together with or has obtained
significant aid from state officials, or because his
conduct is otherwise chargeable to the State.” Jd.
Texaco has satisfied the first prong of this test since
Texas state law provides for enforcement of the judgment
unless Texaco posts a supersedeas bond in the full amount
of the judgment. Tex. R. Civ. P 364(b), supra. Pennzoil
contends, however, that it cannot fairly be termed a “state
9 We discuss Texaco’s due process claim more fully infra at 43-45.
A25
actor” and that the suit therefore-fails to meet the second
prong of the test. Resolution of this issue calls for a
factual inquiry into the relationship between Pennzoil and
the State of Texas that would result from Pennzoil’s
enforcement of the judgment. See Lugar, supra, at 939
(citing Burton v. Wilmington Parking Authority, 365 U.S.
715, 722 (1961)).
To enforce the judgment, Pennzoil would have to act
jointly with state agents by calling on state officials to
attach and seize Texaco’s assets. A judgment creditor
must first obtain a writ of execution, which is “a process
of the court from which it is issued.” Tex. R. Civ. P. 622.
The writ is “directed to any sheriff or any constable
within the State of Texas” and must be signed by the clerk
or justice and bear the seal of the court. Tex. R. Civ. P.
629. Furthermore, the writ “shall require the officer to
execute according to its terms.” Jd. Finally, when, as here,
the judgment requires payment of money, the writ “must
require the officer to satisfy the judgment and costs out
of the property of the judgment debtor subject to execu-
tion by law.” Tex. R. Civ. P. 630. When the sheriff or
constable receives the writ, Texas law commands that “he
shall proceed without delay to levy the same upon the
property of the defendant”. Tex. R. Civ. P. 637. Property
levied upon pursuant to the writ of execution may ulti-
mately be seized by the officer and liquidated to satisfy
the judgment. Tex. R. Civ. P. 646a, 649.
In addition, Texz_ law authorizes the placement of
judgment liens upon Texaco’s property in the state imme-
diately upon entry of judgment. Tex. Prop. Code Ann.
§ 52.001. Such liens are acquired by requesting state
officials to undertake a series of acts. Pennzoil must
obtain a certified abstract of the judgment from the clerk
A26
of the court which rendered judgment. Jd. § 52.002. The
abstract must contain certain information required by
law. Id. § 52.003. The county clerk must then record the
abstract in the county judgment record and enter it in the
index to the record. /d. § 52.004.
Enforcement of the state court judgment therefore
necessarily involves a panoply of activities undertaken
together by Pennzoil and state officials, which constitutes
joint action for the Purposes of § 1983. In Lugar y.
Edmondson Oil Co. the Supreme Court concluded that a
private party who invoked Virginia’s prejudgment attach-
ment procedure acted jointly with the state. Lugar, supra,
457 U.S. at 942. The Virginia prejudgment attachment
procedure, like the Texas Procedure at issue here, pro-
vided that a private party could obtain a writ from the
clerk of the state court and have the writ executed by a
county sheriff. Jd. at 924-25. Under the Virginia law, the
sheriff was only empowered to attach the property, while
its Owner retained possession. The Texas procedure, how-
ever, goes further and permits seizure by a Texas sheriff
of attached property. We conclude, as the Supreme Court
did in Lugar, that the “private use of the challenged state
procedures with the help of state of ficials constitutes state
action for purposes of the Fourteenth Amendinent” and
§ 1983. Jd. at 933.
A different result is not compelled by the fact that
Lugar involved a prejudgment attachment whereas the
attachment here would be pursuant to a court judgment.
The presence of a court judgment does not alter the fact
that Texas state officials execute the judgment only at
Pennzoil’s behest. Pennzoil cannot be divorced from that
execution procedure merely because a court authorized
execution of the judgment. Indeed, to so hold would
A27
preclude the victim from obtaining relief against the party
who must act jointly with the state official to unleash the
unconstitutional state government action. To limit the
Lugar rationale to prejudgment attachments would vio-
late the precept that § 1983 provides a remedy “as broad
as the protection of the Fourteenth Amendment affords
the individual”. Lugar, supra, at 934.
Our ruling in Dieffenbach v. Attorney General of
Vermont, 604 F.2d 187 (2d Cir. 1979), supports the con-
clusion that a party acting pursuant to a state court
judgment is not necessarily insulated from the reach of
§ 1983. In Dieffenbach we found that a bank was subject
to suit under § 1983 when it utilized an allegedly unconsti-
tutional foreclosure procedure to enforce a judgment
against a mortgagor. We noted that in order to execute the
judgment the bank was required to obtain a decree of
foreclosure and that possession could only be gained by
obtaining a writ from the clerk of the court which must
be executed by a sheriff. /d. at 194 and n.12.
Finally, we note that Texaco’s challenge to the state
bond and lien provisions does not call into question the
validity of the underlying judgment. Thus this is not a
case where a private party is alleged to be a state actor
merely because it brought suit and sought a judicial
ruling. See Dennis v. Sparks, 449 U.S. 24, 28 (1980); cf.
Cobb v. Georgia Power Co., 757 F.2d 1248 (11th Cir.
1985) (party who seeks temporary restraining order is not
joint actor with judge who issues the order); Dahlberg v.
Becker, 748 F.2d 85, 92-93 (2d Cir. 1984), cert. denied,
__— U.S. __., 105 S. Ct. 1845 (1985) (private party did
not act jointly with state when she misused lawful state
procedure and judge inadvertently issued contempt or-
der). In such a case the independent judgment of the state
A28
judiciary is called into play, and unless unusual circum-
stances are shown, see, e.g., Adickes v. S.H. Kress & Co.,
398 U.S. 144, 162-71 (1970); cf. United States v. Price,
383 U.S. 787, 794-96 (1966) (18 U.S.C. § 242), a private
party cannot be chaiged with responsibility for a judicial
decision. Rather, Texaco claims that the state enforcement
procedures are unconstitutional as applied. Since Texas
law directs state officials to do Pennzoil’s bidding in
executing the judgment, it is the decision of Pennzoil, not
that of the state judiciary, to utilize state agents to
undertake the collection process, and the state officials
can act only upon Pennzoil’s unilateral determination.
Lugar, supra, 457 U.S. at 941.
The facts of this case, therefore, compel the conclusion
that in enforcing the Texas state court judgment, Pennzoil
must, of necessity, act jointly with the state of Texas.
Having concluded that federal jurisdiction exists over
the § 1983 claims asserted in Texaco’s Third and Sixth
Claims, we need not tarry over Pennzoil’s argument that
injunctive relief against enforcement of the Texas action
is barred by the Anti-Injunction Act, 28 U.S.C. § 2283,
which prohibits federal courts from enjoining state judi-
cial proceedings “except as expressly authorized by Act of
Congress” ."° Since an action under § 1983 constitutes just
such an exception, Mitchum, supra, § 2283 does not bar
Texaco’s claims.
10 28 U.S.C. § 2283 reads:
Ҥ 2283. Stay of State court proceedings
“A court of the United States may not grant an injunction to stay
proceedings in a State court except as expressly authorized by Act
of Congress, or where necessary in aid of its jurisdiction, or to
protect or effectuate its judgments.”
A29
Whether Abstention from Exercise of Federal
Jurisdiction is Required
There remains the question of whether federal jurisdic-
tion over the § 1983 claims must be exercised or whether
we should refrain from doing so under the doctrine of
“abstention”. In certain circumstances, concern for fed-
eralism, comity, and judicial economy suggests that fed-
eral courts abstain from entertaining § 1983 cases. Ab-
stention, however, is the exception, not the rule. Hawaii
Housing Authority v. Midkiff, __._ U.S. ___., 104 S. Ct.
2321, 2327 (1984); Moses H. Cone Memorial Hospital v.
Mercury Construction Corp., 460 U.S. 1, 15 (1983);
Colorado River Water Conservation District v. United
States, 424 U.S. 800, 813, rehearing denied, 426 U.S. 912
(1976). It is appropriate in only four relatively well-
defined circumstances. Moses H. Cone, supra, 460 U.S.
at 13-16; Colorado River, supra, 424 U.S. at 814-19.
Pennzoil contends that two of those circumstances exist
here.'' We disagree.
11 Pennzoil concedes that two of the four circumstances, the so-called
Burford exception, named after Burford v. Sun Oil Co., 319 U.S. 315
(1943), and the “exceptional circumstances” doctrine enunciated in
Colorado River, supra, 424 U.S. at 818, do not apply in the present
case. Burford calls for federal courts to decline jurisdiction “where
there have been presented difficult questions of state law bearing on
policy problems of substantial public import whose importance tran-
scends the result of the case at bar. . . [or when] exercise of federal
review of the question in a case and in similar cases would be
disruptive of state efforts to establish a coherent policy with respect to
a matter of substantial public concern”, Colorado River, supra, 424
U.S. at 814. The “exceptional circumstances” doctrine applies to the
rare case where “consideration of ‘[w]ise judicial administration,
giving regard to conservation of judicial resources and comprehensive
disposition of litigation” demand abstention. Moses H. Cone, supra,
460 U.S. at 15 (quoting Colorado River, supra, 424 U.S. at 817).
Courts must weigh @ range of factors when determining whether
“exceptional circumstances” abstention is in order. Moses H. Cone,
supra, 460 U.S. at 15-16.
A30
One of the two abstention doctrines urged upon us by
Pennzoil, which was formulated by the Supreme Court in
Railroad Commission v. Pullman Co., 312 U.S. 496, 501
(1941), establishes that “federal courts should abstain
from decision when difficult and unsettled questions of
State law must be resolved before a substantial federal
constitutional question can be decided.” Hawaii Housing
Authority, supra, 104 S. Ct. at 2327. See also Ohio
Bureau of Employment Services vy. Hodory, 431 U.S. 471,
480 n.11 (1977). When determining whether Pullman
demands abstention in a particular case, however, “the
relevant inquiry is not whether there is a bare, though
unlikely, possibility that state courts might render adjudi-
cation of the federal question unnecessary. Rather. . .
abstention is not to be ordered unless the statute is of an
uncertain nature, and is obviously susceptible of a limit-
ing construction.” Hawaii Housing Authority, supra, 104
S. Ct. at 2327. Accordingly, Pullman abstention is not
appropriate merely to give the state court a first chance to
vindicate a federal claim, Zwickler y. Koota, 389 U.S.
241, 251 (1967), or when the possibility that state courts
will provide a construction limiting the statute is “too
speculative to justify or require avoidance of the question
presented.” Ohio Bureau of Employment, supra, 431
U.S. at 481.
The meaning of the Texas lien and bond provisions is
far from uncertain. On the contrary, the language of Tex.
R. Civ. P 364 and Tex. Prop. Code Ann. §§ 52.001 ef
seq., is crystal clear. To. suspend enforcement of a judg-
ment pending appeal the appellant must post a bond in at
least the full amount of the judgment. See Texas court
decisions cited supra, pp. 7-8. Texas courts have refused
to reduce supersedeas bonds below the amount dictated
Se
A31
by Rule 364 even though the party seeking to appeal the
decision claimed he could not post the required amount.
Mudd v. Mudd, 665 S.W.2d 128 (Tex Civ. App. 1983).
Indeed, Rule 364’s predecessor, Art. 2270, Vernon’s Ann.
Civ. Stat., was similarly construed by Texas courts. An-
derson v. Pioneer Building & Loan Ass’n, 150 S.W.2d 445
(Tex. Civ. App. 1941) (refusing to stay foreclosure and
sale of home of 66-year-old woman, whose only income
was Hfer old-age pension, because she could not post
supersedeas bond equal to the value of house). See also
Elliott v. Lester, 126 S.W.2d 756, 759 (Tex. Civ. App.
1939); Bryan v. Luhning, 106 S.W.2d 403, 404-05 (Tex.
Civ. App. 1937); Dunlap v. Rotge, 85 S.W.2d 650, 651
(Tex. Civ. App. 1935); Cleveland v. Alpine Lumber Co..,
70 S.W.2d 257, 257 (Tex. Civ. App. 1934).'? Since there is
nothing unclear or uncertain about the Texas lien and
bond provisions here and the mere possibility that the
Texas courts would find Rule 364 unconstitutional as
applied does not call for Pullman abstention, Zwickler,
supra, 389 U.S. at 251, this type of abstention cannot be
justified.
Pennzoil also argues that Younger v. Harris, 401 U.S.
37 (1971), and its progeny required the district court to
12 Dillingham v. Putnam, 14 S.W. 303 (Tex. 1890) (quoted with
approval in Nelson v. Krusen, 678 S.W.2d 918, 921-22 (Tex. 1984)),
held that a law conditioning the right of appeal on posting a super-
sedeas bond, regardless of whether appellant could post the bond,
violated the Texas constitution’s guarantee of the right to appeal. The
law, however, unlike the lien and bond provisions at issue here, barred
litigants from appealing. The cases cited supra demonstrate that the
Texas courts have not read Dillingham to protect the right to stay
enforcement of judgments pending appeal. Furthermore, Pu//man
abstention may not be predicated on the possibility that a state court
could interpret the broad language of the state constitution to overrule
a State statute or rule. Hawaii Housing Authority, supra, 105 S. Ct. at
2327 n.4; Examining Board v. Flores de Otero, 426 U.S. 572, 598
(1976); Wisconsin v. Constantineau, 400 U.S. 433, 438-39 (1971).
A32
abstain. Younger counsels “federal courts to abstain from
jurisdiction whenever federal claims have been or could
be presented in ongoing state judicial proceedings that
concern important state interests.” Hawaii Housing
Authority, 104 S. Ct. at 2327-28. For Younger to apply
three conditions must be present: (1) “important”, “sub-
stantial” or “vital” state interests must be at stake, and
(2) state procedures must be available to provide an
adequate opportunity for the appellant to raise his federal
claims in a state court, and (3) that there be an on-going
state proceeding. Middlesex Ethics Comm. vy. Garden
State Bar Ass’n, 457 U.S. 423, 432 (1982); Moore vy.
Sims, 442 U.S. 415, 423-25 (1979). Since the third condi-
tion is clearly met in the present case, we need not discuss
it.
With respect to the first of these essential elements of
Younger abster.tion, Pennzoil asserts that two substantial
Texas interests are at stake in this case: Texas’ interest in
protecting the rights of its citizens to obtain and enforce
judgments in the Texas courts and Texas’ interest in the
constitutionality of its statutes. Every state, however, has
similar interests in every state proceeding. Accepting
Pennzoil’s argument that these interests are sufficient to
mandate abstention would broaden Younger to cover
almost every § 1983 case and thus undermine the Su-
preme Court’s holding in Mitchum, supra, that federal
courts are empowered by § 1983 to enjoin ongoing state
proceedings. Not surprisingly, Younger and its progeny
call for no such expansion. Pennzoil’s contention would
also render meaningless and unnecessary the exercise,
regularly engaged in by federal courts called upon to
abstain, of analyzing the state interests and remedies
involved to determine whether Younger abstention is
A33
mandated. See, e.g., Traughber v. Beauchane, 760 F.2d
673, 680-81 (6th Cir. 1985); Miofsky v. Superior Court of
State of Cal., 703 F.2d 332, 336-38 (9th Cir. 1983).
The state interests at stake in this proceeding differ in
both kind and degree from those present in the six cases
in which the Supreme Court held that Younger applied."
In each of those cases the state government or a state
official was a party to the action which the federal court
was being asked to enjoin and had a direct stake in the
outcome since the state action was taken for the purpose
of vindicating a particular state policy or remedying an
infraction of state law. See Middlesex Ethics Comm.,
supra (federal court should abstain from enjoining agency
of state Supreme Court from bringing state disciplinary
proceeding against lawyer); Moore, supra (federal court
should abstain from enjoining state action by state De-
partment of Human Resources seeking emergency order
under state Family Code to protect children from paren-
tal abuse); Trainor v. Hernandez, 431 U.S. 434 (1977)
(federal court should abstain from enjoining state court
proceeding by state Department of Public Assistance to
recover welfare money paid the defendants when they
misrepresented their worth in applying for aid); Juidice v.
Vail, 430 U.S. 327 (1977) (federal court should abstain
from enjoining state court judges from enforcing order
punishing appellant by jailing him for contempt); Huff-
man, supra (federal court should abstain from enjoining
sheriff and county prosecutor from enforcing state civil
13 Middlesex Ethics Comm. v. Garden State Bar Ass’n, 457 U.S. 423
(1982); Moore v. Sims, 442 U.S. 415 (1979); Trainor v. Hernandez, 431
U.S. 434 (1977); Juidice v. Vail, 430 U.S. 327 (1977); Huffman y.
Pursue, Ltd., 420 U.S. 592 ‘1975); Younger v. Harris, 402 U.S. 37
(1971).
A34
nuisance statute); Younger, supra, (federal court should
abstain from enjoining state criminal proceeding). The
present case is dramatically different. Here the state has
no interest in the underlying action. It is a suit between
two private parties stemming from the defendant’s al-
leged tortious interference with the plaintiff’s contract
with a third private party. An injunction here does not
prevent any arm of the state from acting to vindicate a
state policy or to punish an infraction of state rules.
Pennzoil argues that the court’s holding in Juidice v.
Vail, supra, to the effect that a federal court must abstain
from enjoining a state judge from enforcing a contempt
order demonstrates that the state has a substantial interest
in the process by which it “protects the rights adjudicated
in . . . [its] courts, and enables prevailing parties to
satisfy. . . judgments.” Juidice, however, cannot be read
so broadly. The Supreme Court there emphasized that its
holding turned on the fact that the contempt power was
the weapon used directly by the state courts to protect
their authority. The contempt power, the court noted, is
the means by which the state “vindicates the regular
Operation of its judicial system. . .. The contempt
power lies at the core of the administration of a State’s
judicial system.” Juidice, supra, 430 U.S. at 335. “Con-
tempt . . . serves, of course, to vindicate and preserve
the private interests of competing litigants, . . . but its
purpose is by no means spent upon purely private con-
cerns. It stands in aid of the authority of the judicial
system, so that its orders and judgments are not rendered
nugatory.” /d. at 336 n.12. In the present case, Texas’
limited interest in insuring that the interests of private
litigants such as Pennzoil are preserved does not rise to
A35
the level of a state’s interest in safeguarding the basic
power of its courts through contempt proceedings.
The relatively minor Texas state interest in the present
case is further attested to by the fact that we are not
called upon to declare the Texas lien and bond provisions
to be unconstitutional on their face but only as applied to
the unique and extraordinary circumstances of this case,
which are unlikely ever to recur because here obtaining a
$12 billion bond is impossible. Our exercise of federai
jurisdiction under § 1983 does not open any floodgates.
On the contrary, ours is a narrow holding limited to the
unusual circumstances of this case. The Texas lien and
bond provisions will in most other circumstances continue
to be respected and enforced as written by the Texas
legislature and the Texas Supreme Court. Thus our deci-
sion does not prevent the state from enforcing the policy
behind the Texas lien and bond provisions, which is to
insure that a judgment creditor’s interest in a judgment
will be protected during the pendency of an appeal.
Fortune v. McElhenney, 645 S.W.2d 934, 935 (Tex. Civ.
App. 1983); Mudd v. Mudd, 665 S.W.2d 128, 130 (Tex.
Civ. App. 1983); Cooper v. Bowser, 583 S.W.2d 805, 807
(Tex. Civ. App. 1979). The unconstitutionality of those
provisions as applied in the Pennzoil-Texaco case does
not nullify them with respect to judgments in other cases.
Nor has Pennzoil satisfied the second requirement for
Younger abstention, that Texas state courts provide ade-
quate procedures for adjudication of Texaco’s federal
claims. If resolution of those claims is to be effective,
prompt judicial action is essential; time is of the essence.
It appears unlikely that Texaco could have been assured
of a decision from the Texas trial court on the constitu-
tional issues, at least without the cooperation of Penn-
A36
zoil, before that court lost its jurisdiction over the case in
March 1986. Texaco’s effort to discuss modification of
Par. 7 in December 1985 was rebuffed. The motion before
the Texas trial court for a new trial is still pending. In
view of the plain language of the Texas bond provision
and the consistent line of Texas decisions enforcing it as
written, the Texas trial judge would in all probability
deny relief sought on constitutional grounds or leave the
constitutional issues undecided until his jurisdiction ex-
pired.
—e
Apparently recognizing the futility of Texaco’s seeking
to obtain a timely decision of its constitutional claims
through the trial court and traditional appellate channels,
Pennzoil urges that an application by Texaco to the Texas
Supreme Court for a writ of mandamus ordering the trial
court not to apply Rule 364(b) as written would satisfy
the Younger requirements. We disagree. In the first place,
the remedy of state court mandamus, which undoubtedly
has been available in many cases denying Younger absten-
tion, has never been regarded as an adequate state remedy
for abstention purposes, in view of its status as an
“extraordinary” writ to be granted only in exceptional
circumstances. Traughber, supra, 760 F.2d at 684; Holmes
v. New York City Housing Authority, 398 F.2d 262, 267
n.7 (2d Cir. 1968). Indeed, in Hernandez v. Finley, 471 F.
Supp. 516 (N.D. Ill. 1978), summarily aff’d mem. sub
nom. Quern v. Hernandez, 440 U.S. 951 ( 1979) (deciding
Trainor v. Hernandez, supra, on remand), the Supreme
Court affirmed the district court’s finding that the reme-
dies offered by the State of Illinois failed to “afford a
plain, speedy, efficient and certain remedy for review of
their federal claim”, because they left review of a rejected
federal claim to the discretion of the state’s appellate
A37
courts. Hernandez, supra, 471 F. Supp. at 520. Neither
the district court nor the Supreme Court suggested that
the availability to the private litigant of an original action
for relief in the Illinois Supreme Court (similar to manda-
mus), Illinois Supreme Court Rules 381-83, constituted an
“adequate state remedy”. Each time the Supreme Court
has found that adequate state remedies existed for
Younger purposes, the Court’s conclusion has rested on
the fact that the party seeking § 1983 relief could with
certainty obtain a resolution of constitutional claims from
the state courts. See, e.g., Middlesex Ethics, supra, 457
U.S. at 435-36; Juidice, supra, 430 U.S. at 337; Moore,
supra, 442 U.S. at 423-27; Huffman, supra, 420 U.S. at
608.
Furthermore, we do not believe that mandamus, if
granted, would provide Texaco an adequate and timely
remedy. Under Texas law, mandamus “will not lie where
no request or demand has been made for the performance
of such act or where there has been no refusal to per-
form.” Dozier v. Wray, 222 S.W.2d 178, 179 (Tex. Civ.
App. 1949). See also Kissam v. Williamson, 545 S.W.2d
265, 267 (Tex. Civ. App. 1976); Ratcliff v. Dickson, 495
S.W.2d 35, 36 (Tex. Civ. App. 1973); Cozby v. Clifton,
265 S.W.2d 197, 198 (Tex. Civ. App. 1954). Texaco would
be required, accordingly, to expend precious time in
requesting the trial court to disregard Rule 364, which as
noted, that court would probably fail to do, before
seeking mandamus relief. Furthermore, even if the Texas
Supreme Court issued the writ, Texaco’s problems would
not be at an end. There is no assurance that the Texas
appellate court would grant an immediate stay of execu-
tion pending its decision on the constitutionality of the
Texas lien and bond provisions or fix security in a
A38
reasonable amount. Indeed, the Texas appellate court
issuing a writ of mandamus “will never prescribe what the
decision of the subordinate court shall be, nor will the
supervisory court interfere in any way to control the
judgment or discretion of the subordinate court in dispos-
ing of the controversy.” Pope v. Ferguson, 445 S.W.2d
950, 953 (Tex. 1969) (quoting Ex parte Newman, 81 U.S.
152, 165-66 (1871)) (emphasis in original). Rather, the
Texas Supreme Court will remand the case to the trial
court with instructions to obey the law as the Texas
Supreme Court interprets it. Pope, supra, 445 S.W.2d at
953. In the present case, that rule would require the Texas
Supreme Court to leave it to the Texas trial court to hold
the necessary hearings and fix the proper amount of the
supersedeas bond. An effort by Texaco to obtain more
timely relief from a Justice of the United States Supreme
Court under § 1257 would not succeed since the Supreme
Court would not grant a stay until the Texas Supreme
Court had acted. See National Socialist Party v. Skokie,
432 U.S. 43 (1977); Nebraska Press Assn. v. Stuart,
Judge, 423 U.S. 1327, 1329-30 (1975) (Blackmun, J., in
chambers). In the meantime, Par. 7 of the Texas judgment
having long since expired, Pennzoil would have executed
its $11.12 billion judgment, forcing Texaco down the path
of no return.
The Merits: Requirements for Preliminary
Injunctive Relief
There remains the question of whether, in light of the
foregoing principles, the district court abused its discre-
tion in granting relief. An abuse of discretion would exist
if the court relied on clearly erroneous findings of fact or
erroneous legal principles in issuing the injunction. Han-
A39
son Trust PLC v. SCM Corp., 774 F.2d 47, 54 (2d Cir.
1985).
In this circuit the standard for issuance of preliminary
injunctive relief is well-settled. The plaintiff has the
burden of showing irreparable harm and (1) either proba-
ble success on the merits or (2) sufficiently serious ques-
tions going to the merits to make them a fair ground for
litigation plus a balance of hardships tipping decidedly in
the plaintiff’s favor. Kaplan v. Board of Education of the
City School District of the City of New York, 759 F.2d
256, 259 (2d Cir. 1985); Jackson Dairy, Inc. v. H.R. Hood
& Sons, Inc., 596 F.2d 70, 72 (2d Cir. 1979). The effect of
the grant or withholding of such relief upon the public
interest must also be. considered. Virginian Railway Co.
v. System Federation, 300 U.S. 515, 552 (1937); Stamicar-
bon, N.V. v. American Cyanamid Co., 506 F.2d 532 (2d
Cir. 1974).
Irreparable Harm
It is beyond dispute that, absent injunctive relief,
enforcement of Texas’ lien and supersedeas bond provi-
sions would rapidly produce a catastrophe of major
proportions, causing substantial harm to Texaco itself
and to thousands of others throughout the United States,
including stockholders, customers, and suppliers. Penn-
zoil concedes that Texaco, although it has a liquidation
value of $22 billion and a net worth of about $23 billion,
could not possibly post a bond or security in the sum of
the approximately $12 billion that is mandated by Tex. R.
Civ. P. 364(b). The simultaneous attachment of a lien
pursuant to Tex. Prop. Code Ann. §§ 52.001 ef seq. on
Texaco’s real property in Texas, valued at $5 billion,
would seal the company’s fate. Unable to finance its
tia
A40
Operations or obtain credit lines needed for its continued
existence, Texaco, the fifth largest business organization
in the United States, would be forced into bankruptcy or
liquidation. A large percentage of its 55,000 employees
world-wide, with an annual payroll of $1.6 billion, would
lose their jobs. Approximately 319,000 Texaco stock-
holders, who received $730 million in dividends in 1985,
would suffer heavy losses.
Some idea of the proportions of the threatened catas-
trophe can be gathered from the undisputed financial
crisis that occurred during the week following entry of the
Texas judgment. Despite the temporary “stand-still” pro-
visions of Par. 7 of that judgment Texaco’s bonds were
downgraded by Moody’s from investment grade to non-
investment grade. It was forced to withdraw from the
commercial paper market. Banks with which it did busi-
ness advised that they would no longer lend it money on
unsecured terms because of uncertainties as to what
would happen when Par. 7 expired in March 1986. Simi-
larly, because of these uncertainties, potential joint ven-
turers with Texaco cancelled negotiations with it,
suppliers refused to do business with it on regular custom-
ary terms, and companies refused to negotiate deals for
the purchase of Texaco assets. The extent of the harm
threatened by enforcement of the Texas judgment is
further attested to by some 58 interested parties including
12 states, that have filed amicus briefs or other papers
urging that enforcement be enjoined. .
In determining whether a threatened injury pending
appeal is irreparable it becomes important not only to
assess its nature and anticipated duration but whether the
plaintiff can be restored to the status quo ante if the
appeal should result in a reversal in his favor. The
A4l
irreparabil:ty of the harm increases in proportion to its
irreversibility. In most cases, if the judgment is reversed
upon appeal, the attachment will be vacated and the
property or the proceeds from its sale will be restored to
the appellant. His sole harm will have been the depriva-
tion of the use of the property or its monetary equivalent
pending the appellate decision. But when, as in the
present case, the interim injury is the irrevocable destruc-
tion of his business, resulting in bankruptcy or liquida-
tion, a reversal will not undo the injury, which cannot be
measured in damages and would in no event be recover-
able. The evidence is equally persuasive that without
injunctive relief the public interest would be adversely
affected. Virginia Ry. Co. v. System Federation, supra,
300 U.S. at 552.
We are not called upon to review the merits of the
Texas action. Indeed, it was not within the district court’s
province to do so. Under Rooker that is exclusively the
province of the Texas courts. We must accept for present
purposes that Pennzoil has established to the satisfaction
of a Texas jury and judge that it was unlawfully injured
by Texaco’s tortious conduct, that as a result Pennzoil
suffered enormous damages, and that Texaco’s conduct
was sufficiently egregious to require it in addition to pay
punitive damages to the victim. However, only if Texaco’s
appeal were patently frivolous would we be justified in
holding that any threatened harm to it from effective
denial of its right of appeal could be labelled inconse-
quential. The issue before us, therefore, is not whether
Texaco should have prevailed on the merits in the Texas
action but whether its Texas appeal presents non-frivolous
issues for resolution.
A42
That Texaco has raised non-frivolous issues as the basis
for its Texas appeal is clear. It argues (1) that the Texas
trial court erred in not granting it a mistrial based on the
acceptance by Texas Judge Anthony J. P Farris, who
presided over most of the 4-1/2-month trial until illness
forced him to step down, of a $10,000 “campaign contri-
bution” from Joseph D. Jamail, Esq., Pennzoil’s lead
trial counsel, while the case was pending before Judge
Farris and without disclosure to Texaco; (2) that the
successor Texas trial judge (Judge Casseb) refused to read
the transcript of the testimony and proceedings that had
occurred before Judge Farris and misapplied New York
law (which the parties admit governed the case) with
respect to (a) the essential elements of a claim of tortious
interference with a contract, (b) when a punitive damages
award is permissible, and (c) when a contract becomes
legally enforceable; (3) that any contract between Getty
and Pennzoil was void and unenforceable because it
violated S.E.C. Rule 10b-13, the federal antitrust laws,
State laws governing fiduciary duties of directors and
controlling stockholders, and the Statute of Frauds, and
was procured as the result of fraud or mutual mistake; (4)
that an improper method was used to compute the award
of $7.53 billion compensatory damages; and (5) that
Texaco was entitled to judgment as a matter of law
because the Texas judgment in Pennzoil’s favor violated
the Commerce, Supremacy, Full Faith and Credit, Due
Process, and Equal Protection Clauses of the United
States Constitution.
Fair Grounds for Litigation and Favorable
Balance of Hardships
Having shown that without injunctive relief it would
suffer irreparable injury, Texaco also had the burden of
A43
demonstrating that it has a substantial chance of success
on the merits of the present action (as distinguished from
the merits of its Texas appeal) or at least that it has raised
fair grounds for litigation and that the balance of hard-
ships tips in its favor. Kaplan, supra, 759 F.2d at 259. We
are satisfied that Texaco’s claim that the Texas bond and
lien provisions deny it due process presents a fair ground
for litigation. Hence it becomes unnecessary to reach its
claim that they also violate its equal protection rights.
The Texas constitution grants a right of appeal to all
civil and criminal litigants. Ne/son v. Krusen, 678 S.W.2d
918, 921 (Tex. 1984); Airco, Inc. v. Tijerina, 603 S.W.2d
785 (Tex. 1980); Bay v. Mecom, 393 S.W.2d 819, 820
(Tex. 1965); Dillingham v. Putnam, 14 S.W. 303, 304-05
(Tex. 1890); Moore v. Wutke, 145 S.W.2d 224, 226 (Tex.
Civ. App.
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