United States District Court, Central District of Illinois, Springfield Division
March 10, 1986
JOHN T. HENRY AND EVELYN I. HENRY, PLAINTIFFS,
FARMER CITY STATE BANK, AN ILLINOIS BANKING CORPORATION, GEORGE E. DRAKE, DEAN BRIGHT, RICHARD K. DRAKE, ROBERT E. DRAKE, STUART B. DRAKE, F. DICK MAXWELL, ORTHELDO A. PEITHMAN, BERYL W. RUTLEDGE, JAMES E. TOBIN, WILLIAM A. RUTLEDGE, RONALD L. VANCE, CHERYL DAWSON, JOHN N. STEVENS, STEPHEN PETERS, DONALD MASSEY, JAMES W. EVANS, TERRY SCOTT, CITY OF FARMER CITY, A MUNICIPAL CORPORATION, MARVIN HAYCRAFT, JAMES RICHMOND, BILL PERHAY, BILL PERHAY CHEVROLET INC., PHILLIP R. LAMKIN, RAYMOND MOSS, OBERMEYER TRANSFER CO., DENNIS JOHNSON, OSCAR OGLE, AND THE CHAMPAIGN NATIONAL BANK, A NATIONAL BANKING ASSOCIATION, DEFENDANTS.
The opinion of the court was delivered by: Mills, District Judge.
ORDER AND OPINION
Can this Court enjoin state proceedings on the identical facts
filed after a final decision in this case has been handed down
and while that final decision is on appeal?
This case began as a common, garden variety bank foreclosure
and has ended as a civil RICO action (18 U.S.C. § 1964),
dismissed with prejudice by this Court.
Involved here is a bankrupt tire and service dealer who fought
foreclosure in the state court and then filed a RICO action
alleging that the bank, et al (FCSB) had fraudulently drawn up a
letter of direction to Plaintiff's land trustees ordering them to
encumber their property with a second mortgage.
Plaintiffs have appealed our dismissal to the Seventh Circuit
Court of Appeals, and then — while the appeal is pending —
instituted another factually identical case in the 6th Judicial
Circuit Court of Illinois, alleging the same common law fraud
causes of action that were the basis of the RICO action here in
I — Prior Order
On December 17, 1985, we dismissed this case on the merits by
finding that no pattern of racketeering had been adequately pled,
in that a single allegation of one act of forgery and fraud
cannot sustain the pattern of racketeering requirement of Sedima
S.P.R.L. v. Imrex Co., Inc., ___ U.S. ___, 105 S.Ct. 3275, 3285,
fn. 14, 87 L.Ed.2d 346 (1985); Fleet Management Systems, Inc.,
d/b/a Logistic Systems v. Archer-Daniels-Midland Co., Inc., and
NIMS Associates, Inc., 627 F. Supp. 550 (C.D.Ill., 1986).
It was also determined that the allegations that Defendants
were collecting an illegal debt were patently false.
Thirdly, this Court found that no RICO injury, as defined by
18 U.S.C. § 1964(c), occurred because the mortgage foreclosed upon
and which was alleged to have been fraudulently created was not
the only encumberance on Plaintiffs' property. The Defendant Bank
also held a valid assignment*fn1 of the title to the property
could only be extinguished upon full payment of all debts owed
the bank by Plaintiffs. Thus, the bank had another remedy against
the Plaintiffs that would have had the same effect as the alleged
fraudulent mortgage. (This issue is discussed further infra.)
Now Plaintiff has sought to do an end-run around the federal
judiciary which they initially invoked. They do this by filing
the state court action after our final order and during the
appeal to the United States Court of Appeals for the Seventh
Circuit. This they cannot do.
II — Law
Lack of Jurisdiction
Plaintiff alleges that the filing of the case in the Circuit
Court of Appeals divested us of jurisdiction to act.
The Plaintiff cites Lloyd v. Lawrence, 60 F.R.D. 116 (S.D.Tex.
1973), which states:
When an appeal is taken from a decision of the
district court, the jurisdiction of the district
court terminates. That of the court of appeals
attaches upon filing of adequate appeal. [Cites
omitted.] Thereafter, the district court has no
jurisdiction and accordingly no control or power over
the litigants or the case except to aid the
appeal . . .
Id. 118. (Also see In re Federal Facilities Realty Trust,
227 F.2d 651, 654 (7th Cir. 1955).) By enjoining the state court from
relitigating the facts of this case, we will be doing so "to aid
the appeal," by the necessity of protecting and effectuating our
judgment pursuant to the Anti-Injunction Act
(28 U.S.C. § 2283).*fn2 Plaintiffs are seeking an appeal of our judgment in
the state court so as to circumvent it. In doing so they are also
challenging the jurisdiction of the reviewing court. If
Plaintiffs can procure a different judgment than the one ruled on
by this Court, the appellate court may find itself ruling upon an
ineffectual judgment, unless we can protect that judgment by
enjoining collateral attacks upon it in other courts. (Moreover,
by so ruling we add nothing substantive to the case, which is
what was attempted in Lloyd.)
The Defendants, on the other hand, cite a recent case wherein
the district court successfully enjoined relitigation after it
had entered a final order that was then pending on appeal to the
United States Court of Appeals for the 9th Circuit. In Wood v.
Santa Barbara Chamber of Commerce, Inc., 705 F.2d 1515, 1524 (9th
Cir. 1983), the Court stated:
A district court retains jurisdiction to enforce the
judgments it enters. Dietzsch v. Huidekoper,
103 U.S. 494 [26 L.Ed. 497] . . . (1880); cf. 28 U.S.C. § 2283
(1976) (exception to Anti-Injunction Act where state
court proceedings threaten federal court judgment).
The doctrines of collateral estoppel and res judicata
ordinarily provide adequate assurance that one
court's resolution of a controversy will be respected
by other courts. Nevertheless, under the All Writs
Act, 28 U.S.C. § 1651, district courts do have the
power to reinforce the effects of these doctrines by
issuing an injunction against repetitive litigation.
Therefore, this Court has jurisdiction to enjoin other courts
from ruling on the facts of this case, even when there is an
appeal pending, as the injunction is mandated by this Court's
need to effectuate its judgment, which in turn aids and protects
the appeal of this matter.
Plaintiff Henry next argues that no injunction can issue to
stop state court
action because of the Anti-Injunction Act, 28 U.S.C. § 2283.
As seen above, section 2283 of Title 28 of the United States
Code allows injunctions of state court proceedings in order "to
protect or effectuate its judgments."
"A federal court may enjoin state proceedings when res judicata
would bar the same action in federal court [cites omitted],"
pursuant to the anti-injunction act's "exception `to protect or
effectuate its judgments' . . . " Harper Plastics v. Amoco
Chemicals Corp., 657 F.2d 939, 946-47 (7th Cir. 1981). "The
re-litigation exception of § 2283 applies not only when the prior
federal judgment is res judicata but also when the doctrine of
collateral estoppel or issue preclusion is relied on [cites
omitted]." Samuel C. Ennis & Co., Inc. v. Woodmar Realty Co.,
542 F.2d 45, 49 (7th Cir. 1976).
As seen above, the Anti-Injunction Act not only does not
prevent the injunction but mandates it.
Plaintiff argues that the principles of res judicata on
collateral estoppel are not present because in the federal action
the RICO statute (18 U.S.C. § 1964) was the basis, whereas in the
present state action common law fraud.
Defendants correctly note that this is precisely the situation
for collateral estoppel, for which § 2283 allows injunctions.
Defendants cite Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326,
n. 5, 99 S.Ct. 645, 649, n. 5, 58 L.Ed.2d 552 (1979), for the
definition of collateral estoppel, and that is:
Under the doctrine of collateral estoppel . . . the
second action is upon a different cause of action and
judgment in the prior suit precludes relitigation of
issues actually litigated and necessary to the
outcome of the first action. [cites omitted.]
Thus, casting the same issues in a different cause of action
will not avoid the effect of collateral estoppel, as that is
precisely the practice that the doctrine is crafted to prevent.
Plaintiff then argues that he is not relitigating old matters
as he can show that he suffered an injury because the assignment
was merged and extinguished when the letter of direction and
second mortgage were executed later. Thus, if the assignment is
extinguished, Plaintiff should be allowed to prove the mortgage
was a fraud. We have already settled this issue in the following
The Plaintiff alleges that the assignment extinguishing merger
allegedly took place because a higher security (the mortgage) was
accepted in lieu of a lower security (the assignment). But in
fact the security stayed the same, as it was the identical
property always in question, only more security arrangements were
The Plaintiffs seek to downgrade the assignment so that what
was assigned was something less than what was actually assigned —
which was the equitable title (and then upon satisfaction of the
contract for deed, and merger of it with the warranty deed, the
legal title to the property). Because under the doctrine of
as between the parties and those claiming through
them, when the owner of the land enters into a valid
and enforceable contract for its sale he continues to
hold the legal title, but in trust for the buyer; and
the buyer becomes the equitable owner and holds the
purchase money in trust for the seller.
Shay v. Penrose, 25 Ill.2d 447
, 449, 185 N.E.2d 218
The Plaintiffs are correct when they argue that the "assignment
merely assigned Plaintiff's rights to the bank in the contract
for deed . . ." Plaintiff's right or interest in the contract for
deed was their equitable title in the property in question, see
e.g. Shay v. Penrose, 25 Ill.2d at 450, 185 N.E.2d 218 (buyer
acquires equitable title "the instant a valid enforceable
contract is entered into . . ."), which later merged with the
legal title upon satisfying the contract for deed and the
seller's delivering the warranty deed. Upon receipt of
the warranty deed, merger occurred. All of this the bank acquired
through the assignment, Stavros v. Karkom, 39 Ill. App.3d 113,
123, 349 N.E.2d 599 (1st Dist. 1976) ("Assignee acquires all of
the interest of the assignor in the property that is
transferred . . . [An] assignee of a contract for the purchase of
real estate acquires no greater rights in the property than were
possessed by his assignor, the original contract vendee [cite
omitted].") And see Litwin v. Timbercrest Estates, Inc.,
37 Ill. App.3d 956, 958, 347 N.E.2d 378 (1st Dist. 1976). Because
when the equitable title, merged with the legal title (upon
satisfying the contract for deed and receiving the warranty
deed), it was held by the Henrys, subject to the assignment;
thus, the bank's assigned, equitable interest merged and became
their assigned legal and equitable interest until, according to
the terms of the assignment, all the principal and interest owed
the Defendant bank had been paid. This has not happened (and now
due to the mortgage and foreclosure the Henrys will only be able
to recoup their property if they can equitably redeem it, which
means they would have to satisfy the amounts owed which may or
may not satisfy the assignment's requirements).
Thus, the security that the bank held was at first the assigned
equitable title then the assigned merged equitable and legal
title; and then the bank held a first and second mortgage on the
same property. At no time did the security change (except at the
time of merger, which only strengthened the bank's hand because
they now had an assignment of the whole title). No higher
security was accepted in lieu of a lower security — only the
security arrangements increased. Thus, contrary to Plaintiff's
argument, the assignment did not disappear; what it encompassed
merged (and continued on) into the warranty deed, which was held
by the bank due to the earlier assignment.
Therefore, as we have held earlier, no RICO or other injury
could have occurred because of the second mortgage, as it was
just another security arrangement dealing with the property that
the Defendant bank already had an existing security interest in.
Consequently, relitigating the validity of the second mortgage
will do nothing for the unfortunate Henrys and relitigation is
barred by the doctrine of collateral estoppel, and claim
Moreover, the Plaintiffs cannot argue that the second mortgage,
as an allegedly higher security, merged with and extinguished the
assignment, and then turn around and argue that the second
mortgage was a fraud. It is either one or the other, but not
both, for all purposes.
Ergo, pursuant to the All Writs Act, 28 U.S.C. § 1651, and the
Anti-Injunction Act, 28 U.S.C. § 2283 (exception), this Court
ALLOWS "FCSB Defendant's" motion for injunction in its entirety.
It is further ORDERED that pursuant to 28 U.S.C. § 1651 and
28 U.S.C. § 2283 (exception) that the Circuit Court of the Sixth
Judicial Circuit of Illinois is ENJOINED from further proceeding
in this matter, except as allowed by this order and specific
order of injunction to follow.