# Opposition Brief — Liberty National Bank & Trust Co. v. George

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385018_0246%3A2

## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1985
- **Citation:** 474 U.S. 821

## Text

Office -Supreme Court, U.S.
i 3 FILED

GUN 24 1985

ALEXANDER L. STEVAR,
CLERK

No. 84-1830 ~~
In the Supreme Court of the United States

October Term, 1984

LIBERTY NATIONAL BANK & TRUST COMPANY OF
LOUISVILLE (f/d/b/a UNITED KENTUCKY
BANK, INC.),

Petitioner,
vs.

KENNETH R. GEORGE and ALBERTA W. GEORGE,
Respondents.

On PETITION FOR A Writ OF CERTIORARI TO THE
UNITED STATES Court or APPEALS
For THE SIXTH CIRCUIT

RESPONDENTS’ BRIEF IN OPPOSITION

Larry E. Parrisu, Esa.
(Counsel of Record)

Parrish & Mutrooney, P.C.
Twenty-First Floor
First Tennessee Building
165 Madison Avenue
Memphis, Tennessee 38103
(901) 526-7777

Attorney for Respondents

- BEST AVAILABLE COPY j

TABLE OF CONTENTS

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TABLE OF AUTHORITIES

Cases

Greenview Trading Company, Inc. v. Hershman and
Leicher, P.C., 473 N.Y.S. 2d 722, Docket No. 22790
UI ca Siege er on alt chat sigan deed ada icadaciaaiabsiatinn

Haroco v. American National Bank & Trust Company of
Chicago, 747 F.2d 384 (7th Cir. 1984), cert. granted
sub nom., American National Bank and Trust Com-
pany of Chicago v. Haroco, ........ SEDs shakin , 105 S.Ct.
ee CRI), Ce RO, GI ana aisc ssc sicsvsccscnccticcekcstcsccsccens

Kenneth R. George and Alberta W. George ». The
Liberty National Bank and Trust Company of Louis-
ville, United Kentucky, Inc. and Does 1-99, No. 84-
SNE ie edaistceaieetbas clatcasicnvai veslatecssichiolass teadancaint adel nasidailaliasnit

Luebke v. Marine National Bank of Neenah, 567 F.
I, Be CRs PUN, BD cnc castctditc ce snssanssececcentstacnanncs

Migra v. Warren City School District Board of Educa-
GIDE, ccna Se Shecnads , 79 Law. Ed. 2d 56 (1984) ............

Sedima, S.P.R.L. v. Imrex Co., Inc., 741 F.2d 482 (2d
Cir. 1984), cert. granted, ........ oe Tes , 105 S.Ct.
ee eg I Ts, CIID Sschtiitceninisiciicsnesininsinioticians

5, 7

II

Constitution
Constitution of the United States, Article VI, Cl.2.... 6
Statute
BE UE BRS, SED ei csenivnictsccctectesnvsscsccentondoctinaneias 6
Other

“The National Law Journal,” June 17, 1985, atp. 10... 7

No. 84-1830
In the Supreme Court of the United States

October Term, 1984

LIBERTY NATIONAL BANK & TRUST COMPANY OF
LOUISVILLE (f/d/b/a UNITED KENTUCKY
BANK, INC.),

Petitioner,

VS.

KENNETH R. GEORGE and ALBERTA W. GEORGE,
Respondents.

On PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES CouRT OF APPEALS
For THE SIXTH CIRCUIT

RESPONDENTS’ BRIEF IN OPPOSITION

COUNTER-STATEMENT OF THE CASE

In the petition (pp. 3-8), Petitioner includes a mis-
represented statement of the case. Throughout this litiga-
tion, misstatements by Petitioner to various courts have
remained a continuing and serious problem. Because of
this, Respondents must include an accurate account of
the case in order for this court to know the context of
what is presented for review.

Because it cannot be improved, Respondents adopt and
incorporate here as their counter-statement of the case
the statement on pp. 3-8 of the case included in their pe-
tition for certiorari. For convenience, those pages are
included as Appendix A hereto.

rr. —C—“S

2

But, Respondents would particularly highlight mis-
statements of the case of critical significance to claims
made by Petitioner in this petition. On p. 4, third para-
graph, second line of the petition [also see petition pp. 8
(fn. 2), 12 (fn. 4) and 15] Petitioner states, and would
have this court believe, that Respondents, in the state
proceedings below, filed counterclaims. This simply is
not so, and Petitioner knows it is not true. Respondents,
in the state court action, filed affirmative defenses only.
Respondents, in the state court, sought no affirmative relief
from the state court, and all claims made by Respondents
were made in defense for no purpose other than to block
the effort of Petitioner in its attempt to be awarded
affirmative relief against Respondents.

Counsel for both sides and the court, in the state
court proceedings, from time to time, erroneously referred
to the affirmative defenses of Respondents as counter-
claims. However, the record clearly speaks for itself and
clearly reveals that Respondents never made any counter-
claims.

Petitioner also attempts to leave with this court the
false impression that the attempt of Respondents, in state
court, to amend its defensive pleading (falsely stated by
Petitioner to be a counterclaim) to include an affirmative
defense of fraudulent inducement was an afterthought and
an eleventh hour act of desperation in violation of a
previous order of the state court to close the pleadings.

In fact, both Petitioner and Respondents proceeded
on the assumption that the affirmative defenses pled by
Respondents in the state court included a defense of
fraudulent inducement. The memorandum of law filed
by Petitioner in support of its motion for summary
judgment includes a section devoted to an attempt to
overcome the affirmative defense of fraudulent induce-

3

ment included in Respondents’ responsive pleading. In
the memorandum of law filed by Respondents in opposition
to the motion for summary judgment, the thought that
the affirmative defenses pled by Respondents included
fraudulent inducement is unmistakable.

It was only in the context of argument before the
state court on the motion for summary judgment filed by
Petitioner that any question was raised concerning the
fraudulent inducement affirmative defense. In that hear-
ing, the court was stating its intention to enter a summary
judgment and attempting to justify that decision. Counsel
for Respondents noted, in response to the court, that Re-
spondents had raised an issue concerning fraudulent in-
ducement and, even if every other thing the court had
stated as justification were true, whether there had been
fraudulent inducement was indisputably a jury issue, and
that Respondents intended to exercise their right to a
jury determination.

Then, for the first time, the court stated that it did
not consider that fraudulent inducement had been pled by
the pleadings filed by Respondents. Therefore, the court
said, a right to a jury determination on the fraudulent
inducement issue was summarily pretermitted. Then, and
only then, did Respondents ask permission to amend their
responsive pleading so as to plead the affirmative defense
of fraudulent inducement in a manner consistent with
what the trial court seemed to think was necessary. The
trial court then fell back on its previous order that the
pleadings were closed, holding, therefore, that no amend-
ment would be allowed. The court then proceeded on the
assumption that Respondents had incurably failed to plead
fraudulent inducement in defense. This was the classic
Catch-22. This cleared the way for the court to enter the
summary judgment which, at the outset, it convened to do.

Rea CRM ene errr Tn ee

SUMMARY OF ARGUMENT

It should first be noted that Respondents join with
Petitioner in the belief that the decision by the Sixth
Circuit which Petitioner seeks to have reviewed is rife
with serious error of large magnitude and far-reaching
consequence. The fact that the case was remanded by
the Sixth Circuit to the district court for a trial restricted
to one of the issues raised by Respondents’ complaint,
because of the prior erroneous holdings of the district court
which were affirmed by the Sixth Circuit, provides little
more than a seed bed for continuing an unnecessary con-
troversy. Tried in its present state, one can be assured
that the trial will result in many additional] errors as per-
ceived from the perspective of both adversarial sides. In
other words, subsequent appeals and, most probably, sub-
sequent petitions for certiorari to this court are inevitable
if this case proceeds on the present state of the record.

Respondents have previously filed a petition for cer-
tiorari to this court in this case and earnestly believe, and
sought to persuade this court, that this is one of those
exceptional cases which demands review by this court.
However, this court saw fit to deny Respondents’ prior
petition for certiorari. Kenneth R. George and Alberta W.
George v. The Liberty National Bank and Trust Company
of Louisville, United Kentucky, Inc. and Does 1-99, No.
84-1392.

The only opposition Respondents have to the present
petition for certiorari is that it seeks to limit the issues
so as to avoid this court’s review of issues much more de-
manding of attention. Two of the issues which Petitioner
seeks to have reviewed will be pretermitted any day by
this court’s decisions in Sedima, S.P.R.L. v. Imrex Co., Inc.,

5

741 F.2d 482 (2d Cir. 1984), cert. granted, ........ 18 pene ,
105 S.Ct. 901 (1985), Case No. 84-648 and Haroco v. Ameri-
can National Bank & Trust Company of Chicago, 747 F.2d
384 (7th Cir. 1984), cert. granted sub nom., American Na-
tional Bank and Trust Company of Chicago v. Haroco, ........
Wa eats , 105 S.Ct. 902 (1985), Case No. 84-822. These
decisions are sure to be rendered before this court disposes
of this petition.

RESPONSE TO QUESTION 1

What is most notable about the statement of Ques-
tion 1 by Petitioner is that it is based on a false premise.
At first blush the argumentation seems persuasive. But,
when the straw man, built on Petitioner’s false statements
of factual predicates, is revealed, the underpinnings of the
argument collapse, and the facade by which Petitioner
seeks to mislead this court becomes evident.

Stated in a way consistent with the facts and record,
the issue sought to be raised by Petitioner must include
essential elements left out by Petitioner. That is, the
issue is: (1) when a person who lives in a state different
from another person against whom he wishes to make a
claim; (2) is sued in the home state of the person against
whom he wishes to make a claim by the person against
whom he wishes to make a claim; (3) joined with other
state court defendants whose residence is the same as
that of the person against whom the out of state person
wishes to make his claim; (4) and, before the out of state
person is required by the law of the state to answer the
state court claims; (5) he makes his claims in federal court
according to his right under federal law; (6) must that
person make those same claims as counterclaims in the
state court; (7) or suffer bar by res judicata if the state
court litigation concludes prior to the federal suit. This

Be ee

6

is precisely what happened at the trial court (both state
and federal) level in the instant case. The Sixth Circuit cor-
rected the error of the district court. Now, Petitioner seeks
to have this court reinstate the error cf the district court
as the law of the land. Respondents complained that the
Sixth Circuit erred in that it only corrected that portion
of the error of the district court which dealt with the
fraudulent inducement issue. The Sixth Circuit found that
there was a legally significant difference in whether the
state trial court intended to rule or, as was the case with
reference to the fraudulent inducement issue, explicitly
failed to rule.

Reduced to its essence, the issue is whether the fed-
eral statutory right under Title 28, United States Code
§1332 or state rules of procedure pertaining to counter-
claims, even in the face of a pending federal court claim
in a diversity case, holds sway one over the other. Peti-
tioner claims that state procedural rules concerning coun-
terclaims negate the federal statutory right to a federal
forum. Respondents claim that such an interpretation
would be a clear violation of the United States constitu-
tional protections of due process of law and the Supremacy
Clause. (Constitution of the United States, Article VI,
Cl. 2). This ccurt, purely by way of dicta and without
even a suggestion as to what the proper answer might be,
recognized the pertinency of the question late last year
in its opinion in Migra v. Warren City School District Board
of Education, ........ SEDs. esnsidase , 79 Law. Ed. 2d 56, 65 (1984)

RESPONSE TO QUESTION 2

It is true that the question of whether state courts have
jurisdiction over federal RICO suits is important. How-
ever, one question relative to this subject is beyond doubt.

7

If a claimant under the federal RICO statute files his
claim in federal court and does not waive entitlement
to a federal forum, it is impossible to force that federal
court plaintiff to give up his right to a federal forum
for resolution of the federal RICO question. This cannot
i be done via a state rule of procedure or by any other means.

{ The only case to clearly deal with the subject is
Greenview Trading Company, Inc. v. Hershman and
Leicher, P.C., 473 N.Y.S. 2d 722 which held that state courts
have jurisdiction over federal RICO claims made in state
court. However, on May 28, 1985, the Appellate Division,
First Department of the New York Supreme Court re-
versed that opinion in Greenview Trading Company, Inc.
v. Hershman and Leicher, P.C., ........ > Re een
Docket No. 22790 (1984). This was reported in “The
National Law Journal,” June 17, 1985, at p. 10. The
only other case known to have addressed the issue is
Luebke v. Marine National Bank of Neenah, 567 F. Supp.
1460 (E.D. Wis. 1983) which suggested that state courts
could exercise jurisdiction over the federal RICO statute.

However, in the instant case the federal RICO claims
were made in federal court by a federal court plaintiff
in a case where there was complete diversity between the
plaintiffs and the defendant. These claims were pending
in federal court before the federal court plaintiff was
required to answer a state court foreclosure suit. A federal
court plaintiff never waived or gave up in any way the
right to a federal forum to adjudicate the federal RICO’s

claims.

RESPONSES TO QUESTIONS 3 AND 4

These questions are pretermitted by the eminent de-
cision of this court in Sedima and Haroco.

CONCLUSION

Respondents agree with Petitioner that the Sixth
Circuit erred in its decision, and that the error has grave
consequences. Therefore, Respondents do not oppose this
Court’s granting of a writ of certiorari, but oppose the
limitation of review to those issues sought to be reviewed
by the petition and would request review of the issues
raised in Respondents’ prior petition for certiorari.

Respectfully submitted,

LARRY E. PARRISH, Esq.
(Counsel of Record)

ParrisH & Mutrooney, P.C.
Twenty-First Floor
First Tennessee Building
165 Madison Avenue
Memphis, Tennessee 38103
(901) 526-7777

Attorney for Respondents

Al

APPENDIX A

STATEMENT OF THE CASE

[3] The appeal which produced the opinion which this
petition seeks to have reviewed was from a judgment on
the pleadings by the district court dismissing the complaint
by granting the Respondents’ motion to dismiss based on
Federal Rules of Civil Procedure, Rule 12(b) (6).

Because the chronology of pleading is important to the
application of controlling substantive law, Petitioners will
recite the order of relevant events in detail. The unfold-
ing of this chronology will reveal the inter-relationship
of the instant case and a separate state court proceeding
[now pending before this court in the form of a petition
for certiorari in Kenneth R. George and Alberta W. George
v. Liberty National Bank and Trust Co. of Louisville, No.
84-1253 considered by the district court to control the in-
stant case through collateral estoppel and res judicata.

On October 27, 1981, Respondent, United Kentucky
Bank, Inc. (hereafter “UKB”), filed a complaint against
Petitioners in the Jefferson County, Kentucky Circuit Court
initiating a case bearing Docket No. 81CI-09925. This com-
plaint alleged that Petitioners had breached alleged promis-
sory notes, mortgages, and a guaranty agreement. In short,
this state court complaint initiated a, more or less, routine
mortgage foreclosure suit.

On January 11, 1982, Petitioners filed the complaint in
the instant case. (App. D) Jurisdiction (a particularly
important point) by the district court was invoked both
on diversity and exclusive subject matter jurisdiction. The
complaint made affirmative allegations against Respondents

A2

alleging violation of Title 18, United States Code, §1962
(“RICO”), and Title 15, United States Code, $1 (Sherman
Antitrust Act).

[4] The context of the allegations in the instant case
was the relationship existing between Petitioners and Re-
spondents which resulted in events which occurred because
of those loans. This same relationship spawned the state
court suit. By the complaint filed in federal court, Peti-
tioners, in effect, pled that the notes and mortgages were
instruments of fraud used by Respondents to wrongfully
injure Petitioners. Petitioners alleged that Respondent's,
UKB, state suit was filed as a part of and in furtherance
of the mail fraud by Respondents. Whether Petitioners
are entitled to prevail in the district court is not controlled
by whether the instruments, viewed outside the context of
the mail fraud first charged in Petitioners’ federal suit,
are valid or invalid.

On January 13, 1982, Petitioners filed an answer stat-
ing: (1) the state complaint failed to state a claim; (2)
the mortgages had been released; (3) service of process was
insufficient; (4) the state court lacked jurisdiction; and (5)
a general denial of all factual allegations.

On March 1, 1982, Petitioners filed a supplemental an-
swer to the state complaint. The supplemental answer de-
scribed what was set out therein as follows:

[s]how as additional defenses to the claims of Plain-
tiff... particularly described in the copy of said Com-
plaint, attached hereto, incorporated by reference
herein, .... (emphasis added)

The complaint incorporated is the one filed in the in-
stant case on January 11, 1982.

A3

On June 10, 1982, the district court below entered an
order (App. E) overruling the motion of Respondents to
dismiss the January 11, 1982 complaint for failure to state
a claim.

[5] On August 20, 1982, Respondents filed a motion for
summary judgment (App. F) in the state court. The
motion for summary judgment sought nothing more than
a summary adjudication that Petitioners were liable for
breach of the notes, mortgages and guaranty.

On September 10, 1982, in the state case, Petitioners
filed a sworn affidavit by one of the Petitioners making
oath to numerous facts. (App. G)

On October 25, 1982, the state court entered a written
order granting the summary judgment. (App. H) It is
this summary judgment which the district court found to
have sufficient preclusive effect to bar further adjudication
in the instant case. (App. B, pp. A9-A19)

On June 15, 1983, Respondents, in the instant case, filed
a document entitled “Motion To Dismiss Plaintiffs’ Com-
plaint Upon Theory of Res Judicata, Collateral Estoppel
and/or The Full Faith and Credit Requirements of Title
28, United States Code, §1738.”

it was this motion which the district court granted by
its memorandum opinion and judgment entered September
30, 1983. (App. B, C)

The Sixth Circuit decided the appeal and fiied its opin-
tion (App. A) on January 22, 1985.

Summarizing the significant events occurring below
for present purposes, Petitioners will direct the attention
of this court to the crucial facts. Petitioners filed a com-
plaint against Respondents in federal court alleging vio-
lations of RICO and the Sherman Act seeking remedy un-

\

A4

der Title 18, United States Code, §1964 and Title 15, United
States Code, §15. The RICO claims essentially amount to
allegations that Respondents overcharged interest, delib-
erately and intentionally, by inducing Petitioners into a
borrower relationship and, in furtherance of the scheme
[6] and device accomplished by mail fraud, engaged in
various specific acts including, but not limiting to, filing
the state suit instituted by Respondent, UKB. In addition,
the federal suit filed by Petitioners alleges pendent claims
seeking relief under the common law for breach of fiduciary
duties, breach of confidence, breach of contract and other
such claims.

Petitioners filed suit in federal court relying on the
provisions of Title 28, United States Code, §1332(a) be-
cause of complete diversity of citizenship.

Thereafter, Petitioners answered the state suit with
general denials. In addition, by incorporation of Peti-
tioners’ federal complaint, Petitioners supplemented their
answer with affirmative defenses.

In the state court suit, Respondent, UKB, filed
a motion for summary judgment in accordance with
the very ordinary provisions of Kentucky Rules of Civil
Procedure, Rule 56, and Petitioners routinely filed a writ-
ten memorandum in opposition and a sworn affidavit of one
of the Petitioners and, thereby, offered proof on virtually
every issue material to the claimed right to summary
judgment including, but not limited to, the amount owed.

The state trial court entered a summary judgment pre-
cisely as requested by Respondent, UKB, and more. The
state court went beyond the relief sought by the summary
judgment and included in the summary judgment a finding
that Respondent, UKB, had not been guilty of fraud and
had not breached any fiduciary duty to Petitioners.

A5

The motion for summary judgment did not seek a
finding on the issue of fraud or fiduciary duties and, if
Petitioners had failed to produce competent proof that
there was a genuine issue in dispute on a material fact
essential to the summary judgment sought, the summary
[7] judgment could have been entered without any refer-
ence to or finding concerning fraud or fiduciary duties. Re-
spondent, UKB, did not move for a summary judgment
ruling that it did not defraud Petitioners nor breach any
fiduciary duties. The summary judgment motion did not
put Petitioners on notice that Petitioners were expected
to defend against entry of a summary judgment adjudicat-
ing that Respondent, UKB, was not guilty of fraud and
had not breached fiduciary duties. Petitioners conceded
that these were matters of fact that could only be resolved
after a plenary hearing and consideration of proof by the
jury demanded by Petitioners.

In the federal suit filed by Petitioners, Respondents,
United Kentucky, Inc. and Does 1-99, were parties-defen-
dant. In the state suit, these Respondents were not parties
in any capacity. The district court held that the state
summary judgment in favor of Respondent, UKB,
precluded the entire federal case and dismissed it in its
entirety, including the claims against Respondents, United
Kentucky, Inc. and Does 1-99.

The district court, after entry of the state sum-
mary judgment, dismissed the entire federal complaint
filed by Petitioners because the state court included lan-
guage in the summary judgment concluding the absence
of fraud and that there had been no breach of fiduciary
duty. The Sixth Circuit decision agreed with the district
court except as to the specific allegations by Petitioners’
federal suit relative to fraudulent inducement both as a
matter of common law and, if the mails were used, as
predicate offenses supporting RICO.

A6

The district court was affirmed by the Sixth Circuit
in holding that, although the RICO claims in the federal
suit, being exclusive to federal jurisdiction, were not sub-
ject to preclusion by res judicata, the doctrine of collateral
estoppel created a bar to further consideration. The dis-
trict [8] court reached this conclusion because of the “no
fraud” language by the state court.

As to the pendent claims, the district court was af-
firmed by the Sixth Circuit in the conclusion that the
state court had concurrent jurisdiction to adjudicate the
common law claims and, since the state court either did
or “could have” ruled on those claims, the entry of the
summary judgment in state court precluded the district
court from further consideration of them because of the
doctrine of res judicata.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385018_0246%3A2. Public record. Not legal advice.