Ramsden, Mark A. v. Agribank, FCB ( 2000 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 99-3617
Mark A. Ramsden, Raelynn Ramsden,
and Milton R. Ramsden, individually
and d/b/a Ramsden Dairy,
Plaintiffs-Appellants,
v.
AgriBank, FCB,
Defendant-Appellee.
Appeal from the United States District Court
for the Western District of Wisconsin.
No. 98 C 221--Barbara B. Crabb, Judge.
Argued February 23, 2000--Decided June 2, 2000
Before Flaum, Kanne, and Diane P. Wood, Circuit
Judges.
Flaum, Circuit Judge. The appellants--Mark A.
Ramsden, Raelynn Ramsden, and Milton R. Ramsden,
individually and d/b/a Ramsden Dairy
(collectively "the Ramsdens")--challenge a
decision by the district court to enjoin a state
court proceeding which the appellee, AgriBank,
alleged was threatening its prior, favorable
federal court judgment. For the reasons stated
herein, we hold that the district court abused
its discretion in enjoining the state court
proceedings, and we therefore reverse.
Background
The Ramsdens originally brought an action in
the Circuit Court for Portage County, Wisconsin,
against Credit Services of North Central
Wisconsin ACA, AgriBank, and Thomas E. Hass,
AgriBank’s employee, alleging tortious conduct in
the sale of certain agricultural property. The
state court dismissed the action against Hass,
whereupon the Ramsdens dismissed the complaint
without prejudice against the remaining
defendants and appealed Hass’s dismissal to the
state court of appeals.
While the appeal was pending, the Ramsdens
filed a second action against AgriBank in the
Circuit Court for St. Croix County, Wisconsin,
alleging misrepresentation and other tortious
acts in the sale of the property. AgriBank
removed the case to the United States District
Court for the Western District of Wisconsin.
In federal court, the Ramsdens amended their
complaint, alleging that they and their cattle
were poisoned by benzene contamination in the
water on the farm that AgriBank had sold them.
Following extensive discovery, AgriBank moved for
summary judgment, arguing that the Ramsdens
lacked evidence sufficient to show that any
benzene contamination caused the alleged health
injuries. The court, applying Daubert v. Merrell
Dow Pharmaceuticals, 509 U.S. 579 (1993), to the
Ramsdens’ proposed expert testimony, concluded
that the testimony lacked scientific reliability
and validity and was therefore inadmissible.
Accordingly, the court granted defendant
AgriBank’s motion for summary judgment. The
Ramsdens appealed the judgment to this Court, but
they dismissed the appeal voluntarily in exchange
for a waiver by AgriBank of recovery of its
costs.
While the Ramsdens’ appeal was pending, however,
the Wisconsin Court of Appeals reversed the trial
court’s dismissal of Hass from the state court
action and remanded the case to the trial court,
where it was pursued by the Ramsdens. According
to AgriBank, all of the Ramsden’s allegations
against Hass in that state court suit concern
actions taken by Hass in the scope of his
employment with AgriBank, and all of the
allegations were the subject of the federal court
suit against AgriBank. In March 1999, Hass moved
for summary judgment in the state court, arguing
claim and issue preclusion based on the summary
judgment granted to AgriBank in federal district
court. The state court denied the motion, finding
that, although the elements were present for
claim preclusion, considerations of equity and
fairness barred application of claim preclusion
to the state court action. The court found that
under Wisconsin evidentiary law, which is less
stringent than the federal Daubert requirements,
the Ramsdens’ expert would have been allowed to
testify. Because of the significant differences
in evidentiary rules, because defendant AgriBank
had removed the case to federal court, and
because the court could not find that the
Ramsdens were engaged in vexatious litigation,
the state court concluded that it would be unfair
to bar the Ramsdens’ claim. The state court
reached similar conclusions with respect to issue
preclusion.
At that point, counsel for AgriBank (the same
counsel that represented Hass in the state
action) went back to federal court to seek an
injunction against the state court permanently
enjoining it from further addressing any issues
between the Ramsdens and Hass or AgriBank arising
from the purchase of the farm property. AgriBank
also sought an injunction against the Ramsdens to
prohibit them from bringing any further actions
against AgriBank or its employees arising from
the purchase. The district court granted the
injunctions, and the Ramsdens now appeal.
Discussion
The Anti-Injunction Act generally prohibits
federal courts from enjoining state court
proceedings. 28 U.S.C. sec. 2283. The Act is
designed to prevent friction between state and
federal courts and to protect state court
proceedings from federal interference. See
Amalgamated Clothing Workers of America v.
Richman Bros., 348 U.S. 511, 514-16 (1955); see
also Vendo Co. v. Lektro-Vend Corp., 433 U.S.
623, 630 (1977) (plurality opinion) ("The Act’s
purpose is to forestall the inevitable friction
between the state and federal courts that ensues
from the injunction of state judicial proceedings
by a federal court.").
By its own terms, the Anti-Injunction Act’s
prohibition is sweeping and provides for only
three types of exceptions: "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. sec. 2283.
These exceptions are narrow ones. See Chick Kam
Choo v. Exxon Corp., 486 U.S. 140, 146 (1988);
Atlantic Coast Line R.R. Co. v. Brotherhood of
Locomotive Engineers, 398 U.S. 281, 287 (1970).
This case involves the third exception--the
"relitigation exception"--which allows a party
with a favorable federal judgment to protect that
judgment by enjoining repetitive state court
proceedings instead of relying on a claim or
issue preclusion defense. See Samuel C. Ennis &
Co. v. Woodmar Realty Co., 542 F.2d 45, 49 (7th
Cir. 1976); 17 Moore’s Federal Practice,
121.08[1]. "[A]llowing an unsuccessful litigant
to harass other participants in the federal case
[through relitigation in state court] flouts and
may be said to ’seriously impair the federal
court’s . . . authority to decide that case.’"
Samuel C. Ennis & Co., 542 F.2d at 50 (quoting
Atlantic Coast Line R.R. Co., 398 U.S. at 295).
Therefore, under certain circumstances a federal
court may enjoin state proceedings that attempt
to readjudicate previously-decided matters.
Rutledge v. Scott Chotin, Inc., 972 F.2d 820, 825
(7th Cir. 1992).
In this case, the district court concluded that
the Act permitted the issuance of an injunction
if AgriBank could prove that it had established
all the elements of claim or issue preclusion.
See Harper Plastics, Inc. v. Amoco Chemicals
Corp., 657 F.2d 939, 946-47 (7th Cir. 1981)
(holding that the relitigation exception to the
Anti-Injunction Act permits federal courts to
enjoin state court relitigation of matters
finally adjudicated in federal court). After
finding that the elements of claim preclusion
were satisfied, the court enjoined the Ramsden’s
state court proceedings against Hass.
Because the relitigation exception bears on the
delicate relationship between state and federal
courts, strict timing requirements cabin its
invocation. In Parsons Steel, Inc. v. First
Alabama Bank, 474 U.S. 518, 524-25 (1986), the
Supreme Court held that once a litigant raises a
claim preclusion defense and the state court
rules on it, that state court determination binds
the federal courts. It reached this conclusion
after noting that the Full Faith and Credit Act,
28 U.S.C. sec. 1738, under which a federal court
must give the same preclusive effect to a state
court judgment that another court of that state
would give, embodies Congress’ legislative
commitment to federalism and comity in the area
of judgment recognition. 474 U.S. at 535; see
also Kremer v. Chemical Construction Corp., 456
U.S. 461, 481-82 (1982) ("It has long been
established that sec. 1738 does not allow federal
courts to employ their own rules of res judicata
in determining the effect of state judgments.
Rather, it goes beyond the common law and
commands a federal court to accept the rules
chosen by the State from which the judgment is
taken."). The Parsons Steel Court went on to hold
that "the Anti-Injunction Act and the Full Faith
and Credit Act can be construed consistently,
simply by limiting the relitigation exception of
the Anti-Injunction Act to those situations in
which the state court has not yet ruled on the
merits of the res judicata issue." 474 U.S. at
524. It further explained that "the Full Faith
and Credit Act requires that federal courts give
the state-court judgment, and particularly the
state court’s resolution of the res judicata
issue, the same preclusive effect it would have
had in another court of the same State." Id. at
525. In other words, a federal court considering
enjoining a state court proceeding, where the
state court has ruled on the res judicata issue,
must first, as a threshold matter, look to that
state’s law of judgments to determine whether
another court of that state would view the res
judicata ruling as final and binding. If so, then
the federal court is bound by that ruling as
well.
In this case, we agree with the district court
that under Wisconsin law the state court’s denial
of summary judgment on the res judicata issue
would not be regarded as sufficiently "final" to
warrant preclusive effect in another Wisconsin
court, and it would therefore not warrant the
full preclusive effect in federal court demanded
by the Full Faith and Credit Act. See Wis. Stat.
sec. 808.03(1) ("A final judgment or final order
is a judgment, order or disposition that disposes
the entire matter in litigation as to one or more
of the parties . . . ."); Heaton v. Larsen, 294
N.W.2d 15, 24 (Wis. 1980). Accordingly, the
district court was not statutorily barred by the
Full Faith and Credit Act--as it intersects with
the Anti-Injunction Act--from calling into
question the state court’s resolution of the res
judicata issue.
But just because a federal court has the
statutory power to enjoin a state court
proceeding does not mean that it should exercise
that authority. In other words, that the state
court has not reached final judgment on a
previously litigated claim is an essential but
not necessarily sufficient condition of federal
court intervention pursuant to the relitigation
exception of the Anti-Injunction Act.
When a federal court is asked to enjoin state
court proceedings, the mere fact that the case
falls within one of sec. 2283’s exceptions does
not "qualify in any way the principles of equity,
comity, and federalism that must restrain a
federal court when asked to enjoin a state court
proceeding." Mitchum v. Foster, 407 U.S. 225, 243
(1972). A litigant must still show equitable
entitlement to an injunction. See Kerr-McGee
Chemical Corp. v. Hartigan, 816 F.2d 1177, 1182
(7th Cir. 1987). Moreover, the Supreme Court has
instructed that "[a]ny doubts as to the propriety
of a federal injunction against state court
proceedings should be resolved in favor of
permitting the state courts to proceed in an
orderly fashion to finally determine the
controversy. The explicit wording of sec. 2283
itself implies as much, and the fundamental
principle of a dual system of courts leads
inevitably to that conclusion." Atlantic Coast
Line R.R. Co., 398 U.S. at 297. Assuming that the
threshold test of finality mandated by Parsons
Steel is satisfied, how far do these principles
extend in limiting federal courts’ power to
intervene once a state court has already
adjudicated the merits of the preclusion issue?
Different jurisdictions have adopted competing
approaches for cases in which the state court has
not yet reached final judgment, but in which the
state court has ruled on the res judicata
defense. On remand from the Supreme Court and
flowing back up from the district court, the
Eleventh Circuit considered in the Parsons Steel
case whether the Alabama state court’s denial of
a motion for summary judgment on res judicata
grounds bound the federal court considering an
injunction. First Alabama Bank of Montgomery v.
Parsons Steel, Inc., 825 F.2d 1475 (11th Cir.
1987). The Eleventh Circuit held that, under
Alabama law, the denial of summary judgment was
not a final adjudication of the preclusion issue,
and it went on to hold, therefore, that the
district court was not precluded from enjoining
the state court proceedings. Id. at 1480-86; see
also Battle v. Liberty Nat’l Life Ins. Co., 877
F.2d 877, 882 (11th Cir. 1989) ("Because [a
denial of a motion for summary judgment] is not
a final order, it would not be given preclusive
effect in state court and need not be accorded
that deference in federal court.").
In Amalgamated Sugar Co. v. NL Industries,
Inc., 825 F.2d 634 (2d Cir. 1987), the Second
Circuit held that a district court properly
enjoined state court relitigation of a claim by
shareholders where a federal court previously
entered a judgment in favor of a corporation. In
that case, the state court had not yet ruled on
the merits of the res judicata defense raised by
the corporation, but indicated that it would
consider those merits only in the context of a
full trial on the underlying claim. The Second
Circuit held that the district court could
properly enjoin the state court proceedings
because the state court had not entered a prior
final judgment on the merits, but had merely
denied the corporation’s summary judgment motion
without prejudice. Id. at 642. Under those
circumstances, the Second Circuit did not need to
confront the scenario before us, where the state
court had not reached final judgment but had
clearly adjudicated and expressly rejected the
merits of the res judicata defense. The Second
Circuit did, however, go on to note in dicta that
"[the corporation] acted properly in moving for
summary judgment on res judicata grounds in the
New Jersey court prior to seeking injunctive
relief in the district court, thereby attempting
to avoid invoking the more intrusive remedy of
injunctive relief." Id.
In Kaempfer v. Brown, 684 F. Supp. 319 (D.D.C.
1988), the District of Columbia District Court
enjoined the defendants from pursuing a claim in
District of Columbia courts where a federal
district court’s earlier judgment involved
identical tort claims. At that time, the District
of Columbia Superior Court had summarily denied
the injunctive plaintiff’s motion to dismiss on
res judicata and other grounds, but the district
court "[could not] say with the slightest degree
of confidence that the Superior Court [had]
decided the issue of res judicata." Id. at 323.
The district court interpreted Parsons Steel as
holding that the Full Faith and Credit Act bars
a federal court from enjoining a state action in
order to protect a prior federal judgment once a
state court has expressly rejected a preclusion
defense. Id.
We believe that a rule that restricts a federal
court’s discretion to enjoin state court
proceedings once the state court expressly and
unambiguously decides a res judicata defense,
whether or not there has been a final judgment on
the entire claim in state court, best reconciles
the conflicting concerns identified in Parsons
Steel. Any federal injunction to bar purported
relitigation balances efficiency advantages of
finality against respect for state courts and
their decisions. Once a state court considers a
res judicata defense and rules that a prior
federal judgment does not actually bar a claim,
the affront of federal court intervention
stripping the state court of power to continue is
greatly magnified. After such a ruling, the
interests in preventing possible relitigation are
therefore generally outweighed by the heightened
comity concerns except in the most extraordinary
circumstances./1
The standards governing abstention under the
Younger doctrine are instructive in this regard,
as those standards have evolved in light of
heightened comity concerns surrounding federal
injunctions of state criminal proceedings and
other state proceedings involving important state
interests. In Younger v. Harris, 401 U.S. 37
(1971), a plaintiff sought a federal injunction
against a state criminal prosecution on the
grounds that the prosecution violated federal
constitutional rights. The district court ordered
injunctive relief and the Supreme Court reversed,
concluding that the injunction was "a violation
of the national policy forbidding federal courts
to stay or enjoin pending state court proceedings
except under special circumstances." Id. at 41.
"[The] underlying reason," the Court explained,
"for restraining courts of equity from
interfering with criminal prosecutions is
reinforced by an even more vital consideration,
the notion of ’comity,’ that is, a proper respect
for state functions . . . ." Id. at 44; see also
Trust & Investment Advisers, Inc. v. Hogsett, 43
F.3d 290, 294-95 (7th Cir. 1994) (explaining that
the Younger doctrine "has since been expanded
beyond criminal prosecutions to various civil
proceedings in state court implicating important
state interests"). To accommodate this interest,
the Court held that a litigant in the Younger
context must make a "showing of bad faith,
harassment, or . . . other unusual circumstance
that would call for equitable relief." Id. at
54./2
In this case, the district court gave
inadequate weight to these heightened comity
concerns. Unhappy with the state court’s handling
of the res judicata defense, AgriBank went to
federal court for another look at the issue.
Having determined that res judicata should have
barred the state court suit, the district court
found no comity considerations that weighed
against AgriBank’s costs and inconvenience of
continued state court proceedings. Instead, the
district court concluded that the balance of
harms and the public’s interest in finality
weighed in AgriBank’s favor after noting only
that "[t]he obvious prospect of relitigation
suffices to show that defendant will suffer
irreparable harm if an injunction does not issue
to stop the state court proceeding." The court
therefore enjoined further proceedings in state
court on the matter, and we regard this as an
abuse of discretion. Just as the Younger Court
rejected the plaintiff’s plea for injunctive
relief because the injury he faced was "solely
’that incidental to every criminal proceeding
brought lawfully and in good faith,’" 401 U.S.
at 49 (citations omitted), here AgriBank sought
injunctive relief in the face of further
litigation expenses which, though costly, are
incidental to defense of every lawsuit. While the
expenses and uncertainty of litigation may
sometimes be sufficient to warrant an injunction
pursuant to sec. 2283 prior to a clear and
express state court ruling on the preclusion
defense, see, e.g., Harper Plastics, Inc. v.
Amoco Chemicals Corp., 657 F.2d 939 (7th Cir.
1981), they are insufficient when weighed against
the added, countervailing comity interests that
arise after that point.
Under this approach, AgriBank was not stripped
of a remedy if it believed that the state court
wrongly decided the res judicata issue. If
AgriBank had demonstrated extraordinary
circumstances it might have been entitled to a
federal injunction. As it stands, though,
AgriBank would still have an opportunity to
appeal the state trial court’s decision up
through the state appeals process./3 As the
Supreme Court went on to explain in Parsons
Steel:
Even if the state court mistakenly rejected
respondents’ claim of res judicata, this does not
justify the highly intrusive remedy of a federal
court injunction against the enforcement of the
state-court judgment. . . . Challenges to the
correctness of a state court’s determination as
to the conclusive effect of a federal judgment
must be pursued by way of appeal through the
state-court system and certiorari from this
Court.
474 U.S. at 525; see also Amalgamated Clothing
Workers v. Richman Bros., 348 U.S. 511, 518
(1955) ("The prohibition of sec. 2283 is but
continuing evidence of confidence in the state
courts, reinforced by a desire to avoid direct
conflicts between state and federal courts.").
While a federal injunction of state court
proceedings might, in some cases, be cost-
effective, "inefficient simultaneous litigation
in state and federal courts on the same issue" is
"one of the costs of our dual court system." Id.
at 524-25.
Conclusion
For the reasons stated herein, we VACATE the
decision of the district court granting the
injunction and REMAND the case for further
proceedings consistent with this opinion.
/1 An express and unambiguous rejection of a res
judicata defense would arguably increase the
likelihood that further state court proceedings
would undermine a prior federal court judgment,
and therefore counsel in favor of a federal
injunction. However, this concern will almost
always be outweighed by the heightened comity
interests that arise once the state court has
adjudicated this issue and, as explained later in
this opinion, is best addressed through state
appellate channels.
Drawing a line at the point at which
a state court decides the res
judicata issue might also arguably create
incentives for litigants with a prior, favorable
federal court judgment to rush back to federal
court for an injunction rather than relying on
the res judicata defense in state court at all.
Aside from the fact that Parsons Steel already
creates incentives to obtain a federal injunction
before the state court reaches final judgment, we
believe that it is necessary to restrict district
court discretion in this way to prevent the
relitigation exception of the Anti-Injunction Act
from simply being turned into a vehicle for
seeking appellate review of a state court
decision in federal court. See Atlantic Coast
Line R.R. Co., 398 U.S. at 293.
/2 In considering the types of "unusual
circumstances" that satisfy this standard, the
Court also noted that "even irreparable injury is
insufficient unless it is ’both great and immediate.’"
Id. at 46 (citing Fenner v. Boykin, 271 U.S. 240,
243 (1926)).
/3 Although a denial of a motion for summary
judgment is not appealable as a final decision,
under Wisconsin law a litigant may petition for
leave to appeal a non-final order under certain
circumstances. See Wis. Stat. sec. 808.03(2).