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

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

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.

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

19851119

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