Columbia Plaza Corp. v. Security Nat. Bank
| Decision Date | 10 October 1975 |
| Docket Number | No. 73-1919,73-1919 |
| Parties | COLUMBIA PLAZA CORPORATION et al., Appellants, v. SECURITY NATIONAL BANK et al. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Herbert E. Milstein, Washington, D.C., with whom Jerry S. Cohen and Michael D. Hausfeld, Washington, D.C., were on the brief, for appellants.
Frank F. Roberson, Washington, D.C., with whom William A. Bradford, Jr., Washington, D.C., was on the brief, for appellees.
Before BAZELON, Chief Judge, and ROBINSON and MacKINNON, Circuit Judges.
Opinion for the Court filed by Circuit Judge SPOTTSWOOD W. ROBINSON, III.
Appellants, 1 plaintiffs in an action pending against appellees 2 in the District Court for the District of Columbia, moved therein for a preliminary injunction restraining appellees from prosecuting in the District Court for the Southern District of New York a separate action based on matter allegedly required to be asserted as a counterclaim in the District of Columbia lawsuit. The District Court denied the motion, 3 and the propriety of its ruling is the subject of this review. We reverse, concluding that key factors demand litigation of the two actions in a single forum, and demonstrate beyond peradventure that they can most conveniently be litigated in this jurisdiction. We shall describe the circumstances leading to the appeal, 4 discuss the pertinent legal principles, 5 and detail the considerations mandating reversal. 6
Columbia Plaza Corporation, a wholly-owned subsidiary of John McShain, Inc., held title to a parcel of land in the District of Columbia. In 1970, Columbia Plaza entered into an agreement with some of the defendants in the local suit--the Pomponios 7--by which the latter would erect an office building on the land and on completion pay Columbia Plaza $5 million for the site. Appellee Royal National Bank, a New York institution, made a commitment for a $13 million construction loan, Columbia Plaza gave Royal a deed of trust as security, and an instrument purportedly signed by McShain guaranteed repayment of the loan. Subsequently, Royal merged with appellee Security National Bank, which like Royal is located in New York.
In August, 1972, the fund derived from the construction loan was about exhausted but the office building was far from finished. McShain charges that inability to complete the building with the initial financing was the result of a conspiracy through which construction monies were diverted to other Pomponio projects 8 or to the conspirators personally. To keep the project moving, three short-term notes payable to Security, aggregating nearly $600,000, were executed in McShain's name. 9 Both Security and McShain expected that the construction loan would be increased and McShain was to receive the first $600,000 of the increase for discharge of the notes. 10 Refinancing was never completed, however, for reasons of which we are unaware. McShain now claims that execution of the notes on its behalf was unauthorized and that substantially all of the funds they generated were paid out in furtherance of the conspiracy.
On October 10, 1972, McShain filed suit in the District Court for the District of Columbia to enjoin foreclosure of the deed of trust, to annul the guaranty, and to recover compensatory and punitive damages. 11 McShain's complaint did not expressly refer to the notes, of which two had already matured and the third of which was due six days later. Security sued in a state court in New York on October 18 to recover on the notes.
McShain removed Security's action to the District Court for the Southern District of New York. 12 McShain then made alternative motions to dismiss, stay or transfer that action, contending that its subject matter could be stated only as a compulsory counterclaim in the previously-filed District of Columbia action. The motions were denied and McShain sought a writ of mandamus from the Court of Appeals for the Second Circuit. The petition for the writ was also denied, but the Second Circuit directed the Southern District to stay the New York action for sixty days to permit McShain to move in the District of Columbia to enjoin its prosecution. 13 The court further directed that, if the motion were made, the stay remain in effect until its 'final determination.' 14
On February 27, 1973, while the parties were thus engaged on the New York front, McShain filed an amended complaint 15 in the District Court for the District of Columbia. The final two counts of this complaint alleged that the note transaction was drawn into the conspiracy alleged in the original complaint, 16 and sought a permanent injunction against further proceedings in New York. Thus Security was seeking in New York to recover on the notes while at the same time McShain was seeking in the District of Columbia to prevent recovery.
After the ruling in the Southern District, but before the Second Circuit disposed of the mandamus petition, McShain filed in the District of Columbia suit a motion for a preliminary injunction. McShain reasoned that the funds advanced on the notes were directly related to the construction project involved in its original complaint, that the issues in the two cases were identical and arose out of the same transaction, that the New York claim was therefore a compulsory counterclaim, and that prosecution of the New York action should be enjoined because the District of Columbia action was filed earlier. The District Court denied the motions, pointing in its order to several circumstances. The Court stated that 'although (Federal Civil) Rule 13(a) 17 may authorize one federal court to enjoin a related proceeding in a second federal court, . . . two suits between the same parties on the same cause of action in two different jurisdictions may proceed concurrently. . . .' 18 The court further stated that McShain's motion to transfer the New York action 'raised substantially the same questions as are now raised in support of the present motion for preliminary injunction, and that these questions were considered and rejected by the' District Court for the Southern District of New York before McShain moved for the preliminary injunction. 19 The court deemed significant the fact that the issues on which the motion was based were tendered by amendment only after the New York action was filed, 20 and felt 'that the three notes, not having been included in the original complaint, may have been considered to form the basis of a separate claim. . . .' 21 The court made no express finding as to whether, within the meaning of Rule 13(a), the execution of the notes was part of the same 'transaction or occurrence' involved in McShain's original complaint. 22
McShain argues that the three short-term notes were executed as a part of the transaction embracing the original construction loan, and that therefore the critical issue in the New York action--the enforceability of those notes--is properly the subject of a compulsory counterclaim in the District of Columbia action, which challenges various aspects of the loan. That the notes were not mentioned until McShain filed the amended complaint is irrelevant, we are told, because for purposes of Rule 13(a) the 'transaction or occurrence' 23 implicated by an original complaint need not be fully defined by the facts alleged therein. McShain thus concludes that the District Court was required to enjoin further prosecution of the New York action. Security's response is that the subject matter of that action was never a part of the construction-financing transaction 24 addressed by the original complaint in the District of Columbia.
Federal Civil Rule 13(a) provides in relevant part that '(a) pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.' 25 The purpose of the rule is 'to prevent multiplicity of actions and to achieve resolution in a single lawsuit of all disputes arising out of common matters.' 26 The Supreme Court has given the operative term 'transaction' 27 a broad definition:
'Transaction' is a word of flexible meaning. It may comprehend a series of many occurrences, depending not so much upon the immediateness of their connection as upon their logical relationship. . . . Essential facts alleged by appellant enter into and constitute in part the cause of action set forth in the counterclaim. That they are not precisely identical, or that the counterclaim embraces additional allegations . . . does not matter. To hold otherwise would be to rob this branch of the rule of all serviceable meaning, since the facts relied upon by the plaintiff rarely, if ever, are, in all particulars, the same as those constituting the defendant's counterclaim. 28
Consequently, in determining whether the New York subject matter is properly a compulsory counterclaim in the District of Columbia suit, we must assess the degree of 'logical relationship' between the two actions. 29 We must also remain mindful that the term 'transaction' is to be construed generously to avoid the unnecessary expense inherent in multiplicious litigation. 30
McShain allegedly executed the three notes sued on in New York for the sole purpose of avoiding a shutdown of a construction project. That project was the erection of the same office building involved in the original complaint. Furthermore, when the notes were executed, the parties allegedly expected that the original loan for construction of the building would be increased to provide the funds for payment of the notes. 31 The notes were...
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