Court Opinion

ID: 8885718
Source: CourtListenerOpinion
Date Created: 2022-11-26 21:47:58.524307+00
Date Added: 2024-06-11T17:06:54.261484
License: Public Domain

AINSWORTH, Circuit Judge
(dissenting) :
I am in agreement with much of the excellent majority opinion. However, I dissent from that portion of the opinion which affirms the granting below of summary judgment, based on the plea of collateral estoppel by judgment of the Indian Banks (Allahabad, Baroda and Tokyo) against City Trade & Industries, Ltd.
Thus on summary judgment, without a requested jury trial on the merits, and despite strenuous contentions of CTI as to important disputes on material facts, CTI is barred from claiming a large in-terpleader fund of $622,367.76 plus interest, on the basis of a New York State judgment, similarly granted on motion for summary judgment, in a proceeding in which the Indian Banks were not even parties.
I agree with the majority that this case must be remanded to require that the Indian Banks produce, if they can, the negotiable instruments (trade acceptances) upon which they assert claim to the entire interpleader fund. However, the case is reversed and returned to the District Court for a trial solely on that issue. The majority declines to require also a trial on the merits of the crucially important question of whether the Indian Banks are holders in due course of the negotiable instruments sued upon. CTI has put at issue the question of whether the Indian Banks are holders in due course of the purported trade acceptances but is denied a trial of this critical issue by the maintaining of the plea of collateral estoppel made by the Indian Banks.
CTI has never had a trial in any court on the merits of the issue of whether the Indian Banks are holders in due course, certainly not in the New York State Courts or in the Federal District Court below. Additionally, summary judgment was granted below though there was pending at the time an attempt by CTI to take the depositions of the principal officers of the three Banks and compel discovery of important documents in possession,of the Banks. As the District Judge himself said in his written reasons for summary judgment, “[T]hese issues have not been resolved.” Summary judgment should not be granted while discovery is still being attempted by the party against whom the motion is asserted where possession of the requested information would assist in defeating the motion. CTI (in its most recent brief) refers to this unusual procedure as follows: “All motions to compel discovery were superseded and bypassed when the court entered summary judgment on behalf of the Indian Banks. A hearing was never had on Motions to Compel Discovery.”
The New York State summary judgment resulted from a suit brought by CTI against New Central for an accounting under a written contract pertaining *469to the importation of jute. After it was filed the suit lay dormant. Then New Central took the initiative in the suit and on two days’ notice by its counsel to CTI filed a motion for an order to compel CTI to arbitrate the issues and disputes there, and for a stay of the New York case pending proceedings in Georgia until arbitration be had between the parties with respect to these issues. New York has special statutory provisions to compel arbitration where a party is aggrieved by the failure of another to arbitrate, and for expedited trial thereof by the Court. See Section 7503(a), (b), C.P.L.R.1 Several additional days’ delay on the motion were granted. The motion' was supported only by an affidavit of counsel for New Central. Thereafter, a reply affidavit of CTI’s counsel was filed stating that New Central was not entitled to arbitration because it had breached the contract by having the Indian Banks as alter egos file the Georgia proceedings. There followed a reply affidavit of New Central’s counsel (not said to be or based on personal knowledge) which argued that the only issue was whether arbitration should be granted under the contract. In the New York State case, the question whether the Indian Banks were holders in due course was not an issue and the Indian Banks were not parties to the suit. However, New Central counsel’s reply affidavit (not based on personal knowledge) in the New York case stated, “ * * * the action in the State Courts of Georgia and Delaware were not instigated or instituted by Defendant herein, but by several banks which are holders in due course of certain drafts made by Plaintiff herein payable to the order of Defendant herein and accepted by Plaintiff and thereafter negotiated by Defendant herein to the said banks. No matter how hard Plaintiff may try to merge Defendant’s identity with the banks, the fact is otherwise. The banks purchased the drafts from Defendant in the normal course of business and attempted to receive payment thereon from Plaintiff.” No other evidence was before the New York Court. Summary judgment was eventually granted on the arbitration issue, solely supported by New Central counsel’s affidavits. ' Such a summary judgment would be inappropriate in a Federal Court since it is based on counsel’s affidavits, not made on personal knowledge, and therefore violates Rule 56(a), Fed.R.Civ.P. The New York State procedure (Rule 3212(b), C.P.L.R.) similarly provides that when a motion for summary judgment is supported by affidavit it “shall be by a person having knowledge of the facts * * 2 *470This has been construed by the New York Courts, for example, in cases where an attorney makes the affidavit, to mean that the attorney must have personal knowledge of the facts or the motion is fatally defective, Wick v. Cornrich Beverages, Inc., 1966, 27 A.D.2d 595, 275 N.Y.S.2d 745, and worthless, French v. Colamaio, 1968, 56 Misc.2d 471, 288 N.Y.S.2d 761. New Central’s attorney did not have (nor does he state that he has) personal knowledge of the conclusory statements in his affidavit relative to the Banks being holders in due course. Nonetheless, the Federal District Court below predicated its summary judgment on collateral estoppel of the New York State judgment which was not properly supported by affidavit.
Based on the unsupported statement in New Central counsel’s affidavit, not on personal knowledge of affiant, Justice Sarafite of the New York Supreme Court, New York County, said in his opinion that the Banks were holders in due course of the drafts executed by CTI. It is obvious that the statement relative to the Banks being holders in due course was pure dictum, and was not even before the Court for decision. The New York Justice had nothing to rely upon in this regard to back up his statement.
When the New York case ultimately reached the New York Court of Appeals, in an opinion by Justice Burks, New Central’s right to an arbitration order was affirmed and CTI’s alter ego contention was rejected as lacking sufficient evidentiary support. The final decision made no reference, however, to the Sara-fife dictum as to whether the Indian Banks were holders in due course.3 The Federal District Court below was in nowise required to give effect — under the plea of collateral estoppel — to the Sara-fite statement that the Banks were holders in due course. Nor should we be bound. The issue is still an open one— as open as the question of whether the Banks are in fact holders at all of the trade acceptances. The majority opinion has not stated that we are constrained to decide, on the principle of collateral estoppel, that the Banks are holders of the instruments. By the same token we should not be bound to a holding that the Banks are holders in due course and should remand that issue also for trial.
I do not believe it can be seriously contended that CTI has had a full and fair opportunity for a hearing on the issue of holder in due course. It has never had a hearing anywhere on this issue though it has consistently disputed the status of holder in due course of the Indian Banks. CTI was cut off without even being permitted discovery in the court below. We, therefore, have a classic case of the granting of a judgment against a litigant without due process of law.
It is said that a trend is developing toward the acceptance of the collateral estoppel doctrine. Professor Currie, an adherent thereof, points out, however, that “No legal principle, perhaps least of all the principle of collateral estoppel, should ever be applied to work injustice.” *471Currie, Civil Procedure. The Tempest Brews, 53 Calif.L.Rev. 25, 37 (1965).
“The statement has frequently been made that a judgment has conclusive force only between persons who are parties to the action or in privity with them.” IB Moore’s, Federal Practice fl 0.411 at 1251. Professor Moore, an advocate of the principle of mutuality, is in sharp disagreement with its critics. He states that “The doctrine of mutuality requires that, as a general proposition, one who invokes the conclusive effect of a judgment must have been either a party or his privy to the suit in which the judgment was rendered. Stated differently, the mutuality requirement prevents a litigant from invoking the conclusive effect of a judgment unless he would have been bound if the judgment had gone the other way. ‘It is a principle of elementary law,’ the Supreme Court has said, ‘that the estoppel of a judgment must be mutual.’ ” (Citing by footnote Bigelow v. Old Dominion Copper Mining & Smelting Co., 225 U.S. 111, 127, 32 S.Ct. 641, 56 L.Ed. 1009 (1912).) IB Moore’s, Federal Practice jf 0.412 at 1801-02. Professor Moore continues, “Most state courts recognize and apply the doctrine of mutuality, subject to certain exceptions subsequently discussed. And the same is true of federal courts, when free to apply their own doctrine. A few courts, however, have renounced the doctrine of mutuality, in whole or in substantial part, and permit a litigant— normally a defendant — to invoke the conclusive effect of a judgment rendered in a suit to which he was neither party nor privy.” Id. at 1803-05.
In the most recent case in which this Court has had occasion to discuss the principle of collateral estoppel, Rachal and Hunnicut v. Hill, 5 Cir., 1970, 435 F.2d 59, Judge Morgan writing for the Court quoted with approval the following excerpt from the leading federal case of the Third Circuit, Bruszewski v. United States, 1950, 181 F.2d 419, 421, cert. denied, 340 U.S. 865, 71 S.Ct. 87, 95 L.Ed. 632, as follows:
“ * * * a party who has had one fair and full opportunity to prove a claim and has failed in that effort, should not be permitted to go to trial on the merits of that claim a second time. Both orderliness and reasonable time saving in judicial administration require that this be so unless some overriding consideration of fairness to a litigant dictates a different result in the circumstances of a particular case.” (Emphasis supplied.)
1 submit that the present matter is such a case.
In Raehal, the Court declined to apply the doctrine of collateral estoppel as being inappropriate under the circumstances, the Court holding, “[I]t would be anomalous to hold that the appellants have lost their right to a trial by jury on the issue of whether they are liable to respond in damages for violations of the security laws because of a prior adverse determination by the district court of the same issue in an action in which their present adversary was not a party and which arose in a different context from the present action.” Id. at 64 of 435 F.2d. Therefore, Raehal strongly supports my dissenting views.4
It is conceded in the majority opinion by citation of The Evergreens v. Nunan, 2 Cir., 1944, 141 F.2d 927, cert. denied, *472323 U.S. 720, 65 S.Ct. 49, 89 L.Ed. 579, that we are free to go beyond the judgment roll to ascertain what facts have been conclusively established in the prior action. When we do so, we find that there was no actual litigation in New York of the issue of the Banks being holders in due course, that the Banks were not parties to the proceedings, that the context of the New York case was whether arbitration should be ordered as between CTI and New Central, that the statement of Justice Sarafite that the Banks were holders in due course of the trade acceptances were pure dictum and was supported solely by an affidavit of New Central’s counsel (not on personal knowledge), and that the highest New York Court in finally deciding the case did not determine whether the Banks were holders in due course and did not pass on this issue.
All of this being true, it seems inescapable that we should reverse the District Court’s ruling that the principle of collateral estoppel is applicable under the circumstances here, and in the remand of the case we should open for full litigation and trial on the merits the issue of whether the Banks are holders in due course of the instruments sued upon in this case.
I respectfully dissent.

. The special provisions read as follows:
“(a) Application to compel arbitration ; stay of action. A party aggrieved by the failure of another to arbitrate may apply for an order compelling arbitration. Where there is no substantial question whether a valid agreement was made or complied with, and the claim sought to be arbitrated is not barred by limitation under subdivision (b) of section 7502, the court shall direct the parties to arbitrate. Where any such question is raised, it shall be tried forthwith in said court. If an issue claimed to be arbitrable is involved in an action pending in a court having jurisdiction to hear a motion to compel arbitration, the application shall be made by motion in that action. If the application is granted, the order shall operate to stay a pending or subsequent action, or so much of it as is referable to arbitration.
“(b) Application to stay arbitration. Subject to the provisions of subdivision (c), a party who has not participated in the arbitration and who has not made or been served with an application to compel arbitration, may apply to stay arbitration on the ground that a valid agreement was not made or has not been complied with or that the claim sought to be, arbitrated is barred by limitation under subdivision (b) of section 7502.”

. Rule 3212(b), C.P.L.R., reads as follows :
“ (b) Supporting proof; grounds ; relief to either party. A motion for summary judgment shall be supported by affidavit, by a copy of the pleadings and by other available proof, such as depositions and written admissions. The affidavit shall be by a person having knowledge of the facts; it shall
*470recite all the material facts; and it shall show that there is no defense to the cause of action or that the cause of action or defense has no merit. The motion shall be granted if, upon all the papers and proof submitted, the cause of action or defense shall be established sufficiently to warrant the court as a matter of law in directing judgment in favor of any party. The motion shall be denied if any party shall show facts sufficient to require a trial of any issue of fact other than an issue as to the amount or the extent of the damages. If it shall appear that any party other than the moving party is entitled to a summary judgment, the court may grant such judgment without the necessity of a cross-motion.”

. The opinion said that two Indian Banks had filed proceedings in Georgia and Delaware State Courts and that “In each case, the bank asserted its status as holder in due course of a draft received from New Central.” Nothing more, however, on this subject.

. The following from IB Moore’s Federal Practice j[ 0.443 [5], at 3919, is especially pertinent:
“Even though an issue was raised and fully litigated in a prior action, and a finding on the issue was made by the court preliminarily to rendition of judgment, the issue is not concluded by the resulting judgment unless the finding made on the issue was, at least alternatively, necessary to the judgment rendered. Thus an incidental or collateral determination of an issue that was not material in the prior action does not foreclose reconsideration of that issue in later litigation in which the issue is material.” (Citing numerous eases by footnotes in support of the text.)