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Tuesday, October 19, 2004

WorldCom again! In this post, I promised an update as to why the Second Circuit, in a summary order, vacated an injunction of the District Court enjoining an Alabama state court from trying a case related to the WorldCom securities litigation. In the summary order, the Court stated that a full opinion would follow, and, on October 18, 2004, the decision in Retirement Systems of Alabama v. J.P. Morgan Chase & Co. came down.

The Court's decision was based on a violation of the Anti-Injunction Act, which bars a federal court from enjoining a proceeding in state court unless that action is "expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments." The Supreme Court has held that any doubts as to the power of a federal court to issue an injunction against an action pending in state court should be resolved in favor of letting the state court action proceed.

The Court noted that it was clear under Supreme Court precedent that a federal court in which an in rem action is pending may enjoin a state court proceeding involving the same res because such a proceeding would necessarily impair and may defeat the federal court's jurisdiction. A federal court's jurisdiction in an in personam action, however, would not be so impaired. The Second Circuit had held in an earlier case that a federal court in an in personam case may enjoin a parallel state court action if the state court action would interfere with a pending settlement of a federal case.

Although the appellees argued that the parties were in settlement discussions, they could not represent that a settlement was imminent. Nor had they shown that the District Court's injunction was necessary to protect the prospective settlement. And while the state court action was likely to delay the trial of the federal action, the Second Circuit held that the District Court had no interest in being the first court to go to trial or reach a judgment. Hence, the injunction was not necessary in aid of the District Court's jurisdiction and violated that Anti-Injunction Act.

The decision in the case can be found here.

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