Bank of Heflin v. Miles, 78-2764
| Decision Date | 07 July 1980 |
| Docket Number | No. 78-2764,78-2764 |
| Citation | 621 F.2d 108 |
| Parties | BANK OF HEFLIN, an Alabama Banking Corporation, Plaintiff-Appellee, v. M. M. MILES, Jack R. Wood and Jacqueline S. Wood, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Fifth Circuit |
James D. Pruett, Gadsden, Ala., W. Eugene Rutledge, Anniston, Ala., for defendants-appellants.
Wilson, Propst, Isom, Jackson, Bailey & Bolt, Robert B. Propst, Anniston, Ala., John S. Casey, Heflin, Ala., for plaintiff-appellee.
Appeal from the District Court for the Northern District of Alabama.
Before SIMPSON, HILL and HATCHETT, Circuit Judges.
Stockholders of the Bank of Heflin appeal from a district court judgment, which granted the Bank injunctive relief from adverse state court judgments and which declared unconstitutional Title X, § 21(46), Code of Alabama (1958). The stockholders had sought an unlimited inspection of the Bank's books and records. Because we find that the district court properly granted the Bank a permanent injunction but improperly found section 21(46) unconstitutional, we affirm in part and reverse in part.
In August 1974, Miles, a stockholder of the Bank of Heflin, wrote to the Bank requesting an unlimited inspection of its books and records pursuant to Title X, § 21(46), Code of Alabama (1958). Section 21(46) provides:
Any person who shall have been a stockholder of record at least six months immediately preceding his demand or who shall be the holder of record of at least five per cent of all the outstanding shares of a corporation, upon written demand stating the purpose thereof, shall have the right to examine, in person, or by agent or attorney, at any reasonable time or times, for any proper purpose, its books and records of account, minutes, and record of stockholders and to make extracts therefrom.
Any officer or agent who, or a corporation which, without reasonable cause, shall refuse to allow any such stockholder, or his agent or attorney, so to examine and make extracts from its books and records of account, minutes, and record of stockholders, for any purpose, shall be liable to such stockholder in a penalty of ten per cent of the value of the shares owned by such stockholder, in addition to any other damages or remedy afforded him by law.
Miles and other stockholders sought to ascertain whether bank officers and directors had violated their fiduciary duty by acting against the best interest of its stockholders in misusing corporate funds, abusing corporate office, diverting or misapplying corporate assets for personal benefit, or favoring certain customers.
Denying the existence of a "proper purpose" for the inspection and believing that the disclosure of certain materials would interfere with the confidential relationship between the Bank and its customers, the Bank filed for declaratory judgment in Alabama circuit court. The complaint asked the court to determine what records the Bank was required to disclose under Title X, § 21(46). The complaint specifically stated that the Bank would violate regulations of the Federal Deposit Insurance Corporation (hereinafter FDIC) if it disclosed certain FDIC documents. Miles and other stockholders counterclaimed for the statutory penalty of ten percent of the value of the shares they owned. Although finding that one or more proper purposes had been asserted by the stockholders, the Alabama circuit court granted summary judgment for the Bank, holding that the inspection was limited by the confidential relationship between the Bank and its customers. Finding that the Bank had not refused to allow inspection as that term is used in section 21(46), the court also dismissed the stockholder's counterclaim for the statutory ten percent penalty. The circuit court then appointed a special master to examine the Bank's records and to determine the scope of permissible inspection.
The stockholders petitioned the Supreme Court of Alabama for a writ of mandamus on the scope of the inspection question and appealed the circuit court's order on the statutory penalty. On August 21, 1975, the Alabama Supreme Court, in an interlocutory order, granted the writ of mandamus, holding that the inspection was requested for "proper purposes" under section 21(46) and directing the circuit court "to enter an order allowing examination and audit of all books and records of the Bank." Bank of Heflin v. Miles, 318 So.2d 697, 701 (Ala.1975).
While the stockholders' appeal on the statutory penalty was pending before the Alabama Supreme Court, the FDIC, on September 29, 1975, filed a complaint in federal district court pursuant to 12 U.S.C. § 1819 1 seeking a temporary restraining order prohibiting the Bank from disclosing FDIC reports and related records. The stockholders voluntarily intervened in the federal action to protect their interest in what they described as a collusive action between the FDIC and the Bank. Finding that certain records were privileged under 12 C.F.R. § 309.1(c)(ii), 2 the district court permanently enjoined the Bank from disclosing the privileged information. F.D.I.C. v. Bank of Heflin, C.A. 75-G-1829-E (N.D.Ala., November 26, 1975). No appeal was taken from this decision that preceded any Alabama Supreme Court final judgment.
On March 6, 1976, the Supreme Court of Alabama published its decision reversing the state circuit court order on the statutory penalty. Miles v. Bank of Heflin, 328 So.2d 281 (Ala.1976). This decision was the first Alabama Supreme Court final judgment in this proceeding. The court held that the Bank refused to allow inspection and that the refusal was "without reasonable cause" under section 21(46). The court reasoned:
(W)hen the Board (of Directors) forced the stockholders to litigate in order to pursue their rights, it effectively refused to allow inspection. . . . This is not to say that the Bank's mere filing of a declaratory judgment action in itself is an Id. at 286-87.
effective denial of the right of inspection. Rather, we say that the basis for the denial was the defense of confidentiality and upon that basis there was an effective denial of the right of inspection resulting in the right to recover the statutory penalty under Tit. 10, § 21(46).
Because the Bank refused to allow inspection without reasonable cause, the Alabama Supreme Court directed the circuit court to assess against the Bank the ten percent penalty imposed by the statute.
On remand, the circuit court, on October 1, 1976, ordered the Bank to permit inspection and to pay the statutory penalty pursuant to the Alabama Supreme Court mandate. The circuit court limited the time in which the stockholders were allowed to inspect the Bank's records to seven days. In light of this limitation, the stockholders appealed again to the Alabama Supreme Court alleging the denial of adequate time for inspection. The Bank cross-appealed from the award of the statutory penalty granted by the circuit court on remand. As part of their appeal, the stockholders complained also that the Bank had denied access to certain accounts receivable, "aging reports," in direct contravention of the supreme court mandate and circuit court order. The Alabama Supreme Court agreed, and held that the stockholders must be allowed a full and complete inspection unrestricted by "a precise, preset time limitation." Miles v. Bank of Heflin, 349 So.2d 1072, 1076 (Ala.1977).
On June 4, 1976, while the case was pending in the state's circuit court on remand, the Bank had filed an original action in federal district court seeking an order enjoining enforcement of the Alabama Supreme Court judgment on the statutory penalty and nullifying all Alabama state court orders in conflict with the federal district court order of November 26, 1975. The Bank also sought a federal court injunction against any further proceedings in Alabama circuit court. On July 17, 1978, the federal district court entered the judgment from which the stockholders now appeal.
Believing that federal injunctive relief was necessary to protect or effectuate its prior judgment, the district court asserted jurisdiction under the Anti-Injunction Act, 28 U.S.C. § 2283. 3 According to the court, 28 U.S.C. § 1343 also conferred federal jurisdiction to "redress the deprivation of due process of law allegedly resulting from the operation of Title X, § 21(46) . . . as interpreted by the Supreme Court of Alabama." On the merits, the district court found that: (1) the Alabama Supreme Court "was in error in concluding that the only basis for the Bank's refusal was its confidential relationship to its customers; " (2) the state supreme court failed to consider the Bank's obligations under 12 C.F.R. § 309.1(c)(ii) "although the point was raised; " (3) the state supreme court decision finding no reasonable cause for the refusal to allow inspection is in irreconcilable conflict with the prior district court order; (4) because Title X, § 21(46), as interpreted by the Supreme Court of Alabama, makes unlawful the mere filing of an action for declaratory judgment, it unconstitutionally limits access to the courts; (5) principles of comity and abstention do not foreclose district court relief in this case.
Having made these findings, the district court concluded that the Bank was entitled to judgment as a matter of law and granted final summary judgment for the Bank. All state court judgments were declared null and void to the extent inconsistent with the district court order of November 26, 1975. The Alabama Supreme Court directive and circuit court order imposing the statutory penalty were "cancelled and declared null and void." The stockholders were permanently enjoined from seeking enforcement
of the penalty and "from seeking a similar judgment or penalty or injunction inconsistent with this judgment."
The critical issues are whether the district court correctly imposed an injunction to...
To continue reading
Request your trial
-
Loftin v. Rush
... ... removed; no discussion of jurisdiction); Iowa-DesMoines National Bank v. United States, 414 F.Supp. 1393, 1394 (S.D.Iowa 1976) (garnishment ... ...
-
Silverstein v. Gwinnett Hosp. Authority
...by state courts. Cotton States, 749 F.2d at 667; Harris v. Conradi, 675 F.2d 1212, 1215-16 (11th Cir.1982); Bank of Heflin v. Miles, 621 F.2d 108, 113-14 (5th Cir.1980). After examining the postgraduate specialty training, accreditation and certification that GHA has required in Subsection ......
-
Texas Employers' Ins. Ass'n v. Jackson, s. 85-2583
...Antitrust Litigation, 659 F.2d 1332 (5th Cir.1981), cert. denied, 456 U.S. 936, 102 S.Ct. 1993, 72 L.Ed.2d 456 (1982); Bank of Heflin v. Miles, 621 F.2d 108 (5th Cir.1980); Seaboard Coast Line Railroad Co. v. Union Camp Corp., 613 F.2d 604 (5th Cir.), cert denied, 449 U.S. 835, 101 S.Ct. 10......
-
In re Whyte
...781 F.2d 343, 346 (1st Cir.1986). The rule is that state courts have the right to construe their own statutes. Bank of Heflin v. Miles, 621 F.2d 108, 113 (5th Cir.1980). Federal courts are bound by that state's interpretation. Id. at 114. Cotton States Mutual Insurance Company v. J.O. Ander......