147 F.2d 899 (2nd Cir. 1945), 115, Griffith v. Bank of New York

Docket Nº:115.
Citation:147 F.2d 899
Case Date:February 16, 1945
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

Page 899

147 F.2d 899 (2nd Cir. 1945)




No. 115.

United States Court of Appeals, Second Circuit.

February 16, 1945

should decide questions even involving state law unless some exceptional circumstances of a stereotyped nature intervene.

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Zarah Williamson, of New York City (Josephine E. Kestler, of New York City, on the brief), for plaintiff-appellant.

George W. Martin, of New York City (Emmet, Marvin & Martin, of New York City, on the brief), for defendant-appellee.

Before SWAN, CLARK, and FRANK, Circuit Judges.

CLARK, Circuit Judge.

Relying on the diverse citizenship of the parties, plaintiff, a citizen of California, has sued defendant, located in New York City, for damages of $40, 000 alleged to have been caused her by acts of defendant as testamentary trustee under the will of Anna R. Morison, of whom plaintiff was one of the two residuary legatees after the expiration of a life estate. The complaint and its accompanying exhibits are most full and complete, obviously designed, among other things, to anticipate defenses of res judicata. These defenses arise by virtue of two judgments- one a consent judgment of the Supreme Court of New York County settling defendant's account as trustee upon the termination of the life estate, and the other the order of the Surrogate's Court of New York County dismissing a petition for resettlement of this account because of claimed duress in the procurement of the stipulation for the first judgment. What effect these judgments shall be accorded in a federal action attempting once more to reopen the issues is the very interesting question presented on this appeal from the judgment of the District Court, 59 F.Supp. 271, dismissing the complaint upon motion for failure to state a claim upon which relief could be granted.

From the allegations of the complaint it appears that after the termination of the life estate the beneficiaries under the will entered into a stipulation with defendant for the entry of a judgment in the New York Supreme Court providing for the payment of certain securities and monies to the former and settling the account of the latter and releasing it from further liability. Though the settlement thus envisaged has been fully consummated, plaintiff now alleges that her consent was obtained by duress, and that she has been damaged by the duress practiced upon her. Acts constituting the duress are alleged to be defendant's willful withholding of principal and income of the estate, initiation of unnecessary and expensive litigation exhausting

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this plaintiff and her co-beneficiary financially (referring to the action for construction of the will which resulted in a decree sustaining the validity of the trust, Bank of New York v. Kaufman, Sup., 26 N.Y.S.2d 474, affirmed 261 A.D. 818, 25 N.Y.S.2d 408, leave to appeal denied 261 A.D. 898, 26 N.Y.S.2d 316; 285 N.Y. 854, 33 N.E.2d 566), and threatened additional unfair and oppressive expense of litigation and withholding of the estate, coupled with refusal of information as to the trustee's conduct of the trust, bringing plaintiff to 'a point of discouragement and despair' and fear of loss of her estate, so that she was not in a position to contract freely or negotiate a fair settlement with defendant.

Further allegations show that after defendant had delivered the trust property to plaintiff, as ordered by the judgment, plaintiff and her co-beneficiary filed a petition in the Surrogate's Court to compel the bank to account in that court as trustee under the Morison will. This petition, attached to the complain herein as an exhibit, was most detailed in its recitals of alleged defaults by the trustee in making investments and otherwise administering the trust, and of the claimed duress of the trustee in procuring the settlement of its account in the Supreme Court. Nevertheless, the Surrogate dismissed the petition in a short opinion, Estate of Anna R. Morison, . . . Misc. . . ., 53 N.Y.S.2d 696, wherein he said that the former judgment 'is conclusive and may not be collaterally attacked, ' citing Crouse v. McVickar, 207 N.Y. 213, 100 N.E. 697, 45 L.R.A., N.S., 1159. And the District Court, in dismissing the present complaint, cited both the Crouse case and the Surrogate's opinion.

We agree with the District Court's view that this action was a collateral attack on the New York Supreme Court judgment. Notwithstanding that it took the form of a tort claim for damages, either for defendant's breaches of trust or for defendant's duress in procuring the stipulation for the judgment, its essential and necessary nature is an equitable proceeding collaterally attacking the judgment and seeking appropriate relief if that attack is sustained. For, as the cases discussed hereinafter show, legal relief is held barred by the formal judgment and the available relief is necessarily equitable in nature. But we cannot agree with the District Court's further conclusion that a judgment cannot be attacked collaterally, and that parties seeking relief from it must do so in the original action. For it is well settled that the federal courts may exercise their equity powers so as to set aside, enjoin enforcement of, or ignore a state court judgment obtained by fraud. Marshall v. Holmes, 141 U.S. 589, 12 S.Ct. 62, 35 L.Ed. 870. 1 And though it was once thought necessary that such fraud be 'extrinsic, ' so that it could not have been considered in the original action, United States v. Throckmorton, 98 U.S. 61, 25 L.Ed. 93, the later cases no longer seem to adhere strictly to even this limitation. Marshall v. Holmes, supra; Publicker v. Shallcross, 3 Cir., 106 F.2d 949, 126 A.L.R. 386, certiorari denied 308 U.S. 624, 60 S.Ct. 379, 84 L.Ed. 521; cf. Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 245, 246, 64 S.Ct. 997.

But putting aside the unsettled question whether cases such as those of Holmes and Publicker definitely mark the elimination of the Throckmorton restriction, cf. Graver v. Faurot, 162 U.S. 435, 16 S.Ct. 799, 40 L.Ed. 1030, the District Court erred because the duress or fraud here involved was, as alleged, sufficient to have warranted a chancellor in disregarding or setting aside the prior judgment. Since the consent to that judgment is alleged to have been procured by the trustee's threat to tie up the property indefinitely unless settlement was made, this case is substantially identical with Ingram v. Lewis, 10 Cir., 37 F.2d 259, 70 A.L.R. 702, certiorari denied 282 U.S. 842, 51 S.Ct. 22, 75 L.Ed. 747, where a judgment of dismissal of an action for an accounting was disregarded by the federal court, since such dismissal was based on a release obtained by the trustee on threat of withholding the property. See also Park v. Park, 5 Cir., 123 F.2d 370; Seay v. Hawkins, 8 Cir., 17 F.2d 710; Jefferson v. Gypsy Oil Co., 8 Cir., 27 F.2d 304; Horton v. Stegmyer, 8 Cir., 175 F. 756, 758, 20 Ann.Cas. 1134 .

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Though the court in the Ingram case, supra, did not in so many words classify the case as one of 'extrinsic' fraud, both the situation there presented and the one before us seem clearly to be so characterized if we are bound to hold the powers of a court of equity thus restricted. For the very duress by which the release or consent is obtained also prevents the coerced party from challenging before or at trial the statements or conduct of its adversary. Thus in the original action the issue of duress never is before the court. Indeed, the case differs little, if at all, from those where a witness is forcibly prevented from testifying, or an attorney is bribed to fight a losing battle or give his client false advice. Unless, therefore, the later judgment of the Surrogate's Court changes the situation, the District Court was in error in dismissing plaintiff's complaint.

The Surrogate's decision does pose an important and, so far as we can discover, an unusual problem of federal judicial power and discretion. This is because the ground which the Surrogate took for the dismissal of plaintiff's petition to compel the trustee to account. Plaintiff argues that this is but the decision of a court of limited jurisdiction, that it has no power to act in the premises, and hence that it cannot be a bar to an action by plaintiff in a court having broader powers. But we cannot agree, for that was neither the expressed nor, as we view it, a permissible legal ground for the decision. Whatever doubt may have existed earlier, the...

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