Opinion ID: 1598165
Heading Depth: 1
Heading Rank: 2

Heading: the battle over the forum

Text: The parties in the first suit, filed March 6, 1963, were Jett and Chamberlain as plaintiffs and Sterling and its individual trustees (Zink and Herbert C. Smyth) as defendants (Jett-Chamberlain action). Diversity necessary for removal to federal court existed on the face of the pleadings. After removal by Sterling, and while motions for leave to join Pack, Kahn, and others as indispensable parties were under submission before the federal court, the second suit was filed July 3, 1963, by Pack, Kahn, and George H. Jett Drilling Company as plaintiffs against all other parties in interest, primarily Jett, Chamberlain and Sterling Oil (Pack-Kahn action), seeking essentially the same relief as sought by the plaintiffs in the Jett-Chamberlain action. Although apparently absent of complete diversity, Sterling Oil removed the Pack-Kahn action alleging fraudulent joinder of parties. In anticipation of the granting of the motion to add parties plaintiff in the Jett-Chamberlain action and on the ground of lack of diversity in the Pack-Kahn action, Jett and Chamberlain filed respective motions to remand as to each of the first two suits. The third suit was filed by Sterling in federal court on November 22, 1963, seeking specific performance of the contract favorable to Sterling, and for an accounting. On January 6, 1964, the federal district court denied the petitions to intervene and the motions to remand, which rulings were appealed by Jett, Chamberlain, Pack, Kahn, and Cornwall (Chamberlain's group). For the reasons set forth in its consolidated opinion, despite a disclaimer filed by Sterling as to any right of action against Pack, Kahn, and Cornwall, the U.S. Fifth Circuit Court of Appeals affirmed as to the Jett-Chamberlain action (holding that none of the non-party petitioners was an indispensable party), and reversed as to the Pack-Kahn action (holding that there was no clear and persuasive evidence of fraud inherent in the bringing of that action while motions to intervene in the Jett-Chamberlain action were still pending). This left the first suit (Jett-Chamberlain action) in the federal forum and remanded the second suit (Pack-Kahn action) to the state forum. The Fifth Circuit Court's opinion, reported in 362 F.2d 723 at 730, concluded (first Jett v. Zink appeal, 1966): The result is unfortunate in that it leaves the same issues pending simultaneously in a state and federal court but we see no escape from our conclusion. The parties here brought it upon themselves in their battle over the forum in which to try their case. On November 3, 1966, the federal district court in the Jett-Chamberlain action granted Sterling's Motion for Summary Judgment and found the Sterling Agreement to be a valid, enforceable and subsisting agreement, which order was supplemented on November 15, 1966, making clear that its November 3 partial summary judgment was limited in its scope to disposition of the issue of Sterling's qualifying to do business. The November 15 order continued: . . . [I]n using such language [as to the validity of the agreement] the court had no intention of determining the meaning or enforceability of any of the specific provisions of the Sterling Agreement which are the subject of controversy between the parties to this cause. [2] Further, on March 11, 1971, the federal district court denied Sterling's motion, based on the partial summary judgment, to strike amendments by Jett and Chamberlain to their earlier complaint and answer to Sterling's cross claim, which amendments questioned the validity of the Sterling Agreement on additional grounds of fraud, misrepresentation, duress, and business compulsion. In the second Jett v. Zink appeal, 474 F. 2d 149 (Fifth Circuit, 1973), the court in chronologizing the events between the first and second appeals aptly observed: As all parties now concede, our decision [the 1966 appeal] signaled the start of a race to the courthouse. Despite our signal, which was supposed to remove the brakes from the wheels of justice, it took an additional five years for either of the cases to get in gear. The interim saw a great deal in the way of sparks extensive discovery, another unsuccessful removal, and interminable procedural squabblingbut little motion down the road to a decision. Finally, in February 1971, the district court, on its own motion, began pre-trial proceedings that were intended to lead to a federal trial beginning July 12, 1971. In response to this federal warm-up, Chamberlain's group [all parties in interest except Sterling] filed in the state court a motion to have the Pack-Kahn action set for trial before the Jett-Chamberlain action; it ultimately was set for trial May 4, 1971. Sterling Oil in turn reacted to this development on April 15, 1971, by asking the district court for a preliminary and permanent injunction against the state court proceedings. On April 20, 1971, the district court heard argument on the motion for preliminary injunction and on April 28, 1971, denied relief. Sterling Oil appealed this denial, but was unsuccessful in obtaining an injunction pending appeal from either the district court or this court.5 Subsequently this appeal was dismissed for lack of prosecution. With the final impediment removed, the state court began six weeks of hearings in the first phase of its trialdetermining the validity vel non of the Sterling Agreementand on July 10, 1971, that court entered an interlocutory decree finding it valid. Having made extensive, although at that point unsatisfactory, progress in the resolution of several substantial questions and having invested considerable time, Chamberlain's group on July 12, 1971, the day the federal trial was to begin, filed a motion in the district court to stay the federal proceedings pending a final determination in the state court. After hearings on July 12 and 14, the district court granted that motion. Additionally, at the hearing on July 14, Sterling Oil's petition for permanent injunction filed on April 15, 1971, was submitted to the court without further argument; this petition was denied July 16, 1971. Sterling Oil's appeal from this denial is before us . . .6 Free of the complications that a simultaneous federal trial would have caused, the state court reconvened on August 2, 1971, for phase two of its trial. After weeks of hearings, that court issued its final decree November 4, 1971. Withdrawing its interlocutory decree of July 10, it found the Sterling Agreement to be unenforceable, but subsequently held that Sterling Oil was entitled to a finders fee and reasonable compensation for services totaling in excess of $500,000. This decree was incorporated into the pleadings of the Jett-Chamberlain action and on January 27, 1972, the district court granted the Chamberlain group's motion for summary judgment based on the res judicata effect of the state court decree. Sterling Oil's appeal from the summary judgment is before us . . . .7 5. Sterling Oil also applied for prohibitory relief in the Alabama Supreme Court. After a hearing on April 30, 1971, that application was denied on May 3, 1971. 6. Sterling Oil later amended its Notice of Appeal to include the district court's order of July 14, 1971, which granted a stay of the federal proceedings. 7. The federal action filed by Sterling Oil had been consolidated with the Jett-Chamberlain action for trial and was included within the scope of the district court's order granting summary judgment. [Brackets supplied.] In upholding the district courtdenying injunctive relief against the state court suit (Pack-Kahn action) and giving res judicata effect to the state court decreethe Fifth Circuit Court's opinion quoted from its earlier holding in 362 F.2d at 729-730: `[T]here was good reason for bringing the second suit [Pack-Kahn action] in order to assure the plaintiffs therein [Pack, Kahn, and Geo. H. Jett Drilling Company] a day in court in the event that they were not admitted as parties plaintiff in the earlier suit, as indeed they were not. The question is whether they have stated a cause of action against any of the defendants whose presence in the litigation would destroy complete diversity of citizenship of the parties. We think they have.' The opinion thus concluded: The now apparent fact that Chamberlain controlled both pieces of litigation is cause for serious concern, but it does not constitute `clear and persuasive evidence' of fraud. Chamberlain had been given authority to act for Pack, Kahn, and Jett and he was justified in bringing a suit in their names to protect their interests. . . . Sterling Oil has advanced only one argument as to why, with the Jett-Chamberlain action stayed and the Pack-Kahn action free to proceed, a final judgment in the latter should not be res judicata in the former. It contends that the district court considered the July 10, 1971, order of the state court res judicata and that the parties agreed on July 14, 1971, to raise no `new issues' in the state court if that action were allowed to continue. This statement, while correct, does not aid Sterling Oil. The July 10 [1971] state court order was virtually identical to the November 15, 1966, partial summary judgment in the district court, and dealt with Sterling Oil's having qualified to do business. While withdrawn by the state court's final judgment, it was not contradicted; instead the Sterling Agreement was invalidated on grounds which had already been incorporated in the federal pleadings prior to July 14, 1971 and which were therefore not `new' in terms of the parties' agreement. Because it was conceded that the Pack-Kahn action raised issues which were identical to those raised in the Jett-Chamberlain action, we hold that the district court correctly granted summary judgment in the Jett-Chamberlain action based on the final state judgment in the Pack-Kahn action. This leaves the instant appeal (Pack-Kahn action) as the only litigation remaining between the parties.