United States District Court, E.D. Michigan, Southern Division
AND ORDER DENYING DEFENDANT CryoUSA IMPORT AND SALES,
LLC'S MOTION TO ENJOIN AND FOR SECURITY (Doc. 22) AND
GRANTING DEFENDANT'S MOTION FOR LEAVE TO FILE
SUPPLEMENTAL EVIDENCE IN SUPPORT OF ITS MOTION TO ENJOIN
AND FOR SECURITY AND COSTS (Doc. 32)
CARAM STEEH UNITED STATES DISTRICT JUDGE.
lawsuit arises out of the parties' agreement whereby
Defendants provided cryotherapy chambers to Plaintiff Live
Cryo, LLC for use at its Michigan locations. Now before the
court is Defendant CryoUSA Import and Sales, LLC's
(“Defendant”) motion (Doc. 22) to enjoin
Plaintiff from proceeding with its counterclaim in the
related matter pending in Texas state court and to require
Plaintiff to post bond because of concerns that Plaintiff may
be insolvent. For the reasons set forth below,
Defendant's motion shall be denied. Also, Defendant filed
a motion for leave to file supplemental evidence in support
of its motion to enjoin and for security for costs. (Doc.
32). The court has considered that motion and attached
exhibits and it does not alter the court's conclusions
prior order of the court, Plaintiff's tort and
quasi-contract claims were dismissed, including various fraud
and related claims under the Michigan Franchise Investment
Law, but Plaintiff's breach of contract and breach of
warranty claims remain viable. Of importance here, these same
parties are involved in related litigation pending in state
court in Texas. Specifically, two days before Plaintiff filed
suit here, Defendant brought suit against Plaintiff in the
state district court of Dallas County, Texas. In the Texas
lawsuit, Defendant alleges breach of contract arising out of
the parties' Distribution Agreement on the grounds that
Plaintiff did not live up to its end of the bargain to
purchase a sufficient quota of cryotherapy machines, and
breached the Purchase Agreements by failing to comply with
its obligations to submit timely warranty claims and repairs.
Neither counsel before this court are admitted in the Texas
on that pending litigation in Texas, all Defendants
previously asked this court to abstain under the Colorado
River doctrine, but this court denied the motion because
the two cases were not parallel as Plaintiff in this case
named five other Defendants who were not named in the state
lawsuit, namely CryoUSA Mobile, LLC, CryoUSA Holding, LLC,
CryoUSA Franchising, LLC, Eric Rauscher, and Mark Murdock. In
addition, the court found the doctrine would not apply
because the two lawsuits were commenced within three days of
each other; thus, interests of comity owed no deference to
the Texas litigation, and Michigan has a strong interest in
allowing the case to proceed here under its prohibition of
forum selection clauses in franchise agreements. In addition,
the contract called for performance in Michigan, the chambers
were used in Michigan, tested and allegedly repaired in
Michigan; thus, most of the witnesses are located here. For
these reasons, and others, the court denied the motion to
abstain under the Colorado River doctrine.
parties' agreement contains a one-way contractual
attorney fee-shifting provision in Defendant's favor.
Defendant alleges that Plaintiff has asserted that it will
pursue this case, even to obtain a nominal recovery, and has
no fear of the attorney fee-shifting provision because
Plaintiff has no assets and believes its sole member is
immune from personal liability. Based on this discussion,
Defendant asks that Plaintiff be required to post bond.
Plaintiff responds that it has meritorious claims; there is
no proof of insolvency, and if it were to lose this case and
Defendant be awarded attorney's fees, it could seize the
machines in question. Plaintiff also asks that Defendant be
required to post a $50, 000 bond based on its own concerns
regarding Defendant's solvency.
the court granted in part and denied in part Defendants'
motion to dismiss, Defendant offered to amend its Answer to
assert a counterclaim in this case and then to dismiss its
first-filed Texas action, but Plaintiff refused to concur in
that amendment. Instead, three days later, Plaintiff filed a
counterclaim in the Texas litigation alleging violations of
the anti-fraud provisions in the Texas Business Opportunities
Act and violations of the Texas Deceptive Practices Act.
Defendant asks this court to enjoin Plaintiff from pursuing
its counterclaim in the Texas state court.
Defendant's Motion to Enjoin Texas Proceedings
court first considers Defendant's motion to enjoin the
Texas proceedings. Defendant argues that this court should
enjoin Plaintiff from bringing a counterclaim in the Texas
suit under the All Writs Act, 28 U.S.C. §1651(a) as
permitted by the “relitigation exception” of the
Anti-Injunction Act, 28 U.S.C. § 2283, or under its
inherent powers pursuant to Chambers v. NASCO, Inc.,
501 U.S. 32, 43-45 (1991). The relief sought is not
appropriate under either theory. Although it is not optimal
to have these parties litigating related issues in federal
and state court at the same time, the “relitigation
exception” does not prohibit Plaintiff from asserting a
counterclaim in the Texas lawsuit.
court considers the “relitigation exception”
which exists under the Anti-Injunction Act. The
Anti-Injunction Act states: “A court of the United
States may not grant an injunction to stay proceedings in a
state court except as expressly authorized by Act of
Congress, or where necessary in aid of its jurisdiction, or
to protect or effectuate its judgments.” 28 U.S.C.
§ 2283. The “necessary. . . to protect or
effectuate its judgments” language is known as the
“relitigation exception.” Chick Kam Choo v.
Exxon Corp., 486 U.S. 140, 147 (1988); Great Earth
Cos. v. Simons, 288 F.3d 878, 894 (6th Cir. 2002).
Recently, the Supreme Court addressed this exception in
Smith v. Bayer Corp., 564 U.S. 299 (2011). In that
case, defendant moved for the federal court to enjoin the
state court from considering a plaintiff's motion for
class certification because the federal court had denied a
similar class certification motion brought by a different
plaintiff. Id. at 302. The Supreme Court held that
an injunction was improper because the federal standard for
class certification differed from the West Virginia standard,
and the parties were not the same. Id. at 318. The
Supreme Court explained the “relitigation
exception” is to be applied narrowly, and only applies
in exceptional circumstances:
Th[e] [relitigation] exception is designed to implement
“well-recognized concepts” of claim and issue
preclusion. The provision authorizes an injunction to prevent
state litigation of a claim or issue “that previously
was presented to and decided by the federal court.” But
in applying this exception, we have taken special care to
keep it “strict and narrow.” After all, a court
does not usually “get to dictate to other courts the
preclusion consequences of its own judgment.” 18 C.
Wright, A. Miller, & E. Cooper, Federal Practice and
Procedure § 4405, p. 82 (2d ed. 2002) . . . Deciding
whether and how prior litigation has preclusive effect is
usually the bailiwick of the second court. . . . So
issuing an injunction under the relitigation exception is
resorting to heavy artillery. For that reason, every benefit
of the doubt goes toward the state court; an injunction can
issue only if preclusion is clear beyond peradventure.
Id. at 306-07. Here, the “relitigation
exception” does not apply, because claim preclusion
does not exist, at ...