Opinion ID: 316528
Heading Depth: 2
Heading Rank: 4

Heading: The New Jersey Suits by Skyways and the Fairfield Group

Text: 49 We turn finally to appellants' contention that the district court was without authority to enjoin the prosecution of the pending state court actions, one of which was instituted by Skyways to enforce the Boeing 707 lease, while the second was initiated by the Fairfield Group to recover certain books and records which ICC has refused to release to the Group. The limited authority of a federal court to stay a pending state court proceeding is embodied in 28 U.S.C. 2283 which states: 50 A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments. 51 Moreover, in construing this statute, we are counselled to resolve 52 any doubts as to the propriety of a federal injunction against state court proceedings . . . in favor of permitting the state courts to proceed in an orderly fashion to finally determine the controversy. The explicit wording of 2283 itself implies as much, and the fundamental principle of a dual system of courts leads inevitably to that conclusion. 53 Atlantic Coast Line Railroad Co. v. Brotherhood of Locomotive Engineers, 398 U.S. 281, 297, 90 S.Ct. 1739, 1748, 26 L.Ed.2d 234 (1970). In light of this presumption against interference, we must agree with the Fairfield Group that the district court erred by enjoining the prosecution of the two state court suits. 54 In support of its request for this relief, ICC urges that the district court possessed the requisite authority under 21(e) of the 1934 Act (15 U.S.C. 78u) which, argues ICC, satisfies the 'except as expressly authorized by Act of Congress' language of 2283. 19 Section 21(e) provides: 55 Whenever it shall appear to the Commission that any person is engaged or about to engage in any acts or practices which constitute or will constitute a violation of the provisions of this chapter, or of any rule or regulation thereunder, it may    bring an action    to enjoin such acts or practices, and upon a proper showing a permanent or temporary injunction or restraining order shall be granted without bond. 56 Although this language empowers the SEC alone to obtain injunctive relief, we have held that, under certain circumstances, it may be construed to authorize a private party to enjoin a pending state court action where the very prosecution of that lawsuit furthers a violation of the securities laws. Studebaker Corporation v. Gittlin, 360 F.2d 692 (2d Cir. 1966). 57 ICC contends that our holding in Gittlin is applicable to this case. Its argument, accepted by Judge Stewart, is basically that but for the spin-off of Fairfield General, a transaction fraudulently induced in violation of 10(b), neither Skyways nor the balance of the Fairfield Group would enjoy the independent status effectively required to sue its former parent. Thus, ICC concludes that, as in Gittlin, where Gittlin's state court action against Studebaker was permanently enjoined because Gittlin had obtained the necessary stockholder authorizations by violating the Proxy Rules issued under 14(a) of the 1934 Act, here too, the state court actions are predicated on violations of the securities laws. 58 There is, however, a critical distinction between Gittlin and the instant case. In Gittlin, the injunction issued after a decision on the merits holding that Gittlin had, in fact, violated 14(a), while in this case, ICC's claim of a 10(b) violation, though presenting a fair ground for subject matter jurisdiction and a temporary injunction has yet to result in a judgment on the merits after trial. To be sure, the SEC, under 21(e), is empowered to secure a preliminary injunction, but, in view of the explicit words of caution appearing in Atlantic Coast Railroad, we decline to extend the Gittlin rationale to the facts of this case. 59 This conclusion, moreover, is buttressed by our decision in Vernitron Corporation v. Benjamin, 440 F.2d 105 (2d Cir.), cert. denied, 402 U.S. 987, 91 S.Ct. 1664, 29 L.Ed.2d 154 (1971), decided subsequent to Gittlin. In Vernitron, a preliminary injunction was sought and granted to restrain a pending state court action which, the moving party claimed, was brought to enforce a contract obtained by fraudulent conduct violative of 10(b). We reversed, finding Gittlin 'inapposite in that the prosecution of the state action there relevant would itself have furthered the violation of the Securities Exchange Act.' Vernitron Corporation v. Benjamin, supra, 440 F.2d at 108. Since the facts here bear greater resemblance to Vernitron than Gittlin, we believe our decision in Vernitron to be the more applicable. Accordingly, we vacate so much of the preliminary injunction against the Fairfield Group that enjoins further prosecution of the two actions pending in New Jersey Superior Court, without prejudice to renewal of the application upon a showing that prosecution of these actions has interfered or threatens to interfere with the district court's jurisdiction or a judgment issued by it.