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GILLDORN SAV. ASS'N v. COMMERCE SAV. ASS'N

United States District Court, Northern District of Illinois, E.D


November 19, 1985

GILLDORN SAVINGS ASSOCIATION, GILLDORN CORPORATION, AND GILLDORN MORTGAGE MIDWEST CORPORATION, PLAINTIFFS,
v.
COMMERCE SAVINGS ASSOCIATION, DEFENDANT.

The opinion of the court was delivered by: Duff, District Judge.

MEMORANDUM OPINION AND ORDER

This matter comes before the court on the motion of GILLDORN SAVINGS ASSOCIATION, GILLDORN CORPORATION and GILLDORN MORTGAGE MIDWEST CORPORATION ("Gilldorn") to enjoin Defendant COMMERCE SAVINGS ASSOCIATION ("Commerce") from proceeding with its prosecution of the case now pending in the United States District Court for the Northern District of Texas, entitled Commerce Savings Association v. Gilldorn Association, Gilldorn Corporation and Gilldorn Mortgage Midwest Corporation, Civil Action No. CA 8 85 306 R ("Dallas action").

Gilldorn filed this suit in the Northern District of Illinois ("Chicago action") on January 31, 1985. Defendant filed the Dallas action on February 13, 1985. In the complaint in the Chicago action, Gilldorn alleges that it purchased the stock of Percy Wilson Mortgage and Finance Corporation ("Wilson stock") from Commerce. The sale was closed on July 18, 1983 pursuant to the Stock Purchase Agreement dated June 13, 1983. Gilldorn alleges breach of express warranty, fraudulent misrepresentation and violation of the Securities Exchange Act of 1934 in the sale of the Wilson stock.

Commerce filed the Dallas action on February 13, 1985. In the Dallas complaint, Commerce alleges that pursuant to the Stock Purchase Agreement, Percy Wilson [predecessor of Gilldorn] agreed to execute and deliver to Commerce a $5,000,000 Promissory Note. The Promissory Note was later substituted by a subordinated debenture issued by Gilldorn. It is further alleged in the Dallas complaint that Commerce subsequently agreed to purchase Gilldorn preferred stock in exchange for the Promissory Note or substituted debenture of Gilldorn. In making this exchange, Commerce alleges that it relied on Gilldorn's representations that Gilldorn would not litigate, but would amicably settle, any claims arising from the original Stock Purchase Agreement. The Dallas complaint is based on violations of the Securities Act of 1933, the Texas Securities Act and on the Promissory Note.

Plaintiff Gilldorn has moved to enjoin the defendant from pursuing the Dallas action, arguing that the allegations in the Dallas complaint should have been brought as a compulsory counterclaim pursuant to Rule 13(a) of the Federal Rules of Civil Procedure.

This case is very similar to Warshawsky & Company v. Arcata National Corporation, 552 F.2d 1257 (7th Cir. 1977) where the court held that allegations in a complaint filed in the Northern District of California should have been brought as a compulsory counterclaim in an action pending in the Northern District of Illinois. As the Illinois action was filed first, the court found that the defendant was properly enjoined from pursuing the California action.

Defendant Commerce argues against a similar result here, stating that 1) the denial of Gilldorn's motion to dismiss in the Texas action bars consideration of the compulsory counterclaim issue under the doctrine of collateral estoppel; 2) the principles of judicial comity preclude this court's consideration of issues addressed in the Texas action; and 3) the claims asserted in the Texas action do not constitute a compulsory counterclaim.

This court is inclined to agree with Plaintiff's characterization of Defendant's collateral estoppel argument as a "Red Herring". Defendant's own authorities require a final judgment for collateral estoppel to apply. The rulings by the Dallas judge do not constitute final judgment.

The doctrine of judicial comity also has no application here. In allowing Plaintiff's motion, this court enjoins the Defendant and not the United States District Court for the Northern District of Texas. Further, judicial comity should not preclude this Plaintiff from its choice of forum where it was the first to file its complaint. Contrary to Defendant's reading, the comity issue was considered by the court in Warshawsky & Co., 552 F.2d at 1259.

Defendant's final argument is also not persuasive. The complaint filed in the Texas action belies Defendant's assertion that the Texas claim does not support a compulsory counterclaim. Defendant argues that the Chicago claim is based on the original sale of the Wilson stock and that the Texas action is based on the subsequent exchange of the preferred Gilldorn stock for the Promissory Note given in the sale of the Wilson stock. It is clear that the sale of the Wilson stock and the purchase of the prefered Gilldorn stock are very closely related. Commerce attached a copy of the [Wilson] Stock Purchase Agreement to the Texas complaint. Further, the allegations in the Texas complaint that Gilldorn misrepresented its intentions not to litigate the claims arising from the sale of the Wilson stock clearly refers to this very lawsuit. Therefore, it is clear that the two claims are logically related and that Commerce's claim should have been brought as a compulsory counterclaim in this action.

For these reasons, plaintiffs' Motion to Enjoin Prosecution of Counterclaim in Separate Litigation is granted.

19851119

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