## Facts

- Parsons Steel, Inc. and its owners sued First Alabama Bank and a bank officer in Alabama state court, alleging the bank fraudulently induced them to relinquish control and ownership of a subsidiary later placed into involuntary bankruptcy.
- While the state case was pending, the Parsons filed a federal action asserting that the same conduct violated the Bank Holding Company Act (BHCA) amendments.
- The federal case was tried first; although the jury favored the Parsons, the district court entered judgment notwithstanding the verdict for the bank, and the court of appeals affirmed, making the federal judgment final.
- The bank then asserted res judicata in the state case based on the federal judgment, contending the state claims were barred because they could have been brought in federal court; the state court rejected the defense.
- The Parsons amended the state complaint to add a UCC claim challenging the commercial reasonableness of a foreclosure sale; a state jury returned a $4 million verdict for the Parsons.
- After the state verdict, the bank filed a separate federal action seeking to enjoin further prosecution or enforcement of the state judgment, invoking the Anti-Injunction Act’s relitigation exception.

## Issues

1. Whether, after a state court has rejected a res judicata defense based on a prior federal judgment and entered judgment, a federal court may enjoin enforcement of the state judgment under the Anti-Injunction Act’s relitigation exception.
2. Whether 28 U.S.C. § 1738 requires a federal court to give the state judgment the same preclusive effect the state’s courts would give it, even if the state court may have erred on res judicata.

## Decision

- The Supreme Court reversed the Eleventh Circuit and remanded.
- The Court held that federal courts must apply 28 U.S.C. § 1738 and consider the preclusive effect, under state law, of the state court’s res judicata ruling and ensuing judgment.
- The Court rejected the view that the Anti-Injunction Act’s relitigation exception operates as an implicit partial override of § 1738.
- Even if a state court mistakenly rejects a res judicata defense grounded in a prior federal judgment, that error does not by itself justify a federal injunction against enforcement of the state judgment.
- The injunction could be proper only if, under Alabama preclusion law, the state judgment lacked preclusive effect; the lower court had to address that state-law question on remand.

## Legal Principles

- Under 28 U.S.C. § 1738, federal courts must give state-court judgments the same preclusive effect those judgments would receive in the courts of the rendering state.
- The Anti-Injunction Act’s relitigation exception must be read consistently with § 1738; it does not authorize federal courts to disregard the full faith and credit owed to a final state judgment.
- Once a state court has decided a res judicata defense and entered judgment, any challenge to that determination generally must proceed through the state appellate process, not through a collateral federal injunction.
- The relitigation exception is narrow and does not permit federal injunctive relief that would effectively reexamine or negate preclusive consequences of a state judgment that § 1738 requires federal courts to respect.

## Conclusion

The Court required federal courts to honor state judgments’ preclusive effect as defined by state law and held that the relitigation exception cannot be used to enjoin enforcement of a state judgment merely because the state court rejected a res judicata defense based on an earlier federal judgment.


Parsons Steel, Inc. v. First Ala. Bank, 474 U.S. 518 (1986)