24-3205 Mutual Fund Opt-Out Plaintiffs v. Calamari
In the United States Court of Appeals For the Second Circuit
August Term, 2025
(Argued: December 5, 2025 Decided: July 9, 2026)
Docket No. 24-3205
MUTUAL FUND OPT-OUT PLAINTIFFS,
Movant-Appellants,
INFINITY Q DIVERSIFIED ALPHA FUND,
Defendant,
–v.–
ANDREW M. CALAMARI,
Special Master-Appellee,
UNITED STATES SECURITIES & EXCHANGE COMMISSION,
Plaintiff. *
* The Clerk of Court is respectfully directed to amend the caption as reflected above. Before: ROBINSON, MERRIAM, and KAHN, Circuit Judges.
This case requires us to consider the reach of the Anti-Injunction Act, 28 U.S.C. § 2283, and the so-called “in aid of jurisdiction” exception to its prohibition of federal court injunctions against state court actions.
Movant-Appellants Mutual Fund Opt-Out Plaintiffs (“the Opt-Out Plaintiffs”) appeal from an order of the United States District Court for the Southern District of New York (Castel, J.) permanently enjoining their claims in state court against Quasar Distributors, LLC, (“Quasar”) arising from the collapse of a mutual fund for which Quasar served as underwriter.
This action was initiated by the SEC against a series mutual fund (“Mutual Fund”) of the Trust for Advised Portfolios (“TAP”) after the Mutual Fund’s collapse; the district court appointed a Special Master to oversee the distribution of the remnants of the Mutual Fund—known as the “Special Reserve.” Quasar is not a party to this federal court action, but the district court enjoined the state actions against it. The district court reasoned that an injunction was necessary in aid of its jurisdiction because state court actions against Quasar created potential and actual legal obligations by TAP, as indemnitor, that the Special Master would be required to pay through the Special Reserve. These indemnification obligations threatened to dissipate the remaining assets in the Special Reserve and undermined the Special Master’s goal of distributing the remaining assets of the fund pro rata to defrauded shareholders—which included the Opt-Out Plaintiffs and those who had previously received compensation and released their claims against the Mutual Fund in a class action settlement approved in state court.
The Opt-Out Plaintiffs argue that the injunction is proscribed by the Anti-Injunction Act because it is not “necessary in aid of [the district court’s] jurisdiction.” 28 U.S.C. § 2283.
We agree. The “in aid of jurisdiction” exception to the Anti-Injunction Act is generally reserved for a state court action that involves possession or control of a thing like a pool of money. Potential judgments against persons arising from state court in personam actions do not interfere with a federal court’s in rem jurisdiction over property. Wyly v. Weiss, 697 F.3d 131, 137– 2 38 (2d Cir. 2012). That’s the case here. The Opt-Out Plaintiffs’ state court actions do not threaten the federal court’s jurisdiction over the Special Reserve. And the narrow exception to this general rule that we recognized in In re Baldwin-United Corp., 770 F.2d 328 (2d Cir. 1985), does not apply on these facts. We thus VACATE the injunction and REMAND for further proceedings consistent with this opinion.
LAWRENCE M. ROLNICK (Michael James Hampson, on the brief), Rolnick Kramer Sadighi LLP, New York, NY, for Movant-Appellants. †
DANIEL SCOTT NOBLE, KKL LLP, New York, NY (Benjamin Arrow & Eliyahu Yampel, Finn Dixon & Herling LLP, Stamford, CT, on the brief), for Special Master-Appellee.
ROBINSON, Circuit Judge:
This case requires us to consider the reach of the Anti-Injunction Act, 28
U.S.C. § 2283, and the “in aid of jurisdiction” exception to the prohibition of federal
court injunctions against state court actions.
Movant-Appellants Mutual Fund Opt-Out Plaintiffs (“the Opt-Out
Plaintiffs”) appeal from an order of the United States District Court for the
Southern District of New York (Castel, J.) permanently enjoining their claims in
†After briefing and oral argument were complete, this firm changed its name to Rolnick Kramer Securities Litigation LLP.
3 state court against Quasar Distributors LLC, (“Quasar”) arising from the collapse
of a mutual fund for which Quasar served as underwriter.
This action was initiated by the Securities and Exchange Commission
(“SEC”) against Infinity Q Diversified Alpha Fund (the “Mutual Fund” or the
“Fund”), a series mutual fund of the Trust for Advised Portfolios (“TAP”) after the
Mutual Fund’s collapse; the district court appointed a Special Master to oversee
the distribution of the remnants of the Mutual Fund—known as the “Special
Reserve.” Quasar is not a party to this federal court action, but the district court
enjoined the state actions against it. The district court reasoned that the injunction
was necessary in aid of its jurisdiction because state court actions against Quasar
created potential and actual legal obligations by TAP, as indemnitor, that the
Special Master would be required to pay through the Special Reserve. These
indemnification obligations threatened to dissipate the remaining assets in the
Special Reserve and undermined the Special Master’s goal of distributing the
remaining assets of the fund pro rata to defrauded shareholders—both the Opt-
Out Plaintiffs and those who had previously received compensation and released
their claims against the Mutual Fund in a class action settlement approved in state
court.
4 The Opt-Out Plaintiffs argue that the injunction is proscribed by the Anti-
Injunction Act because it is not “necessary in aid of [the district court’s]
jurisdiction.” 28 U.S.C. § 2283.
We agree. The “in aid of jurisdiction” exception to the Anti-Injunction Act
is generally reserved for a state court action that involves possession or control of
a thing like a pool of money. Potential judgments against persons arising from
state court in personam actions do not interfere with a federal court’s in rem
jurisdiction over property. Wyly v. Weiss, 697 F.3d 131, 137–38 (2d Cir. 2012).
That’s the case here. The Opt-Out Plaintiffs’ state court actions do not threaten the
federal court’s jurisdiction over the Special Reserve. And the narrow exception to
this general rule that we recognized in In re Baldwin-United Corp., 770 F.2d 328 (2d
Cir. 1985), does not apply in these facts.
For the reasons set forth more fully below, we thus VACATE the injunction
and REMAND for further proceedings consistent with this opinion.
BACKGROUND
This case involves the fallout from the collapse of the Mutual Fund, a series
mutual fund of TAP. 1 For several years, James Velissaris, the chief investment
1For purposes of this background discussion, we rely primarily on the facts as alleged in the SEC’s complaint in the district court. The Opt-Out Plaintiffs do not contest this account.
5 officer of Infinity Q Capital Management, LLC, (“IQCM”) who served as the
Mutual Fund’s investment adviser, artificially inflated the net asset values of the
Mutual Fund’s underlying holdings. As a result, investors bought and sold their
holdings at materially inflated values.
When this situation came to light in February 2021, IQCM and TAP
requested that the SEC intervene pursuant to its authority under section 22(e)(3)
of the Investment Company Act of 1940. In response, the SEC ordered the Mutual
Fund to suspend redemptions and to liquidate its holdings. Liquidation yielded
$1.25 billion, representing about a $500 million shortfall from the most recently
reported net asset value.
Under the SEC’s supervision, from December 2021 through February 2022
the Mutual Fund made an interim distribution of $500 million to the Fund’s
current shareholders. The remaining assets were put into a Special Reserve “of
approximately $750 million to cover the Fund’s current and future expenses and
potential liabilities including for class action lawsuits pending in state and federal
courts against the Fund, as well as legal fees and potential indemnification claims
against the Fund.” App’x 32. After consultation with the SEC, the Mutual Fund
reduced the Special Reserve soon thereafter by distributing another $170 million
6 to shareholders. TAP’s Board of Trustees also created a Special Litigation
Committee to investigate any claims the Mutual Fund might be able to pursue.
In the meantime, a wave of litigation by injured investors followed the
collapse of the Mutual Fund. Beginning in December 2021, TAP and the Fund
participated in mediation of several state and federal class action suits,
culminating in a proposed class action settlement in New York state court. The
proposed settlement, filed in the New York state court in September 2022,
provided for the establishment of a cash settlement fund of up to $48 million and
for the release of claims against TAP, the Mutual Fund, and IQCM, along with the
Mutual Fund’s auditor, EisnerAmper LLP (“EisnerAmper”); its underwriter,
Quasar; and its administrator, accountant and custodian, U.S. Bancorp Fund
Services, LLC (“Bancorp”). The settlement was funded through contributions
from the various defendants; funding for the settlement was not drawn from the
Special Reserve.
When the proposed settlement was still pending in state court, in November
2022, the SEC filed this federal action against the Mutual Fund. In January 2023,
by consent of the SEC and the Mutual Fund, the district court entered an order
with three key components. First, the order provided that the district court has
“exclusive jurisdiction over the Special Reserve and over all matters arising out of,
7 and related to, the Special Reserve.” App’x 34. Second, it appointed Appellee
Andrew Calamari as Special Master to manage the Special Reserve, implement the
plan of distribution to shareholders, and pay from the Special Reserve any
expenses and liabilities of the Mutual Fund, among other duties. Third, it stayed
litigation of all “Ancillary Proceedings,” as defined by the order. Id. at 41–42. The
order excluded from the litigation stay the mediated class actions discussed above,
any enforcement actions by the SEC or the federal government, any litigation by
the Special Litigation Committee on behalf of the Mutual Fund, and other
enumerated actions.
In the meantime, in December 2022, also while the state court settlement
proposal was pending, investors who chose to opt out of the settlement, known as
the “Opt-Out Plaintiffs”—Appellants here—sent their opt-out notices to the
settlement administrator and then filed their own state court actions seeking
damages for violations of the Securities Act against the Mutual Fund and its
officers, as well as IQCM, Bancorp, EisnerAmper and Quasar, in New York state
court. See Glenmede Trust Co., N.A. v. Infinity Q Capital Management LLC, No.
160830/2022 (N.Y. Sup. Ct. Comm’l Div. filed Dec. 19, 2022); Carson Family 2013
Dynasty Trust v. Infinity Q Capital Management LLC, No. 160834/2022 (N.Y. Sup. Ct.
Comm’l Div. filed Dec. 19, 2022); Flint Hills Diversified Strategies, L.P. v. Infinity Q
8 Capital Management LLC, No. 160964/2022 (N.Y. Sup. Ct. Comm’l Div. filed Dec. 20,
2022). 2
In response, various defendants in the state court actions invoked the
litigation stay set forth in the district court’s consent order in this case to try to halt
the state court actions. The Opt-Out Plaintiffs then moved to intervene in the
federal action, arguing that the stay should be modified to allow their suits to
proceed. The SEC and the Special Master negotiated with the Opt-Out Plaintiffs
for an amended litigation stay, which was entered by the district court in March
2023. The amended order allowed the Opt-Out Plaintiffs’ state court actions to
proceed against IQCM, EisnerAmper, Bancorp, and Quasar, but not against the
Mutual Fund and its officers. In turn, the Opt-Out Plaintiffs withdrew their
motion to intervene in this action. The amended order preserved the rights of the
SEC, Special Master, and Opt-Out Plaintiffs to move to modify the stay of litigation
for good cause.
Later that year, the New York state court gave final approval to the
$48 million mediated settlement in the class action against various defendants. In
2The Glenmede Trust action is the lead state court Opt-Out case, and the state court ordered that all filings and rulings of the court with respect to that case apply equally to the other two Opt- Out cases. Accordingly, in our discussion we do not distinguish among the several Opt-Out Plaintiffs’ state court actions, and we instead refer generally to the Opt-Out Plaintiffs.
9 re Infinity Q. Diversified Alpha Fund Securities Litigation, No. 651295/2021, 2023 WL
8846591, at *9 (N.Y. Sup. Ct. Dec. 21, 2023). The settlement fund, held in an escrow
account, was in that state court’s custody and subject to its jurisdiction until
distribution. The Opt-Out Plaintiffs were not entitled to and did not receive any
distribution from this settlement.
Because this settlement “fully resolved” the mediated class actions “without
the contribution of any money from the Special Reserve and substantially reduced
the litigation exposure faced by the Fund and its Indemnitees,” Dist. Ct. Dkt. No.
89 at 1–2, the Special Master in this case—with approval from the federal district
court—distributed an additional $487 million of Special Reserve funds to
shareholders. That left about $100 million in the Special Reserve for payment of
legal costs and judgments against the Mutual Fund and its indemnitees.
As relevant here, the potential liability to indemnitees arose from TAP’s
contractual indemnification obligations to Quasar in connection with duties
performed by Quasar for the Mutual Fund. Under TAP’s agreement with Quasar,
it is obligated to indemnify Quasar for claims arising from, among other things,
TAP’s “bad faith, negligence, or willful misconduct” in performance of its duties
or any allegedly untrue statements in TAP’s reports to shareholders, unless the
claim arises from statements made in reliance on written communications
10 provided by Quasar. App’x 141. Importantly, the agreement provides broadly
that TAP “shall advance attorney’s fees and other expenses incurred” by Quasar
in defending any “suit which is the subject of a claim for indemnification.” Id. at
142 (emphasis added).
As a result of TAP’s contractual advancement obligation, the Special Master
paid monies from the Special Reserve for Quasar’s legal defense in the Opt-Out
Plaintiffs’ state court actions. By May 2024 the Special Master had paid more than
$425,000 from the Special Reserve for that purpose. In this context, the
compromise allowing the Opt-Out Plaintiffs to pursue their state court claims
against the Fund’s various indemnitees didn’t last. In a court-approved May 2024
agreement citing a need “to prevent the dissipation of the Special Reserve as a
result of legal fees and costs that the [Mutual] Fund is obligated to continue to pay
on behalf of certain Indemnitees in connection with the Opt-Out Actions,” the Opt-
Out Plaintiffs agreed to extend the litigation stay to their state court actions against
Quasar “until 7 days after written notice . . . by the Opt-Out Plaintiffs,” which was
not to be given before July 9, 2024. Id. at 123. The Agreement preserved the Opt-
Out Plaintiffs’ right to challenge the district court’s authority to stay their state
court actions.
11 The Opt-Out Plaintiffs gave notice of the expiration of the stay on July 10,
2024, prompting the Special Master to seek an order permanently enjoining all
current and future lawsuits against the Mutual Fund’s indemnitees, specifically
Quasar. The Special Master argued that because the Fund has an obligation to
advance Quasar’s legal fees, and potentially to indemnify Quasar for any
judgment, the ongoing state court litigation against Quasar would lead to a
depletion of the Special Reserve. That depletion would interfere with the Special
Master’s proposal, subject to the court’s approval, to distribute as much money as
possible to all of the defrauded shareholders on a pro rata basis.
After briefing by the parties, in November 2024, the district court granted
the Special Master’s request and permanently enjoined the Opt-Out Plaintiffs’
state court claims against the Fund, the Special Master, TAP and Quasar. The court
concluded that this injunction was authorized by the All Writs Act, 28 U.S.C.
§ 1651, because it was “necessary” to (1) “protect the [c]ourt’s exclusive
jurisdiction over the limited res”—the Special Reserve; (2) “prevent the dissipation
of the Fund’s remaining assets due to the Fund’s advancement and
indemnification obligations”; and (3) “achieve a pro rata distribution” of those
“remaining assets to defrauded shareholders that is fair and equitable to all
shareholders.” Special App’x 1.
12 By request of the Special Master, the injunction carves out any counterclaims
by EisnerAmper against TAP, on behalf of the Fund, in TAP’s ongoing state court
action against EisnerAmper for its alleged role in the Fund’s collapse. In addition,
the injunction does not apply to the Opt-Out Plaintiffs’ state court claims against
EisnerAmper and Bancorp. TAP determined that it does not have an obligation to
indemnify EisnerAmper or Bancorp and is seeking to enforce a contractual
indemnification provision against Bancorp for losses flowing from Bancorp’s
negligence.
In this appeal of the permanent injunction, the Opt-Out Plaintiffs challenge
only that aspect of the district court’s injunction that prohibits them from pursuing
their state court securities law claims against Quasar.
DISCUSSION
I. The Parties’ Arguments
On appeal, and as relevant here, the Opt-Out Plaintiffs argue primarily that
the injunction violates the Anti-Injunction Act, 28 U.S.C. § 2283. They contend that
the injunction does not fit within the narrow “in aid of jurisdiction” exception to
the general prohibition against federal court injunctions of state court actions
because no conflict of federal and state in rem jurisdiction exists. They contend
that this federal litigation is “an in personam action against the Mutual Fund,” and
13 that the district court’s authority over the Special Reserve “does not transform the
nature of the [district c]ourt’s jurisdiction.” Appellants’ Br. at 34. They contrast
this circumstance with bankruptcy or receivership proceedings in which there is a
statutory basis for in rem jurisdiction over a collection of assets. Id. at 35.
The Opt-Out Plaintiffs contend that even if the district court does have in
rem jurisdiction over the Special Reserve, the injunction is improper because their
state court securities lawsuits are indisputably in personam actions seeking to
establish the various defendants’ liability under the Securities Act, which cannot
threaten the district court’s control over the Special Reserve itself. And they argue
that the injunction doesn’t fall within the narrow exception to the general bar on
federal courts enjoining state in personam actions that this Court carved out in In re
Baldwin-United Corp., 770 F.2d 328 (2d Cir. 1985).
Moreover, the Opt-Out Plaintiffs argue that even if there were a potential in
rem jurisdictional conflict, the record does not establish that the injunction is
“necessary” to aid the court’s jurisdiction because it doesn’t establish that Quasar’s
indemnity claim against TAP would be viable and collectible from the Special
Reserve. And the Opt-Out Plaintiffs emphasize that the untenable logical
consequence of the Special Master’s position is that “any insolvency
proceeding[]—whether in bankruptcy or receivership—justifies sweeping
14 injunctions of claims against non-debtors so long as [the non-debtors] have claims
for indemnity against the debtor.” Appellants’ Br. at 22 (emphasis added). 3
In response, the Special Master argues that the injunction falls under the
district court’s broad authority to protect its exclusive jurisdiction over a limited
“res,” the Special Reserve, and to effectuate a distribution plan without competing
claims or further dissipation of the Fund’s remaining assets. According to the
Special Master, the decisive factor under Baldwin-United isn’t whether an action is
in rem or in personam, “but rather whether there is a practical need” to prevent the
state court from interfering with the federal court’s exercise of jurisdiction over a
res. Appellee’s Br. at 41. Such a need exists here, the Special Master contends,
because further litigation of the Opt-Out Plaintiffs’ state court claims would force
TAP to draw against the Special Reserve to advance money to Quasar, its
indemnitee, for its legal fees in that suit, undermining the Special Master’s goal of
distributing those remaining assets equitably to shareholders.
3The Opt-Out Plaintiffs also argue that cutting off claims against Quasar on the ground that it is a potential indemnitee of TAP would run afoul of the remedial scheme of the Securities Act, which imposes joint and several liability on statutory defendants, including underwriters, to protect plaintiffs from the risk that any one defendant becomes insolvent. See 15 U.S.C. §§ 77k(a)(2)–(5), (f)(1). They further contend that the injunction violates their due process rights by rendering their right to opt out of the class settlement illusory with respect to defendants against whom their claims are now enjoined. And they argue that the injunction is impermissibly vague and unsupported by factual findings. The Special Master disagrees. Because we resolve this appeal on the basis of the Anti-Injunction Act, we do not reach these arguments.
15 II. Analysis
We review the district court’s issuance of an injunction for abuse of
discretion, its factual findings for clear error, and its interpretation of the All Writs
Act and the Anti-Injunction Act, along with other questions of law, without
deference. Wyly v. Weiss, 697 F.3d 131, 137 (2d Cir. 2012); see also Retirement Systems
of Alabama v. J.P. Morgan Chase & Co., 386 F.3d 419, 425 (2d Cir. 2004).
Considering the Anti-Injunction Act and precedential decisions applying
that statute, we conclude that the Anti-Injunction Act does not authorize the
district court’s injunction against the Opt-Out Plaintiffs’ state law claims against
Quasar. We start with the legal lay of the land before considering the application
of the Anti-Injunction Act here.
A. The All Writs Act, the Anti-Injunction Act, and In Personam State Court Actions
The All Writs Act grants federal courts broad authority to “issue all writs
necessary or appropriate in aid of their respective jurisdictions and agreeable to
the usages and principles of law.” 28 U.S.C. § 1651(a). The Anti-Injunction Act
limits that authority by providing that a federal court “may not grant an injunction
to stay proceedings in a State court except as expressly authorized by Act of
16 Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate
its judgments.” 28 U.S.C. § 2283.
The Anti-Injunction Act, originally enacted in 1793, reflects “the essentially
federal nature of our national government”: we have a “dual court system” in
which state and federal legal systems “proceed[] independently of the other with
ultimate review in [the Supreme] Court of the federal questions raised in either
system.” Atlantic Coast Line Railroad Company v. Brotherhood of Locomotive Engineers,
398 U.S. 281, 285–86 (1970). 4 Congress recognized that “this dual system could not
function if state and federal courts were free to fight each other for control of a
particular case.” Id. at 286.
To prevent “needless friction” and “make the dual system work,” the Anti-
Injunction Act sets “lines of demarcation” between state courts and lower federal
courts. Id. Thus, the Anti-Injunction Act “in part rests on the fundamental
constitutional independence of the States and their courts,” and embodies the
principle that “[p]roceedings in state courts should normally be allowed to
continue unimpaired by intervention of the lower federal courts, with relief from
4 In quotations from caselaw, this opinion omits all internal quotation marks, footnotes, and citations, and accepts all alterations, unless otherwise noted.
17 error, if any, through the state appellate courts and ultimately [the Supreme]
Court.” Id. at 287.
For those reasons, we construe the exceptions to the Anti-Injunction Act’s
limit on federal injunctions of state court proceedings narrowly. Id.; see Smith v.
Bayer Corp., 564 U.S. 299, 306 (2011) (stating that the “three specifically defined
exceptions . . . are narrow”). “Any doubts as to the propriety of a federal
injunction against state court proceedings should be resolved in favor of
permitting the state courts to proceed in an orderly fashion to finally determine
the controversy.” Atlantic Coast Line, 398 U.S. at 297.
Here, we consider the scope of the “in aid of [] jurisdiction” exception to the
Act. 28 U.S.C. § 2283. That exception “is generally reserved for state court actions
in rem.” Wyly, 697 F.3d at 137. An in rem action seeks to determine “the status of
a thing, and therefore the rights of persons generally with respect to that thing.”
In Rem, BLACK’S LAW DICTIONARY (12th ed. 2024). The “thing” is also known as a
“res.” Retirement Systems, 386 F.3d at 426. A res may be a physical object or a pool
of money. Where a federal court acquires in rem jurisdiction first, it can enjoin a
state in rem proceeding regarding the same res because “exercise by the state court
of jurisdiction over the same res necessarily impairs, and may defeat, the
18 jurisdiction of the federal court already attached.” Kline v. Burke Construction Co.,
260 U.S. 226, 229 (1922).
That rule generally does not extend to a parallel in personam proceeding in
state court. An in personam action seeks to determine “the personal rights and
obligations of the parties.” In Personam, BLACK’S LAW DICTIONARY (12th ed. 2024);
see also id. (“[T]he effect of a judgment in [an in personam] action is merely to bind
the parties to it.”); see Wyly, 697 F.3d at 138 (noting that “an in personam action
involves a controversy over liability rather than over possession of a thing”).
Because personal liability “does not involve the possession or control of a thing,”
a state court action to “enforce [it] does not tend to impair or defeat the jurisdiction
of the court in which a prior action for the same cause is pending.” Kline, 260 U.S.
at 230. For that reason, since its decision in Kline, “the Supreme Court has never
held that a district court may enjoin, as necessary in aid of [its] jurisdiction, a
parallel in personam state action.” Retirement Systems, 386 F.3d at 426.
However, this Court has recognized that an injunction against a state in
personam proceeding may be necessary in aid of the federal court’s jurisdiction in
certain “exceptional circumstances.” United States v. Schurkman, 728 F.3d 129, 137
(2d Cir. 2013). In the one hundred years since Kline, we have identified
19 circumstances that justify such an injunction in only one case: In re Baldwin-United
Corp., 770 F.2d 328 (2d Cir. 1985).
There, over 100 federal securities suits were consolidated into a multidistrict
class action against broker-dealers. Id. at 331. Of the 100,000 members of the
plaintiff class, fewer than 400 “chose to opt out of the action.” Id. at 332. The
district court coordinated settlement talks for two years. Id. After the parties
reached a settlement agreement as to 18 of the 26 defendants, the representatives
of 40 states determined that the proposed resolution did not provide adequate
compensation to plaintiffs. Id. Authorities in numerous states began issuing
subpoenas to defendants, aiming to enforce state laws that authorized restitution
and then to use any monetary recovery to pay additional compensation to class
action plaintiffs residing in their respective states. Id. at 332–33. The possibility of
such suits threatened to undo the district court’s almost consummated settlement
efforts—both as to the 18 cases that had already settled and were awaiting final
approval and the eight that were likely to settle in the near future.
Faced with this prospect, the district court temporarily enjoined the
commencement of any action against defendants in the multidistrict litigation “on
behalf of or derivative of the rights of any plaintiff” or that “may in any way affect
the rights of any plaintiff.” Id. at 334. The court provided that the injunction
20 would continue in effect until the entry of final judgment in all of the federal
multidistrict proceedings. Id.
On appeal, this Court affirmed the injunction as “necessary or appropriate
in aid of” the district court’s jurisdiction under the All Writs Act. Id. at 338. We
acknowledged the general rule that the All Writs Act does not support injunctions
against state in personam actions but concluded that “the district court had before
it a class action proceeding so far advanced that it was the virtual equivalent of a
res over which the district judge required full control.” Id. at 337. We noted that
once the 18 settlements were approved by the district court, the court
unquestionably could have entered an order to “forestall[] relitigation of those
judgments.” Id. at 336. We also explained that the injunction was based at least in
part on the district court’s “conviction that the state actions were improperly being
brought for harassing and vexatious purposes” to “coerc[e] the defendants to pay
more funds into the federal settlement pool.” Id. at 339. Thus, “our interest in
preserving federalism and comity with the state courts [was] not significantly
disturbed” by the injunction. Id. at 337.
Since Baldwin-United, we have cautioned repeatedly against reading its
exception too broadly and have declined to extend its holding to novel
circumstances. In Retirement Systems of Alabama v. J.P. Morgan Chase & Co., we
21 clarified that Baldwin-United “did not create a blanket rule or presumption” that a
federal court managing complex litigation “may enjoin parallel state
proceedings.” 386 F.3d at 427. There, a federal court presiding over a securities
class action arising from the collapse of a major company ordered an Alabama
state court to postpone trial of a pending case by opt-out plaintiffs until the federal
trial was complete. Id. at 421–23. We noted that unlike in Baldwin-United, no
“prompt settlement” was impending. Id. at 428. Applying “the Kline rule that in
personam proceedings in state court cannot be enjoined merely because they are
duplicative of actions” in federal court, id., we vacated the injunction, id. at 430–
31.
In Wyly v. Weiss, we reaffirmed that the “in aid of jurisdiction” exception to
the prohibition of federal injunctions against state proceedings generally applies
only to state court actions in rem because the state court’s exercise of jurisdiction
may defeat the federal court’s jurisdiction over a res. 697 F.3d 131. There, after the
federal court approved a securities class action settlement, the plaintiffs learned
that the defendants had improperly withheld documents. Id. at 135. When the
federal court denied class members relief from the settlement order, plaintiff Wyly
sued class counsel in state court for legal malpractice. Id. at 136. Invoking both
the “in aid of jurisdiction” exception and the relitigation exception to the Anti-
22 Injunction Act, the federal district court enjoined the state malpractice action to
protect its own determination that class counsel had provided adequate
representation and was entitled to fees. Id. at 136–37.
On appeal, we rejected class counsel’s arguments that the Baldwin-United
exception applied because the federal court had overseen the “complex, large-
scale proceedings” for years and had “expressly retained exclusive jurisdiction”
over the parties “for all matters relating to the Class Action.” Id. at 139. As in
Retirement Systems, we cautioned that “involvement in complex litigation” is not
enough to justify “issuance of an injunction ‘in aid of’ the court’s jurisdiction.” Id.
We upheld the injunction only because it was independently justified by the
relitigation exception. Id. at 144.
And in United States v. Schurkman, we explained that the Baldwin-United
exception “relied on the exceptional circumstances of that case—the case’s
extraordinary complexity and multidistrict nature, the fact that 18 of the 26
defendants had already settled, and the fact that there was a substantially
significant prospect that the remaining 8 defendants would settle in the reasonably
near future.” 728 F.3d at 137–38. In Schurkman, the federal court presided over an
environmental enforcement action that was settled by a consent decree that
provided that the appraised value of a parcel of land owned by the defendant
23 would be unreviewable. Id. at 131–33. After the defendant unsuccessfully
challenged the appraised value in federal court, he sued the appraiser in state court
for fraud and negligent misrepresentation. Id. at 131. The federal district court
permanently enjoined that state court proceeding. Id. at 131, 134, 138 n.4.
Because the case was “easily distinguished” from Baldwin-United, we
“decline[d] to extend” the exception “beyond the exceptional circumstances of that
case.” Id. at 138. We noted that Baldwin-United involved a temporary injunction
set “to expire upon entry of final judgment in all of the multidistrict proceedings
in federal court, thus posing less of a risk to fundamental constitutional
independence of the States and their courts.” Id. at 138 n.4. “By contrast, the
injunction in [Schurkman], if permitted to stand, would be permanent in nature,
and would seriously undercut principles of comity.” Id.
In sum, since Baldwin-United, we have consistently adhered to the Supreme
Court’s reasoning in Kline and have limited the potential extension of “in aid of
jurisdiction” injunctions against in personam state court actions to the specific and
narrow facts that led us to depart from the general rule in Baldwin-United.
B. The Opt-Out Plaintiffs’ State Court Actions Against Quasar
With the above caselaw in mind, we evaluate whether the district court’s
injunction runs afoul of the Anti-Injunction Act. In determining the question, we
24 need not decide whether this federal action is in personam, in rem, or quasi in rem,
because our analysis turns on the nature of Opt-Out Plaintiffs’ state court actions,
not the label assigned to the federal district court’s oversight of the Special
Reserve. We assume without deciding that the federal court has properly asserted
exclusive jurisdiction over the Special Reserve, whatever label applies, for the
purpose of overseeing distribution of the remaining assets of the Mutual Fund.
The question then is whether, under the Anti-Injunction Act, the district
court, to protect its exclusive jurisdiction over the Special Reserve, can enjoin the
state in personam proceedings by the Opt-Out Plaintiffs against non-party Quasar
on the basis that Quasar, as an indemnitee of TAP, may have contractual claims
against TAP that might be satisfied through the Special Reserve. Pursuant to the
caselaw set forth above, the answer is clearly no. We conclude that the Opt-Out
Plaintiffs’ state court actions fall in the heartland of state court in personam actions
that cannot be enjoined under the Anti-Injunction Act. Any attempt to analogize
this case to Baldwin-United fails.
i. Opt-Out Plaintiffs’ State Claims Are Run Of The Mill In Personam Claims
The Opt-Out Plaintiffs’ enjoined state court claims are undisputedly in
personam: they seek to adjudicate the personal liability of Quasar under the
25 Securities Act. A judgment for the Opt-Out Plaintiffs against Quasar in state court
would not involve “exercise by the state court of jurisdiction over the same res”—
that is, over the Special Reserve. Kline, 260 U.S. at 229. Nor would it “necessarily
impair[]” or “defeat” the federal court’s jurisdiction over that pool of money. Id.
By the terms of the federal district court’s operative consent order, the Special
Master, under the supervision of the SEC and subject to the court’s exclusive
jurisdiction, has power to oversee distribution of the Special Reserve. A state court
judgment for Opt-Out Plaintiffs against non-party Quasar wouldn’t change that.
“The adjudication of rights in personam simply does not impede the possession or
control of the property required for maintenance of an in rem action . . . even when
property is within the possession and exclusive jurisdiction of one court.” Leopard
Marine & Trading, Ltd. v. Easy St. Ltd., 896 F.3d 174, 192–93 (2d Cir. 2018). Thus,
any judgment against Quasar in the state court action would not “impede” the
federal court’s “possession and control of the funds themselves.” Id. at 193. It’s a
completely distinct case.
The fact that TAP may have a contractual obligation to indemnify Quasar
against a future judgment in a later potential suit doesn’t alter the analysis. TAP’s
potential contractual obligations to Quasar are foundational to the Special
Master’s rationale for seeking to cut off the Opt-Out Plaintiffs’ state court claims.
26 But Quasar’s potential contract claims against TAP are themselves in personam
claims. See In Personam, BLACK’S LAW DICTIONARY (12th ed. 2024) (“A normal
action brought by one person against another for breach of contract is a common
example of an action in personam.”). That is, Quasar does not have any legal right
to the Special Reserve as such. Any legal claims it may have are against TAP; the
Special Reserve is simply the pool of money from which TAP may satisfy its
obligations to Quasar.
If Quasar secured a state court judgment against TAP and then initiated a
state court collection action seeking to attach funds in the Special Reserve to satisfy
its judgment, then the state court action would raise a closer question. But the fact
that a judgment for the Opt-Out Plaintiffs in their state court action against Quasar
may trigger contractual obligations by TAP to Quasar, which the Special Master
may opt to satisfy from the Special Reserve, does not convert the Opt-Out
Plaintiffs’ in personam actions against non-party Quasar into challenges to the
district court’s jurisdiction over the Special Reserve.
The same goes for TAP’s contractual obligation to advance fees to Quasar,
which the Special Master identifies as a present threat to the federal court’s
jurisdiction over the Special Reserve. Like its potential claim for indemnification,
Quasar’s claim for advancement of fees from TAP is a contractual claim. It’s not a
27 claim of ownership of a portion of the Special Reserve. And the fact that Quasar
has a contractual advancement right against TAP that is currently being satisfied
through the Special Reserve, and may continue to be, does not give the district
court a basis for enjoining the Opt-Out Plaintiffs’ suits against Quasar, effectively
extinguishing their claims.
ii. Baldwin-United
So the injunction can only stand if it falls within the narrow Baldwin-United
exception to the general prohibition on federal court injunctions against state court
in personam actions. We conclude that it does not.
Remember, Baldwin-United addressed extraordinary circumstances. The
district court was in the process of reviewing provisionally approved settlement
agreements in a massive, multidistrict action, and a number of other settlements
were expected shortly; once the court finally approved those agreements, it would
clearly have the authority to enjoin state actions seeking to relitigate the
judgments; and the court viewed the preliminary steps toward such state actions
as “vexatious” attempts to undermine the settlements. Baldwin-United, 770 F.2d at
339.
This case is not remotely similar. First and foremost, as set forth above, in
contrast to Baldwin-United, the state court actions at issue here—against non-
28 parties to this action—have no impact on the district court’s jurisdiction and
authority over the Special Reserve.
Moreover, the injunction in Baldwin-United protected a federal class action
on the verge of settlement against state court proceedings that would upend the
nearly completed settlement. Here, a state court settlement of a class action has
already been approved and the money allocated for payout; the Opt-Out Plaintiffs’
claims in no way threaten that resolution. Indeed, the injunction here seeks to cut
off the claims of those who haven’t gotten compensation from the consummated
settlement in favor of additional distribution by the Special Master of the
remaining Fund assets to all investors, most of whom already received payments
from a separate settlement fund and accordingly released their claims against the
defendants.
And the court in Baldwin-United did not permanently enjoin state court
actions; it hit the pause button pending its entry of final judgment in the
multidistrict litigation. 770 F.2d at 334. The district court’s permanent injunction
here would forever cut off the Opt-Out Plaintiffs’ claims—claims the Opt-Out
Plaintiffs preserved by forgoing the benefits of the class action settlement. As we
explained in Schurkman, a permanent injunction poses greater “risk to [the]
fundamental constitutional independence” of state courts and “seriously
29 undercut[s] principles of comity” that animate the Anti-Injunction Act. 728 F.3d
at 138 n.4.
Also, in contrast to Baldwin-United, there is no reason in this case to believe
that the Opt-Out Plaintiffs are using the state court actions “for harassing and
vexatious purposes.” 770 F.2d at 339. The Opt-Out Plaintiffs are not using their
state court claims as a negotiation lever to drive up their recovery in the class
action settlement; instead, they are suing to vindicate the very claims they
preserved by opting out.
Finally, although this consideration is not essential to our resolution, we
note that the Anti-Injunction Act did not apply in Baldwin-United because the
federal injunction issued before suits commenced in state court. Id. at 335. Baldwin-
United considered only whether the injunction was “necessary or appropriate in
aid of” the district court’s jurisdiction under the All Writs Act. 28 U.S.C. § 1651(a)
(emphasis added). This case, by contrast, squarely implicates the Anti-Injunction
Act’s prohibition of federal court injunctions against state court proceedings, and
its limited exception for injunctions necessary in aid of the district court’s
jurisdiction.
“Because circumstances similar to those in Baldwin-United are absent here,
we are bound to apply the general rule that an in personam state court action may
30 not be enjoined” based on potential conflict with this federal action. Schurkman,
728 F.3d at 138. We decline to extend the Baldwin-United exception to allow a
permanent injunction against the Opt-Out Plaintiffs’ securities law claims in state
court against the Fund’s underwriter.
CONCLUSION
For the reasons above, the district court exceeded its discretion by entering
a permanent injunction against the Opt-Out Plaintiffs’ state court actions. The
district court’s order is VACATED and the case REMANDED for further
proceedings consistent with this opinion.