Ramsden, Mark A. v. Agribank, FCB

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).