SFM Holdings, Ltd. v. Banc of America Securities, LLC
764 F.3d 1327
| 11th Cir. | 2014Background
- Dr. Salomon Melgen (through SFM Holdings) deposited $15M with Banc of America Securities (BAS) in 2004 and authorized John Kim to trade; funds were later lost. SFM alleges Shoreland Trading (Kim/Lee) misallocated and converted funds and that BAS facilitated/concealed those acts.
- SFM filed a 2006 federal suit against BAS asserting breach of fiduciary duty and constructive fraud; the district court dismissed with prejudice and the Eleventh Circuit affirmed in 2010, denying leave to add a contract claim as futile based on the PBA and IAA.
- After remand of a separate removed state action, SFM filed an amended 2012 state complaint adding conspiracy and multiple contract claims (breach of PBA/IAA and implied covenant), alleging new facts about intentional misallocation (roughly $9M) and BAS’s active role/concealment.
- BAS returned to federal court and obtained a permanent injunction under the All Writs Act invoking the Anti‑Injunction Act’s relitigation exception to bar SFM’s state prosecution of certain claims as precluded by the prior federal judgments.
- The Eleventh Circuit reviews whether the relitigation exception authorized the injunction (de novo) and holds that the exception permits injunctions only to bar claims/issues that were actually presented to and decided by the federal court; doubts resolve in favor of allowing state proceedings.
Issues
| Issue | Plaintiff's Argument (SFM) | Defendant's Argument (BAS) | Held |
|---|---|---|---|
| Whether the district court could enjoin state claims under the relitigation exception to the Anti‑Injunction Act | Relitigation exception is narrow and does not apply because several state claims were not decided in the federal case | Prior federal dismissal (and Eleventh Circuit futility ruling) bars relitigation of claims that are the same or that could have been raised | Mixed: injunction improper as to some claims; proper as to others — relief must be claim‑by‑claim based on identity of issues actually decided |
| Whether SFM’s 2012 conspiracy claim is identical to issues decided in 2006/2010 | The conspiracy (to convert and to conceal conversion) is a new claim based on newly alleged intentional misallocations and BAS’s active role and concealment | Conspiracy merely repackages earlier tort allegations (fraudulent concealment / negligent authorization) and adds detail; precluded by prior rulings | Reversed as to conspiracy: injunction improper because the conspiracy claim (as pleaded) raises issues not actually decided by the prior federal court |
| Whether SFM’s contract claims (PBA/IAA breach and implied covenant) are precluded | Some contract claims are based on newly alleged misallocation/conspiracy facts and therefore were not decided; they should proceed in state court | The 2010 Eleventh Circuit finding that BAS acted pursuant to the contracts and denial of leave to amend as futile foreclose relitigation of contract-based theories | Partial: injunction reversed as to Count VII (breach of PBA) insofar as it rests on new misallocation/conspiracy allegations; injunction affirmed as to Counts V, VI, VIII and to Count VII insofar as it rests on the forged‑letter transfer rationale previously decided |
| Whether intervening changes in law (e.g., Tiara re: economic loss rule) defeat preclusion | Florida Supreme Court decisions narrowing economic‑loss application mean prior rulings can’t bar state claims | Changes are not so fundamental as to avoid preclusion; moreover Eleventh Circuit’s prior ruling rested on contract language independent of the economic‑loss theory | Economic‑loss argument was not decisive here: the Eleventh Circuit’s earlier merits ruling rested on contract terms, so the district court could not rely on the alternate economic‑loss rationale to enjoin claims; the court set that issue aside |
Key Cases Cited
- Smith v. Bayer Corp., 564 U.S. (2011) (clarifies that the relitigation exception allows injunctions only for issues actually decided by a federal court and that exceptions to the Anti‑Injunction Act are narrow)
- Chick Kam Choo v. Exxon Corp., 486 U.S. 140 (1988) (requires identity of issues actually decided before a federal injunction can bar state litigation)
- Atlantic Coast Line R. Co. v. Locomotive Engineers, 398 U.S. 281 (1970) (Anti‑Injunction Act embodies respect for state courts; doubts resolved in favor of permitting state proceedings)
- Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497 (2001) (federal courts refer to state law to determine preclusive effect of diversity judgments; federal interests may alter that choice)
- Taylor v. Sturgell, 553 U.S. 880 (2008) (limits on nonparty preclusion principles)
- Burr & Forman v. Blair, 470 F.3d 1019 (11th Cir. 2006) (discusses All Writs Act authority to effectuate federal judgments)
- Wesch v. Folsom, 6 F.3d 1465 (11th Cir. 1993) (All Writs Act authorizes injunctions to protect or effectuate federal judgments)