In re Prudential Ins. Co. Sales Practices Lit., 01-4085.

• Decision Date: 19 December 2002
• Docket Number: No. 01-4085.,01-4085.
• Citation: 314 F.3d 99
• Parties: In Re: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA SALES PRACTICES LITIGATION Frank La Marra; Giuseppina La Marra; Reardon Golinkin & Reed, Appellants
• Court: U.S. Court of Appeals — Third Circuit

Page 99

314 F.3d 99

In Re: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA SALES PRACTICES LITIGATION

Frank La Marra; Giuseppina La Marra; Reardon Golinkin & Reed, Appellants

No. 01-4085.

United States Court of Appeals, Third Circuit.

Argued July 15, 2002.

Filed December 19, 2002.

Scott O. Reed (Argued), Karen A. Reardon, Reardon Golinkin & Reed, Chicago, IL, for Appellants.

Edward J. Reich (Argued), Michael H. Barr, Sonnenschein Nath & Rosenthal, New York, NY, for Appellee.

Before SCIRICA, ALITO and FUENTES, Circuit Judges.

OPINION OF THE COURT

SCIRICA, Circuit Judge.

Plaintiffs are unnamed members in a nationwide federal class action involving the fraudulent sale of insurance policies by agents of Prudential Insurance Company. The class action was settled in 1997 and has paid out more than four billion dollars to eight million class members through a comprehensive alternative dispute resolution program.

Although plaintiffs have received their full allotment of proceeds under the settlement, they challenged — in state court and under state law — the manner in which the defendant insurance company handled their claims. Defendants removed the case to federal court seeking to enjoin prosecution of plaintiffs' claims. After the District Court granted the requested injunction and found removal proper, plaintiffs appealed. At issue is whether the District Court had authority under the All Writs Act to enjoin the state action and retain removal jurisdiction. We will affirm the District Court's issuance of the injunction, but reverse with respect to the propriety of the removal.

I.

Each of plaintiffs' claims is related to an eight-million member class action directed at a pattern of fraudulent practices in the sales of life insurance policies. A multitude of federal cases, including many that had been removed from state court, were consolidated in the United States District Court for the District of New Jersey as MDL 1061. In 1997, the District Court certified a nationwide class and approved a settlement, In re Prudential Ins. Co. Sales Practices Litig., 962 F.Supp. 450 (D.N.J. 1997), which we affirmed. 148 F.3d 283, 289 (3d Cir.1998). The class included persons who had purchased certain insurance policies, including "variable appreciable life" policies ("VALs") from Prudential between 1982 and 1995.¹ The District Court found that during this period, Prudential "used pervasive and systematic deceptive sales tactics to sell many individuals a great number of life insurance policies, to the benefit of Prudential and its sales agents, but to the detriment of trusting consumers." 962 F.Supp. at 467.

Among the avenues for relief available to class members under the settlement was a multi-leveled alternative dispute resolution process ("ADR"). See Prudential, 148 F.3d at 294-96. This process permitted the presentation of individual claims by each class member in order to obtain all of the relief contemplated by the settlement. Each claim was first evaluated by the Claim Evaluation Staff, comprised of Prudential employees. A less than fully-favorable determination was automatically transmitted to a team of independent claim evaluators for review. These evaluators would make a recommendation to the Claim Review Staff — a group again comprised of Prudential employees. The claimant — but not Prudential — was entitled to de novo review of the Claim Review Staff's determination by the Appeals Committee, which was selected jointly by the company, class counsel, and state regulators. Successful claimants were awarded, inter alia, refunds of premiums, rescission of policies, "enhanced value policies which allow members to purchase new policies with additional coverage paid for by Prudential," and various forms of compensatory relief.² Id. at 296-97.

Plaintiffs Frank and Giuseppina La Marra are New Jersey residents who purchased nine life insurance policies from Prudential for themselves and their children. Of these, seven were VALs purchased within the class period. One was a VAL purchased after the class period. The La Marras settled their claims with respect to that policy separately. The last policy was a term life policy not within the scope of the settlement. Defendants assert, and plaintiffs do not contest, that after the filing of the complaint, but before the District Court decided this case, plaintiffs converted that policy to a VAL, and obtained relief through the procedures contemplated by the settlement.

The La Marras pursued their claims in ADR.³ At some point during the ADR process, the La Marras became dissatisfied with Prudential's handling of their claims and filed an action in Illinois state court seeking damages arising from Prudential's actions. They have since completed the ADR process and do not challenge the adequacy of the relief obtained there.

The complaint alleges four causes of action, all of which arise under New Jersey state law. Count I is for negligence. Plaintiffs allege Prudential had a duty of care "in processing their claims on the ADR Policies in a fair, efficient and reasonable manner." Because Prudential violated this duty, "the La Marras have suffered damage including but not limited to, the lost use of the premiums they wrongfully paid to Prudential; finance charges, bank charges and legal fees incurred as the result of their lack of access to those funds during the period of Prudential's wrongful delay; emotional distress and mental anguish; and other damages." As plaintiffs characterize this claim, it does not implicate the terms of the settlement nor the relief they received under it. They only seek damages resulting directly from the alleged negligent handling of their claims.

Count II is a claim for "bad faith claims handling" under New Jersey law. This cause of action arises under a New Jersey statute, N.J. Stat. Ann. § 17B:30-13.1, which governs insurance companies' duties in processing insurance claims. Plaintiffs contend the various missteps by Prudential in handling the ADR process violate this statute.⁴ The conduct underlying their claim would appear to be essentially the same conduct allegedly providing the cause of action in Count I.

Plaintiffs allege in Count III, on behalf of Reardon, Golinkin & Reed, "intentional interference with contract," claiming Prudential's handling of the ADR process injured the law firm by interfering with its relationship with the La Marras. Among other wrongs, plaintiffs allege Prudential inappropriately communicated directly with the La Marras, even though they were represented by counsel for purposes of the ADR process.

The final count, Count IV, is for "unsuitability," a substantive claim addressing the improper sale of the term life policy purchased by the La Marras not covered by the class action. Plaintiffs claim this policy was an "unsuitable" life insurance product. But again, it appears that after the complaint was filed, the La Marras converted the policy into a VAL and processed claims related to this policy through ADR. Thus, it seems they have obtained relief for all of the policies they purchased — the seven within the class, the later-purchased one independently settled, and the term life policy later converted and processed through ADR.⁵

Plaintiffs' central claims address negligent and bad faith handling of their claims under the ADR process. They stress they do not take issue with the ultimate results of that process. Instead, they contend Prudential's poor handling of their claims, by means of unreasonable delay and other factors,⁶ caused injuries giving rise to claims under New Jersey law.

Plaintiffs filed these state law claims in Illinois state court on December 5, 2000. Prudential removed the case to the United States District Court for the Northern District of Illinois on January 5, 2001. On February 1, 2001, the Judicial Panel on Multidistrict Litigation issued a conditional order to transfer the case to the United States District Court for the District of New Jersey. The next day, plaintiffs moved to remand. Following briefing and argument, the MDL panel transferred the case.

By the time the Illinois case was transferred to the New Jersey District Court, Prudential had already filed its motion to stay the Illinois case. Plaintiffs filed a renewed motion to remand the case back to state court. Considering both motions, the District Court ruled in favor of Prudential and enjoined "further prosecution of the claims set forth in respondents' complaint in this or any other forum." It also held that "[r]espondents' contention that their lawsuit should be remanded for lack of subject matter jurisdiction is without merit." In re Prudential Ins. Co. Sales Practices Litig., No. 95-4707, at 13 (E.D.Pa. Oct. 12, 2001). Retaining jurisdiction, the District Court dismissed plaintiffs' claims "with prejudice." Id. Plaintiffs appealed.

II.

Plaintiffs challenge both the injunction and the removal.⁷ They contend the injunction violated the Anti-Injunction Act, 28 U.S.C. § 2283, which prohibits most federal court injunctions staying state court proceedings, and that the Illinois case should have been remanded, as the District Court lacked any basis for asserting jurisdiction over that case. While the injunction and the dismissal have a similar effect, these issues are analytically independent. The injunction does not turn on the propriety of the removal. The injunction was issued under the federal court's jurisdiction in MDL 1601, which it had whether or not the state claims were removed. The removal issue goes only to the court's authority to dismiss plaintiffs' claims with prejudice, an issue related to — but distinct from — the court's authority to issue the injunction.

a. Injunction.

District courts are empowered by the All Writs Act to "issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law." 28 U.S.C. § 1651. This authority is limited,...