Opposition Brief — Parsons Steel, Inc. v. First Alabama Bank

—— a

fie »- Sucrame Court, us. |

D

U, MAY 2 1989

No. 84-1616

ALEAANULH L STEVAS,

ne upueme: ayn iE

=

IN THE

Supreme Court of the United States

OcTOBER TERM, 1984

PARSONS STEEL, INC., JIM D. PARSONS, MELBA L. PARSONS;

and A. Pore Gorpon, Trustee in Bankruptcy for the Estate of

PARSONS STEEL INDUSTRIES, INC.,

Pevitioners,

VS.

First ALABAMA BANK Or MONTGOMERY, N. A.,

and EDWARD HERBERT.

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Eleventh Circuit

BRIEF OF RESPONDENTS IN OPPOSITION

M. ROLAND NACHMAN, JR

(Counsel of Record)

JAMES A. ByRAM, JR

STEINER, CRUM & BAKER

P. O. Box 668

Montgomery, Alabama 3610]

(205) 832-8800

Attorneys for Respondents

St. Louis

QUESTIONS PRESENTED FOR REVIEW

1. Did the court below correctly affirm a district court in-

junction staying proceedings in a state court action in the

following circumstances:

The district court found that an action there under the Bank

Holding Company Act (12 USC § 1972) and a state court action

were based on the same factual allegations and substantially the

same damages claim. After a federal judgment in favor of

respondent bank, petitioners sought to relitigate substantially

identical matters in the state action. Because the state judgment

in effect nullified the earlier federal one, the district court, pur-

suant to 28 USC § 2283, enjoined further prosecution of the

state court action in order to protect and effectuate its prior

judgment.

. Did the court below correctly affirm the district court's in-

clusion in the scope of this injunction of a state court party—by

choice not a party to the federal action—upon a factual finding

of privity and adequate representation?

— amt —_ eee —

il

TABLE OF CONTENTS

Questions Presented ...

Table of Contents ........

Table of Authorities ....... Oy ee

Opinion Below .............+++:: tena kes ees

OS er

Statutes and Constitutional Provisions Involved .....

Statement of the Case ..........----e0::

Reasons for Denying the Writ .........-..-..00e05

Te ogee cenececcees

Certificate of Service ..... a eg ag

Appendix A ........-ccccecccecc reece ccrencees

TABLE OF AUTHORITIES

Cases:

A.C.L.R.Co. v. Brotherhood, 398 U.S. 281 ........

Aerojet-General Corp. v. Askew, 511 F.2d 710 (Sth

Cir. 1975), cert. denied, 423 U.S. 908..........-.

Allied Mutual Ins. Co. v. Roberson, 306 F.2d 130 (4th

ee becca eeeesesedeveccevecccs:

Bank of Heflin v. Miles, 621 F.2d 108 (Sth Cir. 1980)...

Brotherhood v. Bangor and Aroostook R. Co., 389

ee ce eee beer ecevesneneses

10

A-]

wa

|

™

Brown v. Felsen, 442 U.S. 127 ......... 0c e eee eeee: 8

Brown v. McCormick, 608 F.2d 410 (10th Cir. 1979) ... 8

California v. Taylor, 353 U.S. 553.........-- eee e eee: Q

Capital Cities Cables v. Crisp, 467 U.S. , 81 L.Ed.

TE og nda ban cdaevpunsnav sence ns ease reece: 9

Donelon v. New Orleans Terminal Co., 474 F.2d 1108

(Sth Cir. 1973), cert. denied, 414U.S. 855........ &

First Alabama Bank of Montgomery, N.A., et al. v.

Parsons Steel, Inc., et al., 747 F.2d 1367 (11th Cir.

SD 2 ond cavaee Sn cenesoe se ee kes kee veneenees passim

General Foods v. Mass. Dept. of Health, 648 F.2d 784

Cee, SEED ic. dvwccncdasuaccevscusensessese 9

Harper Plastics v. Amoco Chemicals Corp., 657 F.2d

le .o A |) ee ee 8

In re Corrugated Container Antitrust Litigation, 659

F.2d 1332 (Sth Cir. 1981), cert. denied, 456 U.S.

re arr me er ee Pen Ta 7

Marrese v. American Academy of Orthopaedic Sur-

geons, __ U.S.__, 53 U.S.L.W. 4265....... 8

Meridian Investing Development Corp. v. Suncoast

Highland Corp., 628 F.2d 370 (Sth Cir. 1980) ..... 7

Mitchum v. Foster, 407 U.S. 225 .........0c eee eens 7

Montana v. United States, 440 U.S. 147 ............... )

Seaboard System R. Cc. v. Union Camp Corp., 613

F.2d 604 (Sth Cir. 1980), cert. denied, 449 U.S. 835 7

Southwest Airlines Co. v. Texas International Airlines,

Inc., 546 F.2d 84 (Sth Cir. 1977), cert. denied, 434

OE ea EE ee se ee aire g x

Silcox v. United Trucking Service, 687 F.2d 848 (6th

oe, Be 600000 keeneeeess AEP A Boers te 8

Tennessee v. Dunlap, 426 U.S. 312 ... 6... -. ee ee ee ee ss

loucey v. New York Life, 314 U.S. 118 ........--555. S, 6

United States v. District of Columbia, 654 F.2d 802

(D.C. Cir. 1981), cert. denied, 454 U.S. 1082 ..... 7

United States v. Amer. Society of Composers, etc., 442

F.2d 601 (2nd Cir. 1971)... 0... cece ccc eeeccees 7

Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623 ....... 7

Wood v. Santa Barbara Chamber of Commerce, 705

F.2d 1515 (9th Cir. 1983), cert. denied, 104 S.Ct.

Woods Exploration & Pro. Co. v. Aluminum Co. of

Amer., 438 F.2d 1286 .........0 eee cece reece: 7,8

Constitution and Statutes:

Constitution of the United States, Fifth Amendment ... 2

SOs Oe BO oo ccicwcdvdevdveses cceseudecees: =

UR oe) nn err er errr Se cre 2

, a Toke. Teewrrrerrr tre rere passim

Miscellaneous:

Note, Federal Power to Enjoin State Court Pro-

7

ceedings, 74 Harv. L. Rev. 726 ....-----++++00>:

Rule 52(a) F.R.C.P.. 1... eee cece rere cere eeeees 2

No. 84-1616

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

PARSONS STEEL. INC., JIM D. PARSONS, MELBA L. PARSONS;

and A. Pope GorDON, Trustee in Bankruptcy for the Estate of

PARSONS STEEL INDUSTRIES, INC.,

Petitioners,

vs.

First ALABAMA BANK OF MonTGOMERY, N. A..,

and EDWARD HERBERT,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Eléventh Circuit

BRIEF OF RESPONDENTS IN OPPOSITION

OPINION BELOW

The opinion of the United States Court of Appeals for the

Eleventh Circuit is reported at 747 F.2d 1367 (11th Cir. 1984). It

appears as Appendix A to the petition.

JURISDICTION

Although the petition does not contain all relevant dates,

Respondents understand that the petition was filed on April 12,

=

1984 within 90 days of January 14, 1985 the date of the denial of

the petition for rehearing below. Jurisdiction of this Court is

conferred by 28 U.S.C. § 1254.

STATUTES AND CONSTITUTIONAL PROVISIONS

INVOLVED

Relevant provisions of 28 U.S.C. § 2283 are contained in the

petition. The relevant portion of Rule 52(a) F.R.C.P. is also in-

volved.' Although the petition asserts that the due process

clause of the Fifth Amendment of the United States Constitu-

tion is involved, this issue was not presented below.

STATEMENT OF THE CASE

Respondent refers to the majority opinion of the court of ap-

peals below which appears in petitioners’ appendix and which is

reported at 747 F.2d 1367.

Moreover, that opinion shows as does the opinion of the

district court of March 29, 1985, Appendix A to this brief, that

the court of appeals remanded, as to the petitioner trustee, to

permit the district court to determine whether its injunction

‘*should be modified to allow the Trustee to pursue his UCC

claim based only on the actual foreclosure sale.’’? Upon

remandment the district court, after having given the trustee an

opportunity to submit facts, held that its injunction should not

be modified ‘‘to allow the Trustee to pursue his UCC claim

because that claim is based on matters heretofore litigated by

this Court, and the Trustee was privy to such litigation.”’

(A-10)

' ** Findings of fact shall not be set aside unless clearly erroneous,

and due regard shall be given to the opportunity of the trial court to

judge of the credibility of the witnesses....’’

? 747 F.2d 1381; A-26 of petition.

The petition states (p. 3) that the earlier federal action *‘alleg-

ed only’’ that Bank had placed an impermissibie condition on a

further extension of credit in violation of the Bank Holding

Company Act (BHCA) 12 U.S.C. § 1972. This statement is er-

roneous and is negated by the extensive factual recitations of the

court of appeals and the district court. The district court, for

example, held that ‘‘an identical set of facts to those previously

tried in this Court’’ was tried in the later state court pro-

ceedings;’ and the court of appeals approved these findings.‘

Even the dissenting judge beiow agreed with the district court

and the majority ‘‘that the state court litigation repeated the

federal court issues—or issues that could have been resolved

there.’’®

Petitioners mislead when they assert that respondents did not

seek to join trustee as a party to the earlier federal action. (p. 4)

The court of appeals and the district court found that the trustee

‘“chose not to participate in the [earlier federal] suit;’’* and

*A-42 of petition.

* 747 F.2d at 1370; A-S of petition.

‘*n a well reasoned opinion the federal district court found that the

federal BHCA action and the state action were based on the same fac-

tual allegations and the damages claimed in each suit were substantial-

ly the same. The district court held that any additional state claims

relating to the fact situation couid have, and should have been raised

in federal court under the doctrine of pendent jurisdiction. The

BHCA action was therefore res judicata as to the state action. Because

the state court judgment in effect nullified the federal court judgment

in favor of the Bank, the federal court, pursuant to 28 U.S.C. § 2283,

enjoined further prosecution of the state court action in order to pro-

tect or effectuate its prior judgment.’’ (Footnote omitted.)

* 747 F.2d at 1382; A-30 of petition.

* 747 F.2d at 1370; A-3 of petition.

—_

noted that his decision was because of his view that the federal

and state actions ‘‘based on the Bank’s presale activities [were]

frivolous.’”’

In a remarkable error, petitioners assert (p.5) that the district

court ‘‘made no finding that the injunction was necessary to

‘protect or effectuate’ its prior judgment but instead based the

injunction solely on its conclusion that the Federal Action bar-

red the State Action although clearly recognizing the two ac-

tions involved different causes of action.’’ This statement is

wholly inaccurate and recurs (e.g. pp. 16 and 18). The district

court issued its injunction ‘‘to bar further relitigation of pro-

ceedings already decided in this Court’’; and noted the public

interest ‘‘in deterring relitigation of suits.”"* Moreover, as

already noted, the court of appeals held that the district court

issued its injunction ‘‘to protect or effectuate its prior judg-

ment,’’ because the state court judgment ‘‘nullified’’ the earlier

federal court judgment.’

Exacerbating this inaccuracy, petitioners argue (p.5, n.2) that

the court of appeals majority, in a unique decision, held that §

2283 was an exception to the full faith and credit act. The actual

holding below was that, although § 2283 generally prohibited in-

junctions to stay proceedings in a state court, Congress had con-

ferred that power on federal courts—as an exception to this pro-

hibition—when it enacted the relitigation exception in 1948; and

**while a federal court is generally bound by other state court

determinations, the relitigation exception empowers a federal

court to be the final adjudicator as to the res judicata effects of

its prior judgments on a subsequent state action.’’'®

’ 747 F.2d at 1378; A-20 of petition.

*A-42 of petition.

* Supra, n. 4

'° 747 F.2d at 1376; A-16 of petition.

—

REASONS FOR DENYING THE WRIT

1. Petitioners have filed a joint petition; a portion of the deci-

sion below which the trustee seeks to review was remanded by

the court below; and the district court has conducted further

proceedings and entered a subsequent order on March 29, 1985.

In these circumstances, after a remand, this Court has denied

certiorari because ‘‘the case is not yet ripe for review.”’

Brotherhood v. Bangor and Aroostook R. Co., 389 U.S. 327,

328 and authority cited.

2. Petitioners have failed to present any ‘‘special or important

reasons”’ for the grant of certiorari and have failed to invoke

any of the criteria specified in Supreme Court Rule 17.1(a) and

(c); there is no conflict with a decision of another federal court

of appeals; there is no suggested departure ‘‘from the accepted

and usual course of judicial proceedings;’’ and the decision

below accords with applicable decisions of this Court.

The courts below have applied the relitigation exception of §

2283 in a classic context—to effectuate the earlier judgment of

the district court; to enjoin its atternpted nullification by a later

state court judgment; and thus to safeguard to the victor in the

earlier federal litigation the fruits of that victory. This is precise-

ly why congress enacted this exception to § 2283 in 1948, name-

ly, to assure by express legislative language, that federal courts

have the power to enjoin proceedings in a state court “‘to pro-

tect or effectuate’ their judgments. As the code reviser has

noted, Congress intended to adopt, by this legislation, the posi-

tion of the ‘‘vigorous dissenting opinion’’ in Joucey v. New

York Life, 314 U.S. 118, 144."'

'' So characterized by Congress which adopted it when it reversed

the majority by the enactment of § 2283. See Reviser’s Notes. The

majority op‘nion was thus characterized by the ‘‘vigorous’’ dissenting

opinion (314 U.S. at 144):

**This alternative is that a federal judgment entered perhaps

after years of expense in money and energy and after the produc-

—

Petitioners erroneously assert that when federal courts deter-

mine whether an injunction against state proceedings is

necessary to ‘‘protect or effectuate their judgment,’’ they im-

permissibly review state court judgments and thus impinge on

the exclusive power of this Court. This argument is wholly

without merit. Courts and commentators have often described

the process Congress had in mind to safeguard the effect of

fedeial court judgments.

‘*The Revisor’s Note makes clear that this language allows a

federal court to enjoin a state court’s attempt to relitigate a

federal decision, and the lower federal courts have so inter-

preted it. This is a sensible solution to the problem of

relitigation of federal decisions; it prevents multiple litiga-

tion of the same cause of action and it assures the winner in

a federal court that he will not be deprived of the fruits of

his victory by a later contrary state judgment which the

Supreme Court may or may not decide to review.

Although a strict interpretation of the anti-injunction

statute appeared proper to the Court in Toucey, that deci-

sion left federal judgments open to state court reversals.

Since appeal of right no longer exists from a state court’s

failure to give res judicata effect to a federal decision, and

since the Supreme Court’s decisions to grant writs of cer-

tiorari are based more upon considerations of general

public interest than of the interests of the individual

litigants, interlocutory review of state court action by in-

tion of thousands of pages of evidence comes to nothing that is

final. It is to be only the basis for a plea of res judicata which is

to be examined by another court, unfamiliar with the record

already made, to determine whether the issues were or were not

settled by the former adjudication. We, too, desire that the dif-

ficulties innate in the federal system of government may be

smoothed away without a clash of sovereignties but we find no

cause for alarm in affirming a court which forbids parties bound

by its decree to fight the battle over on another day and field.’’

<= =

junction seems a satisfactory mode of protecting federal

judgments.’’'’

Chis Court has expressly recognized that Congress, when it

enacted the ‘‘relitigation exception’’ to § 2283, had legislated so

as to permit ‘‘a federal court to enjoin relitigation in a state

court of issues already decided in federal litigation.’’ Mitchum

v. Foster, 407 U.S. 225, 235. See also this Court’s discussion in

Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623, 630 et seq.

Moreover, the decisions below do not contravene

A4.C.L.R.Co. v. Brotherhood, 398 U.S. 281, as petitioners er-

roneously suggest. This Court has repeatedly made plain that

this case simply holds that federal courts do not have inherent

power to enjoin state proceedings but must abide by the express

exceptions to § 2283.'? The injunction at bar was premised

upon the specific relitigation exception in § 2283, and not upon

any asserted inherent power of the federal court.

A long line of federal decisions accord with the decision

below. '*

'? Note, Federal Power to Enjoin State Court Proceedings, 74 Harv.

L. Rev. 726, 734, cited in Woods Exploration & Pro. Co. v.

Aluminum Co. of Amer., 438 F.2d 1286, 1312-1313 (Sth Cir. 1971).

'? See discussion in Mitchum v. Foster, supra. and Vendo Co. v.

Lektro-Vend Corp., supra.

'* United States v. District of Columbia, 654 F.2d 802 (D.C. Cir.

1981), cert. denied, 454 U.S. 1082; United States v. Amer. Society of

Composers etc., 442 F.2d 601 (2nd Cir. 1971); Allied Mutual Ins. Co.

v. Roberson, 306 F.2d 130 (4th Cir. 1962); in re Corrugated Container

Antitrust Litigation, 659 F.2d 1332 (Sth Cir. 1981), cert. denied 456

U.S. 756; Meridian Investing Development Corp. v. Suncoast

Highland Corp., 628 F.2d 370 (Sth Cir. 1980; Bank of Heflin v. Miles,

621 F.2d 108 (Sth Cir. 1980); Seaboard System R. Co. v. Union Camp

Corp., 613 F.2d 604 (Sth Cir. 1980), cert. denied 449 U.S. 835;

=

Petitioners cite many cases (pp. 11-15) which discuss the

preclusive effect in federal courts of earlier state court decisions.

The short answer is that these cases—as the questions presented

by petitioners for review—are simply irrelevant to the issue in

this case, namely, the authority of a federal court, under § 2283,

to enjoin state proceedings in order to protect and effectuate a

prior federal judgment. This Court has characterized one of

petitioners’ cases, Brown v. Felsen, 442 U.S. 127, 138, as ‘‘fin-

ding congressional intent that state judgments would not have

claim preclusive effect on dischargeability issue in

bankruptcy.’’'®

The reductio ad absurdum of petitioners’ argument is that a

federal court would be powerless, despite § 2283, to stay any

state proceeding which nullified its prior judgment unless a

federal injunction issued whenever there was a possibility that a

state court might rule on the preclusive effect of an earlier

federal judgment, and before the state court had an opportunity

to do so. Such an absurd process would exacerbate, and cer-

tainly not relieve, friction between state and federal courts; and

it would thwart the carefully defined congressional purpose of

the 1948 revision of § 2283.

Southwest Airlines Co. v. Texas International Airlines, Inc., 546 F.2d

84 (Sth Cir. 1977), cert. denied 434 U.S. 832; Aerojet-General Corp.

v. Askew, 511 F.2d 710 (Sth Cir. 1975), cert. denied 423 U.S. 908;

Donelon v. New Orleans Terminal Co., 474 F.2d 1108 (Sth Cir. 1973),

cert. denied 414 U.S. 855; Woods Exploration & Pro. Co. v.

Aluminum Co. of Amer., 438 F.2d 1286 (Sth Cir. 1971), cert. denied

404 U.S. 1047; Silcox v. United Trucking Service, 687 F.2d 848 (6th

Cir. 1982); Harper Plastics v. Amoco Chemicals Corp., 657 F.2d 939

(7th Cir. 1981); Wood v. Santa Barbara Chamber of Commerce, 705

F.2d 1515 (9th Cir. 1983) cert. denied, 104 S. Ct. 1446; Brown v. Mc-

Cormick, 608 F.2d 410 (10th Cir. 1979).

'S Marrese v. American Academy of Orthopaedic Surgeons, ___

U.S. ___., 53 U.S.L.W. 4265, 4268 (1985). This case holds that a

federal court should not give greater claim preclusion effect to an

earlier state judgment on the merits than the state itself would have

given.

— on

3. Although the petition impermissibly seeks to raise for the

first time a due process argument based on alleged unauthorized

representation of the trustee in the federal action,'* the argu-

ment itself has no merit. The court below, as the district court,

held that as to facts relating to BHCA and fraud claims, ‘‘the

Trustee is in privity with the Parsons as to the adjudication of

those facts and is bound by the federal adjudication of those

matters.’’'’ See Montana v. United States, 440 U.S. 147. The

court below remanded to give the trustee an opportunity to con-

vince the district court that his UCC claim was not based on the

same alleged improprieties; and the trustee was unable to do

so.'* Indeed, a case cited by petitioners in an attempted

demonstration of circuit conflict, General Foods v. Mass. Dept.

of Health, 648 F.2d 784, 787 (ist Cir. 1981), holds that due pro-

cess permits a non party to be bound by a judgment if ‘‘he had

directly or vicariously a full and fair opportunity to present

evidence and argument.’’ All of them (pp. 21-22) hold ques-

tions of privity and adequate representation to be fact issues.

4. It is noteworthy that respondents did not bring the federal

case but Bank was sued there by the Parsons petitioners and

trustee deliberately chose to stay away. Dissatisfied with federal

results, petitioners then attempted to relitigate in state court

what was or could have been litigated in the federal action. The

courts below correctly refused to countenance such tactics; en-

joined further state proceedings; and thus furthered the con-

gressional purpose of § 2283.

'* Issues never adequately alleged and considered below are not

before this Court. Tennessee v. Dunlap, 426 U.S. 312, 314, n. 2;

Capital Cities Cables v. Crisp, 467 U.S. ___, 81 L.Ed.2d 580, 588;

and California v. Taylor, 353 U.S. 553, 557, n. 2.

'? 747 F.2d at 1380; A-24-25 of petition.

'* District court order of March 29, 1985, Appendix A.

CONCLUSION

Accordingly, Petitioners have failed to advance any reason

for the grant of certiorari and, for the foregoing reasons, it is

respectfully submitted that their petition should be denied.

Respectfully submitted,

M. ROLAND NACHMAN, JR.

P. O. Box 668

Montgomery, AL 36101

Counsel of Record for

Respondents

CERTIFICATE OF SERVICE

This is to certify that I have this day served a copy of the

foregoing Brief of Respondents in Opposition upon counsel of

record for Petitioners by depositing a copy in the United States

Mail, postage prepaid, addressed as follows:

Mr. Frank Wilson

Beasley & Wilson

418 South Hull Street

Montgomery, AL 36104

Mr. James Jerry Wood

641 S. Lawrence Street

Montgomery, AL 36104

This 1st day of May, 1985,

M. Roland Nachman, Jr.

APPENDIX

IN THE UNITED STATES DISTRICT COURT FOR

THE MIDDLE DISTRICT OF ALABAMA

NORTHERN DIVISION

Civil Action No. 83V-181-N

First Alabama Bank of Montgomery, N.A., et al.,

Plaintiffs,

Vs.

Parsons Steel, Inc., et al.,

Defendants.

ORDER

(Filed March 29, 1985)

In accordance with the Opinion entered in the above-styled

cause on this date, it is

ORDERED by this Court that the injunction heretofore

issued by this Court in this cause should not be modified to

allow the Trustee to pursue his UCC claim.

DONE this 29th day of March, 1985.

/s/ R. E. Varner

United States District Judge

— <

IN THE UNITED STATES DISTRICT COURT FOR

THE MIDDLE DISTRICT OF ALABAMA

NORTHERN DIVISION

Civil Action No. 83V-181-N

First Alabama Bank of Montgomery, N.A., et al.,

Plaintiffs,

VS.

Parsons Steel, Inc., et al.,

Defendants.

OPINION

(Filed March 29, 1985)

The history of this case is well stated by the Court of Appeals

in Parsons Steel, Inc. v. First Alabama Bank of Montgomery,

679 F.2d 242, [Parsons !], and in First .4labama Bank v. Par-

sons Steel, Inc., 747 F.2d 1367 (11th Cir. 1984) [Parsons II].

The Court of Appeals in Parsons II remanded with instructions

that this Court make fact-findings to determine whether the in-

junction should be modified to allow the Trustee to pursue his

UCC claim based only on the actual foreclosure sale. That

Court pointed out in guidance:

‘Assuming that the Trustee’s UCC claim is based on fac-

tual allegations different from those underlying the fraud

and BHCA claims, the parties’ interests were not so closely

aligned as to say the Parsons virtually represented the

Trustee as to this narrow claim that the Parsons did not

raise in the federal action.”’

In response to the remand for clarification of the commercial

unreasonableness claim, this Court ordered the Trustee to

specifically set out said claim. That claim will be considered and

compared to the Parsons I claim hereinafter.

The Court of Appeals stated in Parsons II that, almost a year

after this Court’s judgment [referring to Parsons I] in the

— =

Bank’s favor, ‘‘the Trustee amended his [State] complaint to in-

clude the UCC claim that the foreclosure sale was commercially

unreasonable. Until that point in the litigation, the state action

against the Bank was based on factual allegations which had

been fully adjudicated in the BHCA action. With the addition

of the UCC claim, however, the state action began to involve

fact questions which the district court found were part of the

federal complaint, but which were not reached in the federal

litigation’’ [Parsons II, at 1379-1380]. The Cort of Appeals

held that the record on appeal was insufficient, however, to

determine whether the UCC claim is based on the same factual

allegations as was the fraud aiid the BHCA claims. As noted by

the Court of Appeals [Parsons II, at p. 1379], the UCC claim in

Parson II is based on commercial unreasonableness. Paragraph

27 of the complaint in Parsons I federal case concerned com-

mercial unreasonableness.' This Court found against the Plain-

tiff on all aspects. Responsibility is on appellant to have a

record showing the error. Nonetheless, the Appellate Court, in

its remand, states the following:

' Said Paragraph 27 of the Parsons I complaint contained this

allegation: ‘‘The sale *** was not handled in a commercially

reasonable manner ***.’’ The pleaded reasons therefor related to the

same facts from which the BHCA violation and the fraud allegations

allegedly arose as stated in the complaint. Loose pleading re-

quirements allowed Plaintiffs to state in a one-count or one-claim

complaint allegations of a BHCA violation [Paragraph 34], a con-

spiracy [Paragraphs 25 and 29], a trust violation {Paragraph 26], a

commercially unreasonable sale [Paragraph 27], lack of good faith,

CODE OF ALABAMA [1975], § 7-1-201, and fraud [Paragraph 30}.

It is difficult for this Court to understand the conclusion in the dis-

sent, Parsons II, at p. 1382, as follows: ‘‘[A]s the majority correctly

notes, the commercial reasonableness claims - the factual basis for

which is unclear on the present record - were not pleaded at all in the

federal action.’’ The Trusiee’s attorney had access to these pleadings

and participated in discovery. He was clearly privy to the commercial

reasonableness claims. If they were treated as damages, he had every

opportunity to have prayed that they be treated as a separate cause of

action.

—_—-

“If the UCC claim merely alleges that improprieties in-

volving the Bank and Michael Orange prior to the sale

resulted in the receipt of an unfairly low price for the com-

pany’s assets, then the district court was correct in finding

privity and barring the Trustee from asserting the UCC

claim in state court.’’ Parsons II, supra, at 1380.

CURRENT UCC CLAIM. Whether or not the UCC claim

alleges only that ‘‘improprieties involving the Bank and Michael

Orange prior to the sale resulted in the receipt of an unfairly low

price for the company’s assets’’ can best be determined by ex-

amining the Trustee’s Claims filed herein February 21, 1985, in

response to this Court’s Order entered February 6, 1985, direc-

ting that the Trustee state with particularity his UCC claims.

CURRENT CLAIMS OF TRUSTEE. Guided by the Order

of the Court of Appeals that res judicata would bar no part of

the Trustee’s UCC claims ‘‘separate and apart from any of the

events leading up to the sale’’ [Parsons II, supra, at p. 1380], the

Trustee’s attorney sought to direct his claims to some im-

propriety occurring after the sale, complaining of a ‘‘commer-

cially unreasonable sale and wrongful disposition of the assets

of Parsons Steel Industries, Inc. *** after a foreclosure in

January of 1979,”’ in violation of CODE OF ALABAMA

[1975], §§ 7-9-504, 7-9-507 and 7-1-201. Sections 7-9-504 and

7-9-507 deal with a commercially unreasonable sale, and Section

7-1-201 deals with the duty of good faith.’

More specifically, the Trustee contends in his response to this

Court’s Order directing specificity the following: (1) that the

sale was a private sale of the securities two days after reposses-

sion; (2) that only one potential buyer was notified of the sale;

(3) that the buyer had no pre-sale experience in the steel

business; (4) that no contact was made with any person in the

? It is noted that Paragraphs 27 and 30 of the complaint in Parsons I

contained allegations of a commercially-unreasonable sale and a lack

of good faith, respectively.

—

steel business or with any unsecured creditor; (5) that no notice

was given the attorney for Parsons Steel Industries, Inc.; (6)

that no notice was placed in any steel interests or public publica-

tions; (7) that no one except seller and purchaser were in atten-

dance at the sale; (8) that the sale was at a private place; (9) that

only one bid was offered and accepted; (10) that the price paid

at the sale was determined in accordance with the amount

necessary to satisfy the Bank’s secured debt; and, finally, (11)

that the sales price was $907,252.85 while the value of the col-

lateral was in excess of $2,500,000.00.

It appears to this Court and this Court finds that each of

these items of the current contentions of the Trustee was part of

the original claims made in this Court and litigated in the suit by

Parsons Steel, Inc., and affirmed by the Court of Appeals in

Parsons I, supra.

In Paragraph 14 of the complaint [Parsons I], Plaintiffs alleg-

ed that on November 30, 1978, a balance sheet of Parsons Steel

Industries, Inc., showed assets of $2,384,945.89 and liabilities

of $1,910,747.09. P*aintiffs alleged in Paragraph 16 of the com-

plaint that conditions were subs:antially the same on January

17, 1979. Paragraph 24 of the complaint contained allegations

that on Ja: uary 17, 1979, a private sale of the assets of Parsons

Steel Industries, Inc., was held at 10:00 a.m., rather than at the

announced time of 2:00 p.m., to OSI, Inc., for $907,252.85.

Paragraph 25 of the complaint contained allegations that the

agent of the Bank and Mr. Orange for OSI, Inc., worked in

concert so as to obtain properties of Parsons Steel Industries,

Inc., for Orange. Paragraph 26 of the complaint contained

allegations suggesting a violation of a resulting trust. Paragraph

27 of the complaint contained allegations that the sale was

‘‘not handled in a commercially-reasonable manner in that

the acquisition and sale were completely transacted in less than

two days with the price paid by OSI being substantially less than

the market value of the assets purported to be sold;’’ that no

additional possible purchasers were given any opportunity to in-

—_*

spect the properties and submit bids; that the sale was not

handled in conformity with reasonable commercial practices;

and that the assets sold for other than the fair market value

thereof. Paragraph 29 of the complaint contained allegations

that the Bank, Orange and others were guilty of ‘‘collusion ***

to do great damage and economic harm to the Plaintiffs and

which effectively put ***’’ Parsons Steel Industries, Inc., out of

business. Paragraph 30 of the complaint contained allegations

of lack of good faith and fraud with intent to deceive and injure

the Plaintiffs and the creditors of Parsons Steel Industries, Inc.

Paragraph 32 of the complaint contained allegations of the

January 17, 1979, private sale to OSI, Inc., a newly formed cor-

poration, resulting in Plaintiffs’ loss of an on-going business

together with its assets, leaving unsecured debtors owed

$847,000.00. Paragraph 34 of the complaint contained allega-

tions of a violation of the Bank Holding Company Act.

Paragraph 37 of the complaint contained allegations that Par-

sons Steel Industries, Inc., had been placed in involuntary

bankruptcy. The trustee in Bankruptcy and his attorney par-

ticipated in discovery proceedings in Parsons I and, obviously,

had access to the complaint which contained the above allega-

tions when he elected not to pursue any remedy on the Trustee’s

part or on behalf of the creditors.

Another indication that the State claims relate to alleged pre-

sale activity can best be determined by the way that the

Trustee’s attorney processed them in the State court proceeding.

In his opening statement, Mr. Wood adopted Mr. Beasley’s

statement, saying specifically the unsecured creditors ‘‘*** had

no notice of any foreclosure sale’’ and that ‘‘the Bank obtained

from Michael Orange enough to satisfy the Bank’s debt but not

any more ***.’’ [R. 61-62]. In his closing argument, Mr. Wood

stated, ‘‘We are entitled to recover on commercial

reasonableness—on fraud and conspiracy.’’ [R. 1573]. Mr.

Wood, further referring to the pre-sale failure to obtain pur-

chasers and to determine the value of inventory, said that the

eel

ae TD oe

Bank ‘‘didn’t try to find out. Just figured out what the Bank

was owed. Same answers on all the other assets of Parsons

Steel.’’ [R. 1573]. Mr. Wood stated that ‘‘*** Parsons Steel

Montgomery is entitled to recover *** on the commercial

reasonableness *** of the sale ***. It was a// pre-arranged. ***

It was done in hidden fashion. *** You’ve got a corporation

that was formed especially for it’’ (emphasis added). [R. 1575].

Mr. Wood spoke of the Bank’s wanting to avoid a Chapter 11

proceeding because it would have been more difficult. He

spoke of the fact that the time of the sale was changed from

‘ten to two’’ because they did not want anyone else there

because they ‘‘*** were going to sell to Michael Orange,”’ that

‘they made that decision way back on the tenth or eleventh’’.

[R. 1576]. Referring to the same pre-sale activity, Mr. Wood

stated: ‘‘Some how, some way in December, they decided to do

it differently.’’ [R. 1578].

Trustee’s attorney at the State trial complained (1) of plans

made before the sale, (2) of fraudulent plans before the sale, (3)

of insufficient notice before the sale, (4) of changing before the

sale of the time of the sale, (5) of plans to sell to Orange made

before the sale, (6) of plans to sell for the arnount owed the

Bank before the sale, (7) of avoidance of a Chapter 11 pro-

ceeding before the sale, (8) of failure before the sale to deter-

mine what the inventory was worth, (9) of failure before the sale

to determine what other assets were worth and, finally, (10) of

the ‘‘pre-arranged’’ lack of ‘‘commercial reasonableness of the

sale’’.

Every word of the Trustee’s attorney’s statements during the

State Court trial was devoted to pre-sale activities of Michael

Orange and the Bank’s agent Herbert. No suggestion was made

that the Defendants in the State court case did anything wrong

after the sale. The only substantial change in the Trustee’s posi-

tion is that the Trustee’s attorney, guided now by the admoni-

tion of the Court of Appeals, alleged, as a preamble to allega-

tion’ of pre-sale activities, that the Bank ‘‘conducted a commer-

—_

cially unreasonable sale and wrongful disposition of the assets

of Parsons Steel Industries, Inc., ***’’ after a foreclosure in

January, 1979.

The Court of Appeals stated that, because the questions of

liability and damages were bifurcated, evidence of an insuffi-

cient price as bearing on commercial reasonableness was never

presented to the jury in the federal court trial. The parties to

that proceeding and the Trustee had access to the pleadings and

participated in a number of the discovery proceedings. They

understood that commercial reasonableness of the sale was an

issue in the case, whether as damages for the Bank Holding

Company Act violation or as an independent claim as now

asserted, and the Trustee had every opportunity to litigate com-

mercial reasonableness either as a part of the Bank Holding

Company Act or as a part of an independent claim for commer-

cial reasonableness at his option. If the alleged value of the

assets as compared to the sales price were not litigated in the

trial proceeding in this Court, it was because the parties did not

present it to this Court as an issue independent of the Bank

Holding Company Act violation. The Trustee knowingly

declined to participate. His failure to do so, whether by design

(so as to obtain two bites at the apple) or by inadvertence, bars

his doing so now under the doctrine of res judicata.

The Trustee’s contention that the sales price was

unreasonable derives from Plaintiff’s claim in Parsons I that the

whole thing was planned prior to the sale and that the Bank’s

agent and Michael Orange, the purchaser, knew and arranged

prior to the sale that the sales price would be the amount of the

debt to the Bank. Note 11 of the Opinion of the Court of Ap-

peals in Parsons II, supra, at 1373-1374, reads as follows:

‘**The record in this appeal does not indicate what precise

facts the UCC claim is based on. That is, it is unclear

whether the claim is based on allegations that something

about the handling of the actual sale was commercially

—.

unreasonable and resulted in an insufficient price or

whether the UCC claim is based solely on allegations that

improprieties involving the Bank and Orange prior to the

sale resulted in an unfairly low price.’’

This Court concludes that the Court of Appeals’ Opinion means

that, if nothing wrongful happened at the time of the actual sale

and the improprieties complained of involved alicgations of

wrongs by the Bank and Orange prior to the sale resulting in an

unfairly low price, then Parsons and all those associated with

him, including the Trustee, are barred from further pursuit of

this proceeding. Clearly, in the mind of the Court the things

that the Trustee still argues were wrongful occurred prior to the

sale. While the Trustee insists that the sale itself was

unreasonable and the disposition of the proceeds was wrong, he

alleges no non-conclusory facts which would indicate that any

wrong that was done at or after the sale was improper. His

claims of impropriety relate to plans made by Herbert and

Orange: failure to give public notice of the sale, failure to seek

buyers for the sale, failure to hold the sale at the time previously

planned and failure to learn the value of the property securing

the debt - in short, failure to do those things prior to the sale

which allegedly would have produced a fair price for the proper-

ty sold. All of those matters have been litigated, and the Court

of Appeals has affirmed a judgment for the defendant thereon.

The Trustee, being in privy with the plaintiffs in that case, is

bound by the proceeding.

This Court has been troubled by factors raised in the dissent

in Parsons II beginning at 747 F.2d 1367. The dissenter takes

the position that, while the original federal adjudication of this

proceeding might have initially provided a res judicata bar to

the Sate court proceeding, the determination by the State court

that the federal court proceeding was not res judicata of the

issues in the State court constituted a res judicata bar to the

federal court’s considering the matter. The Bank, realizing that

the pleadings were not specific and initially having its own

— A-10 —

doubts that all of the issues in the State court proceeding were

barred by the doctrine of res judicata, found it necessary to pro-

ceed in the State court proceeding in order to determine that the

issues in the State court proceeding were the same as that

already concluded by this Court’s judgment. That being true,

the doctrine of res judicata could only be applied at such time as

the issues in the State court proceeding were clearly identified

and could be compared to the issues in Parsons I.

The dissenter arg. s that the Bank should have sought an in-

junction before the trial in the State court. In cases such as this

where issues are not clear in either court, a special hearing

would be required to determine precisely what the issues were in

each proceeding. On occasion (and probably in this case) this

could not have been fully determined until the trial on the

issues. If this Court is to protect its jurisdiction, it must have

the authority to do so at the point where invasion of jurisdiction

becomes apparent. Piecemeal decisions thereon would be of lit-

tle value.

This Court is of the opinion that the res judicata issue cannot

be determined in some cases until the trial on the merits and that

the Defendants in this case, by submitting to a trial on the merits

including the plea of res judicata in the State case, cannot be

held to a we iver of their rights to submit the res judicata issue to

the court first having jurisdiction because the issue of waiver

concerns itself with private rights as distinguished from public

rights and the doctrine of res judicata has as its purpose the

avoidance to the public, as well as the parties, of expenses of un-

necessary litigation and the conservancy of judicial efforts. rhis

Court is convinced that no private individual sould be allowed

in effect to waive the effect thereof.

This Court, therefore, finds that the injunction heretofore

issued by this Court should not be modified to allow the Trustee

to pursue his UCC claim because that claim is based on matters

heretofore litigated by this Court and the Trustee was privy to

such litigation.

— A-ll —

An Order will be enacted in accordance with this Opinion.

DONE this 29th day of March, 1985.

‘s/ R. E. Varner

United States District Judge