By Timothy L. Karns
As technology continues to break down barriers to trade, manufacturers and sellers are increasingly able to market and sell their products to consumers nationwide. While the virtues of advertising on social media and distributing a product through e-commerce cannot be understated, the digital economy has also spawned a plethora of problems, particularly when a product is alleged to be defective or deceptively advertised. Gone are the days when consumers voiced their complaints in a face-to-face interaction with the manufacturer’s or seller’s representative. Now, for even the most trivial of complaints, consumers will instantaneously air their perceived grievances on Facebook, Twitter, YouTube and numerous other social media platforms. Depending on the severity of the alleged slight, what in the past would have been a routine warranty claim can now quickly spiral into a viral campaign intended to defame the product, the manufacturer and the seller.
From the Internet to court
Unfortunately, these viral campaigns are not limited to the court of public opinion. When they gain critical mass, disgruntled consumers will organize and initiate litigation against the manufacturer and/or seller in the form of a class action. Moreover, if the manufacturer or seller sold the subject product in more than one state, it is not uncommon for one group of plaintiffs to file a nationwide class action in federal District Court and another group to bring an analogous class action in state court.
When tasked with defending parallel class actions in state and federal courts, it will likely be defense counsel’s instinct to concentrate efforts on resolving the nationwide class action. After all, “[t]he first case to reach a final decision can affect the other, either through rules of claim and issue preclusion (res judicata and collateral estoppel) or through effects such as reducing the scope of a class from 50 to 49 states.” Adkins v. Nestle Purina PetCare Co., 779 F.3d 481, 484 (7th Cir. 2015). Consequently, assuming the claims in a nationwide class action have merit, defense counsel may be tempted to broker a tentative settlement in the federal court proceeding and then seek an injunction in federal court that bars the nationwide class members from prosecuting analogous litigation in any other forum while the proposed settlement is completed. However, as the old saying goes, even the best laid plans of mice and men often go awry.
In Adkins v. Nestle Purina PetCare Co., the United States Court of Appeals for the 7th Circuit recently held that the Anti-Injunction Act, 28 U.S.C. § 2283, prohibits a federal court presiding over a nationwide class action from enjoining the prosecution of a parallel state court class action in order to effect the settlement of the nationwide class action. Adkins, 779 F.3d at 486. In Adkins, the plaintiffs asserted in a certified nationwide class action that Nestlé Purina PetCare Company and Waggin’ Train LLC sold dog treats that injured their dogs. Id. at 482. During the course of the nationwide class action, the parties reached a settlement to which the District Court had given tentative approval pending a fairness hearing under Federal Rule of Civil Procedure 23(e). Id. It is interesting that the District Court’s order tentatively approving the settlement had one nontentative provision: It enjoined all class members from prosecuting litigation about the dog treats in any other forum. Id.
At the time the District Court entered its injunction, a parallel class action was pending in Missouri state court. Adkins, 779 F.3d at 482. The Missouri action had been pending for two years and had been certified as a statewide class action before the federal suit was certified as a national class action. Id. Further, it was scheduled for trial approximately one month before the fairness hearing was scheduled to occur in the nationwide class action. Id. Consequently, Connie Curts, the certified representative of the Missouri class, attempted to intervene in the nationwide class action in order to protest the federal injunction on the grounds that it violated the Anti-Injunction Act. Id. In opposition, the parties to the nationwide class action argued that injunction was necessary in aid of the District Court’s jurisdiction since the “continuation of the Missouri action ‘has a great potential of tanking of the entire settlement’” of the nationwide class action. Id. at 483.
A question of jurisdiction
Upon review, the appellate court began its analysis by reciting the Anti-Injunction Act, which states:
“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.” Adkins, 798 F.3d at 482 (emphasis added).
In light of the aforementioned language, the appellate court reasoned that the propriety of the District Court’s injunction turned on whether “preserving a particular settlement [is] ‘necessary’ to [aid] federal jurisdiction.” Id. at 483-84.
After reviewing “[m]any decisions by the [United States] Supreme Court over the last 30 years,” the appellate court concluded that “there is a fundamental difference between ‘jurisdiction’ and the many procedural or substantive rules that determine how cases are resolved.” Adkins, 779 F.3d at 484. The court noted that neither Curts nor the parties to the nationwide class action were contending that a “trial or judgment in the Missouri litigation could imperil the District Court’s ability and the authority to adjudicate the federal suit.” Id. Instead, the parties to the nationwide class action argued that the injunction was appropriate because “closing down the Missouri case would be prudent, beneficial, [and] helpful” to the federal court and that the Anti-Injunction Act “allows whatever a federal court thinks is good litigation management.” Id. at 485.
The appellate court did not find this argument persuasive. It ultimately determined that “[n]o matter what one makes of the word ‘jurisdiction’ in [the Anti-Injunction Act], an injunction is proper only when ‘necessary’ to protect federal jurisdiction.” Adkins, 779 F.3d at 485. Because the District Court’s adjudicatory competency would remain if the settlement in the nationwide class action collapsed, the appellate court concluded that the Missouri case could not diminish federal jurisdiction and, therefore, the Anti-Injunction Act “precludes an injunction until the federal case reaches a final decision.” Id. at 484. The appellate court further stated that “[a]fter a final decision, an injunction would be appropriate to protect the federal judgment, although class members who opt out would remain entitled to pursue their own suits.” Id.
While the holding in Adkins suggests that defense counsel are powerless to freeze parallel state court class actions until a federal court either approves a settlement or fully adjudicates the matter on the merits, the appellate court did propose (albeit in dicta) an alternative path for halting concurrent state court litigation. The Adkins court specifically noted that the Anti-Injunction Act “commits to the state court the question whether it would be prudent, beneficial, or helpful to let the federal court case go first.” Adkins, 779 F.3d at 485. Indiana, like the Adkins court, has recognized that the trial court may, as matter of comity and discretion, stay a state court proceeding pending the outcome of federal class-action litigation. Young v. Herald, 209 N.E.2d 525, 527 (Ind. Ct. App. 1965).
In Indiana, “a trial court may use its discretion to determine whether to stay civil proceedings when the ‘interests of justice’ require such action.” Fry v. Schroder, 986 N.E.2d 821, 823 (Ind. Ct. App. 2013). In fact, as a general rule, “where an action concerning the same parties and the same subject matter has been commenced in another jurisdiction capable of granting prompt and complete justice, comity should require staying or dismissing of a subsequent action filed in a different jurisdiction.” Angelopoulos v. Angelopoulos, 2 N.E.3d 688, 695 (Ind. Ct. App. 2013). Indiana courts have held that the “[f]actors to be considered in addressing comity questions include: (1) whether the first filed suit has been proceeding normally, without delay, and (2) whether there is a danger the parties may be subjected to multiple or inconsistent judgments.” Id. Although no Indiana court has applied the aforementioned rules to parallel federal and state class actions, the Indiana Court of Appeals acknowledged that in certain circumstances an Indiana trial court could stay a proceeding pending the outcome of the federal class action.
In Young v. Herald, the plaintiff, a shareholder in Noble County Credit Union, brought an individual action for fraud and neglect of duty against three individual defendants in the Circuit Court of Elkhart County. Young, 209 N.E.2d at 526. However, before the filing of the Indiana action, two Michigan residents had initiated a class action in federal court against the same defendants named in the Indiana matter. Id. In addition, the federal court complaint named not only the two Michigan residents as plaintiffs but also all other shareholders of Noble County Credit Union. Id. Finally, the federal court complaint alleged in substance the same cause of action as the Indiana matter. Id.
In light of the pending federal court proceeding, the defendants filed a plea in abatement in the Indiana action in which they alleged that a similar action involving the same parties was pending in federal court and, therefore, the trial court was required to hold the Indiana lawsuit in abeyance until the federal court action had concluded. Young, 209 N.E.2d at 526. When the Indiana trial court, over the plaintiffs’ objection, entered judgment on the defendants’ plea in abatement, an appeal quickly ensued. Id.
The Indiana Court of Appeals ultimately held that the trial court had erred by entering judgment on defendants’ plea in abatement because the defendants had not explicitly requested a stay of the state court action. Young, 209 N.E.2d at 527-28. In reaching its ruling, the reviewing court stated:
“The pendency of a prior suit in the Federal court is not generally a bar to a suit in the state court by the same plaintiff against the same defendant for the same cause of action, unless the action in the Federal court is one that has been removed from the state court.” Id. at 527 (internal citations omitted).
The reviewing court further declared that “[t]he obvious reason that is given for such a rule is that each court is of a separate sovereignty and may therefore proceed in its own way without reference to proceedings in the other court.” Id. However, the reviewing court went on to note that “as a matter of comity and discretion, in a proper case the state court may stay its proceedings pending the outcome of the Federal litigation.” Id. Thus, had the defendants followed the proper procedure, the trial court could have held the matter in abeyance until the federal class action had concluded.
As the preceding demonstrates, litigating parallel class actions in state and federal courts can be difficult if the proper procedures are not observed. Fortunately, Adkins and Young teach that a mechanism exists, at least in Indiana, to put the brakes on a state court class action while the parties attempt to resolve the nationwide class action. Further, if defense counsel observes the proper procedure, their actions in the nationwide class action might just absolve their client’s liability in corresponding state court matters.•
Mr. Karns is managing associate in the Indianapolis office of Frost Brown Todd and chairs the Products Liability Section of DTCI. The opinions expressed in this article are those of the author.