Court Opinion

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Opinions of the United
2007 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

5-1-2007

In Re Prudential
Precedential or Non-Precedential: Non-Precedential

Docket No. 06-3186

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Recommended Citation
"In Re Prudential " (2007). 2007 Decisions. Paper 1145.
http://digitalcommons.law.villanova.edu/thirdcircuit_2007/1145

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                                                 NOT PRECEDENTIAL

        UNITED STATES COURT OF APPEALS
             FOR THE THIRD CIRCUIT
                  ____________

                      No. 06-3186
                     ____________

   IN RE: THE PRUDENTIAL INSURANCE COMPANY
     OF AMERICA SALES PRACTICES LITIGATION

ALFRED W. DEYTER, MARY M. DEYTER, Individually and
   STEVEN M. BROWNELL, as Trustee on behalf of the
  DEYTER FAMILY IRREVOCABLE LIFE INSURANCE
        TRUST, dated November 8, 2000,

                                    Appellants

                       __________

      On Appeal from the United States District Court
                for the District of New Jersey
                   (D.C. No. 95-cv-04704)
     District Judge: Honorable Dickinson R. Debevoise
                        ____________

        Submitted Under Third Circuit LAR 34.1(a)
                Thursday March 29, 2007

Before: RENDELL, BARRY, and CHAGARES, Circuit Judges.

                   (Filed May 1, 2007)

                     ____________

               OPINION OF THE COURT
                    ____________
CHAGARES, Circuit Judge.

       This appeal presents us with yet another installment in the ongoing saga that is this

class-action lawsuit. Relying on the District Court’s final order and judgment in this

matter, The Prudential Insurance Company of America (“Prudential”) moved to enjoin

appellants Alfred Deyter, Mary Deyter, and Steven Brownell as Trustee of the Deyter

Family Irrevocable Life Insurance Trust (collectively, “the Deyters”) from pursuing

certain claims against Prudential in the Florida state courts. The District Court granted

the motion. The Deyters appeal. We will affirm.

                                             I.

       Our prior opinions thoroughly explain the circumstances that gave rise to the

underlying class action. See, e.g., In re The Prudential Ins. Co. of Am. Sales Practices

Litig. (“Prudential: La Marra”), 314 F.3d 99 (3d Cir. 2002); In re Prudential Ins. Co. of

Am. Sales Practice Litig. (“Prudential: Lowe”), 261 F.3d 355 (3d Cir. 2001); In re

Prudential Ins. Co. Am. Sales Practice Litig. Agent Actions (“Prudential: Krell”), 148

F.3d 283 (3d Cir. 1998). Because we write only for the parties, we need not provide so

exhaustive a factual discussion.

       In 1994, Prudential began to face a number of lawsuits alleging fraudulent

practices in its marketing and sales of life-insurance policies. See Prudential: Krell, 148

F.3d at 290. Eventually, more than 100 actions were “centralized in the District of New

Jersey” by the Judicial Panel on Multidistrict Litigation. Id. at 292 n.6. The amended

class-action complaint alleged that “Prudential used its centralized marketing system to

                                             2
implement a scheme to sell new insurance policies to existing and new customers through

three deceptive sales tactics: ‘churning,’ ‘vanishing premium,’ and ‘investment plan’

techniques.” In re The Prudential Ins. Co. of Am. Sales Practices Litig., 962 F.Supp. 450,

474 (D.N.J. 1997). The complaint further alleged that “Prudential was aware of these

fraudulent sales practices as early as 1982,” but “Prudential failed to take serious steps to

combat the abuses.” Prudential: Krell, 148 F.3d at 294.

       The parties filed a final settlement agreement with the District Court in October

1996. The settlement class generally “included all persons who owned one or more

Prudential insurance policies between January 1, 1982 and December 31, 1995.” Id. In a

lengthy opinion, the District Court certified the class and approved the settlement. See

Prudential, 962 F.Supp. at 564-66.

       On appeal, we affirmed. Prudential: Krell, 148 F.3d at 346. In doing so, we noted

that individual notice of the settlement and the right to opt out of the class was sent “to

the last known address of the over 8 million present and former policyholders who

comprised the putative class.” Id. at 327. In addition, the parties published “notice in the

national editions of The New York Times, The Wall Street Journal, USA Today and The

Newark Star Ledger.” Id. Prudential also published “notice in the largest circulating

newspaper in each of the fifty states and the District of Columbia.” Id. In light of this

“unparalleled” outreach, we agreed with the District Court’s conclusion that this

“comprehensive notice program . . . far exceeded the requirements of [Federal Rule of

Civil Procedure] 23 and due process.” Id. (internal quotation omitted).

                                              3
       The settlement’s purpose was to remediate fully the class members. Indeed,

billions of dollars have been paid to “members through a comprehensive alternative

dispute resolution program” provided by the settlement. Prudential: La Marra, 314 F.3d

at 100. In order to resolve the matter finally, the settlement contained a broad release of

claims:

       Plaintiffs and all Class Members hereby expressly agree that they shall not
       now or hereafter institute, maintain or assert against the Releasees, either
       directly or indirectly, on their own behalf, on behalf of the Class or any
       other person, and release and discharge the Releasees from, any and all
       causes of action, claims, damages, equitable, legal and administrative relief,
       interest, demands or rights, of any kind or nature whatsoever, whether based
       on Federal, state or local statute or ordinance, regulation, contract, common
       law, or any other source, that have been, could have been, may be or could
       be alleged or asserted now or in the future by Plaintiffs or any Class
       Member against the Releasees . . . on the basis of, connected with, arising
       out of, or related to, in whole or in part, the Released Transactions and
       servicing relating to the Released Transactions, which include without
       limitation:
               (i) any or all of the acts, omissions, facts, matters, transactions or
               occurrences that were directly or indirectly alleged, asserted,
               described, set forth or referred to in the Action;
               (ii) any or all of the acts, omissions, facts, matters, transactions,
               occurrences, or any oral or written statements or representations
               allegedly made in connection with or directly or indirectly relating to
               the Released Transactions, including without limitation any acts,
               omissions, facts, matters, transactions, occurrences, or oral or written
               statements or representations relating to:
                       (a) the number of out-of-pocket payments that would need to
                       be paid for the Policies;
                       (b) the ability to keep or not to keep a Policy in force based on
                       a fixed number and/or amount of premium payments . . .
                       and/or the amount that would be realized or paid under a
                       Policy based on a fixed number and/or amount of cash
                       payments . . . in the form of . . . cash value . . . .;
                       (c) the nature, characteristics, terms, appropriateness,
                       suitability, descriptions and operation of Policies;

                                              4
Supplemental Appendix (“Supp. App.”) 29-30. In addition, the District Court’s final

order stated that the settlement would have “res judicata and claim preclusive effect in all

pending and future lawsuits maintained by or on behalf of . . . all . . . class members.”

Prudential, 962 F.Supp. at 565. Further, the order stated that “[a]ll claims for

compensatory or punitive damages on behalf of class members are hereby extinguished,

except as provided for in the Stipulation of Settlement.” Id. And the order also

permanently enjoined class members from relitigating the “facts and circumstances”

covered by the settlement:

       All class members, and all persons acting on behalf of or in concert or
       participation with any class member, are hereby permanently enjoined from
       this day forward from filing, commencing, prosecuting, intervening, or
       participating in any lawsuit on behalf of any class member in any
       jurisdiction based on or relating to the facts and circumstances underlying
       the claims and causes of action in this lawsuit or the Released Transactions.
       . . .”

Id. at 566.

       The Deyters are members of the class and subject to this final judgment. They

own seven policies that were entered into during the class period. The Deyters also own

an additional, nonclass policy that they applied for in the year 2000. Prudential records

indicate that the Deyters were mailed notice of the class action in November 1996.

Prudential also mailed notice to the Deyters’ daughter, who at the time owned one of the

policies, at the same address. The U.S. Postal Service did not return these notices as

undeliverable or non-forwardable, and neither the Deyters nor their daughter opted out of

the class. Nonetheless, the Deyters never took any steps to participate in the settlement.

                                              5
       In November 2002, the Deyters brought suit against Prudential and two of its

former employees in Florida state court. Their amended complaint alleged that the

“Prudential agent who sold the Deyters a $400,000 life insurance policy . . . in 1992 told

them they would not have to pay premiums on that policy after they paid ten . . . annual

premium payments.” Appendix (“App.”) 21. In reliance on this claim of so-called

“vanishing premiums,” the Deyters purchased the policy and named their daughter as

owner. According to the complaint, “[b]etween 1982 and 1995, [the Deyters] did not

know that they had been the victims of any wrongdoing by The Prudential,” and “they did

not appreciate the fact they had sustained any damages as a result of the conduct of The

Prudential or its agents.” App. 20. The Deyters also claimed to have no notice of any

class action, and stated they were “completely unaware of the fact that they had any

responsibility whatsoever to file a claim against The Prudential in a class action.” Id.

       The Deyters paid their premiums on time and in full through the year 2000. In that

year, Prudential agents contacted the Deyters to discuss their 1992 policy. The agents

advised the Deyters to transfer ownership of the policy from their daughter to an

irrevocable trust. The thought was that this would shield the policy from potential

judgment-creditors. The complaint states that Prudential agents told the Deyters that the

Prudential Trust Bank of Atlanta “would only charge ‘peanuts’ . . . to act as trustee of

their trust.” App. 23. The agents also reiterated that the Deyters only had one more

premium payment to make on their 1992 policy.

                                             6
         In reliance on these representations, the Deyters agreed to the trust arrangement.

The Deyters also purchased a new $350,000 life insurance policy. As to this policy, the

complaint alleges that Prudential agents “told the Deyters the new policy would be just

like the $400,000 policy they already had except they would not have to pay any premium

payments on this policy out of their own pocket.” App. 24. Rather, the premiums would

be paid from a $128,000 surplus the Deyters had with Prudential. At any time, the agents

stated, the new policy “could be converted to a fully paid-up policy. . . .” App. 25. The

complaint further alleges that Prudential agents fraudulently overstated the Deyters’ net

worth.

         According to the complaint, the Deyters came to realize over time that Prudential

had misrepresented the facts. Prudential charged $900 for setting up the trust and $1,000

per year for maintaining it; those sums are hardly “peanuts.” It also turned out that the

Deyters still had to pay $9,250 and $13,700, respectively, on their 1992 and 2000

policies. Furthermore, a high-yield mutual fund purchased by the Deyters to help pay the

premiums did not produce the promised returns. The complaint alleges that after the

Deyters failed to pay additional premiums on the $400,000 1992 policy, Prudential

cancelled it and issued a $210,014 paid-up policy. Allegedly, this action was contrary to

the terms under which Prudential’s “agent sold the . . . life insurance policy to the

Deyters in 1992.” App. 36.

         Based on these allegations, the Deyters asserted several claims for relief. The

Deyters brought fraud claims based on the fact that they “lost the benefit of the bargain

                                               7
which they made when they purchased the $400,000 policy because they were told when

they purchased said policy that there would be enough cash value and accrued dividends

in this policy after they paid ten annual premiums to pay subsequent premiums and that

this policy would continue to have a face value of $400,000.” App. 42. These

misrepresentations were repeated in the year 2000. In addition, the Deyters also brought

claims based on fraudulent misrepresentations with respect to the formation of the

irrevocable trust, the 2000 policy, and the mutual fund.

       Prudential sought to enjoin the Deyters from pursuing some of their claims in the

Florida courts. The District Court granted the motion. Specifically, it enjoined the

Deyters from prosecuting their claims:

       insofar as the Amended Complaint asserts claims or seeks damages based
       on, or relating to, the issues previously resolved in the Class Action
       Settlement, including, without limitation, engaging in motion practice,
       pursuing discovery, presenting evidence or undertaking any other action in
       furtherance of said action that in any way involves the facts and
       circumstances underlying the Released Transactions in the Class Action.

App. 4. In its opinion, the court clarified that the injunction did not prevent the Deyters

from “asserting their claims for fraud and deception relating to the post-class 2000 policy,

or relating to the agents’ misrepresentations regarding the Deyter Family irrevocable life

insurance trust, the high-yield mutual fund, or any of [the Deyters’] other pre/post-class

accounts and policies.” App. 13. This appeal followed.

                                             II.

                                              8
       Under the All Writs Act, District Courts 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. However, the Anti-Injunction Act, 28 U.S.C. §

2283, “is an absolute prohibition against enjoining state court proceedings, unless the

injunction falls within one of three specifically defined exceptions.” Atl. Coast Line R.R.

Co. v. Bhd. of Locomotive Eng’rs, 398 U.S. 281, 286 (1970). These exceptions allow a

court to enter an injunction “as expressly authorized by Act of Congress, or where

necessary in aid of its jurisdiction, or to protect or effectuate its judgments.” 28 U.S.C. §

2283. The settled law of this case establishes that the “‘aid of jurisdiction’ exception . . .

includes ‘consolidated multidistrict litigation, where a parallel state court action threatens

to frustrate proceedings and disrupt the orderly resolution of the federal litigation.’”

Prudential: Lowe, 261 F.3d at 365; see also Prudential: La Marra, 314 F.3d at 103-05. In

light of that authority, the Deyters do not seriously contend that the District Court lacked

statutory power to enter the injunction.

       Nonetheless, “the fact that an injunction may issue under the Anti-Injunction Act

does not mean that it must issue.” Chick Kam Choo v. Exxon Corp., 486 U.S. 140, 151

(1988). “[P]rinciples of comity, federalism, and equity always restrain federal courts’

ability to enjoin state court proceedings.” In re Diet Drugs Products Liability Litig., 369

F.3d 293, 306 (3d Cir. 2004). Here, the Deyters claim “Prudential did not come to th[e]

court with clean hands to entitle it to an equitable remedy.” Deyter Brief 6. We review

                                               9
the District Court’s contrary conclusion for abuse of discretion. See Prudential: Lowe,

261 F.3d at 363.

       The Deyters’ initial contention is that Prudential has “unclean hands because it did

not present competent evidence to the District Court that it had given the Deyters

(insureds) or their daughter (owner) timely notice of the Class Action.” Deyter Brief 16.

We find this argument unpersuasive for two reasons. First, it appears to be incorrect as a

factual matter. The record indicates that Prudential mailed timely notice to the Deyters

and their daughter, and the mailings were not returned as undeliverable. Second, and

more to the point, the Deyters are attempting to relitigate an issue we decided almost nine

years ago in Prudential: Krell. There, we approved the settlement’s notice provisions and

agreed with the District Court that “the comprehensive notice program in this case far

exceeded the requirements of Rule 23 and due process.” 148 F.3d at 327. As prior panels

of this court have noted, “[t]he adequacy of notice has been decided and affirmed on

appeal, and is now the law of this case.” In re Prudential Ins. Co. of Am. Sales Practices

Litig. (“Prudential: Kryk”), No. 00-1496 (3d Cir. Dec. 7, 2000) (unpublished opinion

available at Supp. App. 408-16). As a result, we must reject the Deyters’ attempt to

relitigate this issue by raising the specter of “unclean hands.”

       With respect to their claims based on the 1992 policy, the Deyters contend that

since “Prudential committed fraud, deceit and misrepresentation . . . many years after the

class period closed it was not entitled to an injunction from the District Court because it

did not have clean hands.” Deyter Brief 18-19. Relatedly, the Deyters assert that their

                                             10
claims have nothing “at all to do with what the Prudential agent may have told them when

he sold them this policy in 1992.” Rather, the Deyters’ claims focus on “the conduct of

The Prudential employees who initiated contact with them in September 2000 . . . .” Id.

19. We disagree with that creative reframing of the Deyters’ complaint. The complaint

states that the “Prudential agent who sold the Deyters a $400,000 life insurance policy . . .

in 1992 told them they would not have to pay premiums on that policy after they paid ten

. . . annual premium payments.” App. 21. It further alleges that the Deyters subsequently

“lost the benefit of the bargain which they made when they purchased the $400,000

policy” in 1992. App. 42. As the District Court correctly stated, “[t]he benefit of the

bargain they made came in the form of vanishing premiums.” App. 12. The settlement

agreement’s broad release provision clearly bars such a claim. We therefore reject this

argument.

       Finally, the Deyters challenge the District Court’s decision to enjoin them from

relying on class evidence to bolster their non-class claims. The Deyters argue that the

“knowledge which the Prudential had in 2000 regarding past fraudulent conduct” is

relevant and material to show that Prudential failed “to prevent these employees from

doing these same things to its insureds again . . . .” Deyter Brief 26. This line of

argument is foreclosed by our prior precedent. In Prudential: Lowe, we held that the

“Class Release . . . precludes class members from relying upon the common nucleus of

operative facts underlying claims on the Class Policies to fashion a separate remedy

against Prudential outside the confines of the Released Claims.” 261 F.3d at 367. In light

                                             11
of that holding, the District Court’s injunction properly enforced the settlement

agreement’s express terms.

       In sum, because the District Court’s grant of injunctive relief was not an abuse of

discretion, we will affirm. In doing so, we reiterate that the Deyters remain free to litigate

“their claims for fraud and deception relating to the post-class 2000 policy, . . . the agents’

misrepresentations regarding the Deyter Family irrevocable life insurance trust, the

high-yield mutual fund, or any of [the Deyters’] other pre/post-class accounts and

policies.” App. 13.

                                              12