Parsons Steel v. First Ala. Bank, 474 U.S. 518 (1986)

Parsons Steel, Inc. v. First Alabama Bank

No. 84-1616.

Argued December 3, 1985
Decided January 27, 1986
474 U.S. 518

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE ELEVENTH CIRCUIT

Syllabus

Petitioners sued respondents in an Alabama state court, alleging that respondent bank had fraudulently induced petitioner individuals to permit a third person to take control of a subsidiary of petitioner corporation and eventually to obtain complete ownership. Subsequently, the subsidiary was adjudicated an involuntary bankrupt. Petitioners then sued the bank in Federal District Court, alleging that the same conduct on the bank’s part that was the subject of the state suit violated the Bank Holding Company Act (BHCA) amendments. The federal action went to trial before the state action, and the District Court granted judgment n.o.v. for the bank. The Court of Appeals affirmed. Thereafter, respondents pleaded a res judicata defense in the state action based on the federal judgment, but the Alabama court denied the defense. After the state complaint was amended to include a Uniform Commercial Code (UCC) claim that the bank’s foreclosure sale of the subsidiary’s assets was commercially unreasonable, the jury returned a verdict for damages in petitioners’ favor. Respondents then returned to the District Court and filed an injunctive action against petitioners. Holding that the state fraud and UCC claims should have been raised in the federal action as pendent to the BHCA claim, and accordingly that the BHCA judgment barred the state claims under res judicata, the District Court enjoined petitioners from further prosecuting the state action. The Court of Appeals affirmed, holding that the parties to the BHCA action were barred by res judicata from raising the state claims in state court after the entry of the federal judgment, and that the federal injunction was proper under the "relitigation exception" to the Anti-Injunction Act, which generally prohibits a federal court from enjoining state proceedings but excepts from the prohibition the issuance of an injunction by a federal court "where necessary . . . to protect or effectuate its judgments." The court did not consider the possible preclusive effect under Alabama law of the state court’s resolution of the res judicata issue, holding instead that the "relitigation exception" to the Anti-Injunction Act worked a pro tanto amendment to the Full Faith and Credit Act, which requires federal courts as well as state courts to give state judicial proceedings "the same full faith and credit . . . as they have by law or usage in the courts of such State . . . from which they are taken."

Held: The Court of Appeals erred by refusing to consider the possible preclusive effect under Alabama law of the state court judgment. Even if the state court mistakenly rejected respondents’ res judicata claim, this would not justify the highly intrusive remedy of a federal court injunction against enforcement of the state court judgment. Rather, the Full Faith and Credit Act requires that the federal courts give the state court judgment, and particularly the state court’s resolution of the res judicata issue, the same preclusive effect it would have in another court of the same State. Pp. 523-526.

747 F.2d 1367, reversed and remanded.

REHNQUIST, J., delivered the opinion for a unanimous Court.