Sandpiper Village v. Louisiana-Pacific., 03-35058.

• Decision Date: 24 October 2005
• Docket Number: No. 03-35058.,03-35058.
• Parties: SANDPIPER VILLAGE CONDOMINIUM ASSOCIATION, INC., a Florida corporation and all others similarly situated; Craig Ostergren, co-conservator for Keith Ostergren, a minor, on behalf of themselves and all others similarly situated; Cheryl Ostergren, co-conservator for Keith Ostergren, a minor, on behalf of themselves and all others similarly situated; Keith Ostergren, a minor; Byron Alton; Susan Alton; Cpc Ltd., Washington Real Estate Developer, Plaintiffs, v. LOUISIANA-PACIFIC CORPORATION, a Delaware corporation, Defendant-Appellee, Lester Building Systems, a division of Butler Manufacturing Company; Lester's of Minnesota, Inc., Respondents-Appellants, State of Minnesota, Respondent-Amicus, and Harry A. Merlo, Defendant, State of Minnesota, Respondent, Insurance Company of North America; Cigna Insurance Company of North America; Northwestern Pacific Indemnity Company, Agricultural Insurance Company; National Union Fire Insurance Company; Lexington Insurance Company; Granite State Insurance Company, Defendant-Intervenors, v. James W. Gilles; Dale J. Matherly; Douglas Meckling; Michael L. Watts, Plaintiff-Intervenors.
• Court: U.S. Court of Appeals — Ninth Circuit

428 F.3d 831

SANDPIPER VILLAGE CONDOMINIUM ASSOCIATION, INC., a Florida corporation and all others similarly situated; Craig Ostergren, co-conservator for Keith Ostergren, a minor, on behalf of themselves and all others similarly situated; Cheryl Ostergren, co-conservator for Keith Ostergren, a minor, on behalf of themselves and all others similarly situated; Keith Ostergren, a minor; Byron Alton; Susan Alton; Cpc Ltd., Washington Real Estate Developer, Plaintiffs, v. LOUISIANA-PACIFIC CORPORATION, a Delaware corporation, Defendant-Appellee, Lester Building Systems, a division of Butler Manufacturing Company; Lester's of Minnesota, Inc., Respondents-Appellants,

State of Minnesota, Respondent-Amicus, and Harry A. Merlo, Defendant, State of Minnesota, Respondent, Insurance Company of North America; Cigna Insurance Company of North America; Northwestern Pacific Indemnity Company, Agricultural Insurance Company; National Union Fire Insurance Company; Lexington Insurance Company; Granite State Insurance Company, Defendant-Intervenors, v. James W. Gilles; Dale J. Matherly; Douglas Meckling; Michael L. Watts, Plaintiff-Intervenors.

No. 03-35058.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 4, 2004.

Filed October 24, 2005.

COPYRIGHT MATERIAL OMITTED

Kell M. Damsgaard (argued) and Brian W. Shaffer, Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania; Janet M. Schroer, Hoffman, Hart & Wagner, Portland, Oregon, for the respondent-appellant.

Michael H. Simon (argued) and Jeffrey C. Dobbins, Perkins Coie LLP, Portland, Oregon, for the defendant-appellee.

Mike Hatch, Attorney General, David Woodward, Assistant Attorney General, for the State of Minnesota.

Appeal from the United States District Court for the District of Oregon; Robert E. Jones, District Judge, Presiding. D.C. No. CV-95-00879-JO.

Before: REINHARDT, SILVERMAN and CLIFTON, Circuit Judges.

CLIFTON, Circuit Judge:

Lester Building Systems and its affiliate, Lester's of Minnesota, Inc. (collectively "Lester"), appeal an order permanently enjoining entry of judgment on a portion of a jury verdict rendered in favor of Lester and against Louisiana-Pacific Corporation ("L-P") in Minnesota state court. In re Louisiana-Pacific Inner-Seal Siding Litigation, 234 F.Supp.2d 1170 (D.Or.2002). The district court exercised its authority under the All Writs Act, 28 U.S.C. § 1651, to partially enjoin entry of the judgment on the ground that the state court award was inconsistent with the settlement reached in a prior nationwide class action involving L-P and over which the court retained jurisdiction. We conclude that the injunction violates the Anti-Injunction Act, 28 U.S.C. § 2283, and reverse.

I. Background

Class Action and Settlement

L-P manufactures building materials from industrial wood products and pulp and markets itself as an innovator in the development of new, affordable and environmentally advanced products for home and commercial builders. Beginning in 1985, L-P manufactured and sold an exterior composite-wood siding designed to resemble conventional lumber for use on residential and other structures. L-P referred to this siding as "Inner-Seal Siding," a registered trademark. L-P provided a 25-year limited warranty with the purchase of Inner-Seal Siding.

In 1995, owners of structures on which Inner-Seal Siding had been installed brought a class action lawsuit in the District Court for the District of Oregon for damages resulting from the failure of Inner-Seal Siding. The class plaintiffs alleged that while L-P had advertised and marketed Inner-Seal Siding as durable, effective and superior to other types of exterior siding, the siding had prematurely rotted, buckled, cracked and otherwise deteriorated when exposed to normal weather conditions.

The federal action, which covered a nationwide class of claimants, settled shortly after it was filed. On April 26, 1996, the district court approved and adopted a settlement agreement and entered an order and final judgment. Pursuant to the settlement agreement and order, L-P agreed to finance a settlement fund and, in exchange, class claims related to the failure of Inner-Seal Siding were released.¹ L-P also agreed to reinstate the balance of the term on its 25-year warranty upon termination of the settlement agreement, to be measured from the date of original installation. The settlement was binding on all class members, save those who timely requested exclusion from the class.² The settlement did not cover claims arising from the failure of new siding installed after January 1, 1996.

In addition to the release of claims against L-P, the class members released all claims related to the failure of Inner-Seal Siding (installed prior to January 1, 1996) against persons or entities "involved in the distribution, installation, construction and first time sale of structures with Exterior Inner-Seal Siding." This provision was included to foreclose the possibility that class members would bring claims against businesses located in the Inner-Seal Siding chain of distribution. Claims against L-P by persons or entities within the chain of distribution were not released, however.

Under the settlement agreement and order, the district court retained jurisdiction, described as follows:

[E]xclusive and continuing jurisdiction over the Actions and Parties, including all members of the Class, the administration and enforcement of the settlement, and the benefits to the Class, including for such purposes as supervising and implementation, enforcement, construction, and interpretation of the Settlement Agreement.

By September 2003, L-P had agreed to meet all funding obligations and had made cash payments totaling approximately $509 million to about 142,000 claimants in satisfaction of approximately $823 million in claims.³

Minnesota Lawsuit

Lester, a Minnesota corporation, designs, constructs and sells pre-engineered wood buildings for livestock confinement. Lester purchased Inner-Seal Siding from 1991 to 1996 and incorporated the siding into the structural wall panels of buildings sold to its customers. As a distributor of buildings equipped with Inner-Seal Siding, Lester was not a class member and was not a party to the settlement agreement. Class member claims against Lester were released by the settlement, however.

In March 2000, Lester brought an action against L-P in Minnesota state court. Lester sought damages for breach of contract, breach of express and implied warranties, fraud and loss of business reputation as a consequence of having used defective Inner-Seal Siding in its buildings. Lester alleged that it had sold approximately 2,600 buildings with Inner-Seal Siding but that it stopped using the siding in 1996 because of complaints from its dealers and customers. Lester further alleged that it "has received and will continue to receive hundreds of claims and complaints ... which must be administered and resolved in order to avoid further losses."

Lester recognized that new claims by class members were foreclosed by the settlement agreement but observed that the settlement "provide[d] no relief or monetary compensation to [Lester], [its] dealers, or others similarly situated." Because its injuries were not redressed by the settlement agreement, Lester asserted that L-P was

obligated and required: (i) to pay, reimburse, and indemnify [Lester] for all monies [it] pay[s] and expenses [it] reasonably incur[s] in properly satisfying the claims of [its] dealers and customers arising from defects in and failure of L-P's Inner-Seal; and (ii) to pay, reimburse, and indemnify [Lester] for all other damages and losses [it has] now incurred and will incur as a result of [its] purchase and use of L-P's Inner-Seal [Siding].

Lester sought damages "in an amount to be determined at trial" and "an affirmative injunction requiring L-P to resume honoring its warranties and other legal obligations, including, but not limited to reimbursing [Lester] for satisfying the claims of [Lester's] dealers and customers."

L-P disagreed with Lester's interpretation of the res judicata effect of the settlement agreement and moved for partial summary judgment on all present and future claims against L-P related to the failure of Inner-Seal Siding. In particular, L-P argued that Lester's claim for the costs to repair its customers' buildings was barred because a substantial portion of Lester's customers were members of the prior class action and covered by the settlement agreement.

The trial court denied the motion. The court held that under Minnesota law a distributor can recover costs it may incur in the future with respect to a defective product that was placed in the stream of commerce. The court concluded that there were genuine issues of material fact as to whether the settlement agreement precluded recovery of those damages and with respect to the amount of those damages, if any.

The case was tried in September and October 2002.⁴ A significant portion of the trial centered on the issue of damages. Lester argued that moral and business compulsions required it to remove and replace the Inner-Seal Siding on every building that it sold, even if the owner of the building had received at least some compensation in the prior settlement with L-P. Lester's position was explained by its president, who testified that

the best thing we could expect to come out of this is that we finally get ... the farmer what he's entitled to, which is he bought a building and expected to have his siding hold up, and that's what we need to make happen and that's why we're here. We're trying to make that result happen.

...

I want each of you to know that we're going to fix these buildings. That's why we're here. Counsel in some of the lead up to trial has at least left me with some kind of general impression that, you know, is there any guarantee that the customer will be taken care of here? And I would ask you to look...