| The Federal Ninth Circuit Court of Appeals reversed an order entered by the United States District Court for the Central District of California, which had required settlement discussions in actions pending against the defendant insurer in other federal and state courts to be conducted or authorized by the plaintiffs’ counsel, and any proposed settlement to be first subject to review and approval by the district court, if settlement would affect any claims brought in the action pending in the district court.
Plaintiff, Negrete, acting as conservator for Everett E. Ow, filed a class action lawsuit against Allianz Life Insurance Company, alleging sale of an “unsuitable financial product” to Ow, namely, fixed deferred annuities. Negrete alleges the maturity date of this product exceeded Ow’s life expectancy and restricted his access to principal without surrender charges. Negrete asserted causes of action for violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unjust enrichment, and violation of California statutes (“Negrete”).
Negrete’s class action was just one of several class actions filed against Allianz in other federal and state courts arising from its sales of annuities. Of these, one was filed in a Minnesota federal court and two were filed in Minnesota state courts (“Minnesota actions”). The classes certified in the Minnesota actions partially overlap the Negrete class.
Allianz subsequently entered into settlement discussions with the parties in the Minnesota actions. When Negrete’s counsel in the California Central District Court learned of the settlement discussions, he became concerned that settlement of the Minnesota actions could “possibly extend to and extinguish” the claims of the Negrete class. Negrete’s counsel asked for assurances from Allianz that (1) any settlement discussions in the Minnesota actions would not address any of the claims or damages asserted on behalf of the Negrete class, (2) would not compromise, impair, prejudice or affect the claims of the Negrete class, and (3) any proposed settlement class would expressly exclude any member of the Negrete class. Allianz declined.
Negrete then sought an ex parte order from the district court prohibiting Allianz from “settling, attempting to settle, negotiating, compromising, or releasing any claims, causes of action, or damages” relating to any Allianz deferred annuity purchased by any member of the Negrete class in any other forum without the express approval of the Negrete court and the participation of Negrete’s co-lead counsel. Allianz opposed the ex parte application.
The court issued an order denying the application because it was “not authorized by the All Writs Act.” However, the court went on to order in relevant part: “Any discussions of a settlement that would affect any claims brought in this litigation … must be conducted or authorized by [Negrete’s] Co-Lead Counsel. Any proposed settlement that resolved, in whole or in part, the claims brought in this action shall first be subject to review and approval by the Court in this litigation.”
Although the district court subsequently indicated on several occasions that it did not intend to enforce its order, and indeed, acknowledged it would be inappropriate to do so, it never rescinded the order. Accordingly, Allianz appealed, arguing that the district court’s order was not proper under the All Writs Act, and even if it was, the order was barred by the Anti-Injunction Act.
As a preliminary matter, the Ninth Circuit disposed of Negrete’s claim that (1) it lacked jurisdiction over the district court’s order because it was not an interlocutory order granting an injunction, and (2) even if it was, the issue was moot in light of the district court’s assurances that it would not enforce its order. In determining whether the district court’s order was an injunction, the Ninth Circuit looked to the “substantial effect” of the order and concluded it was an injunction. The order (1) had the “practical effect” of granting an injunction, (2) that it had “serious, irreparable consequences,” (3) which could “be effectively challenged only by immediate appeal.”
The Ninth Circuit also concluded the issue was not moot because the district court never withdrew its order. The Ninth Circuit considered this an indication that the district court continued to consider the order to be “viable and enforceable” against Allianz. As such, the Ninth Circuit had jurisdiction to review the district court’s order.
The Ninth Circuit then addressed Allianz’s arguments on appeal based on the All Writs Act and the Anti-Injunction Act. The All Writs Act authorizes federal courts to “issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.” (28 U.S.C. § 1651(a).) The authority conferred upon federal courts by the All Writs Act is restricted by the Anti-Injunction Act, which prohibits federal courts from granting an injunction to stay proceedings in a state court, unless “expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.” (28 U.S.C. § 2283.)
The Ninth Circuit concluded the district court’s order was not proper under the All Writs Act. The Act may be used to prohibit activities in another court that threaten to undermine a pending settlement in the enjoining court. But, there is no basis for a court to enjoin parties from participating in or settling actions in another federal court, even though settlement may dispose of claims before it, when there is no pending settlement in the enjoining court. Discovery had not yet been completed in Negrete and no serious settlement progress had been made. Moreover, there was no evidence of collusive activities in the Minnesota actions.
The Ninth Circuit further held the order violated the Anti-Injunction Act, which serves as an absolute prohibition against enjoining state court proceedings by federal courts unless the injunction falls within one of three specifically defined exceptions, none of which applied here. There was no authorization by Congress for the order, nor was there any judgment in the Negrete action that could have been circumvented by settlements in the Minnesota actions.
The Ninth Circuit further concluded the order was not necessary in aid of the district court’s jurisdiction. Settlements of the Minnesota actions would not “seriously impair” the district court’s “flexibility and authority to decide the case.” Any time parallel state and federal actions are proceeding against the same defendant, it is conceivable that occurrences in the state action will affect federal proceedings or that the state court may reach a difference conclusion. But, this alone does not justify interference. In the absence of any pending settlement in Negrete or evidence of collusion, the district court’s order was improper and must be set aside.
This opinion is not final. It may be withdrawn from publication. Should this take place, this opinion would be unavailable for use as legal authority in other cases.
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