Opposition Brief — Adams v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

Supreme Court of the United States

© FILED

No. 94-1968 JUL 26 1995:

: CLERK

In The

October Term, 1995

*

J. DON ADAMS, et al.,

Petitioners,

Vv.

MERRILL LYNCH, PIERCE, FENNER &

SMITH, INCORPORATED, et al.,

Respondents.

,

v

Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Sixth Circuit

vv

RESPONDENTS’ BRIEF IN OPPOSITION

TO PETITION FOR WRIT OF CERTIORARI

¢

Steve W. GASKINS

(Counsel of Record)

CosGrove, Fiynn & Gaskins, P.L.L.P.

333 South Seventh Street

Minneapolis, Minnesota 55402

(612) 333-9500

Mary CuLutEN YEAGER

Farcre & BENSON

Professional Limited Liability

Partnership

2200 Norwest Center

90 South Seventh Street

Minneapolis, Minnesota 55402

(612) 336-3000

Attorneys for Respondents Shelter Seagate

Corporation, Can-American Corporation,

Can-American Realty Corporation, Garrett

G. Carlson, Arni C. Thorsteinson and

Graham C. Lount

/.—— — se ow ae

"BEST AVAILABLE COPY,

QUESTIONS PRESENTED

1. Whether the United States Court of Appeals for

the Sixth Circuit’s order remanding this case to the Dis-

trict Court for an evidentiary hearing on virtual represen-

tation renders the case not yet ripe for review.

2. Whether the petitioners had sufficient minimum

contacts with the District Court to allow its exercise of

personal jurisdiction over them.

3. Whether the District Court, having personal juris-

diction over petitioners, could, under the traditional doc-

trines of res judicata and collateral estoppel, enjoin them

from relitigating claims already decided.

4. Whether the District Court’s March 24, 1992

Order regarding communications between petitioners

and their counsel, which lapsed over three years ago

upon the failure of the provisional class settlement, is

moot.

5. Whether the District Court’s March 24, 1992

Order permitting class counsel to communicate directly

with petitioners and directing all counsel to impart “accu-

rate, objective, balanced information” regarding the pro-

visional settlement was a proper exercise of the District

Court’s powers under Fed. R. Civ. P. 23(d) to control the

conduct of class actions.

ll

TABLE OF CONTENTS

Page

CAJESERIING PIG C AMEE 55 0c cccnwbntcceedvcseenes i

SER ee Ch os die han hoes Rabaiecenecaeas ll

TABLE OF AUER aie os occ ic cewecdwawicuss peas’

SEA MEIOE CP TEE CA oes cies ede avncatadeeses 2

SUUENGARY CH RUIUE he casscensevdinanvesen 8

REASONS TH? DRDET SE WOMAS ces cdccscevacsues 9

I. BECAUSE THE COURT OF APPEALS

REMANDED THIS CASE TO THE DIS-

TRICT COURT, THE CASE IS NOT RIPE

pe re te eer ee 9

Il. PETITIONERS HAD SUFFICIENT MINIMUM

CONTACTS WITH THE DISTRICT COURT TO

ALLOW ITS EXERCISE OF PERSONAL JURIS-

CCI COVE. SOU xscukan cadenbaeeens: 10

III. UNDER TRADITIONAL PRINCIPLES OF

RES JUDICATA AND COLLATERAL

ESTOPPEL, THE DISTRICT COURT MAY

PROPERLY ENJOIN PETITIONERS’ STATE

COURT PROCEEDINGS UNDER THE

ANTI-INJUNCTION ACT UPON FINDING

PETITIONERS IN PRIVITY WITH THE PAR-

SERS GP O6 v06 0s. nce hea eea has 13

IV. BECAUSE THE DISTRICT COURT’S

MARCH 24, 1992 ORDER LAPSED WHEN

THE PROPOSED SETTLEMENT FAILED,

QUESTIONS REGARDING THE ORDER’S

CONSTITUTIONALITY ARE MOOT....... 16

V. THE DISTRICT COURT’S MARCH 24, 1992

ORDER REPRESENTS A STANDARD EXER-

CISE OF THE DISTRICT COURT’S POWERS

TO CONTROL CLASS ACTION LITIGA-

WURRS 60000004. 5k tenn enek eee 16

CONCLUSION

ili

TABLE OF AUTHORITIES

Page

FEDERAL CASES

Aerojet-General Corp. v. Askew, 511 F.2d 710 (5th

Cir.), cert. denied sub nom. Metropolitan Dade

County v. Aerojet-General Corp., 423 U.S. 1026

oo BE ee ee er eer rrr rere eee eee 14

Amalgamated Sugar Co. v. NL Industries, Inc., 667 F.

EO A 14

Becherer v. Merrill Lynch, Pierce, Fenner & Smith,

fae ©. sapp. Joo (E.D. Mich. 1992)....7.....¢...... 2

Becherer v. Merrill Lynch, Pierce, Fenner & Smith,

809 F. Supp. 1259 (E.D. Mich. 1992)........... passim

Becherer v. Merrill Lynch, Pierce, Fenner & Smith, 43

ee ES RID oon viv sds e vs castevcresweees 5

Brotherhood of Locomotive Firemen & Enginemen v.

Bangor & A.R. Co., 389 U.S. 327 (1967)....... Pere

Cactus Pipe & Suppiy Co. v. M/V Montmartre, 756

es ER. Ee ee 1]

Carlough v. Amchem Products, 10 F.3d 189 (3rd Cir.

ELE OOO ETE T Ee TET Se Tee EL EEE Eee 12

Dewey & Almy Chemical Co. v. Johnson, Drake &

Pier, inc., 25 F. Supp. 1021 (D.C.N.Y. 1939)....... 13

Finberg v. Sullivan, 658 F.2d 93 (3d Cir. 1980)........ 16

Gerrard v. Larsen, 517 F.2d 1127 (8th Cir. 1975) ...... 14

Grammenos v. Lemos, 457 F.2d 1067 (2d Cir. 1972).... 11

Grimes v. Vitalink Communications Corp., 17 F.3d

1553 (3d Cir.), cert. denied, 115 S. Ct. 480 (1994).... 11

Insurance Corp. of Ireland, Ltd. v. Compagnie des

Bauxites de Guinee, 456 U.S. 694 (1982) ............ 11

iV

TABLE OF AUTHORITIES —- Continued

NLRB v. Schnell Tool & Die Corp., 359 F.2d 39 (6th

Re. NDS xo'0's os bas re eens

In re Ocean Ranger Sinking Off Newfoundland, 617 F.

Supp. 435 (E.D. La. 1985)... ... 2... cee eeeeeees:

In re Real Estate Title & Settlement Servs. Antitrust

Litig., 869 F.2d 760 (3d Cir.), cert. denied sub nom.

Chicago Title Ins. Co. v. Tuscon Unified Sch. Dist.,

BD Gis WOE CRE is MA h hewein cen ees cada wes bs

Royal Ins. Co. v. Quinn-L Capital Corp., 960 F.2d

1286 (5th Cir. 1992) cert. denied, 114 S. Ct. 1541

oo. Pere eee rer mer a eer er eer ere

Southwest Airlines Co. v. Texas International Airlines,

Inc., 396 F. Supp. 678 (N.D. Tex. 1977), aff'd, 546

F.2d 84 (5th Cir.), cert. denied, 434 U.S. 832 (1977) ....

Super Tire Engineering Co. v. McCorkle, 469 F.2d 911

(3d Cir. 1972), rev'd on other grounds, 416 US.

Rie Roh ak aks Cad RENAE LRAR AEA Cus

Thompson v. Freeman, 648 F.2d 1144 (8th Cir. 1981)...

Trans World Airlines v. Mattox, 897 F.2d 773 (5th

Cir.), cert. denied, 498 U.S. 926 (1990)...........

White v. National Football League, 41 F.3d 402 (8th

Ci We a ee a

STATE CASES

Dykes v. Trustbank Sav., F.S.B., 567 So.2d 958 (Fla.

0, Pa. Be TR ak oc ecb eke rowan ens

“es ee

Page

14

TABLE OF AUTHORITIES - Continued

Page

STATUTES

y BY a ae. PER een rn Gee Io rr u NCEE Dire e ea 3, 10

POG. es GOW Be Sees vc vac s sbavncesedesneello 9, 17

MISCELLANEOUS

7B C. Wright, et al., Federal Practice and Procedure

Bee Bi. | ie oe er er ree Pre 17

18 C. Wright, et al., Federal Practice and Procedure

& 4657 (1961 at Sapp. 1988). oon us cccecsecncceens 15

No. 94-1968

+

In The

Supreme Court of the United States

October Term, 1995

+

J. DON ADAMS, et al.,

Petitioners,

MERRILL LYNCH, PIERCE, FENNER &

SMITH, INCORPORATED, et al.,

Respondents.

+

Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Sixth Circuit

+

RESPONDENTS’ BRIEF IN OPPOSITION

TO PETITION FOR WRIT OF CERTIORARI

+

Respondents Shelter Seagate Corporation, Can-

American Corporation, Can-American Realty Corpora-

tion, Garrett G. Carlson, Arni C. Thorsteinson and

Graham C. Lount (collectively “Shelter Seagate”), submit

this brief in opposition to petitioners’ request that this

Court issue a writ of certiorari to review the judgment of

the United States Court of Appeals for the Sixth Circuit.

¢

STATEMENT OF THE CASE

1. Proceedings Before and Opinions of the District

Court

Petitioners are members of a plaintiff class in an

action brought pursuant to Fed. R. Civ. P. 23(b)(3) in

August of 1989, in the United States District Court for the

Eastern District of Michigan. The plaintiff class (some-

times referred to herein as “unit owners”) sought dam-

ages for alleged securities and common law fraud, other

torts, and breaches of contract in connection with the

construction and sale of the Registry Resort Hotel, a 474-

room luxury hotel in Naples, Florida.

On November 19, 1990, the District Court, prior to

class certification, granted summary judgment for all

defendants on one of three fraud claims alleged by plain-

tiffs and reserved ruling on the summary judgment

motions relating to the two remaining fraud claims.

Becherer v. Merrill Lynch, Pierce, Fenner & Smith, 799 F.

Supp. 755, 782-84 (E.D. Mich. 1992). Recognizing that

plaintiffs’ fraud claims arose out of contract claims, the

District Court certified a class and ordered an expedited,

bifurcated trial on the contract claims against only Shelter

Seagate, the developer of the hotel. All of the petitioners

participated as class members in the expedited contract

trial.

After the certified class tried its contract claims

against Shelter Seagate to the District Court, but before

the Court’s decision, the parties reached a provisional

class settlement of all claims against all defendants. The

District Court approved notice of the provisional settle-

ment which was sent to each unit owner. Petitioners, who

had opted in for the contract trial against Shelter Seagate,

opted out of the provisional settlement. The settlement

failed when an excess number of unit owners opted out.

After the settlement failed, the District Court ren-

dered its decision holding that Shelter Seagate breached

its contract with the unit owners by leasing certain furni-

ture, fixtures and equipment for the hotel. It awarded the

class, which included all petitioners, judgment against

Shelter Seagate for $6.7 million. The District Court then

granted summary judgment in favor of all defendants

dismissing all plaintiffs’ remaining claims, including their

fraud claims. Id.

After petitioners learned that they had lost before the

District Court they served Merrill Lynch with a lawsuit

they had earlier filed in Collier County, Florida, asserting

the same claims that had been dismissed by the District

Court. The District Court enjoined the relitigation in Flor-

ida, under the religitation exception to the Anti-

Injunction Act, 28 U.S.C. § 2283, holding that the injunc-

tion was necessary “to protect and effectuate its judg-

ments.” Becherer v. Merrill Lynch, Pierce, Fenner & Smith,

809 F. Supp. 1259, 1271 (E.D. Mich. 1992).

Petitioners opposed the injunction, arguing that

because all claims against all defendants were not certi-

fied as a class action, the District Court lacked personal

jurisdiction over the petitioners necessary to enjoin them

from relitigating their claims. The District Court rejected

the petitioners’ argument holding:

Florida plaintiffs also argue that this court does

not have personal jurisdiction over them

because no class was ever certified for purposes

of the Merrill Lynch fraud claims. . . . Counsel

for Florida plaintiffs confuses the concept of

personal jurisdiction with the res judicata issue.

I have personal jurisdiction over the Florida

plaintiffs because they are parties to the case

before me through their representatives. They

also are members of the class in the breach of

contract trial which I conducted, and as such are

bound by the results of that trial. For these

reasons, I conclude that there is personal juris-

diction over them. As Merrill Lynch properly

points out, the Florida plaintiffs cannot claim

that this court has personal jurisdiction over

them in order to collect the $6.7 million judg-

ment from Shelter Seagate, of which they are

recipients as members of the plaintiff contract

class, and then turn around and say that this

court does not have personal jurisdiction over

them with respect to the other issues in the case.

Becherer, 809 F. Supp. at 1270 (footnote omitted).

2. The Decision on Appeal

The Sixth Circuit affirmed the District Court’s hold-

ing that it had personal jurisdiction over the petitioners

without comment. The Court of Appeals held, however,

that the District Court used an impermissibly broad defi-

nition of virtual representation, one of the elements it

relied upon to find the petitioners in privity with the

named plaintiffs. It vacated the injunction and remanded

the case to the District Court to conduct an evidentiary

hearing on whether res judicata and collateral estoppel

would bar relitigation of the claims already decided by

the District Court. The Court of Appeals stated that the

briefs submitted on appeal “demonstrate a strong possi-

bility that this case may yet be an appropriate one for

application of res judicata and collateral estoppel [if, as

defendants contend, the petitioners,] through the Asso-

ciation of Unit Owners, authorized, financed, and con-

trolled the investigation and prosecution of the Becherer

plaintiffs’ suit, including hiring an attorney and arrang-

ing to pay him a combination retainer and contingency

fee.” Becherer v. Merrill Lynch, Pierce, Fenner & Smith, 43

F.3d 1054, 1071 (6th Cir. 1995).

3. Petitioners Injected Themselves Into the District

Court’s Forum and Consented to the District Court’s

Exercise of Personal Jurisdiction.

In addition to consenting to the District Court’s exer-

cise of personal jurisdiction by actually trying their con-

tract claims against Shelter Seagate before the District

Court, petitioners acknowledged in several ways that

they were subject to the District Court’s personal jurisdic-

tion.

a. The Interpleader

Before the District Court dismissed plaintiffs’ claims,

the Registry Hotel Corporation filed an interpleader

action in the District Court against Shelter Seagate, the

Becherer class representatives and all other unit owners

similarly situated. The hotel’s unit owners, including all

petitioners, were organized in a formal organization

called the Association of Unit Owners of the Registry

Hotel (“AUO”). The AUO moved to intervene in the

interpleader action. The District Court allowed interven-

tion and, in its opinion and order dated August 13, 1992,

described the interpleader action as ancillary to the

Becherer litigation.

b. The Florida Foreclosure Actions

While both the Becherer litigation and the inter-

pleader action were pending before the District-Court,

Trustbank, which provided mortgage loans to unit

owners to finance their investment in the Hotel, began

foreclosure actions in Florida against a number of unit

owners that refused to pay their mortgages. Those unit

owners, many of whom are petitioners here, filed counter-

claims in the Florida foreclosure proceedings nearly iden-

tical to the Becherer class action complaint. Thomas Grady,

petitioners’ counsel here, represents petitioners in those

foreclosure actions. Class counsel appears as co-counsel

with Grady in many of those actions.

The unit owners moved the Florida court for a stay of

the foreclosure actions pending the District Court’s deci-

sions and orders in Becherer arguing in its brief that a stay

was appropriate because “[a]ny judgment in the class

action lawsuit will act as an estoppel to Trustbank and the

defendant from litigating issues common to both causes of

action which are actually litigated and decided in the

prior action.” The Florida Second District Court of

Appeal stayed the Florida foreclosure actions pending the

District Court’s decision in Becherer. Dykes v. Trustbank

Sav., F.S.B., 567 So.2d 958 (Fla. Ct. App. 2d Dist. 1990).

c. The Florida Action to Compel Arbitration with

the AUO

‘In April of 1990, Shelter Seagate, in an effort to

resolve a dispute with the AUOQ about management and

agency fees to which it believed it was entitled, filed a

notice of arbitration against the AUO with the American

Arbitration Association. The AUO refused to arbitrate,

forcing Shelter Seagate to file an action in Florida state

court seeking to compel arbitration. On August 29, 1990,

the AUO filed a motion to stay Shelter Seagate’s efforts to

compel arbitration pending the District Court’s decision

in Becherer. In its brief in support of its motion to stay the

proceedings, the AUO asserted that the District Court in

Becherer had personal jurisdiction over the individual unit

owners and that the parties before the District Court in

Becherer and the parties before the Florida court were

identical. The AUO stated in its brief, “[a]lthough the

AUO is not named in the class action, these actions

involve the same parties.” In further support of its

motion for a stay, the AUO argued that a stay of the

Florida action to compel arbitration was appropriate

because the decision of the District Court in Becherer

would be res judicata in the Florida action.

In addition to the AUO’s intervention in the inter-

pleader action and its request to the Florida state court

that the motion to compel arbitration be stayed pending

the outcome of Becherer, the AUO formally participated in

Becherer by filing briefs and by negotiating for nine

months with the defendants to achieve the provisional

settlement of not only Becherer but also the interpleader

action and the Florida action to compel arbitration.

4. Proceedings Relating to the District Court’s March

24, 1992 Order

During the nine months of settlement negotiations, a

rift developed between Elwood Simon, counsel for the

class, who supported the settlement, and Thomas Grady,

counsel for petitioners, who opposed the settlement. This

dispute prompted Grady to instruct Simon not to commu-

nicate with petitioners. Grady also instructed counsel for

the AUO not to communicate with petitioners.

Simon asked the District Court to intervene and the

District Court held a hearing regarding appropriate com-

munications between the unit owners’ lawyers and the

class. The Court then issued an order requiring all three

lawyers “to impart only accurate, objective and balanced

information regarding the settlement... . ”

By the spring of 1992, the settlement was defeated

and at that point, the settlement communication Order

expired.

o-

SUMMARY OF ARGUMENT

A writ of certiorari should not issue because the case

involves no important question of federal law and is not

ripe for review. Petitioners seek this Court’s review

because they claim that the District Court departed from

the accepted and usual course of judicial proceedings,

and that the Court of Appeals sanctioned that departure.

Both the determination of the jurisdictional basis a fed-

eral court requires to enjoin a state court proceeding and

ie neil nme ie

the issuance of the March 24, 1992 Order, however,

involved standard applications of law that do not warrant

review by this Court. Moreover, the Court of Appeals

vacated the injunction about which petitioners complain

and remanded the case to the District Court for an evi-

dentiary hearing on whether application of the doctrine

of virtual representation will allow reissuance of an

injunction to bar petitioners from relitigating claims

already decided by the District Court.

The questions presented, moreover, are not appropri-

ate for the exercise of this Court’s jurisdiction because the

rulings below do not conflict with the holdings of this

Court or any other Circuit Court of Appeals and they are

consistent with the application of existing law.

The District Court has personal jurisdiction over peti-

tioners as petitioners have repeatedly injected themselves

into the District Court’s forum. Petitioners’ challenge to

the District Court’s March 24, 1992 Order is moot because

that Order lapsed almost three years ago. Moreover, the

District Court properly issued its March 24, 1992 Order in

accordance with its powers under Fed. R. Civ. P. 23(d) to

control the proceedings of class actions.

*

REASONS TO DENY THE WRIT

I. BECAUSE THE COURT OF APPEALS REMANDED

THIS CASE TO THE DISTRICT COURT, THE CASE

IS NOT RIPE FOR REVIEW.

Petitioners seek this Court’s review to overturn the

Court of Appeals’ decision vacating the District Court's

|

10

injunction and remanding the case for further factual

findings. In effect, petitioners seek to prevent the District

Court’s reconsideration of its injunction enjoining peti-

tioners from pursuing their claims in Florida state court.

As such, the issue is not ripe for review by this Court. See

Brotherhood of Locomotive Firemen & Enginemen v. Bangor &

A.R. Co., 389 U.S. 327, 328 (1967) (“[BJecause the Court of

Appeals remanded the case, it is not yet ripe for review

by this Court.”)

Il. PETITIONERS HAD SUFFICIENT MINIMUM

CONTACTS WITH THE DISTRICT COURT TO

ALLOW ITS EXERCISE OF PERSONAL JURISDIC-

TION OVER THEM.

Petitioners misstate the jurisdictional basis upon

which the District Court enjoined the Florida state court

proceedings. Petitioners claim that the District Court did

not have personal jurisdiction over them and so was

without authority to enjoin the subsequent Florida state

court action under the relitigation exception to the Anti-

Injunction Act, 28 U.S.C. § 2283. This claim is incorrect

because petitioners had already submitted themselves to

the personal jurisdiction of the District Court when they

participated as class members in a trial against Shelter

Seagate; when they participated in an interpleader action

ancillary to Becherer, and before the same District Court;

when the AUO, an organization to which each petitioner

belongs, formally and informally participated in Becherer

by filing briefs; and when they participated for nine

months in settlement negotiations. |

|

11

Petitioners, by repeatedly seeking substantive relief

from the District Court, have waived any objection to

personal jurisdiction. A party can voluntarily or involun-

tarily waive its objections to personal jurisdiction. See

White v. National Football League, 41 F.3d 402, 407 (8th Cir.

1994); Trans World Airlines v. Mattox, 897 F.2d 773, 786 (5th

Cir.), cert. denied, 498 U.S. 926 (1990); see also Insurance

Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee,

456 U.S. 694, 704-05 (1982) (stating that a party may

legally submit to the jurisdiction, “whether voluntary or

not”). Thus, “[i]f a party enters a case, makes no objection

| to jurisdiction, and asks the court to act on its behalf in

. some substantive way, it will be held to have waived

further objection.” Grammenos v. Lemos, 457 F.2d 1067,

1070 (2d Cir. 1972), quoted in Trans World Airlines, 897 F.2d

at 786, and Cactus Pipe & Supply Co. v. M/V Montmartre,

756 F.2d 1103, 1108 (5th Cir. 1985); see also In re Real Estate

Title & Settlement Servs. Antitrust Litig., 869 F.2d 760, 771

(3d Cir.) (“Of course, a party should be deemed to con-

sent to personal jurisdiction if it actually litigates . . . the

underlying merits of the class action... . ”), cert. denied

sub nom., Chicago Title Ins. Co. v. Tuscon Unified Sch. Dist.,

493 U.S. 821 (1989).

Actions that a court will construe as a waiver of

personal jurisdiction include active participation in dis-

covery, filing of motions, participation in a trial, interven-

tion into an action, and objection to a class settlement.

: White, 41 F.3d at 407-08; Grimes v. Vitalink Communications

: Corp., 17 F.3d 1553, 1558 n.5 (3d Cir.), cert. denied, 115 S.

Ct. 480 (1994); Trans World Airlines, 897 F.2d at 786-87. All

of these actions are present here.

PVR Va Nec petel 2 wR ae

12

Petitioners actively participated in the litigation

because they were part of the plaintiff class in an expe-

dited trial of breach of contract claims against Shelter

Seagate. The AUO intervened in the ancillary inter-

pleader action before the District Court on behalf of all its

members including petitioners. Some petitioners filed a

notice of appearance and objection to the provisional

class settlement. All petitioners participated in settlement

negotiations through the AUO. Petitioners have submit-

ted to the District Court, have accepted, and at times

welcomed, the District Court’s action on their behalf and

have thereby waived any objection to personal jurisdic-

tion.

Petitioners argue that in a class action, the only way a

Court may obtain personal jurisdiction of class members

is by notice and opportunity to opt out of the class on

every litigated issue. This argument must fail. Indeed, in

Carlough v. Amchem Products, 10 F.3d 189 (3rd Cir. 1993), a

case relied upon heavily by petitioners, the court held

that an injunction could not be entered against an absent

class member only when there were no other minimum

contacts with the forum and when they were denied the

opportunity to opt out of the class.

In the case at bar, petitioners had more than just

minimum contacts with the forum; they participated both

formally and informally in the Becherer litigation as well

as in ancillary cases. Moreover, at the evidentiary hearing

that has been ordered on remand, there will likely be

evidence of additional contacts petitioners have had with

the District Court.

Petitioners’ boldly stated and oft repeated assertion

that the District Court lacked personal jurisdiction is

13

absurd because each petitioner opted into the District

Court’s personal jurisdiction when they became part of

the class on the contract claims. Given that, petitioners

are forced to argue that if the Court offers the class an

opportunity to opt out of a settlement, it loses the per-

sonal jurisdiction it had gained before. This cannot be,

because once petitioners consent to the jurisdiction of the

District Court for one purpose, they consent for all pur-

poses in the litigation. For example, a plaintiff is deemed

to consent to the forum court's jurisdiction for all coun-

terclaims, including non-compulsory counterclaims.

Dewey & Almy Chemical Co. v. Johnson, Drake & Piper, Inc.,

25 F. Supp. 1021, 1022 (D.C.N.Y. 1939). Thus, in this case

petitioners’ position that the District Court did not have

personal jurisdiction should be flatly rejected.!

Ill. UNDER TRADITIONAL PRINCIPLES OF RES

JUDICATA AND COLLATERAL ESTOPPEL, THE

DISTRICT COURT MAY PROPERLY ENJOIN

PETITIONERS’ STATE COURT PROCEEDINGS

UNDER THE ANTI-INJUNCTION ACT UPON

FINDING PETITIONERS IN PRIVITY WITH THE

PARTIES BEFORE IT.

Under the relitigation exception to the Anti-Injunc-

tion Act, the District Court may “enjoin a party before it

from attempting to relitigate an issue in a state court, to

1 In their brief at p-15 petitioners state, “No one contests

that Petitioners lacked the requisite minimum contacts and that

Petitioners did not consent to personal jurisdiction.” In point of

fact, everyone, including the District Court, the Court of

Appeals and all defendants, contests that proposition.

14

‘prevent any interference’ with the federal court's judg-

ment.” In re Ocean Ranger Sinking Off Newfoundland, 617 F.

Supp. 435, 436 (E.D. La. 1985) (citation omitted). The

District Court may also enjoin non-parties who are in

privity with parties before it. Royal Ins. Co. v. Quinn-L

Capital Corp., 960 F.2d 1286, 1297 (Sth Cir. 1992), cert.

denied, 114 S. Ct. 1541 (1994); Amalgamated Sugar Co. v. NL

Industries, Inc., 667 F. Supp. 87, 94-5 (S.D.N.Y. 1987);

Southwest Airlines Co. v. Texas International Airlines, Inc.,

396 F. Supp. 678, 686 (N.D. Tex. 1977), aff'd 546 F.2d 84

(5th Cir.), cert. denied, 434 U.S. 832 (1977). A court will

find a non-party to be in privity with a named party ina

prior suit “where the party to the first suit is so closely

aligned with the nonparty’s interests as to be his ‘virtual

representative.’ ” Royal Ins. Co., 960 F.2d at 1297 (citations

omitted).

The Circuit Courts of Appeals agree that whether

privity exists is a question of fact for the trial court. See

Thompson v. Freeman, 648 F.2d 1144, 1147 (8th Cir. 1981);

Aerojet-General Corp. v. Askew, 511 F.2d 710, 719 (5th Cir.),

cert. denied sub nom., Metropolitan Dade County v. Aerojet-

General Corp., 423 U.S. 1026 (1975); see also Gerrard v.

Larsen, 517 F.2d 1127, 1135 (8th Cir. 1975) (remanding the

case for a factual determination on issues of privity); cf.

NLRB v. Schnell Tool & Die Corp., 359 F.2d 39, 44 (6th Cir.

1966) (advising the plaintiff to bring supplemental pro-

ceedings before the National Labor Relations Board to

determine issues of privity).

The District Court and the Court of Appeals did not

err, much less depart from the accepted and usual course

of judicial proceedings, in determining that the District

Court could enjoin petitioners’ state court proceedings if

15

the class plaintiffs “virtually represented” the interests of

petitioners. Furthermore, the Court of Appeals did not

depart from the standard course of proceedings in

remanding the case to allow the District Court to make

factual findings on this issue.

The decision of the Court of Appeals to remand the

case for further factual findings is particularly appropri-

ate given the likelihood that the District Court will find

the parties before it virtually represented petitioners.

Courts seeking to determine whether a named party was

the virtual representative of a non-party consider such

factors as the non-party’s participation in the first trial,

the non-party’s apparent consent to be bound, apparent

tactical maneuvering and the non-party’s relationship to

the named party. 18 C. Wright, et al., Federal Practice and

Procedure § 4457 (1981 and Supp. 1995), all of which are

present in this case.

Again, all petitioners participated in an expedited

trial in the District Court on their breach of contract

claims. Some petitioners filed an objection to the provi-

sional settlement in the District Court. The belated filing

of state court arbitration proceedings and the preliminary

blocking of state court foreclosure proceedings by argu-

ing the res judicata effect of Becherer, are examples of

petitioners’ tactical maneuvering. Finally, the AUO

admits its members, including petitioners, are identical to

the plaintiff class. Hence, the District Court would not

depart from the accepted and usual course of proceedings

on remand if it were to find that the parties before it

virtually represented petitioners’ interests.

16

IV. BECAUSE THE DISTRICT COURT’S MARCH 24,

1992 ORDER LAPSED WHEN THE PROPOSED

SETTLEMENT FAILED, QUESTIONS REGARD-

ING THE ORDER’S CONSTITUTIONALITY ARE

MOOT.

The District Court’s March 24, 1992 Order, which

directed counsel to provide class members with “accu-

rate, objective, balanced information regarding the settle-

ment,” lapsed when the settlement failed. In cases in

which an alleged violation has ceased and likely will not

recur, or where interim events have “completely and

irrevocably eradicated the effects of the alleged viola-

tion,” the issues raised regarding the alleged violation

become moot. Finberg v. Sullivan, 658 F.2d 93, 97-98 (3d

Cir. 1980); see also Super Tire Engineering Co. v. McCorkle,

469 F.2d 911, 916 n.10 (3d Cir. 1972) (“Cases dealing with

elections that have taken place, orders that have expired

before review, and injunctions that have lapsed . . . are a

third type of case in which mootness occurs.”), rev'd on

other grounds, 416 U.S. 115 (1974). Thus, as the Court of

Appeals determined, petitioners’ claims surrounding the

purported unconstitutionality of the District Court's

March 24, 1992 Order are moot. As such, this Court

should decline to hear them.

V. THE DISTRICT ZOURT’S MARCH 24, 1992

ORDER REPRESENTS A STANDARD EXERCISE

OF THE DISTRICT COURT’S POWERS TO CON-

TROL CLASS ACTION LITIGATION.

The District Court’s March 24, 1992 Order repre-

sented a proper exercise of the District Court’s powers

17

under Fed. R. Civ. P. 23(d) to control class action litiga-

tion. According to Fed. R. Civ. P. 23(d)(3), a District Court

may make orders that “impose conditions on the repre-

sentative parties or on intervenors.” Such conditions may

not “create unwarranted barriers to class suits.” 7B C.

Wright, et al., Federal Practice and Procedure § 1794 (1986).

For example, a court may not require parties to receive

prior judicial approval before communicating with coun-

sel or third parties. Id. A court may, however, place

conditions on a counsel’s communication with parties so

long as a specific record supports the order, and so long

/ as the order is narrowly drawn and specitic. Id.

—

In this case, as mentioned above, the District Court

did not prohibit communications between petitioners and

their counsel, nor did it require prior judicial approval of

any communications. Rather, the District Court required

only that the communication from any of the lawyers

representing petitioners (class counsel, petitioners’ coun-

sel, and AUO counsel) be accurate, objective, and bal-

anced. Furthermore, the District Court limited its order to

communications regarding the settlement. The District

Court’s order was thus narrowly drawn, specific, and

directed to all involved counsel.

In addition, the District Court issued its Order only

after holding a hearing to consider petitioners’ counsel's

demand that direct communications between petitioners

and class counsel be terminated. At that hearing, the

District Court determined that the settlement approval

process could be undermined because of inaccurate

advice rendered by any of the counsel. Hence, the District

Court established a specific record supporting its order.

The District Court, therefore, did not depart from the

18

accepted and usual course of proceedings when it issued

the March 24, 1992 Order.

CONCLUSION

For all the reasons stated above, this Court should

deny the petition for a writ of certiorari.

Dated this 26th day of July, 1995

Respectfully submitted,

Steve W. GASKINS

(Counsel of Record)

CosGROVE, FLYNN & Gaskins, P.L.L.P.

333 South Seventh Street

Minneapolis, Minnesota 55402

(612) 333-9500

Mary CuLL—EN YEAGER

FAEGRE & BENSON

Professional Limited Liability

Partnership

2200 Norwest Center

90 South Seventh Street

Minneapolis, Minnesota 55402

(612) 336-3000

Attorneys for Respondents Shelter Seagate

Corporation, Can-American Corporation,

Can-American Realty Corporation, Garrett

G. Carlson, Arni C. Thorsteinson and

Graham C. Lount