author: BECHTLE, District Judge.

text:
    UNITED STATES of America v. Samuel W. HARRIS, Appellant.
    No. 72-2093.
    United States Court of Appeals, Third Circuit.
    Argued April 3, 1973.
    Decided July 31, 1973.

      David O’Hanesian, Pittsburgh, Pa., for appellant.
    Richard L. Thornburgh, U. S. Atty., Jay C. Waldman, Asst. U. S. Atty., Pittsburgh, Pa., for appellee.
    Before ROSENN and HUNTER, Circuit Judges, and BECHTLE, District Judge.
   OPINION OF THE COURT

BECHTLE, District Judge.

Appellant stands convicted of possession of a controlled substance, cocaine residue, in violation of 21 U.S.C. § 844. A verdict of guilty was returned by a jury on September 29, 1972. After a motion for a new trial was denied, appellant was sentenced to a term of one year and fined $4,000. This appeal followed. For purposes of this appeal, the operative facts are as follows:

Upon information provided by informants, whose information had proved reliable in the past, and also surveillance by agents of the New York and Pittsburgh Offices of the Bureau of Narcotics and Dangerous Drugs (“BNDD”), appellant Harris was known to be a large-scale narcotics trafficker with a prime source of supply in New York City.

As a result of information accumulated by agents of the BNDD, a pattern of travel on the part of Harris was established. Approximately every two weeks, appellant would travel to New York City; and within several days following his return to Pittsburgh, his home base, a courier would arrive at Pittsburgh with a supply of narcotics. On Deeem-ber 3, 1971, while under surveillance by the BNDD, Harris boarded a flight from the Pittsburgh Airport, leaving his car at the place of departure. On December 6, 1971, upon receipt of information that appellant had returned at the Pittsburgh Airport, surveillance by BNDD agents was continued.

At approximately 8:00 p. m., on Saturday night, December 11, 1971, appellant was observed sitting in his car at a Boron service station with one Bruce Wander. At that time, the BNDD agents were aware of Wander’s involvement with Harris in narcotics activities. When Harris observed the agents, he executed an illegal turn from the service station and eluded the surveillance team.

The following morning, Sunday, December 12, 1971, at approximately 6:00 a. m., appellant was seen again, this time leaving his car and entering his residence with two females. While a surveillance plan was being prepared, the Harris vehicle left the residence unnoticed by the agents. Shortly after 6:30 a. m., Harris’ position was again located. He was driving his car with three unidentified persons on Penn Avenue in Wilkinsburg. Realizing he had been recognized by a narcotics agent that knew him, appellant accelerated his vehicle and made a quick right-hand turn onto a cross street. He was recognized a second time and accelerated and turned off to a cross street. Several minutes later, Bruce Wander was observed walking in an alleyway located behind the service station in which the two men had been observed the previous night. Wander entered his car, drove into the intersection of Swissvale and Penn Avenues in what appeared to be a confused state, made a hurried turnabout, and proceeded illegally through two traffic lights. As the Wander vehicle drove north on Swissvale Avenue, appellant drove south on Swissvale flashing his headlights on and off and blowing his horn. Wander was traveling approximately 45 miles an hour and made a hard turn onto a side street. Harris then turned his vehicle around and attempted to follow the Wander car. Special Agent Edward H. Sheid of the BNDD, who was in charge of the surveillance team, gave instructions to stop the vehicles, and Harris and the other occupants of the ear were arrested. Richard C. Weatherbee, another of the arresting officers, testified that when Harris got out of his car and when he was within one foot of Harris he saw white powder around a nostril of Harris’ nose. Government witness Robert Lumsden, a BNDD agent, schooled and trained in pharmacy and the identification and properties of drugs,- testified that cocaine is commonly used by “snorting it” by sniffing it from a small spoon. A Government chemist testified that the spoon seized in the car Harris was driving contained a residue of cocaine. A Pittsburgh jewelry retailer was called by the Government, and he testified that the spoon had been sold by him and, while he could not identify Harris as the person who bought that very spoon, he did identify Harris as a person who had visited his store and purchased spoons just like the one that was seized.

Appellant’s initial contention on appeal is that the facts of this particular ease preclude a finding of sufficient probable cause to make a warrantless arrest. Title 26, U.S.C. § 7607, in effect at the time of appellant’s arrest, specifically authorized a warrantless arrest by narcotics agents when an offense is being committed in their presence or when the agents have reasonable grounds to believe that the person to be arrested has or is committing a violation relating to narcotic laws.

Although 26 U.S.C. § 7607(2) spoke in terms of “reasonable grounds” rather than the traditional formulation of probable cause, the two standards have been held substantially equivalent. Draper v. United States, 358 U.S. 307, 310 n.3, 79 S.Ct. 329, 3 L.Ed.2d 327 (1959); United States v. Davis, 461 F.2d 1026 (3rd Cir. 1972). Therefore, the traditional Fourth Amendment test applies even to arrests conducted under the authority of the foregoing section.

Probable cause to make an arrest varies with the circumstances and must be founded on facts sufficient in themselves. United States v. Lampkin, 464 F.2d 1093 (3rd Cir. 1972). The court in Lampkin, at 1095, reaffirmed the well-established constitutional precept initially enunciated in Beck v. Ohio, 379 U.S. 89, 91, 85 S.Ct. 223, 225, 13 L.Ed.2d 142 (1964), that in passing on a warrantless search a court must determine whether “at the moment the arrest was made, the officers had probable cause to make it — whether at that moment, the facts and circumstances within their knowledge and of which they had reasonably trustworthy information, were sufficient to warrant a prudent man in believing that the petitioner had been or was committing an offense.”

It is, therefore, the function of this Court to examine the totality of circumstances — the knowledge and information which the officers possessed at the time of arrest, coupled with the factual occurrences immediately precipitating the arrest of the appellant — to determine if the constitutional standard of probable cause was met.

Prior to the appellant’s arrest, he was under surveillance by agents of the BNDD. Through information received from reliable informants and surveillance conducted by the Federal agents, appellant Harris was known to be a relatively large dealer of narcotics in the Pittsburgh area. The agents of the BNDD were aware of appellant’s pattern of travel to and from the Pittsburgh Airport and were even cognizant of the details relating to the cutting and packaging of the narcotics by Harris’ associates for the purpose of further distribution and salé.

The surveillance of Harris revealed that he was often in the company of individuals known by the Federal agents to be actively involved in the sale of narcotics. As outlined above, appellant was observed sitting in an automobile with Bruce Wander, the reputed financial supporter of the drug operation, the night before his arrest.

Although mere association and consorting with drug traffickers does not give rise to probable cause in and of itself, United States v. Lampkin, supra, 464 F.2d at 1097, other interrelated factors that justify a reasonable inference that a crime has been or was being committed are present in the instant case.

In view of the appellant’s behavior on the night of December 11, 1971, and the following Sunday morning, to which we have previously alluded, the Federal agents were justified in stopping the vehicle driven by Harris on a public street in Wilkinsburg and arresting him.

When the knowledge and reliable information possessed by the agents involved in this case is superimposed upon the events immediately preceding the arrest of the appellant, sufficient probable cause to make a warrantless arrest is present. The arrest of the appellant was not an unjustified harassment or unreasonable intrusion into his personal business. His arrest was based on reliable information furnished by reliable informants, supported by eyewitness corroboration resulting from coordinated surveillance activities, and immediately preceded by a sequence of unlawful and highly suspicious behavior. These factors, when viewed in their totality, afford the necessary probable cause to believe that appellant Harris was violating the narcotics laws at the time of his arrest.

Following the arrest of the appellant, as previously described, the automobile in which he was driving was driven to the basement of the Federal Building in Pittsburgh, a secured area. At that time, agents of the BNDD applied for a search warrant for the vehicle, which was issued forthwith by a United States Magistrate on duty in the Federal Building. The search of the automobile uncovered a small gold spoon, later revealed to be owned by the appellant, on which a residue of cocaine was found.

The appellant now contends that the affidavit upon which the search warrant was issued did not establish probable cause and that the evidence found during its execution should not have been admitted against him at trial. Since the inquiry into the existence of probable cause is limited to those facts contained in the affidavit, our analysis must be confined to the affidavit which the magistrate acted upon.

The standards by which an affidavit must be tested are set forth in Aguilar v. State of Texas, 378 U.S. 108, 84 S.Ct. 1509, 12 L.Ed.2d 723 (1964) and Spinelli v. United States, 393 U.S. 410, 89 S.Ct. 584, 21 L.Ed.2d 637 (1969). The thrust of the decision in Aguilar is that when probable cause is established through information supplied by an informant, as was the case here, the magistrate must be informed of some of the underlying circumstances from which the informant concluded that the appellant was engaging in unlawful activity, and some of the underlying circumstances from which the officer (affiant) concluded that the informant was credible or his information reliable.

The first element of the two-pronged Aguilar test is satisfied by the inclusion in the affidavit of the description in detail of the structure and operation of the appellant’s narcotics enterprise. The affidavit contained information concerning the scope of appellant’s illicit activities, the identity and location of the primary source of the narcotics, and the name and address of the financial backer. The magistrate was also furnished in the affidavit the information to the effect that the confidential informants had personally observed unlawful activities on the part of Harris, had overheard telephone conversations concerning the purchase and transportation of the drugs, and that one of the informants was actively involved in the Harris narcotics organization.

The basis of the affiant’s conclusion that the informant was credible or his information reliable (the second prerequisite of the Aguilar test) consists in the corroboration of the information by independent investigation and observation by the agents of BNDD. Additional corroboration of the information occurred by virtue of substantially identical information being supplied by different informants and other law enforcement agencies.

The affidavit for the warrant also described in detail the evasive action engaged in by the appellant in the time period immediately prior to his arrest. In view of the above, the affidavit clearly establishes that there was sufficient probable cause for the issuance of the search warrants.

Appellant’s final contention on appeal is that the information upon which the search warrant issued was stale. The law is well founded that probable cause to justify the issuance of a search warrant must exist at the time the warrant is issued. United States v. Boyd, 422 F.2d 791 (6th Cir. 1970). The question of the staleness of probable cause depends more on the nature of the unlawful activity alleged in the affidavit than the dates and times specified therein. As noted in United States v. Johnson, 461 F.2d 285 (10th Cir. 1972) at 287:

“Initially, it should be noted that the validity of probable cause cannot be qualified by simply counting the number of days between the occurrence of the facts relied upon and the issuance of the affidavit. Together with the element of time we must consider the nature of the unlawful activity. Where the affidavit recites a mere isolated violation it would not be unreasonable to imply that probable cause dwindles rather quickly with the passage of time. However, where the affidavit properly recites facts indicating activity of a protracted and continuous nature, a course of conduct, the passage of time becomes less significant.”

The arrest of Harris did not occur until such a time as the information supplied by the informants and the surveillance conducted by the BNDD agents materialized. Protracted and continuous activity is inherent in a large-scale narcotics operation. All the events establishing probable cause will not necessarily occur a few hours or even a few weeks before the affidavit for a search warrant is issued. Effective law enforcement, specifically in the area of far-flung or transcontinental narcotic networks, should not be undermined by making the application of rigid time sequence requirements when the effect of the passage of time between initial recognition of likely unlawful activity, and the application for a search warrant is tested. The issue as to whether or not information in an affidavit is stale must depend upon the nature of the activity in question and usually will require review on a case-by-case basis.

We do not believe that the information supplied by the informant was stale; but on the contrary, it is fair to conclude that it had not fully ripened for action until December 12, 1971.

The Government contends that, regardless of the validity of the search warrant, the search, nevertheless, would be valid for the reason that a lawful warrantless search could have been conducted under the circumstances of this ease. The Government cites Chambers v. Maroney, 399 U.S. 42, 90 S.Ct. 1975, 26 L.Ed.2d 419 (1970) as precedent. In Chambers, police stopped an automobile on the highway and arrested four occupants of the vehicle as suspects in a robbery that had just occurred in the vicinity of the arrest. The four men and the automobile matched a description of the robbers which was broadcast over the police radio. The car was driven to the police station and a warrantless search was conducted. Incriminating evidence was discovered and used at the trial, at which the defendants were convicted. The United States Supreme Court upheld the warrantless search and stated:

“For constitutional purposes, >ve see no difference between on the one hand seizing and holding a car before presenting .the probable cause issue to a magistrate and on the other hand carrying out an immediate search without a warrant. Given probable cause to search, either course is reasonable under the Fourth Amendment.” 399 U.S. at 52, 90 S.Ct. at 1981.

The reasoning of the Supreme Court applies equally to this case.

In United States v. 1964 Ford Thunderbird, Motor and Serial Number 4Y85Z156657, 445 F.2d 1064 (3rd Cir. 1971), our Circuit recited the language of the United States Supreme Court in the case of Brinegar v. United States, 338 U.S. 160, 69 S.Ct. 1302, 93 L.Ed. 1879 (1949), involving a moving vehicle and contraband wherein a warrantless arrest of the driver and search of the vehicle occurred. The Supreme Court said as follows:

“In (a moving vehicle ease) the citizen who has given no good cause for believing he is engaged in (transporting contraband) is entitled to proceed on his way without interference. But one who recently and repeatedly has given substantial ground for believing that he is engaging in the forbidden transportation in the area of the usual operations has no such immunity, if the officer who intercepts him in that region knows that fact at the time he makes the interception and the circumstances under which it is made are not such as to indicate the suspect is going about legitimate affairs. 338 U.S. at 177, 69 S.Ct. at 1311.”

The 19 6If Ford Thunderbird ease was, like the instant case, one involving surveillance by narcotics agents in a continuing investigation and involved, as in the instant ease, motor vehicles under surveillance, the suspected automobile going through red lights, making U-turns, traveling at fluctuating rates of speed, and leaving and returning to the scene of the primary surveillance.

The judgment of the United States District Court for the Western District of Pennsylvania will be affirmed.

      . Certain of his activities refer to “Pittsburgh” and other evidentiary matters refer to “Wilkinsburg.” Wilkinsburg is a contiguous adjoining municipality of Pittsburgli and there seems to be little question but that the activities important to this appeal took place essentially in the same neighborhood or vicinity.

      . Title 26, U.S.C. § 7607 has since been supplanted by Title 21, U.S.C. § 878.

      . Cert. denied, 405 U.S. 964, 92 S.Ct. 1181, 31 L.Ed.2d 239.


source: Caselaw Access Project

author: TALBOT SMITH, Senior District Judge.

license: Public Domain

text:
    UNITED STATES of America, Appellee, v. Lawrence P. SMITH et al., Appellants.
    No. 72-1657.
    United States Court of Appeals, Eighth Circuit.
    Submitted April 11, 1973.
    Decided Aug. 3, 1973.

      Edward L. Simmons, Kansas City, Mo., for appellants.
    Paul Anthony White, Asst. U. S. Atty., Kansas City, Mo., for appellee.
    Before LAY and STEPHENSON, Circuit Judges, and TALBOT SMITH, Senior District Judge.

       Hon. Talbot Smith, United States Senior District Judge, Eastern District of Michigan, sitting by designation.

   TALBOT SMITH, Senior District Judge.

The matter before us involves Social Security payments. Specifically it is a suit by the government for the return of an alleged overpayment of disability insurance benefits paid pursuant to the provisions of Title II of the Social Security Act, as amended, 42 U.S.C. § 423 et seq. It is a case of first impression. Neither the diligence of counsel nor our own independent research has disclosed precise prior precedent.

We will note at the outset that the recovery of overpayments to indigent, or semi-indigent, beneficiaries poses unique problems, particularly to the chancellor, arising out of the fact, among others, that such recipients are rarely in a position to make restitution of substantial funds, mistakenly or erroneously paid them, without suffering severe hardship. Thus it is that we find in the Social Security Act, in 42 U.S.C. § 404, a section relating to “Overpayments and underpayments” providing, in part, that there shall not be recovery back by the United States from “any person who is without fault if such adjustment or recovery would defeat the purpose of this sub-chapter or would be against equity and good conscience.”

In May of 1962 defendant Lawrence P. Smith filed an application for Disability Insurance Benefits based on an alleged physical impairment. He asserted blindness in one eye and multiple sclerosis. Upon the showings made and under the applicable statutes, disability payments were awarded, effective February, 1962. These benefits, however, were stopped on March 25, 1968 upon the ground that Mr. Smith had returned to work. Thereafter he was informed that he had been overpaid for the period May 1, 1964 through March, 1968. Mr. Smith requested reconsideration, as a result of which the original determination was affirmed and repayment requested. A hearing before a Hearing Examiner was thereafter requested, and held in St. Joseph, Missouri, at which hearing defendant Lawrence Smith appeared in person, with counsel. The issues before the Hearing Examiner were whether the claimant's disability continued, and, if not, whether overpay-ments had been made and in what, if any, amounts, and whether recovery of the overpayments would defeat the purpose of 42 U.S.C. § 404(b), or be against equity and good conscience. The Hearing Examiner’s decision was adverse to the defendants and formed the basis for the government’s motion in the District Court for summary judgment. Further administrative appeals were sought by the defendants, but were without rulings favorable to them, and the judicial review available to claimants was not sought. There the matter rested until the filing of this action by the United States in August, 1971.

In the suit filed, and before us, the government, as plaintiff, brings action against defendant Lawrence Smith, his wife Virginia, individually and as fiduciary for the minor children, alleging an indebtedness to the government arising out of the aforedescribed overpayments in the sum of $13,673. Defendants’ answers denied the debt, and set up waiver and estoppel, as well as other defenses, against the government. Plaintiff thereupon brought a motion for summary judgment, asserting that no judicial review of the Secretary’s decision had been sought by defendants and that “By virtue of the doctrine of res judicata, the issues of whether or not an overpayment was made, and if so, the amount of the overpayment, are not open to controversy.” Defendants, in opposition, urged that the facts relied upon by the plaintiff were without support in the record; that the provisions of § 405, relating to procedures to be followed by claimants in making claims against the government, had no application to the case at bar, since they were making no claim, but rather were being sued for a debt owed as parties-defendant; and, in substance, that “this case should be reopened under Section 404.-958 and in the interest of justice.” The District Court’s ruling was the grant of the government’s motion for summary judgment.

In the context of the facts before us, and the statutory provisions relating thereto, there is no need for us to exhaust the application of the doctrine of res judicata as applied to the decisions of administrative tribunals, or, as it is sometimes termed, “administrative res judicata.” Hughes v. Finch, 432 F.2d 93 (4th Cir. 1970). It is pertinent to observe, however, that the earlier view of some courts that the doctrine does not apply to administrative proceedings has been largely discredited. The Supreme Court, in United States v. Utah Construction and Mining Co., 384 U.S. 394, 86 S.Ct. 1545, 16 L.Ed.2d 642 (1966) took occasion to point out that its decision therein was harmonious with general principles of collateral estoppel, stating, in part, that

“Occasionally courts have used language to the effect that res judicata principles do not apply to administrative proceedings, but such language is certainly too broad. When an administrative agency is acting in a judicial capacity and resolves disputed issues of fact properly before it which the parties have had an adequate opportunity to litigate, the courts have not hesitated to apply res judicata to enforce repose.” 384 U.S. at 421, 86 S.Ct. at 1559. [footnotes and citations omitted]

See, also, Davis, Administrative Law Treatise, § 18.02, et seq., and cases there cited.

Although application of the doctrine of res judicata to administrative decisions does, indeed, serve a useful purpose in preventing the relitigation of issues properly determined administratively it is not, where applicable, applied with the same rigidity as its judicial counterpart. “[Practical reasons may exist for refusing to apply it,” held the court in Grose v. Cohen, 406 F.2d 823 (4th Cir. 1969), and, continuing, “[I]n any event, when traditional concepts of res judicata do not work well, they should be relaxed or qualified to prevent injustice. 2 Davis, Administrative Law, § 18.03 (1958).” Particularly appropriate are such considerations to the case before us, requiring, as we have noted, that the government shall not recover an overpayment “if such recovery . . . would be against equity and good conscience.”

But however guarded the application of the doctrine of administrative res judicata generally, its application in the case at bar is specified in the regulations of the agency before us. These, it is clear, do not demand administrative finality. The matter was the subject of extensive examination in Leviner v. Richardson, 443 F.2d 1338 (4th Cir. 1971), the court pointing out that 20 C.F.R. § 404.957 permits an administrative determination to be reopened within four years after the date of notice thereof “upon a finding of good cause for reopening,” and that “good cause” included, inter alia, error in the determination or decision apparent on the face of the evidence on which it is based.

The Leviner court also held that although the regulation “is couched in terms of reopening a decision otherwise final, it also serves to identify decisions that should not be interposed to deny subsequent applications. A decision that is subject to being reopened provides an inappropriate bar.” We agree.

The government, in support of its position, cites to us a number of cases assertedly holding that where judicial review is not sought by a claimant within the time prescribed by 42 U.S.C. § 405, “the adverse decision of the Agency is final and is res judicata." e. g., Gardner v. Moon, 360 F.2d 556 (8th Cir. 1966). Whatever may be the dimensions of “res judicata” in this situation, which we will not explore, such cases are not in point on any issue before us. We do not have a claimant seeking judicial review under the act. On the contrary we have the government, as plaintiff, seeking to reduce a debt to judgment and thereafter to collect, presumably by the usual process of levy and execution. In this situation, as we noted in Burrow v. Finch, 431 F.2d 486, 491, n. 5 (8th Cir. 1970), “Where the Secretary asserts the claim of overpayment by reason of ‘fault’ under § 404(b) . . . there is no logical reason why the party asserting the claim should not bear the traditional burden of proving it,” and proving it, by a party moving for summary judgment, means under the Rules of Civil Procedure, that he has the burden of showing the absence of a genuine issue as to any material fact. Adickes v. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970).

So here. The government relies for its proofs, in its motion for summary judgment, upon administrative res judicata, citing the hearing examiner’s decision, which found, inter alia, fault in the claimant and no waiver of the overpayment by the government. Such reli-anee will not suffice in the face of the defense, however inartistically pleaded, of error manifest on the face of the record, a well recognized exception to the res judicata doctrine, codified, in fact, in the Social Security Regulations. Such defense the defendants may pursue and make their showings with respect thereto.

Reversed and remanded for further proceedings not inconsistent herewith.

      . Graham, Public Assistance: The Right to Receive: The Obligation to Repay, 43 N.R.U.L.R. 451 (1968) ; Comment: Re-coupment of Welfare Overpayment, 7 Houston L.R. 635 (1970).

      . 42 U.S.C. § 404(b):
      “In any case in which more than the correct amount of payment has been made, there shall be no adjustment of payments to, or recovery by the United States from, any person who is without fault if such adjustment or recovery would defeat the purpose of this subchapter or would be against equity and good conscience.”

      . The breakdown of the figures comprising the asserted overpayment is as follows : Lawrence P. Smith, $6,001; Virginia M. Smith, his wife, $1,096; Virginia M. Smith in her fiduciary capacity as payee for minor children, $6,576, all plus interest as allowed by law, totaling $13,673.00.

      . “DECISION
      Based on the foregoing findings of fact and conclusions of law, it is the decision of the Hearing Examiner that the claimant, Lawrence P. Smith, is entitled to the establishment of a period of disability beginning July 10, 1961, which terminated March 31, 1964. It is further the decision of the Hearing Examiner that all disability insurance payments made to this claimant beginning with the month of April of 1964 and thereafter constitute an overpayment of benefits. It is further the decision of the Hearing Examiner that recovery of the amount of the overpayment from this claimant cannot be waived for the reason that tiie claimant was. not without fault and recovery of said overpayment would not defeat the purpose of Title II of the Social Security Act or be against equity and good conscience.”

      . 42 U.S.C. § 405(g) : “Any individual, after any final decision of the Secretary made after a hearing to which he was a party, irrespective of the amount in controversy may obtain a review of such decision by a civil action commenced within sixty clays after the mailing to him of notice of such decision or within such further time as the Secretary may allow. Such action shall bo brought in the district court of the United States for the judicial district in which the plaintiff resides or has his principal place of business, or, if he does not reside or have his principal place of business within any such judicial district in the United States District Court for the District of Columbia. ...”

      . 42 U.S.C. §§ 402(b), 402(d) ; 20 C.F.R. §§ 404.313(a), 404.314, 404.320(a).

      . 42 U.S.C. § 405 Section (b) thereof provides, in part, that “The Secretary is directed to make findings of fact, and decisions as to the rights of any individual applying for payment under this subchap-ter.”

      . This reference is to 20 C.F.R. § 404.958, defining “good cause” and must be read in conjunction with § 404.957, referring to the reopening of a “final” decision for “good cause.”

      . See Lawlor v. National Screen Service Corp. 349 U.S. 322, 75 S.Ct. 865, 99 L.Ed. 1122 (1955): “The term res judicata is used broadly in the Restatement to cover merger, bar, collateral estoppel, and direct estoppel.” See, also, Moore’s Federal Practice, Vol 1B, § 0.405 et seq.

      . Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 60 S.Ct. 907, 84 L.Ed. 1263 (1940).

      . e. g., United States v. Stone and Downer Co., 274 U.S. 225, 47 S.Ct. 616, 71 L.Ed. 1013 (1927).

      . Note 1, supra.

      . 20 C.F.R. § 404.957:
      “An initial or reconsidered determination of the Administration or a decision of a hearing examiner or of the Appeals Council which is otherwise final . may be reopened:
      (b) [Wjithin 4 years after the date of the notice of the initial determination . upon a finding of good cause for reopening such determination or decision.

      . 20 C.F.R., § 404.958:
      “ ‘Good cause’ shall be deemed to exist where:
      (c) there is an error as to such determination or decision on the face of the evidence on which such determination or decision is based.”
      See, also, § 404.958(a) relating to new and material evidence.

      . 20 C.F.R. § 404.958(c).


author: RONEY, Circuit Judge: PER CURIAM:

text:
    The COMMUNITY BANK, LAKE OSWEGO, OREGON, Plaintiff-Appellant, v. BANK OF HALLANDALE AND TRUST COMPANY, Defendant-Third Party Plaintiff-Appellee. Craig G. KALLEN, Defendant-Appellee, v. Jerome LURIE, Third Party Defendant.
    No. 72-2845.
    United States Court of Appeals, Fifth Circuit.
    July 23, 1973.
    Rehearing Denied Sept. 5, 1973.

      Howard A. Setlin, Miami Beach, Fla., for plaintiff-appellant.
    Charles F. Mills, South Miami, Fla., for Bank of Hallandale and Trust Co.
    Craig G. Kallen, pro se.
    Jerome Lurie, pro se.
    Before THORNBERRY, AINS-WORTH and RONEY, Circuit Judges.
   RONEY, Circuit Judge:

The critical question on this appeal is whether the plaintiff bank in Oregon, in making a personal loan, relied on misrepresentations of the trust officer of the defendant bank in Florida regarding the borrower’s financial condition. Although the District Court found the representations to be false, it held that the plaintiff’s tort claim for damages must fail for want of reliance. We think that the evidence compels a finding of justified reliance and reverse.

On May 31, 1971, Jerome A. Lurie executed a $50,000 promissory note payable to plaintiff, The Community Bank, Lake Oswego, Oregon. The loan had not yet been approved and was to be secured on a two-for-one basis by I.B.M. grade securities in Lurie’s trust account with the Bank of Hallandale.

On June 2, 1971, Maldyn C. Evans, Community Bank’s president, telephoned Craig G. Kallen, the Bank of Hallan-dale’s sole trust officer, introduced himself, and inquired about Lurie. Evans indicated that the Oregon bank was considering lending Lurie $50,000 and sought information concerning Lurie and his trust account with the Florida bank. Kallen replied that he had discussed this matter with Lurie, who was' an extremely good customer of the bank, had a high seven figure trust with the bank, and had good balances on his accounts. Kallen offered, if Evans would send him a copy of the promissory note, to set aside securities held by Lurie at the defendant bank as collateral for the loan. All of this information was in the hands of the Florida bank, and Kallen neither qualified these statements nor raised any suspicion about his representations.

The facts reported by Kallen were false. As of June 2nd, Lurie had a zero balance at the Bank of Hallandale. At no time, either before or after that date, were the securities referred to by Kallen in the Florida bank’s possession.

On June 3rd, during an audit, it was discovered that certain securities which the Florida bank held as collateral for its own loans to Lurie were in street name, had been stolen, and were subject to stop orders. Consequently, Kallen was relieved of his duties, but remained in his office and received telephone calls as a bank officer until his employment was terminated on June 11th. The Court found, despite denials by Kallen, that in a second telephone conversation with Kallen, on June 10, 1971, Evans asked if collateral had been set aside for the proposed loan and Kallen responded, “I told you already they had.” When asked if he would forward a list of securities, Kallen replied, “I told you I would.”

After the June 10th call, Evans approved the loan. On his instructions, the cashier and vice-president of Community Bank telephoned Lurie at Kal-len’s office in the Florida bank. Kallen answered the telephone, indicated that Lurie was in his office, and then turned the telephone over to Lurie, who authorized disbursement of the $50,000. The funds were then disbursed.

On June 16, 1971, Evans wrote Kallen a letter which the District Court held evidenced an intent to obtain future documentation before disbursement. Since the Court apparently relied exclusively on this documentary evidence to find no reliance, it is set out in full:

“Dear Mr. Kallen:
In connection with the loan transaction we have with your client, Dr. Jerome A. Lurie, we enclose herewith a certified photocopy of the note executed by Dr. Lurie and payable to us in accordance with the terms therein.
It is our understanding that this copy together with Dr. Lurie’s instructions to you will permit you to collateralize his loan at this bank on a two-for-one value ratio. We enclose our form of collateral agreement which we presume will be executed by your Department for us, and that a collateral receipt describing the securities pledged (or the equivalent thereof) will be forthcoming for our files.
When replying, we would appreciate it if you would include either a photocopy of Dr. Lurie’s financial statement or sufficient narrative information to indicate his general financial strength and reputation.
Thank you for your assistance.
Very truly yours,
/s/ M. C. Evans, President”

We think that this letter cannot serve the Bank of Hallandale as a defense. This action is based not on an agreement or an understanding between the parties, but on the tort claim of misrepresentation. Plaintiff predicated this action upon Kallen’s fraudulent telephone misrepresentations and the doctrine of apparent authority in regard to the Bank of Hallandale. See Gleason v. Seaboard Airline R.R. Co., 278 U.S. 349, 49 S.Ct. 161, 73 L.Ed. 415 (1929).

We conclude the evidence compels a finding that, in authorizing the Lurie loan, Community Bank’s president did rely on Kallen’s factual misrepresentations that Lurie had securities in proper form in his trust account with the Bank of Hallandale and that these could be used as collateral for the loan and had been set aside for this purpose. The June 16th letter could not preclude recognition of Community Bank’s reliance on earlier telephone conversations regarding Lurie’s financial condition. Although paperwork needed to be completed to conclude the collateralization, it was not the Bank of Hallandale’s failure to comply with the collateral agreement, but the fact that the Florida bank never possessed the securities in proper form that was fundamental to the damage to Community Bank.

It is the general law, as well as the controlling law in Florida, that recovery may be had for misrepresentation as to a third party’s financial condition where a person, for the purpose of inducing another to lend money to said third person, misrepresents the financial responsibility or solvency of such third person. Nevada Bank of San Francisco v. Portland Nat’l Bank, 59 F. 338 (9th Cir. 1893); Forbes v. Auerbach, 56 So.2d 895 (Fla.1952).

The District Court, in its final judgment, listed elements essential to proving misrepresentation: (1) a false statement of fact, (2) known by the defendant to be false at the time it was made, and (3) made for the purpose of inducing the plaintiff to act in reliance thereon; (4) action by the plaintiff in reliance on the correctness of the representations ; and (5) resulting damage to the plaintiff. Tonkovich v. South Florida Citrus Industries, Inc., 185 So.2d 710 (Fla.App.1966), remanded on other grounds. The Court recognized in this fact situation each of these elements except reliance.

For reliance to be proved,

[i]t is enough that the representation has had a material influence upon the plaintiff’s conduct, and been a substantial factor in bringing about his action. It is not necessary that the representation be the paramount, or the decisive, inducement which tipped the scales, so long as it plays a substantial part in affecting the plaintiff’s decision.

Prosser, Torts § 103 at 730 (3rd ed. 1964). It is clear from the record that Evans sought information- from Kallen, as the Bank of Hallandale’s trust officer, as to facts concerning Lurie’s financial position, the existence of the subject securities, and their segregation in his trust account. Thus, Kallen’s misrepresentations had a “material influence” on and were a “substantial factor” in Community Bank’s loan decision. No stricter standard of reliance is required. A false representation is actionable if it substantially contributed to the formation of plaintiff’s determination to act. See Woods-Faulkner & Co. v. Michelson, 63 F.2d 569 (8th Cir. 1933); H. D. Sojourner & Co. v. Joseph, 186 Miss. 755, 191 So. 418 (Miss.1939); Stackpole v. Hancock, 40 Fla. 362, 24 So. 914 (Fla. 1898).

To constitute remediable fraud, however, it must appear not only that there was reliance on the misrepresentations, but that the reliance was justified under the circumstances. Fote v. Reitano, 46 So.2d 891 (Fla.1950); Ramel v. Chasebrook Construction Co., 135 So.2d 876 (Fla.App.1961). For the reliance to be justified, the misrepresentation must concern some material thing unknown to the plaintiff either because he did not examine it, because he had no opportunity to become informed, or because his entire confidence was reposed in the defendant. Robson Link & Co. v. Leedy Wheeler & Co., 154 Fla. 596, 18 So.2d 523 (1944). See Prosser, Torts § 108 at 716 (4th ed. 1971).

In light of Kallen’s position as trust officer of the Florida bank, the fact that essential information regarding Lurie’s financial condition was in the hands of the Bank of Hallandale and the fact that Kallen obviously intended for Evans to believe the information given, Evans was justified in relying on Kallen’s telephone communications.

On remand, the District Court need consider only the question of damages.

Reversed and remanded.

ON PETITION FOR REHEARING

PER CURIAM:

It is ordered that the petition for rehearing filed on behalf of Bank of Hal-landale and Trust Company, Appellee in the above entitled and numbered cause be and the same is hereby denied.

Although the Court’s opinion indicated that the District Court need consider on remand only the question of damages, that reference applied only to Community Bank’s action against Bank of Hal-landale and would not preclude consideration of Bank of Hallandale’s third party action against its former trust officer, Craig Kallen, or any other related actions.


author: ALDISERT, Circuit Judge.

text:
    John E. JENNINGS and Helen M. Jennings v. BOENNING & COMPANY and Boenning & Scattergood, Inc., Appellants.
    No. 72-1970.
    United States Court of Appeals, Third Circuit.
    Argued May 24, 1973.
    Decided July 16, 1973.
    Certiorari Denied Nov. 12, 1973.
    See 94 S.Ct. 450.

      L. Carter Anderson, Rawle & Henderson, Philadelphia, Pa., for appellants.
    Edward Fackenthal, Henderson, Weth-erill, O’Hey & Horsey, Norristown, Pa., for appellees.
    Before ALDISERT and ADAMS, Circuit Judges, and STAPLETON, District Judge.
   OPINION OF THE COURT

ALDISERT, Circuit Judge.

In the midst of an action seeking damages for violation of the Securities Exchange Act of 1934, the district court, 352 F.Supp. 1000, issued a preliminary injunction restraining the appellant Boenning from executing on a state court judgment entered by confession six years prior to commencement of the federal action. This appeal requires an interpretation of the Securities Exchange Act of 1934 and the federal Anti-Injunction Act to determine the propriety of the district court’s action.

John E. Jennings, a stockbroker in the employ of the Boenning Company, purchased for the account of his wife, Helen Jennings, certain Eastern Airlines debentures on February 9, 1966, and certain Rohr Aircraft debentures on January 18, 1966. The Jennings did not make full cash payment for the order within 7 days of purchase. Regulation T of the Federal Reserve Board, 12 C. F.R. § 2204(c)(2), promulgated pursuant to the Securities Exchange Act of 1934, 15 U.S.C. § 78g(a), requires that where “a customer purchases a security (other than an exempted security) in the special cash account and does not make full cash payment for the security within 7 days after the date on which the security is so purchased, the creditor shall, . . . [with exceptions not pertinent here], promptly cancel or otherwise liquidate the transaction or the unsettled portion thereof.”

Boenning sold the Eastern securities on March 1, 1966, and the Rohr securities on March 2 and 3, 1966. During the time the securities were held beyond the 7 day period permitted under Regulation T, the fair market value of the securities decreased by $32,175. This decrease in value when credited against Helen’s account resulted in a deficit of $30,500.00 for which Boenning demanded and received from John and Helen Jennings a judgment note. On April 14, 1966, judgment by confession was entered against the Jennings in the Court of Common Pleas, Montgomery County, Pennsylvania. Three years later the Jennings attempted to open the judgment, but were rebuffed by the trial court and the Pennsylvania appellate court on the theory of laches. Boenning & Co. v. Jennings, 222 Pa.Super. 712, 294 A.2d 739 (1972).

Thereafter the Jennings filed a complaint in federal district court against Boenning seeking damages for “violation of the margin requirements of the Securities Exchange Act of 1934,” 15 U.S.C. § 78g(c) ; 15 U.S.C. § 78cc.

During the course of the proceedings below the Jennings obtained a preliminary injunction restraining Boenning from executing on the judgment entered by the Montgomery County Court of Common Pleas. While the district court noted both the Federal Anti-Injunction Act, 28 U.S.C. § 2283, and the admonition of the Supreme Court of the United States in Atlantic Coast Line R. R. v. Brotherhood of Locomotive Engineers, 398 U.S. 281, 287, 90 S.Ct. 1739, 1743, 26 L.Ed.2d 234 (1970), that “any injunction against state court proceedings otherwise proper under general equitable principles must be based on one of the specific statutory exceptions to § 2283 if it is to be upheld . . . [and] the exceptions should not be enlarged by loose statutory construction,” it found two such exceptions. The court concluded it was specifically authorized by § 21(e) of the Securities Exchange Act, 15 U.S.C. § 78u(e), to issue the injunction in this case. See Studebaker Corp. v. Gittlin, 360 F.2d 692, 696-698 (2d Cir. 1966). Furthermore, the court was also of the opinion that the second exception provided in the Federal Anti-Injunction Statute for injunctions “necessary in aid of” the jurisdiction of the district court likewise enabled the court to issue the relief requested. We hold that the district court erred in both conclusions and reverse.

I.

The district court’s reliance on the Second Circuit’s Studebaker case was misplaced. There, the enjoined state proceeding was one to inspect a corporation’s stockholder list. The federal court’s order enjoined the use of other stockholders’ authorizations in the state action until there was compliance with the Proxy Rules of the Securities and Exchange Commission promulgated under § 14(a) of the Securities Exchange Act, 15 U.S.C. § 78n(a).

Section 21(e) of the Securities Exchange Act provides:

Whenever it shall appear to the Commission that any person is engaged or about to engage in any acts or practices which constitute or will constitute a violation of the provisions of this chapter, or of any rule or regulation thereunder, it may bring an action ... to enjoin such acts or practices, and upon a proper showing a permanent or temporary injunction or restraining order shall be granted without bond.

15 U.S.C. § 78u(e).

The very continuance of the state court action in Studebaker constituted a “violation of the provisions” of the Proxy Rules issued under a specific provision of the Securities Exchange Act, i. e., § 14(a), 15 U.S.C. § 78n(a). Drawing on the authority of J. I. Case Co. v. Borak, 377 U.S. 426, 432, 84 S.Ct. 1555, 1558, 12 L.Ed.2d 423 (1964), that a private suit was “a necessary supplement to Commission action,” the Second Circuit held that section 21(e) was an exception to the Anti-Injunction Statute, 28 U.S.C. § 2283, “expressly authorized by Act of Congress.” Thus, in Studebaker, the injunction was justified solely because it sought to terminate a state court action which by its very nature furthered “a violation of the provisions of” the Securities Exchange Act. Certainly, Studebaker qualified under the test subsequently set forth in Mitchum v. Foster, 407 U.S. 225, 238, 92 S.Ct. 2151, 2160, 32 L.Ed.2d 705 (1972): “whether an Act of Congress, clearly creating a federal right or remedy enforceable in a federal court of equity, could be given its intended scope only by the stay of a state court proceeding.”

By contrast, there is no impediment to the prosecution of the Jennings’ claim for damages in federal district court by reason of the Montgomery County judgment. It was the Jennings’ theory that violation of the margin requirements of Federal Reserve Regulation T was actionable under § 7(c) of the Securities Exchange Act. See Pearlstein v. Scudder & German, 429 F.2d 1136 (2d Cir. 1970). Without reaching the question whether this court would adopt the view of the Pearlstein majority, see, e. g., the dissenting opinion of Chief Judge Friendly, 429 F.2d at 1145-1149, we are persuaded that even if the Jennings have a proper cause of action for damages, the presence of the state court judgment did not constitute an impediment to the assertion of “the federal right or remedy.” The state judgment emanated from a contractual relationship between the parties cognizable by a state court. The continuance of a proceeding concerned solely with that relationship did not constitute a furtherance of an ongoing violation of the Securities Exchange Act so as to necessitate operation of § 21(e).

Our conclusion is buttressed by the Second Circuit’s interpretation of its own Studebaker decision in a case on its facts closely resembling the case before us. In Vernitron Corp. v. Benjamin, 440 F.2d 105 (2d Cir. 1971), Benjamin had contracted with Vernitron to transfer all the stock of Benjamin’s wholly-owned corporation to Vernitron in return for shares of Vernitron. After Benjamin had received a portion of the promised shares, Vernitron failed to deliver the balance, and Benjamin instituted a state court action alleging breach of contract. Vernitron counterclaimed alleging breaches of warranty and demanding rescission of the contract. Vernitron simultaneously commenced an action in federal court asserting essentially its state court counterclaim and also pleading violations of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78cc(b), as well as common law fraud. As the Jennings do here, Vernitron there relied on § 21(e) as an express statutory exception to the Anti-Injunction Act. In reversing the granting of the injunction by the district court, the Second Circuit reasoned that the prosecution of the state court action did not amount to conduct by persons “engaged or about to be engaged” in acts in violation of the Securities Exchange Act. The plain wording of that statute would seem to foreclose Vernitron’s contention. Moreover, Studebaker Corporation v. Gittlin, 360 F.2d 692 (2 Cir. 1966), relied upon by Vernitron is inapposite in that the prosecution of the state action there relevant would itself have furthered the violation of the Securities Exchange Act.

440 F.2d at 108.

We accept this reasoning and hold that § 21(e), 15 U.S.C. § 78u(e), is inapplicable to the facts of this case. Hence, the district court erred in applying it as an express statutory exception to the Anti-Injunction Act.

II.

Essential to any inquiry into the authorization for a federal court injunction of state court proceedings as “necessary in aid of [the federal court’s] jurisdiction,” is an understanding of the historical background of this statutory exception to the Anti-Injunction Act.

The starting point must be a recognition that federalism is a constitutional concept. “[T]he constitution of the United States . . . recognizes and preserves the autonomy and independence of the states, — independence in their legislative and independence in their judicial departments. Supervision over either the legislative or the judicial action of the states is in no case permissible except as to matters by the constitution specifically [sic] authorized or delegated to the United States. Any interference with either, except as thus permitted, is an invasion of the authority of the state, and, to that extent, a denial of its independence.” Erie R. R. v. Tompkins, 304 U.S. 64, 78-79, 58 S.Ct. 817, 822-823, 82 L.Ed. 1188 (1938), quoting Mr. Justice Field in Baltimore & Ohio R. R. v. Baugh, 149 U.S. 368, 401, 13 S.Ct. 914, 37 L.Ed. 772 (1893). Fortunately, American courts are heirs to a long standing principle of the common law which finds its historical foundation in the forbearance through which courts exercising coordinate jurisdiction in the name of a single sovereign refrained from interfering with the process of one another and, thereby, direct conflicts with each other were avoided. The utility produced by this concord was alone sufficient justification for its continued existence. “[B]ut between state courts and those of the United States, it is something more. It is a principle of right and of law, and therefore of necessity. It leaves nothing to discretion or mere convenience. These courts do not belong to the same system, so far as their jurisdiction is concurrent; and although they co-exist in the same space, they are independent, and have no common superior.” Covell v. Heyman, 111 U.S. 176, 182, 4 S.Ct. 355, 28 L.Ed. 390 (1884).

Where the proceeding is in rem and involves a “thing” or res, “[i]t is settled that, when a state court and a court of the United States may each take jurisdiction of a matter, the tribunal whose jurisdiction first attaches holds it, to the exclusion of the other, until its duty is fully performed, and the jurisdiction involved is exhausted.” Baltimore & Ohio R. R. v. Wabash R. R., 119 F. 678, 679 (7th Cir. 1902), quoted in Kline v. Burke Constr. Co., 260 U.S. 226, 231, 43 S.Ct. 79, 67 L.Ed. 226 (1922).

The rule is otherwise in actions for a personal judgment. A controversy is not a res, and a controversy over a mere question of personal liability does not involve the possession or control of a res. Therefore, an action to enforce such a liability does not tend to impair or defeat the jurisdiction of the court in which a prior action for the same cause is pending. Both courts are free to proceed, each in its own way and in its own time, without reference to the proceedings in the other court. Whenever a judgment is rendered in one court it may be pleaded in the other, and the effect of that judgment determined by the application of the principles of res judicata by the court in which the action is still pending. This determination is made as any other question of fact or law arising in the progress of the case would be resolved. “The rule, therefore, has become generally established that where the action first brought is in per-sonam and seeks only a personal judgment, another action for the same cause in another jurisdiction is not precluded.” Kline v. Burke Constr. Co., supra, 260 U.S. at 230, 43 S.Ct. at 81.

It is widely recognized that overlapping categories of subject-matter competence does not of itself create conflict of jurisdiction in particular cases. Such overlap, however, provides the arena in which such conflicts may occur. Actual conflict of jurisdiction arises only when two courts, both having or claiming subject matter jurisdiction, attempt concurrently or successively to entertain litigation involving the same subject matter itself — for example, the same transaction or title to the same property. R. Forrester, T. Currier and J. Moye, Federal Jurisdiction and Procedure 457 (2d Ed.1970).

That an actual conflict exists does not mean that either court, without more, may enjoin proceedings in the other. “[Fjederal courts have long been held to be barred by the predecessor of 28 U.S.C. § 2283 from enjoining parties from prosecuting pending in personam proceedings in a state court merely on the ground of duplication or overlapping of proceedings previously begun and still pending in the federal court.” P. Bator, P. Mishkin, D. Shapiro and H. Weehsler, Hart and Weehsler’s, The Federal Courts and the Federal System 1235 (2d Ed.1973).

Against the backdrop of these principles we trace ■ the development of the “necessary in aid of . jurisdiction” phrase which first appeared in the 1948 amendment to the 1911 version of the federal Anti-Injunction Act. In Tou-cey v. New York Life Ins. Co., 314 U.S. 118, 133, 62 S.Ct. 139, 143, 86 L.Ed. 100 (1941), Justice Frankfurter, in discussing removal of actions from state courts, referred to the principle later to be encompassed in this phrase, stating that the Anti-Injunction Act “has always been deemed inapplicable to removal proceedings.”

The 1948 revision to the Anti-Injunction Act was comprehensive. As Justice Frankfurter observed in Amalgamated Clothing Workers of America v. Richman Bros. Co., 348 U.S. 511, 514, 75 S.Ct. 452, 454, 99 L.Ed. 600 (1955):

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. See Toucey v. New York Life Ins. Co., 314 U.S. 118, 62 S.Ct. 139, 86 L.Ed. 100. By that enactment, Congress made clear beyond cavil that the prohibition is not to be whittled away by judicial improvisation. Former § 265 of the Judicial Code provided:
“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.” 36 Stat. 1162.
The 1948 enactment revised as well as codified. The old section was thus embodied in the new § 2283:
“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 legislative history to the 1948 amendment embodied in the Revisor’s Notes, 28 U.S.C.A. § 2283, discloses: “The phrase ‘in aid of its jurisdiction’ was added to conform to section 1651 of this title [All Writs Statute] and to make clear the recognized power of the Federal courts to stay proceedings in State cases removed to the district courts.”

We now turn to the case at bar and the reasoning of the district court. Relying on Pearlstein, the court found federal question jurisdiction and a remedy available. Since there was federal jurisdiction, the court concluded there was also power and authority to restrain the state court proceedings. In addition, the district court found that the state court lacked jurisdiction to determine the validity of the note based on violations of the Securities Exchange Act of 1934 because federal jurisdiction is exclusive. This holding was based on a misreading of Moran v. Paine, Webber, Jackson & Curtis, 279 F.Supp. 573, 579 (W.D.Pa.1967), aff’d. 389 F.2d 242 (3d Cir. 1968).

Moran simply states that there is exclusive jurisdiction in the federal courts with respect to claims brought under the Securities Exchange Act of 1934, 15 U. S.C. § 78aa, while concurrent federal and state jurisdiction exists with respect to claims arising out of the Securities Act of 1933, 15 U.S.C. § 77v. Moran v. Paine, Webber, Jackson & Curtis, supra, 279 F.Supp. at 577, aff’d, 389 F.2d at 245. Regrettably, the district court failed to recognize the distinction between asserting a claim in state court based on a federal statute and interposing a defense there based on such a statute. The distinction is important in many aspects of federal jurisprudence. For example, a claim based on a federal question filed in a state court may be removed to the federal court upon petition. However, the assertion of a defense based on federal constitutional or statutory law which is raised to a state-based claim will not in itself justify removal to a federal forum. Tennessee v. Union & Planters’ Bank, 152 U.S. 454, 14 S.Ct. 654, 38 L.Ed. 511 (1894). 28 U.S.C. § 1441.

Here, the state court action was purely and simply one based on contract evidenced by a promissory note containing a confession of judgment clause. It was not a claim based on a federal statute, let alone a federal statute which conferred exclusive jurisdiction in the federal courts. E. g., 29 U.S.C. § 158(b); see, Garner v. Teamsters, Chauffeurs & Helpers Local Union No. 776, 346 U.S. 485, 74 S.Ct. 161, 98 L.Ed. 228 (1953).

It is hornbook law that the Courts of Common Pleas of the State of Pennsylvania have jurisdiction in proceedings to enforce promissory notes. The district court’s observation that the Pennsylvania courts lack jurisdiction to determine the validity of a state-based claim in those cases in which a defense is based on the Securities Exchange Act of 1934 is a statement diametrically opposed to the law of that state as it has been pronounced by the Pennsylvania Supreme Court. Davis v. Pennzoil Co., 438 Pa. 194, 264 A.2d 597 (1970), affirmed a summary judgment in favor of the defendant entered by the late, distinguished Court of Common Pleas Judge, David Olbum, who accepted the defendant’s contention that plaintiff’s claim was foreclosed by reason of violations of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78ce(b).

Moreover, the district court relied on a truncated excerpt of the Atlantic Coast Line Railroad case when it set forth a definition of the phrase “necessary in aid of . jurisdiction.” What the Supreme Court did say was this:

[I] f the District Court does have jurisdiction, it is not enough that the requested injunction is related to that jurisdiction, but it must be “necessary in aid of” that jurisdiction. While this language is admittedly broad, we conclude that it implies something similar to the concept of injunctions to “protect or effectuate” judgments. Both exceptions to the general prohibition of § 2283 imply that some federal injunctive relief may be necessary to prevent a state court from so interfering with a federal court’s consideration or disposition of a case as to seriously impair the federal court’s flexibility and authority to decide that case.

Atlantic Coast Line R. R. v. Brotherhood of Locomotive Engineers, supra, 398 U.S. at 295, 90 S.Ct. at 1747, 26 L.Ed.2d 234.

Applying these teachings to the matter before us, we emphasize first that here there was no federal court judgment to protect. At issue was a state court judgment. Second, we do not understand how a state court judgment obtained six years prior to the filing of a claim in federal court “can seriously impair the federal court’s flexibility and authority to decide that case.” As the Court said in Kline v. Burke Constr. Co., supra, 260 U.S. at 230, 43 S.Ct. at 81, 67 L.Ed. 226: “[T]he effect of that judgment is to be determined by the application of the principles of res adjudicata by the court in which the action is still pending in the orderly exercise of its jurisdiction, as it would determine any other question of fact or law arising in the progress of the case.”

Discussing the effect of the 1948 amendment to the Anti-Injunction Act, Professor Charles Alan Wright observes :

It is clear, too, that the exception, recognized even in the Toucey case, permitting an injunction against a later state action involving property in the custody ,of the federal court has survived the 1948 revision, presumably under the guise of “in aid of its jurisdiction.” But what of the corollary under the old law that an injunction could not issue to restrain a state action in personam involving the same subject matter from going on at the same time? This was settled law before and after Toucey, and it now seems clear that it remains the law.

In sum, the case comes to this. A state action was commenced by filing a judgment note. The state court defendants could have timely moved to open the judgment on the Pearlstein theory they now press in the federal courts. The state courts may or may not have accepted the doctrine of this defense. In any event, it had the power to do so. Davis v. Pennzoil Co., supra. When the state court defendants got around to interposing this defense, the state courts held them barred by laches. They then came to a federal forum and asserted a claim for money damages. Under these circumstances, assuming without deciding that they have a proper claim for money damages, the federal Anti-Injunction Act prevents the issue of an injunction restraining state proceedings to enforce the state judgment. Accordingly, we hold that the district court lacked jurisdiction to issue the injunction.

The judgment of the district court will be reversed and the proceedings remanded with a direction to vacate the injunction order.

      . Conflict of jurisdiction between the federal and state judicial systems arises from the Supreme Court’s original and appellate jurisdiction, from the dual system of original jurisdiction in the state courts and in the federal district courts, and from the removal jurisdiction of the latter courts.
      State courts derive tlieir existence, functions and, in the main, their judicial power from the laws of their respective sovereign states; but the Constitution, laws and treaties of the United States constitute the supreme law of the land. The “courts of the two jurisdictions are not foreign to each other, nor to be treated by each other as such, but as courts of the same country, having jurisdiction partly different and partly concurrent.”
      1A J. Moore, Federal Practice, If 0.201, at 2017 (2d Ed. 1965).

      . Toucey held that a federal court had no power to stay a proceeding in a state court simply because the claim in controversy had previously been adjudicated in the federal court. The Congressional response to Toucey was the insertion of the clause “to protect or effectuate its judgments.” The Revisor’s Notes to § 2283, enacted in 1948, state that these words were included “for lack of which the Supreme Court held, that the Federal courts are without power to enjoin reliti-gation of cases and controversies adjudicated by such courts.”

      . The A.L.I. Study would permit removal if the amount in controversy is in excess of $10,000. The American Law Institute, Study of the Division of Jurisdiction Between State and Federal Courts, § 1312(2).

      . The district court stated :
      In discussing the applicability of the “necessary in aid” of jurisdiction exception in the anti-injunction statute, the Supreme Court of the United States in Atlantic Coast Line Railroad, supra, stated that an injunction is “necessary in aid of” jurisdiction when it is :
      necessary to prevent a state court from so interfering with a federal court’s consideration or disposition of a case as to seriously impair the federal court’s flexibility and authority to decide that case. 398 U.S. at 295, 90 S.Ct. at 1747.

      . This statement must be read in conjunction with the 1948 legislative purpose of the “necessary in aid of” jurisdiction clause. There, as we previously indicated, the Revisor’s Note, 28 U.S.C.A. § 2283, states that this phrase “was added to conform to section 1651 of this title [All Writs Statute] and to make clear the recognized power of the Federal courts to stay proceedings in State cases removed to the district courts.” See United States v. Kenny, 462 F.2d 1230 (3d Cir. 1972), for a discussion and application of these principles in the context of a state criminal proceeding.

      . C. Wright, Federal Courts, § 47 at 180 (2d Ed. 1970), citing Hyde Constr. Co. v. Koehring Co., 388 F.2d 501 (10th Cir. 1968), cert. denied, 391 U.S. 905, 88 S.Ct. 1654, 20 L.Ed.2d 419; Hayes Industries, Inc. v. Caribbean Sales Associates, Inc., 387 F.2d 498 (1st Cir. 1968); Lankenau v. Coggeshall & Hicks, 350 F.2d 61 (2d Cir. 1965). Accord, Vernitron Corp. v. Benjamin, 440 F.2d 105 (2d Cir. 1971). American Ins. Co. v. Lester, 214 F.2d 578 (4th Cir. 1954), is apparently to the contrary, but can be distinguished, as it was in the Hyde case, 388 F.2d at 509.

      . Because the parties to this appeal have not raised the issue, we have assumed, without deciding, that an injunction against execution of a state court judgment is an injunction against a “pending state proceeding.”


author:
PER CURIAM:
      AINSWORTH, Circuit Judge

text:
    SIGNAL PROPERTIES, INC., Plaintiff-Appellee, v. N. Bus FARHA et al., Defendants-Appellants.
    No. 72-3375.
    United States Court of Appeals, Fifth Circuit.
    July 20, 1973.
    Rehearing Denied Aug. 14, 1973.
    Gerald Sawatzky, Wichita, Kan., J. Michael Willatt, Houston, Tex., for def endants-appellants.
    C. Michael Gallman, O. Otis Bakke, Houston, Tex., for plaintiff-appellee.
    Before AINSWORTH, GODBOLD and CLARK, Circuit Judges.
   PER CURIAM:

On December 5, 1971, N. Bus Parha and other parties holding record title to a certain tract of land in Galveston County, Texas, brought an action in Sedgwick County, Kansas, against Signal Properties, Inc., seeking to recover the reasonable value of Signal’s use and occupation of the land. Signal purchased the property in 1964 from a third party who had purportedly acquired title to the property by adverse possession. No question is here raised as to the Kansas Court’s personal or subject matter jurisdiction of this action. On February 11, 1972, Signal filed a trespass to try title action in the United States District Court for the Southern District of Texas and procured from that court an injunction prohibiting the Farhas from bringing the pending Kansas court action to trial. Since such an injunction was not in aid of the district court’s jurisdiction, it was barred by 28 U.S.C. § 2283 and cannot stand.

It may well be, and we assume arguendo, that this trespass to try title proceeding is an in rem, proceeding or a quasi in rem proceeding. See Reed v. Turner, 489 S.W.2d 373 (Tex.Civ.App. 1972); State v. Bryan, 210 S.W.2d 455 (Tex.Civ.App.1948), writ refused n.r.e.; cf. Lefkowitz v. McQuagge, 296 F.2d 50 (5th Cir. 1961). Under this assumption, the federal court first acquired jurisdiction of the res — the title to the land. (The Kansas proceeding is conceded by all to have been an in personam action.) Thus, other courts are excluded from exercising jurisdiction which would interfere with the federal’s possession and control of the property. See Miller v. Miller, 423 F.2d 145 (10th Cir. 1970). In two in rem or quasi in rem proceedings this factor could be dispositive; however, the Kansas in personam action cannot result in any judgment or decree which would interfere with the constructive possession of the federal court.

A court may properly adjudicate rights in property in the possession of another court and may render any judgment “not in conflict with that court’s authority to decide questions within its jurisdiction and to make effective such decisions by its control of the property.” United States v. Klein, 303 U.S. 276, 58 S.Ct. 536, 82 L.Ed. 840 (1938). See also Markham v. Allen, 326 U.S. 490, 66 S.Ct. 296, 90 L.Ed. 256 (1946); Princess Lida of Thurn and Taxis v. Thompson, 305 U.S. 456, 59 S.Ct. 275, 83 L.Ed. 285 (1939); United States v. Certified Industries, Inc., 361 F.2d 857 (2d Cir. 1966); Banco Nacional de Cuba v. Sabbatino, 307 F.2d 845 (2d Cir. 1962), rev’d on other grounds, 376 U.S. 398, 84 S.Ct. 923, 11 L.Ed.2d 804 (1964); Albuquerque National Bank v. Citizens National Bank, 212 F.2d 943 (5th Cir. 1954); Purcell v. Summers, 126 F.2d 390 (4th Cir.), cert. denied, 317 U.S. 640, 63 S.Ct. 32, 87 L.Ed. 516 (1942).

While such title issues as are first determined by the Kansas court may become binding on the parties to the Texas District Court action under the doctrines of res judicata or collateral estoppel if properly set up by plea in the latter court, the mere act of resolving those disputed issues which are common to both proceedings in Kansas will not disturb the Texas District Court’s constructive possession or control of the land. An irreconcilable conflict between the state and federal judiciaries would only arise if both sought to exercise authority to dispose of the same res. See 1A J. Moore, Federal Practice fifí 0.222 and 0.223.

Section 2283 was enacted to limit federal injunctions of state court proceedings in ordinary litigation between private litigants to those situations necessary to avoid unseemly conflict between state and federal courts. It is entitled to a strict construction. Atlantic Coast Line Ry. v. Brotherhood of Locomotive Engineers, 398 U.S. 281, 90 S.Ct. 1739, 26 L.Ed.2d 234 (1970); Leiter Minerals, Inc. v. United States, 352 U.S. 220, 77 S.Ct. 287, 1 L.Ed.2d 267 (1957). It is well settled that the statute’s prohibition cannot be evaded by addressing the order to the parties rather than to the state court. Atlantic Coast Line Ry. v. Brotherhood of Locomotive Engineers, supra. Since this injunction does not come within any of the statute’s specifically defined exceptions, it must be vacated. The cause is remanded to the district court for further proceedings not inconsistent herewith.

Vacated and remanded.

AINSWORTH, Circuit Judge

(dissenting) :

The majority opinion ignores a longstanding rule of law that a federal court which obtains custody over property can restrain the litigants from asserting in another court any “claim, right, or title” to the same property. See Julian v. Central Trust Co., 193 U.S. 93, 114, 24 S.Ct. 399, 408, 48 L.Ed. 629 (1904). For this reason, I respectfully dissent.

The majority assumes for purposes of its decision that the federal district court in Texas had in rem jurisdiction over the land at issue. In the Kansas suit the parties agreed that title to the land was an issue. Accordingly, I am persuaded by the following reasons expressed by the district judge for issuing the injunction:

“A. Both the action in this Court and in the District Court of Sedge-wick County, Kansas, involve a determination of the actual ownership of real property located in Galveston County, Texas. Although the Kansas suit is couched as an action for recovery of the value of the use and occupancy of land, that Court must inevitable [sic] decide the present titleholder before awarding damages (which are called rental), if any. That is what is proposed to be litigated in the Kansas action, as admitted in open Court by counsel for defendants here, and as reflected in the pretrial order entered in the Kansas case. Moreover, counsel for defense admitted they could suc-eeed in the Kansas action and fail in the Texas action and thus, obtain damages for use and occupancy of land to which they had no title. This would be manifestly unfair and inequitable to plaintiffs here.
“B. In diversity actions, Texas law is required to be applied to determining title to land located in Texas. Texas courts have held that real property is exclusively subject to the laws of the sovereignty within whose territory it is situated. Therefore, the Kansas court has no in rem jurisdiction over a res located within the control of another state.
“C. For the Kansas 'Court to determine possessory title would effectively interfere with, if not deprive, this Court of its jurisdiction. To prevent this interference with this Federal Court’s consideration and disposition of this case, a preliminary injunction must issue.”

We should also consider the impracticality and inconvenience of trying title to Texas land in a distant Kansas court.

The anti-injunction statute, 28 U.S.C. § 2283 (1970), presents no obstacle in this case. A specific exception permits a federal district court to issue an injunction to stay proceedings in a state court where necessary in aid of the federal court’s jurisdiction. Here the district court should be able to issue an injunction in aid of its jurisdiction to prevent the Kansas court from continuing multiplicitous proceedings, from rendering a decision which could effectively deprive the federal court of its in rem jurisdiction through principles of res ju-dicata and collateral estoppel, or from rendering a ■ decision potentially inconsistent with a decision of the federal district court.

We previously summarized the law applicable to this case in Pacific Indemnity Company v. Acel Delivery Service, Inc., 5 Cir., 1970, 432 F.2d 952, 954, as follows:

The language of § 2283 is explicit in defining the circumstances in which a federal court may stay proceedings in a state court; however, certain timeworn judicially declared exceptions do exist. Thus, it is said that where the jurisdiction over the proceedings is in rem or quasi in rem, “[T]he state or federal court having custody of such property has exclusive jurisdiction to proceed.” Donovan v. City of Dallas, 377 U.S. 408, 412, 84 S.Ct. 1579, 1582, 12 L.Ed.2d 409 (1964).

See also Jett v. Zink, 5 Cir., 1973, 474 F.2d 149, 151, where identical issues, concerning the validity of an agreement to define the parties’ interests in an oil field, were pending in both a state and federal court in Alabama. We declined to enjoin the state court suit because the federal court’s jurisdiction in that case was in personam, but we said, however, that it would be “inconceivable” to allow the same issues to be pending simultaneously in state and federal courts if the federal court had exclusive jurisdiction of the res. 474 F.2d at 155.

I would adhere to the rules of law enunciated previously by the Supreme Court and our recent Fifth Circuit cases, and affirm the district court decision.

      . See also Lion Bonding & Surety Co. v. Karatz, 262 U.S. 77, 89, 43 S.Ct. 480, 484, 67 L.Ed. 871 (1923): “The court which first acquired jurisdiction through possession of the property is vested, while it holds possession, with the power to hear and determine ail controversies relat-ting thereto. It has the right, while continuing to exercise its prior jurisdiction, to determine for itself how far it will permit any other court to interfere with such possession and jurisdiction.”
      The majority opinion relies on United States v. Klein, 303 U.S. 276, 281, 58 S.Ct. 536, 538, 82 L.Ed. 840 (1938), for the proposition that a court may properly adjudicate rights in property in the possession of another court and may render any judgment “not in conflict with that court’s authority to decide questions within its jurisdiction and to make effective such decisions by its control of the property.” In the present case, the Kansas court is being asked by the plaintiffs to decide a question within the jurisdiction of the Texas federal district court, namely, the “title to the land in question.” Thus, the quotation from Klein is apparently in conflict with the result reached by the majority opinion. Moreover, a review of the facts in Klein confirms that the case lends little or no support to the majority opinion. In Klein the United States district court held money for bondholders who could not be located but who were awarded the money by a decree in favor of all bondholders similarly situated to plaintiffs in the lawsuit. Several years later a suit was filed by the Escheator of Pennsylvania in a state court to obtain a decree of escheat. This subsequent state court suit did not involve the same controversy as was decided in the federal district court, but rather was a formality necessary to perfect the state’s claim to the money as a transferee of the bondholders. Unlike Klein, in the instant matter the state court suit in Kansas presents issues identical to the suit in the Texas federal district court.

      . The Pretrial Conference Order in the District Court of Sedgwick County, Kan-
      sas, was signed by the judge and approved by attorneys for plaintiffs and defendants. The Order summarized the factual and legal issues as follows:
      6. The factual issues herein are:
      (a) Has Signal Properties, Inc., or its predecessors in interest adversely possessed the 25 acres in question for a sufficient period of time to comply with Article 5509 of Yernon’s Civil Statutes of the State of Texas, under a deed or deeds for the period from December 31, 1964, through December 2, 1971?
      (b) Has Signal Properties, Inc., or its predecessors held under a recorded warranty deed and paid the taxes owing on the land in question before they became delinquent for a sufficient period of time to comply with Article 5509 of Vernon’s Civil Statutes of the State of Texas, or were such taxes paid by or on behalf of plaintiffs or their predecessors for one or more years thereof?
      (c) Has Signal Properties, Inc., or its predecessors in interest adversely possessed the 25 acres in question for a sufficient time to comply with Article 5510 of Vernon’s Civil Statutes of the State of Texas between 1922 and December 2, 1971?
      (d) Is the land in question completely surrounded by other lands of the defendant?
      (e) Has Signal Properties, Inc., or any of its predecessors in interest cultivated and used for agricultural purposes at least one-tenth of the 25 acres in question continuously for a particular ten-year period prior to December 2, 1971, and, if so, during said time was the party so cultivating in actual adverse possession thereof as contemplated by Article 5515 of Vernon’s Civil Statutes of the State of Texas?
      (f) Are plaintiffs or tlieir predecessors the true owners of title to the land in question, and were they such owners from 1964 to the present time?
      (g) Has defendant Signal Companies, Inc. (formerly Signal Oil & Gas Company) used and occupied the 25 acres involved herein? If so, for what period of time and what is the reasonable value of such use and occupation?

        (h) Has defendant Signal Oil & Gas Company used and occupied tlie 25 acres involved herein? If so, for what period of time and what is the reasonable value of- such use and occupation?
      (i) Has defendant Signal Properties, Inc. used and occupied the 25 acres involved herein? If so, for what period of time and wbat ¡g the reasonable value of such use and occupation?
      (j) Did defendants or their predecessors recognize the ownership as being in plaintiffs or their predecessors?
      (k) Did plaintiffs or their predecessors permit use of the land by defendants or their predecessors?

        (l) Did defendants or any of them ever give actual notice to plaintiffs or their predecessors of their alleged adverse possession?
      7. The legal issues herein are:
      (a) Does an implied contract to pay reasonable value to the owner of the land in Texas for use and occupation arise when the defendants, or any of them, use or occupy land owned by the plaintiffs or their predecessors under the facts and circumstances of this case?
      (b) What is required of Texas law to acquire title to land by adverse possession?
      (c) Under the undisputed facts herein was there adverse possession for the requisite period of time by defendants or their predecessors?
      (d) Must defendants prove by clear and satisfactory evidence every fact necessary to sustain title by adverse possession?
      (e) Are the Texas statutes of limitations suspended or tolled as to re-maindermen until the owner of the life estate dies?
      (f) Are the Texas statutes of limitations tolled for one year as to heirs following death of the owner when the estate is not probated?
      (g) Are plaintiffs’ claim barred by the Kansas or Texas statutes of limitations ?
      (h) What is the effect of plaintiffs’ payment of taxes on the land in question?
      (i) What is the effect of payment of taxes by Signal Companies, Inc. (formerly Signal Oil & Gas Company) ?
      (j) What is the effect of payment of taxes by Signal Properties, Inc.?
      (k) Are plaintiffs’ claims barred under the doctrine of res judicata?

      (l) Did the recording by Signal Oil & Gas Company of the deed from Butler in 1964, and the deed from Signal Companies, Inc. to Signal Properties, Inc., constitute notice to plaintiffs or their predecessors of claims of adverse pos-sesion ?
      (m) Was Signal Oil & Gas Company under a duty to inform plaintiffs or their predecessors of the transaction with Butler, and of any intent they may have had regarding adverse possession?