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

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U.S. Supreme Court

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

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

Page 474 U. S. 519

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. 474 U. S. 523-526.

747 F.2d 1367, reversed and remanded.

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

Primary Holding
Federal courts cannot enjoin state courts from enforcing judgments that are based on prior federal judgments.
Facts
Parsons Steel sued First Alabama Bank in state court in Alabama on the grounds of fraudulent inducement. It also brought a later claim in federal court based on the same allegations, which it used to assert violations of the federal Bank Holding Company Act. The federal court returned a verdict for the Bank before the state court returned a verdict for Parsons. Claiming that the federal judgment was res judicata, the Bank sought an injunction against enforcement of the state court judgment. The federal court issued the injunction under the Anti-Injunction Act.

Opinions

Majority

  • William Hubbs Rehnquist (Author)
  • Warren Earl Burger
  • William Joseph Brennan, Jr.
  • Byron Raymond White
  • Thurgood Marshall
  • Harry Andrew Blackmun
  • Lewis Franklin Powell, Jr.
  • John Paul Stevens
  • Sandra Day O'Connor

Under the Full Faith and Credit Act, federal courts must give the same preclusive effect to a judgment in state court as they would to a judgment from another federal court. The Anti-Injunction Act should not be interpreted in a way that undermines that Full Faith and Credit Act, so the injunction should not have issued.

Case Commentary

Since the state court had rejected the res judicata argument, issuing an injunction would have had the practical effect of overruling that decision.

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