PNY Technologies, Inc v. Miller, Kaplan, Arase & Co, LLP
3:15-cv-01728
| N.D. Cal. | Jul 6, 2017

Background

  • PNY sued Miller Kaplan in federal court alleging fraud and other claims based on audits Miller Kaplan performed for SanDisk; Quackenbush, a partner at Miller Kaplan, was the alleged speaker for the firm.
  • A jury found Miller Kaplan made a false representation and intended PNY to rely, and that PNY reasonably relied, but found PNY's reliance was not a substantial factor in causing harm; judgment entered for Miller Kaplan.
  • PNY appealed the federal judgment; the appeal is pending in the Ninth Circuit.
  • After the federal judgment, PNY filed a state-court action (PNY v. Western Digital Corp.) adding Western Digital, a former SanDisk officer (Brelsford), and Quackenbush; the claim against Quackenbush is civil conspiracy to commit fraud (alleging he conspired with Brelsford).
  • Miller Kaplan sought a permanent injunction in federal court under the Anti-Injunction Act's ‘‘relitigation exception’’ to bar PNY from prosecuting the state action against Quackenbush, arguing claim preclusion.
  • The district court concluded Quackenbush was in privity with Miller Kaplan, the state claim arose from the same transactional nucleus of facts as the federal fraud claims, and granted the permanent injunction.

Issues

Issue Plaintiff's Argument Defendant's Argument Held
Whether a federal judgment bars PNY's state suit against Quackenbush (claim preclusion) PNY: the state claim alleges a different theory (conspiracy) and targets Quackenbush individually, so it is not the same cause of action Miller Kaplan: the state claim arises from the same facts and Quackenbush is in privity with Miller Kaplan, so claim preclusion applies Held: claim preclusion applies; state claim is the same cause of action and is barred
Whether Quackenbush is in privity with Miller Kaplan for preclusion purposes PNY: partners are not necessarily in privity; Quackenbush should not be bound by judgment against the partnership Miller Kaplan: partners/partnership relationship is traditional privity; statements were in scope of partnership business Held: Quackenbush is in privity with Miller Kaplan; privity established
Whether the relitigation exception to the Anti-Injunction Act permits a federal injunction of the state action PNY: state court should decide preclusion; injunction inappropriate because PNY can raise preclusion there Miller Kaplan: relitigation exception permits injunction where federal judgment clearly precludes state adjudication and to avoid burdensome relitigation Held: relitigation exception applies; injunction appropriate to prevent repetitious litigation
Whether a permanent injunction is an appropriate equitable remedy PNY: injunction is unnecessary and prejudicial; remedies at law (raising preclusion in state court) suffice Miller Kaplan: irreparable harm from duplicative litigation and defense costs; public interest favors avoiding inconsistent rulings and conserving resources Held: equitable factors (irreparable harm, inadequate legal remedies, balance of hardships, public interest) favor issuing a permanent injunction

Key Cases Cited

  • Chick Kam Choo v. Exxon Corp., 486 U.S. 140 (U.S. 1988) (states Anti-Injunction Act and exceptions)
  • Smith v. Bayer Corp., 564 U.S. 299 (U.S. 2011) (relitigation exception requires former federal adjudication that clearly precludes state decision)
  • Parklane Hosiery Co. v. Shore, 439 U.S. 322 (U.S. 1979) (elements of claim preclusion)
  • Huron Holding Corp. v. Lincoln M. Operating Co., 312 U.S. 183 (U.S. 1941) (finality of judgment pending appeal)
  • Headwaters Inc. v. United States Forest Service, 399 F.3d 1047 (9th Cir. 2005) (traditional privity relationships include partners and partnerships)
  • Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, 322 F.3d 1064 (9th Cir. 2003) (same transactional nucleus test)
  • Sanchez v. City of Santa Ana, 936 F.2d 1027 (9th Cir. 1990) (conspiracy theory does not avoid preclusion)
  • Wulfjen v. Dolton, 24 Cal.2d 891 (Cal. 1944) (conspiracy allegations do not evade preclusion where underlying claim is the same)
  • Golden v. Pacific Maritime Ass'n, 786 F.2d 1425 (9th Cir. 1986) (relitigation exception protects against burdensome repetitious litigation)
  • Daewoo Electronics Corp. v. Western Auto Supply Co., 975 F.2d 474 (8th Cir. 1992) (discretionary equitable considerations for injunction against relitigation)
  • Allen v. McCurry, 449 U.S. 90 (U.S. 1980) (preclusion promotes consistency and finality)
  • Easyriders Freedom F.I.G.H.T. v. Hannigan, 92 F.3d 1486 (9th Cir. 1996) (requirements for permanent injunction)
  • Northern Cheyenne Tribe v. Norton, 503 F.3d 836 (9th Cir. 2007) (balance equities and public interest for injunction)
  • Wood v. Santa Barbara Chamber of Commerce, Inc., 705 F.2d 1515 (9th Cir. 1983) (injunction promoting judicial economy against relitigation)
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