In Re: Prudential Insurance Co. ( 2001 )

Opinions of the United
2001 Decisions States Court of Appeals
for the Third Circuit
8-2-2001
In Re: Prudential Insurance Co.
Precedential or Non-Precedential:
Docket 00-1389
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Filed August 2, 2001
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 00-1389
IN RE:
PRUDENTIAL INSURANCE COMPANY OF
AMERICA SALES PRACTICE LITIGATION
Marvin Lowe and Alice Lowe,
Appellants
(Amended per Clerk Order dated 5/22/00)
Appeal from the United States District Court
for the District of New Jersey
(Civil No. 95-cv-04704)
District Judge: Hon. Alfred M. Wolin
Argued: December 5, 2000
Before: McKEE, Circuit Judge, ROSENN
and CUDAHY,* Senior Circuit Judges
(Opinion Filed: August 2, 2001)
_________________________________________________________________
* The Honorable Richard D. Cudahy, Senior Circuit Judge of the
United States Court of Appeals for the Seventh Circuit, sitting by
designation.
ROBERT B. MILLER, ESQ. (Argued)
TERI L. DI GIULIAN, ESQ.
Bedzow, Korn, Brown, Miller
& Zemel, P. A.
P. O. Box 8020
Hallandale Beach,
Florida 33008-8020
Attorneys for Appellants,
Marvin and Alice Lowe
REID L. ASHINOFF, ESQ. (Argued)
MICHAEL H. BARR, ESQ.
LORIE A. CHAITEN, ESQ.
DEBORAH H. RENNER, ESQ.
Sonnenschein Nath & Rosenthal
1221 Avenue of the Americas
New York, New York 10020
ALAN E. KRAUS, ESQ.
Riker, Danzig, Scherer, Hyland &
Perretti, LLP
Headquarters Plaza
One Speedwell Avenue
Morristown, New Jersey 07960
Attorneys for Appellee,
The Prudential Insurance Company of
America
OPINION OF THE COURT
McKEE, Circuit Judge.
This appeal arises in the wake of the settlement of a
nationwide class action against The Prudential Insurance
Company of America. Two policyholders who were members
of the class appeal the district court's order enjoining them
from prosecuting suits they filed in state court in Florida
based upon policies that were eligible for inclusion in the
nationwide class, but which the plaintiffs excluded from the
terms of the class settlement. For the reasons that follow,
we will affirm.
2
I. FACTUAL BACKGROUND1
A large group of policy holders started a nationwide class
action against Prudential Life Insurance Company alleging
that Prudential agents had engaged in deceptive sales
practices.
The class is comprised of [over 8 million] Prudential
policyholders who allegedly were the victims of
fraudulent and misleading sales practices employed by
Prudential's sales force. The challenged sales practices
consisted primarily of churning,2 vanishing premiums3
_________________________________________________________________
1. The facts surrounding the litigation and settlement can be found in
the district court's opinion approving the settlement as well as our prior
opinion affirming the district court. See In re Prudential Ins. Co. of
America Sales Practices Litigation, 962 F. Supp. 450 (E. D. Pa. 1997),
aff 'd 148 F.3d 283 (3d Cir. 1998), cert. denied sub nom, Johnson v.
Prudential Ins. Co. of America, 525 U.S. 1114 (1999); and Krell v.
Prudential Ins. Co. of America, 525 U.S. 1114 (1999). Accordingly, we will
only set forth the background of the underlying class action here to the
extent that it places our inquiry in context and assists our discussion.
2. The district court explained that "[i]n the life insurance context, the
term ``churning' refers to the removal, through misrepresentations or
omissions, of the cash value, including dividends, of an existing life
insurance policy or annuity to acquire a replacement policy. The value of
the first policy may be reduced either by borrowing against the policy or
by virtue of the policy's lapse. Churning often results in financial
detriment to the policyholder, a financial benefit to the agent by virtue
of a large commission on the first year premium, and administrative
charges being paid to the insurer." In re Prudential Ins. Co. of America
Sales Practices Litigation, 962 F. Supp. 450, 474. (E. D. Pa. 1997)
" ``Churning' in the life insurance context is also referred to as
``twisting'
or ``piggybacking.' " Id. at 474 n.11. "A replacement policy is a policy
financed through using equity, cash value, dividends, interest, or
premiums from an existing policy." Id. at 474 n.12. A replacement policy
is "rarely in the best interests of the policy holder because: (1)
existing
policy premiums are usually lower because a replacement takes place
when the insured is in a less favorable underwriting class; (2)
acquisition
costs are charged in the early years of a policy and the policyholder
incurs these costs again with the replacement policy; and (3)
replacement renews the risk that an incontestability or suicide clause
will be incorporated into a policy." Id. at 475.
3. The district court found that "Prudential agents used ``Abbreviated
Payment Plan' (``APP'), or ``vanishing premium' policies, often in
3
and fraudulent investment plans,4 and each cause of
action is based on fraud or deceptive conduct.
148 F.3d at 289.
On October 28, 1996, the class representatives entered
into a Stipulation of Settlement with Prudential. App. at
668-724. That same day, the district court entered an
Order Conditionally Certifying the Class for Settlement
Purposes, Designating Class Counsel and Class
Representatives, Staying Pending Motions, Directing
Issuance of Notice, Issuing Injunction and Scheduling
Settlement Hearing (the "Certification Order"). App. at 725-
38. In that Certification Order, the district court also
_________________________________________________________________
conjunction with churning, to sell permanent life insurance policies to
class members; Prudential agents misrepresented that policyholders
would have to pay no out-of-pocket premiums after a certain number of
premium payments during the initial years of the policies. . . .
Prudential's standardized sales presentations and policy illustrations
failed to disclose that the policy premiums would not vanish and that
Prudential did not expect the policies to pay for themselves as
illustrated. Prudential's illustrations also did not inform policyholders
of
the assumptions on which the policy illustrations were based,
assumptions which had no reasonable basis in fact. .. . Agents
frequently merged churning tactics and APP policies, forcing
policyholders to pay the premium cost of the APP policy by dissipating
the cash value of an existing life insurance policy." 962 F. Supp. at 476.
4. The district court explained that "Prudential fraudulently marketed
life
insurance policies as ``investment plans,' ``retirement plans,' or similar
investment vehicles. Plaintiffs allege that Prudential agents failed to
disclose that these purported ``investment plans' were really standard life
insurance policies, which carried costs and other components that
materially and adversely differed from true investment or retirement
plans. . . . Specifically, Prudential misrepresented to policyholders,
through standard presentations and materials, that life insurance
policies were equivalent to investment or savings accounts, pension
maximization or retirement plans, college-tuition funding plans, mutual
funds, or other investment or savings plans. . . . As with the APP plans,
Prudential agents often used the investment plan scheme in conjunction
with churning to persuade existing policyholders to replace their policies
with ``new' ones, misrepresenting the benefits that policyholders could
achieve by transferring the accumulated cash values to the ``investment
plan.' " 926 F. Supp. at 476-77.
4
conditionally certified the following for purposes of
settlement:
a class that consists of all persons who own or owned
at termination an individual permanent whole life
insurance policy issued by Prudential or any of its
United States Life insurance subsidiaries during the
Class Period of January 1, 1982 through December 31,
1995 (the "Policy" or "Policies"), except as specifically
described below [not relevant here] ("Policyholders"),
and do not timely exclude themselves from
participating in the settlement ("Class Members" or the
"Class").
App. at 727. The Certification Order also scheduled a date
for a Settlement Hearing
to consider the fairness, reasonableness and adequacy
of the proposed settlement and terms and provisions of
the Stipulation, . . . and to determine whether the
proposed settlement and the Stipulation should be
finally approved by the Court.
Id. at 729. In addition, the Certification Order required that
Prudential provide Class Notices to all policyholders. The
court required that the Class Notice
(i) contain a short, plain statement of the background
of the Actions, the conditional Class certification and
the proposed settlement, (ii) describe the proposed
forms of relief, (iii) explain the procedures for receiving
and participating in the proposed forms of relief, (iv)
explain Class Members' rights of exclusion, objection
and appeal and (v) state that any relief to Class
Members is contingent on the Court's final approval of
the proposed settlement.
Id. at 730.
The Class Notice also advised class members of the effect
of the proposed settlement and referenced a Release that
was attached as Appendix A. The Release stated in relevant
part that "Class Members hereby expressly agree that they
shall not . . . institute, maintain or assert . . . any and all
causes of action, claims . . . that have been, [or] could have
been, asserted by Plaintiffs or any Class Member against
5
[Prudential] in any other court action . . . connected with
. . . The Released Transactions5.. ." Id. at 765.
The Class Notice also told the Class Members how they
could exclude themselves from the class and explained that
policyholders who owned more than one policy could
"choose to remain a Class Member with respect to some
Policies, but . . . exclude [themselves] from the Class with
respect to other Policies." Id.
Following the mailing of the Class Notice and the
Fairness Hearing, the district court entered a Final Order
and Judgment certifying a settlement and approving the
settlement as fair, reasonable and adequate. In re
Prudential Ins. Co. of America Sales Practices Litigation, 962
F. Supp. 450 (E. D. Pa. 1997). The Final Order also clearly
informed all class members of the preclusive effect of the
Settlement. It stated:
The terms of the Stipulation of Settlement and of this
Final Order and Judgment, including all exhibits and
supplemental exhibits thereto, shall forever be binding
on, and shall have res judicata and claim preclusive
effect in all pending and future lawsuits maintained by
or on behalf of, the plaintiffs and all other class
members, as well as their heirs, executors and
administrators, successors and assigns. All claims for
compensatory or punitive damages on behalf of class
members are hereby extinguished, except as provided
for in the Stipulation of Settlement.
Id. In addition, the district court expressly incorporated the
Release into the Final Order. Id. at 566.
The Certification Order also contained the following
injunction:
_________________________________________________________________
5. "Released Transactions" are defined in the Release to "mean the
marketing, solicitation, application, underwriting, acceptance, sale,
purchase, operation, retention, administration, servicing, or replacement
by means of surrender, partial surrender, loans respecting, withdrawal
and/or termination of the Policies or any insurance policy or annuity
sold in connection with, or relating in any way directly or indirectly to
the sale or solicitation of, the Policies. . . ." App. at 765.
6
Prudential has offered evidence showing the existence
of multiple class actions which could act to seriously
impair this Court's ability to oversee the orderly and
efficient management of the proposed nationwide class
action settlement, and have demonstrated that without
preliminary injunctive relief, many similar actions
could proceed. Based on its familiarity with the issues
in this lawsuit and the complexity of the proposed
settlement, the Court finds that such actions may
substantially impair the ability of this Court and the
parties to implement the proposed settlement. . .
Therefore, based on the record, including the legal and
factual support for an injunction submitted by
Prudential, this Court finds that an injunction is
necessary to protect its jurisdiction, and hereby issues
the following injunction, effective upon the mailing of
the Class Notice, with Policyholders having been thus
afforded the opportunity to exclude themselves from
the Class:
All Policyholders and all persons acting on behalf
of or in concert or participation with any
Policyholder, are hereby enjoined from filing,
commencing, prosecuting, continuing, litigating,
intervening in or participating as class members
in, any lawsuit in any jurisdiction based on or
related to the facts and circumstances underlying
the claims and causes of action in this lawsuit,
unless and until such Policyholder has timely
excluded herself or himself from the Class.
Id. at 735-36 (emphasis added).
The district court invoked the authority of the All-Writs
Act, 28 U.S.C. S 1651(a), and the Anti-Injunction Act, 28
U.S.C. S 2283, in entering this injunction. The court
reasoned that the injunction was "necessary in aid of its
jurisdiction in order to effectuate the proposed settlement,"
id. at 735, and therefore permissible under the Anti-
Injunction Act and authorized by the All-Writs Act. The
court "retain[ed] exclusive jurisdiction as to all matters
relating to administration, consummation, enforcement and
interpretation of the Stipulation of Settlement and of [the]
Final Order and Judgment, and for any other necessary
7
purpose," Id., before dismissing the action pursuant to the
settlement agreement.
We affirmed the district court's certification of the class
and approval of the settlement in In re Prudential Ins. Co.
of America Sales Practices Litigation, 148 F.3d 283 (3d Cir.
1998), cert. denied sub nom. Johnson v. Prudential Ins. Co.
of America, 525 U.S. 1114 (1999), and Krell v. Prudential
Ins. Co. of America, 525 U.S. 1114 (1999).
II. THE FLORIDA SUIT
Marvin and Alice Lowe, the appellants here, are members
of the class because they purchased five Prudential
insurance policies between 1981 and 1989. Four of those
policies were class eligible. The Lowes requested that two of
the policies be excluded from the class (the "Excluded
Policies"), but they remained class members as to two other
policies (the "Class Policies").
Ten months after the district court certified the class and
approved the nationwide settlement, the Lowes started an
action in state court in Broward County Florida. There,
they initially alleged that a Prudential agent had engaged in
deceptive and fraudulent practices in connection with their
purchase of all five insurance policies. However, because
the Class Policies constituted Released Transactions under
the terms of the class settlement, the Lowes filed an
amended complaint in which they limited their claims to
the two Excluded Policies. The Lowes' First Amended
Complaint asserts a cause of action against Prudential for
breach of fiduciary duty, violations of Florida's RICO
statute, negligent misrepresentation, fraudulent
inducement, common law fraud, constructive fraud,
reckless and wanton supervision, negligent supervision,
and unjust enrichment. First Am. Compl. at PP 74-129.
Prudential claimed that the First Amended Complaint
continued to rely on, and enumerate, all of the
circumstances surrounding the purchase of the two Class
Policies. In fact, Prudential insisted that the Lowes merely
deleted the policy numbers of the two Class Policies from
their original complaint then refiled that same complaint as
8
the Amended Complaint. For example, the Class Action
complaint alleged that:
Prudential engaged in a systematic fraudulent
marketing scheme in which its agents wrongfully
induced policyholders to purchase certain Prudential
life insurance policies. Second Am. Compl. at P 5.
Prudential implemented its scheme through the use of
false and misleading sales presentations, policy
illustrations, marketing materials, and other
information that Prudential approved, prepared, and
disseminated to its nationwide sales force. Second Am.
Compl. at P 5.
*******************
Beginning in the early 1980's, Prudential used its
centralized marketing system to 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.
962 F. Supp. at 473-74. The Lowes' First Amended
Complaint alleged:
Sometime prior to 1982, the exact date being unknown
to the [Lowes], Prudential devised a sales scheme and
artifice to deprive its insureds and potential customers,
including the [Lowes], of their property, in which
Prudential trained its sales force, . . . , to induce and
persuade current and potential customers, including
the [Lowes], to purchase life insurance policies based
on false and misleading policy illustrations and sales
presentations, involving, inter alia, "churning" and
"vanishing premiums."
**************
Prudential embarked upon a scheme, plan, and
common course of conduct through its agency system
within Florida to sell high commission whole life
polices to residents of the State of Florida through false
and misleading sales presentations and policy
illustrations based upon the vanishing premium
9
concept. In this regard, Prudential targeted [the Lowes]
in a scheme that included inter alia: (1) the sale of . . .
vanishing premium policies, and (2) churning prior
existing "in force" polices. [The Lowes] were induced to
purchase various life insurance policies based on sales
presentations and policy illustrations and promises
that, if they made "out-of-pocket" premium payments
for a designated number of years, the interest earned
on the polices would be sufficient to pay the premiums
thereon for life, and thus, they would not have to come
out-of-pocket to pay premiums after the designated
number of years.
Lowe's First Am. Compl. at PP 7, 39.
The First Amended Complaint and the Class Complaint
both alleged senior management involvement in the
"scheme." Compare 962 F. Supp. at 473-478 and 148 F.3d
at 294 (describing Class allegations, including allegations of
senior management involvement) with Lowe's First
Amended Complaint at P 26 ("[a]fter training and
encouraging its agents to engage in the fraudulent scheme
outlined above, Prudential turned a blind eye toward the
fraudulent practices of its agents.").
The Lowes, however, insisted that their First Amended
Complaint deleted their claims for damages stemming from
the purchase of the Released Transactions as well as any
reference to the Released Transactions. They argued that
the First Amended Complaint was not based on, and did
not seek damages for, the claims underlying the two Class
Policies.
In a letter to Prudential's counsel dated January 13,
1999, the Lowes' counsel explained "while we do not intend
to seek damages based upon the non-opted out policies, the
facts surrounding them were relevant to our claims ,
including but not limited to our claim of a pattern and
practice by Prudential justifying not only the imposition of
liability, but additionally an assessment of punitive
damages." App. at 358 (emphasis added). Prudential
concluded that this letter established that the Lowes
intended to rely upon evidence relating to the Class Policies
in their suit on the Excluded Policies. Thus, argued
10
Prudential, the Lowes intended to establish a pattern and
practice of defrauding policyholders by relying upon facts
relevant to the Class Policies and to use that evidence as a
basis for their state claims for punitive and compensatory
damages in relation to the sale of the Excluded Policies.
Prudential argued that the Lowes' state court action would
therefore force Prudential to defend the very matters
covered by the Class Release.6 Accordingly, Prudential
asked the district court to rule that the Lowes' action in
Florida on the Excluded Policies violated the terms of the
class settlement.
The district court agreed and held that
permitting litigation of [Excluded Policies] claims
through the use of evidence of those sales practices
and patterns that were the subject of the class action
would impair the finality of the class settlement to an
unacceptable degree. In effect, this would permit the
relitigation of the released claims.
Dist. Ct. Op. at 4. Therefore, on March 29, 2000, the
district court issued an order specifically enjoining the
Lowes
from engaging in motion practice, pursuing discovery,
presenting evidence or undertaking any other action in
furtherance [of their state court action] that is based
on, relates to or involves facts and circumstances
underlying the Released Transactions in the Class
Action.7
_________________________________________________________________
6. On March 2, 2000, the Lowes filed a Third Amended Complaint in the
state court expressly seeking, according to Prudential, punitive damages
based on Class allegations. Prudential also says that by letter dated
March 15, 2000, it informed the district court that"[i]n January 2000,
the Lowes served Prudential with nearly 85 document requests, the
majority of which . . . pertain to evidence based on, or related to, or
involving the facts and circumstances underlying the Class claims."
Prudential's Br. at 16.
7. On April 6, 2000, Prudential notified the Florida state court judge and
the Lowes that the district court had enforced the Class Injunction
against the Lowes. After a status conference, the state court issued an
order on April 17, 2000, which provides in relevant part as follows:
11
Ohio App. at 2.
This appeal followed.
III. DISCUSSION
We review the terms of an injunction for an abuse of
discretion, underlying questions of law receive de novo
review, and factual determinations are reviewed for clear
error. Epstein Family Partnership v. Kmart Corp. , 13 F.3d
762, 765-66 (3d Cir. 1994). The standard of review for the
authority to issue an injunction under the Anti-Injunction
Act and the All-Writs Act is de novo. Frank Russell Co. v.
Wellington Mgmt. Co., Inc., 154 F.3d 97, 101 (3d Cir. 1998);
Carlough v. Amchem Prods., 10 F.3d 189, 197 (3d Cir.
1993).
The Anti-Injunction Act provides:
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.
28 U.S.C. S 2283. The Act "is an absolute prohibition
against enjoining state court proceedings, unless the
injunction falls within one of three specifically defined
exceptions." Atlantic Coast Line R. R. Co. v. Brotherhood of
Locomotive Engineers, 398 U.S. 281, 286 (1970).
Consequently, "any injunction against state court
proceedings otherwise proper under general equitable
_________________________________________________________________
This action is stayed until clarification is achieved, either by
agreement of the parties or pursuant to further Court order, as to
the scope, effect and ramifications of the Letter Opinion and Order
[of the district court], so that the parties and this Court may
understand the practical impact this injunction will have on these
proceedings.
App. at 988-89. Subsequently, on May 3, 2000, the state court sua
sponte issued directions to the state court clerk that the Lowes' state
court action was to be deemed inactive subject to reopening upon
appropriate petition.
12
principles must be based on one of the specific statutory
exceptions to S 2283 if it is to be upheld." Id. at 287. These
"exceptions are narrow and are not to be enlarged by loose
statutory construction." Chick Kam Choo v. Exxon Corp.,
486 U.S. 140, 146 (1988)(citations, internal quotations and
brackets omitted).
The injunction issued by the district court here was not
"expressly authorized by Congress." Accordingly, it can be
upheld only if it was necessary "in aid of [the district
court's] jurisdiction" or "to protect or effectuate [that
court's] judgments."
The rule allowing injunctions that are necessary"to
protect or effectuate [a court's] judgments" is also known as
the "relitigation exception" to the Anti Injunction Act. Kam
Choo, 486 U.S. at 147. "The relitigation exception was
designed to permit a federal court to prevent state litigation
of an issue that previously was presented to, and decided
by, the federal court." Id. The exception"is founded in the
well-recognized concepts of res judicata and collateral
estoppel." Id. "[A]n essential prerequisite for applying the
relitigation exception is that the claims or issues which the
federal injunction insulates from litigation in state
proceedings [must] actually have been decided by the
federal court." Id. at 148.
The Supreme Court has therefore urged that courts
proceed with caution when considering issuing an
injunction under the Anti-Injunction Act. "A federal court
does not have inherent power to ignore the limitations of
S 2283 and to enjoin state court proceedings merely
because those proceedings interfere with a protected federal
right or invade an area preempted by federal law, even
when the interference is unmistakably clear." Atlantic Coast
Line R. R. Co., 398 U.S. at 294. "This rule applies
regardless of whether the federal court has jurisdiction over
the controversy, or whether it is ousted from jurisdiction for
the same reason the state court is." Id. at 294-95.
Moreover, even when the district court does have
jurisdiction, "it is not enough that the requested injunction
is related to that jurisdiction, but it must be``necessary in
aid of ' that jurisdiction." Id. at 295 (emphasis added).
13
While this language is admittedly broad, . . . it implies
something similar to the concept of injunctions to
``protect or effectuate' judgments. Both . . . imply that
some federal injunction relief may be necessary to
prevent a state court from so interfering with a federal
court's consideration or disposition of a case as to
seriously impair the federal court's flexibility and
authority to decide that case.
Id. Moreover, "[a]ny doubts as to the propriety of a federal
injunction 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." Id.
at 297.
However, a caveat is in order here. Usually, "the``aid of
jurisdiction' exception to the Anti-Injunction Act applies
only to parallel state in rem rather than in personam
actions." Winkler v. Eli Lilly & Co., 101 F.3d 1196, 1202
(7th Cir. 1997)(citing Vendo Co. v. Lektro-Vend Corp., 433
U.S. 623, 641-42 (1977)). The most notable exception to
this general pattern of in rem application is "school
desegregation cases, where conflicting orders from different
courts would only serve to make ongoing federal oversight
unmanageable." Winkler, 101 F.3d at 1202(citation
omitted). Another exception that is more pertinent to our
inquiry includes "consolidated multidistrict litigation, where
a parallel state court action threatens to frustrate
proceedings and disrupt the orderly resolution of the
federal litigation." Id. (citing, among other cases, Carlough
v. Amchem Products, Inc., 10 F.3d 189, 197 (3d Cir. 1993)).
In Winkler, the Court concluded that the"necessary in aid
of jurisdiction" exception "should be construed ``to empower
the federal court to enjoin a concurrent state proceeding
that might render the exercise of the federal court's
jurisdiction nugatory.' " Id. (citing Martin H. Redish, The
Anti-Injunction Statute Reconsidered, 44 U. Chi. L. Rev. 717,
754 (1977)).
The All-Writs Act is similar in scope and operation to the
Anti Injunction Act. In pertinent part, the All-Writs Act
provides that:
The Supreme Court and all courts established by Act of
Congress may issue all writs necessary or appropriate
14
in aid of their respective jurisdictions and agreeable to
the usages and principles of law.
28 U.S.C. S 1651(a). The All-Writs Act "acts in concert" with
the Anti-Injunction Act "to permit the issuance of an
injunction[.]"
[W]hile the Anti-Injunction Act does not provide
positive authority for issuance of injunctions, it
describes those situations where injunctions are not
permitted. The All-Writs Act, by contrast, grants the
federal courts the authority to issue injunctions where
necessary in aid of their jurisdiction. The parallel
"necessary in aid of jurisdiction" language is construed
similarly in both the All-Writs Act and the Anti-
Injunction Act.
Carlough, 10 F.3d at 201 n.9 (3d Cir. 1993).
The Lowes argue that the district court's injunction here
purports to rest on both the "necessary in aid of its
jurisdiction" exception and the "to protect or effectuate its
judgments" exception to the Anti-Injunction Act. Lowes' Br.
at 23. Prudential argues that the injunction was based
solely on the relitigation exception of the Act. Prudential's
Br. at 29. In its opinion, the district court stated that
allowing the Lowes to use evidence of sales practices and
patterns relating to the Class Policies in their state action
on the Excluded Policies "would impair the finality of the
class settlement to an unacceptable degree" and would
effectively permit "the relitigation of the released claims."
Dist. Ct. Op. at 4.
We are mindful, of course, that the injunction here is not
directed at the Florida state court. Rather, it is directed at
the Lowes as plaintiffs in that state court action. The Anti-
Injunction Act is nevertheless directly implicated because
"the prohibition of S 2283 cannot be evaded by addressing
the order to the parties." Atlantic Coast Line R. R. Co., 398
U.S. at 287; see also The 1975 Salaried Retirement Plan for
Eligible Employees of Crucible, Inc. v. Nobers, 968 F.2d 401,
405 (3d Cir. 1992)(The Anti-Injunction Act cannot be
evaded by the formality of enjoining named parties rather
than the state court proceeding itself).
15
The Lowes contend that the injunction was not
authorized under the All-Writs Act and was barred by the
Anti-Injunction Act. They argue in the alternative that the
injunction should be vacated because it is overbroad,
vague, ambiguous, beyond the scope of the Final Judgment
and Order, and otherwise an abuse of discretion.
It is now settled that a judgment pursuant to a class
settlement can bar later claims based on the allegations
underlying the claims in the settled class action. This is
true even though the precluded claim was not presented,
and could not have been presented, in the class action
itself. See, TBK Partners, Ltd. v. Western Union Corp., 675
F.2d 456, 460 (2d Cir. 1982). TBK Partners appears to be
the first case firmly establishing this principle. However,
that rule has since been applied in other cases in the
Second Circuit, see also In re Baldwin United Corp. (Single
Premium Deferred Annuities Insurance Litigation), 770 F.2d
328, 336 (2d Cir. 1985), and it has been accepted by the
Ninth Circuit Court of Appeals. See, e. g., Class Plaintiffs v.
City of Seattle, 955 F.2d 1268 (9th Cir. 1992). In Class
Plaintiffs, the court held that a federal court may release
claims over which it has no subject matter jurisdiction if
the state claims arise from the same nucleus of operative
facts as the claims properly before it.
Admittedly, it "may seem anomalous at first glance . . .
that courts without jurisdiction to hear certain claims have
the power to release those claims as part of a judgment."
Grimes v. Vitalink Communications Corp., 17 F.3d 1553,
1563 (3d Cir. 1994). However, we have endorsed the rule
because it "serves the important policy interest of judicial
economy by permitting parties to enter into comprehensive
settlements that ``prevent relitigation of settled questions at
the core of a class action.' " Id. (quoting TBK Partners, 675
F.2d at 460). We cited this principle approvingly when we
affirmed the district court's approval of the class action
settlement here. See 148 F.3d at 326 n.82.
That does not, however, end our inquiry. Although this
principle is well established, we must examine the text of
the Class Notice and, more particularly, the Class Release
to determine the propriety of this injunction. We must
determine whether settlement of claims the Lowes had
16
under the Class Policies precludes them from pursuing
claims in Florida purportedly arising from the Excluded
Policies.
The Class Notice specifically referred to the Class Release
and informed class members:
If the proposed settlement is approved by the Court,
and affirmed on appeal, the lawsuit will be dismissed
with prejudice, and Prudential will be released from all
claims that have been or could have been asserted by
Class Members. The release encompasses any matter
relating to the marketing, solicitation, application,
underwriting, acceptance, sale, purchase, operation,
retention, administration, servicing, or replacement, by
means of surrender, partial surrender, loans respecting
withdrawal and/or terminations of Policies or any
insurance policy or annuity sold in connection with or
relating in any way directly or indirectly to the sale or
solicitation of, the Policies. The release is intended to be
very broad. The release is a critical element of the
proposed settlement, and accordingly, the entire text
has been included in Appendix A to this Notice (except
for certain defined terms that appear elsewhere in this
Notice). Because it will affect your rights if you remain
in the Class, you should read this paragraph and the
entire release.
Id. at 754 (emphasis added). As noted earlier, the Release
was attached as Appendix A to the Class Notice, and
provided, in relevant part:
Plaintiffs and all Class Members hereby expressly agree
that they shall not now or hereafter institute, maintain
or assert against any of 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
17
future by Plaintiffs or any Class Member against the
Releasees in the Actions or in any other court action or
before any administrative body (including any state
Department of Insurance or other regulatory
commission), tribunal or arbitration panel 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. . . .
Id. at 765 (emphasis added).
The Class Policies constitute Released Transactions and
the Lowes do not argue to the contrary. Accordingly, the
Lowes clearly released Prudential from any claims"based
on," "connected with," "arising out of," "or related to, in
whole or in part" their two Class Policies. Inasmuch as the
Class Release was expressly incorporated into the Final
Order and Judgment, see 962 F. Supp. at 564, 566, it has
both claim preclusive and issue preclusive effect, and class
members were specifically advised of this. The Class
Release also 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.
Consequently, the Lowes, as class members on two Class
Polices, are precluded from using the sales practices and
factual predicates pertaining to their Class Policies in their
state court action on the Excluded Policies.
The district court concluded that allowing the Lowes to
prosecute their civil claims in the Florida court would allow
an end run around the Class settlement by affording them
(and other class members who might later attempt the
same strategy) an opportunity for "relitigation of the
released claims." Dist. Ct. Op. at 4. Indeed, it would. In
fact, the position urged by the Lowes here would seriously
undermine the possibility for settling any large, multi
district class action. Defendants in such suits would always
be concerned that a settlement of the federal class action
would leave them exposed to countless suits in state court
despite settlement of the federal claims. Here, such state
suits could number in the millions.
The Lowes also suggest that the district court somehow
lost the authority to enforce the Class Injunction against
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them once the Class Settlement was approved and the Final
Order and Judgment entered. However, in its Final Order
and Judgment the district court expressly retained
exclusive jurisdiction to oversee the implementation of the
settlement and the judgment. 962 F. Supp. at 566,P10.
The court acted quite properly in retaining jurisdiction in
that fashion. A district court has the power to enforce an
ongoing order against relitigation so as to protect the
integrity of a complex class settlement over which it
retained jurisdiction. See In re "Agent Orange" Product
Liability Litigation, 996 F.2d 1425, 1431 (2nd Cir. 1993).
Consequently, the district court's authority to enforce the
Class Injunction did not end with entry of the Final Order
and Judgment.
The Lowes next contend that the All-Writs Act and
exceptions to the Anti-Injunction Act do not give the district
court the authority to enjoin them from engaging in
discovery. However, the All-Writs Act and the Anti-
Injunction Act do extend to discovery. See e. g. , Winkler, at
1202 ( Both Acts give a district court the power to enjoin
state discovery in order to protect the integrity of a federal
court order); and Sperry Rand Corp. v. Rothlein , 288 F.2d
2345, 288 (2d Cir. 1961) (Both Acts give district court the
authority to enjoin plaintiff from using "fruits of federal
court discovery" in a state proceeding).
The Lowes also argue that the Class Injunction precludes
them, and all others who elected to opt-out of only some
Class Eligible Policies "from pursuing any claims whatever
on their" Excluded Policies. Lowes' Reply Br. at 16.
Essentially, they argue that the district court's order
"render[s] meaningless the opt-out provisions upon which
[they] and all others who chose to exclude their Policies
from the Class Settlement relied." Id. They contend that
they should have at least been advised that anyone who
opted-out on some of their class eligible policies but
remained in the class on others, ran the risk that their
right to pursue independent claims on the excluded policies
was illusory and meaningless.
This argument is not without force. However, the Lowes
exaggerate the effect of the district court's order. That order
only prevents them from using evidence common to the
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purchase and sale of their Class Policies and their Excluded
Policies in their state action on their Excluded Policies. It
does not prohibit them from pursuing any and all claims on
the Excluded Policies in the state court as they suggest.
The district court made the distinction very clear in its
carefully worded opinion. The court scrutinized the Lowes'
Florida action, compared it with the Released Transactions
and concluded:
Certain of their substantive causes of action appear
amenable to proof by evidence that is relevant
exclusively to the Excluded Policies. The Lowes claims
for breach of fiduciary duty and fraud are examples.
Other counts . . . such as Lowes' claim that Prudential
violated the Florida state RICO statute, or practiced
reckless and wanton supervision, are different. To
prosecute these claims the Lowes would presumably
seek to discover and submit broader evidence of
wrongful activity. Indeed, the language of their
complaint leaves no room for doubt as to the Lowes'
intention in that regard.
Dist. Ct. Op. at 3-4.
It is difficult to imagine how the Lowes' could prosecute
their claims under Florida's RICO statute, or pursue their
allegations of reckless and wanton supervision, without
relying upon evidence that is relevant to the Class Policies
as well as the Excluded Policies. Nevertheless, the district
court's injunction does not prevent them from attempting to
prove those claims if they can do it in a manner that is
consistent with the Class Release and their status as class
members. Id. at 4-5. "The Lowes are free to attempt proving
their RICO and other claims without the use of such
evidence. . . . [T]o the extent those claims cannot survive
without the evidence excluded by the [district court], such
a result could only bolster the conclusion that the failing
claims were part of the class settlement." Id . at 4-5. We
agree that if the Lowes can not meet their burden on the
Excluded Policies absent this evidence, that will be proof of
the injunctive pudding. Thus, we do not believe that the
Class Notice was deficient or that class members were
blindsided by this injunction. We have previously affirmed
the adequacy of that Notice against other attacks, see In re
20
Prudential Ins. Of America Sales Practices Litigation, 148
F.3d 283, and we again affirm the adequacy of that Notice
against the specific issues raised by the Lowes. 8
When the Lowes reviewed the Release and the Class
Notice, they surely must have realized that, even though
they could exclude certain policies from the settlement
while including others, doing so would jeopardize their
ability to prove claims relating to the Excluded Policies. The
district court was not willing to release them from their
bargain; neither are we.
In a related argument, the Lowes insist that even if the
district court had the authority to enforce the Class
Injunction against them, the district court's order is "vague,
ambiguous, overly expansive and beyond the scope of the
Final Order and Judgment," and should therefore be
reversed, or, at a minimum, remanded to the district court
for clarification. Lowes' Br. at 28, 37. We do not agree. We
doubt that either the Lowes or a state court would have
difficulty determining which "facts and circumstances" are
common to the Excluded and Class Policies. In fact, as
Prudential is quick to point out, the district court has
already sorted much of this out. "The ``facts and
circumstances' underlying the Class Settlement are clearly
laid out in the district court's 120 page opinion approving
the Settlement and Certifying the Settlement Class."
Prudential's Br. at 43.
The Lowes attempt to demonstrate that the district
court's order is vague and ambiguous by posing a
hypothetical (and somewhat facetious) question. They ask
_________________________________________________________________
8. We do, however, take this opportunity to add a note of caution. The
Class Notice adequately informed potential class members of the right to
opt-out of the class as to some policies and remain in the class as to
other policies. It also gave adequate notice of the rights that would be
surrendered as to any policies not excluded from the class. In the future,
however, it may be advisable for district courts to consider adding more
specific language to settlement documents. Any such language would
advise class members that, even though they retain certain claims as to
transactions excluded from a settlement, their ability to pursue those
claims may be hindered by the terms of the release of claims that remain
part of any class settlement.
21
whether they will be able at trial to mention any meetings
with Prudential's agents, or mention the payment of
premiums, or communications between them and
Prudential, "even if these events took place with regard to
the excluded policies, but also involved the type of wrongful
conduct that took place during the time frame addressed by
the Class Action?" Lowes' Br. at 35-36. Prudential responds
correctly and succinctly: "Quite simply, that[evidence] . . .
is permissible so long as it relates directly to the opted-out
policies, and does not call for broader evidence of an alleged
scheme, or call into question evidence as to the Lowes'
Class Policies." Prudential's Br. at 43. We agree.
IV.
We conclude that the district court was well within its
authority in enforcing the Class Injunction in the manner
that it did, and that it did not abuse its discretion. The
court had carefully managed this vast and intricate
settlement in a manner that allowed for its fair and
reasonable resolution while protecting the interests of all of
the parties involved. As part of the settlement agreement
class members such as the Lowes agreed to release certain
claims against Prudential. The agreement could not have
been enforced without the injunction that the Lowes now
challenge. The district court's order did nothing more than
enforce that agreement. Accordingly, for all the reasons set
forth above, we will affirm order of the district court.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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