Hanover Am. Ins. Co. v. Tattooed Millionaire Entm't, LLC

• Decision Date: 28 June 2022
• Docket Number: 21-5671
• Citation: 38 F.4th 501
• Parties: HANOVER AMERICAN INSURANCE COMPANY, Plaintiff-Appellee, v. TATTOOED MILLIONAIRE ENTERTAINMENT, LLC, et al., Defendants, John Falls, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

38 F.4th 501

HANOVER AMERICAN INSURANCE COMPANY, Plaintiff-Appellee,

v.TATTOOED MILLIONAIRE ENTERTAINMENT, LLC, et al., Defendants,John Falls, Defendant-Appellant.

No. 21-5671

United States Court of Appeals, Sixth Circuit.

Argued: April 28, 2022

Decided and Filed: June 28, 2022

ARGUED: Malcolm B. Futhey III, FUTHEY LAW FIRM PLC, Memphis, Tennessee, for Appellant. Jeremy T. Grabill, PHELPS DUNBAR LLP, New Orleans, Louisiana, for Appellee. ON BRIEF: Malcolm B. Futhey III, FUTHEY LAW FIRM PLC, Memphis, Tennessee, for Appellant. Jeremy T. Grabill, Mark C. Dodart, PHELPS DUNBAR LLP, New Orleans, Louisiana, for Appellee.

Before: McKEAGUE, GRIFFIN, and READLER, Circuit Judges.

GRIFFIN, Circuit Judge.

Following a 2015 burglary and fire at the House of Blues music studio in Memphis, Tennessee, a jury awarded $2.5 million to defendant John Falls pursuant to his insurance policy with plaintiff Hanover American Insurance Company. Despite that judgment in Falls's favor, the parties continue to fight over whether Falls is entitled to that entire award. Falls filed suit against defendants Christopher Brown and Tattooed Millionaire Entertainment, LLC (TME) in Tennessee state court, and Hanover filed an interpleader action against Brown, TME, and Falls in federal court. Hanover then moved the federal district court to enjoin Falls's state-court proceeding. The court granted the injunction, concluding that doing so was "necessary in aid of its jurisdiction" under the Anti-Injunction Act, 28 U.S.C. § 2283. We disagree and reverse.

I.

This case stems from insurance fraud committed by Christopher Brown and TME, his production company. A comprehensive recitation of the underlying facts is set forth in Hanover Am. Ins. Co. v. Tattooed Millionaire Ent., LLC (Hanover I ), 974 F.3d 767, 771–75 (6th Cir. 2020). In short, TME owned the House of Blues recording studio in Memphis and leased one of the building's studios to Falls. Hanover issued separate insurance policies to TME and Falls for business personal property (BPP) and for lost business income (BI). In 2015, intruders broke into the House of Blues, vandalized and burgled the studio, and committed arson. Hanover made advance payments to both TME and Falls, but after an investigation, Hanover discovered that Brown had submitted false receipts and had been the target of several similar arson and burglary incidents in the past few years. Hanover sued Brown, TME, and Falls, seeking recovery of the prepaid funds and a declaratory judgment that it did not owe any payments under the insurance policies. Following trial, the jury found that Brown had made material misrepresentations and thus returned a verdict against him, but it found Falls not liable for misrepresentations. Instead, it found that Hanover had breached its contract with Falls and that Falls was entitled to recover the full $2.5 million in BPP insurance and $250,000 in BI insurance as set forth in his policy. Following the verdict, Hanover filed a motion under Fed. R. Civ. P. 50(b) seeking to overturn the verdict in favor of Falls because TME was named as an additional insured on Falls's policy and language in his insurance policy voided coverage if "you or any other insured" misrepresented a material fact. The trial court granted the motion.

However, we reversed on appeal, concluding that Hanover forfeited its Rule 50(b) motion by not first filing a Rule 50(a) motion as to Falls. See Hanover I , 974 F.3d at 779–90. In doing so, we declined to address Hanover's alternative argument for affirmance that payment of the $2.5 million in BPP insurance would violate Tennessee public policy, which dictates that "[n]o one shall be permitted to profit by his own fraud, or to take advantage of his own wrong, or to found any claim upon his own iniquity, or to acquire property by his own crime." Id. at 790 (quoting Box v. Lanier , 112 Tenn. 393, 79 S.W. 1042, 1045 (1904) ). But we explained that, even if Hanover were correct, Falls still had some property interests and could be entitled to some recovery. Id. at 790–91. Thus, we noted that "the proceeds will become the subject of an interpleader action" between the parties:

This was the district court's plan for how to handle the issue: Falls and TME would "sue each other" in the event of a win, but not fight it out during the main trial. Though Falls and Hanover both make interesting legal arguments as to the dispositions of the funds, we see no reason to short-circuit that plan. Such arguments can be made in whatever subsequent proceedings arise over this payment.

Id. at 791. On remand, the district court entered judgment against Hanover and for Falls. That judgment did not require Hanover to pay the $2.5 million into the court's registry for later distribution.

Before Hanover I was decided, Falls filed a complaint for monetary damages and declaratory relief against Brown and TME in Tennessee state court. See Falls v. Brown , Case No. CT-3322-20 (Shelby Cnty. Cir. Ct. Aug. 17, 2020). Three months later, Hanover filed a complaint for interpleader and declaratory relief against Brown, TME, and Falls in federal court under Fed. R. Civ. P. 22, requesting that the court find the $2.5 million BPP award void pursuant to Tennessee public policy or, alternatively, determine to whom Hanover should pay the award or any portion thereof.

Hanover then sought to enjoin Falls's state court action, contending that the district court could do so under the Anti-Injunction Act, 28 U.S.C. § 2283, as an injunction would be "in aid of its jurisdiction." Falls responded that the district court should deny the motion because that exception did not apply. Falls also filed a motion to dismiss and a motion to stay the district court proceedings until the state-court proceedings concluded. The district court denied Falls's motions and granted Hanover's motion to enjoin the state-court proceedings, determining that the "in aid of its jurisdiction" exception to the Anti-Injunction Act applied.

Falls now appeals the district court's grant of Hanover's motion to enjoin the state-court action and its denial of his motion to dismiss.

II.

We begin with the principal issue in this appeal: whether the district court properly enjoined the state-court proceedings under the Anti-Injunction Act. As he did before the district court, Falls contends that the "in aid of its jurisdiction" exception to the Act does not apply. We agree.

"We review de novo the district court's legal determination as to whether an injunction may issue under the Anti–Injunction Act." Great Earth Cos., Inc. v. Simons , 288 F.3d 878, 893 (6th Cir. 2002). "However, the fact that an injunction may issue under the Act does not mean that it must issue." Id. (citation omitted). Thus, the "decision whether to issue an injunction that does not violate the Act is reviewed for an abuse of discretion." Id. (citation omitted).

The Anti-Injunction Act provides that "[a] court of the United States may not grant an injunction to stay proceedings in a State court except as [1] expressly authorized by Act of Congress, or [2] where necessary in aid of its jurisdiction, or [3] to protect or effectuate its judgments." 28 U.S.C. § 2283. The "Act is an absolute prohibition ... against enjoining state court proceedings, unless the injunction falls within one of [its] three specifically defined exceptions." Atl. Coast Line R.R. Co. v. Brotherhood of Locomotive Eng'rs , 398 U.S. 281, 286, 90 S.Ct. 1739, 26 L.Ed.2d 234 (1970). The Act's "message is one of respect for state courts," namely that they should "remain free from interference by federal courts." Smith v. Bayer Corp , 564 U.S. 299, 306, 131 S.Ct. 2368, 180 L.Ed.2d 341 (2011) (citation omitted). As a result, its exceptions "are narrow" and should not "be enlarged by loose statutory construction." Id. (citations omitted).

This appeal focuses solely on whether the "necessary in aid of its jurisdiction" exception applies.¹ This exception has historically been applied when the federal court acquires "in rem" jurisdiction over specific property such that it is "necessary" to prevent other courts from interfering with a court's disposition of that property. See 17A Charles A. Wright & Arthur R. Miller, Fed. Prac. & Proc.: Jurisdiction 2d § 4225 (3d ed.). "Where the action is in rem the effect is to draw to the federal court the possession or control, actual or potential, of the res, and the exercise by the state court of jurisdiction over the same res necessarily impairs, and may defeat, the jurisdiction of the federal court already attached." Kline v. Burke Constr. Co. , 260 U.S. 226, 229, 43 S.Ct. 79, 67 L.Ed. 226 (1922). As the Supreme Court has described:

The rule, therefore, that the court first acquiring jurisdiction shall proceed without interference from a court of the other jurisdiction is a rule of right and of law based upon necessity, and where the necessity, actual or potential, does not exist the rule does not apply. Since that necessity does exist in actions in rem and does not exist in actions in personam, involving a question of personal liability only, the rule applies in the former but does not apply in the latter.

Id. at 235, 43 S.Ct. 79. The "necessary in aid of its jurisdiction" exception, codified in the 1948 revision of the Anti-Injunction Act, is "fairly read as incorporating this historical in rem exception." Vendo Co. v. Lektro-Vend Corp. , 433 U.S. 623, 641, 97 S.Ct. 2881, 53 L.Ed.2d 1009 (1977) (plurality opinion).

We have addressed this exception in three cases of note. First, in Martingale LLC v. City of Louisville , 361 F.3d 297 (6th Cir. 2004), the parties disputed whether a federal court could enjoin a state court condemnation lawsuit related to Big Four Bridge in Louisville, Kentucky. Id. at 299. Louisville had passed a resolution authorizing condemnation of the bridge for use as a pedestrian walkway; the bridge's owner, Martingale, filed a declaratory action in federal court before Louisville filed its...