#11095 - Coordination Across Different Judicial Systems - Complex Litigation

Coordination Across Different Judicial Systems

1. Full Faith and Credit

   1. Issue: Whether a federal court is required to give preclusive effect to a state court judgment

      1. The Full Faith and Credit Clause and the implementing statute, 28 U.S.C. § 1738 ordinarily require that a state judgment be given the same preclusive effect that as the state that rendered the judgment would give it. See Matsushita (CB 418).

         1. § 1738 “directs all courts to treat a state court judgment with the same respect it would receive in the court of the rendering state.” Matsushita.

      2. Where the state court judgment relates to an exclusive federal claim, courts are to apply the Marrese Test to determine whether the federal court is to give full faith and credit to the state court judgment:

         1. (1) A federal court must first look at the law of the rendering state to determine whether that state would give preclusive effect to the judgment. Marrese.

         2. (2) If state law indicates that the state would give preclusive effect to the judgment, the federal court must then decide whether “as an exception to § 1738,” the court should refuse to give preclusive effect to the state court judgment. Marrese.

            1. The general question here is whether the concerns underlying a particular grant of exclusive jurisdiction justifies a finding of an implied partial repeal of § 1738. Marrese.

            2. The standard here is whether there is an “irreconcilable conflict” between the two federal statutes. Matsushita (CB 424).

      3. In Matsushita, the Court held that the federal district court had to give preclusive effect to the Delaware court judgment because (1) even though the Delaware court did not have jurisdiction over the federal securities law claims released in the settlement, Delaware case law showed that the courts in Delaware would give preclusive effect to such a judgment, and (2) § 27 of the Exchange Act did not effect a partial repeal of § 1738. (CB 425).

2. Anti-Injunction Act

   1. 28 U.S.C. § 2283 provides:

      1. “A court of the United States may not grant an injunction to stay proceedings in a State court except[:]

         1. [1] as expressly authorized by Act of Congress, or

            1. This exception has little significance for class actions.

         2. [2] where necessary in aid of its jurisdiction, or

            1. Traditionally, this exception has applied only where (1) a case is removed from state to federal court but the state does not relinquish jurisdiction, or (2) where a federal court acquires in rem or quasi in rem jurisdiction over real property.

            2. This exception applies only “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.” In re General Motors (CB 436).

               1. In In re Corrugated Container, the court held that this exception applied such that the MDL court was proper in enjoining the parallel state court proceeding where (1) the MDL proceedings had already taken up a great deal of the district court’s time; and (2) the state court had entered an injunction against defendants in the state case that were also defendants in the MDL proceeding, enjoining those defendants from entering into any settlement in the MDL proceeding that disposed of the claims in the state court; and (3) the state court’s limitation on the terms of the settlement would interfere with the MDL court’s ability to dispose of the broader action pending in the MDL proceeding. (CB 449).

               2. A stay of proceedings in state court is appropriate under the “necessary in aid of its jurisdiction” exception where a federal court is on the verge of settling a complex matter, and state court proceedings undermine its ability to achieve that objective. In re Joint E. and S. Dist. Asbestos Litig. (CB 452).

                  1. A mandatory national limited fund class action certified pursuant to Rule 23(b)(1)(B) falls squarely within this rule. See In re Joint E. and S. Dist. Asbestos Litig. (CB 453).

                  2. In In re Joint E. and S. Dist. Asbestos Litig., the court held that this exception applied where the court had conditionally certified a mandatory limited fund class action under Rule 23(b)(1)(B) and was “in the process of reviewing the settlement agreement of the proposed class action encompassing all asbestos-related claims against [the defendant].” (CB 453).

                  3. Where the prospect of settlement in a federal court proceeding is “imminent,” an injunction staying a parallel state court proceeding is proper under the “necessary in aid of jurisdiction” exception. See Carlough (CB 456).

            3. The “in aid of jurisdiction” exception also authorizes a stay of state court proceedings when the federal court’s jurisdiction is in rem and the state court action may effectively deprive the federal court of the opportunity to adjudicate as to the res. In re Joint E. and S. Dist. Asbestos Litig. (CB 453).

               1. In In re Joint E. and S. Dist. Asbestos Litig., the court noted that “[s]everal courts have considered class action litigation analogous to in rem actions given their magnitude and complexity,” and held that “[u]nder the circumstances, the in rem nature of the court’s jurisdiction over the class action and the limited fund provides an additional ground fro concluding that a stay of all existing proceedings is consistent with the Anti-Injunction Act.” In re Joint E. and S. Dist. Asbestos Litig. (CB 453).

            4. Federal courts have also relied upon the “in aid of jurisdiction” exception to justify a stay of existing state proceedings in interpleader actions pursuant to Rule 22. In re Joint E. and S. Dist. Asbestos Litig. (CB 453).

               1. In In re Joint E. and S. Dist. Asbestos Litig., the court noted that “[l]imited fund class actions closely resemble an interpleader action,” because “class members, like interpleader claimants, must recover from [the defendant’s] limited assets or not recover at all.” Accordingly, the court held that “[g]iven the similarity of the present class action to an interpleader action, a stay of state proceedings would be warranted under the ‘necessary in aid of jurisdiction’ exception.” In re Joint E. and S. Dist. Asbestos Litig. (CB 454).

            5. Where a class certification is improper under Rule 23(b)(1)(B) because no limited fund exists, the “necessary in aid of jurisdiction” does not apply. In re Joint E. and S. Dist. Asbestos Litig. (CB 454).

         3. [3] to protect or effect its judgments.” (CB 429).

            1. Traditionally, this exception has allowed federal courts to enjoin state court proceedings when doing so is necessary to ensure the preclusive effect of an earlier federal court judgment.

            2. The entry of an appealable order is generally considered a prerequisite to invocation of the relitigation exception. In re Corrugated Container (CB 449).

               1. The judgment approving a settlement is a “judgment” for purposes of the Anti-Injunction Act. See In re Corrugated Container (CB 449).

            3. This exception is known as the “relitigation exception.” Smith (CB 441).

            4. This exception authorizes injunctions only when a former adjudication clearly precludes a state-court decision. Smith (CB 446).

               1. Any doubts should be resolved in favor of permitting the state court to proceed. Smith (CB 446).

            5. Unless the judgment is set aside on appeal, state proceedings seeking to relitigate issues covered by the federal judgment may be enjoined under this exception. In re Corrugated Container (CB 450).

               1. This exception applies where the state proceeding would be precluded by res judicata. In re Corrugated Container (CB 450).

                  1. In the limited fund context, the effect of conditional class certification will be for all pending state and federal cases to become part of the mandatory class and cease to exist as independent cases. In re Joint E. and S. Dist. Asbestos Litig. (CB 452).

               2. In In re Corrugated Container, the court held that this exception applied and that an injunction was proper because “[r]es judicata would bar the [state court] proceeding. Since there are federal judgments that approve some of the settlements and that control the further litigation of the [plaintiff’s] cause of action, the injunction was an is not precluded by [the Anti-Injunction Act].” In re Corrugated Container (CB 450).

            6. TEST: For a federal court’s rejection of class certification to preclude a later adjudication in state court of a class certification motion, the following conditions must apply (if the conditions are met, an injunction is proper):

               1. (1) The issue the federal court decided must be the same as the one presented in the state tribunal; and

                  1. An essential prerequisite for applying the relitigation exception is that the issues which the federal injunction insulates from litigation in state proceedings actually have been decided by the federal court. Smith (CB 442).

                  2. If a state’s procedural provision tracks the language of a Federal Rule, but a state court interprets that provision in a manner federal courts have not, then the state court is using a different standard and thus deciding a different issue. Smith (CB 442).

                     1. “A federal court and a state court apply different law. That means they decide distinct questions. The federal court’s resolution of one issue does not preclude the state court’s determination of another. It then goes without saying that the federal court may not issue an injunction.” Smith (CB 443).

                  3. But, if state courts have made crystal clear that they follow the same approach as the federal court applied, the issues in the case would be the same. Smith (CB 442).

                  4. Absent evidence that a state court interprets their Class Action rule in the same way that federal courts...