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Cotler v. Inter-County Orthopaedic Association

decided: December 1, 1975.

JEROME M. COTLER, APPELLANT,
v.
INTER-COUNTY ORTHOPAEDIC ASSOCIATION, P.A., THE FARMERS & MERCHANTS NATIONAL BANK OF BRIDGETON, NEW JERSEY, BASIL INGEMI, BARBARA INGEMI, MAHAVEER PRABHAKER, AND STEVEN Z. KLEINER, WARREN C. LUMMIS, JAY R. MOORE, AND MICHAEL BROOK FISHER, IND. AND T/A LUMMIS, KLEINER, MOORE & FISHER JEROME M. COTLER, PETITIONER, V. INTER-COUNTY ORTHOPAEDIC ASSOCIATION, P.A., THE FARMERS & MERCHANTS NATIONAL BANK OF BRIDGETON, N.J., BASIL INGEMI, BARBARA INGEMI, MAHAVEER PRABHAKER, AND STEVEN Z. KLEINER, WARREN C. LUMMIS, JAY R. MOORE AND MICHAEL BROOK FISHER, IND. AND T/A LUMMIS, KLEINER, MOORE & FISHER, RESPONDENTS HONORABLE MITCHELL H. COHEN, NOMINAL RESPONDENT



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY AND ON PETITION FOR A WRIT OF MANDAMUS (D.C. Civil No. 74-1291)

Gibbons, Circuit Judge, Markey,*fn* Chief Judge, Court of Customs and Patent Appeals, Weis, Circuit Judge.

Author: Gibbons

Opinion OF THE COURT

GIBBONS, Circuit Judge.

By appeal in No. 75-1451 and by a petition for mandamus in No. 75-1873 Dr. Jerome M. Cotler, the plaintiff below, seeks relief from two orders of the district court. The first order granted defendants' motion to stay federal proceedings so long as actions pending in the Superior Court of New Jersey, Chancery Division, Cumberland County, Docket Number C-4204-73 and Camden County, Docket Number C-4268-73, are outstanding and undecided. The second order directed that the clerk of the district court "administratively terminate the action in his records, without prejudice to the right of the parties to reopen the proceedings for good cause shown for the entry of any stipulation or order, or for any other purpose required to obtain a final determination of the litigation." We conclude that the court's actions, which have the effect in this case of depriving the plaintiff of a federal forum for a cause of action over which the jurisdiction of the federal courts is exclusive, were beyond the lawful power of the district court and are remediable by mandamus.

I. BACKGROUND

The underlying dispute, which now involves three lawsuits all of which are at a standstill, grows out of the affairs of the Inter-County Orthopaedic Association, P.A. (Inter-County), a New Jersey professional corporation. Dr. Cotler, Dr. Basil Ingemi and Dr. Mahaveer Prabhaker practiced their specialty in that form. In March of 1973 Cotler advised Ingemi and Prabhaker that he intended to withdraw from the practice. Negotiations among the doctors to determine a buy-out price failed. Acting on instructions from Ingemi, the attorney for Inter-County on July 29, 1974 filed in the Superior Court of New Jersey, Chancery Division, Cumberland County, a complaint naming the three doctors as defendants, seeking a declaratory judgment of the rights of the parties and other relief. The main thrust of the other relief was to compel Cotler to resign as an officer and director and to obtain from him an accounting for professional fees allegedly due Inter-County but received by him. Shortly thereafter Cotler commenced a shareholders' derivative action in the Superior Court, Chancery Division, Camden County against Inter-County, Prabhaker, Ingemi and several other defendants seeking damages, injunctive relief restraining the defendants from wasting corporate assets, an accounting, the cancellation of stock issued to Prabhaker under questionable circumstances, and the removal of the corporate counsel who had instituted the declaratory judgment action. By an order dated August 23, 1974 the Cumberland County action was consolidated with the Camden County action and venue assigned to Cumberland County. The affidavits suggest that Cotler's attorney, justifiably or not, is unhappy with the Cumberland County venue.

On August 22, 1974, Cotler filed in the United States district court a complaint charging Inter-County, Ingemi, Prabhaker and several other defendants with violations of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j, and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, and with several pendent state law causes of action. Although Cotler's allegations in the state and federal suits are not identical, it is fair to say that the pendent claims largely duplicate those in the state court proceedings. The parties are not identical, however, and at least one alleged cause of action, against The Farmers & Merchants National Bank of Bridgeton, New Jersey, is not involved in the state court proceedings. Moreover, the state court lacks jurisdiction to entertain the § 10(b) claim. 15 U.S.C. § 78aa. Thus the orders of which Cotler complains stay the determination of a cause of action over which the district court has exclusive jurisdiction, and closely related causes of action over which it has pendent jurisdiction, in favor of a state court proceeding in which the parties are not identical.

II. APPEALABILITY

(A) Final Judgment

Cotler contends that staying the federal action and administratively terminating it pending the trial of the state court claims has the effect of a final order, 28 U.S.C. § 1291, or of the denial of an injunction, 28 U.S.C. § 1292(a)(1).

This court's treatment of the appealability under § 1291 of stay orders has not been unwavering. In Arny v. Philadelphia Transportation Co., 266 F.2d 869, 870 (3d Cir. 1959) we held that a stay of federal court proceedings pending the decision of state court litigation between the parties representing the same interests was not a final order and hence was not appealable. In Joffe v. Joffe, 384 F.2d 632 (3d Cir. 1967) (per curiam), cert. denied, 390 U.S. 1039, 88 S. Ct. 1635, 20 L. Ed. 2d 300 (1968), on the other hand, without discussing appealability we affirmed an order of a district court granting such a stay. Cotler urges that the indefinite stay of the proceedings has the same practical effect as a final dismissal, and should on the authority of In re Grand Jury Proceedings, 525 F.2d 151 (3d Cir. 1975), be treated as such. In that case, without referring either to Arny or to Joffe, but relying on Amdur v. Lizars, 372 F.2d 103, 105-06 (4th Cir. 1967), we held that an order staying a grand jury proceeding was an appealable final order. But the grand jury whose proceedings were stayed served for a finite term which would in all likelihood expire before the state court action to which the district court deferred could be concluded. Here, no matter how long the state court proceedings take, in the end the same district court must take up the § 10(b) claim, which cannot be disposed of by the state court. That consideration serves to distinguish both In re Grand Jury Proceedings and Amdur v. Lizars upon which we relied, and disposes of Cotler's reliance on the "death knell" doctrine as well. The § 10(b) claim may be old and feeble at the end of the state court litigation, but it will not be dead. This court has in any event indicated its lack of enthusiasm for the "death knell" rationale for avoiding the final order requirement. Hackett v. General Host Corp., 455 F.2d 618 (3d Cir.), cert. denied, 407 U.S. 925, 32 L. Ed. 2d 812, 92 S. Ct. 2460 (1972).

We conclude that neither the per curiam disposition in Joffe which is silent on appealability, nor the holding on appealability of In re Grand Jury Proceedings, which deals with a distinguishable set of circumstances, has diminished the precedential value of Arny. The grant ...


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