Ninth Circuit confronts Morton's Fork in Negrete v. Allianz Life Insurance Co.

In a decision issued yesterday, the Ninth Circuit struck down an Order by District Court Judge Snyder that would have prohibited the nominal target of the Order, defendant Allianz, from settling similar or identical class actions pending in other state and federal courts without including, or obtaining consent from, plaintiff's co-lead counsel in the certified nationwide class action matter pending before Judge Snyder. (Negrete v. Allianz Life Insurance Co. (9th Cir. Apr. 29, 2008) ___ F.3d ___.)  The Order at issue in Negrete provided:

Any discussions of a settlement that would affect any claims brought in this litigation, other than claims of an individual plaintiff or class member, must be conducted or authorized by plaintiffs’ Co-Lead Counsel. Any proposed settlement that resolves, 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.

(Slip op., at pp. 4579-80.)

Allianz argued that (1) the Order was actually an injunction, (2) the injunction in question was not proper under the All Writs Act, and, (3) even if it was, it was barred by the Anti-Injunction Act.  The Ninth Circuit agreed.  The Ninth Circuit first analyzed the Order and determined that, in effect, it was an injunction affecting the proceedings in other courts.  Turning to the All Writs Act, and theoretical circumstances where an injunction of this ilk might pass muster, the Court said:

Negrete Counsel floated out the specter of a reverse auction, but brought forth no facts to give that eidolon more substance. A reverse auction is said to occur when “the defendant in a series of class actions picks the most ineffectual class lawyers to negotiate a settlement with in the hope that the district court will approve a weak settlement that will preclude other claims against the defendant.” Reynolds v. Beneficial Nat’l Bank, 288 F.3d 277, 282 (7th Cir. 2002). It has an odor of mendacity about it. Even supposing that would be enough to justify an injunction of one district court by another one, there is no evidence of underhanded activity in this case. That being so, if Negrete’s argument were accepted, the “reverse auction argument would lead to the conclusion that no settlement could ever occur in the circumstances of parallel or multiple class actions — none of the competing cases could settle without being accused by another of participating in a collusive reverse auction.” Rutter & Wilbanks Corp. v. Shell Oil Co., 314 F.3d 1180, 1189 (10th Cir. 2002) (internal quotation marks omitted).

(Slip op., at pp. 4587-88.)  Turning to the Anti-Injunction Act, the Court described its restrictive provisions:

The authority conferred upon federal courts by the All Writs Act is restricted by the Anti-Injunction Act, which is designed to preclude unseemly interference with state court proceedings. It declares that: “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. § 2283. Therefore, unless one of the exceptions applies, the district court erred when it issued the injunction in question here.

At the outset, it is important to note that the Anti-Injunction Act restriction is based upon considerations of federalism and speaks to a question of high public policy. It is not a minor revetment to be easily overcome; it is a fortress which may only be penetrated through the portals that Congress has made available.

(Slip op., at pp. 4588-89, footnotes omitted.)

In this particular instance, one can sympathize both with the District Court and the Ninth Circuit (which seems to get so little sympathy).  On the one hand, the Ninth Circuit was obligated to respect the notions of federalism and limited jurisdiction granted to the federal courts.  On the other hand, this decision seems to invite the johnny-come-lately filers that simply watch for class action filings and jump the train, rather than investing any energy or resources in developing their own cases.  But is the outcome all bad?  Certainly, if I was prosecuting what I believed to be a bona fide class action, one in which the defendant was coming to the table to talk class settlement, I'd be mightily aggravated if some district court in some far away state told the defendant that they couldn't talk to me about settling my case without including some other counsel from some other case.  On the other hand, if I were stranded by Negrete while a defendant dodged my case to sort out a settlement with other counsel, that woud surely tweak me as well.  In the later instance, I'd have to resort to intervening in settlement approval proceedings in the event that the settlement was demonstrably deficient.  Negrete will generate some troubling outcomes, but I suspect that there is no viable alternative.  We have to assume that preliminary and final settlement approval in class actions won't be handed out where it isn't justified.  Perhaps this blog's recent post about Judge Alsup's denials of preliminary approval offer some comfort that the system works without the need for district court's to engage in jurisdictional wars over cases with other state and federal courts.

And it really is Morton's Fork, and not Hobson's choice or the prisoner's dilemma.  Neither settlement collusion and crashing nor internecine conflict in the court system are desirable alternatives.