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Ingersoll-Rand Financial Corp. v. Callison

argued: February 3, 1988.

INGERSOLL-RAND FINANCIAL CORPORATION, APPELLANT
v.
RUSSELL J. CALLISON, VICTOR K. HARDIN, GREGORY M. HUNT AND SHARON SMITH HUNT, JOHN G. JACKSON, DR. RICHARD S. KOCH, DAVID A. MILNE, M. TABUCHI CO., BACHMANN, ARNOLD, GRAYBILL & CRAIG, A PARTNERSHIP ORGANIZED FOR THE PRACTICE OF LAW, DANIEL G. BACHMANN; ROBERT R. ARNOLD; JACOB S. GRAYBILL; AND J. B. CRAIG, GRANCO-MARTINEX 1983 A, A COLORADO LIMITED PARTNERSHIP; MARTINEX CORPORATION, A COLORADO CORPORATION; AND GRANCO RESOURCES MANAGEMENT, INC., A COLORADO CORPORATION



Appeal from the United States District Court for the District of New Jersey, Newark, D.C. Civil No. 86-4996.

Sloviter, Stapleton, and Mansmann, Circuit Judges.

Author: Mansmann

Opinion OF THE COURT

MANSMANN, Circuit Judge.

In this appeal we review the district court's decision to dismiss Ingersoll-Rand Financial Corporation's diversity action to collect on a promissory note. The action was dismissed in favor of a state court action, in which the federal defendant is the plaintiff, demanding cancellation of the note for violation of state and federal securities laws. We find that forcing the state plaintiff to litigate his securities claims in two forums, albeit as a defense in federal court to liability on the note, would interfere with the congressional mandate that the plaintiff's choice of forum not be disturbed in actions under the Securities Act of 1933. Therefore, the district court was within its discretion, under Colorado River Water Conservation District v. United States, 424 U.S. 800, 47 L. Ed. 2d 483, 96 S. Ct. 1236 (1976), in deferring to the state court's decision on the federal law issues.

The decision to invoke Colorado River ordinarily contemplates that the federal court will have nothing further to do in resolving any substantive part of the case. Moses H. Cone Hospital v. Mercury Const. Corp., 460 U.S. 1, 28, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983). Nevertheless, under the unusual circumstances of this case, Ingersoll-Rand may at some point still be entitled to a federal forum for its diversity action to collect on the note. Therefore we will reverse the order of dismissal and remand for entry of an order to stay the action pending the outcome in state court.

I.

In considering a motion for dismissal, we accept the facts as alleged in the complaint. During December of 1983 appellee Jackson and each of the other defendants in this action invested in Granco-Martinex Limited ("Granco"), a limited partnership. To secure the purchase price for the partnership units, each investor executed a promissory note payable to Granco. Later in December of 1983 Granco endorsed and delivered each of the investor's notes to Ingersoll-Rand as security for a loan to the partnership.

Each investor also entered into an Acknowledgement and Agreement with Ingersoll-Rand acknowledging an outstanding balance on the note to Granco and the endorsement of the note to Ingersoll-Rand, and agreeing not to assert against Ingersoll-Rand any claims, defenses or setoffs that the borrower might have against Granco. These agreements contained a forum selection clause whereby the investors consented to the jurisdiction of the New Jersey courts, including the United States District Court for the District of New Jersey, for the purpose of any action in connection with the notes.

Granco defaulted on the payments due to Ingersoll-Rand. Ingersoll-Rand therefore looked to the investors and the surety bond securing their notes for payment of the money due. Because the bonding company was insolvent, Ingersoll-Rand demanded payment directly from the investors. The investors defaulted on the obligations under their notes, and Ingersoll-Rand instituted this action to recover the monies due. Federal subject matter jurisdiction was predicated only on diversity of citizenship. Personal jurisdiction over Jackson was obtained by means of the contractual forum selection clause.

Jackson then moved for dismissal of the case against him or, in the alternative, for a stay of the action pending the completion of a Texas state court suit, John G. Jackson v. Martinex Corporation, Ingersoll-Rand Financial Corporation, et al., Docket No. 86-13560, District Court of Dallas County, Texas, 191st Judicial District. In the Texas suit Jackson is suing Granco, its promoters and general partners, and Ingersoll-Rand. Jackson is seeking a rescission of the sale of his partnership unit on the ground that he was fraudulently induced into investing in the Granco partnership and on the ground that the sale of these partnership units violated Texas Blue Sky Laws and the Securities Act of 1933. The relief sought in the Texas litigation includes a request for rescission of the note which Ingersoll-Rand is attempting to enforce in the litigation before us.

On May 26, 1987 the district court denied Jackson's motion to dismiss and granted Ingersoll-Rand's motion for summary judgment for $40,000, the principal due under the note plus interest. On August 19, 1987, in response to Jackson's motion for reconsideration, the district court denied Ingersoll-Rand's motion for summary judgment and granted Jackson's motion to dismiss. The court was persuaded that a determination in state court that Ingersoll-Rand had violated state or federal securities laws in connection with the transaction might provide Jackson with a defense to Ingersoll-Rand's status as a holder in due course in the federal court action. The district court reasoned that acknowledgment of this possibility allowed no other conclusion than that Ingersoll-Rand had brought its federal action in order to circumvent the restriction of 15 U.S.C. § 77v which prohibits removal of cases arising under the Securities Act of 1933. The district court found that the intent of Congress to give plaintiffs broad discretion to choose a state forum provided the compelling justification for refusal to exercise federal jurisdiction in accordance with the policies expressed in Colorado River and Moses H. Cone Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983).

The district court decided to dismiss the action rather than to stay it, reasoning that collateral estoppel would undoubtedly dispose of the federal action after the state court resolution. Ingersoll-Rand appeals from the opinion and order of August 19, 1987.*fn1

Ingersoll-Rand argues on appeal that 15 U.S.C. § 77v does not prevent it from pursuing its collection efforts on the note in New Jersey because it is not subject to the remedy of rescission pursuant to 15 U.S.C. § 77 l. Ingersoll-Rand asserts that rescission is available only against the issuer of the security and not against the lender who finances the transaction. Appellant argues that § 77v cannot be used to force it to pursue its collection efforts as a counterclaim in the Texas action because the bargained-for forum selection clause entitles it to pursue its collection efforts in the United States District Court for the District of New Jersey. Finally, the appellant argues that, if the district court felt that the Texas action should be resolved prior to proceeding with the collection action, ...


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