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Ninth Circuit Reverses Denial Of Class Cert. in Wal-Mart Assistant Manager Case

District Courts Cannot Enjoin Other Actions, Even With Certified Class Action Pending

Last week's decision in Negrete v. Allianz Life Insurance Co. (9th Cir. 2008) __ F.3d __ is not a wage and hour case, but its holding concerning class action procedure could affect every wage and hour class action filed in the State of California. Essentially, the case holds that the mere risk that someone will file on top of an existing class action, even one which has been certified, and will then attempt to undermine the class by pursuing a so-called "reverse auction" settlement does not empower the court to issue orders which amount to an injunction against other courts and other proceedings which have overlapping parties, claims or issues.

Vida F. Negrete filed this class action lawsuit against Allianz Life Insurance Company of North America. Allianz appeals a district court order that effectively prevents it from proceeding with any settlement negotiations on similar class action claims raised in any federal or state court without first obtaining permission from Negrete’s Co-Lead Counsel, and from finalizing a settlement in any other court “that resolves, in whole or in part, the claims brought in [the Negrete] action,” without first obtaining the district court’s approval. We reverse.

It is important to note that there were "no facts before the district court that supported the notion that some kind of collusion was afoot."

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). In short, the district court’s order must be set aside. There simply was no proper support for the district court’s enjoining of proceedings in other courts.

The court wouldn't necessarily have endorsed the idea of an injunctive even if there were some reverse acution shenanigans going on, adding that they "need not decide whether reverse auction evidence would justify an injunction of state court proceedings, as opposed to leaving correction up to the usual appellate processes." Parsons Steel, Inc. v. First Ala. Bank, 474 U.S. 518, 525, 106 S. Ct. 768, 772-73, 88 L. Ed. 2d 877 (1986); Atl. Coast Line, 398 U.S. at 287, 90 S. Ct. at 1743.

The district court was troubled by the fact that settlements in other courts might draw the fangs from at least a portion of the class action case that it was then considering. Perhaps they will. But in this instance it was improper for the district court to react by issuing an injunction against other federal and state court proceedings. Rather, the district court must live with the vicissitudes and consequences of our elegantly messy federal system. The restrictions inherent in the All Writs Act and explicit in the Anti-Injunction Act have helped to concinnate the elements of our national polity; this is not the time to disrupt the harmony.

You can download the full opinion at this link.

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