BANK OF HEFLIN v. MILES No. 78-2764.
621 F.2d 108 (1980)
BANK OF HEFLIN, an Alabama Banking Corporation, Plaintiff-Appellee, v. M. M. MILES, Jack R. Wood and Jacqueline S. Wood, Defendants-Appellants.
United States Court of Appeals, Fifth Circuit.
July 7, 1980.
James D. Pruett, Gadsden, Ala., W. Eugene Rutledge, Anniston, Ala., for defendants-appellants.
Wilson, Propst, Isom, Jackson, Bailey & Bolt, Robert B. Propst, Anniston, Ala., John S. Casey, Heflin, Ala., for plaintiff-appellee.
Before SIMPSON, HILL and HATCHETT, Circuit Judges.
HATCHETT, Circuit Judge:
Stockholders of the Bank of Heflin appeal from a district court judgment, which granted the Bank injunctive relief from adverse state court judgments and which declared unconstitutional Title X, § 21(46), Code of Alabama (1958). The stockholders had sought an unlimited inspection of the Bank's books and records. Because we find that the district court properly granted the Bank a permanent injunction but improperly found section 21(46) unconstitutional, we affirm in part and reverse in part.
FACTS AND PROCEDURAL HISTORY
In August 1974, Miles, a stockholder of the Bank of Heflin, wrote to the Bank requesting an unlimited inspection of its books and records pursuant to Title X, § 21(46), Code of Alabama (1958). Section 21(46) provides:
Miles and other stockholders sought to ascertain whether bank officers and directors had violated their fiduciary duty by acting against the best interest of its stockholders in misusing corporate funds, abusing corporate office, diverting or misapplying corporate assets for personal benefit, or favoring certain customers.
The stockholders petitioned the Supreme Court of Alabama for a writ of mandamus on the scope of the inspection question and appealed the circuit court's order on the statutory penalty. On August 21, 1975, the Alabama Supreme Court, in an interlocutory order, granted the writ of mandamus, holding that the inspection was requested for "proper purposes" under section 21(46) and directing the circuit court "to enter an order allowing examination and audit of all books and records of the Bank." Bank of Heflin v. Miles, 318 So.2d 697, 701 (Ala. 1975).
While the stockholders' appeal on the statutory penalty was pending before the Alabama Supreme Court, the FDIC, on September 29, 1975, filed a complaint in federal district court pursuant to 12 U.S.C. § 1819
On March 6, 1976, the Supreme Court of Alabama published its decision reversing the state circuit court order on the statutory penalty. Miles v. Bank of Heflin, 328 So.2d 281 (Ala.1976). This decision was the first Alabama Supreme Court final judgment in this proceeding. The court held that the Bank refused to allow inspection and that the refusal was "without reasonable cause" under section 21(46). The court reasoned:
Id. at 286-87.
Because the Bank refused to allow inspection without reasonable cause, the Alabama Supreme Court directed the circuit court to assess against the Bank the ten percent penalty imposed by the statute.
On remand, the circuit court, on October 1, 1976, ordered the Bank to permit inspection and to pay the statutory penalty pursuant to the Alabama Supreme Court mandate. The circuit court limited the time in which the stockholders were allowed to inspect the Bank's records to seven days. In light of this limitation, the stockholders appealed again to the Alabama Supreme Court alleging the denial of adequate time for inspection. The Bank cross-appealed from the award of the statutory penalty granted by the circuit court on remand. As part of their appeal, the stockholders complained also that the Bank had denied access to certain accounts receivable, "aging reports," in direct contravention of the supreme court mandate and circuit court order. The Alabama Supreme Court agreed, and held that the stockholders must be allowed a full and complete inspection unrestricted by "a precise, preset time limitation." Miles v. Bank of Heflin, 349 So.2d 1072, 1076 (Ala.1977).
On June 4, 1976, while the case was pending in the state's circuit court on remand, the Bank had filed an original action in federal district court seeking an order enjoining enforcement of the Alabama Supreme Court judgment on the statutory penalty and nullifying all Alabama state court orders in conflict with the federal district court order of November 26, 1975. The Bank also sought a federal court injunction against any further proceedings in Alabama circuit court. On July 17, 1978, the federal district court entered the judgment from which the stockholders now appeal.
THE DISTRICT COURT ORDER
Believing that federal injunctive relief was necessary to protect or effectuate its prior judgment, the district court asserted jurisdiction under the Anti-Injunction Act, 28 U.S.C. § 2283.
Having made these findings, the district court concluded that the Bank was entitled to judgment as a matter of law and granted final summary judgment for the Bank. All state court judgments were declared null and void to the extent inconsistent with the district court order of November 26, 1975. The Alabama Supreme Court directive and circuit court order imposing the statutory penalty were "cancelled and declared null and void." The stockholders were permanently enjoined from seeking enforcement
The critical issues are whether the district court correctly imposed an injunction to protect or effectuate its prior judgment, and whether the district court correctly declared section 21(46) unconstitutional.
The district court opinion may be divided into two sections. In the first section, the court held that an injunction staying state court proceedings and enjoining enforcement of the penalty was necessary in order to effectuate its prior judgment of November 26, 1975. In the second section, the district court declared section 21(46) unconstitutional pursuant to its authority to "redress the deprivation . . . of . . right[s] . . . secured by the Constitution." 28 U.S.C. § 1343(a)(3). We will consider these two rulings separately.
Imposing Injunction to Effectuate Prior Judgment
The district court correctly asserted jurisdiction under the Anti-Injunction Act, 28 U.S.C. § 2283, to protect or effectuate its prior judgment of November 26, 1975.
The district court's prior judgment was valid. Only at that time were the three involved parties, the Bank, the stockholders, and the FDIC, before the same tribunal. The court interpreted the validity of 12 C.F.R. § 309.1(c)(ii), found the regulation valid and applicable, and permanently enjoined the defendant Bank from making public the FDIC documents and the related portions of the board of director's minutes. This final federal court judgment of November 26, 1975, from which no appeal was taken, preceded the first Alabama Supreme Court final judgment of Miles v. Bank of Heflin, rendered on March 5, 1976.
In light of this, the district court was correct in asserting that:
Substantial authority supports the district court's conclusion. As the Supreme Court recently articulated:
State of Montana v. United States, 440 U.S. 147, at 153, 99 S.Ct. 970, 973, 59 L.Ed.2d 210 (1979).
In situations analogous to the present circumstance involving a section 2283 injunction,
Id. at 1267.
In Seaboard Coast Line R. Co. v. Union Camp Corp., 613 F.2d 604 (5th Cir. 1980), the district court had interpreted a contract containing two indemnity provisions. Subsequently, the parties relitigated in state court where at issue was the same indemnity agreement. The district court then permanently enjoined one of the prior federal court parties from challenging the previously resolved issue. On appeal, this court applied the doctrine of collateral estoppel and held that section 2283 did not prohibit district court jurisdiction to permanently enjoin one of the federal court parties from relitigating in state court the contract issue previously resolved in federal court.
As a further basis for applying the doctrine of collateral estoppel, we refer to the Restatement of Judgments, which states "[w]here an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim." Restatement of Judgments § 68 (1942).
Here, the district court determined the Bank's disclosure obligations under the FDIC regulation and issued its injunction. The stockholders should not have then been allowed to assert in state court that they would not accept "any limitation of their examination." The stockholders should have been precluded from re-litigating in state court an issue that had previously been determined in federal court. The effect of the state court judgments allowing the stockholders examination of "all books and records of the Bank" and imposing the statutory penalty was to decide favorably for the stockholders on an issue that had definitely been litigated adversely to the stockholders in federal court.
Therefore, we hold that the district court properly granted the Bank a permanent injunction in order to protect its prior final judgment.
Order Declaring Section 21(46) Unconstitutional
The district court held that section 21(46) "unreasonably limits access to the courts in violation of the fourteenth amendment. . . ." It also held the statutory penalty a violation of due process of law. The district court said that "section 21(46) makes the mere filing by a bank of a declaratory judgment action . . . a violation of the law and ground for immediate imposition of a potentially erroneous penalty. . . ."
The Alabama Supreme Court, faced with the constitutionality of section 21(46) in Miles v. Bank of Heflin, rejected the notion that its construction of the case made the mere filing of an action a "refusal" to allow inspection. It stated:
328 So.2d at 287, (emphasis added).
State courts have the right to construe their own statutes. Beal v. Missouri
Accordingly, because we hold that the district court properly granted the Bank a permanent injunction but erroneously declared section 21(46) unconstitutional, we affirm that part of the judgment relating to protecting and effectuating its prior judgment. We also affirm that part of the judgment that declares the decisions applying the statutory penalty null and void and permanently enjoins collection of the penalty. We reverse only that part of the judgment that relates to the improper unconstitutional finding.
AFFIRMED IN PART, REVERSED IN PART.
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