The opinion of the court was delivered by: OWEN
DASA Corporation and the Bank of New York were defendants in this bondholders' action. The suing bondholders were Simms C. Browning, Roy E. Brewer, and Bradley R. Brewer. The latter, Bradley Brewer, was also the attorney for the plaintiffs. DASA prevailed after trial. The Bank obtained a dismissal on the merits shortly before trial. DASA and the Bank have moved to enjoin the Brewer plaintiffs from instituting or maintaining new actions in the New York State courts based on the operative facts involved in this case. On February 10, 1978, after argument, I granted the requested relief from the bench, this opinion to follow.
A review of the plaintiffs' conduct of this case since its inception in early 1972 is required to place the instant motions in proper perspective.
At the outset, the named defendants included, among others, The Bank of New York (the Bank), DASA Corporation (DASA), and certain individual directors of DASA (although no process was served upon the individual directors until virtually the eve of trial in 1975); subsequently (also on the eve of trial) plaintiffs sought to amend their complaint by asserting allegations against DASA's law firm and certain individual members of that firm, as well. In a chain of events outlined in Browning I, the claims against all defendants were dismissed, one after another, on a variety of grounds, until nothing was left. The last of the allegations against DASA were finally dismissed after a full trial. Yet now, as an end to this protracted litigation at last comes into view, the Bank has been threatened with a new action, and DASA has actually been sued again, in New York State Supreme Court, on the same allegations that were the subject of this litigation.
It was not due to any inherent complexity that this litigation proved to be so burdensome; the core of the blunderbuss allegations was simply that DASA Corporation (the obligor on debentures held by plaintiffs) and the Bank of New York (the indenture trustee) failed in various ways to live up to their duties to the debenture holders when DASA proposed to sell certain assets in 1972. What turned this case into a morass of unnecessary paperwork and superfluous courtroom appearances for the other litigants and for the court were the innumerable procedural steps taken by plaintiffs' counsel, Bradley R. Brewer, as to which the Court of Appeals noted:
There was ample evidence to support a finding that Bradley Brewer acted in bad faith in taking some procedural steps (e.g., the appeal of mooted issues, the delay for discovery never undertaken, the motion for reargument made 5 1/2 months after denial of appellants' motion for summary judgment, the making of frivolous motions for summary judgment against the Bank and Andersen, the motion to add parties on the basis of a misleading page of a letter taken out of context, the dragnet subpoenas served on Andersen and others, the threats to depose numerous Bank officers, etc.).
Browning II at 1088-89. See also Browning I at 964-66.
In light of this experience, defendants are understandably eager to prevent recommencement of the action, with the same facts, issues, and parties, in a new forum. Therefore, when Bradley Brewer advised the Bank of New York that it was to be sued again in state court, the Bank brought a pre-emptive motion here and thus commenced the rather complicated chain of events now at issue.
Specifically, on January 26, 1978, the Bank's counsel appeared before me (in the presence of Bradley Brewer) seeking an order to show cause why plaintiffs Bradley Brewer and Roy Brewer should not be enjoined from bringing suit against the Bank in any court on the basis of the same operative facts that have been involved in this case. On that day I not only signed the order to show cause, but also issued a temporary restraining order. I set February 1 as the date for a hearing on the request for a permanent injunction. The hearing was held as scheduled, and at its close I announced, "I will reserve decision and I will continue the stay." Transcript of Feb. 1, 1978, at 23.
At about 5:20 p.m. on the following day, February 2, Mr. Brewer -- who subsequently maintained that he had not heard my announcement
-- telephoned the Bank's counsel and informed him that since the temporary restraining order was no longer in effect, he was commencing a new action against the Bank immediately. That night, without notice to anyone, Mr. Brewer commenced an action in the New York State Supreme Court against DASA Corporation, five individual directors of DASA, DASA's law firm, and two individual partners in that law firm, by serving a summons with notice upon one of those partners at his home. Service was made upon the law firm the next day.
On the morning of February 3, the Bank brought on a new order to show cause, which I signed along with a new temporary restraining order, setting the hearing for that afternoon. Mr. Brewer apparently failed to receive the notice of this hearing that was given. When he did not appear for that afternoon's hearing, the hearing was adjourned until February 6, at which time Mr. Brewer was ill, necessitating a further postponement until February 10. In the meantime, DASA Corporation presented an order to show cause, which I signed on February 6 along with an order temporarily restraining Mr. Brewer from further prosecuting the suit that he had commenced on February 2, and setting February 10 as the date for a hearing on DASA's request for an injunction against further prosecution of that or any other suit based upon the operative facts of this case.
On February 8, Mr. Brewer filed a notice of appeal from the Bank's temporary restraining order, and on February 10, after fifteen days of rather hectic activity, a hearing was held on DASA's motion and the Bank's new motion. At this hearing, and in a subsequent Petition [to the Court of Appeals] for a Writ of Mandamus, dated February 16, 1978, Mr. Brewer argued vigorously and at length that his filing of a notice of appeal two days before the hearing deprived this court of jurisdiction to consider the Bank's motion for an injunction. Before reaching the merits, therefore, this court's jurisdiction to proceed must be made clear.
Mr. Brewer asserts that his notice of appeal was filed pursuant to 28 U.S.C. § 1292 (a)(1), which authorizes appeals from "interlocutary orders . . . . granting, continuing, modifying, refusing or dissolving injunctions, or refusing to dissolve or modify injunctions." It is well established, however, that "an order granting or denying a temporary restraining order is not appealable as the grant or denial of an injunction under 28 USC § 1291(a)(1)." 9 J. Moore et al., Moore's Federal Practice para. 110.20 at 253 (2d ed. 1975) [hereinafter cited as Moore] (emphasis supplied); Grant v. United States, 282 F.2d 165, 167 (2d Cir. 1960); Hoh v. Pepsico, Inc., 491 F.2d 556, 560 (2d Cir. 1974).
Of course, a mere label attached to an order cannot be decisive in determining whether the order is appealable; a true temporary restraining order must be distinguished from an order that may be so designated but that is in substance a preliminary injunction, by consideration of such indicia as "the subject matter of the order, its duration and whether or not notice and hearing of both parties were had." Austin v. Altman, 332 F.2d 273, 275 (2d Cir. 1964); Morning Telegraph v. Powers, 450 F.2d 97, 99 (2d Cir. 1971), cert. denied, 405 U.S. 954, 92 S. Ct. 1170, 31 L. Ed. 2d 231 (1972). Thus, for example, a temporary restraining order that is continued without the consent of the parties beyond the 20 day maximum permitted by Fed. R. Civ. P. 65(b) may be treated as a preliminary injunction for the purposes of appeal. Sampson v. Murray, 415 U.S. 61, 86-88 & n.58, 39 L. Ed. 2d 166, 94 S. Ct. 937 (1974); Pan American World Airways, Inc. v. Flight Engineers' International Association, PAA Chapter, AFL-CIO, 306 F.2d 840, 843 (2d Cir. 1962); Truck Drivers Local Union No. 807, International Brotherhood of Teamsters v. Bohack Corp., 541 F.2d 312, 316 (2d Cir. 1976).
While there are undoubtedly cases in which it is difficult to determine how an order should be classified for the purpose of assessing appealability, see Grant v. United States, supra, 282 F.2d at 167-68, this is not such a case. Here the restraining order was entered upon only very brief notice to Mr. Brewer; it remained in effect for less than 20 days; and the sole purpose for which it was issued was that for which temporary restraining orders are designed: "to preserve an existing situation in statu quo until the court has an opportunity to pass upon the merits of the demand for a[n] . . . . injunction." Pan American v. Flight Engineers, supra, 306 F.2d at 842-43; see Austin v. Altman, supra, 332 F.2d at 275. Clearly this order had all the indicia of a temporary restraining order and none of those of a preliminary injunction.
Despite the manifest non-appealability of this court's restraining order, Mr. Brewer asserts in effect that he can terminate proceedings in this court, at least for the time being, merely by filing a notice of appeal. In support of this position, he quotes 9 Moore para. 203.11 at 734-35 as follows:
The filing of a timely and sufficient notice of appeal . . . . divests the district court of authority to proceed further with respect to such matters, except in aid of the appeal . . . .
Petition for Writ of Mandamus, dated Feb. 16, 1978, at 7. Mr. Brewer's quotation from Moore, however, omits the crucial qualification that follows it:
The rule that the taking of an appeal divests the district court of jurisdiction would seem to presuppose the taking of a valid appeal from an appealable order . . . .
9 Moore para. 203.11 at 736, citing Euziere v. United States, 266 F.2d 88 (10th Cir. 1959), vacated on other grounds, 364 U.S. 282, 80 S. Ct. 1615, 4 L. Ed. 2d 1720 (1960). As Euziere states,
an attempt to appeal a non-appealable order remains just that, an attempt. It is a nullity and does not invest the appellate court with jurisdiction, and consequently does not divest the trial court of its jurisdiction.
Id., 266 F.2d at 91. Accord, Ruby v. Secretary of United States Navy, 365 F.2d 385, 388-89 (9th Cir. 1966) (en banc), cert. denied, 386 U.S. 1011, 18 L. Ed. 2d 442, 87 S. Ct. 1358 (1967), holding that a district court may disregard a purported appeal from a non-appealable order because "in the rare instance where the district court proceeds with a case under the mistaken belief that a notice of appeal is inoperative, the appellant may apply to the court of appeals for a writ of prohibition." Id., 365 F.2d at 389.
Moore observes that the cases are not all in harmony, but views the Ninth Circuit's position in Ruby as "a very sound resolution" that "should be followed generally":
To hold that the mere act of filing a notice of appeal automatically divests the district court of jurisdiction is to hold that a party can interrupt proceedings in the district court at will.
9 Moore para. 203.11 at 738. Although the Court of Appeals in this circuit apparently has not had occasion to rule on the issue, this view has been followed both in this district, Lowenschuss v. Kane, 392 F. Supp. 59 (S.D.N.Y. 1974), and elsewhere, Hodgson v. Mahoney, 460 F.2d 326, 328 (1st Cir.) cert. denied, 409 U.S. 1039, 34 L. Ed. 2d 488, 93 S. Ct. 519 (1972).
The soundness of this rule is particularly well illustrated by this case, the procedural history of which reveals repeated efforts to cause precisely the kind of unwarranted delay against which Professor Moore warns.
I conclude that the February 8, 1978 notice of appeal has no effect on this court's jurisdiction. Apart from the issues raised by that notice, it is unquestioned that this court has ancillary jurisdiction over these claims for equitable relief. Southwest Airlines Co. v. Texas International Airlines, Inc., 546 F.2d 84, 89-90 (5th Cir.), cert. denied, 434 U.S. 832, 98 S. Ct. 117, 54 L. Ed. 2d 93 (1977); Samuel C. Ennis & Co., Inc. v. Woodmar Realty Co., 542 F.2d 45, 48 (7th Cir. 1976), cert. denied, 429 U.S. 1096, 51 L. Ed. 2d 543, 97 S. Ct. 1112 (1977). Accordingly, I find that I had jurisdiction to proceed with the hearing on February 10, and to issue a permanent injunction at its close.
Turning to the merits, it must be noted at the outset that a federal court's power to enjoin state proceedings is subject to the Anti-Injunction Statute, 28 U.S.C. § 2283, which states:
A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.
This limitation on federal judicial power, however, relates only to proceedings that have already been instituted in state courts. Hill v. Martin, 296 U.S. 393, 403, 80 L. Ed. 293, 56 S. Ct. 278 (1935); Dombrowski v. Pfister, 380 U.S. 479, 484 n.2, 14 L. Ed. 2d 22, 85 S. Ct. 1116 (1965); Boraas v. Village of Belle Terre, 476 F.2d 806, 811 (2d Cir. 1973), rev'd on other grounds, 416 U.S. 1, 39 L. Ed. 2d 797, 94 S. Ct. 1536 (1974); see generally 1A Moore para. 0.299. The Anti-Injunction Statute therefore has no relevance to the motion of the Bank of New York, against which no state suit has been commenced. Since in this respect the Bank stands in a different posture from DASA, it is appropriate to deal with the two motions separately.
I turn first to the motion of the Bank. In 1972, DASA sought the approval of its debenture holders for a plan to raise needed cash by selling certain computer equipment, and offered in return to lower the conversion price of the debentures. The plaintiffs asserted that the Bank of New York, as indenture trustee, had an obligation -- even with no default in prospect -- to intervene in this matter, pass judgment upon the propriety and fairness of DASA's proposal, and communicate its opinion to the debenture holders prior to their vote. As expressed in Claim 4 of the complaint, the Bank's "failures to take affirmative action on behalf of the Debenture holders constituted a violation or violations by the Trustee of its fiduciary obligations to the Debenture holders under the Indenture and under the Trust Indenture Act." First Amended Complaint [hereinafter cited as Complaint], para. 23 at 46.
This claim was apparently carefully drafted to encompass not only federal claims arising under the applicable securities law, but also state-law claims (invoking the principle of pendent jurisdiction) based upon the fiduciary obligations that arose when the Bank entered into a contract to serve as trustee for the benefit of the debenture holders. The allegations, however, provided scant hope of recovery under either the federal securities laws or state contract law, since the Trust Indenture Act explicitly authorizes the trustee to limit its liability prior to default,
and the indenture itself not only did so in general terms,
but also specifically disclaimed any duty with respect to changes in conversion price.
It therefore seemed clear that virtually the only hope for plaintiffs lay in the possibility that state law might impose upon fiduciaries in the position of the Bank in this case some pre-default obligation that the Bank failed to fulfill, and that cannot be disclaimed by contract.
Plaintiffs were allowed extraordinary leeway in litigating these extremely tenuous claims. In July 1974, two and a half years after commencement of this action and six months after its assignment to me, the Bank moved, pursuant to certain provisions of the indenture
specifically authorized by the Trust Indenture Act,
to require plaintiffs to file an undertaking before continuing their case against the Bank. In the exercise of discretion, I denied the motion.
Eight months later plaintiffs moved for summary judgment against the Bank on the issue of liability, but were unable to produce any legal support for their claim. Indeed, the applicable law
appeared to be flatly to the contrary of plaintiffs' theory. Not only did the Bank have no pre-default duty to intervene on the bondholders' behalf in negotiations between DASA and its debenture holders, but in fact it almost certainly did not even have the right to do so:
It seems unnecessary to argue or cite authority in support of the plain and obvious proposition that we must look to the trust ...