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From Antitrust Law Daily, December 15, 2017

Court in FLSA suit against Jimmy John’s could not enjoin plaintiffs’ other suits against franchisees

By Lorene D. Park, J.D.

A federal district court in Illinois, which is overseeing a consolidated collective and class action against Jimmy John’s under the FLSA and state law, lacked authority to enjoin the plaintiffs from pursuing, in other federal district courts, their claims against their franchisee employers, who were not parties here and over whom the district court lacked personal jurisdiction. Reversing the lower court’s order, the Seventh Circuit concluded that even if the court had the authority to issue the anti-suit injunction, it erred by failing to consider the traditional factors required for granting an injunction and by not stating the reasons for the injunction as required under Rule 65 (In re: Jimmy John’s Overtime Litigation, December 14, 2017, Flaum, J.).

Brunner, Whiton, and Watson suits consolidated. The plaintiffs filed this collective and class action against Jimmy John’s on behalf of all assistant store managers nationwide, alleging violations of the FLSA and state laws. It began as separate suits, with the Brunner plaintiff suing in the Northern District of Illinois, claiming she was misclassified as exempt; and the Whiton plaintiff asserting the same claims in the same court. Those were consolidated in March 2015. That same March, the Watson plaintiff filed a complaint in a federal court in Ohio, asserting the same claims for the same putative class. Unlike the others, the Watson plaintiff did not name franchisees as defendants, but named only Jimmy John’s. The courts conditionally certified collective actions and the Watson suit was transferred and consolidated with the other suits under the caption In re: Jimmy John’s Overtime Litigation.

Class notice. The parties had trouble agreeing on how to give notice to putative class members, for whom Jimmy John’s claimed it did not keep employment records. Eventually they agreed Jimmy John’s would send a letter to the non-party franchisees asking for the information, which would be sent to the claims administrator. Approximately 660 individuals joined the FLSA collective. Of those, 600 work at stores operated by franchisees and 60 at corporate-owned stores.

Anti-suit injunction. Thereafter, the court stayed the claims against the franchisees until it decided whether Jimmy John’s could be liable as a joint employer. It then bifurcated discovery, ordering the parties to first focus solely on that issue. Shortly after the close of joint-employer discovery, three opt-in plaintiffs filed collective actions against their franchisee employers in federal courts in the Eastern District of Missouri, Arizona, and the Central District of Illinois, respectively. Jimmy John’s moved to enjoin the other suits until the claims against Jimmy John’s were resolved. The plaintiffs agreed to a stay if the franchisor would toll the FLSA statute of limitations but Jimmy John’s refused, asserting it could not compel franchisees to agree. The court granted the motion for an anti-suit injunction, reasoning it would be "fair" because the plaintiffs’ interests would be protected here. The court has since issued orders extending the injunction to a total of 13 lawsuits in 12 federal district courts. The Seventh Circuit reversed.

Court’s inherent equitable powers. As a general rule, explained the Seventh Circuit, federal district courts avoid "interference with the process of each other," though they may enjoin parties from pursuing duplicative litigation in another district and the Supreme Court has allowed them "ample" discretion to resolve such issues, giving regard to conserving judicial resources and considering equitable factors. In the Seventh Circuit, for example, district courts may enjoin a defendant from pursuing in an "identical" claim against the plaintiff in another district that should have been brought as a compulsory counterclaim in the first case.

The All Writs Act. The All Writs Act allows district courts to enjoin parallel litigation in certain circumstances. It provides that courts "may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law." The Supreme Court has interpreted this to authorize a federal court to "issue such commands … as may be necessary or appropriate to effectuate and prevent the frustration of orders it has previously issued in its exercise of jurisdiction otherwise obtained." This includes enjoining litigation in another court.

Under Seventh Circuit precedent, an anti-suit injunction is "extraordinary" relief and it is "rare for a federal court to enjoin litigation in another federal court," so there is little authority on that. With that in mind, and though injunctions directed to state courts also have to satisfy the Anti-Injunction Act, which has a slightly different standard, the appeals court looked to those cases for guidance. In that context, with respect to the "aid of jurisdiction" language, "an injunction may be issued where ‘necessary to prevent a state court from so interfering with a federal court’s consideration or disposition of a case as to seriously impair the federal court’s flexibility and authority to decide that case.’" For example, injunctions in such cases may prevent litigants from using state courts to evade federal court orders that deny discovery.

The "aid of jurisdiction" reasoning has been applied in the context of parallel state in rem actions (not in personam actions) and school desegregation cases. Also, the Seventh Circuit in Winkler v. Eli Lilly & Co. expanded it to the context of multi-district (MDL) litigation.

District court lacked authority to enjoin franchisee cases. Relying primarily on Winkler, Jimmy John’s argued that the anti-suit injunction was authorized under the district court’s equitable powers and/or the All Writs Act because it was necessary to prevent duplicative litigation, avoid inconsistent rulings, and protect the court’s pretrial orders on discovery and notice, these arguments were unavailing. The Seventh Circuit disagreed.

The duplicative litigation argument might work if the parties were identical and efficiency or judicial resources were at stake, but that was not the case. Jimmy John’s is not a party to the enjoined franchisee cases. Also, it was undisputed that the Northern District of Illinois lacked personal jurisdiction and venue over the franchisee defendants in the other suits, so they could not be joined in this case. Furthermore, Jimmy John’s concern over inconsistent rulings was, at bottom, a fear that the other district courts might reach a final decision on the merits before this case is resolved, but "the potential effect of one suit on the other does not justify an injunction."

Also rejected was Jimmy John’s argument about protecting orders on discovery and notice. The appeals court noted that the lower court never mentioned this concern in issuing the injunction so Jimmy John’s post-hoc reasoning carried no weight. Moreover, Seventh Circuit precedent did not support issuing an injunction in such circumstances. The case relied on by Jimmy John’s involved multi-district litigation, and this was not an MDL case. The appeals court further explained that even when other circuit courts have upheld anti-suit injunctions in non-MDL class actions, they have done so only as necessary to protect pending or final class settlements.

Plaintiffs were concerned with limitations period. Even if the appeals court were inclined to extend Winkler beyond the MDL context, an anti-suit injunction was not necessary or appropriate to protect the district court’s pretrial rulings in this case. The record did not suggest that the franchisee cases were filed to evade the pretrial orders. Instead, the plaintiffs repeatedly told the district court they were filing the franchisee cases because the statute of limitations was running against those claims.

No interference with discovery rulings or notice. Also, while the plaintiffs could proceed to merits discovery in the franchisee cases, it was unclear how this would interfere with discovery rulings here. The first phase of discovery focused on the joint employer issue, that phase ended on December 2, 2016, and the court had not yet ruled on how merits discovery should proceed. Moreover, the court has numerous case management tools to prevent inconsistent discovery orders in the future, the appeals court explained. Nor would allowing the franchisee lawsuits to proceed interfere with the notice process here, particularly because the notice period has closed.

Failed to do traditional injunction analysis. Even if it had the authority to issue the anti-suit injunction under the All Writs Act or its inherent equitable powers, the appeals court agreed with the plaintiffs that the district court abused its discretion by failing to consider the traditional factors for granting an injunction and failing to make the requisite findings of fact and conclusions of law. As a general rule, a plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, there is no adequate remedy at law, he is likely to suffer irreparable harm absent such relief, the balance of equities tips in his favor, and an injunction is in the public interest. Moreover, under Rule 65(d), every order granting an injunction must state the reasons why it was issued. Here, the appeals court found the district court’s reasoning for the anti-suit injunction insufficient. He pointed to "harmony and delaying expense and overlapping work for judges doing the same kind of thing." He also said there "are all kinds of reason[s] that justif[y] the stay as to the parties before me," but did not further elaborate on the reasons.

The case is No. 17-1655.

Attorneys: Seth R. Lesser (Klafter Olsen Lesser) for Emily Brunner. Matthew S. Disbrow (Honigman Miller Schwartz & Cohn) for JS Fort Group, Inc. Peter John Wozniak (Seyfarth Shaw) for Jimmy John's Enterprises, LLC.

Companies: JS Fort Group, Inc.; Jimmy John's Enterprises, LLC

MainStory: TopStory FranchisingDistribution IllinoisNews IndianaNews WisconsinNews

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