The opinion of the court was delivered by: Duff, District Judge.
MEMORANDUM OPINION AND ORDER
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
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
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
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
For these reasons, plaintiffs' Motion to Enjoin Prosecution of
Counterclaim in Separate Litigation is granted.
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