First Alabama Bank of Montgomery, N.A. v. Parsons Steel, Inc.
| Decision Date | 04 December 1984 |
| Docket Number | No. 83-7395,83-7395 |
| Parties | FIRST ALABAMA BANK OF MONTGOMERY, N.A., and Edward Herbert, Plaintiffs- Appellees, v. PARSONS STEEL, INC., et al., Defendants, A. Pope Gordon, Trustee in Bankruptcy for the Estate of Parsons Steel Industries, Inc., Parsons Steel, Inc., Jim D. Parsons and Melba L. Parsons, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
James Jerry Wood, Thomas R. DeBray, Montgomery, Ala., for Gordon.
Frank M. Wilson, Montgomery, Ala., for Parsons & Parsons Steel, Inc.
M.R. Nachman, Jr., James A. Byram, Jr., Montgomery, Ala., for plaintiffs-appellees.
Appeals from the United States District Court for the Middle District of Alabama.
Before GODBOLD, Chief Judge, HILL, Circuit Judge, and THORNBERRY *, Senior Circuit Judge.
Appellants are appealing from a district court order enjoining them from further prosecution of an Alabama circuit court case on the grounds that, under principles of res judicata, the state action should have been barred by a prior federal court judgment. We hold that, in general, the injunction was not an abuse of discretion. We remand the case, however, with instructions that the district court make further fact findings and, if necessary, modify the existing injunction.
This case involves two separate lawsuits stemming from a series of bank transactions involving the First Alabama Bank of Montgomery ("Bank"), Edward and Melba Parsons, and Parsons Steel Industries, Inc., of Montgomery ("Parsons-Montgomery"). Parsons-Montgomery was a wholly owned subsidiary of Parsons Steel, Inc. ("Parsons-Mobile"), and this parent company was in turn co-owned by Melba and Edward Parsons. 1
The subsidiary, Parsons-Montgomery, was heavily financed by the Bank, and by the fall of 1978 it owed the Bank one million dollars in secured loans. Anticipating that Parsons-Montgomery would be unable to make payments on these loans, Edward Parsons and the Bank began to discuss the possibility of refinancing the company, or of selling the company to a third party. After one attempt to sell the company failed, the Bank contacted a local businessman and customer, Michael Orange. Although Orange did not want to purchase the company, he and Parsons agreed in December 1978 that Orange would assume management of the company for a fee and a stock option. Orange soon discovered that the company was in worse condition than he had been led to believe, and he resigned. After Orange bailed out, in January 1979 the Bank commenced foreclosure proceedings against Parsons-Montgomery. The subsidiary's assets were sold to Michael Orange's corporation, OSI, Inc. 2 in a foreclosure sale.
Edward and Melba Parsons, Parsons-Montgomery and Parsons-Mobile filed suit against the Bank and bank officer Edward Herbert in an Alabama circuit court in February 1979. That suit also named Michael Orange and OSI, Inc. as defendants. The complaint, in essence, 3 alleged that the Bank had fraudulently forced the Parsons to allow Michael Orange to take control of Parsons-Montgomery, and eventually to obtain complete ownership of that company. The complaint also included various counts against Orange and OSI, Inc. alleging inter alia wrongful conversion of company assets and breach of fiduciary duty.
In May 1979, Melba and Edward Parsons and Parsons-Mobile filed suit against the Bank in federal district court. Parsons-Montgomery was not a party to this action. That company had been adjudicated an involuntary bankrupt in April 1979 and the trustee in bankruptcy chose not to participate in the suit. In the state action, however, the trustee was added as a party plaintiff by the state court in October 1979.
The complaint filed in federal court alleged that the Bank had violated the Bank Holding Company Act Amendments, 12 U.S.C. Secs. 1971-1978 ("BHCA"), by forcing the Parsons to allow Orange to take control, and ultimately ownership, of Parsons-Montgomery. Such action, the complaint alleged, constituted a type of unusual banking procedure prohibited under the Act. 4
Discovery was conducted jointly and simultaneously in the federal and state actions. The federal court severed the liability issue from the damages issue, and proceeded to trial before the state court action. After a jury trial in favor of the plaintiffs, the court entered a judgment n.o.v. for the defendant Bank in June 1981. This decision was affirmed in Parsons Steel, Inc. v. First Alabama Bank of Montgomery, 679 F.2d 242 (11th Cir.1982).
The Bank raised the defenses of res judicata and collateral estoppel in state court after the federal judgment was entered, but the state court ruled that res judicata did not bar the state action. Almost a year after the federal judgment, the trustee in bankruptcy for Parsons-Montgomery amended the state court complaint to include a UCC claim that the bank's foreclosure sale of Parsons-Montgomery's assets was commercially unreasonable. In January 1983, Michael Orange and OSI, Inc. were dismissed as defendants in the state suit as a result of a pro tanto settlement. After a jury trial in state court, the jury returned a general verdict in favor of the plaintiffs and awarded a total of four million and one dollars in damages. 5
After losing in state court, the Bank and Edward Herbert 6 filed the present action in the same federal district court that had entered the first judgment in the BHCA action. The Bank requested that the district court enjoin the enforcement of the state court judgment on the basis of res judicata and collateral estoppel. The defendants in the present action were the plaintiffs in the state action: Melba and Edward Parsons, Parsons-Mobile, and the trustee in bankruptcy for Parsons-Montgomery.
In a well-reasoned opinion, the federal district court found that the federal BHCA action and the state action were based on the same factual allegations and the damages claimed in each suit were substantially the same. The district court held that any additional state claims relating to the fact situation could have, and should have been raised in federal court under the doctrine of pendent jurisdiction. The BHCA action was therefore res judicata as to the state action. Because the state court judgment in effect nullified the federal court judgment in favor of the Bank, the federal court, pursuant to 28 U.S.C. Sec. 2283, enjoined further prosecution of the state court action in order to protect or effectuate its prior judgment. 7
The district court also held that the trustee in bankruptcy, although not a party to the BHCA action, was bound by the judgment in that action because the trustee was in privity with the parties to that action. Because the facts in this case put the trustee in a different posture from the other appellants, we will address the injunction as it relates to the trustee in a separate section of this opinion after we have resolved the other issues raised in this appeal.
The district court found that the Parsons attempted to split a single cause of action by asserting a BHCA violation in federal court and claims of fraud and commercial unreasonableness in state court. In both actions the plaintiffs claimed that the Bank had deliberately put Parsons-Montgomery in a position where it could not pay its debts. The Bank then allegedly promised further credit only on the condition that the Parsons allow Michael Orange, a valued customer of the Bank, to take control of the company. The Parsons claimed that they had no choice but to relinquish control of their company. After Orange decided that the management arrangement was unsatisfactory, he and the Bank allegedly devised a plan whereby the Bank would foreclose on the company's assets and Orange's company would purchase the assets at the foreclosure sale. These activities were claimed to be a violation of the BHCA in federal court. The same activities were the basis for the fraud claims in state court. The district court also found that the claim that the foreclosure sale was made at a commercially unreasonable price appeared in the federal case as evidence of damages and in the state case as a violation of the UCC.
In an opinion granting the Bank's motion for judgment n.o.v., the federal court made several important findings of fact in addition to holding that the Bank did not violate the BHCA. The plaintiffs in the BHCA action had attempted to prove that the Bank, as a condition of an extension of credit, required the Parsons to relinquish control and ownership of their business to Orange. The federal court found as a matter of fact that the Bank did not require the Parsons to give up control or ownership of their company. Although the Bank introduced Orange to Parsons as a potential purchaser of the company, Parsons and Orange reached an agreement independently of the Bank. The agreement provided that Orange was to manage the business in exchange for a fee and a stock option. The court found that the stock option was included in the deal, not as a method by which Orange could wrench ownership away from the Parsons, but simply as a means of compensation because cash flow problems prevented the company from paying Orange entirely in cash. In the final analysis, the district court found that the Bank had not promised the Parsons anything, nor had it forced the Parsons to take any action. It was not until the actual foreclosure and sale of assets, a normal procedure, that the Parsons had to give up ownership of the company's assets, which resulted in Parsons-Montgomery being adjudicated an involuntary bankrupt. It is undisputed that the Bank, at all relevant times, had a right to proceed with this foreclosure.
In view of these findings, the district court in this injunction proceeding found that its earlier judgment was res judicata as to the Parsons' state claims of fraud and commercial unreasonableness.
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