Fifth Circuit Holds Federal Court May Enjoin Litigation of Arbitrable Claims in State Court

The Fifth Circuit Court of Appeals has held that a federal court may enjoin arbitrable state-law claims in an insurance dispute.  In American Family Life Assurance Co. of Columbus v. Biles, No. 12-60235 (5th Cir. April 30, 2013), David Biles completed an application for an accident insurance policy that was underwritten by the American Family Life Assurance Co. of Columbus (“Aflac”) and included a binding arbitration clause.  Less than one year after the policy became effective, Biles passed away.  Aflac then paid the insurance policy benefits to the two named beneficiaries, Biles’s mother, Glenda, and his life partner, Ken Ashley.

Glenda and the deceased man’s siblings later filed a lawsuit in a Mississippi court against Aflac, company sales associate Brendan Hammond, Ashley, and a bar where Biles was drinking prior to his death.  The lawsuit alleged that Ashley “conspired with Hammond to fraudulently obtain the Policy with the intent to end the decedent’s life and collect the Policy’s death benefits,” and “caused or contributed to the death of the decedent.”  Biles’s family (“Appellants”) also alleged that Aflac should have known Ashley was prohibited from collecting death benefits as a result of his alleged role in Biles’s death.  Aflac responded by seeking to compel arbitration pursuant to the Federal Arbitration Act.  Aflac also filed a motion for summary judgment in district court.  The decedent’s family responded by arguing that Biles’s signature on the policy was a forgery and the federal motion to compel arbitration should be dismissed.  Eventually, the district court issued a motion to compel arbitration.  In response, Appellants filed an appeal with the Fifth Circuit.

In their appeal, the Appellants argued that the district court should not have considered Aflac’s federal law claim in deference to the state law claims based on the Supreme Court’s decision in Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976).  According to the Fifth Circuit, “abstention is appropriate only when the federal and state “suits are parallel, having the same parties and the same issues.’”  The court said,

The federal and state lawsuits in this case are far from parallel. The state action undisputedly involves additional defendants and issues not involved in the federal action, which is limited to the narrow issue of whether arbitration applies to the dispute between Appellants and Aflac and its agents. Although we have noted that it might not be necessary that the parties and issues are absolutely identical in every instance for Colorado River abstention to be appropriate, see Brown, 462 F.3d at 395 n.7, this case is not an example of the exception to the general rule.

The Appeals court added,

Even if the state and federal cases were sufficiently parallel, Colorado River abstention would be inappropriate because exceptional circumstances are not present here.  Colorado River abstention allows a court to abstain from a case only in “exceptional circumstances.” Brown, 462 F.3d at 394.

After stating none of the six factors used to determine whether exceptional circumstances existed in the case, the Fifth Circuit held,

Because the federal and state lawsuits in this case are not parallel and no factor weighs in favor of abstention, we conclude that the district court correctly declined Appellants’ invitation to abstain pursuant to Colorado River.

Next, the Appeals Court dismissed Appellants’ argument that Aflac’s request for arbitration and motion to enjoin their state-law claims was barred by the Anti-Injunction Act.  According to the court,

…the district court’s order compelling Appellants to arbitrate their claims against Aflac and its agents and enjoining Appellants from continuing to litigate such claims in state court is not barred by the Anti-Injunction Act because it falls within the exception for injunctions necessary to protect or effectuate the district court’s prior judgment.

After that, the Fifth Circuit responded to Appellants’ claim that “the district court abused its discretion by denying their timely request for additional discovery to overcome Aflac’s summary judgment motion.”  According to the court, “The only disputed fact issue relevant to Aflac’s summary judgment motion was whether the decedent’s signature on the arbitration acknowledgment form was a forgery.”  The Appeals Court noted, “At the time Appellants requested the additional discovery, Hammond had already submitted an affidavit attesting that he witnessed the decedent sign the policy and the arbitration acknowledgment form.”  The court continued,

…although it might have been appropriate for the district court to allow Appellants to depose Hammond prior to ruling on Aflac’s summary judgment motion, the district court’s decision to deny the motion was within its discretion. The discovery requested by Appellants was unlikely to result in a direct admission by Hammond that he had committed perjury and fraud and, therefore, would not have influenced the outcome of the summary judgment motion.

Finally, the Fifth Circuit dismissed Appellants’ argument that summary judgment in favor of Aflac was inappropriate because an affidavit submitted by Glenda raised an issue of material fact by stating,

There is no indication in the record or briefing that Appellants properly brought the affidavit to the district court’s attention in accordance with Rule 56. Accordingly, we conclude that Ms. Giles’s [sic] affidavit was never made part of the summary judgment record before the district court and therefore fails to create a genuine issue of material fact on the authenticity of the decedent’s signature.

The Fifth Circuit Court of Appeals affirmed the district court’s order granting summary judgment to Aflac and compelling the dispute to arbitration.