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PENNZOIL CO. v. TEXACO INC.

decided: April 6, 1987.

PENNZOIL CO
v.
TEXACO INC.



APPEAL FROM THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT.

Powell, J., delivered the opinion of the Court, in which Rehnquist, C. J., and White, O'Connor, and Scalia, JJ., joined. Scalia, J., filed a concurring opinion, in which O'Connor, J., joined, post, p. 18. Brennan, J., filed an opinion concurring in the judgment, in which Marshall, J., joined, post, p. 18. Marshall, J., filed an opinion concurring in the judgment, post, p. 23. Blackmun, J., filed an opinion concurring in the judgment, post, p. 27. Stevens, J., filed an opinion concurring in the judgment, in which Marshall, J., joined, post, p. 29.

Author: Powell

[ 481 U.S. Page 3]

 JUSTICE POWELL delivered the opinion of the Court.

The principal issue in this case is whether a federal district court lawfully may enjoin a plaintiff who has prevailed in a trial in state court from executing the judgment in its favor pending appeal of that judgment to a state appellate court.

[ 481 U.S. Page 4]

     I

Getty Oil Co. and appellant Pennzoil Co. negotiated an agreement under which Pennzoil was to purchase about three-sevenths of Getty's outstanding shares for $110 a share. Appellee Texaco Inc. eventually purchased the shares for $128 a share. On February 8, 1984, Pennzoil filed a complaint against Texaco in the Harris County District Court, a state court located in Houston, Texas, the site of Pennzoil's corporate headquarters. The complaint alleged that Texaco tortiously had induced Getty to breach a contract to sell its shares to Pennzoil; Pennzoil sought actual damages of $7.53 billion and punitive damages in the same amount. On November 19, 1985, a jury returned a verdict in favor of Pennzoil, finding actual damages of $7.53 billion and punitive damages of $3 billion. The parties anticipated that the judgment, including prejudgment interest, would exceed $11 billion.

Although the parties disagree about the details, it was clear that the expected judgment would give Pennzoil significant rights under Texas law. By recording an abstract of a judgment in the real property records of any of the 254 counties in Texas, a judgment creditor can secure a lien on all of a judgment debtor's real property located in that county. See Tex. Prop. Code Ann. §§ 52.001-52.006 (1984). If a judgment creditor wishes to have the judgment enforced by state officials so that it can take possession of any of the debtor's assets, it may secure a writ of execution from the clerk of the court that issued the judgment. See Tex. Rule Civ. Proc. 627.*fn1 Rule 627 provides that such a writ usually can be obtained "after the expiration of thirty days from the time a

[ 481 U.S. Page 5]

     final judgment is signed."*fn2 But the judgment debtor "may suspend the execution of the judgment by filing a good and sufficient bond to be approved by the clerk." Rule 364(a). See Rule 368.*fn3 For a money judgment, "the amount of the bond . . . shall be at least the amount of the judgment, interest, and costs." Rule 364(b).*fn4

Even before the trial court entered judgment, the jury's verdict cast a serious cloud on Texaco's financial situation. The amount of the bond required by Rule 364(b) would have been more than $13 billion. It is clear that Texaco would not have been able to post such a bond. Accordingly, "the business and financial community concluded that Pennzoil would be able, under the lien and bond provisions of Texas law, to commence enforcement of any judgment entered on the verdict before Texaco's appeals had been resolved." App. to Juris. Statement A87 (District Court's Supplemental Finding of Fact 40, Jan. 10, 1986). The effects on Texaco were substantial: the price of its stock dropped markedly; it had difficulty obtaining credit; the rating of its bonds was lowered; and its trade creditors refused to sell it crude oil on customary terms. Id., at A90-A98 (District Court's Supplemental Findings of Fact 49-70).

[ 481 U.S. Page 6]

     Texaco did not argue to the trial court that the judgment, or execution of the judgment, conflicted with federal law. Rather, on December 10, 1985 -- before the Texas court entered judgment*fn5 -- Texaco filed this action in the United States District Court for the Southern District of New York in White Plains, New York, the site of Texaco's corporate headquarters. Texaco alleged that the Texas proceedings violated rights secured to Texaco by the Constitution and various federal statutes.*fn6 It asked the District Court to enjoin Pennzoil from taking any action to enforce the judgment. Pennzoil's response, and basic position, was that the District Court could not hear the case. First, it argued that the Anti-Injunction Act, 28 U. S. C. § 2283, barred issuance of an injunction. It further contended that the court should abstain

[ 481 U.S. Page 7]

     under the doctrine of Younger v. Harris, 401 U.S. 37 (1971). Third, it argued that the suit was in effect an appeal from the Texas trial court and that the District Court had no jurisdiction under the principles of Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983).

The District Court rejected all of these arguments. 626 F.Supp. 250 (1986). It found the Anti-Injunction Act inapplicable because Texaco's complaint rested on 42 U. S. C. § 1983. See Mitchum v. Foster, 407 U.S. 225 (1972) (holding that § 1983 falls within the exceptions to the Anti-Injunction Act). It found Younger abstention unwarranted because it did not believe issuance of an injunction would "interfere with a state official's pursuit of a fundamental state interest." 626 F.Supp., at 260. As to the Rooker-Feldman doctrine, the court noted only that it was not "attempting to sit as a final or intermediate appellate state court as to the merits of the Texas action. . . . Our only intention is to assure Texaco its constitutional right to raise claims that we view as having a good chance of success." Id., at 254 (citation and footnote omitted).

The District Court justified its decision to grant injunctive relief by evaluating the prospects of Texaco's succeeding in its appeal in the Texas state courts. It considered the merits of the various challenges Texaco had made before the Texas Court of Appeals and concluded that these challenges "present generally fair grounds for litigation." Ibid. It then evaluated the constitutionality of the Texas lien and bond requirements by applying the test articulated in Matthews v. Eldridge, 424 U.S. 319 (1976). It concluded that application of the lien and bond provisions effectively would deny Texaco a right to appeal. It thought that the private interests and the State's interests favored protecting Texaco's right to appeal. Relying on its view of the merits of the state-court appeal, the court found the risk of erroneous deprivation "quite severe." 626 F.Supp., at 257. Finally,

[ 481 U.S. Page 8]

     it viewed the administrative burden on the State as "slight." Ibid. In light of these factors, the District Court concluded that Texaco's constitutional claims had "a very clear probability of success." Id., at 258. Accordingly, the court issued a preliminary injunction.*fn7

On appeal, the Court of Appeals for the Second Circuit affirmed. 784 F.2d 1133 (1986). It first addressed the Rooker-Feldman doctrine and rejected the portion of the District Court's opinion that evaluated the merits of the state-court judgment. It held, however, that the doctrine did not completely bar the District Court's jurisdiction. It concluded that the due process and equal protection claims, not presented by Texaco to the Texas courts, were within the District Court's jurisdiction because they were not "'inextricably intertwined'" with the state-court action. Id., at 1144 (quoting District of Columbia Court of Appeals v. Feldman, supra, at 483, n. 16).

Next, the court considered whether Texaco had stated a claim under § 1983. The question was whether Texaco's complaint sought to redress action taken "under color of" state law, 42 U. S. C. § 1983. The court noted that "Pennzoil

[ 481 U.S. Page 9]

     would have to act jointly with state agents by calling on state officials to attach and seize Texaco's assets." 784 F.2d, at 1145. Relying on its reading of Lugar v. Edmondson Oil Co., 457 U.S. 922 (1982), the court concluded that the enjoined action would have been taken under color of state law, and thus that Texaco had stated a claim under § 1983. 784 F.2d, at 1145-1147. Because § 1983 is an exception to the Anti-Injunction Act, see Mitchum v. Foster, supra, the court also found that the Anti-Injunction Act did not prevent the District Court from granting the relief sought by Texaco.

Finally, the court held that abstention was unnecessary. First, it addressed Pullman abstention, see Railroad Comm'n of Texas v. Pullman Co., 312 U.S. 496 (1941). It rejected that ground of abstention, holding that "the mere possibility that the Texas courts would find Rule 364 [concerning the supersedeas bond requirements] unconstitutional as applied does not call for Pullman abstention." 784 F.2d, at 1149. Next, it rejected Younger abstention. It thought that "the state interests at stake in this proceeding differ in both kind and degree from those present in the six cases in which the Supreme Court held that Younger applied." Ibid. Moreover, it thought that Texas had failed to "provide adequate procedures for adjudication of Texaco's federal claims." Id., at 1150. Turning to the merits, it agreed with the District Court that Texaco had established a likelihood of success on its constitutional claims and that the balance of hardships favored Texaco. Accordingly, it affirmed the grant of injunctive relief.*fn8

Pennzoil filed a jurisdictional statement in this Court. We noted probable jurisdiction under 28 U. S. C. § 1254(2). 477 U.S. 903 (1986). We reverse.

[ 481 U.S. Page 10]

     II

The courts below should have abstained under the principles of federalism enunciated in Younger v. Harris, 401 U.S. 37 (1971). Both the District Court and the Court of Appeals failed to recognize the significant interests harmed by their unprecedented intrusion into the Texas judicial system. Similarly, neither of those courts applied the appropriate standard in determining whether adequate relief was available in the Texas courts.

A

The first ground for the Younger decision was "the basic doctrine of equity jurisprudence that courts of equity should not act, and particularly should not act to restrain a criminal prosecution, when the moving party has an adequate remedy at law." Id., at 43. The Court also offered a second explanation for its decision:

"This underlying reason . . . is reinforced by an even more vital consideration, the notion of 'comity,' that is, a proper respect for state functions, a recognition of the fact that the entire country is made up of a Union of separate state governments, and a continuance of the belief that the National Government will fare best if the States and their institutions are left free to perform their separate functions in their separate ways. . . . The concept does not mean blind deference to 'States' Rights' any more than it means centralization of control over every important issue in our National Government and its courts. The Framers rejected both these courses. What the concept does represent is a system in which there is sensitivity to the legitimate interests of both State and National Governments, and in which the National Government, anxious though it may be to vindicate and protect federal rights and federal interests, always endeavors to do so in ways that will not unduly interfere with the legitimate activities of the States." Id., at 44.

[ 481 U.S. Page 11]

     This concern mandates application of Younger abstention not only when the pending state proceedings are criminal, but also when certain civil proceedings are pending, if the State's interests in the proceeding are so important that exercise of the federal judicial power would disregard the comity between the States and the National Government. E. g., Huffman v. Pursue, Ltd., 420 U.S. 592, 603-605 (1975).

Another important reason for abstention is to avoid unwarranted determination of federal constitutional questions. When federal courts interpret state statutes in a way that raises federal constitutional questions, "a constitutional determination is predicated on a reading of the statute that is not binding on state courts and may be discredited at any time -- thus essentially rendering the federal-court decision advisory and the litigation underlying it meaningless." Moore v. Sims, 442 U.S. 415, 428 (1979). See Trainor v. Hernandez, 431 U.S. 434, 445 (1977).*fn9 This concern has special significance in this case. Because Texaco chose not to present to the Texas courts the constitutional claims asserted in this case, it is impossible to be certain that the governing Texas statutes and procedural rules actually raise these claims. Moreover, the Texas Constitution contains an

[ 481 U.S. Page 12]

     "open courts" provision, Art. I, § 13,*fn10 that appears to address Texaco's claims more specifically than the Due Process Clause of the Fourteenth Amendment. Thus, when this case was filed in federal court, it was entirely possible that the Texas courts would have resolved this case on state statutory or constitutional grounds, without reaching the federal constitutional questions Texaco raises in this case.*fn11 As we have noted, Younger abstention in situations like this "offers the opportunity for narrowing constructions that might obviate the constitutional problem and intelligently mediate federal constitutional concerns and state interests." Moore v. Sims, supra, at 429-430.

Texaco's principal argument against Younger abstention is that exercise of the District Court's power did not implicate a "vital" or "important" state interest. Brief for Appellee 24-32. This argument reflects a misreading of our precedents. This Court repeatedly has recognized that ...


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