Schauss v. Metals Depository Corp., 84-1398

Decision Date15 April 1985
Docket NumberNo. 84-1398,84-1398
PartiesRalph SCHAUSS, et al., Plaintiffs-Appellees, v. METALS DEPOSITORY CORPORATION, et al., Defendants, Michael Wagner, Equity Receiver of U.S. Metals Depository Corporation, Defendant-Appellant, FIRST NATIONAL BANK OF EULESS, Plaintiff-Appellee, v. Ralph SCHAUSS, et al., Defendants-Appellees, v. Michael WAGNER, etc. Defendant-Appellant.
CourtU.S. Court of Appeals — Fifth Circuit

Thomas S. Leatherbury, Dallas, Tex., Leon, Weill & Mahony, New York City, for defendant-appellant.

John E. Collins, Garnett E. Hendrix, Jr., Dallas, Tex., for Schauss.

Wm. C. Meier, Peter H. Fulton, Hurst, Tex., for First Nat. Bank.

Alan Leibel, Dallas, Tex., for Mabry.

Appeals from the United States District Court for the Northern District of Texas.

Before BROWN, WILLIAMS, and GARWOOD, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

In this appeal, we are asked to vacate a district court judgment on the basis of a motion to vacate made almost two years after judgment was entered. We decide that respect for the injunctive power of a sister federal court requires that appellant's request be granted, and accordingly, reverse in part and remand.

Background and Case History

Defendant Metals Depository Corporation (MDC) was involved in the business of buying and selling precious metals. The first Texas case (C.A. # 4-79-95), in which MDC was sued by a customer in the United States District Court for the Northern District of Texas, was filed on March 5, 1979. Joined as garnishee in this action was the First National Bank of Euless (the bank), a Texas bank holding deposits for MDC. Within a few weeks, several other actions were filed in Texas state courts naming the bank as garnishee for debts allegedly owed by MDC.

MDC's troubles were not confined to Texas, however, for on March 7, 1979, the Commodity Futures Trading Commission (CFTC) brought suit against MDC in the U.S. District Court for the Southern District of New York alleging violations of the Commodity Exchange Act, 7 U.S.C. Secs. 1, et seq. (1980). On April 11, the CFTC secured a judgment against MDC which, inter alia, enjoined MDC from further fraudulent transactions or violations of commodities laws. As part of this judgment, the court appointed Michael Wagner as receiver of all assets and property of MDC.

In order to provide all creditors an equal opportunity to assert their claims against MDC, the New York court entered an order on April 24, 1979, enjoining all creditors, customers and stockholders of MDC from "instituting, commencing, prosecuting, or continuing the prosecution of any action, suit or proceeding, whether in law or equity, against [MDC]...." The very next day, April 25, counsel for the receiver sent, by registered mail, to the Clerk of the Court for the Northern District of Texas, copies of the New York District Court complaint, order appointing receiver, and order staying further proceedings. 1 Understandably, however, these papers were sent to the official station of the Clerk's Office in Dallas, rather than Fort Worth where the other action against MDC was pending.

In May of 1979, the second Texas case was initiated (C.A. # 4-79-177K) in which the bank filed, in the district court at Fort Worth, a complaint in interpleader under F.R.Civ.P. 22 joining all parties claiming an interest in MDC's Texas bank account, and seeking a determination of the proper disposition of those funds. The District Court judge in Fort Worth, having learned of the New York injunction from one of the parties in the interpleader action, entered an order on June 8 staying the interpleader action "for the purpose of ascertaining the effect, if any," the New York injunction had on the Fort Worth proceedings.

Over a year passed before the two Fort Worth actions were consolidated by order of October 21, 1980. In the interim, however, counsel for the various parties corresponded with each other and with the court. While the receiver never formally responded to the complaint in interpleader naming him as a party, the record reveals that he was well aware of the Fort Worth proceedings. Letters between receiver's counsel and counsel for the other parties in the interpleader action indicate that the receiver's strategy was to stay out of the Fort Worth action, with the expectation or hope that the interpleaded fund in Texas would be transferred to the escrow account maintained by the receiver in the New York action.

On August 3, 1981, all parties in the consolidated Fort Worth action, except the receiver, participated in a hearing in the Fort Worth district court. 2 At that hearing, the parties seeking distribution of the funds in MDC's interpleaded Texas bank account presented the court with a mutually agreed upon judgment proposal disposing of the interpleaded funds. During that hearing, the district court sought to determine the status of the injunction in the New York action. One of the parties had recently contacted the Clerk of the Court for the New York district court and had been informed that the injunction was still pending. However, that party, based on misinformation or misunderstanding, erroneously informed the Texas court that the docket sheet in the New York suit indicated that no action had been taken in the case in over two years, and that the case had in fact been dismissed. 3 Based on this information, and the fact that the receiver had not formally responded to or formally entered an appearance in the Fort Worth action, the district court entered judgment as requested by the parties. 4

In May of 1983, almost two years after entry of judgment and disbursement of all funds, counsel for the receiver, citing F.R.Civ.P. 60(b) 5, moved to set aside the August 1981 judgment on the grounds that it had been entered without prior notice to the receiver, and that it was in violation of both the New York injunction and 28 U.S.C. Sec. 754, governing disposition of assets in various districts in receivership actions. 6 Counsel's motion alleged that the receiver did not learn of the entry of judgment until February of 1983, and that in several phone calls to the Fort Worth court, both before and after entry of judgment, he had been assured that the action in Fort Worth remained stayed pursuant to the Fort Worth court's June 1979 order enjoining those proceedings. 7 Receiver appeals the district court's refusal to vacate the judgment.

Injunction Malfunction

Where, as here, a party appeals a district court's denial of a Rule 60(b) motion, we review the district court's determination only to see whether it constitutes an abuse of discretion. Hand v. United States, 441 F.2d 529, 531 (5th Cir.1971). However, a final judgment may be vacated where appropriate to accomplish justice. United States v. Nolder, 749 F.2d 1128 (5th Cir.1984). We believe that such a case is presented here.

Clearly, appellant's predicament is due in large part to his own failure to deal affirmatively with the Fort Worth actions. Instead of formally participating in the interpleader action, or entering a limited appearance for the purpose of informing the court of the existence, effect and continuance of the New York injunction, receiver's counsel chose a course of limited contact with the Fort Worth court and the parties. This strategy contributed significantly to the confusion confronting the judge below when called upon to enter the judgment agreed on by the other parties.

Nevertheless, we believe the judgment was improvidently entered in light of the existing and then valid and operative injunction of the New York district court. This court recently addressed the effect of an order of one district court enjoining the prosecution of similar claims in other courts. In United States v. Nolder, 749 F.2d 1128 (5th Cir.1984), we vacated a judgment of the district court for the Northern District of Texas where the district court for the District of North Dakota had previously enjoined the Secretary of Agriculture from proceeding against a national class of which appellant there was a member. In so doing, we observed that respect for the order of a sister federal court serves the important function of avoiding duplicative litigation.

While Nolder involved the additional issue of insuring the integrity of nationally certified classes under F.R.Civ.P. 23 we believe a similar result is dictated here. A United States District Court hearing a particular case may, in its discretion, enjoin the filing of related lawsuits in other federal courts. Kerotest Manufacturing Co. v. C-O-Two Fire Equipment Company, 342 U.S. 180, 72 S.Ct. 219, 96 L.Ed. 200 (1952). This Circuit has also recognized that, in certain cases, such an injunction may be effective against non-parties, as well as parties to the initial action. United States v. Hall, 472 F.2d 261 (5th Cir.1972) (approving desegregation order prohibiting "all persons" from taking certain actions and providing for criminal contempt sanctions against "anyone having notice of this order").

Moreover, the important principle of comity between federal courts is advanced where courts of coordinate rank are respectful of each other's orders, as well as careful to avoid hindering each other's proceedings. In this vein, we have long advocated that district courts exercise their discretion to avoid duplication of proceedings where related claims are being litigated in different districts. See, e.g., Mann Manufacturing, Inc. v. Hortex, Inc., 439 F.2d 403 (5th Cir.1971) (court with prior jurisdiction over common subject matter may best resolve all issues presented in related actions). 8

Finally, several courts have recognized the importance of preserving a receivership court's ability to issue orders preventing interference with its administration of the receivership property. In both securities fraud cases, see, e.g., Securities and Exchange Commission v. Wencke, 622 F.2d 1363 (2d Cir.1980), and...

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