Browning Debenture Holders' Committee v. DASA Corp.

• Decision Date: 31 August 1978
• Docket Number: D,Nos. 1022,1023,s. 1022
• Citation: 50 A.L.R. Fed. 643,605 F.2d 35
• Parties: BROWNING DEBENTURE HOLDERS' COMMITTEE, et al., Plaintiffs-Appellants, v. DASA CORPORATION, et al., Defendants-Appellees. ockets 78-7083, 78-7084.
• Court: U.S. Court of Appeals — Second Circuit

Page 35

605 F.2d 35

50 A.L.R.Fed. 643

BROWNING DEBENTURE HOLDERS' COMMITTEE, et al., Plaintiffs-Appellants, v. DASA CORPORATION, et al., Defendants-Appellees.

Nos. 1022, 1023, Dockets 78-7083, 78-7084.

United States Court of Appeals Second Circuit.

Argued April 26, 1978.

Decided Aug. 31, 1978.

Bradley R. Brewer, New York City (Brewer & Soeiro, New York City, on the brief), for plaintiffs-appellants Roy E. Brewer and Bradley R. Brewer.

I. Michael Bayda, New York City (Jeffrey I. Slonim, and Jacobs Persinger & Parker, New York City, on the brief), for defendant-appellee DASA Corp.

David H. Olasov, New York City (Edward W. Keane, and Sullivan & Cromwell, New York City, on the brief), for defendant-appellee The Bank of New York.

Before LUMBARD, MULLIGAN and TIMBERS, Circuit Judges.

TIMBERS, Circuit Judge:

The central issue before us on this latest of many appeals during the six years of this litigation is whether the district court abused its discretion in permanently enjoining the Brewer plaintiffs ¹ from engaging in further harassing litigation against The Bank of New York and DASA Corporation based on facts previously alleged by plaintiffs and claims previously adjudicated by the district court on the merits with prejudice an adjudication previously affirmed by us on the merits. On the particular facts of this case, we hold that the district court did not abuse its discretion in entering the permanent injunction. We affirm.

I.

The order appealed from, entered March 28, 1978 in the Southern District of New York, Richard Owen, District Judge, followed an extensive hearing conducted by the district court and is supported by the district court's comprehensive forty-three page opinion setting forth findings of fact which we accept, Fed.R.Civ.P. 52(a), and conclusions of law with which we agree. In view of the full exposition of the facts by Judge Owen in his excellent opinion of March 28, 1978, as well as in the prior opinions of this Court and the district court during the six years of this protracted litigation, ² we shall not burden the reports with still another narrative of asserted facts and claims which repeatedly have been weighed and found wanting; nor shall we attempt again to summarize the prior proceedings, some of which hardly a year ago we agreed were "frivolous" and were engaged in by Bradley R. Brewer "in bad faith." Browning Debenture Holders' Committee, et al. v. DASA Corporation, 560 F.2d 1078, 1088 (2 Cir. 1977) (Mansfield, J.).

Suffice it to say for the purpose of this opinion that the instant litigation was based on claims which arose out of a proposal by DASA in 1971 to sell computer equipment and, in order to improve the company's liquidity, to reduce the conversion price of certain of its debentures of which the Bank was the indenture trustee. DASA accordingly sought from its debenture holders approval of this proposal, including reduction of the conversion price of the debentures from $42.42 to $21.00. The instant bondholders action, commenced in 1972 in the Southern District of New York, alleged, as to DASA, that its proposal was unfair; and, as to the Bank, that as indenture trustee it should have evaluated the fairness of DASA's proposal and have transmitted its opinion to the debenture holders before they voted. The upshot of this action in the district court was that it was dismissed as to the Bank before trial and it was dismissed as to DASA after trial. 431 F.Supp. 959 (S.D.N.Y.1976). We affirmed the dismissal on the merits, 560 F.2d 1078 (2 Cir. 1977), but we remanded for redetermination of the award of attorneys' fees against plaintiffs' counsel. Id. at 1087-89.

In order to facilitate proceedings pursuant to our remand, Judge Owen invited counsel to appear before him. They did. At this hearing, and later confirmed in writing, Brewer had the hardihood to announce that he had no intention of submitting to our remand to redetermine the award of attorneys' fees against him until he could obtain an adjudication by the New York State courts of the same claims already adjudicated in the instant Federal court action Against the Bank. What Brewer did not tell Judge Owen, however, was that he was about to commence such an action, literally under the cover of night Against DASA in the New York County Supreme Court, entitled Bradley R. Brewer, et al. v. DASA Corporation, et al., No. 1867/78. This action was commenced, as Judge Owen found, "(t)hat night (February 2, 1978), without notice to anyone" when "Mr. Brewer commenced an action in the New York State Supreme Court against DASA Corporation, five individual directors of DASA, DASA's law firm, and two individual partners in that law firm, by serving a summons with notice upon one of those partners at his home. Service was made upon the law firm the next day." This action was commenced the night of the day following the hearing held by Judge Owen on the Bank's order to show cause requesting a permanent injunction against such a state court action. At the end of that hearing on February 1, Judge Owen announced, "I will reserve decision and I will continue the stay."

Brewer later attempted to explain away his extraordinary conduct in commencing the New York County Supreme Court action in the teeth of Judge Owen's order continuing the stay, by maintaining that he did not hear Judge Owen's announcement. ³

After the Bank was threatened by Brewer with a new action and DASA actually was sued by Brewer in the New York County Supreme Court on the same claims which previously had been adjudicated against Brewer in the instant action, the Bank and DASA sought under the All Writs Statute, 28 U.S.C. § 1651(a) (1970), and Fed.R.Civ.P. 65, the permanent injunctive relief which was granted in the order entered March 28, 1978, from which the instant appeal has been taken.

II.

Despite Brewer's blunderbuss approach, both in his brief and oral argument, to what he suggests is a morass of issues on this appeal, we find the central issue to be the simple, straightforward one stated at the outset of this opinion: whether the district court abused its discretion in entering the permanent injunction under the particular circumstances of this case. We hold that it did not.

In reaching this conclusion, we shall state briefly the reasons for our ruling on what we regard as the principal claim raised on this appeal, namely, that the injunction entered by the district court was based on an incorrect interpretation of the doctrine of res judicata.

It is well settled that, where a district court finds that an action is repetitious, baseless, or intended to harass, it may enjoin it in the exercise of its inherent equity power and pursuant to the All Writs Statute, Supra.

The equitable power of a Federal court to enjoin State court proceedings is subject to the limitations imposed by the anti-injunction statute, 28 U.S.C. § 2283 (1970). That statute bars a federal court from enjoining pending state court proceedings, "except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments." Id. (emphasis added).

Here, as to both the Bank ⁴ and DASA, the district court correctly enjoined relitigation of claims in the state courts which previously had been adjudicated in the federal court, under the exception to § 2283 which permits such an injunction "to protect or effectuate its judgments," since relitigation of such claims is barred by res judicata. Samuel C. Ennis & Co. v. Woodmar Realty Co., 542 F.2d 45, 49 (7 Cir. 1976), Cert. denied, 429 U.S. 1096 (1977); Ward v. Pennsylvania N.Y. Central Transportation Co., 456 F.2d 1046 (2 Cir. 1972); Walter E. Heller & Co. v. Cox, 379 F.Supp. 299, 307 (S.D.N.Y.1974).

Appellants argue that this exception to § 2283 is not applicable here because they are not precluded by res judicata from raising their claims in the state courts. Appellants contend that the district court did not consider or rule on their claims against the Bank and DASA based upon the applicable State law of fiduciary duty; and further that the dismissal in favor of the Bank was not on the merits. We reject both contentions.

Appellants most assuredly asserted in the district court their claims based on state law. In their original complaint, appellants alleged that the Bank, by its inaction, violated its fiduciary obligations under the indenture as well as under the statute. At several points during the proceedings in the district court appellants asserted that their claims were based on non-contract State fiduciary law as well as on the applicable federal law.

In their recently commenced New York County Supreme Court action against DASA, appellants allege a breach of fiduciary duty under State law. This claim also was raised in the district court.

Moreover, it is too well established, especially by our recent decisions, to require dilation here, that res judicata is binding upon parties as to issues which Might have been raised but were not. See, e. g., Sanchez v. Caribbean Carriers Limited, 552 F.2d 70, 72 (2 Cir. 1977); Grand Bahama Petroleum Co. v. Asiatic Petroleum Corp., 550 F.2d 1320, 1323 (2 Cir. 1977); Weston Funding Corp. v. Lafayette Towers, Inc., 550 F.2d 710, 712-15 (2 Cir. 1977). Thus, even if the district court had not ruled explicitly on the state law fiduciary claims now sought to be raised in the state courts, litigation of such claims nevertheless would be barred by res judicata.

We also reject the contention that the district court's dismissal of the action against the Bank was not "on the merits". In the action as originally commenced in the district court the claims against the Bank were dismissed for failure to post a bond. Such an involuntary dismissal for failure to comply with a court order constitutes a dismissal on the merits. Fed.R.Civ.P. 41(b). Moreover, the dismissal here clearly was on the merits since the district court imposed the bond...