Petition for Writ of Certiorari — McGregor v. First Alabama Bank of Montgomery, N. A.
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{| Supreme Court, U.S,
87 -8 30 FILED
NOV 19 Dl
JOSEPH F. SPANIOL, SR,
DLERK
IN THE
Supreme Court of the United States
OCTOBER TERM, 1987
No.
Tom McGreaor, Trustee in Bankruptcy for the
Estate of PARSONS STEEL INDUSTRIES, INC.,
Petitioner,
VS.
First ALABAMA BANK OF MONTGOMERY, N.A.,
and EDWARD HERBERT,
Respondents.
PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
JAMES JERRY Woop
JAMES T. SASSER
Woop & PARNELL. P.A.
P.O. Box 4189
641 Lawrence Street
Montgomery, Alabama 36103
(205) 832-4202
Counsel of Record for Petitioner
Tom McGregor as Trustee in
Bankruptcy for Parsons Steel
Industries, Inc.
St. Louis Law Printing Co., Inc... 411 No. Tenth Street 62101 314-231-4477
8 SAR ty 10 tase ich i lend as eal
QUESTIONS PRESENTED FOR REVIEW
1. Is the Younger doctrine of abstention applicable only
when the state court action to be enjoined involves an important
government interest of the state?
2. Is a federal district court authorized by the relitigation ex-
ception to the Anti-Injunction Act, 28 U.S.C. §2283, to enjoina
pending state court proceeding which considered issues which
were not, but arguably could have been, raised in an earlier
federal action?
3. Is a federal district court authorized by the relitigation ex-
ception to the Anti-Injunction Act, 28 U.S.C. §2283, to enjoin a
pending state court proceeding in the absence of a showing of
entitlement to an injunction under general equitable principles?
4. Isa litigant bound by a judgment to which he is not a party
where the parties to that judgment had no authority to represent
him?
iil
TABLE OF CONTENTS
Page
Questions Presented For Review .................... i
SE Vv
ee ase Ac vac cw acne Se 04s aus) | l
ey adc ckkveesexchsvecess l
Constitutional Provisions and Statutes Involved ....... 2
Was Weds sec cuavscesacavsess 2
Reasons for Granting the Writ ...................... 9
I. The Court Of Appeals Decision Raises Ques-
tions Of Federal-State Relations Of Critical
Importance Which Must Be Settled By This
EEE an 9
A. The Court of Appeal’s decision er-
roneously holds that the Younger doc-
trine is Only applicable when the state
court action to be enjoined invokes an
important government interest of state. . 9
B. The Court of Appeal’s decision violates
this Court’s decision in Atlantic Coast
Line Railroad Company v. Brotherhood
of Locomotive Engineers, by expanding
exceptions to the Anti-Injunction Act. .. 10
Il. The Decision Below Deprived The Trustee Of
A Full And Fair Opportunity To Litigate His
Ciaims In Violation Of The Requirements Of
ete he La Gis dec naadusess 15
Ill.
This Court Should Grant Certiorari To
Resolve A Conflict Between The Circuit
Courts Of Appeal Created By The Decision
RS <a een ce sc euwuwus ae Gace ee
DN ict cracak ciate ann eens
Appendicies:
A:
Decision of the United States Court of Ap-
peals for the Eleventh Circuit dated August
WRU Fos Ok eed ROR
Decision of the United States District Court
for the Middle District of Alabama, dated Ju-
Pre PR aioe ool eu et
18
20
TABLE OF AUTHORITIES
Page
Cases:
Atlantic Coast Line Railroad Company v. Brotherhood
of Locomotive Engineers, 398 U.S. 281, 90 S.Ct.
1739, 26 L.Ed.2d 234 (1970)............. 6,8,10,11,13,17
Blonder - Tongue v. University of Illinois, 402 U.S. 313,
28 L.Ed.2d 788, 91 S.Ct. 1434(1971) ............ 15,17
Del Mar Avionics v. Quinton Instruments Company,
pm fort, fe | ere rrr rrr TT rr 19
Delta Air Lines, Inc. v. McCoy Restaurants, Inc., 708
me y <tth. Le ae. el rere eer 1]
Expert Electric Company v. Levine, 545 F.2d 1227 (2nd
286: Perr eer Pe ors ree. yon 18
First Alabama Bank v. Parsons Steel, 747 F.2d 1367
(11th Cir. 1984) rev’d., 474 U.S. 518, 106 S.Ct.
y © (SR || ere re Terr rr TS 5
First Alabama Bank of Montgomery v. Parsons Steel,
ORS F 26 ATS CA, FT oo oko os voices 6,7
General Foods Corporation v. Massachusetts Depart-
ment of Public Health, 648 F.2d 784 (1st Cir. 1981) 18
Hansbury v. Lee, 311 U.S. 32, 61 S.Ct. 114, 85 L.Ed. 22
GRE so xn OR wd weak Wand Che ede eee 15
Harper Plastics, Inc. v. Amoco Chemical Corporation,
GOTT Air ee Cre es OD kk eons fa sna ncawse, 12
Humphries v. Tann, 487 F.2d 666 (6th Cir. 1973) cert.
denied. 416 U.S. 956, 494 S.Ct. 1970, 40 L.Ed.2d
SE oe Fare ee eee AE ee 19
vi
Huffman v. Pursue Ltd., 420 U.S. 592, 95 S. Ct. 1200,
43 L.Ed.2d, 482 reh. denied, 421 U.S. 971, 95
S.Ct. 1969, 44 L.Bd.2d 463 (1975S) 2... cee sceee 15
Mitchum v. Foster, 407 U.S. 225, 92 S.Ct. 2151, 32
RiGee PUT EUUTED oc ccccakadcccece See eae, 7,8,9
Montana v. United States, 440 U.S. 147, 99 S.Ct. 970,
re PEN: c's Gh 66 0 0 kc 608 6b0 0d URE EM 15,16
Parsons Steel v. First Alabama Bank, 474 U.S. 518,
106 S.Ct. 768, L.Ed.2d 877 (1986) ............... 2,6,7,9
Parsons Steel Inc. v. First Alabama Bank, 679, F.2d
a EL oi a Ck cee bw oh keewnees 4
Rosado v. General Electric Circuit Breakers, 805 F.2d
Fs Rae ern On A ae ras 14
Toucey v. New York Life Insurance Company, 314
U.S. 118, 62 S.Ct. 639, 86 L.Ed. 100(1941)....... 6,14
Woods Exploration & Producing Company v. Alumi-
num Company of America, 438 F.2d 1286 (Sth Cir.
1971) cert. denied 404 U.S. 1047, 92 S.Ct. 701, 30
i & 3. rr he pr ere 11,12
Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27
DA PGUUED 60460546000 0eudoedetasaeas 8,9,10
Constitutional Provisions and Statutes:
Constitution of the United States, Amendment V ...... 2
Bankruptcy Act of 1898, 11 U.S.C. §1(1977) ......... 3
Bankruptcy Act of 1979, 11 U.S.C. §101 (1979) ....... 3
Bank Holding Company Act, 12 U.S.C. §1972 (1978) .. 4
EE ek GEMOOEUPUEMTED 0c 0 svencuceaacsdabanabaus I
Vil
Anti Injunction Act, 28 U.S.C. §2283 ee Pia nccevesecs passim
Federal Full Faith Credit Act, 28 U.S.C. §1738 (1977) .. 5
Miscellaneous:
Restatement of Law of Judgments, Second §26........ 14
Restatement of Law of Judgments, Second §41........ 18
No.
IN THE
Supreme Court of the United States
OcTOBER TERM, 1987
Tom McGreocor, Trustee in Bankruptcy for the
Estate of PARSONS STEEL INDUSTRIES, INC.,
Petitioner,
VS.
First ALABAMA BANK OF MONTGOMERY, N.A.,
and EpwarpD HERBERT,
Respondents.
PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
OPINIONS BELOW
The opinion of The United States Court of Appeals for the
Eleventh Circuit is reported at 825 F.2d 1475 and appears as Ap-
pendix A hereto; the opinion of the trial court, the United States
District Court for the Middle District of Alabama, is unreported
and appears as Appendix B hereto.
JURISDICTION
The judgment of the United States Court of Appeals for the
Eleventh Circuit was entered on August 21, 1987. This Petition
for Writ of Certiorari was filed within ninety days of that date.
This Court’s jurisdiction is invoked under 28 U.S.C. §1254(1).
on ab
CONSTITUTIONAL PROVISIONS AND STATUTES
INVOLVED
Constitution Of The United States, Amendment V
No person shall be ... deprived of life, liberty, or property,
without due process of law3...
Anti-Injunction Act, 28 U.S.C. §2283
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 judgment.
STATEMENT OF THE CASE
This is the second time this case has come before this Court. '
On February 15, 1979, Parsons Steel, Inc., (hereinafter
‘*Parsons-Mobile’’) its wholly owned subsidiary, Parsons Steel
Industries, Inc., (hereinafter ‘‘Parsons-Montgomery’’) and its
shareholders, Jim D. Parsons and Melba L. Parsons
(hereinafter collectively referred to as ‘‘Parsons’’) filed an ac-
tion in the Circuit Court for Montgomery County, Alabama,
against First Alabama Bank of Montgomery, N.A. (hereinafter
‘“‘Bank’’), its loan officer, Edward Herbert (hereinafter
‘“Herbert’’), Michael Orange (hereinafter ‘‘Orange’’), and OSI,
Inc., a corporation owned by Orange, Parsons Steel Industries,
Inc., v. First Alabama Bank of Montgomery, N.A. Civil Action
No. CV-79-179-G, (hereinafter ‘‘State Action’’). The State Ac-
'‘ This Court granted a Petition for a Writ of Certiorari filed jointly
on behalf of Parsons Steel, Inc., Jim and Melba Parsons and A. Pope
Gordon, Trustee in Bankruptcy for the Estate of Parsons Steel In-
dustries, Inc. The Court reversed and remanded the case to the
Eleventh Circuit Court of Appeals with instructions. Parsons Steel
Inc., v. First Alabama Bank, 474 U.S. 518, 106 S.Ct. 768, 88 L.Ed.2d
877 (1986).
ee ae
— oo
tion alleged that loans made to Parsons Steel Industries, Inc. by
Bank were forced into default and foreclosed through the ac-
tions of Bank, Herbert, Orange and OSI, Inc. The State Action
alleged against Bank false representations beginning in January
and continuing through December, 1978, breach of fiduciary
duty, conversion, and violation of the Uniform Commercial
Code in the sale of repossessed collateral. Additional claims in-
cluding fraud and conversion were made against Orange and
OSI.
On April 5, 1979, Parsons Steel Industries, Inc. was ad-
judicated an involuntary bankrupt. Jn Re: Parsons Steel In-
dustries, Inc., a Bankrupt, Bankruptcy Number 79-173-N. A.
Pope Gordon was appointed Trustee.? The Trustee eventually
succeeded to Parsons Steel Industries’ interest in the State Ac-
tion on motion of Bank.
On May 30, 1979, Parsons-Mobile and Parsons filed a second
action against Bank in federal court, Parsons Steel, Inc., v. First
Alabama Bank of Montgomery, N.A., Civil Action No.
79-259-N (M.D. Ala. 1981) (hereinafter ‘‘Federal Action’’.
Parsons-Montgomery was not a Plaintiff in that lawsuit and
neither Herbert, Orange, nor OSI were Defendants. No
damages were sought on behalf of Parsons-Montgomery.
Parsons-Mobile and Parsons had no authority to file suit on
behalf of Parsons-Montgomery since that corporation had been
adjudicated a bankrupt and a Trustee appointed.
The Federal Action alleged only that Bank had conditioned
an extension of credit upon a requirement of a change in
management and ownership in violation of the Bank Holding
> The Trustee of this Estate was appointed under the former 11
U.S.C. §i, et seq. (Bankruptcy Act of 1898) in that the debtor was ad-
judicated bankrupt prior to October 1, 1979, the effective date of the
‘*new’’ Bankruptcy Code (11 U.S.C. §i01, et seq.). Since that time A.
Pope Gordon has been appointed as Bankruptcy Judge for the Middle
District of Alabama and his successor as Trustee is Tom McGregor.
~~ Pe
Company Act (hereinafter ‘‘BHCA’’) 12-U.S.C. §1972. Bank
contended throughout the Federal Action that Parsons-Mobile
and Parsons had no standing to bring that action since the
damages sought were solely on behalf of Parsons-Montgomery.
The district court repeatedly rejected that contention. Bank did
not, however, seek to have the Trustee joined as a party to the
Federal Action. The district court ordered the issue of liability
tried separate from the issue of damages, and after a jury ver-
dict in Plaintiff’s favor, Bank’s motion for judgment not-
withstanding the verdict was granted. The United States Court
of Appeals for the Eleventh Circuit affirmed holding that the
facts alleged did not constitute a tying arrangement prohibited
by the BHCA. Parsons Steel, Inc. v. First Alabama Bank, 679
F.2d 242 (11th Cir. 1982).
Bank plead the federal judgment in the State Action and
presented its res judicata defense by motion for summary judg-
ment. That motion was denied. The judge assigned to the case
later recused himself and Bank presented its res judicata defense
by motion to a second state court judge who also ruled that the
federal judgment did not bar the State Action.
Beginning January 31, 1983, the State Action was tried for
nine days. Bank and Herbert presented evidence in support of
numerous affirmative defenses including waiver, consent,
estoppel and res judicata. The jury returned verdicts in favor of
Trustee in the amount of $2,000,000.00, in favor of Parsons-
Mobile in the amount of $1.00 and in favor of the Parsons in the
amount of $2,000,000.00. The trial court entered a final judg-
ment on the jury verdict. Bank moved for judgment not-
withstanding the verdict and for a new trial.
Prior to a decision on their post-trial motions Bank and
Herbert filed this action in federal district court seeking to en-
join Petitioners from collecting the judgment entered in the
State Action. Bank’s request for injunctive relief was premised
on the relitigation exception to the Anti-Injunction Act, 28
~~
U.S.C. §2283, and its contention - previously rejected by the
state court - that the judgment in the Federal Action precluded
the State Action.
The district court in an unprecedented decision entered judg-
ment in favor of Bank and enjoined Petitioner from further
prosecution of the State Action. The district court made no fin-
ding 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 barred the State
Action although clearly recognizing the two actions involved
different causes of action. The district court made no finding
that Trustee had been ‘‘virtually represented’ by the parties to
the Federal Action.
The United States Court of Appeals for the Eleventh Circuit
affirmed. First Alabama Bank v. Parsons Steel, 747 F.2d 1367
(11th Cir. 1984). The majority held that the Anti-Injunction
Act, 22 U.S.C. §2283 was an implied exception to the Federal
Full Faith and Credit Act, 28 U.S.C. §1738, so that the district
court was not required to give full faith and credit to the state
court’s determination that the judgment in the Federal Action
did not preclude the State Action. The majority further held
that it was within the district court’s discretion to enjoin the
litigation of issues which were not but arguably ‘‘could have
been”’ litigated in the Federal Action even though Bank awaited
~ a jury verdict on the merits in state court before seeking the in-
junction. 747 F.2d at 1377. The majority held that the Federal
Action plaintiffs were the virtual representatives of Trustee as to
his fraud claim but remanded to the district court to determine
whether virtual representation existed as to Trustee’s UCC
claim. Jd. at 1379. It is critical to note that neither court below
found that the Plaintiffs in the Federal Action had authority to
represent the Trustee.
a eee
In a vigorous dissent, Judge James C. Hill reasoned that the
Anti-Injunction Act did not implicitly amend the Federal Full
Faith and Credit Act because the two acts can be construed har-
moniously. For that reason the district court was required to
give full faith and credit to the state court’s determination that
res judicata did not apply. Judge Hill further opined that the
district court erred in granting the injunction because the State
Action and Federal Action involved ‘‘different parties and,
arguably, different causes of action’’ so that an injunction was
not necessary to “‘protect or effectuate’ the earlier federal judg-
ment. In addition, Bank awaited a judgment on the merits in
state court before requesting an injunction which further ‘‘com-
plicates the relations between state and federal courts.’’ 747
F.2d at 1382.
A Joint Petition for Certiorari filed on behalf of Parsons and
the Trustee was granted by this court. In a 9-Odecision, this
court reversed the decision of the Eleventh Circuit Parsons
Steel, Inc. v. First Alabama Bank of Montgomery, N.A., 474
U.S. 518, 106 S.Ct. 768, 88 L.Ed.2d 877 (1986). In rejecting the
Court of Appeal’s analysis of the effect of the relitigation excep-
tion to the Anti-Injunction Act on the Full Faith and Credit
Statute, this court ruled that the possible preclusive effect under
Alabama law of the state court judgment should have been con-
sidered. This court noted that unlike the several cases in Toucey
v. New York Life Insurance Company, 314 U.S. 118, 62 S.Ct.
639, 86 L.Ed. 100 (1941), the Bank did not seek an injunction
against relitigation in state court until such time as an adverse
jury verdict in state court had been rendered against the Bank
and the res judicata issue had been decided against it. This
court further noted that the case was similar to Aé/antic Coast
Line Rail Way v. Locomotive Engineers, 398 U.S. 281, 90 S.Ct.
1739, 26 L.Ed.2d 234, (1970), which held that the various excep-
tions to the Anti-Injunction Act did not permit a federal court
to enjoin state proceedings more threatening to federal jurisdic-
tion than the circumstances in this case. This Court in reman-
ding the case stated that the district court was in the best posi-
ae, yon
tion to determine and apply Alabama preclusion law in the first
instance and if the district court found that the state court judg-
ment was not entitled to preclusive effect under Alabama law
and the Full Faith and Credit Act, that the propriety of the
federal court injunction should be determined based upon the
general principles of equity, comity and federalism as discussed
in Mitchum v. Foster, 407 U.S. 225, 92 S.Ct. 2151, 32 L.Ed.2d
705 (1972).’
In accordance with the Supreme Court’s decision, the Court
of Appeals issued its mandate reversing the district court judg-
ment and remanded for further proceedings in conformity with
the Supreme Court opinion. First Alabama Bank of Mon-
tgonery v. Parsons Steel, Inc., 785 F.2d 929 (11th Cir. 1986).
On remand the district court found that Alabama law did not
give preclusive effect to the state court’s determination of the
res judicata issue because there was no final judgment in that ac-
tion and that an injunction was proper under principles of equi-
ty, comity and federalism. It therefore ordered that its injunc-
tion continue in force.
The Court of Appeals affirmed. Aithough acknowledging
that there is no Alabama law on the question of whether a jury
verdict is considered a final judgment for preclusion purposes
when it is rendered nonappealable by the pendency of post-trial
motions, the appeals court held that the district court did not err
> This Court was able to iesolve the case at that time on the basis
that the Anti-Injunction Act was not an implied exception to the Full
Faith and Credit Act. Therefore it did not address the issues, raised
by Petitioners, of whether the relitigation exception to the Anti-
Injunction Act is intended to allow injunctions in situations where a
later state action involved claims that could have been litigated, but
weren’t actually litigated in the prior federal action or whether the
Trustee, not a party to the first federal action, was nevertheless bound
under res judicata by the judgment of the District Court in that action.
Parsons Steel v. First Alabama, 474 U.S. 518, 106 S.Ct. 768, 88
L.Ed.2d 877, 885 (1986) Fn.4.
a ae
in finding that there was no final judgment for preclusion pur-
poses under Alabama law. The Court of Appeals further held
that the Younger doctrine as expressed in Mitchum v. Foster,
407 U.S. 225, 92 S.Ct. 2151, 32 L.Ed.2d 705 (1972) is not ap-
plicable to the facts of this case because the state court action
enjoined by the district court does not implicate any important
government interest of the State of Alabama. The Court of Ap-
peals held that Atlantic Coast Line was distinguishable from the
case at bar in that the issue of whether res judicata barred
relitigation of issues that could have been raised in the original
action was not presented in Atlantic Coast Line and that the
present case does not involve an improper attempt to seek
federal appellate review of a state court decision. (Appendix A,
Pgs. A-9, A-15-17). Lastly the Court of Appeals clung to the
position that the Trustee was bound by the prior federal action
under res judicata principles because it had determined
previously that the Trustee was in privity with the parties in the
Federal Action. (Appendix A, Pg. A-17). The Court of Ap-
peals opined that a district court has discretion to determine
whether federal interference with state proceedings is warranted
pursuant to the relitigation exception to the Anti-Injunction Act
and within that discretion, a district court can go either way and
not be reversed. (Appendix A, Pg. A-19).
va ee
REASONS FOR GRANTING THE WRIT
I. The Court Of Appeals Decision Raises Questions Of
Federal-State Relations Of Critical Importance
Which Must Be Settled By This Court.
There can be no greater intrusion into a state proceeding that
what has occurred in this case. The district court’s injunction is
premised on the conclusion that an earlier federal judgment bar-
red a pending state proceeding. The Bank’s request for injunc-
tive relief came only after a nine-day jury trial in state court try-
ing a variety of state law issues wherein a jury verdict on the
merits was rendered against the Bank.
This Court determined in Parsons Steel v. First Alabama
Bank, 474 U.S. 518, 88 L.Ed.2d 877, 106 S. Ct. 768 (1986) that
the Court of Appeals (and the District Court) erred in refusing
to consider the possible preclusive effect under Alabama law of
the state court judgment, noting that the Full Faith and Credit
Act requires federal courts give the state judgment the same
preclusive effect it would have had in another court of the same
state. 88 L.Ed.2d at 884. This court further opined that should
the state court judgment not be preclusive under Alabama law
that the general principles of equity, comity and federalism as
discussed in Mitchum v. Foster, 407 U.S. 225, 32 L.Ed.2d 705,
92 S.Ct. 2151 (1972) should be followed.
A. The Court of Appeal’s decision erroneously holds that
the Younger doctrine is only applicable when the state
court action to be enjoined invokes an important govern-
ment interest of the state.
Those principles, as noted in Mitchum were canvessed at
length in the context of state criminal prosecutions in Younger
v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971).
Under Younger, a federal court should abstain from enjoining
an ongoing state criminal prosecution absent a showing of bad
faith prosecution or harassment or’a showing that the challenged
—
statute is flagrantly or patently violative of express constitu-
tional prohibitions, Younger 401 U.S. at 53-54, 91 S.Ct. at
_ 754-55, 27 L.Ed.2d at 680-81. The district court went to great
lengths to make the instant case fall within the Younger stan-
dards. (Appendix B, Pgs. B-37-48). However, the Court of Ap-
peals held that it was not necessary for the district court to
determine that the Petitioner’s actions amounted to bad faith
and harassment because Younger was not applicable to this
case, (Appendix A., Pg. A-11). The Court of Appeals held that
before Younger abstention is appropriate the threshold question
of whether the state action enjoined by the district court invokes
an important government interest of the state must be answered
in the affirmative. (Appendix A, Pg. A-12). The Court of Ap-
peals held that the state court action involved in this case was
merely a private action between private parties, and the state of
Alabama had no interest beyond ‘“‘its interest as adjudicator of
wholly private disputes ‘‘and therefore the Younger doctrine
did not require that the district court abstain from issuing the in-
junction against further state court proceedings. (Appendix A,
Pg. A-13).
This Court should grant certiorari to consider whether
Younger abstention is appropriate only where important
government interests of the state are involved and whether the
administration of a state’s judicial system is such an important
government interest so as to invoke Younger abstention.
B. The Court of Appeal’s decision violates this Court’s
decision in Atlantic Coast Line Railroad Company v.
Brotherhood of Locomotive Engineers, by expanding ex-
ceptions to the Anti-Injunction Act.
The Anti-Injunction Act, 28 U.S.C. §2283, provides:
A court of the United States may not grant an injunc-
tion to stay proceedings in a state court except as ex-
pressly authorized by Act of Congress, or where
necessary in aid of its jurisdiction, or to protect or ef-
fectuate its judgments.
iit
pe, |
The most important decision of this Court interpreting the
Anti-Injunction Act is Atlantic Coast Line Railroad Company
v. Brotherhood of Locomotive Engineers, 398 U.S. 281, 90
S.Ct. 1739, 26 L.Ed.2d 234 (1970). This Court noted in Parsons
Steel the remarkable similarity between the case at bar and
Atlantic Coast Line which held that the various exceptions to
the Anti-Injunction Act did not permit a federal court to enjoin
state proceedings in circumstances more threatening to federal
jurisdiction than the circumstances of this case. 88 L.Ed.2d at
884. However, the Court of Appeals attempted to distinguish
Atlantic Coast Line from the case at bar in two respects in order
to find that the federal injunction was proper. (Appendix A,
Pgs. A-16-18). The Court of Appeal’s analysis is faulty because
of the following reasons:
1. The Court of Appeals found that the issue of whether res
judicata barred relitigation of issues that could have been raised
in the original federal action was not presented in Atlantic Coast
Line. In the present case the Court of Appeals affirmed the
district court’s finding that the issues raised in the state court
proceedings should have been raised as pendent claims in the
BHCA action and therefore were barred under res judicata
principles. Parsons Steel v. First Alabama Bank, 747 F.2d
1374, 1379. This distinguishment of the cases is based on what
Petitioners contend was an erroneous decision by the District
and Appeals Court that the issues raised in the state court pro-
ceeding should have teen raised as pendent claims in the BHCA
action and that the Bank ‘‘made a strong and unequivocal
showing of relitigation’’. See Delta Air Lines, Inc. v. McCoy
Restaurants, Inc., 708 F.2d 582, 585 (11th Cir. 1983). The
Court of Appeals further cited its decision of Woods Explora-
tion & Producing Company v. Aluminum Company of
America, 438 F.2d 1286, 1312 (Sth Cir. 1971) cert. denied 404
U.S. 1047, 92 S.Ct. 701, 30 L.Ed.2d 736 (1972) holding that the
relitigation exception is applicable to authorize an injunction
any time the state proceeding is precluded under the doctrine of
res judicata.
—i2-—
Woods Exploration marked the first time a court required no
showing that the injunction was necessary to ‘protect or effec-
tuate”’ a prior federal judgment but instead approved an injunc-
tion of issues which were not but ‘‘could have been”’ litigated in
the prior federal action. The expansion of the relitigation ex-
ception in Woods Exploration is arguably minor since the
federal judgment had been in a federal anti-trust action and the
State proceeding enjoined was a state anti-trust action. The
issues in both cases although arising under different laws were
substantively identical.
The United States Court of Appeals for the Seventh Circuit
relying on Woods Exploration further expanded the relitigation
exception in Harper Plastics, Inc. v. Amoco Chemical Corpora-
tion, 657 F.2d 939 (7th Cir. 1981). In Harper the state court
defendant had previously obtained a federal judgment that its
actions relating to distribution of plastic raw materials did not
violate federal anti-trust laws. The plaintiff then filed a com-
piaint in state court alleging the same facts but basing recovery
on breach of contract under state law. The Seventh Circuit,
citing Woods, held that the state law contract claim could have
been joined with the earlier federal claim so that it was now
within the district court’s discretion to enjoin the state action.
In this case the lower courts, relying on Woods and Harper,
have stretched the relitigation exception to the point of destroy-
ing the independent nature of state courts. The district court
made no finding that its injunction was necessary to ‘‘protect or
effectuate’’ its prior judgment and specifically recognized that
the federal and state action involved different causes of action.
In addition the injunction extends to the Trustee whose only op-
portunity to fully and fairly adjudicate his claims came in state
court.
Although Woods and Harper represent injunctions of doubt-
ful necessity to *‘protect or effectuate’’ a prior federal judgment
the injunctions in those cases were much less intrusive into state
ss
=, --—~
—_
court function than the injunction in this case because they were
issued in the early stages of the state court proceedings. Neither
of the courts in those cases sat in direct review of a state court by
resolving an issue which that court had previously resolved nor
did those courts enjoin litigants who were not parties to the
federal judgment and who had had no prior opportunity to
litigate their claims.
2. The Court of Appeals also attempted to distinguish A//an-
tic Coast Line by finding that the case at bar did not involve an
improper attempt to seek federal appellate review of a state
court decision because the state action was not final at the time
the district court issued its injusiction in this case. (Appendix A,
Pg. 16). The Petitioners contend that the Court of Appeals fin-
ding that the state court jury verdict on the merits was not a
final judgment for preclusion purposes under Alabama state
law was erroneous. This finding is premised on the fact that the
pendency of post trial motions rendered the action not final for
purposes of appeal and that in order for a state court judgment
to be final for preclusion purposes it must also be final for pur-
poses of appeal. (Appendix A., Pg. 8). However, even if the
Court of Appeals was correct, this Court must look at the
reason the state judgment was not final for appeal purposes. It
was because Bank filed the post-trial motions for new trial and
judgment notwithstanding the verdict. After filing those mo-
tions, the Bank filed its action in federal court seeking to enjoin
further state proceedings. It is obvious that the Bank was
displeased with the results in state court and specifically the
state court’s rulings concerning the res judicata effect of the fed-
eral BHCA action on the state action. The filing of the action for
injunctive relief was a mere ruse to actually seek federal ap-
pellate review of a state court decision, an action strictly pro-
scribed by this Court in Atlantic Coast Line, 398 U.S. at 293.
The general principles of comity, equity and federalism
should bar the issuance of such an injunction against this Peti-
tioner. As noted by this Court in Parsons:
=
**In each of the several cases involved in Toucey, the
prevailing party in the federal action sought an injunction
against relitigation in state court as soon as the opposing
party commenced the state action and before there was any
resolution of the res judicata issue by the state court. In the
instant case, on the other hand, Respondents (Bank) chose
to fight out the res judicata issue in state court first and on-
ly after losing there did they return to federal court for
another try.
89 L.Ed.2d at 884.
However the Court of Appeals found that this Court did not
question the earlier affirmance of the District Court’s finding that
the Bank was excused for failing to seek an injunction at an
earlier point in the state proceedings. (Appendix A, Pg. A-21,
n.8).
Petitioner has contended throughout this case that the Bank
waited too late to file an action for injunctive relief in federal
court. This contention is supported by the case of Rosado v.
General Electric Circuit Breakers, 805 F.2d 1085 (1st Cir. 1987).
The Bank has continually argued that the Trustee was in privity
with the other Plaintiffs in the federal action and that the state ac-
tion involved improper claim splitting and therefore the state ac-
tion should be barred by res judicata. Rosado holds that a Defen-
dant consents or acquiesces to claim splitting when, while two
actions on the parts of the same claim are pending, he fails to
object to the claim splitting. If after judgment enters on one of
the two, the Defendant then moves to dismiss the second on res
judicata grounds, the motion should be denied. The purpose
behind the principles of res judicata is to protect a Defendant
from harassment of multiple actions and a Defendant who fails
to timely complain of claim splitting waives that benefit. This
holding is in accord with the Restatement (Second) of
Judgments §26 comment (a) illustration 1. Rosado supports the
Petitioner’s contention that the Bank waived its right to injunc-
enn ale
tive relief by waiting too long. Therefore, the only reasonable
and equitable decision would have been to deny the Bank’s re-
quest for injunctive relief and allow the challenge to the correct-
ness of the state court’s determination as to the conclusive effect
of the federal judgment to be pursued by way of appeal through
the state court system and certiorari from this court.
The seriousness of federal judicial interference with state civil
functions has long been recognized by this court. This court has
consistently held that when federal courts are confronted with
requests for such relief, they should abide by standards of
resiraint that go well beyond those of private equity
jurisprudence. Huffman v. Pursue, Lid., 420 U.S. 592, 603, 95
S.Ct. 1200, 43 L.Ed.2d 482, 492 reh. denied, 421 U.S. 971, 95
S.Ct. 1969, 44 L.Ed.2d 463 (1975).
II. The Decision Below Deprived The Trustee Of A Full
And Fair Opportunity To Litigate His Claims In
Violation Of The Requirements Of Due Process.
At a minimum due process of law requires that a litigant be
afforded the opportunity to present evidence and argument in
support of his claims. Blonder-Tongue Laboratories, Inc. v.
University of Illinois, 402 U.S. 313, 329, 91 S.Ct. 1434, 1443,
28 L.Ed.2d 788, 799 (1971). Consequently, one is not bound
by a judgment in litigation in which he is not designated as a
party or to which he has not been made a party unless he is in
fact adequately represented by parties who are present with the
authority to represent him. Hansberry v. Lee, 311 U.S. 32, 61
S.Ct. 114, 85 L.Ed.2d 22 (1940).
In Montana v. United States, 440 U.S. 147, 59 L.Ed.2d 210,
99 S.Ct. 970 (1978), this Court considered the circumstances
under which a non-party can be bound by prior litigation. In
that case a contractor on a federal project filed an action in
Montana state court alleging that a gross receipts tax on public,
but not private construction projects, violated the United States
Constitution by discriminating against the federal government
and companies which dealt with it. The tax was ultimately
upheld as constitutional by the Supreme Court of Montana.
Subsequently, the United States filed an action in United States
District Court and a three judge panel held that the gross
receipts tax violated the supremacy clause. On appeal this
Court reversed and held that the United States, although not a
party to the state court litigation, was bound by it because the
United States had a sufficient ‘‘laboring oar’’ in the conduct of
that litigation. In reaching that decision this Court noted the
undisputed evidence that the United States required the state
court lawsuit to be filed, reviewed and approved the complaint,
paid attorneys’ fees and costs, directed the appeal and filed an
amicus brief. By directing the state court litigation the United
States had a full and adequate opportunity to litigate the issues
and was therefore bound by that court’s decision.
In the instant case the courts below did not, nor could they,
find that the Trustee had a ‘“‘laboring oar’’ in the Federal Ac-
tion. The Trustee played no role in the decision to file that ac-
tion, did not participate in any manner in that action and did
not contribute toward attorneys’ fees or expenses.
In the absence of virtual representation the Courts below
found that the Trustee was the Federal Action Plantiff’s
‘‘privy’’ and that he could have intervened in the Federal Ac-
tion.* The parties to the federal action had no authority to
represent - and did not attempt to represent - Parsons-
Montgomery. These parties sought only to recover damages
they suffered separate and distinct from Parsons-Montgomery.
Although the Bank on several occasions argued that the Federal
Action plaintiffs had suffered no damages separate from the
bankrupt corporation and therefore had no standing to bring
* The use of the term ‘‘privy’’ in the context of preclusion of non-
parties ‘‘has been criticized as conclusory and analytically unsound.”’
Montana v. United States, 440 U.S. at 154, n.5.
TINE | ETL
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|
that action the district court rejected that argument. Since no
claims were made on behalf of the bankrupt corporation in the
federal action there was no reason for the Trustee to intervene.
The Court of appeals however placed great emphasis on the
Trustee’s knowledge of the Federa! Action and his choice not to
intervene in finding that the Trustee was in privity with the par-
ties to the Federal Action. Trustee contends that his failure to
intervene should not have been fatal. In Atlantic Coast Lines
this Court held that while ‘‘the Rai/road could probably have
based its federal case on the pendent state law claims as well, it
was free to refrain from doing so and leave the state law ques-
tions and related issue concerning preclusion of state remedies
by federal law to the state courts.’’ 398 U.S. at 295. Likewise,
the Trustee should not have had to intervene in the Federal Ac-
tion to protect the bankrupt estate’s interests.
Writing for a unanimous court in Blonder-Tongue v. Univer-
sity of Illinois, Justice White stated:
Some litigants - those who never appeared in a prior action -
may not be collaterally estopped without litigating the
issue. They have never had a chance to present their
evidence and arguments on the claim. Due process pro-
hibits estopping them despite one or more existing ad-
judications of the identical issue which stand squarely
against their position.
402 U.S. at 329. The Trustee in this case has been denied due
process of law. His only chance to present evidence and argu-
ment on his claims occurred in the State Action. The district
court’s unprecedented injunction denying him the right to pro-
ceed to collect the damages awarded him in that action denies
due process of law. This Court should grant certiorari to protect
the Trustee’s only opportuaity to fully and fairly litigate his
claim.
— ne
Ili. This Court Should Grant Certiorari To Resolve A
Conflict Between The Circuit Courts Of Appeals
Created By The Decision Below.
As noted in the previous Petition for Certiorari the Court of
Appeal’s opinion represents the first time a court has found vir-
tual representation in the absence of a finding that the party to
be estopped expressly or impliedly authorized a party to repre-
sent him in prior litigation. That decision creates a conflict
among the circuit courts of appeals which this Court should
resolve.
In General Foods Corporation v. Massachusetts Department
of Public Health, 648 F.2d 784 (Ist Cir. 1981) the Court of Ap-
peals for the First Circuit held that in order to be virtually
represented a party must expressly or impliedly grant another
party authority to represent him.’ In that case two food com-
panies, General Foods Corporation and Rich-SeaPak Corpora-
tion brought an action against the Massachusetts Department of
Health challenging the constitutionality of state regulation of
food labeling. The defendant claimed that an earlier state court
judgment in an action brought by two trade associations
precluded that action. The district court dismissed the federal
action on res judicata grounds. On appeal the court of appeals
held that because General Foods had been a member of both
trade associations and had contributed $2,500.00 toward ex-
penses of the earlier litigation it had expressly or impliedly
authorized the trade association to represent it and for that
reason was bound by the prior judgment. The court reversed
however as to Rich-SeaPak Corporation because that corpora-
tion had neither been a member of either trade association nor
in any manner directed the prior litigation.*
* This definition of virtual representation accords with the Restate-
ment of the Law of Judgments §41(1)(b).
* The United States Court of Appeals for the Second Circuit reach-
ed a similar conclusion in Expert Electric Company v. Levine, 545
F.2d 1277 (2nd Cir. 1977).
—_—
Similarly in Humphreys v. Tann, 487 F.2d 666 (6th Cir.
1973), cert. denied, 416 U.S. 956, 94 S.Ct. 1970, 40 L.Ed.2d 307
(1974), the Sixth Circuit Court of Appeals permitted a
plaintiff to sue the owner of an airplane involved in a mid-air
collision even though an earlier suit had relieved the owner of
liability. Even though the attorney for the plaintiff had par-
ticipated in pretrial discovery and litigation conferences for the
first trial the Court of Appeals for the Sixth Circuit permitted
the plaintiff to have a separate day in court to try his theory of
liability.
In Del Mar Avionics v. Quinton Instruments Company, 645
F.2d 832 (9th Cir. 1981) the Ninth Circuit Court of Appeals held
that an instrument manufacturer was barred from relitigating a
patent infringement issue which had been resolved in an-earlier
action against the manufacturer’s distributor. Since the
manufacturer had authorized its distributor to represent it in
those issues and had directed the prior litigation it had had its
opportunity to fully and adequately litigate those issues.
Each of these cases includes as an element of the definition of
‘‘virtual representation’’ the requirement that a party to the
prior litigation act with implied or expressed authority of the
party now sought to be bound. In the instant case the Eleventh
Circuit Court of Appeals has eliminated that element and in do-
ing so has created a new definition of ‘‘virtual representation’’.
Because its new definition is in conflict with prior decisions of
the First, Second, Sixth and Ninth Circuit Courts of Appeal this
Court should grant certiorari to resolve that conflict.
CONCLUSION
The issues presented by this case again strike at the heart of
our federal system by expanding the relitigation exception to the
Anti-Injunction Act and by allowing a federal court to sit in
direct review of a state court decision. The courts below have
upset the balance between our co-existing independent court
systems. When friction arises between these two systems this
Court must resolve the conflict. The Petition for Certiorari
should therefore be granted.
Respectfully Submitted,
JAMES JERRY WOOD
JAMES T. SASSER
Attorneys for Tom McGregor,
Trustee in Bankruptcy
Of Counsel:
WOOD & PARNELL, P.A.
Post Office Box 4189
Montgomery, Alabama 36103-4189
(205/832-4202)
APPENDIX
APPENDIX A
UNITED STATES COURT OF APPEALS
ELEVENTH CIRCUIT
Nos. 85-7343, 86-7506
First Alabama Bank of Montgomery, N.A.,
and Edward Herbert,
Plaintiffs-Appellees,
Vv.
Parsons Steel, Inc., Jim D. Parsons, Melba L. Parsons,
and Parsons Steel Industries, Inc.,
Defendants,
Tom McGregor, as Trustee in Bankruptcy for Parsons
Steel Industries, Inc.,
Defendant - Appellant.
Parsons Steel, Inc., Jim D. Parsons, Melba L. Parsons,
and Parsons Steel Industries, Inc.,
Defendants - Appellants
Tom McGregor, as Trustee in Bankruptcy for
Parsons Steel Industries, Inc.,
Defendant - Appellant.
August 21, 1987
Appeals from the United States District
Court for the Middle District of Alabama
Before HILL AND JOHNSON, Circuit Judges, and
HENLEY,* Senior Circuit Judge.
JOHNSON, Circuit Judge:
* Honorable J. Smith Henley, Senior U.S. Circuit Judge for the
Eighth Circuit, sitting by designation.
—*
This consolidated appeal challenges the propriety of the
district court’s continuance of an injunction issued in favor of
Appellees, First Alabama Bank (‘‘First Alabam:”’) and bank
officer Edward Herbert against further prosecution of a state
court action filed against Appellees by Appellants Parsons
Steel, Inc. (‘‘Parsons-Mobile’’), Jim D. and Melba Parsons
(‘‘Parsons’’), and Tom McGregor, trustee in bankruptcy of
Parsons Steel Industries, Inc. of Montgomery (‘‘Parsons-
Montgomery’’) in the Circuit Court of Montgomery County,
Alabama.' All Appellants challenged the district court’s order
continuing the injunction in force. McGregor also appeals the
district court’s order refusing to modify the injunction to allow
him to pursue a UCC claim in state court. We affirm.
I. BACKGROUND
This case arises out of a series of bank transactions involving
First Alabama and Parsons-Montgomery, a wholly owned sub-
sidiary of Parsons-Mobile, ninety-nine percent of the stock of
which is in turn owned by Parsons. This is the third time this
Court has been called upon to review judgments in litigation
arising out of those transactions.
In the fall of 1978, Parsons-Montgomery owed First Alabama
one million dollars in secured debt. Anticipating that Parsons-
Montgomery would not be able to pay this debt, Parsons and
First Alabama discussed possible refinancing or sale of the
business. After one attempt to sell failed, First Alabama con-
tacted one of its customers, Michael Orange. Orange did not
want to purchase the ocmpany but agreed with Parsons in
December 1978 to manage the company for a fee and stock op-
tion. Orange soon resigned, and First Alabama commenced
foreclosure proceedings against Parsons-Montgomery in
January 1979 and sold its assets at a private sale to OSI, Inc.,
Orange’s corporation, for the amount of the outstanding debt.
' Parsons Steel Industries, Inc. v. First Alabama Bank of Mon-
tgomery, N.A., Civil Action No. CV-79-179-G.
= oe
On February 15, 1979, Parsons-Montgomery, Parsons-
Mobile, and Parsons filed suit in Alabama circuit court against
First Alabama, Herbert, Orange and OSI, alleging that First
Alabama fraudulently forced Parsons to allow Orange to take
control of Parsons-Montgomery, and eventually to obtain com-
plete ownership of the company. Orange and OSI eventually
were dismissed from the suit pursuant to a pro tanto settlement
in January, 1983.
On April 5, 1979, Parsons-Montgomery was adjudicated an
involuntary bankrupt. On May 30, 1979, Parsons-Mobile and
Parsons filed suit in federal court against First Alabama alleging
that the same actions of First Alabama that gave rise to the state
lawsuit violated the Bank Holding Company Act, 12 U.S.C.A.
§§1971 to 1978 (*“‘BHCA”’). Parsons-Montgomery and its
trustee were not original parties to the federal action, and the
trustee chose not to join the action. The trustee was made a par-
ty to the state court action pursuant to First Alabama’s motion
alleging that he was an indispensable party. The trustee par-
ticipated in joint discovery that was designated for use in both
the state and federal action.
The federal action was bifurcated and proceeded to judgment
before the state action. After a jury verdict in favor of the
plaintiffs, the district court entered a judgment n.o.v. for First
Alabama in June 1981. This Court affirmed. Parsons Steel,
Inc. v. First Alabama Bank of Montgomery, 679 F.2d 242, 246
(11th Cir. 1982) (‘Parsons I’’). Appellees asserted the federal
judgment as res judicata in the state action through motions to
dismiss and for summary judgment which were denied by the
state court. On June 11, 1982, the trustee filed an amended
complaint in the state action which alleged for the first time that
First Alabama’s sale of the assets of Parsons-Montgomery was
commercially unreasonable in violation of Article 9 of the
Uniform Commercial Code (*‘UCC claim’’). Shortly before the
state trial was scheduled to begin, the state court entered a judg-
ment in limine stating that the res judicata issue was not ap-
—_ * »o
propriate for presentation to the jury.’ The state trial com-
menced January 31, 1983. Appellees moved for directed verdict
at the close of the plaintiff’s case and at the close of all the
evidence, asserting res judicata and collateral estoppel. Both
motions were denied. The jury returned a verdict for Ap-
pellants in the amount of $4,000,001.00. On February 24, 1983,
Appellees filed motions for judgment n.o.v. and a new trial
asserting as one basis for judgment n.o.v. the preclusive effect
of the prior federal judgment.
On March 7, 1983, Appellees filed a complaint in federal
court seeking to enjoin further prosecution of the state court ac-
tion on the basis of res judicata and collateral estoppel. On June
15, 1983, the district court enjoined further prosecution of the
state court action by Appellants finding that the claims raised in
the state court action by Appellants finding that the claims rais-
ed in the state court proceedings should have been raised in the
federal proceeding and that the trustee, although not a party to
the federal action, was in privity with those parties and,
therefore, bound by the judgment in the prior federal action as
well. At the time of issuance of that injunction, Appellees’ mo-
tions for judgment n.o.v. and for a new trial were still pending
in the state court action. The state court stayed the action in ac-
cordance with the injunction on July 6, 1983.
This Court affirmed the district conrt’s decision, except with
regard to the district court’s determination that the trustee was
precluded by the prior federal action from pursuing his UCC
? The order indicated that the state court was ‘‘of the general im-
pression that the issue of res judicata is an issue properly to be decided
by the Court rather than an issue to be presented to and decided by the
jury”’ and that “‘[t}his proposition would be especially true where, as
in the instant case, the factual issues have been fully presented to the
Court in the course of Motions to Dismiss, Motion for Summary
Judgment and Motion for Reconsideration of Motion for Summary
Judgment and that the facts as regards the issue of res judicata are
clearly undisputed.’’
~—
claim. First Alabama Bank of Montgomery v. Parsons Steel,
Inc., 747 F.2d 1367, 1381 (11th Cir. 1984), rev’d, 474 U.S. 518,
106 S.Ct. 768, 88 L.Ed.2d 877 (1986) (‘‘Parsons II’’). The
Court remanded that issue to the district court ‘‘for further fact
findings to determine whether the injunction should be
modified to allow the Trustee to pursue his UCC claim based
only on the actual foreclosure sale.’’ Jd. The Parsons II Court
held that issuance of the injunction was proper under relitiga-
tion exception to the Anti-Injunction Act,’ which generally pro-
hibits a federal court from enjoining state proceedings, but ex-
cepts from that prohibition, inter alia, injunctions ‘‘necessary
... to protect or effectuate its judgments.’’ /d. at 1375. The
Court found that the district court’s independent determination
as to the res judicata effect of the BHCA action was not
precluded by the state court’s prior determination of that issue
because the relitigation exception to the Anti-Injunction Act
modified the Full Faith and Credit Statute‘ so that ‘‘while a
federal court is generally bound by other state court determina-
tions, 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.’ /d. at 1375-76.
The Supreme Court reversed. Parsons Steel, Inc. v. First
Alabama Bank of Montgomery, 474 U.S. 518, 106 S.Ct. 768,
773, 88 L.Ed.2d 877 (1986) (‘‘Parsons III’’). It rejected this
> The Anti-Injunction Act 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 judgments.’’ 28
U.S.C.A. §2283.
* The Full Faith and Credit Statute provides in pertinent part that
‘*judicial proceedings ... shall have the same full faith and credit in
every court within the United States ... as they have by law or usage in
the courts of such State ... from which they are taken.”’ 28 U.S.C.A.
$1738.
— >
Court’s analysis of the effect of the relitigation exception to the
Anti-Injunction Act on the Full Faith and Credit Statute, fin-
ding that the two provisions could be read consistently by
“‘limiting the relitigation exception of the Anti-Injunction Act
to those situations in which the state court has not yet ruled on
the merits of the res judicata issue’’ and that ‘‘[ojnce the state
court has finally rejected a claim of res judicata, then the Full
Faith and Credit Act becomes applicable and federal courts
must turn to state law to determine the preclusive effect of the
state court’s decision.”’ /d. at 772. The Supreme Court thus
found that this Court had erred in failing to consider the possi-
ble preclusive effect under Alabama law of the state-court judg-
ment. /d. It further found that the district court was in the best
position to determine and apply Alabama preclusion law in the
first instance and, if the district court found that the state-court
judgment was not entitled to preclusive effect under Alabama
law and the Full Faith and Credit Act, ‘‘it would then be in the
best position to decide the propriety of a federal-court injunc-
tion under the general principles of equity, comity, and
federalism ...’’ Jd. at 773.
In-accordance with the Supreme Court’s decision, this Court
issued its mandate reversing the district court judgment and
remanding for further proceedings in conformity with the
Supreme Court opinion. First Alabama Bank of Montgomery
v. Parsons Steel, Inc., 785 F.2d 929 (11th Cir. 1986). On re-
mand, the district court found that Alabama law did not give
preclusive effect to the state court’s determination of the res
judicata issue because there was no final judgment in that action
and that an injunction was proper under principles of equity,
comity and federalism. It therefore ordered that its injunction
continue in force. The district court also denied Parsons’ mo-
tion requesting that the judge recuse himself. These determina-
tions are the subject of the appeal in No. 86-7506.
By an earlier order, the district court had determined that the
trustee’s UCC claim arose out of pre-sale matters regarding ac-
—_— "wee
tions of First Alabama and Orange that should have been raised
in the federal action and therefore had declined to modify its in-
junction to allow the trustee to pursue a UCC claim on behalf of
Parsons-Montgomery. That order is the subject of the appeal in
No. 85-7343. Also pending before this Court is Appellants’ mo-
tion to supplement the record on appeal.
Il. DISCUSSION
A. Finality of State Court Determination of Res Judicata
Issue
The preclusive effect of the federal action was raised in the
state court action by Appellees through motions to dismiss, mo-
tions for summary judgment and motions for directed verdict,
all of which were denied. The district court held that these rul-
ings were not final judgments entitled to preclusive effect under
Alabama law. The district court found that the issue was still
pending before the state court in connection with Appellees’
motions for judgment notwithstanding the verdict or for a new
trial at the time the district court issued its injunction. Because
the district court concluded that finality for purposes of appeal
and for purposes of determining preclusive effect are equated
under Alabama law, that court held that the pendency of these
post-trial motions prevented the state determination from hav-
ing a preclusive effect because an appeal could not be taken un-
til resolution of the post-trial motions. We find no error in the
district court’s determination of this issue.
[1,2] The Full Faith and Credit Act requires that a federal
court give preclusive effect to a state court judgment to the same
extent as would courts of the state in which the judgment was
entered. Cable Holdings of Battlefield, Inc. v. Cooke, 764 F.2d
1466, 1473 (11th Cir. 1985). Under Alabama law, res judicata
and collateral estoppel principles do not apply until there is a
final judgment rendered on the merits of the case. Food Service
Distributors, Inc. v. Barber, 429 So.2d 1025, 1027 (Ala. 1983);
accord, Owen v. Miller, 414 So.2d 889, 890-891 (Ala. 1981);
—" oe
Pooley v. State, 470 So.2d 1337, 1339 (Ala.Crim.App. 1985).
Denial of a motion for summary judgment is not a final judg-
ment. Barber, 429 So.2d at 1027. Nor does such a denial
become the law of the case: ‘‘a court may reconsider its ruling
on a motion for summary judgment and may correct an er-
roneous ruling at any time before final judgment.’’ /d.
Therefore, denial of Appellees’ motions for summary judgment
was not a final adjudication of the preclusion issue.
There is no Alabama law on the question of whether a jury
verdict is considered a final judgment for preclusion purposes
when it is rendered nonappealable by the pendency of post-trial
motions. It appears, however, that the district court was correct
in its determination that Alabama equates finality for purposes
of preclusion with appealability.’ In Sterling Oil of Oklahoma,
Inc. v. Pack, 291 Ala. 727, 287 So.2d 847 (1973), the Alabama
Supreme Court, noting that the test was the finality of the judg-
ment, found that it was required to give preclusive effect to a
district court’s grant of partial summary judgment on the issue
of whether appellant was qualified to do business because the
grant of summary judgment, although interlocutory, was ap-
pealable. /d. at 861. The Court stated:
* This is the federal rule. J. Moore, 1B Moore’s Federal Practice
para. 0.416[3] at 519-520 (2d ed.1984) (finality for res judicata pur-
poses is ‘‘closely related to that for appealability under the final judg-
ment rule of 28 U.S.C. §1291’’). Nonappealable interlocutory orders
are not entitled to collateral estoppel or res judicata effect. /d. at 520.
Professor Moore notes that, on analogous reasoning, post-trial mo-
tions that destroy the finality of the judgment for purposes of appeal,
such as a motion for judgment n.o.v., also should destroy the
preclusive effect of the judgment. Id. But see Hubbell v. United
States, 171 U.S. 203, 210, 18 S.Ct. 828, 831, 43 L.Ed. 136 (1898) (dic-
ta expressing doubt as to whether motion for new trial would prevent
preclusive effect). The Restatement (Second) Judgments takes the op-
posite position: ‘‘A judgment otherwise final for purposes of the law
of res judicata is not deprived of such finality by the fact that time still
permits commencement of proceedings in the trial court to set aside
the judgment and grant a new trial or the like; nor does the fact that a
party has made such a motion render the judgment nonfinal.”’
Restatement (Second) Judgments §13, Comment f (1980).
em ete we
ay
We have been cited to no persuasive authority, and we
have found none, on either side of this issue. We believe
the appealable nature of such order - given the other prere-
quisites is the controlling factor; and we, therefore, hold
that the principle of comity requires that we give res
judicata effect to the judgment of the federal court, apply-
ing Alabama substantive law, holding on its merits that the
[contract] is not void for failure ... to qualify as a foreign
corporation ..., which judgment was neither revoked,
amended, nor reversed on appeal. /d.
[3] The judgment entered pursuant to the jury verdict in the
state action in this case was not final for purposes of appeal dur-
ing the pendency of the judgment n.o.v. and new trial motions.
See A.R.A.P. 4(a)(3); Spina v. Causey, 403 So.2d 199, 201 (Ala.
1981). Therefore, the district court did not err in finding that
there was no final judgment for preclusion purposes under
Alabama law. Cf. Cable Holdings, 764 F.2d at 1473 (district
court erred in giving res judicata effect to state court judgment
not final for purposes of appeal under Georgia law when it ap-
peared that Georgia measured finality for res judicata purposes
by same standard as finality for appeal).°
* Appellants make several arguments as to why the judgment in the
state action should be considered final. We find these arguments
unpersuasive. First, Appellants argue that Alabama would consider a
judgment in this posture final for other purposes, such as measuring
the date from which interest would run. However, whatever may be
the criteria for determining the finality of a judgment for other pur-
poses, Sterling clearly indicates that appealability is the criterion
under Alabama law for determining a judgment’s finality for preclu-
sion purposes. Second, Appellants point to statements of the trial
judge which they argue indicate that he viewed his decision of the res
judicata issue as final in the sense that he did not plan to change his
mind, and they take issue with the district court’s determination that
the trial judge has reserved the res judicata issue for determination in
connection with the motion for judgment n.o.v. Whether the trial
judge in the state action intended to change his decision with regard to
the res judicata issue upon reconsideration of that issue in connection
— A-10 —
B. Considerations of Equity, Comity and Federalism
1. Younger Abstention
The Supreme Court stated that ‘‘[sJhould the District Court
conclude that the state court judgment is not entitled to
preclusive effect under Alabama law and the Full Faith and
Credit Act, it would then be in the best position to decide the
propriety of a federal-court injunction under the general prin-
ciples of equity, comity, and federalism discussed in Mitchum v.
Foster, 407 U.S. 225, 243, 92 S.Ct. 2151, 2162, 32 L.Ed.2d 705
(1972).’’ Parsons III, 106 S.Ct. at 773. In Mitchum, The
Supreme Court held that section 1983 came within the ‘‘express-
ly authorized’’ exception contained in the Anti-Injunction Act,
but noted that ‘‘[iJn so concluding, we do not question or
qualify in any way the principles of equity, comity, and
federalism that must restrain a federal court when asked to en-
with Appellees’ motions for judgment n.o.v. is not determinative of
the question of whether the judgment was final for preclusion pur-
poses. As discussed above, the Alabama rule is that a judgment is not
final for preclusion purposes until it is appealable. Third, Appellants
argue that the res judicata issue could not be raised in connection with
a motion for directed verdict or for judgment n.o.v. because the only
issue for consideration in connection with these motions is the suffi-
ciency of the evidence to support the jury’s verdict. Alabama courts,
however, have held a directed verdict or motion for judgment n.o.v.
proper on the basis of an issue of law that is appropriatefor decision
by the judge rather than the jury. E.G., Saxon v. Johnson, 393 So.2d
1007, 1010-11 (Ala.App. 1980), cert. denied sub nom. Ex parte
Johnson, 393 So.2d 1012 (Ala. 1981) (directed verdict should have
been granted on basis of interpretation of deed, which was issue
reserved for decision by judge in pretrial order). Finally, Appellants
argue that Appellees’ federal suit was a collateral attack on a final
judgment prohibited under Alabama law. See Williams v. First Na-
tional Bank of Mobile, 384 So.2d 89, 94 (Ala. 1980). This argument,
however, assumes the existence of a final judgment in the state court
action and, therefore, begs the question. The mere pendency of two
suits involving the same subject matter does not create a preclusive bar
until final judgment in one of them. Logan v. O’Barr, 122 So.2d 376,
380 (Ala. 1960). Further under Alabama law, a suit to enjoin the ex-
ecution of a judgment is considered a direct, not a collateral, attack on
the judgment. Williams, 384 So.2d at 93.
— A-ll —
join a state court proceeding.’’ 407 U.S. at 243, 92 S.Ct. at
2162. The Mitchum Court stated that ‘‘[t]hese principles, in the
context of state criminal prosecutions, were canvassed at
length...in Younger v. Harris.’’ Mitchum, 407 U.S. at 243, 92
S.Ct. at 2162 (citation omitted).
[4] The district court interpreted the Supreme Court’s man-
date in Parsons III as requiring that the district court measure
the appropriateness of an injunction in this case under the stan-
dards established by Younger v. Harris, 401 U.S. 37, 91 S.Ct.
746, 27 L.Ed.2d 669 (1971), for enjoining state criminal pro-
secutions. Under Younger, a federal court should abstain from
enjoining an ongoing state criminal proceeding absent a showing
of bad faith prosecution or harassment or a showing that the
challenged statute is flagrantly and patently violative of express
constitution prohibitions. Younger, 401 U.S. at 53-54. 91 S.Ct.
at 754-55; accord, Huffman v. Pursue, Ltd., 420 U.S. 592, 611,
95 S.Ct. 1200, 1211, 43 L.Ed.2d 482 (1975). Proceedings on the
assumption that an injunction of the state court action in this
case would be appropriate only if this case came within one of
the narrow exceptions to the Younger doctrine, the district
court found that Appellants had engaged in harassment and bad
faith sufficient to justify issuance of an injunction.
We need not reach the issue of whether the district court was
correct in its determination that Appellants’ actions amounted
to bad faith and harassment because we find that the Younger
doctrine is not applicable on the facts of this case. As discussed
above, Younger v. Harris dealt with the propriety of a federal
injunction against ongoing state criminal proceedings. In the
civil context, the comity principles embodied in the Younger
doctrine have been held applicable when ‘‘the State’s interests in
the proceeding are so important that exercise of the federal
judicial power would disregard the comity between the States
and the National Government.’’ Pennzoil Co. v. Texaco, Inc.,
<sexiems : , 107 S.Ct. 1519, 1526, 95 L.Ed.2d 1
(1987). See, e.g., id. 107 S.Ct. at 1527 (state interest in execu-
tion of state judgments); Ohio Civil Rights Comm’n v. Dayton
— A-12 —
Christian Schools, Inc., ____. U.S. : , 106 S.Ct. 2718,
2723, 91 L.Ed.2d 512 (1986) (state civil rights commission ac-
tion to vindicate state interest in elimination of sex discrimina-
tion); Middlesex County Ethics Comm’n v. Garden State Bar
Ass’n, 457 U.S. 423, 434, 102 S.Ct. 2515, 2522, 73 L.Ed.2d 116
(1982) (important state interest in maintaining and assuring the
professional conduct of attorneys it licenses); Moore v. Sims,
442 U.S. 415, 423, 99 S.Ct. 2371, 2377, 60 L.Ed.2d 994 (1979)
(child custody proceedings ‘‘in aid of and closely related to
criminal statutes’’); Juidice v. Vail, 430 U.S. 327, 335-36, 97
S.Ct. 1211, 1217, 51 L.Ed.2d 376 (1977) (vital state concern in
enforcement of contempt proceedings); Trainor v. Hernandez,
431 U.S. 434, 444, 97 S.Ct. 1911, 1918, 52 L.Ed.2d 486 (1977)
(suit and accompanying writ of attachment brought by state to
vindicate important state policies such as safeguarding the fiscal
integrity of public assistance programs); Huffman, 420 U.S. at
609, 95 S.Ct. at 1210 (proceeding pursuant to state nuisance
statute ‘‘in aid of and closely related to criminal statutes’’).
Thus, it is only civil proceedings ‘‘in which important state in-
terests are involved’’ that warrant abstention under the Younger
doctrine. Moore, 442 U.S. at 423 & n.8, 99 S.Ct. at 2378 & n.8
(‘‘we do not remotely suggest that every pending proceedings
between a State and a federal plaintiff justifies abstention unless
one of the exceptions to Younger applies’’); accord, Cate v.
Oldham, 707 F.2d 1176, 1183 (11th Cir. 1983) (‘‘Application of
the Younger doctrine to ongoing state civil proceedings has been
limited to those civil actions in aid of criminal jurisdiction or in-
volving enforcement-type proceedings in which vital interests of
the state qua state are involved.’’).
[5] Therefore, the initial inquiry in determining whether a
federal court should abstain when asked to enjoin an ongoing
state civil proceeding is whether an important governmental in-
terest of the state is implicated by that civil action so that such
an injunction would be ‘‘an offense to the State’s interest ...
likely to be every bit as great as it would be were this a criminal
proceedings.’’ Juidice, 430 U.S. at 336, 97 S.Ct. at 1217
TE ee NCPR eer me
a er neem nernaw eR cone =
— A-13 —
(quoting Huffman, 420 U.S. at 604, 95 S.Ct. at 1208). Because
the district court interpreted the Supreme Court mandate as re-
quiring application of Younger, the district court did not make
this threshold inquiry as to whether an important state interest
was implicated iu this case. We do not read the Supreme
Court’s mandate as dispensing with this threshold inquiry. In-
stead, the Supreme Court’s mandate merely states, as did the
opinion in Mitchum, that the fact an injunction may be per-
missible under an exception to the Anti-Injunction Act does not
mean that the district court should not also consider whether
such an injunction is appropriate under the principles reflected
in the Younger doctrine.
[6] Our consideration of this threshold inquiry leads us to
conclude that Younger abstention is not appropriate in this case
because the state court action enjoined by the district court does
not implicate any important government interest of the State of
Alabama. The importance of a state interest may be
demonstrated by the fact that the proceedings sought to be en-
joined are noncriminal proceedings bearing a close relationship
to criminal proceedings or by the fact the proceedings are
necessary for the vindication of important state policies or the
functioning of the state judicial system. Middlesex Ethics
Comm’n, 457 U.S. at 432, 102 S.Ct. at 2521. Alabama is not a
party to the action enjoined in this case, nor was that action
brought to vindicate important interests of that State. Similarly,
the action does not implicate the State’s ‘‘important interests in
administering ce..ain aspects of [its] judicial system[].’’ Penn-
zoil, 107 S.Ct. at 1527. The state court action involved in this
case was merely a private action between private parties in
which the State of Alabama had no interest beyond ‘‘its interest
as adjudicator of wholly private disputes.’’ /d. at n. 12.
Therefore, we find that the Younger doctrine did not require
that the district court abstain from issuing the injunction against
further state court proceedings.
— A-14 —
2. Propriety of the Injunction
“(T]he phrase ‘to protect or effectuate its judgments’
authorize[s] a federal injunction of state proceedings only ‘to
prevent a state court from so interfering with a federal court’s
consideration or disposition of a case as to seriously impair the
federal court’s flexibility and authority to decide that case.’ ”’
Parsons III, 106 S.Ct. at 773 (quoting Atlantic Coast Line
Railroad Company v. Locomotive Engineers, 398 U.S. 281,
295, 90 S.Ct. 1739, 1747, 26 L.Ed.2d 234 (1970)). Further, ac-
comodation of the state and federal interests involved when a
federal court is asked to enjoin a state court proceeding has led
to the requirement that the party seeking the injunction must
make a “‘strong and unequivocal showing of relitigation.’’ De/ta
Air Lines, Inc. v. McCoy Restaurants, Inc., 708 F.2d 582,
585-86 (11th Cir. 1983). In Parsons IT, this Court found that
Appellees had made the requisite showing in this case. 747 F.2d
at 1375. We find no reason to alter that conclusion.
[7] Appellants assert that the district court’s injunction was
improper in light of the Supreme Court’s decision in Atlantic
Coast Line R. Co. v. Locomotive Engineers, 398 U.S. 281, 90
S.Ct. 1739, 26 L.Ed.2d 234 (1970). We cannot agree. While the
Supreme Court noted in Parsons III that the present action was
‘“‘similar to Atlantic Coast Line, in which we held that the
various exceptions to the Anti-Injunction Act did not permit a
federal court to enjoin state proceedings in circumstances more
threatening to federal jurisdiction than the circumstances of this
case,’’ Id. 106 S.Ct. at 772-73, that statement certainly was not
tantamount to a holding by the Supreme Court that the injunc-
tion in this case was improper. The Supreme Court clearly did
not reach the issue of the propriety of the injunction in Parsons
I/T. Further, given our determination that the state court judg-
ment in this case was not final for preciusion purposes, A ¢/antic
Coast Line clearly is distinguishable from the present case.
Atlantic Coast Line involved a federal court order enjoining
enforcement of a prior state injunction which prohibited
=
picketing by the Brotherhood of Locomotive Engineers
(‘‘BLE’’) at a switching yard known as Moncrief Yard, which _
was owned and operated by Atlantic Coast Line Railroad
(‘“‘ACL’’). ACL originally had sought an injunction in the
federal district court, but that court had denied relief. ACL then
obtained an injunction in state court. Two years after the state
court had issued its injunction, the Supreme Court rendered its
decision in Brotherhood of Railroad Trainmen v. Jacksonville
Terminal Co., 394 U.S. 369, 89 S.Ct. 1109, 22 L.Ed.2d 344
(1969), which considered the validity of picketing by the BLE
and other unions at a location directly next to Moncrief Yard
and held that the unions had a federally protected right to picket
that could not be interfered with by state court injunctions.
BLE filed a motion in state court to dissolve the injunction as
improper under Jacksonville Terminal, which was denied. In-
stead of appealing that denial, BLE sought an injunction of en-
forcement of the state injunction in federal court, and the
district court granted the injunction. BLE argued that the
district court’s injunction was proper under the Anti-Injunction
Act either as necessary to protect or effectuate the district
court’s prior denial of an injunction of the picketing or as
necessary in aid of its jurisdiction, another exception to the
Anti-Injunction Act. Atlantic Coast Line, 398 U.S. at 283-84,
90 S.Ct. at 1741.
BLE’s argument that the injunction was proper under the
relitigation exception was based on its contention that the
district court had determined in its original order denying
ACL’s request for an injunction that BLE had a federally pro-
tected right to picket Moncrief Yard that could not be interfered
with by the state courts. Id. at 288, 90 S.Ct. at 1744. The
Supreme Court rejected that interpretation of the district
court’s original judgment, concluding instead that what BLE
sought to protect by the federal court injunction was not the
district court’s original judgment but the ‘‘amplification’’ of
that judgment provided by the intervening decision in Jackson-
ville Terminal. Id. at 293, 90 S.Ct. at 1746. The Court stated
— A-16 —
that ‘‘[s}uch a modification of an earlier order through an opi-
nion in another case is not a ‘judgment’ that can properly be
protected by an injunction against state court proceedings.’’ /d.
The Court found that the union was in effect seeking federal ap-
pellate review of the state court determination that Jacksonville
Terminal did not require that the state court injunction be
dissolved. /d.
Atlantic Coast Line is distinguishable from the present case in
at least two respects. First, the issue of res judicata barred
relitigation of issues that could have been raised in the original
federal action was not presented in Aflantic Coast Line. The
union in Aflantic Coast Line did not argue that the federal in-
junction was proper because the issue of whether the federal
right to picket precluded state court injunctions could have been
raised in the prior federal proceeding. Instead, CLE argued that
question had in fact been decided in the prior proceedings, and
the Supreme Court rejected that contention on the record
before it. In the present case, however, this Court affirmed the
district court’s finding that the issues raised in the state court
proceeding should have been raised as pendent claims in the
BHCA action and therefore were barred under res judicata
principles. Parsons II, 747 F.2d at 1374, 1379. Precedent bin-
ding on this Circuit clearly holds that ‘‘a federal court may en-
join a state court proceedings which is precluded under the doc-
trine of res judicata.”’ Woods Exploration & Producing Com-
pany v. Aluminum Co. of America, 438 F.2d 1286, 1312 (Sth
Cir. 1971), cert. denied, 404 U.S. 1047, 92 S.Ct. 701, 30
- Al? —
L.Ed.2d 736 (1972). We find nothing inconsistent between that
precedent and the Supreme Court decision in Atlantic Coast
Line.’
Second, unlike the situation in Af/antic Coast Line, the pre-
sent case does not involve an improper attempt to seek federal
appellate review of a state court decision. As discussed above,
the state court determination that the failure to raise the state
claims in the BHCA action did not operate as a bar to raising
the claims in the state action was not final at the time the district
court issued its injunction in this case. Thus, although Ap-
pellees waited until alate point in the state court exception, but
rather that the injunction at issue in Af/antic Coast Line was not
proper as necessary in aid of the district proceeding to seek an
injunction, they did so before the state court had made a final
* In support of their position, Appellants point to language in
Atlantic Coast Line where the Court stated that ‘‘[w]Jhile the railroad
could probably have based its federal case on the pendant state law
claims as well, it was free to refrain from doing so and leave the state
law questions...to the state courts’’ because “‘the state and federal
courts had concurrent jurisdiction in this case, and neither court was
free to prevent either party from simultaneously pursuing claims in
both courts.”’ 398 U.S. at 295, 90 S.Ct. at 1747 (citations omitted).
This language, however, appears in the Supreme Court’s discussion of
whether the injunction was proper as necessary in aid of the district
court’s jurisdiction and not in its discussion of the prepriety of the in-
junction under the relitigation exception. In that context, it is clear
that the Supreme Court did not intend to suggest by this language that
the res judicata effect of a prior federal judgment could not justify an
injunction under the relitigation court’s jurisdiction because under the
concept of concurrent jurisdiction, both the federal and state court
had jurisdiction to proceed simultaneously.
— A-18 —
determination with regard to the preclusion issue.* In Atlantic
Coast Line, however, the state court’s deniai of BLE’s motion
to dissolve was final, and BLE chose to seek an injunction in
federal court rather than appealing that decision, thereby, in ef-
fect, attempting to obtain improper appellate review of the state
court decision by the federal court.
[8] We also find without merit Appellants’ argument that the
injunction was improper because Parsons / Court upheld the
district court’s grant of judgment n.o.v. on a different rationale
from that given by the district court. While, as Appellants
argue, the preclusive effect of a judgment is determined by the
decision of the appellate court when that decision rest on dif-
ferent grounds from the district court’s decision, see J. Moore,
1B Moore’s Federa! Practice para. 0.416[2], at 518-19 (2d ed.
1984), that principle does not alter the res judicata effect of the
BHCA action in this case. Even assuming this Court’s decision
in Parsons I rested on different grounds from that of the district
court, it is clear that both this Court’s decision and the district
court’s decision were on the merits and, therefore, the fact they
* We note that in Parsons // this Court upheld the district court’s
finding that Appellees’ failure to seek a federal injunction at an earlier
point in the state proceeding did not operate as a waiver of their right to
do so because the vagueness of the state court pleadings made it dif-
ficult to determine that the state action involved the same basic cause
of action that was tried in the BHCA action. 747 F.2d at 1376. While
the Supreme Court in Parsons /// distinguished the present case from
the case of Toucey v. New York Life Ins. Co., 314 U.S. 118, 62 S.Ct.
139, 86 L.Ed. 100 (1941), on the basis that ‘‘[iJn each of the several
cases involved in Toucey, the prevailing party in the federal action
sought an injunction against relitigation in state court as soon as the
opposing party commenced the state action, and before there was any
resolution of the res judicata issue by the state court’’ while in this
case Appellees ‘‘chose to fight out the res judicata issue in state court
first, and only after losing there did they return to federal court for
another try,”’ Parsons III, 106 S.Ct. at 772, the Supreme Court did
not question this Court’s affirmance of the district court’s finding that
the Appellees were excused for failing tu seek an injunction at an
earlier point in the state proceedings, and we find no reason to alter
that determination.
— A-19 —
may have been based on different grounds does not alter the
determination as to Appellants’ state law claims.
Finally, we find without merit the trustee’s various arguments
challenging the decision of the Parsons I] Court upholding the
district court’s finding that the trustee was bound by the BHCA
action under res judicata principles because he was in privity
with the parties to that action. Parsons II, 747 F.2d at 1379.
Those arguments were adequately dealt with by the panel in
Parsons II, and we find no reason to reconsider that Court’s
determination with regard to the privity issue.’ The trustee
points out that this Court’s prior opinion erroneously stated in
affirming the district court’s finding of privity that the federal
action was pending at the time of the bankruptcy, when in fact
Parsons-Montgomery was placed in bankruptcy before the
federal action was filed. See id. at 1370, 1379. The timine of the
bankruptcy in relation to the filing of the federal action,
however, was not critical to the Parsons I] Court’s determina-
tion that the district court did net err in its finding of privity.
Rather, that Court’s affirmance was based on the trustee’s
knowledge of the federal action, with regard to which he made a
deliberate choice not to intervene; the identity of the facts
underlying the BHCA claim and the trustee’s claims; and the
fact Parsons-Montgomery was the entity primarily wronged by
the alleged activities of First Alabama and thus would have been
the party entitled to most of the damages. /d. at 1379.
[9] A district court had discretion to determine whether
federal interference with state proceedings is warranted pur- -
suant to the relitigation exception to the Anti-Injunction Act
and, within that discretion, a district court in a given case may
go either way and not be reversed. Delta Air Lines, 708 F.2d at
587. We cannot say that issuance of this injunction exceeded
the bounds of the district court’s discretion.
* We note that this issue was presented for review to the Supreme
Court, but that Court found it unnecessary to reach the issue. Parsons
111, 106 S.Ct. at 773 n.4.
— A-20 —
C. Motion to Recuse
Parsons argues that the district judge should have recused
himself because he has a personal bias against Parsons based on
extrajudicial information. Parsons presented his request for
recusal in the form of a letter, which the district judge construed
as a motion to recuse. The information of which Parsons com-
plains is evidenced by two statements in the district court’s opi-
nion, one showing the district judge’s knowledge that Parsons
had brought suit against his former attorneys, who represented
him in this litigation through the time of the Supreme Court
decision in Parsons III, and the other being a statement to the
effect that ‘‘Mr. Parsons had secured a recusal by a State Court
Judge by writing a similar letter to him.
The district court held that recusal was not appropriate
because ‘‘the Court’s only association with Mr. Parsons and
any opinion that it may have of him has been gained in open
Court.’’ The district court also noted that Parsons had refused
to appear at the hearing held on the motion as requested by the
district court and that ‘‘the matter was presented with no
evidence and no insistence upon the motion by anyone what-
soever, including Mr. Parsons’ attorney.’’ The district court
also indicated that it had been ‘‘hasty and overcautious in con-
struing the letter as a motion.’”’
[10,11] Bias sufficient to disqualify a judge must ‘‘stem from
personal, extrajudicial sources’’ unless ‘‘pervasive bias and pre-
judice is shown by otherwise judicial conduct.’’ United States
v. Gregory, 656 F.2d 1132, 1137 (Sth Cir. Unit B 1981). Parsons
has failed to present evidence sufficient to demonstrate bias in
this case.
D. Motion to Supplement the Record
Appellants have moved to supplement the record with 122
pages of material from the official court record in the state ac-
tion. Appellants assert that these documents are necessary for
aay | ewe
this Court to have an accurate knowledge of what transpired in
the state court proceeding.
{12,13} This Court has the discretionary power to supplement
the record on appeal, even to include evidence not reviewed by
the court below. Dickerson v. Alabama, 667 F.2d 1364, 1367
(llth Cir.), cert. denied, 459 U.S. 878, 103 S.Ct. 173, 74
L.Ed.2d 142 (1982). We find no need, however, to exercise that
discretion in this case. The thrust of the supplemental material
is that the state judge has considered the res judicata issue on
the merits and determined it adversely to Appellees. That fact is
already clear from the record before us. As discussed above, the
issue is not whether there had been a determination on the
merits in state court, but whether that determination was final
for preclusion purposes. Therefore, there is no need to supple-
ment the record on this point. Further, although Appellants
suggest that the district court may have referred to documents
nct in the record in reaching its decision, they have been unable
to point to any specific documents not already in the record that
were relied upon by the district court. The motion to supple-
ment record is denied.
E. Findings Regarding Basis of UCC Claim
In Parsons II, this Court held that the factual record was in-
sufficient to determine whether the trustee should be precluded
from asserting his UCC claim. 747 F.2d at 1380. The Court
found that if the trustee’s claim was based ‘‘on factual allega-
tions different from those underlying the fraud and BHCA
claims’’ then he should not be precluded by the former federal
judgment. /d. Therefore, the Court remanded for a determina-
tion whether the claim was based ‘‘on facts involving solely the
conditions of the sale itself’’ rather than on allegations that the
pre-sale activities of First Alabama and Orange had resulted in
the receipt of an unfairly low price. /d. at 1381. On remand,
the district court ordered the trustee to state his claim with
specificity and then determined that the UCC claim was based
on the pre-sale transactions also involved in the BHCA action.
—_— oo
[14] The trustee argues that the district court’s determination
that the trustee’s UCC claim arose out of the same transactions
as those forming the basis of the BHCA claim was clearly er-
roneous. We cannot agree. In response to the district court’s
order requiring that the UCC claim be stated with specificity the
trustee gave the following basis for the claim: (1) the sale was a
private sale two days after repossession; (2) only one potential
buyer was notified of the sale; (3) the buyer (Orange) had no ex-
perience in the steel business and no prior knowledge of the
value of the assets; (4) no one in the steel business and no
unsecured creditor was contacted as to the date and time of the
sale; (5) no notice was given to the attorney for Parsons-
Montgomery prior to the sale; (6) no notice was placed in any
trade or other publications; (7) no one except the seller, pur-
chaser and the purchaser’s attorney was present; (8) the sale
took place in Herbert’s office, rather than a public place; (9) the
price was determined in accordance with the amount of the
debt; (10) only one bid was offered and accepted; and (11) the
sale price was $907,252.85 while the collateral had a value in ex-
cess of $2,500,000. The district court did not err in finding that
all of these facts related to the pre-sale actions of Appellees.'°
For the reasons stated above, the judgments of the district
court are AFFIRMED.
‘© The trustee also asserts that the district court based its judgment
on collateral estoppel rather than res judicata and that, therefore, its
determination is clearly erroneous because the UCC issue was not
litigated in the federal action. It is clear, however, that the district
court determined that the UCC claim was barred under res judicata
principles.
— A-23 —
APPENDIX B
IN THE UNITED STATES DISTRICT COURF 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
History of the Case
This cause is submitted on remand by the Court of Appeals,
Parsons Steel v. First Alabama Bank, 747 F.2d 167, to this
Court in conformance with the Opinion of the Supreme Court,
Parsons Steel v. First Alabama Bank, 88 L.Ed.2d 877, directing
this Court on remand to determine and apply Alabama preclu-
sion law and, in the event that this Court should conclude that
the State Court judgment theretofore entered is not entitled to
preclusive effect under Alabama law and the Full Faith and
Credit Act, to decide the propriety of a federal court injunction
under the general principles of equity, comity and federalism
discussed in Mitchem vy. Foster, 407 U.S. 225, 243, 32 L.Ed.2d
705, 92 S.Ct. 2151.
In order to accomplish this, this Court must consider the
rather lengthy history of this case, as well as its related
predecessors in the State and federal courts in Alabama and in
the United States Court of Appeals for the Eleventh Circuit and
the Supreme Court. On January 17, 1979, the Parsons' filed a
suit in the Circuit Court of Montgomery County, Alabama.
Later in the same year, the Parsons filed another suit in this
— ht ~
Court against substantially the same Defendants.* The State
Court case lay dormant until late 1982, over a year after this
Court’s final judgment for the Bank, and in 1983 resulted in
verdicts and judgments for the Parsons totaling four million
dollars. This proceeding involves the effect of the judgments,
each to the other, in these two suits, which this Court has con-
cluded involved substantially the same issues and parties. This
remand is to consider the preclusive effect of the determination
by the State Court on motion for summary judgment and mo-
tion to dismiss that the final judgment of this Court entered on
June 17, 1981, was not a res judicata preclusion of the State
Court proceeding several years after this Court’s judgment in
June, 1981.
The State Court Judge recognized in a Bench note a few days
before trial that the issue of res judicata involved a question of
law to be decided by the Court after denial of the Bank’s mo-
tions to dismiss and for summary judgment based on the theory
of res judicata preclusion, but he did not thereafter mention the
res judicata issue. He issued judgment on the jury verdicts for
the Parsons totaling four million dollars and was appointed to
the State Court of Criminal Appeals before consideration of the
final res judicata issue on the Bank’s motions for judgment not-
withstanding the verdict. Various pretrial motions for dismissal
' The Defendants herein [hereinafter referred to as the Parsons] in-
clude Mr. and Mrs. Jim D. Parsons, a bankrupt family-owned steel
corporation in Montgomery, its Trustee in Bankruptcy and a Parsons’
family-owned steel corporation in Mobile. For purposes of this suit,
interests of these Defendants are the same.
? Defendants were the Plaintiffs herein, being the Bank, now the
First Alabama Bank of Montgomery, its Vice President Ed Herbert,
and others with whom we are not concerned in this case, all being
hereinafter referred to as the Bank. This Court entered judgment
therein for the Defendants [unpublished opinion, USDC M.D. Ala.
#79-249-N], affm’d. Parsons v. First Alabama Bank, 679 F.2d 242,
cert.den. 106 S.Ct. 768.
— A-25 —
and for summary judgment had been filed by the Bank on the
basis that the federal court had already decided the issues in the
State Court case (and those issues which should and could have
been presented in the federal court) between the parties and
their privies. Without opinion and without indicating why said
motions were denied, the State Court denied all of such motions
and proceeded to trial in the case. As noted above, the State
Court Judge’s Bench note of January 27, 1983, cited in
Trustee’s brief of April 23, 1986, in this Court, shows that the
State Judge, in denying a motion in limine, indicated his
**general impression that the issue of res judicata is an issue
properly to be decided by the Court rather than an issue to be
presented to and decided by the jury.’’ This indicated both that
the issue was to be treated as one of law and that it was ‘‘*** to
be decided ***’’, not that it had been decided. This entry was
made a few days before trial began.
Thereafter, the Court denied all directed verdict motions
properly made without discussing res judicata issues and entered
judgment on the verdict on February 9, 1983. Apparently, he
felt the issue could best be reserved for post-trial motion.’ The
Bank timely filed its motion for judgment notwithstanding the
verdict and for new trial, including a claim of the preclusive ef-
fect of the prior federal judgment. Those motions were still
pending in State Court, as they now are, when subject injunc-
tion was entered in this Court.
Encouraged by the fact that the State Court never gave any
reason for denying the various motions based on the res judicata
preclusive effect of the federal judgment, the fact that the State
Judge entered in a bench note dated a few days before the trial
that the res judicata issue was a question of law to be decided
* Rule 50, Alabama Rules of Civil Procedure, approves the practice
of taking a verdict in questionable cases, but reserving mature and
final consideration of questionable legal matters to be determined on
motion for new trial or for judgment notwithstanding the verdict.
— A-26 —
later by the Court and by the fact that the res judicata issue was
never mentioned in the final judgment in the case, the Bank’s
attorney filed a motion for judgment notwithstanding the ver-
dict and, in the alternative, for new trial in the State Court.
These motions are pending today. Discouraged, however, by
the fact that the State Court Judge did not enter any order or
judgment based on the theory of res judicata in which he ex-
pressed any reasons for his order and by the fact that the State
Court Judge entered a judgment on the verdict and ascended to
the State Court of Appeals without mentioning the issue, the
Bank’s attorneys filed the instant proceeding, First Alabama
Bank, et al v. Parsons Steel, et al, in which they sought, pur-
suant to the relitigation exception to the Anti-Injunction Act [28
U.S.D. § 2283] to restrain implementation and enforcement of
the State Court’s judgment, totaling four million dollars and ef-
fectively nullifying a judgment notwithstanding the verdict for
the Bank in this Court which had then been affirmed by the
United States Court of Appeals and upon which certiorari was
later denied by the Supreme Court of the United States. Perhaps
he returned to this Court in order to avoid the necessity of ac-
quainting yet another court with the pleadings and evidence in
both cases.
This Court, being of the opinion that this Court decided
substantially the same issues between substantially the same par-
ties, at least a year before the four million dollar judgment in
the Circuit Court of Montgomery County, Alabama [herein-
after sometimes referred to as the State Court or State Trial
Court] and being of the opinion that it had a duty to protect the
parties from relitigation of issues litigated in this Court, entered
an injunction on March 29. 1985, against the Parsons’ and their
privies’ attempting to implement or enforce the judgment of the
State Court [First Alabama Bank, et al v. Parsons Steel, et al,
unpublished Opinion #83-V-181-N].
The Parsons, being encouraged by their State Court verdict
for four million dollars, appealed this Court’s injunction of
March 29, 1985, to the United States Court of Appeals for the
so
Eleventh Circuit, which by its Order in Parsons Steel v. First
Alabama Bank, 747 F.2d 1367, affirmed in part but remanded
the case to this Court to determine whether or not the claim of
the Trustee in Bankruptcy of the Montgomery Parsons Cor-
poration involved anything that happened during or after the
sale which might be considered on the Parsons’ claims for viola-
tion of the Uniform Commercial Code [UCC]. By Order of
March 29, 1985, and being uninformed that the Parsons had
petitioned for certiorari, this Court entered its opinion that all
of the complaints of the Trustee in Bankruptcy involved matters
planned before the date of the sale and were matters that were
already complained of or could and should have been complain-
ed of in the original Parsons Steel case.
On certiorari, the Supreme Court was of the opinion that,
under the law of Alabama, the decision of the State Court on
res judicata issue may have effected a res judicata (full faith and
credit) preclusion of further litigation thereon and that, if so,
this Court would have been barred from entering any injunction
against enforcement of the State Court judgment. The Supreme
Court, therefore, remanded the case for this Court to determine
that question and, if that question were determined adversely to
the State Court’s judgment’s being conclusive of the issue, this
Court was to determine whether under the principles of comity,
federalism and equity this Court should properly have enjoined
the enforcement of the State Court judgment. First Alabama
Bank v. Parsons Steel, cert. granted 105 S.Ct. 3497, 87 L.Ed.2d
629, rev’d. & remanded 88 L.Ed.2d 877. See Order of Remand
to this Court 785 F.2d 929.
Recusal - Certification
After this remand, this Court received a letter from Mr.
James Parsons which indicated to this Court that Mr. Parsons
felt that this Court was biased against him and that this Court
should not hear any further aspects of the case. Thereupon, this
Court sent a copy of the letter to all of the attorneys involved
and had it filed construing it as a motion to recuse and asked
—
contributions from all attorneys on the subject. Additionally,
this Court, not being sure of the intent of Mr. Parsons in the
matter, asked that Mr. Parsons be in attendance at the hearing
to be sure that the Court understood his position about the mat-
ter and about who was to represent him, he having brought suit
against the lawyers who represented him in obtaining the multi-
million dollar verdict and theretofore in this Court. Mr. Par-
sons notified his attorney that he would refuse to be in Court at
the time and place in question, stating that he had a reluctance
to appear in a Court presided over by this writer and the matter
was presented with no evidence and no insistence upon the mo-
tion by anyone whatsoever, including Mr. Parsons’ attorney.
This Court’s only association with Mr. Parsons and any opinion
that it may have of him has been gained in open Court presided
over by this writer, and this Court, being in the positica of every
judge who sits on any case wherein any person appears as a
witness or otherwise, has formed some opinions of Mr. Par-
sons. Those opinions and the fact that this Court has ruled
against that person in the past do not place this Court in a posi-
tion of recusing himself from further proceedings in the same
case. If they do, it is doubtful that any judge could ever com-
plete a complicated case as each individual being in contact with
another must necessarily form some opinion of that other per-
son. Federal law indicated that bias is an attitude of extra-
judicial origin. Barkin v. United States, 362 F.2d 158, cert.den.
385 U.S. 882; Ferrari v. United States, 169 F.2d 353. The
federal courts have apparently consistently held that bias is not
sufficient to be a cause of recusal if it arises out of judicial ex-
perience rather than from personal experience with the party.
Knapp v. Kinsey, 232 F.2d 458, reh.den. 235 F.2d 129,
cert.den. 352 U.S. 892. A judge should not disqualify himself
because of a litigant’s threat to sue the judge or because of a
litigant’s surly remarks. Jn re Martin-Trigona, 573 F.Supp.
1237 (Conn. 1983). To require recusal, the alleged bias of the
judge must be both personal (directed against a party) and
extra-judicial. United States v. Kelley, 712 F.2d 884 (1982).
Although Mr. Parsons had secured a recusal by a State Court
Weenie isan
— A-29 —
Judge by writing a similar letter to him, in consideration of the
facts and the law hereinabove set out, this Court was of the opi-
nion that the attorney for Mr. Parsons and, perhaps, even Mr.
Parsons himself had little interest in having this Court recuse
himself. Irrespective of interest, this Court is of the opinion
that a judge should not recuse himself because of an opinion of
a party in a lawsuit formed during the litigation. This writer has
had no contact with Mr. Parsons other than in the litigation in-
volved in these matters. It is the opinion of this Court that this
Court was hasty and overcautious in construing the letter as a
motion and that it should not recuse itself. It is, therefore, the
opinion of this Court that the motion for recusal should be
denied.
In further reference to the motion to recuse, this Court sug-
gested to the attorneys at the hearing and before the hearing
that perhaps this Court should certify the legal questions on
Alabama law to the Supreme Court of Alabama for its con-
sideration thereof. The initial reaction of all of the attorneys,
including Mr. Parsons’ private attorney, was that this litigation
had already reached extreme proportions, that to submit the
matter to a new Court unfamiliar with either of the earlier pro-.
ceedings would not be a wise solution to anything and would
only probably prolong litigation. This Court was of the opinion
that all attorneys were agreed that this Court should decide the
matter. Thereafter, the Hon. Jerry Wood, attorney for the
Trustee in Bankruptcy, had some second thoughts about the
matter, but the majority of the attorneys present consistently
appeared to feel that the matter should not be referred to any
other Court. This Court is of the opinion that, as the matter has
been exhaustively presented already to all of the federal courts
and no State Judge is available who has knowledge of the case,
the parties will best proceed in this Court and that any possibie
error of this Court may be more easily corrected than if the par-
ties re-present all of the litigation to a new series of courts.
— A-30 —
Res Judicata - Full Faith and Credit
This Court’s first inquiry is not limited to the question under
Alabama law and the Fuil Faith and Credit Act of the preclusive
effect of the Alabama State Court’s denial of the Bank’s motion
for summary judgment.‘ Thereafter, if this Court determines
that Alabama law limits res judicata effect to final judgments,
then this Court must determine whether doctrines of equity,
comity and federalism require this court to yield its previously
exercised jurisdiction to a State Court’s obliteration of a federal
judgment after its successful progress throughout federal
review. This Court, in granting the injunction in this case, has
fully compared the issues and evidence in the State and federal
trial courts and will not again belabor that question, nor shall
this Court again belabor the determination that the pleadings
and factual issues were so vague in both trial courts that it was
not clear until after final argument in the State Court that essen-
tially the same cause of action was involved in both cases and
that the prior federal judgment was in serious danger of being
nullified. Indeed, this Court found it necessary to require
Trustee’s attorney to specifically state his State Court claims so
as to satisfy the Court of Appeals that the same issues were
available in both cases.
There can be no doubt that federalism, comity and the Full
Faith and Credit Act provide that a federal court must give the
same preclusive effect to a State Court judgment as another
court of that State would give. Parsons Steel v. First Alabama
Bank, 88 L.Ed.2d 877. As the Supreme Court in this case
pointed out, ‘“‘Once the state court has finally rejected a claim
of res judicata, then the Full Faith and Credit Act becomes ap-
plicable,’’ and the federal court is helpless to intercede even [in
the words of 28 U.S.C. § 2282] ‘‘*** where necessary to protect
* That question is tempered by the Alabama judgment on the verdict
without a final res judicata ruling when the State Judge recognized the
issue as one of law.
cme A
a
— A-31 —
or effectuate its judgment.’’ This Court construes the Parsons
Supreme Court to hold that, even though a federal court has
entered a prior final judgment, even if difficulty arises in prov-
ing that a State Court’s concurrent jurisdiction involves the
same cause of action between the same parties until after all
evidence is presented in State Court, the federal court has no
right to enter an injunction to protect or effectuate its prior
judgment if the applicable State law recognizes the State judg-
ment as a res judicata preclusion. The Supreme Court makes
plain that, in spite of the wording and apparent congressional
intent of the Anti-Injunction Act, challenges to the correctness
of a State Court’s determination as to the conclusive effect of a
prior federal judgment (if conclusive under the law of the sub-
ject State) must be pursued by way of appeal through the State
Court system and certiorari from the Supreme Court. If, on the
other hand, that State Court’s judgment is not conclusive, then
the provisions of the Anti-Injunction Act’s relitigation excep-
tion is still limited by the Younger doctrine (equity, federalism
and comity) expressed in Michem v. Foster, supra. So limited to
these confines but concerned about the resultifig disregard for
federal court authority, this Court must approach this case
through the narrow remains of the relitigation exception.
It is difficult to understand how this court could more clearly
be called upon to proteci or effectuate its judgment than to have
a State Court effectively hold its prior Defendants’ judgment
for naught and grant a four million dollar Plaintiffs’ judgment
for the same circumstances. The State Court, giving no reason
and articulating no set of circumstances, denied all motions bas-
ed on the ground that this Court’s prior judgment precluded
further State Court litigation of the same circumstances between
the same parties and their privies. It considered this defense,
however, only on motion to dismiss and motion for summary
judgment. It never considered the res judicata defense on the
merits of the case after hearing the evidence. The res judicata
defense, involving a question of law, was properly not submit-
ted to the jury and properly remains to be decided on the Bank’s
— A-32 —
motion for judgment notwithstanding the verdict or for a new
trial. The record does not show that the State Court has ever
ruled on the res judicata issue based upon a comparison of the
pleadings, the evidence and the issues in both cases. Its rulings
on the preliminary motions were not final judgments. This
Court is the first court to rule on the res judicata issue based
upon the merits and in a final judgment. Elements of a res
judicata defense are set out by the Supreme Court of Alabama
in Braggs v. Jim Skinner Ford, 432 So.2d 466, 468 (Ala. 1983),
as follows: ‘‘(1) prior judgment rendered by court of competent
jurisdiction; (2) prior judgment rendered on the merits; (3) par-
ties to both suits substantially identical; and (4) same cause of
action present in both suits.”’
In Lane v. Central Bank of Alabama, 756 F.2d 814 (11th Cir.
1985), the Court of Appeals, construing Alabama law, conclud-
ed that, since State Courts have concurrent jurisdiction with
federal courts to hear claims arising under the Bank Holding
Company Act, plaintiff’s claim under the Bank Holding Com-
pany Act in a subsequent federal proceeding was barred by the
doctrine of res judicata because plaintiff failed to assert it in his
prior State Court action involving the same facts relied upon by
plaintiff in the federal court.
This Court has found no Alabama law directly in point, and
has been cited none, as to the preclusive effect of a denial of a
res judicata defense by denial of motions to dismiss or for sum-
mary judgment after the case has progressed to judgment on a
verdict and motions for judgment notwithstanding the verdict
and for new trial. It is clear, however, that pendency of a case
in One court with concurrent jurisdiction does not effect a res
judicata bar to an identical suit in another court with jurisdic-
tion. Logan v. O’Barr, 122 So.2d 376, 271 Ala. 94. It has long
been held that interlocutory decrees generally are not final and,
therefore, cannot be pleaded as res judicata in bar to another
action. McLane v. Spence, 11 Ala. 172.
ae. eller rl eer
— A-33 —
In Sterling Oil of Oklahoma, Inc. v. Pack, 287 So. 847, at
861, the Supreme Court of Alabama, being of the opinion that
in the particular circumstances a federal summary judgment was
appealable, stated the following: ‘‘We believe the appealable
nature of such order—given the other prerequisites—is the con-
trolling factor; and we, therefore, hold that the principle of
comity requires that we give res judicata effect to the judgment
of the federal court, applying Alabama substantive law, ***’’
[emphasis added]. In short, it appears that the Alabama
Supreme Court holds that, where judgment in the first pro-
ceeding is not appealable, that judgment is not entitled to full
faith and credit in another State Court.
Alabama law of res judicata preclusion of an appeal f-om,a
prior judgment of a second judgment finalized by nonappeal
pending appeal is expressed in an earlier case, Watson v. Mobile
& Ohio Railway Co., 173 So. 43, 233 Ala. 690.° There plaintiff
took appeal from an adverse State Court final judgment and,
pending appeal, pursued the same matter to a final federal court
judgment, again for the defendant. Thereafter, without appeal-
ing from the federal judgment, the plaintiff sought to pursue
the appeal in the State Court to which the defendant, appellee,
contended that the federal court action, not being timely ap-
pealed, was an estoppel by res judicata of the appeal in the State
* Dicta in Watson v. Mobile & Ohio Railway Co., 17 So. 43, 45
(Ala. 1937), shows the attitude of the Supreme Court of Alabama as
to the finality of the State Court judgment on the verdict in light of the
pending motion for judgment notwithstanding the verdict. That
Court pointed out that, assuming federal court jurisdiction, ‘“The
judgment could not be attacked collaterally. Proof dehors the record
to show the invalidity of the judgment is not permitted on collateral
attack. 15 R.C.H. § 373, p. 892."’ That Court pointed out that,
assuming a final federal judgment, the losing party in that judgment
***** could only redress *** by direct application to the court which
rendered the judgment, or by bill in equity;’’ [at 45] and ‘‘that a judg-
ment rendered by a federal court in this State is *** a’’ domestic judg-
ment and should be accorded the same verity as one rendered by the
courts of general jurisdiction of this State.’’
—
Court. Interestingly, in that case, no res judicata issue was rais-
ed by the defendant in the federal court action though final
judgment on the matter had theretofore been entered in the
State Court action and an appeal lodged therefrom. The
Alabama State Supreme Court determined that the judgment of
the federal court, not having been appealed timely, could not be
attacked collaterally and that the judgment rendered by the
federal court in the State of Alabama must be regarded as a
‘domestic judgment’’ and sliould be accorded the same verity
as one rendered by the courts of general jurisdiction of this
State. BLACK ON JUDGMENTS, § 285; Pierce v. Winter Iron
Works, 32 Ala. 68; Riverdale Cotton Mills v. Alabama &
Georgia Manufacturing Co., 198 U.S. 188, 25 S.Ct. 629, 49
L.Ed. 1008; 15 Ruling Case Law 364. p. 886. The Supreme
Court of Alabama thereupon dismissed the appeal of the State
Court case, leaving judgments for the defendant in both State
and federal courts.
Here, the first final judgment was in federal court. The first
judgment was pleaded as a basis for res judicata in the State
Court at every opportunity. Applicability of res judicata was
preliminarily denied by the State Court which, except for the res
judicata issue, proceeded to judgment on the merits. From this
State Court judgment, Defendants filed a motion for rehearing
or for judgment notwithstanding the verdict which is still pend-
ing in the State Court.
‘It has long been the law where a prior judgment goes both to
defects of form and also to the merits, a judgment which does
not designate as between the two will be presumed to rest on the
former. But if the judgment on demurrer is on the merits, it
becomes ‘‘res judicata,’’ Bissell v. Spring Valley, 124 U.S. 225,
232, 8 S.Ct. 495, 31 L.Ed. 411. Herein, the State Court’s rul-
ings on res judicata would be presumed to rest upon form rather
than on the merits.
The State Court decided, not that the prior federal judgment
did not preclude on res judicata principles a State Court’s deter-
Nua 1 et nia
NG I IE in RRR Od Cate
— A-35 —
mination of the issues, but that (on motions to dismiss and for
summary judgment) the pleadings and evidence then before the
court were inconclusive. The Court found, neither that the Par-
sons were entitled to recover, nor that there was no material
issue of fact, but simply that the Bank was not entitled to
dismissal or summary judgment as a matter of law at that stage
of the proceedings. There was no further ruling on the question
of res judicata preclusion. The res judicata question, being a
question of law, was preserved for the ruling on motion for judg-
ment notwithstanding the verdict.
If in Watson the unappealed federal judgment, obtained peti
ding the appeal of the prior State Court judgment, effected a res
judicata bar to the appeal of the State Court’s judgment, it
would appear that the instant federal court judgment, processed
throughout the federal courts and terminated before the mo-
tions were determined in the State Court, would bar further
proceedings in the State Court under Alabama law.
But that is not the question here. The question here is
whether the State Court’s rulings on res judicata are entitled to
full faith and credit.
There is no final judgment in the State action and, thus, no
judgment with preclusive effect. Only final judgments have
preclusive effect in Alabama, and Alabama law is also clear that
finality for preclusion is measured by the same standard as
finality for appeal. In Sterling Oil of Oklahoma v. Pack, 291
Ala. 727, 744, 287 So.2d 847 (1974), the Court held:
‘*The legal test, of course, is the finality ve/ non of such
judgment ***.
— We believe the appealable nature of such
order—given the other prerequisites—is the controlling
factor °**.”"
Sterling Oil was recently cited with approval for the Alabama
rule that, ‘‘[w]Jhere there has been no prior final judgment, the
— A-36 —
doctrine of res judicata cannot apply.’’ Chandler v. Commer-
cial Union Ins. Co., 467 So.2d 244, 251 (Ala. 1985).°
CODE OF ALABAMA [1975], § 12-22-2, specifically pro-
vides that appeals as of right lie only from final judgments:
‘*From any final judgment of the circuit court *** an ap-
peal lies to the appropriate appellate court as a matter of
right by either party *** within the time and in the manner
prescribed by the Alabama Rules of Appellate
Procedure.”’
Indeed, under Alabama practice, the appellate court must
dismiss appeals from nonfinal judgments, ex mero motu. Foster
v. Greer & Sons, 446 So.2d 605, 609 (Ala. 1984); Martin v. Hin-
son, 364 So.2d 674 (Ala. 1978); Powell v. Rep. Nat’l. Life Ins.
Co., 293 Ala. 101, 102, 300 So.2d 359 (1974).
Plainly, the State Court orders denying summary judgment
are neither final nor preclusive. Such orders are merely in-
terlocutory and are not entitled to preclusive effect. Moreover,
the February 9, 1983, judgment on the jury verdict lost its finali-
ty by virtue of the timely filed and pending post-trial motions
under Rules 50 and 59, Alabama Rules of Civil Procedure. An
appeal filed during the pendency of these motions would have
been premature and would have been dismissed. Rule 4(a)(3),
Alabama Rules of Appellate Procedure; Rule 59.1, Alabama
Rules of Civil Procedure, see, e.g., Super Value Stores v. Peter-
son, No. 85-484 & -523 (Ala. S.Ct. March 6, 1986). Federal
authorities accord. Leishman v. Asso. Wholesale Elec. Co., 318
U.S. 203, 87 L.Ed. 714 (1943); Williams v. Bolger, 633 F.2d 419
(Sth Cir. 1980); Turner v. HMH Publishing Co., 328 F.2d 136
* Accord, Food Service Distributors v. Barber, 429 So.2d 1025,
1027 (Ala. 1983); Quinnelly v. City of Pritchard, 292 Ala. 178, 182,
192 So.2d 295, 298 (1974); Ashurst v. Preferred Life Assur. Soc. of
Montgomery, 282 Ala. 119, 126, 209 So.2d 403, 408 (1968).
eT
ao et =
(Sth Cir. 1964); Healy v. Pennsylvania R. Co., 181 F.2d 934
(3rd Cir. 1950).’
“Accordingly, there are no Alabama judgments in this case
which are final and, thus, none which are entitled to preclusive
effect under Alabama law. The summary judgment orders are
interlocutory. The timely filed post-trial motions rendered the
judgment on the jury verdict nonappealable and, thus, non-
preclusive. The Alabama Supreme Court in Food Services
Distributors v. Barber, 429 So.2d 1025, at 1027, held that there
is no res judicata effect where the procedural status of the case is
such that the trial court may reconsider its ruling on a motion
for summary judgment and may correct an erroneous ruling at
any time before final judgment. This is apparently the reason
that the Alabama courts agree that a denial of a motion for
summary judgment is generally not a res judicata bar to trial of
the same issues in another case.
At the time this Court issued its injunction (and at present),
the post-trial motions were pending before the State Court.
Under Alabama law, no appeal could properly be taken while
these post-trial motions are pending and unresolved. Since the
State Court judgment was not appealable at the time this
Court’s injunction was issued, that injunction was unfettered by
any Alabama judgment entitled to preclusive effect as a final
judgment under Alabama law. The reason for this rule is clear.
Until judgments are final, they are subject to revision by the
trial court at any time.
Appellate courts, including those of this circuit,’ have
repeatedly held that it is ‘‘usually desirable’’ for trial courts to
” Alabama has held that federal decisions guide construction of
Alabama rules. Ross v. Luton, 456 So.2d 249, 257 (Ala. 1984); Scott
v. Lane, 414 So.2d 939, 941 (Ala. 1982); Powell v. Republic Nat’l.
Life Ins. Co., 293 Ala. 101, 103, 300 So.2d 359 (1974).
* See, e.g., Green v. Reynolds, 328 F.2d 372 (Sth Cir. 1964).
— A-38 —
take a verdict, and then pass on the sufficiency of the evidence
and other dispositive legal matters on a post-verdict motion. 9
Wright & Miller, FEDERAL PRACTICE & PROCEDURE,
§ 2533. Alabama practice, as shown in the committee com-
ments to Rule 50, Alabama Rules of Civil Procedure, accords:
‘‘The motion for judgment notwithstanding the verdict
tests the sufficiency of the evidence in just the same way as
does the motion for directed verdict at the close of all the
evidence. Jn a doubtful case the court may prefer to deny
the motion for a directed verdict, and consider the attack
on the sufficiency of the evidence subsequently on motion
for judgment n.o.v. This course gives the court more time
to consider the matter, the verdict of the jury, if in accord
with the judge’s own ideas as to the sufficiency of the
evidence, may settle the matter, and after verdict the court
may grant a new trial on the ground that the verdict is con-
trary to the great weight of the evidence, instead of direc-
ting judgment.”’ [emphasis added]
Indeed, at the time this Court’s injunction was entered, a State
Court trial judge had before him the Bank’s res judicata defense
for decision without any presumption afforded the prior in-
terlocutory orders on that question.
In accord is a recent Eleventh Circuit case applying Georgia
law, Cable Holdings of Battlefield v. Cooke, 764 F.2d 1466,
1473 (11th Cir. 1985). There, the district court, which gave full
faith and credit to a Georgia State Court judgment, was revers-
ed:
‘‘Under the Full Faith and Credit Act, a federal court is re-
quired to give res judicata effect to state court judgments
only to the extent that the courts of the state in which the
judgment was entered would so so ***.
‘‘*** [R]es judicata effect will be given only to final
judgments ***. Furthermore, ‘[dJicta in a recent Georgia
Supreme Court case, Cul/well v. Lomas & Nettleton Co.,
Re ate wi
— A-39 —
242 Ga. 242, 248 S.E.2d 641 (1978), indicates that finality
for res judicata purposes is measured by the same standard
as finality for appealability purposes.’ ***.’’ [citations
omitted; emphasis added]
Similarly, since the only State Court judgment pending at the
time of this Court’s injunction on June 15, 1983, was nonfinal
and would not support an appeal—because of the pendency of
the unresolved post-trial matters—the State Court judgment
was not final and was not entitled to preclusive effect. Accord-
ingly, the State Court’s judgment was not entitled to full faith
and credit.
The Supreme Court of Alabama in Food Service Distributors
v. Barber, supra, 429 So.2d at 1027 (Ala. 1983), clarified the
position of the Supreme Court of Alabama that a pretrial denial
of motion for summary judgment based upon res judicata
would not effect a res judicata preclusion of that issue and fur-
ther expressed the law of Alabama that, where the Court may
reconsider its ruling and correct an erroneous ruling, its prior
ruling is not a res judicata preclusion of the issue:
*‘Appellant Food Service contends that the denial of
Barber’s motion for summary judgment in the first in-
stance should have been the law of the case or res judicata
as to any subsequently filed motion for summary judg-
ment. We do not agree.
‘*There can be rw res judicata effect on the denial of sum-
mary judgment since, for res judicata to apply, there must
have been a final judgment rendered on the merits of the
case. Reliance Ins. Co. v. Substation Products Corp.,
404 So.2d 598 (Ala. 1981); Wheeler v. First Alabama Bank
of Birmingham, 364 So.2d 1190 (Ala. 1978). Denial of a
motion for summary judgment is not a final judgment.
‘*We recognize that, in some jurisdictions, denial of a mo-
tion for summary judgment becomes the law of the case,
and bars rehearing of a subsequent motion for summary
sin a coe
judgment unless new grounds are asserted or new proof of-
fered. See, e.g., Federal Deposit Ins. Corp. v. Park Lane
Realty Associates, 72A.D.2d 788, 421 N.Y.S.2d 611
(1979); Fraser v. Doing, 130 F.2d 617 (D.C. Cir. 1942). We
are of the opinion, however, that Illinois provides the bet-
ter rule; a court may reconsider its ruling on a motion for
summary judgment and may correct an erroneous ruling at
any time before final judgment. Roach v. Village of Win-
netka, 366 Ill. 578, 10 N.E.2d 356 (1937).’’ Food Service
Distributors, supra, at 1027.
The recently developing insurance law of the State of
Alabama arising from application of the Alabama law of res
judicata as its appiies to the necessity for trying actions on in-
surance policies and actions for ‘‘bad faith’’ failure to pay or to
investigate an insurance claim in one cause of action is in ac-
cord. The Alabama courts have held that the bad faith claim is
generally a compulsory claim to be brought in the original suit
by the plaintiff seeking to collect on an insurance policy and
that the failure to do so is a res judicata bar to a subsequent
claim for bad faith. Safeco Ins. Co. of America v. Sims, 435
So.2d 1219 (Ala. 1983); Federated Guaranty Life Ins. Co. v.
Wilkins, 435 So.2d 10 (Ala. 1983);° but in Chavers v. National
Security Fire & Cas. Co., 456 So.2d 293 (Ala. 1984), that Court
clarified its prior rulings by holding that a bad faith claim
brought subsequent to the conclusion of an action on the policy
was not subject to summary judgment based on res judicata,
° In Federated Guaranty Life Ins. Co. v. Wilkins, a suit for a
declaratory judgment of nonliability on an insurance policy, a
counterclaim by an insured for bad faith refusal to pay was stricken by
the trial court on a preliminary motion by the insurer. The plaintiff
later brought a separate suit for bad faith ‘‘identical in language’’ to
the counterclaim which had been dismissed by the trial court in the
declaratory judgment proceeding. The Supreme Court pointed out
that the declaratory judgment action was not tried to a conclusion
and, there being no prior final judgment, the doctrine of res judicata
cannot apply to preclude relitigation thereof.
—
where it was not clear that the plaintiff knew or should have
known of the insurance company’s alleged bad faith soon
enough to join the bad faith issue in the suit on the policy. The
cases are consistent with this Court’s application of the
Alabama law of res judicata preclusion in this case.
Alabama law seems to generally conform to that expressed in
several federal decisions.
The decision of a motion for summary application is not to be
regarded in the light of res judicata, or as so far conclusive upon
the parties as to prevent their drawing the same matter and ques-
tion again in the more regular form of an action, Denny v. Ben-
nett, 128 U.S. 489, 9 S.Ct. 134, 32 L.Ed. 491.
In Bienville W.S. Co. v. Mobile, 186 U.S. 217, 22 S.Ct. 820,
46 L.Ed. 1132, it was held that, unless the former record is
presented at the hearing of the second case, effect will not be
given to it as res judicata, but the court may take judicial notice
of its own records and examine and consider the former record
where the case was as to plaintiff’s splitting its cause of action.
Apparently, the record of the federal court in this case was not
presented to the State Court for its consideration of res judicata
contentions by it.
Preliminary decisions of the trial court denying motions to
dismiss or for summary judgment are not fina! judgments.
Where the trial court has not finally adjudicated the res judicata
issue and a jury has determined the other defenses in their ver-
dict, the remaining legal question (res judicata) should be called
to the trial court’s attention by a motion for judgment not-
withstanding the verdict. That motion is still pending in the
Parsons’ State Court proceeding.
This Court finds (1) that, pursuant to the law of Alabama, a
State Court’s denial of a motion to dismiss and a motion for
summary judgment for a defendant based on an alleged res
judicata bar would not result in a preclusion of another court’s
consideration of the res judicata defense; (2) that the State
a
Court here in question litigated (but not to the extent of final or
appealable judgment) substantially the same issues (though
pleaded differently) between the same parties (or their privies)
as were therefore litigated in this Court to the extent of final
judgment; (3) that the State Court has not finally rejected the
claim of res judicata; and (4) that the State Court judgment has
no preclusive effect under Alabama law.
This accommodates, in this Court’s opinion, the Supreme
Court’s construction of the Anti-Injunction Act vis-a-vis the
Full Faith and Credit Act by ‘‘*** limiting the relitigation ex-
ception of the Anti-Injunction Act to those situations in which
the State Court has not yet ruled on the merits of the res
judicata issue’’ Parsons, supra, 88 L.Ed.2d at 883-4.
Atiantic Coast Line and Mitchem Decisions
The Supreme Court has ordered this Court, if it finds that the
State Court judgn :nt has no preclusive effect, to determine
whether an injunction of the State Court proceeding would be
barred by the doctrines of equity, comity and federalism. The
Trustee argues that certain language in the Supreme Court Opi-
nion in this case effectively leaves this Court no choice but to
decide that principles mentioned in ACL v. Locomotive
Engineers, 398 U.S. 281, 9 S.Ct. 1739, 26 L.Ed.2d 234 (1970),
and Mitchem v. Foster, 467 U.S. 225, 243, 32 L.Ed.2d 105, 92
S.Ct. 2151 (1972), proscribe this Court’s enjoining further pro-
secution of the State Court case. This Court is of the opinion
that, had the Supreme Court been so inclined, the Opinion
would clearly have so directed. This Court understands the
mandate of the Supreme Court to direct this Court to decide the
issue in the light of cited cases.
In ACL, the Supreme Court allowed plaintiff (after being
denied an injunction against the Union’s picketing pursuant to
federal law—the Norris-LaGuardia and Clayton Acts—in
federal court) to later seek an injunction pursuant to State law
in State Court where the State issues were not pleaded or proved
—.
in the federal court. In ACL, when a federal court held that
ACL (the plaintiff) had no right to an injunction against defen-
dants’ picketing, ACL immediately filed in State Court and the
injunction was granted. Res judicata was not then pleaded. No
motion for judgment notwithstanding the verdict and no appeal
was taken from the State Court judgment.
Two years later the Supreme Court in Brotherhood of
Railroad Trainmen v. Jacksonville Terminal Co., 394 U.S. 369,
concluded that unions had a federally-protected right to picket
which could not be interfered with by State Court injunctions.
Based on that case, defendants (union) filed a motion to
dissolve the State Court injunction (which had become final
with no review two years before). The State Judge refused to
dissolve the injunction, holding Jacksonville Terminal inap-
plicable (apparently because the State case, not having been
timely appealed, had become final and binding on the parties).
The union did not appeal but returned to federal court seeking
to enjoin enforcement of the State Court injunction. There
were then two final State Court judgments for ACL (granting
and allowing injunction), neither of which had been appealed,
and one prior federal court judgment for the defendant denying
an injunction on the narrow issues involved in the Norris-
| LaGuardia Act. The union sought the federal injunction to en-
: join enforcement of the State Court injunction on alternative
theories: (1) to protect or effectuate the federal court’s prior
judgment denying the injunction, or (2) as necessary in aid of
the federal court’s jurisdiction. The federal district court en- ~
joined the implementation of the State Court injunction. This
was affirmed by the Court of Appeals bui reversed by the
Supreme Court. A part of the Supreme Court’s Opinion
stresses the fact that the original judgment of the federal court
was narrowly based on federal rights under the Norris-
LaGuardia Act and that at no point during the entire argument
did either side refer to State law, the effects of that law on
picketing or the possible preclusion of State remedies as a result
of overriding federal law. The majority of the Supreme Court
FE
—_S ee
concluded that the district court’s original judgment simply
determined that ACL could not enjoin the picketing because of
the fact that the Norris-LaGuardia Act, 29 U.S.C. §§ 101, et
seq., prohibited federal courts’ entering injunctions in labor
disputes. Since that Court did not decide whether State Courts
could enter such injunctions on other grounds, the federal
court’s judgment and jurisdiction were not under attack in the
State Court. The original federal judgment simply decided that
the federal court had no jurisdiction to give injunctive relief in
picketing cases. There was no final judgment on the merits of
whether some other court might do so. The Supreme Court also
placed emphasis in ACL upon the fact that the appellant union
tried to get the federal district court to decide that the State
Court Judge was wrong in distinguishing the Jacksonville Ter-
minal decision and pointed out that such an appellate review of
a State decision should properly be made by a State Appellate
Court.
ACL v. Locomotive Engineers, supra, varies from this case in
that the federal court’s judgment precluded relief on federal law
only while this Court considered facts necessary to prove all
claims. In ACL, the plaintiff’s lawyer in open court stated he
relied only on the Norris-LaGuardia Act. Here, the Parsons’
lawyer pleaded and proved in the federal trial all facts involved
in the State case. The majority of the Supreme Court was of the
opinion [in ACL] that the federal district court’s earlier judg-
ment (upon which the district judge based his injunction of en-
forcement of a subsequent State Court judgment to effectuate
his judgment) inv ved only the narrow determination that the
Norris-] aGuardia Act did not provide the basis for enjoining
picketing in a labor dispute (at 289) and not whether picketing
might be enjoined pursuant to some other law. The later State
Court Judge (and later the Supreme Court) concluded that cer-
tain State remedies (admittedly not involved in the federal pro-
ceeding) were not issues in the earlier federal case. Little, if any,
consideration was given to the question of whether those issues
could and should have been considered by the federal court.
tie enti sate.
a
a fh a
Perhaps that issue was not litigated in that case. It is an impor-
tant issue in Parsons. Additionally, those defendants, having
initially prevailed in the federal court, proceeded to final judg-
ment in the State Court before seeking a federal injunction;
whereas, instant State Court Defendants [the Bank] raised the
res judicata issue as soon as possible in the State proceedings
and sought federal intervention only when interference with the
federal judgment appeared to be a realistic probability.
The current case varies from ACL in at least four important
features: (1) While in ACL no attempt was made to involve
State law or remedies (and apparently no showing that it could
have been), the Parsons involved every aspect of the later State
case into the earlier federal trial. So vague were the Parsons’
claims in each case that his Court was unable to be certain of
identity of common issues until it required the Trustee to
specifically itemize his State Court contentions after the trial of
both cases and compared these contentions specifically with the
Parsons’ evidence in the federal trial. [Opinion, March 29,
1985, USDC MD ALA. No. 83V-181-N]. (2) In ACL, the State
Trial Court entered two final judgments on somewhat different
issues against defendant union, neither of which was appealed.
Both appear to be final binding State judgments against the
defendant, initially reviewable in the State Appellate Courts.
But there was no final federal judgment on the merits of an in-
junction—simply a decision that no injunction was available in
federal court pursuant to the Norris-LaGuardia Act. In Par-
| sons, there was a federal judgment on the merits against the
Parsons. (3) In Parsons, interlocutory orders denying motions
to dismiss and for summary judgment raising the issue of the res
judicata preclusion were entered by the State Court. There is no
Suggestion that those orders were wrong in the State pro-
ceedings then before that Court. The State of Alabama Rules,
patterned on Federal Rules of Civil Procedure, provide very
limited help to one seeking to protect himself from defending
vague claims. The res judicata question had been presented on
every Occasion but was not ripe for ruling. The Defendants
—————aEE
~~
sought the federal injunction as soon as they were able to
crystalize the issues in both cases. This was not true in ACL. (4)
The Parsons Opinion (at 884), citing ACL, states that the
relitigation exception to the Anti-Injunction Act, ‘‘to protect or
effectuate its judgments,’’ authorizes a federal injunction of
State proceedings only “‘to prevent a state court from so in-
terfering with a federal court’s consideration or disposition of a
case as to seriously impair the federal court’s flexibility and
authority to decide that case.’’ In the instant case, the State
decision, if made final, will completely emasculate the final
judgment for the Bank of this Court and the United States
Court of Appeals for the Eleventh Circuit. A careful com-
parison of the issues presented by the Parsons convinces this
Court that those cases, through careful and skillful pleadings,
were planned to afford the Parsons opportunities to try the
same issues in two courts for damages resulting from the same
set of circumstances—hence, an harassment as proscribed in
Dombroski v. Pfister, 380 U.S. 479.
Both the majority and the dissenting opinion of justices Bren-
nan and White in ACL seem to agree that a federal court has a
discretion to enjoin State proceedings if it acts pursuant to an
explicit exception to the prohibition of § 2283, that is, ‘‘to pro-
tect or effectuate its judgments’’. The majority took the view
that the federal district court had decided only the Norris-
LaGuardia Act question (leaving open the State questions)
while the dissenters were of the opinion that the federal court
had decided the union’s right to picket by final judgment which
was entitled to res judicata preclusive effect in the State Court
enforceable by federal injunction to the parties in the State pro-
ceeding. Apart from principies of equity, comity and
federalism implicitly) embedded in the Anti-Injunction Act and
its exceptions, either those principles played no part in that deci-
sion or the Court saw no reason to dwell upon them.
This Court is of the firm opinion that the ruling in ACL is not
controlling of this case.
eae eo
—
The Trustee also insists that the Supreme Court has cited Mit-
chem v. Foster, 407 U.S. 225, as a bar to this Court’s pro-
ceeding in the injunction matter. This Court understands that
the Supreme Court clearly mandated that this Court consider
the “‘principles of equity, comity and federalism discussed in
Mitchem vy. Foster,’’ supra, at 243. Because general principles
of equity, comity and federalism are not discussed at page 243 in
Mitchem, this Court will attempt to consider the facts of the
Parsons case in the light of Mitchem without limiting itself to
the theories to which the Supreme Court may have been par-
ticularly intimating their interest by referring to page 243.
This Court understands that the Supreme Court has man-
dated that this Court consider the facts in this case in the light of
the principles recognized in Younger v. Harris, infra, and its
companion cases, and, perhaps, in the light of the history of
Toucey v. New York Life Ins. Co., infra, and the legislation
resulting therefrom, all as discussed in Mitchem. This Court
understands that, if it is to continue its injunction in force, it
must walk a narrow line: The relitigation exception to the Anti-
Injunction Act, as construed by the Supreme Court is limited
purely to pending relitigation by the Full Faith and Credit Act;
principles of equity, comity or federalism expressed in the
Younger doctrine bars federal court injunctive interference with
State Court litigation except where irreparable injury is both
great and immediate, -vhere the State law is flagrantly and
patently violative of expressed constitutional prohibitions, or
where there is a showing of bad faith, harassment or other
unusual! circumstances that would call tor equitable relief. Mit-
chem, supra, at 230. This Court, so limited, may maintain an
injunction to perfect or effectuate its judgment.
The Mitchem Court [at 237] enunciated three relevant
criteria in determining whether a statutory remedy falls within
an expressly authorized exception to the Anti-Injunction
Statute: (1) The federal law need not contain an express
reference to that statute [§ 2283]; (2) a federal law need not ex-
pressly authorize an injunction of a State Court proceeding in
hia saeeteatieaataaeaaimaaiaianiaciamaianaaimmmaaiiéil
— A-48 —
order to qualify as an exception; and (3) Congress must have
created a specific uniquely federal right or remedy enforceable in
a federal court of equity that could be frustrated if the federal
court were not empowered to enjoin the State proceeding. In
Parsons, the federal law is contained in the relitigation excep-
tion to the statute § 2283 itself; while it does not authorize an in-
junction specifically, it clearly allows one; and the Parsons
Court, in discussion of the Toucey decision and its resulting
legislation, demonstrates that Congress created a specifically
and uniquely federal right or remedy enforceable in a federal
court of equity that could be frustrated if the federal court were
not empowered to enjoin the State Court proceeding. The Par-
sons Court, in discussing Toucey, made the following state-
ment: ‘‘Congress in 1948 amended the Anti-Injunction Act to
overrule this Court’s decision in Toucey ***,’’ Parsons, supra,
88 L.Ed.2d at 884; ‘‘In Toucey the controlling question was
‘does a federal court have the power to stay a proceeding in a
State Court simply because the claim in controversy has
previously been adjudicated in the federal court?’ ’’ [at 126].
The Toucey Court concluded that, with exception not here per-
tinent, ‘‘proceeding in State Courts should be free from in-
terference by federal injunction’’ [at 132]. The Toucey Court
then pointed out that:
‘As part of the delicate adjustments required by our
federalism, Congress has rigorously controlled the ‘in-
ferior courts’ and their relation’ to the courts of the
States,’’ and that ‘‘Congress *** exhibits much cir-
cumspection in avoiding occasions for placing the
tribunals of the States and of the Union in any collision’
fat 141].
Parsons then points that Justice Reed’s dissenting opinion sug-
gests that, while the -majority was concerned with one court’s
federal interference with the jurisdiction of another court
[State], the true purpose of the implied relitigation exception
then in effect was to preclude the parties [as distinguished from
a court] from relitigating issues already decided [at 142-143].
~~ ee
The Parsons’ Supreme Court’s recognition that the 1948
amendment of the Anti-Injunction Act to statutorily reinstate
the theretofore implied relitigation disapproved in Toucey
would imply that the Supreme Court recognized the relitigation
exception to allow a federal court to enjoin [at least, the parties
in] a State Court proceeding for the purpose of effectuating the
federal court’s prior judgment as to the same issues between the
same parties and their privies if the law of the subject State does
not recognize a res judicata bar by a State Court determination.
The Mitchem Court also pointed out that ‘‘in *** Perez vy.
Ledesma, 401 U.S. 82, [the Court] said that ‘only in cases of
proven harassment or prosecutions undertaken by State of-
ficials in bad faith without hope of obtaining a valid conviction
or perhaps in other extraordinary circumstances where ir-
reparable injury can be shown is federal injunctive relief against
pending State prosecutions appropriate’ [401 U.S. at 85].’’ Mir-
chem and other cases extended these principles to civil cases.
Equity, Comity and Federalism
Comity and federalism do not afford a one-way street. The
federal courts will recognize and respect the prior exercised
jurisdiction of the State Courts. 28 U.S.C. § 1738. But comity
and federalism do not end there. State Courts must also
recognize and respect the prior exercised jurisdiction of federal
courts. Federal courts have a right and duty to protect their
judgments. The Supremacy Clause [U.S. Constitution, Article
VI] demands due respect of federal laws including judgments.
Implicit is the fact that the first judgment in time, whether State
or federal, will bar retrial of substantially the same issues
(assuming concurrent jurisdiction) between substantially the
same parties. The Supreme Court in Parsons makes clear that,
if the second court to try the same cause-has the records before
it and is totally free to make the res judicata decision, the first
court with the prior judgment can do nothing to protect its own
jurisdiction, and a new series of trials and appeals must be pro-
cessed in courts completely unaware of the issues involved.
— A-50 —
in determining whether the Parsons’ prosecution of the State
Court case constitutes harassment or other extraordinary cir-
cumstances which would justify a federal court’s rare interven-
tion into a State Court civil proceeding, this Court must con-
sider all the circumstances involved. The Parsons were in a steel
fabrication business in Montgomery where they were financed
by The First National Bank of Montgomery [the name of which
has now been changed to First Alabama Bank of Montgomery].
The Parsons were having financial problems and seeking to
refinance for several months and were told by the Bank that it
could not continue a line of credit to them. During negotiations
an officer of the Bank told the Parsons that one Mr. Orange
had a record of renovating financially troubled businesses and,
thereafter, Mr. Orange and the Parsons sought for several mon-
ths to make a satisfactory business arrangement with fore-
bearance of the Bank but with the understanding that the Bank
would not continue the financing of the Parsons. Upon failure
of the Parsons to arrange tefinancing and upon receiving infor-
mation that Mr. Orange could not make an agreement with the
Parsons, the Bank notified the Parsons that it must insist upon
satisfaction of its indebtedness. The Parsons thereupon agreed
to a private sale of the mortgaged assets of the Montgomery
business to Mr. Orange and filed bankruptcy which ultimately
would discharge the corporate debts of the Montgomery
business. Later, Parson filed two suits.
The resulting harassment and irreparable injury has been
described by Justice Reed. Congress adopted as the law of the
land the bulk of the dissenting Opinion of Justice Reed in
Toucey [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 production 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 deter-
mine whether the issues were or were not settled by the
ee
— A-51 —
former adjudication. We, too, desire that the difficulties
innate in the federal system of government may be smooth-
ed 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.’’
Congress appeared to agree with Justice Reed that a federal
court winner should not be forced to bring plea of res judicata
in a State Court, ‘‘unfamiliar with the record already made,”’
and if eventually unsuccessful seek review in the United States
Supreme Court of an adverse State judgment. The Supreme
Court in the case at bar expressly noted that it ‘‘fully accept[ed]
the logic of Justice Reed’s dissent ***’’ [88 L.Ed.2d at 884].
The quoted language from Justice Reed’s dissent in Toucey is
an oversimplification of the facts of, and an understatement of
the harassment involved in, the Parsons litigation.
Remarkably, the Parsons’ interests including the Trustee—
Defendants here and Petitioners in the Supreme Court—did not
even present for review there the federal question ‘‘of whether
the courts below were correct in ultimately finding that the State
Action was barred by the federal judgment under principles of
res judicata and collateral esoppel ***’’ [brief of Parsons, p. 28,
n. 20}. In fact, on October 15, 1985, the current lawyer for the
Parsons’ interests in this Court, Hon. Donald R. Harrison, filed
an amended complaint in a State action against Parsons’ earlier
attorneys in this case [Bank’s Exhibit 15 herein] which admitted
the bar of this Court’s judgment:
**56. That both actions filed on behalf of the plaintiffs by
defendants arose out of the same transaction or cir-
cumstances or were related to the same subject matter,
however, the claim the State Court alleged only fraud and
violations of Alabama law in connection with the foreclos-
ure, repossession and sale of certain assets, while the
Federal Action, although making allegations related to the
State Action, sought only damages for violations under
— A-52 —
Federal law of the Bank Holding Company Act, 12 U.S.C.
§ 1972-75 (1976).
“57. That the defendants knew or should have known of
the pendents [sic] jurisdiction of the United States District
Court and its original jurisdiction to hear to attendant
state allegations, and knew or should have known the
Federal claim along with the State claims, subject to their
removal to the Federal Court upon motion of the defen-
dants therein.
**58. That the defendants knew or should have known of
the legal theories of res adjudicata [sic] and collateral
estopped [sic] and that by filing said claims in two separate
courts they were assuming the probability that one case
would be tried before the other thereby invoking either res
adjudicata [sic], and that defendants could have and
should have brought and tried all claims arising from the
said transaction or subject matter in one forum only.”’ [44
56-58, Motion to Amend Complaint, Parsons Steel v.
Beasley, CV 85-386-G].
Even after the remand by the Supreme Court in the case at bar,
Mr. Harrison filed an affidavit of Parsons himself on March 10,
1986, which recognized the correctness of the holdings of this
Court and of the Court of Appeals that ‘‘under [pendent]
jurisdiction of the Federal Court, all could have and should
have been brought in Federal Court ***.’’
Those documents, of course, were filed in a case wherein the
Parsons are seeking $23,500,000.00 from their own attorneys in
the various Parsons v. First Alabama Bank cases, which cases
rely for their potency upon the propriety of jurisdiction of State
relitigation. Nonetheless, it would appear therefrom that the
parties do not question the correctness of the holding of this
Court and the Court of Appeals that the judgment in the federal
bank holding company actions bars the attempted relitigation in
State Court of matters which were or could have been litigated
— A-53 —
in the federal action.'® The relevancy of this is limited by the
Supreme Court’s Opinion to the question of the equity of re-
quiring relitigation under the peculiar circumstances hereof by
two new courts (the third State Trial Judge and the proper
Alabama Appellate Court) when this Court, the United States
Court of Appeals and the United States Suprerne Court have
already litigated the case and are generally familiar with the
issues. Equity favors the continued effectiveness of this Court’s
permanent injunction of June 15, 1983. It should remain in ef-
fect and the slightest undermining of it—to permit further litiga-
tion which the parties appear to concede should be barred as at-
tempted relitigation—would mock equity and the entire judicial
process.
As long as barebones pleadings are allowed, ingenious
lawyers will state complaints (where sufficiently large sums are
involved and both federal and State violations may arise from
the same circumstances) so as to afford a trial in a federal court
and a trial in a State Court both arising from the same wrong
and resulting in the same damage. If damages are awarded at
the first trial and if, as here, the same actual damages are claim-
ed to have resulted from the same alleged wrongs in each case,
there is no occasion to try the second case because the plaintiff
would have already achieved his object. If, however, as here,
the plaintiff loses the first case tried, plaintiff’s attorneys will at-
tempt to distinguish between the two causes of action, though
plaintiff has been wronged only once, and will hope to convince
a jury of the righteousness of their client. Complicated cir-
cumstances and allowance of vagueness in pleadings are
fascinating tools of skillful attorneys in such cases. The evils
arising from the practice accrue, not only against the twice tried
Bank, but also against the public, the already overtaxed court
system and the government itself.
i The Trustee in Bankruptcy joined in the petition for certiorari fil-
ed in the Supreme Court of the United States but is not shown to be
party to the State Court proceeding against Parsons’ former lawyers.
~ At
Since the relitigation exception is construed to allow injunc-
tions only before a State Court enters final judgment, if, as once
suggested by the Trustee, the Bank hazards waiving its right to
an injunction by not filing for an injunction before beginning
the proceeding in the State Court, the relitigation exception is of
little protection to an original prevailing defendant in a pro-
ceeding wherein skillful pleaders have successfully secreted their
relitigation by phrasing the same issues vaguely and differently
in separate suits in separate courts but, nonetheless, involving
the same issues, evidence and parties. Equity and justice require
that some leeway must be given a successful party in the first
Suit to determine identity of issues, parties, etc., before he is
held to have waived his right to enjoin parties in a second similar
suit.
Equitable estoppel, res judicata, relitigation and comity are
necessarily closely related and are dependent upon equitable
principles. One requisite of all equity is that one who seeks
equity must do equity. Here, one who sought relief initially in
the federal courts and failed has sought to retry his federal case
in the State Court by disguising it as a State cause of action
although the same issues and-evidence had been fully litigated in
the federal court. The Trustee, who declined to participate in
the federal trial after participating in the pretrial proceedings
and discovery therein, was privy to the Plaintiffs in the federal
proceeding and is also, therefore, barred by equitable principles
from claiming an equity in this matter.
Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669
(1971), and its companion cases, do not effect an abdication of
the federal role in protecting citizens from official lawlessness or
other official misconduct. Nor does it affect an abdication of a
court’s duty to demand respect for its judgments. The Younger
doctrine is a simple restatement of what has long been the law,
namely, that a State criminal (or civil) prosecution begun in
good faith will not be enjoined, even on constitutional grounds
by a federal court, except under extraordinary circumstances
where the danger of irreparable injury is both great and im-
— A-55 —
mediate. Fenner v. Boykin, 271 U.S. 240, 243-244 (1926);
Douglas v. City of Jeannette, 319 U.S. 157, 163-164 (1943). In
Younger, the Supreme Court determined that a good faith pro-
secution under a possibly unconstitutional statute should not be
enjoined absent special circumstances. The Court based its
decisions upon two grounds: Comity [the respect for the judicial
processes of the States] and Equity [the existence of an adequate
remedy at law—the presentation of the federal constitutional
question to the State court]. 401 U.S. 37, at 43-44. A study of
Younger demonstrates that Dombrowski v. Pfister, 380 U.S.
479 (1965) is stili the law and that bad faith prosecution is the
type of immediate and irreparable harm which justifies federal
intervention to protect federally secured rights. 401 U.S. 37, at
48-49. See, The Supreme Court, 1970 Term, 85 HARVARD
LAW REVIEW 40, at 301-315 (1971). Where a plaintiff seeks
to enjoin the enforcement of a State law or a State Court judg-
ment or to enjoin pending and further prosecutions pursuant
thereto, and where plaintiff’s allegations are sufficient to invoke
the equity jurisdiction of a federal court to protect federally
secured rights, a federal district court is required to examine the
pleadings and proof in order to make the necessary findings on
bad faith prosecution, harassment and irreparable injury prior
to granting or denying the requested relief. Dyson v. Stein, 401
U.S. 200 (1971); Byrne V. Karalexis, 401 U.S. 216 (1971). This
Court understands that it has done so to the extent suggested by
the issues made by the parties and the Court of Appeals [un-
published Opinion #83V-181-N, March 29, 1985].
Amo
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