First Alabama Bank of Montgomery, N.A. v. Parsons Steel, Inc.

• Decision Date: 21 August 1987
• Docket Number: Nos. 85-7343,86-7506,s. 85-7343
• Parties: FIRST ALABAMA BANK OF MONTGOMERY, N.A., and Edward Herbert, Plaintiffs- Appellees, v. PARSONS STEEL, INC., Jim D. Parsons, Melba L. Parsons, and Parsons Steel Industries, Inc., Defendants, Tom McGregor, as Trustee in Bankruptcy for Parsons Steel Industries, Inc., Defendant-Appellant. FIRST ALABAMA BANK OF MONTGOMERY, N.A., and Edward Herbert, Plaintiffs- Appellees, v. PARSONS STEEL, INC., Jim D. Parsons, Melba L. Parsons, and Parsons Steel Industries, Inc., Defendants-Appellants, Tom McGregor, as Trustee in Bankruptcy for Parsons Steel Industries, Inc., Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1475

825 F.2d 1475

FIRST ALABAMA BANK OF MONTGOMERY, N.A., and Edward Herbert, Plaintiffs- Appellees, v. PARSONS STEEL, INC., Jim D. Parsons, Melba L. Parsons, and Parsons Steel Industries, Inc., Defendants, Tom McGregor, as Trustee in Bankruptcy for Parsons Steel

Industries, Inc., Defendant-Appellant.

FIRST ALABAMA BANK OF MONTGOMERY, N.A., and Edward Herbert, Plaintiffs- Appellees, v. PARSONS STEEL, INC., Jim D. Parsons, Melba L. Parsons, and Parsons Steel Industries, Inc., Defendants-Appellants, Tom McGregor, as Trustee in Bankruptcy for Parsons Steel

Industries, Inc., Defendant-Appellant.

Nos. 85-7343, 86-7506.

United States Court of Appeals, Eleventh Circuit.

Aug. 21, 1987.

James Jerry Wood, James T. Sasser, Montgomery, Ala., for McGregor.

Donald R. Harrison, Montgomery, Ala., for Parsons, et al.

James A. Byram, Jr., Steiner, Crum & Baker, M. Roland Nachman, Jr., Balch & Bingham, Montgomery, Ala., for plaintiffs-appellees.

Appeals from the United States District Court for the Middle District of Alabama.

Before HILL and JOHNSON, Circuit Judges, and HENLEY, ^* Senior Circuit Judge.

JOHNSON, Circuit Judge:

This consolidated appeal challenges the propriety of the district court's continuance of an injunction issued in favor of Appellees, First Alabama Bank ("First Alabama") and bank officer Edward Herbert against further prosecution of a state court action filed against Appellees by Appellants Parsons Steel, Inc. ("Parsons-Mobile"), Jim D. and Melba Parsons ("Parsons"), and Tom McGregor, trustee in bankruptcy of Parsons Steel Industries, Inc. of Montgomery ("Parsons-Montgomery") in the Circuit Court of Montgomery County, Alabama. ¹ All Appellants challenge the district court's order continuing the injunction in force. McGregor also appeals the district court's order refusing to modify the injunction to allow him to pursue a UCC claim in state court. We affirm.

I. BACKGROUND

This case arises out of a series of bank transactions involving First Alabama and Parsons-Montgomery, a wholly owned subsidiary of Parsons-Mobile, ninety-nine percent of the stock of which is in turn owned by Parsons. This is the third time this Court has been called upon to review judgments in litigation arising out of those transactions.

In the fall of 1978, Parsons-Montgomery owed First Alabama one million dollars in secured debt. Anticipating that ParsonsMontgomery would not be able to pay this debt, Parsons and First Alabama discussed possible refinancing or sale of the business. After one attempt to sell failed, First Alabama contacted one of its customers, Michael Orange. Orange did not want to purchase the company but agreed with Parsons in December 1978 to manage the company for a fee and stock option. Orange soon resigned, and First Alabama commenced foreclosure proceedings against Parsons-Montgomery in January 1979 and sold its assets at a private sale to OSI, Inc., Orange's corporation, for the amount of the outstanding debt.

On February 15, 1979, Parsons-Montgomery, Parsons-Mobile, and Parsons filed suit in Alabama circuit court against First Alabama, Herbert, Orange and OSI, alleging that First Alabama fraudulently forced Parsons to allow Orange to take control of Parsons-Montgomery, and eventually to obtain complete ownership of the company. Orange and OSI eventually were dismissed from the suit pursuant to a pro tanto settlement in January, 1983.

On April 5, 1979, Parsons-Montgomery was adjudicated an involuntary bankrupt. On May 30, 1979, Parsons-Mobile and Parsons filed suit in federal court against First Alabama alleging that the same actions of First Alabama that gave rise to the state law suit violated the Bank Holding Company Act, 12 U.S.C.A. Secs. 1971 to 1978 ("BHCA"). Parsons-Montgomery and its trustee were not original parties to the federal action, and the trustee chose not to join the action. The trustee was made a party to the state court action pursuant to First Alabama's motion alleging that he was an indispensable party. The trustee participated in joint discovery that was designated for use in both the state and federal action.

The federal action was bifurcated and proceeded to judgment before the state action. After a jury verdict in favor of the plaintiffs, the district court entered a judgment n.o.v. for First Alabama in June 1981. This Court affirmed. Parsons Steel, Inc. v. First Alabama Bank of Montgomery, 679 F.2d 242, 246 (11th Cir.1982) ("Parsons I "). Appellees asserted the federal judgment as res judicata in the state action through motions to dismiss and for summary judgment, which were denied by the state court. On June 11, 1982, the trustee filed an amended complaint in the state action which alleged for the first time that First Alabama's sale of the assets of Parsons-Montgomery was commercially unreasonable in violation of Article 9 of the Uniform Commercial Code ("UCC claim"). Shortly before the state trial was scheduled to begin, the state court entered an order in limine stating that the res judicata issue was not appropriate for presentation to the jury. ² The state trial commenced January 31, 1983. Appellees moved for directed verdict at the close of the plaintiffs' case and at the close of all the evidence, asserting res judicata and collateral estoppel. Both motions were denied. The jury returned a verdict for Appellants in the amount of $4,000,001.00. On February 24, 1983, Appellees filed motions for judgment n.o.v. and new trial, asserting as one basis for judgment n.o.v. the preclusive effect of the prior federal judgment.

On March 7, 1983, Appellees filed a complaint in federal court seeking to enjoin further prosecution of the state court action on the basis of res judicata and collateral estoppel. On June 15, 1983, the district court enjoined further prosecution of the state court action by Appellants, finding that the claims raised in the state court proceeding should have been raised in the federal proceeding and that the trustee, although not a party to the federal action, was in privity with those parties and, therefore, bound by the judgment in the prior federal action as well. At the time of issuance of that injunction, Appellees' motions for judgment n.o.v. and for a new trial were still pending in the state court action. The state court stayed the action in accordance with the injunction on July 6, 1983.

This Court affirmed the district court's decision, except with regard to the district court's determination that the trustee was precluded by the prior federal action from pursuing his UCC claim. First Alabama Bank of Montgomery v. Parsons Steel, Inc., 747 F.2d 1367, 1381 (11th Cir.1984), rev'd, 474 U.S. 518, 106 S.Ct. 768, 88 L.Ed.2d 877 (1986) ("Parsons II "). The Court remanded that issue to the district court "for further fact findings to determine whether the injunction should be modified to allow the Trustee to pursue his UCC claim based only on the actual foreclosure sale." Id. The Parsons II Court held that issuance of the injunction was proper under the relitigation exception to the Anti-Injunction Act, ³ which generally prohibits a federal court from enjoining state proceedings, but excepts from that prohibition, inter alia, injunctions "necessary ... to protect or effectuate its judgments." Id. at 1375. The Court found that the district court's independent determination as to the res judicata effect of the BHCA action was not precluded by the state court's prior determination of that issue because the relitigation exception to the Anti-Injunction Act modified the Full Faith and Credit Statute ⁴ so that "while a federal court is generally bound by other state court determinations, the relitigation exception empowers a federal court to be the final adjudicator as to the res judicata effects of its prior judgments on a subsequent state action." Id. at 1375-76.

The Supreme Court reversed. Parsons Steel, Inc. v. First Alabama Bank of Montgomery, 474 U.S. 518, 106 S.Ct. 768, 773, 88 L.Ed.2d 877 (1986) ("Parsons III "). It rejected this Court's analysis of the effect of the relitigation exception to the Anti-Injunction Act on the Full Faith and Credit Statute, finding that the two provisions could be read consistently by "limiting the relitigation exception of the Anti-Injunction Act to those situations in which the state court has not yet ruled on the merits of the res judicata issue" and that "[o]nce the state court has finally rejected a claim of res judicata, then the Full Faith and Credit Act becomes applicable and federal courts must turn to state law to determine the preclusive effect of the state court's decision." Id. at 772. The Supreme Court thus found that this Court had erred in failing to consider the possible preclusive effect under Alabama law of the state-court judgment. Id. It further found that the district court was in the best position to determine and apply Alabama preclusion law in the first instance and, if the district court found that the state-court judgment was not entitled to preclusive effect under Alabama law and the Full Faith and Credit Act, "it would then be in the best position to decide the propriety of a federal-court injunction under the general principles of equity, comity, and federalism...." Id. at 773.

In accordance with the Supreme Court's decision, this Court issued its mandate reversing the district court judgment and remanding for further proceedings in conformity with the Supreme Court opinion. First Alabama Bank of Montgomery v. Parsons Steel, Inc., 785 F.2d 929 (11th Cir.1986). On remand, the district court found that Alabama law did not give preclusive effect to the state court's determination of the res judicata issue because there was no final judgment in that action and that an injunction was proper under principles of equity, comity and federalism. It therefore ordered that its injunction continue in force. The district court also denied Parsons' motion requesting that the judge recuse...