National Equipment Rental, Ltd. v. A. L. Fowler, D. O. Thomas, and E. O. Thomas, Individually and Doing Business as Fowler Poultry & Egg Co.

287 F.2d 43, 4 Fed. R. Serv. 2d 167, 1961 U.S. App. LEXIS 5369

• Court: Court of Appeals for the Second Circuit
• Decided: February 8, 1961
• Docket: 26203_1
• Status: Published

Opinions

WATERMAN, Circuit Judge.

On November 5, 1958 National Equipment Rental, Ltd. (National), a New York corporation, commenced an action in the U. S. District Court for the Eastern District of New York against A. L. Fowler, D. O. Thomas and E. O. Thomas, individually, all residents of Alabama, and there doing business as Thomas & Fowler Poultry & Egg Co. (Thomas). The complaint alleged that Thomas had defaulted in the payment, of agreed monthly rentals provided for in a written lease of ice making equipment. Service of the court’s process was made in New York upon a process agent whom Thomas had designated in the agreement. Thomas appeared generally. Issue was joined on December 8, 1958 when Thomas filed an answer denying the material allegations of the complaint and alleging two additional separate affirmative defenses, first, a rescission because of National’s initial breach of the terms of the agreement, and second, a counterclaim for Thomas’s own damages that followed from National’s alleged initial breach. National served its reply to this answer and moved for summary judgment. The motion was denied on January 14, 1959. Thereafter a notice and order for a pretrial conference to be held on May 20, 1959 was mailed to all attorneys on March 12, 1959.

On April 27, 1959, after receipt of this pretrial conference order, Thomas commenced an action against National, based upon the same lease agreement, in the U. S. District Court for the Northern District of Alabama, alleging National’s breach of the terms of the lease, and fraud in its inducement. Service upon National was made by delivering the process to Alabama’s Secretary of State pursuant to an Alabama statute. National moved to quash this service. The motion was denied. National then moved the Alabama court to stay prosecution of this Alabama action and for a transfer of the case to the Eastern District of New York where the prior action between the parties, upon which issue had been joined, was still pending. This motion, too, was denied. It was now the Alabama court’s turn to order a pretrial conference; and on January 21, 1960 the Alabama court did so, setting it for February 15, 1960, National being ordered to file an answer to Thomas’s complaint prior to that date.

Thereupon, on January 25, 1960, National moved in its 1958 case in the Eastern District of New York for an order to enjoin Thomas from proceeding further in Thomas’s 1959 Alabama action and to transfer this latterly commenced Alabama action to the Eastern District of New York, there to be consolidated with the earlier action for trial. This motion was heard by Judge Rayfiel and was granted in all respects by him. He also directed the clerk of the Alabama court to forward all papers in the Alabama case to the Eastern District of New York. It is from this order that Thomas appeals.

The appellants (Thomas) maintain that Judge Rayfiel abused his discretion when he enjoined appellants from further prosecuting their Alabama action; and further maintain that he lacked power to order that action transferred to New York and to order it consolidated for trial with the prior New York action in New York.

28 U.S.C. § 1292(a) (1) grants us jurisdiction to hear the appeal from the granting of the injunction even though it be an interlocutory order. Ordinarily an interlocutory order granting or denying a motion to transfer is not appealable, but here even that portion of the order below is reviewable because from the grant of an interlocutory injunction. Barber-Greene Co. v. Blaw-Knox Co., 6 Cir., 1957, 239 F.2d 774. See Deckert v. Independence Shares Corp., 1940, 311 U.S. 282, 286-287, 61 S.Ct. 229, 85 L.Ed. 189; American Chemical Paint Co. v. Dow Chemical Co., 6 Cir., 1947, 161 F.2d 956, 958.

I

We affirm the portion of the order that enjoined appellants from further prosecuting their Alabama action. This was a sound exercise of judicial discretion.

Of the two causes of action which appellants allege in their Alabama action, the first is identical to appellants’ defensive counterclaim in the prior, the New York, action; the second, fraud in the inducement of the agreement, arises from the same transaction of lease, and is pleadable in the New York action as a compulsory counterclaim. Rule 13(a) of the Federal Rules of Civil Procedure, 28 U.S.C.Appendix, 1958 Ed.; United Artists Corp. v. Masterpiece Productions, 2 Cir., 1955, 221 F.2d 213, 216; Lesnik v. Public Industrials Corp., 2 Cir., 1944, 144 F.2d 968, 975. See Moore v. New York Cotton Exchange, 1926, 270 U.S. 593, 610, 46 S.Ct. 367, 70 L.Ed. 750. Penalty for failure to assert a compulsory counterclaim is the preclusion of a later assertion of that claim, the purpose of the compulsory counterclaim device being to bring all logically related claims into a single litigation, thereby avoiding a multiplicity of suits. See Lesnik v. Public Industrials Corp., supra.

Judge Rayfiel by enjoining further prosecution of the Alabama action was protecting the jurisdiction his court had obtained some five months prior to commencement of that second action. The bulk of authority supports the position that when a case is brought in one federal district court, and the case so brought embraces essentially the same transactions as those in a case pending in another federal district court, the latter court may enjoin the suitor in the more recently commenced case from taking any further action in the prosecution of that case. Martin v. Graybar Electric Co., 7 Cir., 1959, 266 F.2d 202; Remington Products Corp. v. American Aerovap Inc., 2 Cir., 1951, 192 F.2d 872; Food Fair Stores v. Square Deal Market Co., 1951, 88 U.S.App.D.C. 176, 187 F.2d 219; Chicago Pneumatic Tool Co. v. Hughes Tool Co., 10 Cir., 180 F.2d 97, certiorari denied 1950, 340 U.S. 816, 71 S.Ct. 46, 95 L.Ed. 600; Cresta Blanca Wine Co. v. Eastern Wine Corp., 2 Cir., 1944, 143 F.2d 1012; Crosley Corp. v. Hazeltine Corp., 3 Cir., 1941, 122 F.2d 925, certiorari denied 1942, 315 U.S. 813, 62 S.Ct. 798, 86 L.Ed. 1211. See Barber-Greene Co. v. Blaw-Knox Co., supra. This necessarily follows from the basic proposition that the first court to obtain jurisdiction of the parties and of the issues should have priority over a second court to do so, Joseph Bancroft & Sons Co. v. Spunize Co. of America, 2 Cir., 1959, 268 F.2d 522. Sound judicial discretion dictates that the second court decline' its consideration of the action before it until the prior action before the first court is terminated. See Powell v. American Export Lines, D.C.S.D.N.Y.1956, 146 F.Supp. 417; Culbertson v. Midwest Uranium Co., D.C.D.Utah 1955, 132 F.Supp. 678.

Nevertheless, the Alabama court refused to stay proceedings¹ there and, as a result, the New York court was threatened with loss of control over the case pending in New York even though the New York ease anticipated the Alabama case by months, all parties had submitted to New York jurisdiction, issue had been joined on the merits and the case was ripe for pretrial or for trial itself. Moreover, a final adjudication upon the New York action would leave nothing for determination in Alabama. One cause of action alleged in the Alabama proceeding was already before the New York court in the form of a defense counterclaim. The second, that of alleged fraudulent inducement, was properly pleadable as a compulsory counterclaim and, whether pleaded or not, the adjudication in the New York action would be a final disposition of that claim.²

In these circumstances Judge Ray-fiel’s action was an exercise of sound judicial discretion; in fact the situation was a perfect one for the issuance of the injunction he issued. As Judge Parkinson said in Martin v. Graybar Electric Co., supra, 266 F.2d at page 204:

“Two simultaneously pending lawsuits involving identical issues and between the same parties, the parties being transposed and each prosecuting the other independently, is certainly anything but conducive to the orderly administration of justice. We believe it to be important that there be a single determination of a controversy between the same litigants and, therefore, a party who first brings an issue into a court of competent jurisdiction should be free from the vexation of concurrent litigation over the same subject matter, and an injunction should issue enjoining the prosecution of the second suit to prevent the economic waste involved in duplicating litigation which would have an adverse effect on the prompt and efficient administration of justice unless unusual circumstances warrant.”

II

Though we affirm the issuance of the injunction we reverse that portion of the lower court’s order directing that the Alabama case be transferred to the Eastern District of New York and ordering it. to be consolidated with the New York case there.

In the first place, the injunction order obviates the necessity for the transfer order. The counterclaim for breach of the agreement (the first Alabama cause-of action) will have been adjudicated. The second Alabama cause of action, that for fraudulent inducement, will be precluded unless appellant gets leave of the-lower court pursuant to Rule 13(f) to. amend its answer to include this claim.

Moreover, Judge Rayfiel lacked' power to transfer the Alabama action. 28 U.S.C.A. § 1404(a) provides that “a district court may transfer any civil action to any other district or division where it might have been brought.” It seems clear that this language presupposes that the action to be transferred is pending in the transferor court. The administration of justice would be chaotic indeed if one district court could order another to divest itself of jurisdiction and to transfer a case properly before it. An application for such an order of removal was denied in Facen v. Royal Rotterdam Lloyd S. S. Co., D.C.S.D.N.Y. 1952, 12 F.R.D. 443. The attempted consolidation of the two cases for trial is even more questionable. Rule 42(a) of the Federal Rules of Civil Procedure provides for consolidation only where the two actions “are pending before the court.” By no stretch of the imagination can the Alabama action be considered as now pending before the New York court, Schwartz v. Kaufman, D.C.E.D.N.Y.1940, 46 F.Supp. 318; Facen v. Royal Rotterdam Lloyd S. S. Co., supra; and, as we have pointed out, the New York court lacks power to transfer it.

Affirmed in part and reversed in part.

1 . In support of their claim that Judge Rayfiel abused his discretion, appellants place groat reliance on the fact that the Alabama court refused to grant this stay. They argue that, as a matter of comity, Judge Rayfiel should have accepted the ruling of the Alabama court and out of respect to the Alabama court should not have enjoined the Alabama plaintiffs. Of course appellants would disregard the fact that the Eastern District of New York had full jurisdiction over the Alabama plaintiffs months before the Alabama action was commenced. But, ignoring that fact, the Alabama holding was not res judicata, as to the parties inasmuch as it was an interlocutory order and was not made upon the merits. Moreover, the two courts involved were courts of coordinate jurisdiction. See Hoffman v. Blaski, 1960, 363 U.S. 335, 340, footnote 9, 80 S.Ct. 1084, 4 L.Ed.2d 1254. Although Judge Rayfiel may well have accepted the Alabama holding, he-was not required to, and on the basis of the circumstances involved in this case we think this choice was a wise one indeed. See Emerson Electric Mfg. Co. v. Emerson Radio & Phonograph Corp., D.C.D.N.J.1956, 141 P.Supp. 645.

2 . The claim is still pleadable upon proper showing that justice requires it. Fed.Rules Civ.Proc. Rule 13(f).