Resolute Insurance Company v. State of North Carolina, Civ. A. No. 2064.

• Decision Date: 07 December 1967
• Docket Number: Civ. A. No. 2064.
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: RESOLUTE INSURANCE COMPANY, Plaintiff, v. STATE OF NORTH CAROLINA, Edwin Lanier, Commissioner of Insurance of North Carolina, Union County, and Union County Board of Education, Defendants.

276 F. Supp. 660

RESOLUTE INSURANCE COMPANY, Plaintiff, v. STATE OF NORTH CAROLINA, Edwin Lanier, Commissioner of Insurance of North Carolina, Union County, and Union County Board of Education, Defendants.

Civ. A. No. 2064.

United States District Court E. D. North Carolina, Raleigh Division.

Heard November 9, 1967.

Decided December 7, 1967.

COPYRIGHT MATERIAL OMITTED

George W. Miller, Jr., of Haywood, Denny & Miller, Durham, N. C., for plaintiff.

Ralph Moody, Asst. Atty. Gen., Justice Dept., Raleigh, N. C., for defendants.

HEMPHILL, District Judge.

Facts giving rise to the forfeiture of the bonds in question arose after the defendants Mallory, Crowder and Reep had been indicted, tried and convicted by the Superior Court of Union County. The plaintiff herein then became surety of the appearance bonds on the appeal to the North Carolina Supreme Court. The appeal alleged systematic exclusion of Negroes from the Grand Jury. The Supreme Court reversed the convictions and quashed the indictments on the grounds of systematic exclusion. State v. Mallory, 263 N.C. 536, 139 S.E.2d 870 (1965).

The North Carolina Supreme Court closed its opinion with the following:

The indictments are quashed and the verdicts and judgments are vacated for want of valid indictments to support them. It does not follow that defendants are entitled to discharge and dismissal of the charges. If the State so elects it may send new bills and if they are returned true bills by an unexceptional grand jury, defendants may be tried thereon for the offenses alleged. State v. Mallory, supra.

The face of the appeal bond stated that the plaintiff became surety on the appearance bond of defendants conditioned on their appearance at the May 4, 1964 Term of the Union County Superior Court and at each succeeding term of court pending final disposition of the case.

The decision of the North Carolina Supreme Court quashing the indictments was issued on January 29, 1965. At the May 3, 1965 Session of the Union County Superior Court it was determined that the jury was properly drawn and constituted. The grand jury found on May 4, 1965 true bills against all defendants. All three defendants were called out in open court and failed to answer. A judgment nisi was entered. On May 7, 1965 a sci fa was served upon the plaintiff, Resolute Insurance Company, by serving its agent, Richard F. Taylor. Writs of sci fa were sent out for the individual defendants and were served on the surety.

The sci fa ordered the defendants to show cause on August 30, 1965, why judgment absolute should not be had on the bonds. The plaintiff, Resolute, through counsel, appeared and filed answer to the sci fa. After a hearing in open court, the courts entered judgment absolute on the bonds. The defendants Crowder, Mallory and Reep were not served as they could not be found. From this judgment the plaintiff herein appealed to the Supreme Court of North Carolina. The basic contention of the plaintiff before the Honorable John McConnell, Superior Court Judge, the Supreme Court of North Carolina and the United States Supreme Court is that no one was put on notice that the case would be called for trial at the May 1965 Session of Court. The Supreme Court of North Carolina in an opinion handed down on December 15, 1965 held that the plaintiff was liable on the appearance bonds which are the subject of this action. State v. Mallory, 266 N.C. 31, 145 S.E.2d 335 (1965). Thereafter the plaintiff filed an Application for Certiorari in the Supreme Court of the United States in which it attempted to have the opinion of the Supreme Court of North Carolina reviewed. The Petition for Certiorari was dismissed by the Supreme Court of the United States on May 2, 1966. No. 1172 Mallory, et al., Petitioner v. North Carolina, 384 U.S. 928, 86 S.Ct. 1443, 16 L.Ed.2d 531.

The plaintiff then instituted this action in the federal court in Raleigh seeking an injunction against the State of North Carolina, Edward Lanier, Commissioner of Insurance of North Carolina, Union County and Union County Board of Education.

The plaintiff's main contention is that since it was given no notice at the May 4, 1965 session of the Union County Superior Court it will be subsequently denied due process of the law if the State of North Carolina is allowed to sell the securities held by the Insurance Commissioner of North Carolina. In effect the plaintiff alleges that the decision of the North Carolina Supreme Court holding that the plaintiff was liable on the appearance bonds is erroneous.

It is undisputed that defendants, or some of them, plan such a sale pursuant to North Carolina General Statute 58-184.¹ Specifically involved are bonds² deposited, in order to do business in North Carolina, by plaintiff, with the North Carolina Commissioner of Insurance. This is required by North Carolina statute.³

Hearing was held before this court, sitting by designation, at Raleigh, North Carolina, November 9, 1967. On November 10, 1967 counsel entered into a stipulation, approved by the court, that proceeding to sell the securities under G.S. § 58-184 would be held in abeyance for 30 days, at the end of which time the status of the parties would not be prejudiced by the stipulation.⁴

Plaintiff initially claimed jurisdiction under 28 U.S.C. § 1331(a).⁵ At the hearing in this court plaintiff asked, and received, permission to amend his Complaint so as to allege jurisdiction under 28 U.S.C. § 1332.⁶

At the hearing the defendants moved to dismiss the plaintiff's motion for injunctive relief on the following grounds:

(a) The Complaint fails to state a claim upon which relief can be granted by the court.

(b) Under the allegations of the Complaint plaintiff has no possible right to relief under any state or set of facts which could be proved in support of its claim or allegations.

(c) Under the allegations of the Complaint plaintiff has no possible right to relief on any theory, under any discernible circumstances, and there is an utter lack of law and alleged facts.

The basic thrust of the defendants' contention is that there is no jurisdiction in the Federal District Court.

The court is without jurisdiction to entertain this suit for a multiple of reasons. The court is under a positive duty to decline jurisdiction.

An integral claim of plaintiff's cause of action is based on an assertion that the decision of the court of highest jurisdiction of the State of North Carolina was erroneous. Title 28 U.S.C.A. § 1331 does not afford a basis for jurisdiction in the federal court upon the allegation that a judgment of the State Court was erroneous, arbitrary and capricious and that the plaintiff was thus denied due process of law.

In Williams v. Tooke, et al., 108 F.2d 758 (5th Cir. 1940), cert. den. 311 U.S. 655, 61 S.Ct. 8, 85 L.Ed. 419, the allegation of plaintiff's Complaint was to the effect that the Texas State Court had decided arbitrarily, capriciously and erroneously against the plaintiff. In dismissing the suit for want of jurisdiction, the Circuit Court said:

The purpose of the suit is clearly to seek a review of the decisions of the Texas courts and the reversal of those decisions for error. The jurisdiction of the District Court is strictly original. It has no jurisdiction to reverse or modify the judgment of a state court. The errors complained of could be reviewed only by the Supreme Court. Rooker v. Fidelity Trust Co., 263 U.S. 413, 44 S.Ct. 149, 68 L.Ed. 362. It was the duty of the District Court to dismiss the suit.

In Carolina-Virginia Racing Ass'n v. Cahoon, 214 F.2d 830 (4th Cir. 1954), plaintiff attempted a federal court attack on the decision of the North Carolina Supreme Court. In dismissing the case the Court said:

It is true that the courts of a state have the supreme power to interpret and declare the written and unwritten laws of the state; that this court's power to review decisions of state courts is limited to their decisions on federal questions; and that the mere fact that a state court has rendered an erroneous decision on a question of state law, or has overruled principles or doctrines established by previous decisions on which a party relied, does not give rise to a claim under the Fourteenth Amendment or otherwise confer appellate jurisdiction on this court.

The plaintiff's case presents an issue of State law already decided by the State Supreme Court. See Rooker v. Fidelity Trust Co., supra; Stafford v. Superior Court of Cal., etc., 272 F.2d 407 (9th Cir. 1959), cert. den. 362 U.S. 979, 80 S.Ct. 1064, 4 L.Ed.2d 1013; Drawdy Investment Company v. Leonard, 261 F.2d 226 (5th Cir. 1958).

The judgment of the North Carolina Supreme Court is res judicata, especially in view of the fact that certiorari to the Supreme Court of the United States was denied.⁷

Plaintiff's complaint involves the same parties and the identical issues as were decided by the North Carolina courts. The assertion in the State Court was that no notice had been served or given to plaintiff.

By merely failing to raise the constitutional issue in the state action, appellants could not preserve for themselves the right to enter a federal court at a later date upon the same facts, alleging the same wrong, and seeking the same recovery, simply because they present a new theory based upon the Constitution. Tomiyasu v. Golden, 358 F.2d 651 (9th Cir. 1966).

"A state court judgment is binding and conclusive on the parties and their privies in any subsequent action between them in federal court as to all matters actually in issue and decided in the state court action, and, under some circumstances, as to all matters that might have been litigated." 50 C.J.S. Judgments § 900 (1947).

While State and Federal Courts are a part of the dual system of courts, they are also a part of the federal scheme of government. Thus, the litigation of an action in one of the systems of courts, if the judgment be final, is binding upon the other. Each of...