The Seventh Circuit has struck down a common feature of preliminary approval orders of federal class action settlements. The Seventh Circuit held that a federal court may not preliminarily enjoin class members from prosecuting related state lawsuits while the court decides whether to give final approval to the class settlement. Adkins v. Nestlé Purina PetCare Co., No. 14-3436, 2015 WL 864931 (7th Cir. Mar. 2, 2015).
These types of preliminary injunctions are commonly used in a broad range of consumer and other class settlements, and they are particularly important when a defendant is facing several competing class actions on the same issue. But the Seventh Circuit held that these injunctions violate the Anti-Injunction Act, 28 U.S.C. § 2283—even though the court acknowledged that federal settlements “may well collapse” if state actions go to judgment before federal courts can approve the settlements.
The Adkins plaintiffs alleged that certain Nestlé Purina dog treats were harmful to dogs. The district court preliminarily approved a nationwide class action settlement. As part of that order, the court enjoined class members from pursuing similar cases until the fairness hearing, which was scheduled for June 23, 2015.
[N]o “irreparable injury” was proved because “the costs of ongoing litigation (the result if the settlement collapses) are not irreparable injury.”
One of the cases affected by the injunction was a certified Missouri state court class action. The Missouri case was headed for a classwide trial in May 2015 “when the injunction stopped it cold.” The Missouri plaintiffs objected to the proposed federal settlement. The district court rejected their arguments, and the objectors appealed.
The Seventh Circuit held that the federal injunction violated the Anti-Injunction Act, which prohibits, with limited exceptions, federal injunctions of state proceedings. The exception at issue provides that a federal court “may not grant an injunction to stay proceedings in a State court except . . . where necessary in aid of its jurisdiction.”
The Seventh Circuit held that the injunction did not satisfy this standard. The court narrowly construed “jurisdiction” to mean “adjudicatory competence”—in other words, federal jurisdictional authority to adjudicate a case. The court held that a classwide judgment in the Missouri case would not “imperil the district court’s ability and authority to adjudicate the federal suit. . . . A need to adjudicate a [federal] suit on the merits after settlement negotiations fail does not undermine the nature or extent of a court’s jurisdiction.”
The Seventh Circuit Court also held that the injunction did not satisfy Federal Rule of Civil Procedure 65. Among other things, the court held that no “irreparable injury” was proved because “the costs of ongoing litigation (the result if the settlement collapses) are not irreparable injury.”