Smith v. Seeco Inc et al

Filing 370

ORDER denying 352 the class's emergency motion for a temporary restraining order. Signed by Chief Judge Brian S. Miller on 5/20/2017. (thd)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF ARKANSAS
WESTERN DIVISION
CONNIE JEAN SMITH, individually and
on behalf of all others similarly situated
v.

PLAINTIFFS

CASE NO. 4:14-CV-00435 BSM

SEECO, INC. n/k/a SWN Production
(Arkansas), LLC., et al.

DEFENDANTS
ORDER

The class’s emergency motion for a temporary restraining order [Doc. No. 352] is
denied.
This federal class action overlaps with similar class actions in different courts, though
only the overlap with one of the Arkansas state court cases is implicated here. In Snow v.
SEECO, Case No. CV-2010-126 (Conway Cnty. Cir. Ct. Ark.) (“Snow”), the Arkansas state
court certified a class of royalty interest owners consisting of only Arkansas citizens.
SEECO, Inc. v. Snow, 506 S.W.3d 206, 210 (Ark. 2016). In this federal case (“Smith”), a
class was certified of all royalty interest owners regardless of state citizenship, residence, or
any other characteristic. Doc. No. 186. In other words, the Snow class is a subset of the
Smith class. The federal case is set for trial on June 5, 2017; the state case is scheduled for
August 28, 2017. See Doc. No. 343 at 3. By all accounts, the cases have proceeded on
parallel paths, both focused on trial, with the federal case always closest to resolution.
Remarkably, that reality changed in the past four days. On May 16, 2017, the
defendants and plaintiffs in Snow attended mediation to resolve the dispute between

defendants and Arkansas citizens. Doc. No. 343 at 3. Even though Snow has always
consisted of only Arkansas citizens, Snow class counsel was able to negotiate a settlement
on behalf of all royalty interest owners – those counsel represented and those not part of the
certified class. Surprisingly, less than forty-eight hours later, the parties were able to
memorialize their settlement agreement, prepare pleadings, and have an Arkansas state court
judge review the agreement in light of the vastly different class definition. The state court
judge preliminarily approved settlement and directed notice be distributed by May 22, 2017
– the event the class here asks to enjoin. The now much broader class will need to review
the settlement, evaluate their options, and make plans for a fairness hearing on June 28, 2017.
Id. 3-4. Put simply, a case that consisted of only Arkansas citizens could now decide the fate
of royalty interest owners everywhere – a fate mediated, approved, distributed to the class,
and analyzed by an Arkansas state court within forty-three days.
The class in Smith moved for a temporary restraining order to enjoin defendants and
anyone acting in concert with them (i.e., the Snow plaintiffs) from “disseminating in any way
. . . settlement notice in Snow and from otherwise communicating with any member of the
Class certified in [Smith].” Doc. No. 352 at 1. When evaluating whether to issue a
temporary restraining order, courts must consider (1) the threat of irreparable harm to the
movant; (2) the balance between this harm and the injury caused by issuing the order; (3) the
probability the movant will succed on the merits; and (4) the public interest. See Dataphase
Sys., Inc. v. CL Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981) (en banc); McLeodUSA

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Telecommunications Servs., Inc. v. Qwest Corp., 361 F. Supp. 2d 912, 918 (N.D. Iowa 2005)
(applications for temporary restraining orders and injunctions are generally measured by
same standards).
The problem here is that the class cannot show irreparable harm. Although no single
factor is itself dispositive, irreparable harm is critical to enjoining activity. See Beacon
Theatres, Inc. v. Westover, 359 U.S. 500, 506-07 (1959) (“The basis of injunctive relief in
the federal courts has always been irreparable harm and inadequacy of legal remedies.”);
Geico Corp. v. Coniston Partners, 511 F.2d 414, 418 (8th Cir. 1987) (“The threshold inquiry
is whether the movant has shown the threat of irreparable injury. The failure to show
irreparable harm is, by itself, a sufficient ground upon which to deny a preliminary
injunction[.]”). The class argues for harm in three ways: (1) settlement notice is misleading;
(2) the settlement is the product of collusion and severely undercuts the class’s recovery; and
(3) settlement notice frustrates the attorney-client relationship between class counsel and
class members.
As an initial matter, the class’s brief in support mixes argument for both preventing
notice and preventing settlement. For example, when discussing the threat of irreparable
harm, the class spills ink on both critiquing the “sweetheart deal” and on the integrity of
notice. See Doc. No. 353 at 10-11. Make no mistake though: the class has not asked to
enjoin settlement, but rather only to prevent the settlement notice that must be distributed by
May 22, 2017. See Doc. No. 352-1 (proposed order prohibiting notice). Regardless, the

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integrity of the proposed settlement is firmly within the province of the state court, which
must evaluate the process of settlement and determine whether its terms are fair. See Ark.
R. Civ. P. 23(e) (requiring court approval for settlement); Ballard v. Martin, 79 S.W.3d 838,
844-45 (Ark. 2002) (citing Gruinn v. Int’l House of Pancakes, 513 F.2d 114 (8th Cir. 1975),
(“[T]he trial court is accorded deference, but that deference is accompanied by a duty to act
as a fiduciary who must serve as guardian of the rights of absent class members . . . [N]o
court should accept a settlement that is unfair or inadequate, and the burden is on the
proponents of the settlement to show that the proposed settlement meets standards of fairness
and adequacy.”)). Even assuming Smith class counsel won at trial (which may very well
result in a significantly larger award) or was able to negotiate a better settlement, irreparable
harm does not result simply because Snow reached finality first.
On the issue of misleading notice, there is no irreparable harm because any harm can
be addressed through some other action. For example, class member confusion between
Snow and Smith can be addressed through supplemental notice in Smith. Furthermore, a class
member who believes the settlement notice was not adequate would not be bound by the
Snow judgment. Assuming Snow enters final judgment, class members are not bound unless
they had adequate notice to satisfy due process. Phillips Petroleum Co. v. Shutts, 472 U.S.
797, 811–12 (1985); see Grunin, 513 F.2d at 120 (“By virtue of the fact that an action
maintained as a class suit under Rule 23 has res judicata effect on all members of the class,
due process requires that notice of a proposed settlement be given to the class.”). It is true

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that due process requires notice that adequately conveys the required information and
provides a reasonable time for those interested to make an appearance to object. Grunin, 513
F.2d at 120 (The notice must “reasonably to convey the required information . . . and it must
afford a reasonable time for those interested to make their appearance.” (quoting Mullane v.
Central Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950))). Thus, if settlement notice
is indeed deficient, a later court can address the due process concerns and permit the class
member to air grievances in a new lawsuit.
The more troubling issue is that of the attorney-client relationship. There can be no
question that Smith class counsel has a unique attorney-client relationship with class
members regardless of whether that relationship was established after certification or at the
conclusion of the opt-out period. See Kleiner v. First Nat’l Bank of Atlanta, 751 F.2d 1193,
1206-07 (11th Cir. 1985) (“defense counsel had an ethical duty to refrain from discussing the
litigation with members of the class as of the date of class certification”); In re Katrina Canal
Breaches Consol. Litig., Civil Action No. 05-4182, 2008 WL 4401970, at *3 (E.D. La. Sept.
22, 2008) (“A client-lawyer relationship with a potential member of the class does not begin
until the class has been certified and the time for opting out by a potential member of the
class has expired.”); Newberg on Class Actions § 9:9 (5th ed.) (“Absent class members are
therefore ‘represented parties,’ and ethics rules prohibit opposing counsel from contacting
them directly.”). While defendants and their counsel could not communicate with the Smith
class without first communicating with class counsel, the defendants retreated to state court

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and negotiated a settlement for class members that Snow class counsel did not yet represent
(i.e., royalty interest owners who were not Arkansas citizens). Now with preliminary
approval to distribute settlement notice, defendants maneuvered themselves to do an end-run
around the communication barrier in Smith; that is, work with Snow counsel to not just reach
a settlement with the class members they represent, but to also communicate with class
members outside the Snow class to resolve all claims at once.
Assuming this is inappropriate, the difficult question is the appropriate remedy.
Having already determined that the practical effect of these communications – i.e., settlement
– is not irreparable harm, the remaining issue is whether the communications themselves are
such a harm. These communications, although troubling, are akin to ethical questions that
cannot be alleviated by temporary restraining orders. See Devazier v. Caruth, Case No. 2:16CV-00067 KGB, 2016 WL 3939777, at *6 (E.D. Ark. July 15, 2016) (“[The] complaint is
largely predicated on alleged violations of the Arkansas Rules of Professional Conduct,
which cannot be used as a basis for liability.”). Although courts can issue sanctions to parties
and attorneys, and ethics boards can investigate ethical wrongdoing, a temporary restraining
order is simply not available, especially when a state court has authorized the activity to
occur.
Aside from the merits, federalism cautions strongly against interfering with Snow. See
Atl. Coast Line R.R. Co. v. Brotherhood of Locomotive Eng’rs, 398 U.S. 281, 297 (1970)
(“Any doubts as to the propriety of a federal injunction against state court proceedings should

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be resolved in favor of permitting the state courts to proceed in an orderly fashion to finally
determine the controversy.”). The Anti-Injunction Act is a strict limitation on federal power
that is an “absolute prohibition against enjoining state court proceedings.” Id. at 286.
Although the class is correct that certain exceptions exist, the overarching purpose is to avoid
the “needless friction” that would occur when the Snow and Smith courts begin “fight[ing]
each other for control of a particular case.” Id. at 286. That is exactly what the class’s
request does here: the request asks the federal court to assert its dominance over the state
court, even though the state court has already exercised its judgment and decided settlement
notice is appropriate.
The class is correct that enjoining proceedings is appropriate when “necessary in aid
of [the federal court’s] jurisdiction.” 28 U.S.C. § 2283. The class confuses this exception
as one allowing federal courts to ensure its actions reach final judgment first, but the
exception is actually much narrower. See Burr & Forman v. Blair, 470 F.3d 1019, 1028
(11th Cir. 2006) (“In light of the federalism concerns underlying [the] Anti-Injunction Act,
courts construe the . . . exceptions narrowly.”); T. Smith & Son, Inc. v. Williams, 275 F.2d
397, 405 (5th Cir. 1960) (“The phrase, ‘where necessary in aid of its jurisdiction’, therefore,
should be interpreted narrowly, in the direction of federal non-interference with orderly state
proceedings.”). “The traditional notion is that in personam actions in federal and state courts
may proceed concurrently, without interference from either court, and there is no evidence
that the exception to § 2283 was intended to alter this balance.” Vendo Co. v. Lektro-Vend

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Corp., 433 U.S. 623, 642 (1977) (plurality opinion). The fear that an Arkansas state court
might reach final judgment first does not justify the federal court exerting dominance. “In
short, the state and federal courts had concurrent jurisdiction in this case, and neither court
was free to prevent either party from simultaneously pursuing claims in both courts.” Atl.
Coast Line R.R. Co., 398 U.S. at 295.
In the end, the class made its case that the situation is troubling. For example, the
defendants questioned the adequacy of identifying class members [Doc. No. 291], yet now
feel comfortable relying on identification procedures in state court when a settlement
materialized. But even if the class is correct that what the state court is doing is wrong, the
unfortunate reality is that the error will only result in continued litigation if settlement moves
forward. This reality does not create a legal basis to intervene and question a state court
decision. Atl. Coast Line R.R. Co., 398 U.S. at 296 (“lower federal courts possess no power
. . . to sit in direct review of state court decisions.”). That privilege is left to the Arkansas
appellate courts and, potentially, the Supreme Court of the United States.
Accordingly, the class’s emergency motion for a temporary restraining order [Doc.
No. 352] is denied.
IT IS SO ORDERED this 20th day of May 2017.

_________________________________
UNITED STATES DISTRICT JUDGE

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