Federal Courts Can Enjoin State Court Litigation Of Arbitrable Claims

http://arbitrationnation.com/wp-content/uploads/2013/05/Whiteduck1-190x178.jpgIn a new case that reminds federal judges everywhere to sing “I’ve got the power!” like C&C Music Factory, the Fifth Circuit reiterates that federal courts can stay related state court actions if necessary to “protect or effectuate” an order compelling arbitration.  American Family Life Assurance Co. of Columbus v. Biles, __ F.3d __, 2013 WL 1809766 (5th Cir. April 30, 2013).

The underlying facts of the case highlight a tragically dysfunctional family.  An adult homosexual man named his partner as a beneficiary of his life insurance, but when the insurer in fact distributed money to the decedent’s life partner, the decedent’s mother and siblings sued the partner, the insurer, and the insurance agent in state court, alleging that they all conspired to fraudulently obtain life insurance “with the intent to end the decedent’s life and collect the policy’s death benefits.”

The insurance policy had an arbitration clause, but the angry family members refused to arbitrate.  That led the insurer, Aflac, to file a federal court action to compel arbitration.  After multiple motions and expert affidavits about whether the decedent’s signature on the policy was a forgery, the district court compelled arbitration and enjoined the angry family from continuing their state court action.  The angry family appealed on multiple grounds.

The Fifth Circuit affirmed the district court.  With respect to the federal court’s ability to effectively shut down the state court action, the court said two things.  First, there was no reason for the federal court to abstain under the Colorado River doctrine, largely because the two cases were not “parallel” and no exceptional circumstances were present that favored abstention.  Second, the court rejected the idea that the result violated the Anti-Injunction Act, which generally prohibits federal courts from staying proceedings in state court.  The Fifth Circuit found that the district court’s injunction against the state court proceeding fell within a recognized exception to the Anti-Injunction Act, for injunctions necessary to “protect or effectuate [] order[s] compelling arbitration.”