SAN FRANCISCO – The U.S. District Court for the Northern District of California reached a decision May 25 on when a federal court can enjoin state proceedings under the Private Securities Litigation Reform Act and the Anti-Injunction Act.
The court, led by Justice Richard Seeborg, citing a previous court decision listed several circumstances in which an injunction might be appropriate, including where a class settlement was imminent, where the federal litigation was advanced, and when evidence of collusive procedures exists.
The ruling was derived from a number of class actions against the company Dynamic Ledger Solutions over allegations of securities law violations. One of the federal plaintiffs, Arman Anvari, who was appointed lead plaintiff after the federal cases were consolidated, moved to enjoin another action proceeding against DSL in state court. The plaintiff in the state proceeding is Andrew Baker.
The court found Anvari’s motion raised two key issues, whether a federal court can enjoin a state court proceeding under the PSLRA and Anti-Injunction Act and, if it can, under what circumstances?
Anvari argued that it was within his rights as lead plaintiff to control litigation. Furthermore, he attempted to distinguish prior Northern District decisions by citing that the state proceedings here were not as advanced as in other cases, alleged impropriety by the state plaintiff’s counsel, and the fact that he has a larger financial stake than Baker.
Baker’s main argument was that allowing federal injunctions against state court PSLRA cases would infringe upon the court’s jurisdiction to hear such cases. He cited the U.S. Supreme Court’s decision in Cyan Inc. v. Beaver County Emp.'s Ret. Fund, et al. as precedent.
Seeborg found none of the circumstances that might allow a federal court to enjoin state proceedings to be in existence and sided with Baker.
“This litigation is not advanced. There is no indication that Baker, or any other state litigant, has initiated negotiations with defendants or is anywhere near reaching a settlement that threatens to dispose of all or even some of the claims of the putative class members. Finally, as previously discussed, there is slim to no evidence that Baker, his counsel, or any of the defendants have at any point acted in bad faith,” Seeborg stated in his opinion.