Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 72-C 1028. PHILIP W. TONE, Judge.
Pell and Stevens, Circuit Judges, and Christensen,*fn* Senior District Judge.
The question presented by this appeal is whether the anti-injunction statute, 28 U.S.C. § 2283,*fn1 prohibits a federal court from staying proceedings in a state court which were not commenced until after a motion to enjoin the institution of such proceedings was filed. We hold that § 2283 does not apply.
To understand the issue on appeal we need only briefly describe the basic transaction between the parties, the matters in dispute between them, and the chronology of court proceedings that led to the entry of the preliminary injunction.
In 1969 plaintiffs were the beneficial owners of real estate at 100 East Bellevue Place in Chicago which they intended to improve by constructing a high rise residential building. They retained defendant Dwinn-Shaffer and Company, a mortgage broker, to arrange financing of approximately $7,300,000. Of this amount, $6,100,000 was provided in the form of a loan from the Prudential Life Insurance Company secured by a first mortgage, and $1,000,000 was provided by defendant Investors Funding Corporation of New York (IFC) as the purchaser-lessor in a so-called sale and lease back transaction. At the closing in 1971, title to the premises was conveyed to IFC in exchange for the purchase price of $1,000,000 and the execution of a 99-year lease.*fn2 Thus, plaintiffs' right to possession, which derived from their status as beneficial owners prior to the closing, thereafter depended on their performance as tenants of the terms and conditions of the lease.
In due course disputes arose relating to plaintiffs' obligation to make monthly deposits for real estate taxes, to remit portions of security deposits by sublessees, and to discharge mechanic's and materialman's liens. Moreover, plaintiffs allegedly became aware of the fact, unknown prior to the closing, that defendant IFC owned an 8% interest in defendant Dwinn-Shaffer.
On April 25, 1972, plaintiffs filed suit in the federal court. In Count I they alleged that the failure to disclose the affiliation between IFC and Dwinn-Shaffer, the mortgage banker they had retained as their agent, was a violation of Rule 10b-5 promulgated pursuant to the Securities Exchange Act of 1934.*fn3 Plaintiffs' complaint stated that the proceeds of the sale-lease back transaction were being tendered to defendant's escrowee, and prayed for a rescission of that transaction, a judgment for interest on certain funds held by or at the direction of defendants, and for costs. In Counts II and III of the complaint, plaintiffs based federal jurisdiction on diversity of citizenship, raised the state law issues in dispute, and prayed for damages and a declaratory judgment.
On June 23, 1972, before responding to the complaint, defendants served a formal notice of default on plaintiffs, stating that unless deposits totaling $131,054.88 were remitted within seven days and all liens discharged, defendants would proceed to exercise all of their rights under the law and as set forth in the lease.
On June 30, 1972, defendants filed a motion to dismiss the complaint. The motion was supported by affidavits and gave rise to various filings by both parties directed to the merits. The motion was ultimately denied.
On July 27, 1972, plaintiffs filed the motion which eventuated in the entry of the injunction before us. In that motion plaintiffs recited the matters claimed by defendants to constitute defaults, denied that any default existed, asserted that the issues raised by the claims of default had also been raised by the federal complaint and the defendants' motion to dismiss, and requested the court to restrain defendants from commencing any separate legal action arising out of the subject matter of the pending case, or taking any other action to the detriment of the reputation of the 100 East Bellevue building as a luxury high rise apartment.
During the period between July 27, 1972, and January 5, 1973, both parties filed various papers relating to the pending motions, and, at the direction of the court, endeavored to resolve as many of their differences informally as possible. The trial judge was engaged in a protracted criminal trial at this time and postponed ruling on the outstanding motions while settlement discussions were held. On January 5, 1973, he entered an order directing the parties to make a report on January 16, 1973, on the status of the questions raised by the request for interlocutory relief.
On January 11, 1973, defendants filed a forcible entry and detainer action in the Municipal Court of Chicago,*fn4 alleging that plaintiffs were in default under the lease and seeking possession of the premises. Trial ...