United States District Court, N.D. Illinois, Eastern Division
ERIC D. FREED, Plaintiff,
LARSEN MARINE SERVICE, INC., a Delaware corporation, JEANNEAU AMERICA, INC., a Delaware corporation, and CHANTIERS JEANNEAU, a French corporation, Defendants.
MEMORANDUM OPINION AND ORDER
SIDNEY I. SCHENKIER, Magistrate Judge.
In this lawsuit that invokes this Court's federal question and diversity jurisdiction, Plaintiff Eric Freed seeks a variety of remedies in connection with his 2009 purchase of a sailboat manufactured by Defendant Chantiers Jeanneau and sold to Freed by Defendant Larsen Marine Service, Inc. A number of his claims have survived summary judgment (doc. #133, 137), and a jury trial on those claims is scheduled to begin in this Court on October 27, 2014.
The case now comes before the Court on Freed's motion, pursuant to 28 U.S.C. §§ 1651(a) and 2283, to enjoin the Circuit Court of Cook County, Illinois, in a case pending as 12 L 2234, from conducting an evidentiary hearing on a motion for a turnover order of the sailboat (doc. #177). Freed's former legal counsel, Williams Montgomery & John ("WMJ"), filed the motion for a turnover order on June 26, 2014, in its efforts to satisfy a state court judgment obtained against Freed on February 12, 2014, in the amount of $141, 356.69, representing unpaid legal fees that accrued during a three-month period when WMJ represented Freed in this lawsuit. Although Freed has appealed the state court judgment against him, he did not post an appeal bond to effectuate a stay of the judgment against him pending the appeal, as he could have done pursuant to Illinois Supreme Court Rule 305. That failure paved the way for WMJ to now attempt to have the sailboat sold pursuant to the state court proceedings. An evidentiary hearing on WMJ's motion for a turnover order is scheduled to begin in state court on August 13, 2014.
The All Writs Act, 28 U.S.C. § 1651(a), gives federal courts the power to stay state court proceedings. However, this power is limited by the Anti-Injunction Act, 28 U.S.C. § 2283, which authorizes a federal court to use this power in only three circumstances: when the stay is expressly authorized by statute; when the stay is necessary in aid of the federal court's jurisdiction; or when the stay is necessary to effectuate the federal court's judgments. The close alignment between these two statutes means that where an injunction is justified pursuant to an exception to the Anti-Injunction Act, a federal court is typically empowered to grant the injunction under the All Writs Act. Winkler v. Eli Lilly, & Co., 101 F.3d 1196, 1202-03 (7th Cir. 1996).
In his motion to enjoin the state court proceedings, Freed argues that a stay is justified pursuant to the second enumerated exception under the Anti-Injunction Act, because resolving WMJ's motion for a turnover order will require the state court to determine the ownership of the sailboat. Freed argues that a state court ruling on that question will undermine this Court's ability to resolve the ownership issue in this case, where Freed asserts a claim that he effectively revoked his purchase of the sailboat and thus does not own it (Pl.'s Mot. at 2). Freed further maintains that a decision in the state court proceeding would compromise this Court's ability to resolve his other claims concerning the purchase of the sailboat, would abrogate his right to a jury trial, and would deprive him of access to the sailboat as evidence during the trial ( Id. ). WMJ responds that the state court action should not be enjoined because the ability of this Court to decide whether the sailboat was defective and whether Freed is entitled to damages is "wholly unaffected by whether the boat is now sold to satisfy Freed's obligations" (WMJ's Opp. at 3-4). WMJ further contends that a stay by this Court of the state court proceedings would violate the Anti-Injunction Act, 28 U.S.C. § 2283, which should be construed in favor of allowing the state court action to proceed ( Id. at 6-7).
The Court heard argument on the motion during a proceeding on August 8, 2014, and again on August 11, 2014. The Court has considered the parties' written submissions and the arguments of the parties at the hearings. As the Court advised the parties at the close of the hearing on August 11, 2014, we conclude that while a stay of the state court proceedings falls within the powers of this Court, the extraordinary measure of enjoining a state court proceeding is not warranted by the facts of this case. This opinion explains the reasoning for our conclusion.
There is no question that the second of the three exceptions - the "in aid of jurisdiction" exception - is the only one that could apply to the facts of this case. The Supreme Court has explained that the "in aid of jurisdiction" exception to the Anti-Injunction Act is applicable when "necessary to prevent a state court from so interfering with a federal court's consideration or disposition of a case as to seriously impair the federal court's flexibility and authority to decide that case." Atlantic Coast Line R.R. Co. v. Bhd. of Locomotive Eng'rs, 398 U.S. 281, 295 (1970); see also Winkler, 101 F.3d at 1202 (agreeing that the in aid of jurisdiction exception "should be construed to empower the federal court to enjoin a concurrent state proceeding that might render the exercise of the federal court's jurisdiction nugatory'") (citations omitted). The Supreme Court has further explained that the "in aid of jurisdiction" exception ordinarily "applies only to parallel state in rem rather than in personam actions, " Atlantic Coast, 398 U.S. at 295 (emphasis in original), and only where the federal court obtained jurisdiction over the res before the state court did. Trs. of Carpenters' Health & Welfare Trust Fund of St. Louis v. Darr, 694 F.3d 803, 811 (7th Cir. 2012). For the reasons that follow, we find that the "in aid of jurisdiction" exception is applicable here.
First, this Court has had jurisdiction over this matter since April 1, 2011, when Freed filed this suit and asserted his various claims - including his revocation claims. The suit by WMJ to collect on its claim for attorneys' fees was filed in early 2012, well after this federal court suit was filed. This distinguishes our case from the situation presented in Darr, in which the appeals court found that the "in aid of jurisdiction" exception did not apply because the state court case preceded the filing of the federal suit. 694 F.3d at 811.
Second, at the crux of both lawsuits is a res - the sailboat. There is no question that by virtue of the request for a turnover order, the state court has in rem jurisdiction over the sailboat. See Blackhawk Heating & Plumbing Co., Inc. v. Geeslin, 530 F.2d 154, 158 (7th Cir. 1976) (petition to turnover assets is an in rem action). However, we reject WMJ's contention that this Court lacks in rem jurisdiction over the sailboat as well. In rem jurisdiction refers to a court's "power to adjudicate the rights to a given piece of property, including the power to seize and hold it." BLACK'S LAW DISCTIONARY 856 (7th ed. 1999). Freed's claims for revocation plainly ask the Court "to adjudicate the rights" to the sailboat: in those claims, he seeks a determination that he properly revoked the purchase and thus is not the owner of the sailboat. Thus, both this Court and the state court have in rem jurisdiction over the sailboat. See, e.g., Bobak Sausage Co. v. Bobak Orland Park, Inc., No. 06 C 4747, 2008 WL 4814693, at *6 (N.D. Ill. Nov. 3, 2008) (enjoining a state court proceeding where the federal court had jurisdiction over a non-party's interest in a limited liability company - a specific res - that was the subject of a citation to discover assets in state court). And, by virtue of this case being filed well before the motion for a turnover order (and well before the collection proceedings that led to that order), this Court obtained that in rem jurisdiction before the state court obtained it.
Third, a state court ruling regarding ownership of the sailboat might seriously impair, and even render nugatory, the ability of this Court to make that determination in this case. As WMJ states (WMJ Opp. at 3), the purpose of the state court hearing is to establish ownership of the boat. That is precisely the issue presented in this federal suit on Freed's revocation claims. Establishing ownership of the sailboat in the state court case would require Freed to present evidence on, and the state court to decide, the same factual questions that the jury in this federal case would have to decide on the revocation claim: that is, whether there were defects in the sailboat that substantially impaired its value; or, whether there were defects in the boat that Freed could not reasonably have discovered before the purchase; or, whether Freed was induced to purchase the sailboat based on assurances from the seller. See, e.g., 810 ILCS 5/2-608 (revocation of acceptance in whole or in part under the Uniform Commercial Code); Economy Folding Box Corp. v. Anchor Frozen Foods Corp., 515 F.3d 718, 721-22 (7th Cir. 2008) (discussing application of 810 ILCS 5/2-608). If the state court found that Freed did not revoke the purchase and thus owns the boat, in this federal case Larsen surely would assert that Freed is collaterally estopped from contending that he revoked ownership of the sailboat. See Hukic v. Aurora Loan Services, 588 F.3d 420, 431 (7th Cir. 2009) (collateral estoppel bars relitigation of issues determined in prior court actions, where the issues sought to be relitigated are identical to those already adjudicated). If that assertion proved meritorious, this Court's jurisdiction to decide the ownership of the boat would indeed be rendered "nugatory" - that is, having "no force or effect; useless; invalid." BLACK'S LAW DICTIONARY 1093 (7th ed. 1999).
WMJ argues that the fact that the state court determination may have a collateral estoppel effect in this federal case is insufficient to invoke the "in aid of jurisdiction" exception, relying on the Supreme Court's decision in Vendo Co. v. Lektro-Vend. Corp., 433 U.S. 623 (1977) (WMJ Opp. at 7 n.2). We disagree with the weight WMJ seeks to place on Vendo. In that case, the Court explained that the "in aid of jurisdiction" exception evolved from an historical exception to the Anti-Injunction Act and had to be premised on a specific fact pattern: an initial federal court action with jurisdiction over a res, and a subsequent state court action. 433 U.S. at 641-42. This fact pattern was not met in Vendo because the state court action did not implicate a res ; rather, both the state court and federal court cases were premised on in personam jurisdiction and therefore could "proceed concurrently, without interference from either court." Id. at 642. So, while WMJ is correct that the Vendo court found preclusive consequences to be a readily acceptable outcome of concurrent state and federal proceedings, that finding applies only to cases involving in personam jurisdiction. Id. In this case, by contrast, both this Court and the state court have in rem jurisdiction over the sailboat; and, the collateral estoppel effect of a state court decision that Freed owns the boat might render our jurisdiction to decide the ownership of the sailboat (a res ) nugatory. As a result, we conclude that the requirements necessary to trigger our authority under the "in aid of jurisdiction" exception have been met.
The parties raise various other arguments, which we do not find material to our determination but which we touch upon ...