Before GOODRICH, McLAUGHLIN and HASTIE, Circuit Judges.
The plaintiffs in this action, appellants here, are a Chicago brokerage and trading firm, Ketcham & Nongard, and the three individuals who are its members. They have sued Burlington County Bridge Commission, a corporate public agency of the State of New Jersey, and David Connelly and William Wells, receivers appointed by the Superior Court of New Jersey to collect from these plaintiffs and others personal money judgments entered against them in the case of Driscoll v. Burlington-Bristol Bridge Co., 1950, 10 N.J.Super. 545, 77 A.2d 255, modified on appeal, 1952, 8 N.J. 433, 86 A.2d 201.
In our recent opinion in B. J. Van Ingen & Co. v. Connolly, 3 Cir., 1955, 225 F.2d 740, we had occasion to summarize the matter involved in Driscoll v. Burlington-Bristol Bridge Co. We said:
"* * * The New Jersey suit was instituted by the Governor on behalf of the people of that State to invalidate transactions whereby a public agency, the Burlington County Bridge Commission, purchased certain toll bridges at an excessive price pursuant to a scheme conceived and engineered by a group of adventurers to obtain an unjustified profit of some three million dollars at the ultimate expense of the traveling and toll-paying public.The New Jersey court found that an involved series of financial transactions did yield such an improper profit. It also found that Tuthill Ketcham, Richard Nongard and Rowland Murray, who are partners and the sole members of the brokerage and trading firm of Ketcham and Nongard, were members of the wrongdoing group. In addition, the partnership was found to have participated actively in the illegal transactions. The decree, as modified pursuant to the mandate of the Supreme Court of New Jersey on appeal, obligated the wrongdoing individuals to pay $3,050,347 to the Burlington County Bridge Commission. Certain wrongdoers, among them Tuthill Ketcham and Richard Nongard, were made liable for the entire sum. The third partner, Rowland Murray, was made liable for $76,258.68." 225 F.2d at page 741-742.
For present purposes it may be informative to add that the money judgment of approximately $3,000,000 was the gross yield of the scheme to those who engineered it, allowing them no credit for certain services and transfers which they assert as valuable contributions by them to the bridge commission during the execution of the scheme.
Federal jurisdiction in the present suit is predicated upon diversity of citizenship and the additional fact that an issue is framed under the due process clause of the Fourteenth Amendment. In one count, the relief sought is an injunction to restrain the defendants from "collecting the judgment in the aforesaid action" together with a declaratory judgment that the state judgment is invalid as countervening the due process clause.
A separate count seeks a money judgment for $1,240,000, an amount allegedly supplied by the plaintiffs to the bridge commission as consideration for bonds which were subsequently invalidated by the aforesaid judgment of the New Jersey Superior Court. Plaintiffs set this claim up as a separate and distinct matter, not covered by the New Jersey suit.
In advancing their present claim for injunctive and declaratory relief in a federal court the plaintiffs cannot deny that the New Jersey action was an equity proceeding charging them as defendants with conspiracy, fraud and the exercise of improper influence upon a public agency; that they were personally before the court and defended the action, and that both the Superior Court and the New Jersey Supreme Court on appeal found that they had knowingly and actively participated in serious wrongdoing. Their present contention is that the remedy fashioned by the Supreme Court in modifying the judgment of the Superior Court so departed from the trial theory of the action as to constitute a denial of due process of law. In this connection the district court took judicial notice, as do we, of the fact that this alleged departure of the State Supreme Court from the theory of the pleadings and trial was made the subject of a petition for rehearing in that court, and that petition was denied without opinion by an order of February 11, 1952. The district court found no impropriety or denial of essential justice in the action of the New Jersey Supreme Court.
The district court also dealt with the distinct claim to restitution of $1,240,000. This claim involved no constitutional contention. Invoking the doctrine of res judicata, the district court concluded that this claim was forcelosed by the judgment in the New Jersey action.
We deal first with the count asking that enforcement of the New Jersey judgment be restrained. It is necessary at the outset that we consider whether Congress has not expressly prohibited the courts of the United States from thus interfering with the enforcement of a state judgment.
Section 2283 of Title 28, U.S.C.1952 ed., is a 1948 revision of the former Section 265 of the Judicial Code. The new section reads as follows: "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." The superseded provision read: "The writ of injunction shall not be granted by any court of the United States to stay proceedings in any court of a State, except in cases where such injunction may be authorized by any law relating to proceedings in bankruptcy." 28 U.S.C.1946 ed. § 379.
A number of cases decided under the earlier statute minimized the legislative prohibition by ruling that it permitted various judge-made exceptions to its sweeping language. Accordingly, injunctions occasionally were granted to restrain state proceedings initiated without jurisdiction or the enforcement of state judgments procured by fraud or under other circumstances making enforcement unconscionable. Wells Fargo & Co. v. Taylor, 1920, 254 U.S. 175, 41 S. Ct. 93, 65 L. Ed. 205; Simon v. Southern R. Co., 1915, 236 U.S. 115, 35 S. Ct. 255, 59 L. Ed. 492; Chase Nat. Bank v. City of Norwalk, Ohio, 1934, 291 U.S. 431, 54 S. Ct. 475, 78 L. Ed. 894. Analytically it was very difficult to square such injunctions with the statutory prohibition. And in Toucey v. New York Life Insurance Co., 1941, 314 U.S. 118, 62 S. Ct. 139, 86 L. Ed. 100, the Supreme Court reviewed the course of adjudication and stated that "The foundation of these cases is thus very doubtful." 314 U.S. at page 136, 62 S. Ct. at page 145.
The 1948 revision of the statute, with its new listing of the situations in which state proceedings may be enjoined, quickly became the basis for contradictory inferences concerning the propriety of such implied exceptions to the general prohibition as we are now considering. At one extreme, it had recently been argued that Wells Fargo & Co. v. Taylor and the similar cases cited above should be followed under the revised section despite all that was said in the Toucey case. See Greyhound Corp. v. Leadman, D.C.E.D.Ky.1953, 112 F.Supp. 237, adopting the reasoning of Moore, Commentary on the U.S.Judicial Code, 1949, 411, 414. However, the Court of Appeals for the Second Circuit has taken the position that "In the face of this policy [of avoiding federal-state friction], we think jurisdiction to enjoin state court actions, other than those within the exceptions prescribed in Section 2283, may not be implied." International Union of Electrical Radio & Machine Workers, C.I.O. v. Underwood Corporation, 1955, 219 F.2d 100, 104. And that view is now nationally authoritative by reason of the decision of the Supreme Court in Amalgamated Clothing Workers of America v. Richman Bros. Co., 1954, 348 U.S. 511, 75 S. Ct. 452, 99 L. Ed. 600. Relevant excerpts from that opinion read as follows: "We need not re-examine the series of decisions, prior to the enactment of Title 28 of the United States Code in 1948, which appeared to recognize implied exceptions to the historic prohibition against federal interference with state judicial proceedings.* * * By ...