On Appeal from the United States District Court for the Eastern District of Pennsylvania.
Before: Adams, Becker and Van Dusen, Circuit Judges.
This appeal raises difficult questions concerning the appropriate forum for the adjudication of a challenge to a consent decree alleged to have violated the due process rights of the plaintiff. The difficulties arise from the need to evaluate complex and interrelated claims brought before state courts and a federal district court sitting in diversity jurisdiction. In particular, this appeal requires that we determine what preclusive effect a state court denial of a petition to strike a judgment should have on a related federal court diversity action and the procedural right of a party to amend a complaint to reflect intervening changes of decisional law. The district court (a) held that a state court denial of a petition to strike barred diversity litigation on a collateral action, (b) denied a motion to amend the complaint, and (c) granted summary judgment for the defendants. We now vacate that judgment and remand this case for further proceedings.
The present action arises as a challenge to a consent decree between Bethlehem Steel and Henry Boileau, the husband of the plaintiff. Mr. Boileau was an employee of Bethlehem Steel between 1957 and 1971, reaching the position of manager of real estate and municipal services prior to his departure. According to his affidavit of August 16, 1978, Boileau was directed by Bethlehem Steel in 1968 to create a "slush fund" whereby corporate funds would "disappear" through a series of fictitious transactions and thereby become available for cash bribes. In his words, "I was responsible for bribery at all levels of government," particularly the city council aldermen of Chicago. App. at 228-29.*fn1
According to Boileau, corporate funds were filtered through a number of companies which he set up to return untraceable cash to Bethlehem's coffers.*fn2 These transactions did not escape detection by the Internal Revenue Service, and on Jaunary 12, 1972, Boileau was indicted on four counts of tax evasion. United States v. Boileau, No. 72-17 (E.D. Pa. 1972). Immediately thereafter, on January 14, 1972, Bethlehem, charging embezzlement of company funds, initiated proceedings in the Common Pleas Court of Bucks County, Pennsylvania, against Boileau and these companies, as well as other individuals. Bethlehem Steel v. Tri State Industries, Inc., et al., No. 72-355-05-1 (Ct. Common Pleas, Bucks County, 1972).
In his reply to Bethlehem's complaint, Boileau charged that the state court actions against him were instituted so that Bethlehem could avoid tax liability and forestall a threatened shareholder suit for diversion of corporate funds. Although Boileau claimed that all payments to his companies or to others were made with the authorization of his superiors, he nonetheless entered into a consent decree that ceded all his property to Bethlehem Steel. Bethlehem Steel v. Tri State Industries, Inc., Nos. 72-355-09-1, 72-356-09-2, 72-488-08-5 (Ct. of Common Pleas, Bucks County, June 21, 1972).
The consent decree also transferred to Bethlehem Steel all the joint property of Boileau and his wife, Leona Boileau, the plaintiff in the present action. The crux of Mrs. Boileau's claim is that at the time judgment was entered she and her husband were separated and that her share of jointly held property was conveyed to Bethlehem without her knowledge, without her consent, and without due process of law. She asserts that she was not a party to the 1972 proceedings and that the property transferred to Bethlehem was traceable, at least in part, to her own savings and not to any funds that ever belonged to Bethlehem Steel.
According to Mrs. Boileau's affidavit of May 6, 1982, she and her husband first purchased land in Barrington, New Jersey on February 11, 1952; the purchase was made with the couple's joint savings. App. at 380-81. The Boileaus sold this property on June 18, 1958, and in 1961 purchased 99 acres of land in Northampton County, Pennsylvania. In 1965, the Boileaus sold ten acres of the Northampton property and purchased a Bucks County farm that was eventually conveyed to Bethlehem Steel, along with the remaining Northampton property. Id. These averments of Leona Boileau are supported in full by the affidavit of Henry Boileau of May 7, 1982. App. at 382-85.Significantly, he adds that the final real estate purchase made by the couple in 1965 occurred prior to his involvement with any of the companies named in either the 1972 tax evasion indictment or the 1972 suit filed against him by Bethlehem Steel.
In her affidavit of August 25, 1978, Leona Boileau declared that she moved from Pennsylvania to Providence, Rhode Island on or about January 1, 1972. App. at 230. As of 1978, she worked as a clerical employee at Brown University, earning about $8,100 per year.She had lived with her sister since moving to Rhode Island, and, aside from the assets claimed in this law suit, she had property worth less than $400. Id. At the time the present lawsuit was filed in 1978, Mrs. Boileau was 62 years old.
Bethlehem Steel initiated an action in trespass and assumpsit against Henry Boileau in the Bucks County Common Pleas Court on January 14, 1972. On January 18, 1972, Bethlehem filed a second suit, this one in equity, against Henry and Leona Boileau seeking a lien against their properties in Bucks and Northampton Counties equal in value to the funds that Bethlehem alleged Henry Boileau had diverted. In particular Bethlehem's complaint in the equity suit claimed:
[Henry] Boileau has made or caused the defendants to make extensive expenditures, inter alia, for rare and expensive antiques, horses, real estate, travel and business enterprises, domestic and foreign investments, and deposits in bank accounts. . . .
App. at 133. Mrs. Boileau was not named in the trespass and assumpsit action filed by Bethlehem.*fn3
Mr. Boileau retained Bernard O'Hare, Esq., to represent him before the state court. Although Mrs. Boileau was not in Pennsylvania at the time and although she claims she was never served with process, Mr. O'Hare entered appearances on behalf of both Mr. and Mrs. Boileau.Mr. O'Hare subsequently acknowledged in court that Mrs. Boileau had not retained him and that his "appearance on behalf of Mrs. Boylou [sic] had been entered . . . on the assumption that I was authorized to do so." App. at 203. Mrs. Boileau claims, "I never asked or authorized Attorney O'Hare to represent me in that action or in any other legal matter." Affidavit of Leona Boileau, July 25, 1978; App. at 223.
In June 1972, Mr. Boileau and attorney O'Hare appeared before Judge William Hart Rufe III of the Bucks County Court, together with Edwin P. Rome, Esq., of the law firm of Blank, Rome, Klaus & Comisky, and other lawyers representing Bethlehem Steel. Judge Rufe, referring to the complexity and magnitude of the cases, encouraged the parties to settle the controversy. On June 21, 1972, Mr. Boileau and Bethlehem announced to the court that they were prepared to consolidate the two actions and settle the entire matter.*fn4 The settlement provided for the transfer of all property owned by Mr. and Mrs. Boileau to Bethlehem.*fn5 Judge Rufe entered judgment pursuant to the settlement on June 21.
In her affidavit of July 25, 1978, Leona Boileau asserts the following:
3. Bethlehem Steel Corporation ("Bethlehem Steel") never served a complaint on me in the consolidated actions in Bucks County. I had no notice of the filing of the complaint against me before judgments were entered against me on June 21, 1972.
4. I now understand (but I did not know on or before June 21, 1972) that Bernard V. O'Hare, Esquire, filed a "praecipe for appearance" on February 18, 1972, purporting to appear on my behalf. I never asked or authorized Attorney O'Hare ...