Court Opinion

ID: 9492671
Source: CourtListenerOpinion
Date Created: 2023-08-05 14:46:51.803752+00
Date Added: 2024-06-11T17:55:25.372488
License: Public Domain

SHADUR, District Judge,
dissenting:
Congress’ codification of the Full Faith and Credit Clause in 28 U.S.C. § 1738 has mandated that we look to Delaware law, not to what in some limited areas has become labeled as “federal common law,” for the preclusive effect (if any) to be given to what was said and done in the earlier Delaware Chancery in rem proceedings that involved Technicorp International II, Inc. (“TCI II”)(but neither H. Frederick Johnston nor Sandra Spillane) as a party litigant. That is the message that was definitively conveyed by the Supreme Court in Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 380, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985) and adhered to by this Court in Valley Disposal, Inc. v. Central Vermont Solid Waste Management Dist., 31 F.3d 89, 98-99 (2d Cir.1994).
In this instance there has been no decision from the Delaware Supreme Court answering an analytical question that must be recognized to be at least arguable on both sides of the issue. Instead we have some expressions from lower courts in Delaware’s judicial firmament, on the Chancery side of the docket, that themselves can (at a minimum) be said to look in both directions. Indeed, the judge who was in all likelihood the most respected Chancellor in this century’s Delaware jurisprudence, the late Collins Seitz (who was later to become a distinguished federal Circuit Judge — and Chief Judge — of the Third Circuit1), has spoken of an 8 Del.C. § 225 action (the type of in rem proceeding involved here) as “not of course constituting] a binding determination of ownership as between the conflicting claimants” to stock ownership because “process was neither prayed for nor issued which would permit this Court to pass upon the ownership of the shares in dispute” (Rosenfield v. Standard Elec. Equip. Corp., 83 A.2d 843, 845 (Del.Ch.1951)).
*352Now it may well be that the majority’s thoughtful analysis in this case is a sound guess as to how the matter would be resolved by the Delaware Supreme Court if it were given the opportunity to do so. But by its very nature that analysis is no more than a guess. And it surely cannot be gainsaid that the Delaware Supreme Court could just as well choose to follow the opposite (and majority) path — the teaching of the extensive caselaw that has been embodied in Restatement (Second) of Judgments (“Restatement”) § 36(2)(1982):
A party appearing in an action in one capacity, individual or representative, is not thereby bound by or entitled to the benefits of the rules of res judicata in a subsequent action in which he appears in another capacity.
In that respect, it is also significant that Restatement § 39, which addresses the “control of litigation” or “incentive to contest” principle of preclusion that is relied on by the majority opinion, expressly speaks of the principle set out in Restatement § 36 as an exception to that notion (Restatement § 39 cmt. e). Accord on both scores, 18 Charles A. Wright, Arthur R. Miller, Edward H. Cooper, Federal Practice & Procedure: Jurisdiction § 4451, at 436 & n.30 (1981 and 1999 supp.), with the 1999 supp. finding “puzzling” (and inconsistent with the Restatement’s approach) this Court’s decision in an admiralty in rem context in Central Hudson Gas & Elec. Corp. v. Empresa Naviera Santa, S.A., 56 F.3d 359, 367-69 (2d Cir.1995).
Even as an effort at prediction, then, the majority opinion on that controlling issue swims against the tide of prevailing authority as reproduced in the Restatement. Nor are federal courts necessarily possessed of an unclouded crystal ball in carrying out their predictive role as to how state courts will deal with state law questions. In my own circuit I recall an instance in which the Court of Appeals, undertaking the same attempted predictive function under Erie v. Tompkins, perpetuated an error in announcing and applying the Illinois law of piercing the corporate veil for over 20 years before it had to confess error in that respect, based on principles that the Illinois state courts had announced instead (see Van Dorn Co. v. Future Chem. & Oil Corp., 753 F.2d 565, 570-71 (7th Cir.1985), disavowing Steven v. Roscoe Turner Aeronautical Corp., 324 F.2d 157 (7th Cir.1963) and the intervening cases that had followed the lead of the latter).
There is of course an obvious alternative to what the majority had done here: Let the Delaware courts decide Delaware law. In that regard Wilton v. Seven Falls Co., 515 U.S. 277, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995) has unanimously rejected the “exceptional circumstances” test by which Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976) and Moses H. Cone Mem. Hosp. v. Mercury Const. Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) could have inhibited a district court’s power to abstain in a declaratory judgment action during the pen-dency of parallel state court proceedings. That of course is precisely the context here, for what the parties have referred to as the Fraud and Waste Action was pending in the Delaware state court system when this declaratory judgment action was instituted in the federal district court.
To be sure, Wilton, 515 U.S. at 288, 115 S.Ct. 2137 also said that the district court’s decision to stay or to dismiss a declaratory judgment action was to be made “in the second exercise of its discretion.”2 But in *353this instance I suggest that no sound reason existed for the district court’s contrary refusal to abstain, as was alternatively sought by plaintiffs-appellants.
This was not after all a situation in which the litigants would have to begin afresh in the state court system, so that any potential of a material delay in the resolution of the parties’ controversy could be placed on the scales in opposition to abstention. Quite to the contrary, there was ongoing active in personam litigation in the Delaware state court (the Fraud and Waste Action) that squarely presented the opportunity to decide the question of plaintiffs-appellants’ stock ownership in TCI II. No identifiable jurisprudential considerations called for the district court to embark on the uncharted seas (uncharted in terms of controlling precedent) of such arcane areas of Delaware law. Under the circumstances, then, I believe that the only sound and appropriate exercise of the district court’s discretion was indeed to dismiss the federal action in favor of allowing the state law in this complex area (including the complex preclusion questions) to be decided, as it ought to be, by the state courts (something that would in all likelihood have been completed by now had the litigants’ energies not been deflected by these federal proceedings).
One final note of irony should be sounded, especially in light of the pending Delaware litigation. By reaching the merits here, the majority have announced a judgment that presumably must itself be given preclusive effect in the pending Delaware Fraud and Waste Action.3 So that means that the Delaware state courts (including the highest of those courts) will be compelled in this dispute to follow a federal court’s guess as to Delaware law even if, left to its own devices, the Delaware Supreme Court would have come out differently.
Elsewhere I have confessed to being no great fan of Erie v. Tompkins, which has relegated the federal courts to second class citizenship in shaping the common law, rather than their pronouncing “the supreme Law of the Land” as I believe Article VI of the Constitution (properly understood) prescribes.4 But Erie is too well entrenched to permit reexamination, and I believe that the result reached here — by forcing the state courts’ reading of state law — turns the Erie doctrine of the federal courts’ compelled adherence to state law on its head. It creates, I suggest, a potential for ultimate unfaithfulness to the Full Faith and Credit Clause and to its implementing Section 1738.
In sum, I would dismiss this action on abstention grounds, leaving the resolution of these intricate state law questions to the Delaware state courts. Accordingly I respectfully dissent.

. See, e.g., the report of the June 17, 1994 proceedings by the Third Circuit dedicating the Collins J. Seitz Courtroom, reported at 35 F.2d LXXIIII-XCI.

. Both that statement and each of Wiltons other references to a district court’s discretion were made in the context of the Supreme Court’s rejecting the views of several Courts of Appeals that had held that no such discretion existed — that they simply could not defer to state courts absent "extraordinary circumstances.” And Wilton's only discussion of the factors to be considered by a district court in deciding on abstention (515 U.S. at 282-83, 115 S.Ct. 2137) points strongly and directly toward abstention in this case.

. If this is wrong, if the result reached here is not viewed by the Delaware state courts as binding, we will have engaged in truly empty efforts (which would be the ultimate irony).

. See my article, Are Federal Courts Necessary?, 18 Loy.U.Chi.L.J. 1, 8-1.4 (1986).