The People of the State of Cal v. Intelligender, LLC

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
THE PEOPLE OF THE STATE OF No. 13-56806
CALIFORNIA,
Plaintiff-Appellee, D.C. No.
2:10-cv-04210-
v. ABC-VBK
INTELLIGENDER, LLC,
Defendant-Appellant. OPINION
Appeal from the United States District Court
for the Central District of California
Audrey B. Collins, District Judge, Presiding
Argued and Submitted
August 4, 2014—Pasadena, California
Filed November 7, 2014
Before: Stephen Reinhardt, Kim McLane Wardlaw,
and Consuelo M. Callahan, Circuit Judges.
Opinion by Judge Wardlaw
2 STATE OF CALIFORNIA V. INTELLIGENDER
SUMMARY*
Class Action Fairness Act / Res Judicata
The panel affirmed the district court’s denial of
IntelliGender, LLC’s motion to enjoin an entire enforcement
action brought by the State of California under the State’s
Unfair Competition and False Advertising Laws, but reversed
the denial of IntelliGender’s motion to enjoin only the State’s
restitution claims in the State’s action seeking relief for some
individuals who were bound by a Class Action Fairness Act
class action settlement concerning a nationwide class of
disappointed purchasers of the IntelliGender Prediction Test,
which purported to predict a fetus’s gender.
The panel held that the district court correctly denied
IntelliGender’s motion to enjoin the State’s enforcement
action in its entirety. The panel held that a Class Action
Fairness Act (“CAFA”) class action, though approved by the
district court, did not act as res judicata against the State in its
sovereign capacity, even though many of the same claims
were included in both the CAFA action and the enforcement
action. The panel further held that because the State action
was brought on behalf of the people, it implicated the public’s
interest as well as private interests, and therefore the remedial
provisions swept much more deeply.
The panel held that the district court erred in denying
IntelliGender’s motion to enjoin the State’s claims for
restitution because the State’s action, insofar as it sought
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
STATE OF CALIFORNIA V. INTELLIGENDER 3
restitution for individual members of the settlement class,
could be enjoined under the district court’s continuing
jurisdiction to enforce and administer the class action
settlement. The panel held that the State, having chosen not
to participate in the CAFA action, was precluded from
seeking the same relief sought in the CAFA class action by
operation of the principles of res judicata.
COUNSEL
Douglas J. Collodel (argued), Sedgwick LLP, Los Angeles,
California; Paul Jeffrey Riehle, Nora Wetzel, Sedgwick LLP,
San Francisco, California, for Defendant-Appellant.
Kristine A. Lorenz (argued), San Diego City Attorney’s
Office, San Diego, California, for Plaintiff-Appellee.
4 STATE OF CALIFORNIA V. INTELLIGENDER
OPINION
WARDLAW, Circuit Judge:
This case sits squarely at the intersection of the Class
Action Fairness Act (“CAFA”) and a sovereign’s right to
bring an enforcement action to protect its citizens from
unscrupulous, fraudulent, or harmful business practices. The
district court approved a CAFA settlement between a
nationwide certified class of disappointed purchasers of the
IntelliGender Prediction Test and defendant IntelliGender,
which sold and advertised the Test as an accurate predictor of
a fetus’s gender using the mother’s urine sample.
Subsequently, the People of the State of California filed an
enforcement action against IntelliGender under the State’s
Unfair Competition and False Advertising Laws, largely
based on the same claims asserted in the CAFA class action.
The State seeks civil penalties, injunctive relief, and
restitution for some individuals who were bound by the
CAFA class action settlement. IntelliGender initially moved
for an injunction against the State’s entire action, which the
district court denied. IntelliGender next moved for an
injunction against only the State’s restitution claims, positing
that the State’s action undermines the finality of the CAFA
settlement, which the court also denied. Because the State’s
action is designed to vindicate broader governmental interests
than the class action, the settlement agreement in the CAFA
class action does not create privity sufficient to warrant
enjoining the entire action. While we recognize the State’s
strong interest in protecting its citizens through enforcement
STATE OF CALIFORNIA V. INTELLIGENDER 5
actions, we note that CAFA expressly provides that the
defendant in a class action must provide notice to the
appropriate state official of any proposed settlement,
presumably so that the state may comment upon or object to
the settlement’s approval, if the State believes the terms
inadequately protect state citizens. Here, the appropriate
State officials were notified, but they chose not to participate
in the settlement approval process. The State cannot now
obtain a duplicate recovery in the form of restitution on
behalf of those individual citizens who are bound by the
bargained for restitution in the CAFA class settlement.
Accordingly we affirm the district court’s denial of the
motion to enjoin the entire State action, but reverse its denial
of the motion to enjoin only restitution claims.
I.
A.
Earlier this year, the Supreme Court explained:
Congress enacted CAFA in order to amend
the procedures that apply to consideration of
interstate class actions. In doing so, Congress
recognized that class action lawsuits are an
important and valuable part of the legal
system. It was concerned, however, that
certain requirements of federal diversity
jurisdiction, 28 U.S.C. § 1332, had functioned
to keep cases of national importance in state
courts rather than federal courts.
Miss. ex rel. Hood v. AU Optronics Corp., 134 S. Ct. 736,
739 (2014) (citations omitted) (internal quotation marks
6 STATE OF CALIFORNIA V. INTELLIGENDER
omitted). The Senate stated its concerns more bluntly:
“[M]ost class actions are currently adjudicated in state courts,
where the governing rules are applied inconsistently
(frequently in a manner that contravenes basic fairness and
due process considerations) and where there is often
inadequate supervision over litigation procedures and
proposed settlements.” S. Rep. No. 109-14, at 4 (2005), 2005
WL 627977, at *5. In an effort to curb these perceived
abuses, Congress loosened the requirements for diversity
jurisdiction by adding 28 U.S.C. § 1332(d)(2), which
“replaced the ordinary requirement of complete diversity of
citizenship among all plaintiffs and defendants, with a
requirement of minimal diversity.” AU Optronics, 134 S. Ct.
at 740 (citation omitted). Under CAFA, therefore, a federal
court may exercise jurisdiction so long as “any member of a
class of plaintiffs is a citizen of a State different from any
defendant” and the amount in controversy exceeds $5 million.
28 U.S.C. § 1332(d)(2).
Complementing the expansion of federal jurisdiction to
ensure uniformity and fairness is CAFA’s class action
settlement notice requirement, 28 U.S.C. § 1715, which was
intended to “provide a check against inequitable settlements.”
S. Rep. No. 109-14, at 35 (2005), 2005 WL 627977, at *34;
see In re Uponor, Inc., F1807 Plumbing Fittings Prods. Liab.
Litig., 716 F.3d 1057, 1064–65 (8th Cir. 2013). Section 1715
requires notice of a proposed settlement to be served on the
“appropriate” federal and state officials—typically the
Attorney General of the United States and “the person in the
State who has the primary regulatory or supervisory
STATE OF CALIFORNIA V. INTELLIGENDER 7
responsibility with respect to the defendant.” 28 U.S.C.
§ 1715(a). In addition, § 1715 prohibits a court from ordering
final approval of a proposed settlement until 90 days after the
appropriate government officials were notified. Id.
§ 1715(d). The statute is equally clear that it shall not “be
construed to expand the authority of, or impose any
obligations, duties, or responsibilities upon, Federal or State
officials.” Id. § 1715(f). These requirements are intended to
give states a role in ensuring that citizens are equitably
compensated in class action settlements, but states are free
not to participate, leaving that task to the courts, which
ultimately retain discretion to approve or disapprove any
settlement, regardless of a state’s intervention.
Aside from securing compensation for citizens, state
enforcement actions serve other interests such as protecting
citizens from future harm, and these interests might not be
served by intervention in ongoing settlement proceedings.
Thus, although the role of potential objector to a proposed
settlement under CAFA serves important interests, a
sovereign’s ability to bring enforcement actions against
private parties that violate the law serves equally if not more
important public interests. Nothing in CAFA’s notification
requirements could be read to interfere with the power of
states or the federal government to bring enforcement actions.
8 STATE OF CALIFORNIA V. INTELLIGENDER
B.
California’s Business and Professions Code prohibits
false advertising under § 175001 and creates causes of action
for unfair competition under §§ 17203-04.2
California’s unfair competition law (UCL)
(§ 17200 et seq.) defines “unfair competition”
1
Section 17500 provides: “It is unlawful for any person, firm,
corporation or association, or any employee thereof with intent directly or
indirectly to dispose of real or personal property or to perform services,
professional or otherwise, or anything of any nature whatsoever or to
induce the public to enter into any obligation relating thereto, to make or
disseminate or cause to be made or disseminated before the public in this
state, or to make or disseminate or cause to be made or disseminated from
this state before the public in any state, in any newspaper or other
publication, or any advertising device, or by public outcry or
proclamation, or in any other manner or means whatever, including over
the Internet, any statement, concerning that real or personal property or
those services, professional or otherwise, or concerning any circumstance
or matter of fact connected with the proposed performance or disposition
thereof, which is untrue or misleading, and which is known, or which by
the exercise of reasonable care should be known, to be untrue or
misleading, or for any person, firm, or corporation to so make or
disseminate or cause to be so made or disseminated any such statement as
part of a plan or scheme with the intent not to sell that personal property
or those services, professional or otherwise, so advertised at the price
stated therein, or as so advertised. Any violation of the provisions of this
section is a misdemeanor punishable by imprisonment in the county jail
not exceeding six months, or by a fine not exceeding two thousand five
hundred dollars ($2,500), or by both that imprisonment and fine.”
2
Section 17200 defines unfair competition as “any unlawful, unfair or
fraudulent business act or practice and unfair, deceptive, untrue or
misleading advertising and any act prohibited by Chapter 1 (commencing
with Section 17500) of Part 3 of Division 7 of the Business and
Professions Code.”
STATE OF CALIFORNIA V. INTELLIGENDER 9
to mean and include “any unlawful, unfair or
fraudulent business act or practice and unfair,
deceptive, untrue or misleading advertising
and any act prohibited by [the false
advertising law(§ 17500 et seq.) ].”
(§ 17200.) The UCL’s purpose is to protect
both consumers and competitors by promoting
fair competition in commercial markets for
goods and services.
Kasky v. Nike, Inc., 45 P.3d 243, 249 (Cal. 2002); see
Anunziato v. eMachines, Inc., 402 F. Supp. 2d 1133, 1137
(C.D. Cal. 2005) (“The goal of both the UCL and the [false
advertising law (FAL)] is the protection of consumers.”); see
also Hauk v. JP Morgan Chase Bank, 552 F.3d 1114, 1122
(9th Cir. 2009) (noting that the “broad scope” of California’s
UCL “allows for violations of other laws to be treated as
unfair competition that is independently actionable” (internal
quotation marks omitted)).
Under the enforcement provisions of the UCL, public
prosecutors as well as any “person who has suffered injury in
fact and has lost money or property as a result of the unfair
competition” may bring an action. Cal. Bus. & Prof. Code
§ 17204. Section 17535 allows those same parties to bring
suit for violations of the FAL.3 But not all suits are created
equal. A public prosecutor bringing an action under the UCL
may seek civil penalties, permanent injunctive relief, and
resitution, whereas suits brought by private individuals are
3
“Business and Professions Code section 17535, which pertains to
certain forms of misleading advertising, provides essentially the same
remedies as the UCL under Business and Professions Code section
17203.” State v. Altus Fin., S.A., 36 Cal. 4th 1284, 1306 n.9 (2005).
10 STATE OF CALIFORNIA V. INTELLIGENDER
limited to injunctive relief and restitution. Id. § 17203
(allowing courts to make such orders as “may be necessary to
restore to any person in interest any money or property . . .
which may have been acquired by means of such unfair
competition”);4 id. § 17204 (allowing private individuals or
public prosecutors to seek injunctive relief); id. § 17206
(allowing only public prosecutors to seek civil penalties); see
Kasky, 45 P.3d at 249 (“In a suit under the UCL, a public
prosecutor may collect civil penalties, but a private plaintiff’s
remedies are generally limited to injunctive relief and
restitution.” (internal quotation marks omitted)). Indeed,
“[t]he voters restricted private enforcement of the UCL in
2004, by approving Proposition 64 . . . . Accordingly, to bring
a UCL action, a private plaintiff must be able to show
economic injury caused by unfair competition.” Yanting
Zhang v. Superior Court, 304 P.3d 163, 168 (Cal. 2013).
Despite the importance of private enforcement of the UCL
and FAL, such private suits do not and cannot substitute for
public enforcement actions, which serve as a far greater
deterrent and thus a greater protection. See People v. Pac.
Land Research Co., 569 P.2d 125, 129 (1977) (“[A]n action
by the People lacks the fundamental attributes of a consumer
class action filed by a private party. The Attorney General or
other governmental official who files the action is ordinarily
not a member of the class, his role as a protector of the public
may be inconsistent with the welfare of the class . . . .”).
4
Section 17203 permits either a public prosecutor or an individual to
seek restitution, so long as the restitution sought goes to the individual
who lost money or property as a result of the unfair competition. See, e.g.,
Rubio v. RushCard, No. No. 1:13–cv–1470 AWI–GSA, 2014 WL
2718804 (E.D. Cal., June 16, 2014).
STATE OF CALIFORNIA V. INTELLIGENDER 11
C.
IntelliGender, LLC owns and manufactures the
IntelliGender Prediction Test. It advertises on its website:
“IntelliGender’s Gender Prediction Test is an affordable,
simple-to-use urine test that provides immediate gender
results in the privacy and comfort of the home. In minutes,
the IntelliGender Gender Prediction Test indicates your
gender result based upon an easy to read color match. Green
indicates boy and orange indicates girl!” INTELLIGENDER,
http://www.intelligender.com (last visited Aug. 13, 2014).
On June 7, 2010, Julie Gram filed a nationwide class action
against IntelliGender in federal district court, invoking
CAFA’s jurisdiction under 28 U.S.C. § 1332(D)(2)(A). On
April 23, 2012, the district court issued an order granting final
approval in Gram v. IntelliGender to a class action settlement
between IntelliGender and a certified class composed of “all
individuals who personally purchased a Test between
November 1, 2006 and January 31, 2011, in the United States
and personally used the Test.” The court found that
IntelliGender provided notice of the proposed settlement to
the appropriate state and federal officials pursuant to
28 U.S.C. § 1715, that the ninety day period for comment or
objection had elapsed, and that no objections or comments
were received. The Gram complaint alleged numerous
causes of action, including violations of California’s UCL
and FAL, as well as the California Consumers Legal
Remedies Act. Through the settlement agreement,
IntelliGender agreed to pay $10.00 for each approved claim
submitted by a class member and to make a cy pres donation
of $40,000 worth of product. In addition, it agreed to change
its website’s advertising as well as the Test’s product insert
12 STATE OF CALIFORNIA V. INTELLIGENDER
and box.5 To receive the $10.00 restitution payment, a class
member must submit a valid claim form, which requires her
to swear under penalty of perjury that the Test result was
inaccurate as to her child’s gender.
D.
On November 9, 2012, the People of the State of
California, by and through the San Diego City Attorney, filed
an action in California state court against IntelliGender, LLC
and its owners for violations of California’s UCL and FAL.
The State sought to “enjoin [IntelliGender] from engaging in
unfair competition and untrue or misleading advertising . . .
[and sought] to obtain civil penalties, restitution, and other
remedies for the Defendants’ violations of law.”
IntelliGender removed the action to the Federal District
Court for the Southern District of California. The district
court subsequently granted IntelliGender’s motion to change
venue to the Central District of California pursuant to
28 U.S.C. § 1404(a) over the objection of the State. The case
was assigned to Judge Audrey Collins, who had presided over
the related Gram v. IntelliGender CAFA class action.
On August 26, 2013, IntelliGender moved in the Gram
action for a permanent or preliminary injunction to enforce
the court’s final order and judgment by enjoining the State
5
Changes to the product website included clarifying that the “Nobel
Prize winning chemist [who] was added to the research team,” was
actually “a graduate student” who was merely “part of a 1996 Nobel Prize
winning research team in chemistry.” I NTELLIG ENDER ,
http://www.intelligender.com/about-intelligender.html (last visited Aug.
21, 2014). The company also agreed to add a disclaimer “that the Test is
not (and is not required to be) FDA approved.”
STATE OF CALIFORNIA V. INTELLIGENDER 13
from prosecuting the enforcement action. It argued that an
injunction was “necessary in aid of preserving the Court’s
jurisdiction pursuant to the All Writs Act, 28 U.S.C. § 1651,”
because allowing the State’s suit to go forward would
undermine the ability of the district court to enforce its final
order and judgment in the Gram class action. On September
19, 2013, the district court remanded the State’s enforcement
action to the Superior Court for the County of San Diego
reasoning, in part, that it was brought in the State’s sovereign
capacity to protect its citizenry from unscrupulous business
practices. The following day, the district court denied
IntelliGender’s request for injunctive relief against the State’s
enforcement action.
IntelliGender next moved in the Gram action for an
injunction against the State’s restitution claims only.
IntelliGender argued that insofar as the State sought
restitution on behalf of members of the settlement class, such
relief should be enjoined because allowing the claims to go
forward would amount to a double recovery and run afoul of
the doctrine of res judicata. In short, allowing the restitution
claims to proceed would undermine the finality of the class
action settlement. On October 16, 2013, the district court
also denied this motion.
II.
“Whether an injunction may issue under the Anti-
Injunction Act is a question of law reviewed de novo.”
California v. Randtron, 284 F.3d 969, 974 (9th Cir. 2002). If
an injunction falls within the purview of the Anti-Injunction
Act, then we review for abuse of discretion the district court’s
decision whether to grant the injunction. Id.
14 STATE OF CALIFORNIA V. INTELLIGENDER
The Anti-Injunction Act, 28 U.S.C. § 2283, limits the All
Writs Act by prohibiting federal courts from enjoining state
court actions except in three narrow circumstances. One of
these, the “relitigation exception,” allows a court to issue an
injunction where necessary “to protect or effectuate the
federal court’s judgments.” Randtron, 284 F.3d at 974. That
exception “empowers a district court to issue injunctions to
enforce judgments and to reinforce the effects of the doctrines
of res judicata and collateral estoppel.” Leon v. IDX Sys.
Corp., 464 F.3d 951, 961 (9th Cir. 2006) (internal quotation
marks omitted). “Res judicata applies when the earlier suit:
(1) reached a final judgment on the merits; (2) involved the
same cause of action or claim; and (3) involved identical
parties or privies.” Id. at 962.6
There is no doubt that the first two elements are met with
respect to both of IntelliGender’s motions. First, the district
court entered a final judgment in the Gram class action.
Second, the Gram class action included the same causes of
action or claims now brought by the State of California.
Specifically, the State alleges causes of action for:
(1) violation of California Business and Professions Code
§ 17500 for untrue or misleading statements to the public
about services based on the company’s statements about its
product, including that it has “[p]roven over 90% accurate in
laboratory tests,” and (2) violation of Business and
Professions Code § 17200 for unfair competition based on
their violation of § 17500 and commission of theft by false
6
Because the case was briefed and argued both to us and the district
court on the assumption that federal res judicata law controls, we decide
the appeal on that basis. We reserve for future decision, however, the
question whether state or federal law ultimately is applicable to the issues
in question.
STATE OF CALIFORNIA V. INTELLIGENDER 15
pretenses in violation of Penal Code §§ 484 and 532. The
Gram class action also included claims against IntelliGender
based upon California’s UCL and FAL.
The third element, whether sufficient privity exists
between the State and the class members to warrant the
application of res judicata, is the crux of this case. See United
States v. Bhatia, 545 F.3d 757, 759 (9th Cir. 2008) (noting
that the doctrine of res judicata “require[s] privity between
parties”). “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.” Id. (internal quotation marks omitted).
And, as the Supreme Court recently cautioned, “issuing an
injunction under the relitigation exception is resorting to
heavy artillery. For that reason, every benefit of the doubt
goes toward the state court; an injunction can issue only if
preclusion is clear beyond peradventure.” Smith v. Bayer
Corp., 131 S. Ct. 2368, 2375–76 (2011) (footnote omitted)
(citation omitted).
A.
The district court correctly denied IntelliGender’s motion
to enjoin the State’s enforcement action in its entirety.7 The
7
IntelliGender initially argued that this is not a State enforcement action
because it was brought by the City of San Diego. IntelliGender
misapprehends that it was the City of San Diego that filed the action on
behalf of the People of the State of California, and it is therefore a state
enforcement action rather than an action brought by the City for individual
relief. Nonetheless, IntelliGender pursues this line of argument in its reply
brief, asserting that under California Government Code § 72193 the City
lacks authority to bring a lawsuit on behalf of the people of the State of
California because the City’s reach is limited to the local level. The clear
16 STATE OF CALIFORNIA V. INTELLIGENDER
court reasoned that Intelligender had not met its burden of
showing that the CAFA class action settlement could bind the
State in its sovereign capacity, where it asserted both public
and private interests. IntelliGender failed to carry that burden
because it is an impossible one to bear.
In Herman v. South Carolina National Bank, 140 F.3d
1413 (11th Cir. 1998), the Eleventh Circuit held that the
federal government’s enforcement action seeking to vindicate
both private and public concerns was not barred by the prior
settlement of a private class action on those same claims.
Relying on several Supreme Court cases, the Eleventh Circuit
explained that “[t]hese ERISA cases are consistent with the
well-established general principle that the government is not
bound by private litigation when the government’s action
seeks to enforce a federal statute that implicates both public
and private interests.” Id. at 1425; see Hathorn v. Lovorn,
457 U.S. 255, 268 n.23 (1982) (holding that giving a state
court authority to adjudicate Voting Rights Act § 5 issues
arising in disputes between private parties does not “frustrate
the Attorney General’s enforcement of the Act” because
“[t]he Attorney General is not bound by the resolution of § 5
issues in cases to which he was not a party,” and, more
broadly, “[c]ommon notions of collateral estoppel suggest
that the state proceedings similarly would not bind other
interested persons who did not participate in them”). The
Eleventh Circuit reasoned that Congress granted the Secretary
of Labor an independent right to sue and seek redress for
statutory text of California Business and Professions Code § 17535, which
provides, “[a]ctions for injunction under this section may be prosecuted
by the Attorney General or any . . . city attorney . . . in this state in the
name of the people of the State of California,” precludes IntelliGender’s
novel argument.
STATE OF CALIFORNIA V. INTELLIGENDER 17
ERISA violations because such plans affect the national
public interest. Herman, 140 F.3d at 1423. As such, the
Secretary’s action was not barred by the actions of private
plaintiffs who sought to redress individual grievances, even
when the Secretary’s action also sought to recoup plan losses.
Id.; see Wilmington Shipping Co. v. New Eng. Life Ins.,
496 F.3d 326, 340 (4th Cir. 2007) (agreeing with “a number
of our sister circuits [that] have held that, in light of the
overarching national interest in ensuring the financial stability
of pension plans and the inability of private plaintiffs to
adequately represent this interest, the Secretary of Labor is
not bound by the results reached by private litigants in ERISA
suits”). We agree that a CAFA class action settlement,
though approved by the district court, does not act as res
judicata against the State in its sovereign capacity, even
though many of the same claims are included in both actions.
Because the State action is brought on behalf of the people,
it implicates the public’s interest as well as private interests,
and therefore the remedial provisions sweep much more
broadly.
For example, California Business and Professions Code
§ 17206(a) specifically provides that individuals who engage
in unfair competition “shall be liable for a civil penalty not to
exceed two thousand five hundred dollars ($2,500) for each
violation . . . .” In this action, the State requested penalties of
$2,500 for “each and every untrue or misleading statement
made or caused to be made by [IntelliGender] to each
potential or actual consumer, as proven at trial, in an amount
not less than five million dollars” pursuant to § 17536 as well
as civil penalties in the amount of $2,500 for every violation
of § 17200 pursuant to § 17206. Section 17204 also allows
public prosecutors to seek injunctive relief, and § 17203
permits public prosecutors to seek restitution for all
18 STATE OF CALIFORNIA V. INTELLIGENDER
individuals who purchased the product, not only those who
used it and received an incorrect result.
The cases relied upon by IntelliGender for its contrary
arguments actually undercut its position. In Leon v. IDX
Systems Corp., for example, we found privity and enjoined
the Department of Labor’s (“DOL”) action against a company
because “[w]hen the Secretary of Labor is suing for
employee-specific rights of precisely the sort plaintiff has
already pursued then the requisite closeness of the interests
for privity is present.” Leon, 464 F.3d at 962 (alterations
omitted) (citation omitted) (internal quotation marks omitted).
Leon had sued his employer after being placed on unpaid
leave, alleging violations of the anti-retaliation provision of
the False Claims Act, Title VII, the Americans with
Disabilities Act, and state laws. Id. at 955. He also filed a
complaint with the DOL. Id. After the district court
dismissed all of Leon’s claims with prejudice because he had
“despoiled evidence,” his employer moved the district court
to enjoin, on res judicata grounds, the DOL’s action as well.
Id. The district court denied the motion to enjoin, and we
reversed, reasoning that the district court had erred in not
finding privity between Leon and the DOL. Id. at 961–62.
Because the DOL’s action arose under the whistleblower-
protection provision of the Sarbanes-Oxley Act, the only
remedies available were “individual compensatory remedies.”
Id. at 962. On that basis, we concluded that “the private
nature of the remedy sought by the DOL demonstrates that
the agency is in privity with Leon.” Id. at 963. Similarly, in
Chao v. A–One Medical Services, Inc., 346 F.3d 908, 923
(9th Cir. 2003), we affirmed the grant of injunctive relief
because the Secretary of Labor was not trying to “vindicate
broader governmental interests by, for example, seeking an
STATE OF CALIFORNIA V. INTELLIGENDER 19
injunction,” but was instead trying to recoup plaintiff’s
personal economic loss.
Finally, IntelliGender’s argument that the State’s
enforcement action should be enjoined because of its failure
to object to the proposed settlement after receiving CAFA’s
required notice is simply incorrect. The three district court
cases cited by IntelliGender in support of its position stand
for little more than the proposition that the failure to object
can be considered in assessing the fairness of a proposed class
action settlement—precisely what the CAFA notification
requirements were designed to accomplish. The notification
requirement, by its own terms, does not “impose any
obligations, duties, or responsibilities upon, Federal or State
officials.” 28 U.S.C. § 1715(f). IntelliGender’s arguments to
the contrary are unavailing, contradict the plain text of the
statute, and would undermine CAFA’s purpose.
B.
Whether the district court erred in denying IntelliGender’s
motion to enjoin the State’s claims for restitution is an
entirely separate question. The same considerations of
CAFA’s purpose and the importance of state enforcement
actions once again govern our analysis, but this time lead to
a different result: the State’s action, insofar as it seeks
restitution for individual members of the Gram settlement
class, may be enjoined under its continuing jurisdiction to
enforce and administer the Gram class action settlement.
“[I]t goes without saying that the courts can and should
preclude double recovery by an individual.” EEOC v. Waffle
House, Inc., 534 U.S. 279, 297 (2002) (internal quotation
marks omitted). To the extent that the State seeks restitution
20 STATE OF CALIFORNIA V. INTELLIGENDER
for individual members of the Gram certified class, it may be
enjoined from doing so.
When a government entity sues for the same relief that
“plaintiff [has] already pursued then the requisite closeness
of interests for privity is present.” Leon, 464 F.3d at 962
(emphasis added) (citation omitted) (internal quotation marks
omitted); see also Chao, 346 F.3d at 923 (enjoining an action
by the Secretary of Labor because it sought simply to recoup
plaintiff’s personal economic loss rather than “vindicate
broader governmental interests by, for example, seeking an
injunction”). Sufficient privity exists between Gram class
members and the State with respect to claims for restitution.
The district court’s suggestion that privity did not exist8 relied
upon two mistaken premises: that the individuals on whose
behalf restitution was sought are different from the certified
class and that the amounts sought are different. The former
is factually incorrect, and the latter has no bearing on the
question of privity.
In its order denying the motion to enjoin claims for
restitution only, the court relied upon the fact that “the class
certified in this case is limited only to those who purchased
Defendant’s product and received an inaccurate result,
whereas the People are seeking restitution on behalf of all
California purchasers of the product—regardless of the
8
It is unclear whether the district court’s erroneous findings led it to
conclude that an injunction in this case would be barred under the Anti-
Injunction Act, or whether it thought it could issue an injunction but chose
in its discretion not to do so. For example, the district court stated both,
“Defendant has not met its burden of demonstrating that an injunction is
warranted in this case,” and “the restitution claim asserted in the People’s
Action is different . . . such that the settlement here should not preclude
the People’s claim for restitution.”
STATE OF CALIFORNIA V. INTELLIGENDER 21
results they received from the product.” This is incorrect. In
its approval of the class settlement in Gram, the district court
“certifie[d] this Action for settlement purposes as a
nationwide class action on the behalf of the following: all
individuals who personally purchased a Test between
November 1, 2006 and January 31, 2011, in the United States
and personally used the Test.” While only those individuals
who obtained an incorrect Test result are eligible for
compensation under the terms of the settlement, this does not
negate the fact that the certified class covered anyone who
purchased and used the Test—substantially the same
individuals for whom the State now seeks restitution. That
compensation was limited to those who obtained an incorrect
result is a reflection of the bargaining and compromise
inherent in settling disputes. Individual Gram class members
who bought a Test and used it but did not obtain an incorrect
result remain bound by the settlement, even though they will
not receive any compensation. If the State wished to secure
compensation for those class members, it had an opportunity
to do so by intervening after receiving notice of the proposed
settlement pursuant to 18 U.S.C. § 1715(a). This is the
method CAFA established for states to seek equitable
compensation for class members. The State chose not to use
its authority, and the settlement was approved. Compensation
is res judicata.
The district court’s reliance upon the different amount of
restitution sought9 in denying the motion is also misplaced.
It is irrelevant for questions of privity and merely confirms
9
IntelliGender settled for $10.00 per claimant who submitted a claim
form swearing that she received an inaccurate result, while the State
sought restitution of the full purchase price, $30.00, for every individual
who purchased the test.
22 STATE OF CALIFORNIA V. INTELLIGENDER
that the State is essentially seeking a double (or at least
better) recovery. Indeed, even the district court “agree[d]”
with the State’s conclusion that some individuals who
received restitution in this case would be ineligible for
recovery in the Gram action. Moreover, as our decision in
Leon confirms, the appropriate inquiry is not what relief was
ultimately granted, but whether the government is suing for
the same relief already pursued by the plaintiff. 464 F.3d at
962 (emphasis added). Here, the class pursued restitution,
and the government now seeks the same. Because the
requirements of res judicata have been met with respect to
the claims for restitution, an injunction may issue under the
Anti-Injunction Act. See Randtron, 284 F.3d at 974
(“Whether an injunction may issue under the Anti-Injunction
Act is a question of law reviewed de novo.”).
“However, the fact that an injunction may issue under the
Act does not mean that it must issue.” Quackenbush v.
Allstate Ins. Co., 121 F.3d 1372, 1377 (9th Cir. 1997). “The
decision whether to issue an injunction that does not violate
the Act is reviewed for an abuse of discretion.” Id.; see
Randtron, 284 F.3d at 974. “A district court abuses its
discretion when it rests its conclusions on clearly erroneous
factual findings or on incorrect legal standards.”
Quackenbush, 121 F.3d at 1377. Although the decision to
grant an injunction is discretionary, discretionary decisions of
district courts must be “exercised not arbitrarily or willfully,
but with regard to what is right and equitable under the
circumstances and the law, and directed by the reason and
conscience of the judge to a just result.” Langnes v. Green,
282 U.S. 531, 541 (1931).
As discussed, supra, the district court rested its
conclusion that an injunction was not warranted on a clearly
STATE OF CALIFORNIA V. INTELLIGENDER 23
erroneous factual finding—that the classes were not the
same—and a mistaken belief that the amount of restitution
sought affects the propriety of issuing an injunction. This
alone is enough to conclude that the district court abused its
discretion in failing to grant the injunction. These errors are
compounded, and our conviction that the district court abused
its discretion strengthened, when we examine “what is right
and equitable under the circumstances and the law.” Id.
It is axiomatic that final, court-approved settlements
preclude class members from seeking the same relief for the
same claims a second time. “A fundamental precept of
common-law adjudication, embodied in the related doctrines
of collateral estoppel and res judicata, is that a right, question
or fact distinctly put in issue and directly determined by a
court of competent jurisdiction . . . cannot be disputed in a
subsequent suit between the same parties or their privies
. . . .” Montana v. United States, 440 U.S. 147, 153 (1979)
(internal quotation marks omitted). Absent such a guarantee,
defendants would have little incentive to agree to any
settlement, and plaintiffs would be left with no leverage. As
the Court explained, “[t]o preclude parties from contesting
matters that they have had a full and fair opportunity to
litigate protects their adversaries from the expense and
vexation attending multiple lawsuits, conserves judicial
resources, and fosters reliance on judicial action by
minimizing the possibility of inconsistent decisions.” Id. at
153–54; see Taylor v. Sturgell, 553 U.S. 880, 892 (2008)
(quoting the same). Allowing the State’s claims for
restitution to go forward in state court would undermine this
central guarantee of our legal system and undercut CAFA’s
purpose of increasing the fairness and consistency of class
action settlements.
24 STATE OF CALIFORNIA V. INTELLIGENDER
The Court has recognized that “class actions raise special
problems of relitigation,” which Congress sought to address
in part through passage of CAFA. Bayer, 131 S. Ct. at 2381.
Although in Bayer, the Court examined the issue of
relitigation of class certification,10 the principles it espoused
are applicable to other questions of relitigation. The Court
noted that Congress’s chosen remedy, CAFA, “does not
involve departing from the usual rules of preclusion.” Id. at
2382. Rather, CAFA functions to prohibit relitigation by
“enabl[ing] defendants to remove to federal court any sizable
class action involving minimal diversity of citizenship.” Id.
Once removal takes place, the consolidation of multiple
overlapping suits allows one legal standard to govern the
case. “Congress’s decision to address the relitigation
concerns associated with class actions through the mechanism
of removal provides yet another reason for federal courts to
adhere in this context to longstanding principles of
preclusion.” Id.
Allowing the State’s claims for restitution to advance
would undermine those “longstanding principles of
preclusion,” which we and other courts have recognized time
and again under the basic rule that when the government
seeks individual relief on behalf of an already defeated
litigant, res judicata usually applies. See Wright & Miller,
Fed. Prac. & Proc. Juris. § 4458.1 & nn. 26–29 (2d ed. 2014)
(collecting cases and noting “class-action proceedings may
preclude the government from pursuing independent
10
Bayer also addressed a case in which the original action had been filed
prior to CAFA’s enactment, leading the Court to conclude: “CAFA may
be cold comfort to Bayer with respect to suits like this one beginning
before its enactment.” 131 S. Ct. at 2382.
STATE OF CALIFORNIA V. INTELLIGENDER 25
proceedings that seek only to win advantages for the same
class”).
In In re American Investors Life Insurance Co. Annuity
Marketing and Sales Practices Litigation, No. 05-MD-1712,
2013 WL 3463503 (E.D. Pa. July 10, 2013), the district court
confronted a factual situation similar to the one presented
here. That court granted the defendant companies’ request
for an injunction to prevent the State Attorney General from
seeking restitution for individuals under Pennsylvania’s
Consumer Protection Law. The individuals on whose behalf
the Attorney General sought restitution were members of a
settlement class that had already entered into an agreement
with the defendant companies. The court, relying upon
Supreme Court and Third Circuit EEOC cases, concluded that
allowing the Attorney General to move forward with
individual restitution claims would undermine the settlement
agreement.11 Id. at *8. The court also noted that the Attorney
11
Relatedly, in New Mexico v. Capital One Bank, 980 F. Supp. 2d 1346
(2013), the district court “barred [the New Mexico Attorney General] from
bringing a claim for compensation on behalf of the consumers who were
class members in the [previously settled class] action.” Id. at 1356. The
posture of that case was different than here because the defendants moved
to dismiss the Attorney General’s claims rather than enjoin them pursuant
to the All Writs Act, but the reasoning with respect to privity and
preventing a “double recovery” for class members bound by the settlement
is the same. Id. The court also explicitly noted, “the Tenth Circuit has not
yet ruled on the issue of privity between citizens who have already
litigated their claims and state agencies which seek to vindicate the
citizens’ rights in subsequent actions.” Id. at 1352 n.3. Another
Pennsylvania district court noted similar considerations in its approval of
a nationwide class action settlement and concluded, “the AGs may
continue to bring claims belonging to their respective states, such as state
criminal and regulatory actions. However, the AGs are precluded from
bringing claims in a de facto or de jure representative capacity on behalf
26 STATE OF CALIFORNIA V. INTELLIGENDER
General could pursue other remedies, including injunctions
and civil penalties. Id. These considerations are equally
present here. As in American Investors, the “claims for
restitution are in effect post-negotiation ‘collateral attacks’ on
the settlement,” which “would undeniably deter similar
settlements in the future.” Id. Moreover, allowing such
claims to go forward undermines CAFA by in effect sending
the same claims CAFA envisioned as removable back to be
“adjudicated in state courts, where the governing rules are
applied inconsistently.” S. Rep. No. 109-14, at 4 (2005),
2005 WL 627977, at *5.
Our decision does not deprive the State of the ability to
protect its citizens—quite the contrary. As explained, supra,
the State may seek civil penalties and broad injunctive relief
against IntelliGender. In addition, CAFA’s notification
requirement, § 1715, safeguards the State’s ability to
participate, comment, or object during the Rule 23 class
action settlement approval process, fulfilling CAFA’s
purpose to “provide a check against inequitable settlements.”
Uponor, 716 F.3d at 1064 (quoting the Senate Report on
CAFA). Here, IntelliGender provided notice to the
appropriate parties, including the Attorney General of the
United States and the CAFA coordinator for the Office of the
Attorney General of California. Having chosen not to
participate, the State is precluded from seeking the same
relief sought in the CAFA class action. This is so not because
§ 1715 imposes any obligation on the State, but by operation
of principles of res judicata. Indeed, while § 1715 does not
of the plaintiffs in this class action, because doing so would allow Class
members to double recover.” Esslinger v. HSBC Bank Nevada, N.A.,
CIV.A. No. 10-3213, 2012 WL 5866074, *7 n.2 (E.D. Pa. Nov. 20, 2012)
(internal quotation marks omitted).
STATE OF CALIFORNIA V. INTELLIGENDER 27
impose any obligations, responsibilities, or duties on the
State, § 1715(f) also makes clear that it does not “expand the
authority of” the State, for example, by excepting the State
from longstanding principles of res judicata.
III.
For the foregoing reasons, we affirm the district court’s
order denying the injunction of the State’s action writ large,
but we reverse the district court’s order denying the
injunction with respect to restitution and enjoin those claims.
Each party shall bear its own costs.
AFFIRMED in part; REVERSED in part.