Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-02751/USCOURTS-cand-3_06-cv-02751-3/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1331 Fed. Question

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

PROMETHEUS DEVELOPMENT CO., INC.;

and SANFORD N. DILLER,

Plaintiffs,

 v.

EVEREST PROPERTIES II, LLC; EVEREST

INVESTORS 12, LLC; and EVEREST

MANAGEMENT, LLC,

Defendants. /

No. C 06-02751 WHA

ORDER GRANTING 

MOTION TO DISMISS AND 

VACATING HEARING

INTRODUCTION

Prometheus Development Company, Inc. (“PDC”) and Sanford N. Diller seek to enjoin

state-court proceedings initiated by Everest Properties II, LLC, Everest Investors 12, LLC, and

Everest Management LLC (“the Everest entities”). The Everest entities move to dismiss the

instant action pursuant to Federal Rule of Civil Procedure 12(b)(1) on the grounds that there is

no subject-matter jurisdiction and on the grounds that this action is precluded by the AntiInjunction Act, 28 U.S.C. 2283. This order holds that the Act does preclude entry of an

injunction. The motion, therefore, is GRANTED. Since the preclusion is a defect that cannot be

remedied by amendment, the dismissal is with prejudice.
United States District Court

For the Northern District of California

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STATEMENT

PDC and Diller’s instant action for injunctive relief relates to two previous actions, one

in state court and one in federal court, brought on behalf of former limited partners in

Prometheus Income Partners, L.P. (“the Partnership”).

As a brief background for both previous lawsuits, the Partnership’s holdings consisted of

two apartment complexes located in Santa Clara, California. Diller was the president, chief

financial officer and sole director of PDC, the corporate-general partner of the Partnership. 

Diller and his wife held all of the outstanding shares of capital stock in PDC. In March 2002,

PDC announced a proposal for the merger of the Partnership into PDC’s affiliate, PIP Partners. 

By this merger, PIP Partners was to acquire the entirety of the Partnership’s units at $1,714 per

unit for a total transaction of $53,200,000, followed by a liquidation of the Partnership.

In June 2002, PDC issued a proxy, filed with the Securities and Exchange Commission,

setting forth the terms of the proposed merger. Over the following weeks, PDC made several

supplemental filings to the proxy and one of the limited partners filed a counter-proxy seeking

to block the merger. In July 2002, a majority of the limited-partnership units voted to approve

the merger.

The State-Court Action (“Action I”).

In August 2003, the Everest entities filed an action against PDC and Diller in the

Superior Court of California for Los Angeles County alleging breach of fiduciary duty and

violation of California Business and Professions Code § 17200. That state-court action was not

a class action. The state-court action was then transferred to the superior court for San Mateo

County. In June 2005, trial proceeded against PDC (while the claims against Diller were

dismissed). The superior court found that PDC violated its fiduciary duty to the Everest entities

and awarded them damages totaling $4,463,737 (Kendig Decl. Exh. A). The superior court,

however, did not enter judgment against PDC until February 24, 2006 (id. at Exh. B). PDC

then filed an appeal of the judgment in the state-court action, which is still pending. PDC

posted a bond of $7,050,000 during the pendency of that appeal (id. at Exh. E).
United States District Court

For the Northern District of California

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1

 This order takes judicial notice of the court documents filed in the earlier state and federal actions. 

These documents are “not subject to reasonable dispute” and are “capable of accurate and ready determination

by resort to sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201. As these documents

speak for themselves, this order relies on the documents, not on counsel’s characterizations thereof. Fed. R.

Evid. 1002.

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The Federal Class Action (“Action II”).

Meanwhile, in July 2005 a separate group of limited partners filed a class-action

complaint in federal court. The federal class-action complaint “excluded from the Class . . . 

limited partners who are adjudicating their claims against defendants in an action brought in the

Superior Court of San Mateo County,” i.e., the Everest entities (Kendig Decl. Exh. C at ¶ 14). 

The federal class-action complaint alleged breach of fiduciary duty against PDC and Diller. On

February 24, 2006, this Court granted PDC and Diller’s motion to dismiss the federal classaction complaint on the grounds that the complaint failed to satisfy FRCP 9(b). Judgment was

entered in favor of PDC and Diller on that same day.

The Instant Action: The Federal Injunctive-Relief Action (“Action III”).

The instant action for injunctive relief was filed in April 2006. By this action, PDC and

Diller seek to enjoin the Everest entities from further prosecution of the state-court action

(Action I). Given that the state-court action has already reached judgment, PDC and Diller

apparently hope to enjoin enforcement of the state-court judgment against them. The Everest

entities now move to dismiss this action for injunctive relief.1

ANALYSIS

The Everest entities argue that the Court lacks jurisdiction to enjoin the state-court

action and that such an injunction is precluded by the Anti-Injunction Act. Both of these issues,

as explained herein, depend on an application of the Act.

“The Anti-Injunction Act precludes federal courts from enjoining state court actions

unless (1) Congress has expressly authorized such relief by statute, (2) an injunction is

‘necessary in aid of [the court’s] jurisdiction,’ or (3) an injunction is necessary ‘to protect or

effectuate [the court’s] judgments.’” Golden v. Pac. Mar. Ass’n, 786 F.2d 1425, 1427 (9th Cir.

1986) (quoting 28 U.S.C. 2283). “In the interest of comity and federalism, these three

exceptions must be strictly construed.” “[D]oubts as to the propriety of a federal injunction
United States District Court

For the Northern District of California

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2

 PDC and Diller argue that jurisdiction here is conferred by the All Writs Act, 28 U.S.C. 1651. The

jurisdictional grant under the All Writs Act, however, is limited by the Anti-Injunction Act. Sandpiper Village

Condo. Ass'n., Inc. v. Louisiana-Pacific Corp., 428 F.3d 831, 842 (9th Cir. 2005). Thus, unless jurisdiction is

consistent with the Anti-Injunction Act, no jurisdiction exists by virtue of the All Writs Act. PDC and Diller

also argue that somehow the Class Action Fairness Act, 28 U.S.C. 1453, confers jurisdiction here. The CAFA

argument is unintelligible. This injunctive-relief action is not a class action. None of the prerequisites for

application of CAFA exist.

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against state court proceedings should be resolved in favor of permitting the state courts to

proceed in an orderly fashion to finally determine the controversy.” Ibid. (internal citation

omitted).

The third exception for injunctions necessary “to protect or effectuate” a court’s

judgments, or the “relitigation exception,” is in question here. “No independent basis of

jurisdiction is required for a federal court to entertain application to enjoin relitigation in state

court.” Wright and Miller, Federal Practice and Procedure, § 4226 (2d ed. 1988,

supplemented 2005) (emphasis added). “This is thought to be within the ancillary jurisdiction

of the federal court, and the jurisdiction that the federal court had when it entered its original

judgment is enough to support its issuance of an injunction.” The issue, therefore, is whether

the relitigation exception applies or whether the Anti-Injunction Act precludes this action.2

“The relitigation exception was designed to permit a federal court to prevent state court

litigation of an issue that was previously presented to and decided by a federal court.” G.C. and

K.B. Invs., Inc. v. Wilson, 326 F.3d 1096, 1107 (9th Cir. 2003). “A district court may properly

issue an injunction under the relitigation exception if ‘there could be an actual conflict between

the subsequent state court judgment and the prior federal judgment.’” Ibid. (internal citation

omitted). “Even if no actual conflict is possible, an injunction ‘could still be proper if res

judicata would bar the state court proceedings.’” Ibid. (internal citation omitted). The

relitigation exception is limited “to those situations in which the state court has not yet ruled on

the merits of the res judicata issue.” Golden, 786 F.2d at 1427 (internal citation omitted). The

“requirements of identity of the parties, . . . adequate notice, and adequate representation

apply.” Sandpiper Village Condo. Ass'n., Inc. v. Louisiana-Pacific Corp., 428 F.3d 831, 847

(9th Cir. 2005).
United States District Court

For the Northern District of California

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For the two reasons stated below, PDC and Diller’s action for an injunction does not

satisfy the relitigation exception to the Anti-Injunction Act.

First, there is no identity between the parties involved in the federal class action and the

parties involved in the state-court action. As stated above, the federal class action specifically

excluded the Everest entities, whose rights were being pursued in the state-court action. The

state-court action and the federal class action thus simply included different parties.

PDC and Diller argue that the Everest entities were nonetheless “in privity” with the

federal class. This is incorrect. “‘Privity’ . . . is a legal conclusion ‘designating a person so

identified in interest with a party to former litigation that he represents precisely the same right

in respect to the subject matter involved.’” Headwaters Inc. v. U.S. Forest Serv., 399 F.3d

1047, 1052–53 (9th Cir. 2005) (internal citation omitted). “‘A non-party can be bound by the

litigation choices made by his virtual representative,’ only if certain criteria are met: ‘[A] close

relationship, substantial participation, and tactical maneuvering all support a finding of virtual

representation; identity of interests and adequate representation are necessary to such a

finding.’” Id. at 1053–54 (internal citation omitted).

The Everest entities were not represented in the federal class action, actually or

virtually, but rather were specifically excluded from the class. The Everest entities were, by

design, denied the opportunity to participate in the federal action. Any benefit accruing to the

federal class would not have flowed to the Everest entities. PDC and Diller’s privity argument

is, thus, unpersuasive.

Second, the state-court action had already reached the merits of the purportedly

estopped issue—breach of fiduciary duty—prior to the termination of the federal class action. 

Although the state court did not enter judgment until the same day that judgment was entered in

the federal class action, the state-court action reached the merits of the issue of fiduciary-duty

breach several months earlier (after a trial) than the federal class action. It would abuse

principles of comity to order the state court to suspend a judgment that it processed through trial

so as to enforce a subsequent federal judgment. See Golden, 786 F.2d at 1427.
United States District Court

For the Northern District of California

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Under such circumstances the relitigation exception does not apply. The AntiInjunction Act, therefore, precludes this federal injunctive-relief action and requires dismissal.

CONCLUSION

For the foregoing reasons, the Everest entities’ motion to dismiss is GRANTED. The

dismissal is with prejudice because PDC and Diller cannot plead around the Anti-Injunction Act

by amendment. Judgment will be entered accordingly with this order. Finding further

argument unnecessary, hearing on this motion is VACATED.

IT IS SO ORDERED.

Dated: June 16, 2006 

WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE