Stoll v. Gottlieb
305 U.S. 165 (1938)
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Rule of Law:
A court's determination that it has subject-matter jurisdiction is binding and has res judicata effect in a subsequent collateral proceeding, provided the jurisdictional issue was actually litigated and decided in the original court between the same parties.
Facts:
- Ten Fifteen North Clark Building Corporation issued bonds which were personally guaranteed by J.O. Stoll and S.A. Crowe, Jr.
- William Gottlieb was the owner of three of these bonds.
- The corporation filed for reorganization under Section 77B of the Bankruptcy Act.
- The proposed reorganization plan provided for the cancellation of Stoll and Crowe's personal guaranties.
- In consideration for the cancellation of their guaranty, Stoll and Crowe caused the debtor corporation's assets to be transferred to a new corporation and surrendered their stock in the debtor.
- Gottlieb, as a creditor, was given notice of the bankruptcy proceedings and the proposed plan.
Procedural Posture:
- Ten Fifteen North Clark Building Corporation filed a petition for reorganization in the U.S. District Court for the Northern District of Illinois.
- The District Court confirmed a reorganization plan that released J.O. Stoll from his personal guaranty on the corporation's bonds.
- William Gottlieb, a bondholder, then sued Stoll in the Municipal Court of Chicago (a state trial court) to enforce the guaranty.
- After filing the state court action, Gottlieb filed a petition in the U.S. District Court (the bankruptcy court) to vacate its confirmation order, arguing the court lacked subject-matter jurisdiction to cancel the guaranty.
- The U.S. District Court denied Gottlieb's petition to vacate, and Gottlieb did not appeal this denial.
- In the state case, the Municipal Court of Chicago entered judgment for Gottlieb, rejecting Stoll's res judicata defense.
- An Illinois intermediate appellate court reversed the trial court's judgment.
- The Supreme Court of Illinois reversed the intermediate appellate court's decision, affirming the trial court's judgment in favor of Gottlieb.
- The U.S. Supreme Court granted certiorari to review the judgment of the Supreme Court of Illinois.
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Issue:
Does a federal bankruptcy court order have res judicata effect in a state court on the issue of subject-matter jurisdiction when the complaining party previously appeared in the federal court to contest that very jurisdictional issue and the federal court explicitly ruled against them?
Opinions:
Majority - Justice Reed
Yes. A federal court order has res judicata effect on the issue of jurisdiction when that issue was litigated and decided by the federal court. A court has the authority to determine its own jurisdiction, and once this determination is made after an actual contest, it is conclusive upon the parties and cannot be collaterally attacked in another court, even if the jurisdictional determination was erroneous. The principle of res judicata dictates that there must be an end to litigation. Gottlieb had his day in court on the jurisdictional issue when he filed a petition to vacate the bankruptcy court's order on the grounds that it lacked jurisdiction. The bankruptcy court's denial of that petition was a final adjudication of the jurisdictional question. Gottlieb's remedy was to appeal that denial through the federal court system, not to re-litigate the issue in a state court.
Concurring - Justice McReynolds
Concurred in the result without a written opinion.
Analysis:
This case significantly strengthens the principle of finality in judgments by extending res judicata to cover contested determinations of subject-matter jurisdiction. It establishes that a party cannot remain silent on jurisdiction, lose a case, and then challenge the judgment collaterally on jurisdictional grounds later. More importantly, it holds that even if a party explicitly litigates jurisdiction and loses, that determination itself is binding, preventing a second court from re-examining the first court's power. This decision forces litigants to raise and fully pursue jurisdictional challenges, including appeals, within the original litigation, thereby promoting judicial efficiency and preventing endless re-litigation of foundational issues.
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