Opinion ID: 732440
Heading Depth: 2
Heading Rank: 2

Heading: The District Court's Injunctions

Text: 30 Because we have determined that the final judgment orders properly retained the district court's jurisdiction over the implementation and enforcement of the settlement agreements, we must next decide whether those orders appropriately enjoined the California Investors from prosecuting their state court claims. Abuse of discretion is the proper standard of review when a district court interprets its own order and issues a permanent injunction barring a party's claims. In re Chicago, Milwaukee, St. Paul & Pac. R.R., 974 F.2d 775, 779-80 (7th Cir.1992); see also Wesch v. Folsom, 6 F.3d 1465, 1469 (11th Cir.1993) (noting that although district courts should be hesitant to enjoin state court litigation, the decision to take such action remains in the sound discretion of the district court). Nonetheless, in applying the abuse of discretion standard, we do not give equal deference to every aspect of a court's decision. The abuse of discretion standard is used to evaluate the ... court's application of the facts to the appropriate legal standard, and the factual findings and legal conclusions underlying such decisions are evaluated under the clearly erroneous and de novo standards, respectfully. In re Chicago, Milwaukee, St. Paul & Pac. R.R., 974 F.2d at 779-80; accord Durasys, Inc. v. Leyba, 992 F.2d 1465, 1471 (7th Cir.1993) (reviewing a grant of a permanent injunction, the appellate court should observe customary norms: we will review for clear error the district court's findings of facts, and will review de novo the district court's conclusions of law); see also Wesch, 6 F.3d at 1469 (The grant of an injunction is reviewed for abuse of discretion. However, if the trial court misapplies the law we will review and correct the error without deference to that court's determination.) (citations omitted). 31 Because the district court retained jurisdiction over both actions, it could properly remove the California Investors' claims from California state court pursuant to the All Writs Act. The All Writs Act provides that The Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law. 28 U.S.C. § 1651(a). In United States v. New York Telephone Co., the Supreme Court championed a federal court's power to use the Act in order to effectuate and prevent the frustration of orders it has previously issued in its exercise of jurisdiction otherwise obtained. 434 U.S. 159, 172, 98 S.Ct. 364, 372, 54 L.Ed.2d 376 (1977). 32 In In re Agent Orange Product Liability Litigation (Agent Orange I), the Second Circuit approved a district court's use of the All Writs Act to remove two otherwise unremovable Texas class actions to federal court and subsequently bar class members from litigating their Texas lawsuits. 996 F.2d 1425, 1430-31 (2d Cir.1993). In the two Texas lawsuits, plaintiffs attempted to revive the massive Agent Orange tort litigation, which had been consolidated by the Judicial Panel on Multidistrict Litigation in the Eastern District of New York. Id. at 1428. 33 The Multidistrict Litigation was resolved pursuant to a settlement agreement, which expressly included as class members those persons who had not yet manifested injury; the agreement permanently barred class members from instituting future actions against defendants arising from Agent Orange exposure. Id. at 1428-29. In the agreement, the district court expressly retained jurisdiction over the maintenance, distribution, and administration of the settlement fund. Id. at 1429. 34 After the district court approved the agreement, plaintiffs brought actions in Texas state court alleging that they or their family members suffered Agent Orange exposure injuries that were not detected until after the Agent Orange I Multidistrict Litigation settlement date. Id. at 1430. The state actions relied solely on state law and explicitly abjured reliance on federal law. Id. The Second Circuit held that the district court properly removed these state claims to federal court under the All Writs Act asserting that 35 [i]t is difficult to conceive of any state court properly addressing a victim's tort claim without first deciding the scope of the Agent Orange I class action and settlement. The court best situated to make this determination is the court that approved the settlement and entered the judgment enforcing it. 36 Id. at 1431. The Second Circuit accordingly affirmed the order enjoining the Texas actions, reasoning that the district court had the right to enforce its explicit, ongoing order against relitigation of matters it already had decided, and to guard[ ] the integrity of its rulings in complex multidistrict litigation over which it had retained jurisdiction. Id. 37 Other circuits have similarly approved a district court's use of the All Writs Act to prevent litigants from frustrating or circumventing its orders. See, e.g., White v. National Football League, 41 F.3d 402, 409 (8th Cir.1994) (enjoining related actions pursued in other fora noting that the ability to facilitate the present settlement by enjoining related suits of absent class members is ancillary to jurisdiction over the class action itself), cert. denied, --- U.S. ----, 115 S.Ct. 2569, 132 L.Ed.2d 821 (1995); cf. Westinghouse Elec. Corp. v. Newman & Holtzinger, P.C., 992 F.2d 932, 937 (9th Cir.1993) (refusing to apply the All Writs Act because the state complaint alleged a contract breach independent of the district court's protective order and thus, the state court adjudication would not affect interpretation or enforcement of the order). 38 The case presently before us is similar to Agent Orange I. The judges in both the VMS Funds and VMS Partnership actions used their retained jurisdiction to evaluate the California claims within the scope of the settlement agreements, and to prevent the circumvention of those agreements. Applying the Second Circuit's sound reasoning from Agent Orange I to this case leads us to the same conclusion that allowing the California Investors to maintain their separate actions in state court would have a substantial deleterious effect on the VMS Funds and VMS Partnership settlement mechanisms. Agent Orange I, 996 F.2d at 1431. 39 In reaching this conclusion, we do not suggest that a court may use the All Writs Act as a jurisdictional blank check to use whenever it deems it advisable. See id. The exceptional circumstances present here and in Agent Orange I, however, warrant this proper exercise of judicial discretion. Id. Thus, in the context of complex class action litigation, a federal district court may appropriately use the All Writs Act to remove and enjoin the prosecution of subsequent state court claims in order to enforce its ongoing orders against relitigation and to guard the integrity of its prior rulings over which it had expressly retained jurisdiction. See id. 40 Furthermore, although the California Investors assert differently, their state claims clearly attempted an end run around the class action settlements and thus should be treated as disguised estoppel claims. The courts below relied upon an earlier opinion from the sprawling mass of VMS Securities Litigation--In re VMS Limited Partnership Securities Litigation, 26 F.3d 50 (7th Cir.1994)--in characterizing the California Investors' state claims as disguised estoppel claims rather than unreleased, post-judgment claims. In that case, the plaintiff (Berger) relied upon statements from one defendant (CIGNA) regarding the scope of the class action in making his decision to participate in the class settlement. Id. at 50-51. 41 When questioned by Berger, the CIGNA representative informed Berger that the class settlement only pertained to claims regarding the annual financial planning fees Berger paid to CIGNA. Id. The district court, however, found that the clear terms of the class notice and the subsequent settlement agreement barred an unsuitable investment cause of action that Berger later tried to adjudicate in an arbitration proceeding. Id. 42 On appeal, this court held that Berger's fraudulent misrepresentation argument--that the CIGNA representative fraudulently induced him to participate in the class settlement by advising him that the class settlement only involved claims regarding the financial planning fees--was really an estoppel claim intended to circumvent the class settlement agreement. Id. at 51. In making this determination, we found it significant that the class notice was clear and that it was inherently unreasonable for Berger to rely on the advice of the CIGNA representative, a nonlawyer, who lacked any authority to enforce the settlement agreement. Id. at 52. As such, we held that Berger was bound by the class settlement agreement. Id. at 50-52. 43 The trial courts below used our opinion, as well as Judge Conlon's reasoning in another VMS Securities Litigation decision--In re VMS Securities Litigation, No. 89 C 9448, 1994 WL 380634, at  1 (N.D.Ill. July 18, 1994) (refusing to enjoin a Michigan state court action because Prudential's attempt to do so was premature in light of plaintiffs' vague complaint) 3 --to formulate a two-factor test for determining whether the California Investors' claims were merely estoppel claims in disguise. These factors are (1) whether the complaint alleges that the class members reasonably relied on the legal advice of the defendant and (2) whether the alleged damages are equal to the difference between the amount plaintiffs could have received had they opted out of the settlement less the amount they actually received via the settlement. In re VMS Sec. Litig., 1995 WL 317085, at  4; In re VMS Ltd. Partnership Sec. Litig., 1995 WL 355719, at  2. 44 Applying these tests, the district court in both actions properly characterized the California Investors' state claims as disguised or camouflaged estoppel claims. The language in the California Complaint satisfies the first factor--the investors plainly allege that they reasonably relied upon Prudential's advice in deciding to participate in the prior class action settlements. California Complaint, paras. 14, 34, 39, & 43. 45 The second factor is also met because the California Complaint seeks damages based on the amount of [the Investors'] original investment less any amount recovered in the prior class actions, plus prejudgment interest. California Complaint, para. 47. It is obvious from their complaint that the California Investors were attempting to evade the final judgments issued by the district court below; they were trying to recover damages they might have received had they not participated in the class action. 46 The federal district judges had both the authority and the responsibility to protect [their] judgments and prevent the California Investors from circumventing the class settlement agreements. In re VMS Sec. Litig., 1995 WL 317085, at  4. 47 Finally, the California Investors' belated attempt to invoke the Anti-Injunction Act is of no consolation here. The Anti-Injunction Act provides: 48 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. 49 28 U.S.C. § 2283. In the proceedings below, the California Investors failed to assert that the Act prohibited the district court from enjoining the California class action. 50 We reject the investors' lame assertion that they could not have waived the Anti-Injunction argument because Prudential, by seeking injunctive relief, framed the issue below. It is precisely because Prudential sought injunctive relief in its motions to enforce the final judgments (charging that the California Action constitutes an impermissible 'end run' around the settlement ... and is properly enjoined as such) (emphasis added) that the California Investors were required to assert the Anti-Injunction Act at that time in order to preserve the issue for appeal. Because they failed to raise this argument in the district court, and they made no showing of plain error, the California Investors waived appellate review of the issue. 4 Johnson by Johnson v. Duneland Sch. Corp., 92 F.3d 554, 557 (7th Cir.1996); see Sac and Fox Nation v. Hanson, 47 F.3d 1061, 1063 (10th Cir.) (refusing to review defendants' Anti-Injunction Act argument on appeal because they did not raise the Act's applicability in the district court proceedings nor did they show manifest error), cert. denied, --- U.S. ----, 116 S.Ct. 57, 133 L.Ed.2d 21 (1995); Airlines Reporting Corp. v. Barry, 825 F.2d 1220, 1224-25 (8th Cir.1987) (same). 51