Diversified Foods v. The First National

• Court: Court of Appeals for the First Circuit
• Decided: February 8, 1993
• Docket: 92-1164
• Status: Published

Opinion

USCA1 Opinion

February 8, 1993
                            UNITED STATES COURT OF APPEALS
                                For The First Circuit

                                 ____________________

        No. 92-1164

                           DIVERSIFIED FOODS, INC., et al.,

                                Plaintiffs-Appellants,

                                          v.

                      THE FIRST NATIONAL BANK OF BOSTON, et al.,

                                Defendants-Appellees.

____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                              FOR THE DISTRICT OF MAINE

                     [Hon. D. Brock Hornby, U.S. District Judge]
                                            ___________________

                                 ____________________

                                        Before

                         Torruella and Boudin, Circuit Judges,
                                               ______________
                             and Keeton,* District Judge.
                                          ______________

                                 ____________________

Richard E. Poulos with whom John S.  Campbell, Poulos, Campbell  &
            _________________           _________________  ___________________
        Zendzian, P.A., Daniel G. Lilley and John A. McArdle were on brief for
        _____________   ________________     _______________
        appellants.
            William J. Kayatta, Jr., with whom  Peter W. Culley, Catherine  R.
            ______________________              _______________  ____________
        Connors and Pierce, Atwood, Scribner, Allen, Smith & Lancaster were on
        _______     __________________________________________________
        brief for appellees.  
                                 ____________________

                                   February 8, 1993
                                 ____________________

        __________________
        * of the District of Massachusetts, sitting by designation.

BOUDIN, Circuit Judge.  In this  case the district court
                         _____________

            dismissed  a suit brought under the Bank Holding Company Act,

            12 U.S.C.    1972, on  the ground that  it was barred  by res
                                                                      ___

            judicata.   The prior litigation, held to bar the new federal
            ________

            action, was a state-court suit brought by the same plaintiffs

            against  the same  defendants  and decided  in  favor of  the

            latter.   The disappointed  plaintiffs now appeal,  urging on

            several grounds  that res  judicata does not  properly apply.
                                  _____________

            In full  agreement with  the district  court,  we affirm  its

            decision.

                 The procedural history  of the two cases is  complex and

            intertwined but a  brief summary will suffice  at the outset.

            Diversified  Foods, Inc.,  and its  operating subsidiary  New

            England Sales,  Inc.  (collectively, "the  borrowers"),  were

            engaged in  a specialized  form of wholesale  distribution of

            goods.   In  financing  their activities,  they entered  into

            various borrowing  arrangements with First  National Bank  of

            Boston   and  its   Maine  subsidiary  Casco   Northern  Bank

            (collectively, "the  banks").  The arrangements,  at least in

            the  borrowers'  view,  contained  terms   restricting  their

            ability to obtain alternative sources of financing.

                 During 1988, the borrowers  first sought to expand their

            business and then suffered large losses.  They attribute this

            reversal  of fortune to the  failure of the  banks to provide

            adequate credit under  the borrowing arrangements.   Claiming

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multimillion  dollar  damages, the  borrowers  on  August 21,

            1989, brought suit against the banks in Maine Superior Court,

            asserting various  state-law tort  and contract claims.   The

            complaint, as later amended in 1990, included the charge that

            the  banks violated  an  implied covenant  of  good faith  by

            imposing  "unreasonable restrictions  so  as  to prevent  the

            [borrowers] from obtaining alternative financing."  Discovery

            in the state case proceeded during 1989 and 1990.

                 On  September  14,  1990,   while  the  state  case  was

            proceeding, the borrowers brought the present action  against

            the  banks based  on the  anti-tying  provisions of  the Bank

            Holding  Company Act, 12 U.S.C.    1972(1).   The new federal

            claims  were  based,  it  appears,  on  information  obtained

            through  discovery in the state case.  The borrowers say that

            the  new claims  were  asserted in  a  separate action  in  a

            different  court because at that  time the borrowers held the

            view (contrary to two  circuit decisions) that federal courts

            have exclusive jurisdiction over claims under section 1972.1

____________________

                 1Two  weeks before  filing  the  federal complaint,  the
            borrowers moved to amend their state complaint to charge that
            the  banks  had  breached  their   duty  of  good  faith   by
            "unreasonable, illegal, and anticompetitive"  restrictions on
            alternative financing.   Shortly after the federal  complaint
            was filed, the banks  opposed the state amendment.   When the
            borrowers responded  that the  federal claims were  not being
            asserted  in the  state  case, the  state  court allowed  the
            amendment,     striking     the    words     "illegal"    and
            "anticompetitive."

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When the banks answered the federal complaint on October

            24, 1990, they included  as a defense the assertion  that the

            borrowers  "have improperly  split  their causes  of  action,

            having  previously filed  in another court  another complaint

            arising   out  of   the   same  transaction   or  series   of

            transactions."  Thereafter, the banks resisted the borrowers'

            efforts in January  1991 to introduce  the state claims  into

            the federal action by amendment  of the federal complaint  or

            to delay the state proceedings.  The banks  did agree to have

            discovery in either case treated as if taken in both.

                 On  April 18,  1991,  the Maine  Superior Court  granted

            summary  judgment in  favor of  the banks,  a decision  later

            affirmed on  appeal.  Diversified Foods, Inc.  v. First Nat'l
                                  ______________________      ___________

            Bank, 605  A.2d 609  (Me. 1992).   The  banks then  moved for
            ____

            summary  judgment in  the  federal action  on grounds  of res
                                                                      ___

            judicata,  and  the  district  court granted  the  motion  on
            ________

            January  9,  1992.   A belated  attempt  by the  borrowers to

            reopen  the state case to add the federal claims was rejected

            by  the state  court, and  this action  was also  affirmed on

            appeal.  Id.  The  borrowers then pursued this appeal in  the
                     __

            federal case.

                 In  this court  the borrowers  first argue  that federal

            courts have exclusive jurisdiction over claims under the Bank

            Holding Company Act's anti-tying provisions.  Therefore, they

            argue,  res judicata  cannot properly  derive from  the state
                    ____________

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court  judgment  because they  could  not  have included  the

            federal  claims  in their  state case.    We need  not decide

            whether  the  conclusion would  follow  if  the premise  were

            sound, for the premise  is mistaken.  We follow  two circuits

            and  several  other courts  that  uniformly  hold that  state

            tribunals  have  concurrent  jurisdiction over  section  1972

            claims.  Cuervo  Resources, Inc. v. Claydesta Nat'l Bank, 876
                     ______________________     ____________________

            F.2d 436 (5th  Cir. 1989);  Lane v. Central  Bank, N.A.,  756
                                        ____    __________________

            F.2d 814 (11th Cir. 1985).2  

                 The  Bank  Holding  Company  Act  provides  that  anyone

            injured  by a  violation  of section  1972  may sue  "in  any

            district court  of the  United States," admittedly  making no

            reference to state courts.  12 U.S.C.   1975.  But it is  now

            settled that  there is a  presumption in favor  of concurrent

            jurisdiction,  so  that state  courts  may  entertain federal

            civil  claims  as a  matter  of course  "absent  provision by

            Congress  to  the  contrary  or   disabling  incompatibility"

            between the federal claim and state court jurisdiction.  Gulf
                                                                     ____

            Offshore  Co. v.  Mobil  Oil Corp.,  453  U.S. 473,    477-78
            ____________      _______________

            (1981).   Here  there  is  no  explicit  bar  to  state-court

            jurisdiction  and the  subject  matter is  hardly beyond  the

____________________

                 2Several state courts have reached the  same conclusion.
            See  United Central Bank, N.A. v. Kruse, 439 N.W.2d 849 (Iowa
            ___  ________________________     _____
            1989); Waite v. Banctexas-Houston, N.A., 792 S.W.2d 538 (Tex.
                   _______________________________
            Ct. App. 1990).

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competence of state  courts, which routinely consider  claims

            under their own antitrust laws.

                 Of course,  the resemblance  to antitrust law  cuts both

            ways,  providing the  borrowers' best argument  for exclusive

            federal jurisdiction.   Section 1972 is a  blunter version of

            section  3  of the  Clayton  Act, 15  U.S.C.    14,  and with

            qualifications courts use Clayton  Act precedents in applying

            section  1972.  E.g., Swerdloff v. Miami Nat'l Bank, 584 F.2d
                            ___   _________    ________________

            54, 58-59 (5th Cir.  1978).  In empowering federal  courts to

            hear Clayton Act cases, Congress made  no reference to state-

            court  jurisdiction, see  15  U.S.C.    15,  and it  is  well
                                 ___

            settled  (by judicial  construction)  that federal  antitrust

            claims may be  asserted only in  federal court.   Blumenstock
                                                              ___________

            Bros. Advertising  Agency v. Curtis  Pub. Co., 252  U.S. 436,
            _________________________    _______________

            440  (1920).   The  borrowers urge  that  the same  gloss  be

            applied to the Bank Holding Company Act.

                 Exclusive  federal-court   jurisdiction  over  antitrust

            claims, although  a firmly  rooted rule,  is  the product  of

            reasoning that the  Supreme Court  no longer  applies in  new

            matters.    Like  baseball's judicial  "exemption"  from  the

            antitrust  laws, see  Flood  v. Kuhn,  407  U.S. 258,  283-84
                             ___  _____     ____

            (1972), the result persists but is not extended.  This is the

            clear  message of  Tafflin v.  Levitt, 493  U.S. 455,  459-60
                               _______     ______

            (1990), where  the Supreme  Court affirmed the  state courts'

            concurrent jurisdiction over  civil RICO claims  and rejected

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the  same Clayton Act analogy offered here.  Indeed, the RICO

            statute uses  jurisdictional  language quite  similar to  the

            Bank Holding Company Act, compare 18 U.S.C.   1964(c) with 12
                                      _______                     ____

            U.S.C.   1975,  and was passed  by the same  Congress in  the

            same  session.   Tafflin  offers the  coup  de grace  to  the
                             _______              ______________

            borrowers' argument for exclusive jurisdiction.3

                 Once  that  issue is  removed,  the  application of  res
                                                                      ___

            judicata is straightforward in the present case.   The branch
            ________

            of that doctrine  of concern  here, known for  many years  as

            merger  (if the plaintiff had won the first case) and bar (if

            the plaintiff had lost),  has lately been rechristened "claim

            preclusion"  in the  modern  functional style.    See Roy  v.
                                                              ___ ___

            Jasper  Corp., 666  F.2d  714, 717  (1st  Cir. 1981).    More
            ____________

            important,  the doctrine  has  evolved  subtly, although  not

            uniformly in all jurisdictions,  to employ a functional "same

            transaction" test,  as an overlay to  the traditional inquiry

            whether the "cause of  action" in the two cases is  the same.

            Maine,  whose  earlier  judgment   is  invoked  here  as  res
                                                                      ___

            judicata, employs  this test,  which is therefore  binding on
            ________

____________________

                 3We  give  little  weight to  occasional  references  by
            Congress,  in the  legislative  history of  section 1972,  to
            suits  in "federal" courts.   See,  e.g., 2  One-Bank Holding
                                          ___   ___      ________________
            Company  Legislation of  1970:   Hearings  Before the  Senate
            _____________________________    ____________________________
            Comm. on  Banking and  Currency, 91st.  Cong.,  2d Sess.  966
            _______________________________
            (1970) (statement of Sen. Bennett) (referring to "the process
            of   suit  through  the  Federal  courts  .  .  .").    These
            references, if any intent is attributable to them,  appear to
            reflect the natural assumption  that Bank Holding Company Act
            claims would usually be litigated in federal forums.

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us.  See Migra v. Warren City School Dist. Bd.  of Educ., 465
                 ___ _____    _____________________________________

            U.S. 75, 85 (1984).

                 In Currier v. Cyr,  570 A.2d 1205 (Me. 1990),  the Maine
                    _______    ___

            Supreme  Judicial Court  summarized  the rule  it follows  in

            deciding whether new  claims are barred because  they were or

            "might have been" litigated in the prior case: 

                      Maine  has accepted  what is  known as  a
                      "transactional test" of cause  of action,
                      which defines "the measure of  a cause of
                      action  as  the  aggregate  of  connected
                      operative  facts  that  can   be  handled
                      together  conveniently  for  purposes  of
                      trial."

            Id. at 1208 (quoting  Gurski v. Culpovich, 540 A.2d  764, 766
            __                    ______    _________

            (Me. 1988)).   Accordingly, so  long as the  parties are  the

            same in  both cases and a  final judgment was  entered in the

            prior  action, "a subsequent suit that arises out of the same
                                                                 ________

            operative  facts shall be barred even  though the second suit
            ________________

            relies  upon a legal theory  not advanced in  the first case,

            seeks  different relief than  that sought in  the first case,

            and involves [different] evidence   . .  . ."  Id.  (emphasis
                                                           __

            added).

                 In the present case  the borrowers' federal claims under

            section 1972 unquestionably arise  out of "the same operative

            facts" as the state claims earlier asserted by the borrowers.

            They themselves, in an unsuccessful  attempt to add the state

            claims  to the  federal case  based on  pendant jurisdiction,

            told  the district court that  "[t]he facts forming the basis

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for the state claims are the same facts which  form the basis

            of the pending [federal] action . . . ."  A comparison of the

            two   complaints   shows   that   the   factual   allegations

            substantially overlap.  Further, the central tying allegation

            in  the federal  complaint--that  the  banks  restricted  the

            borrowers' access  to alternative sources of  credit--was one

            of the express claims in the state action.

                 In this  court, the  borrowers make only  a half-hearted

            effort  to distinguish  the  two complaints  under the  Maine

            transactions test for  res judicata, and  we think the  point
                                   ____________

            needs  no  further   discussion.    The   borrowers'  central

            arguments in  resisting res judicata,  exclusive jurisdiction
                                    ____________

            aside,  are  variants  on a  single  theme.    They argue  in

            substance that  the banks themselves  strove to keep  the two

            actions separate,  resisted the assertion of  state claims in

            the federal case  and vice versa, and now use the judgment in

            the  suit first decided to prevent litigation of the other on

            the  merits.   This effort  to resist consolidation,  say the

            borrowers, should estop the  banks from invoking res judicata
                                                             ____________

            or should be treated as a waiver of the defense.

                    We accept arguendo the  borrowers' version of events,
                              ________

            although it is unclear whether the banks followed a conscious

            strategy or merely opposed seriatim the successive demands of

            an  opponent.   But in  either event  we do  not see  how the

            gravamen    of   the   charge--the   banks'   resistance   to

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consolidation of the federal  and state claims--gives rise to

            an estoppel  of the banks.  The banks are not alleged to have

            said  anything untrue.  Their  position throughout  has  been

            consistent.   There is not even a valid charge of concealment

            or surprise:  the banks' answer in the federal case gave fair

            warning  of the  risk of  res judicata  by asserting  a claim
                                      ____________

            splitting  defense, expressly  referring  to  the  borrowers'

            state  suit "arising out of the same transaction or series of

            transactions."

                 As for waiver, it may be  assumed that Maine, consistent

            with  general law on the subject, would disallow res judicata
                                                             ____________

            if the  "parties have agreed  in terms or in  effect that the

            plaintiff  may   split  his  claim,  or   the  defendant  has

            acquiesced  therein."   Calderon Rosado  v. General  Electric
                                    _______________     _________________

            Circuit  Breakers, Inc., 805 F.2d 1085,  1087 (1st Cir. 1986)
            ______________________

            (quoting  Restatement (Second)  of  Judgments     26(1)(a)).4
                      ___________________________________

            Indeed, in Thompson  v. Gaudette,  148 Me. 288,  92 A.2d  342
                       ________     ________

            (1952), the Maine Supreme  Judicial Court said that the  rule

            against splitting a cause of action will be waived unless the

            defendant  asserts it "at the earliest opportunity."  92 A.2d

            at 348 (quoting Mayfield v. Kovac, 41 Ohio App. 310, 181 N.E.
                            ________    _____

____________________

                 4In  Calderon  Rosado  this  court  rejected  on  waiver
                      ________________
            grounds  a res  judicata defense  in a  federal action.   The
                       _____________
            defendant  had earlier  agreed to  the  plaintiff's voluntary
            dismissal "with  prejudice"  of a  wrongful  discharge  claim
            under  Puerto Rican law brought in  a local court, "seemingly
            acceding to plaintiff's desire  to litigate in federal court"
            under a federal statute.  805 F.2d at 1086.

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28, 30 (1931)).  In our case, the banks at the outset pleaded

            claim-splitting in their answer and maintained  that position

            throughout the case.

                 Courts  could, we suppose, disallow the claim preclusion

            defense  wherever two  suits  are brought  and the  defendant

            thereafter resists their consolidation.  But when a plaintiff

            has  chosen  to bring  two lawsuits  in  the same  time frame

            relating  to the same operative facts, it  is hard to see why

            the defendant should not  be able to resist consolidation  on

            proper  grounds, such as undue  delay.  If  the resistance is

            unjustified, the plaintiff  may normally litigate  that issue

            within the lawsuit.  In fact, the borrowers here  did seek to

            add the federal claims to  the state action; but they  did so

            only after summary judgment was  granted on the state claims.
                 _____

            Not surprisingly, the Maine  Supreme Judicial Court said that

            this effort came too late.  Diversified Foods, Inc., 605 A.2d
                                        ______________________

            at 616.5

                 Finally, the borrowers suggest that, estoppel and waiver

            issues to one side, it would be inequitable to permit the res
                                                                      ___

            judicata  defense.  They argue that their decision to bring a
            ________

            separate federal  suit, instead of adding  the federal claims

____________________

                 5The borrowers  were  only  slightly  more  diligent  in
            seeking to add the state claims to the federal case.  In late
            January 1991,  they moved to  amend the federal  complaint to
            assert the state claims and  to stay the state action.   This
            occurred, however, after the close of state discovery  and on
            the  eve of the  banks' deadline for  filing summary judgment
            motions.

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to the  state case, was  based on  a good  faith belief  that

            exclusive federal-court jurisdiction  prevented that  course.

            Res   judicata   is   a   judge-made   doctrine   resting  on
            ______________

            considerations  of policy,  and doubtless  there is  room for

            equitable adjustments.   See generally 18  Charles A. Wright,
                                     ___ _________

            Arthur R.  Miller & Edward  H. Cooper,  Federal Practice  and
                                                    _____________________

            Procedure     4415 (1981).   But  in  this case  the mistaken
            _________

            belief in  exclusive federal  jurisdiction was formed  in the

            face of two circuit decisions to the contrary.

                 Thus,  the  case for  an  equitable  departure from  res
                                                                      ___

            judicata  is very weak.  True, the banks played an aggressive
            ________

            hand, but litigation is inherently  aggressive.  Further, the

            borrowers  created  their own  dilemma  by  bringing the  two

            actions  separately,   ignoring  the  concurrent-jurisdiction

            precedents  directly in  point.   Then, in  the teeth  of the

            warning furnished by the  banks' claim splitting defense, the

            borrowers  failed to assert  the federal claims  in the state

            case  until after that  case had been  lost.  Like  the Maine

            Supreme  Judicial  Court,  we  see  no  equitable  basis  for

            resurrecting claims that the  borrowers themselves allowed to

            expire.

                 Affirmed.
                 ________

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