HERITAGE RECYCLING, LLC v. ENERGY CREATES ENERGY, LLC et al

Filing 55

ORDER denying 43 Motion to permanently enjoin duplicative state court action and denying as moot 49 Motion for Leave to File sur-reply. Signed by Judge Tanya Walton Pratt on 5/4/2015. (CBU)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
HERITAGE RECYCLING, LLC,
Plaintiff,
v.
ENERGY CREATES ENERGY, LLC,
GENESYS INDUSTRIAL CORP.,
Defendants.

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Case No. 1:14-mc-00027-TWP-DKL

ORDER ON MOTION TO PERMANENTLY ENJOIN DUPLICATIVE
STATE COURT ACTION AND OTHER PROCEEDINGS
This matter is before the Court on a Motion to Permanently Enjoin Duplicative State Court
Action and Other Proceedings filed by Plaintiff Heritage Recycling, LLC (“Heritage”) pursuant to
the re-litigation exception to the Anti-Injunction Act, 28 U.S.C. § 2283 (Filing No. 43). Heritage
and Defendants Energy Creates Energy, LLC and Genesys Industrial Corp. (collectively “ECE”)
participated in arbitration and a hearing from January 27 through February 3, 2014, following the
deterioration of their contractual business relationship. The arbitrator rendered a decision favorable
to Heritage on February 28, 2014 (the “Arbitration Award”), and Heritage asked this Court to
confirm the Arbitration Award on March 13, 2014 (Filing No. 1). On October 17, 2014, the Court
entered Final Judgment, confirming the Arbitration Award (Filing No. 38). Prior to the Court’s
entry of Final Judgment, ECE initiated a similar action in a Missouri state court on September 23,
2014. Heritage filed a motion to stay the state court action in the Missouri state court and then filed
its Motion to Permanently Enjoin Duplicative State Court Action in this Court on November 26,
2014. For the following reasons, the Court DENIES Heritage’s Motion.
I.

Background

Heritage and ECE entered into a Purchase, License, and Commercialization Agreement on
May 20, 2011 (“the Agreement”). ECE controlled technology and intellectual property relating to
a machine that shreds material so it may be recycled (“the Shredder”), and Heritage wanted to
commercialize the technology. The Agreement granted Heritage an exclusive license to two
patents for twenty-five years. Heritage paid $3 million for the rights. The Agreement contained an
arbitration clause for disputes arising out of and relating to the Agreement.
Eighteen months after execution of the Agreement, the business relationship between
Heritage and ECE deteriorated and good faith efforts to resolve their disputes failed. Heritage filed
a four count arbitration claim against ECE, alleging breach of contract, fraudulent inducement,
tortious interference, and unjust enrichment. Heritage’s breach of contract claim alleged that ECE
had breached the Agreement’s exclusivity clause, as explained in a demand letter attached to the
complaint. The complaint itself did not specify an exact clause of the Agreement but referenced
seven types of conduct that Heritage alleged constituted a breach of the Agreement. The conduct
generally referred to developing systems, technology, and intellectual property, and granting
licenses and rights that would compete with Heritage’s exclusive rights and commercialization
efforts. In the arbitration complaint, Heritage specifically requested rescission of the Agreement
(Filing No. 31-6 at 8–9).
The parties underwent extensive discovery and summary judgment procedures. Then the
parties participated in the contractually bargained-for arbitration hearing from January 27 through
February 3, 2014. On February 28, 2014, the arbitrator denied ECE’s counterclaims against
Heritage and Heritage’s claims of fraudulent inducement, tortious interference, and unjust
enrichment against ECE. The arbitrator found in favor of Heritage on its breach of contract claim

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and rescinded the Agreement, awarding $3 million dollars and statutory interest to Heritage and
ordering the return of the Shredder systems to ECE upon payment.
Shortly thereafter, Heritage filed this miscellaneous proceeding on March 13, 2014,
seeking confirmation of the Arbitration Award. On April 4, 2014, the Court entered judgment
confirming the Arbitration Award against ECE (Filing No. 5 at 1). That judgment was set aside on
October 17, 2014, because Heritage failed to properly serve ECE (Filing No. 37 at 6). In that same
Order, the Court noted that a separate “Judgment will issue confirming the arbitration award.”
(Filing No. 37 at 10.) Also on October 17, 2014, the Court entered Final Judgment, explaining that
the Court “this day confirmed the arbitration award.” (Filing No. 38.)
Before this Court entered its Final Judgment, ECE initiated a similar action in the Jackson
County (Missouri) Circuit Court, on September 23, 2014, cause number 1416-CV-22831 (the
“Missouri state court action”). The Missouri state court action, involving ECE as plaintiffs, was
filed against Heritage, The Heritage Group, Heritage Environmental Services, LLC, The Heritage
Research Group, Owens Corning, Sebright Products, Inc., Brinks Gilson & Lione, William Jeffrey
Akers, Michael S. Gzybowski, and Anthony Kriech. It involves twenty-one various contract, tort,
and legal malpractice claims. Heritage filed a motion to stay the Missouri state court action in that
court and filed its Motion to Permanently Enjoin Duplicative State Court Action in this Court on
November 26, 2014, based on the re-litigation exception to the Anti-Injunction Act, 28 U.S.C. §
2283.
II.

Discussion

Heritage seeks a permanent injunction to enjoin the Missouri state court action as well as
any other proceedings concerning the Arbitration Award. In the Seventh Circuit, a permanent
injunction is appropriate only when (1) the moving party has succeeded on the merits; (2) the

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moving party has no adequate remedy at law; (3) the moving party will suffer irreparable harm
without injunctive relief; (4) the irreparable harm suffered without injunctive relief outweighs the
irreparable harm the nonmoving party will suffer if the injunction is granted; and (5) the injunction
will not harm the public interest. Old Republic Ins. Co. v. Employers Reinsurance Corp., 144 F.3d
1077, 1081 (7th Cir. 1998).
In this case, the Court’s ability to issue injunctive relief is further limited because of the
nature of Heritage’s request—enjoining a state court proceeding. The Supreme Court has
explained, “Federal courts cannot enjoin state-court proceedings unless the intervention is
authorized expressly by federal statute or falls under one of two other exceptions to the AntiInjunction Act.” McFarland v. Scott, 512 U.S. 849, 857 (1994). The Anti-Injunction Act declares,
“A court of the United States may not grant an injunction to stay proceedings in a State court
except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or
to protect or effectuate its judgments.” 28 U.S.C. § 2283. The two exceptions to this general
prohibition against enjoining state court proceedings are “where [an injunction is] necessary in aid
of [the federal court’s] jurisdiction” and “to protect or effectuate [the federal court’s] judgments.”
The Seventh Circuit has explained that “[t]hese exceptions are narrow ones.” Ramsden v.
AgriBank, FCB, 214 F.3d 865, 868 (7th Cir. 2000). The second exception, commonly known as
the “re-litigation” exception, is asserted by Heritage in this case.
In describing the re-litigation exception to the Anti-Injunction Act, the Supreme Court
recently noted, “This exception is designed to implement ‘well-recognized concepts’ of claim and
issue preclusion. Because deciding whether and how prior litigation has preclusive effect is usually
the bailiwick of the second court . . . every benefit of the doubt goes toward the state court.” Smith
v. Bayer Corp., 131 S. Ct. 2368, 2371 (2011). The Court further explained in another decision,

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“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 C. L. R. Co. v. Brotherhood of Locomotive Engineers, 398 U.S. 281,
297 (1970).
The Seventh Circuit has provided additional guidance regarding the Anti-Injunction Act
and its re-litigation exception. “The Act is designed to prevent friction between state and federal
courts and to protect state court proceedings from federal interference.” Ramsden, 214 F.3d at 868.
The Seventh Circuit reiterated the principle that 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, explaining that the “explicit wording of § 2283 itself implies as much, and the
fundamental principle of a dual system of courts leads inevitably to that conclusion.” Id. at 869.
In Ramsden, the Court cautioned, “just because a federal court has the statutory power to
enjoin a state court proceeding does not mean that it should exercise that authority. . . . When a
federal court is asked to enjoin state court proceedings, the mere fact that the case falls within one
of § 2283’s exceptions does not qualify in any way the principles of equity, comity, and federalism
that must restrain a federal court when asked to enjoin a state court proceeding.” Id. Importantly,
“[a] litigant must still show equitable entitlement to an injunction.” Id.
Guided by these principles, the Court now turns to the elements of “the moving party has
no adequate remedy at law” and “the moving party will suffer irreparable harm without injunctive
relief,” which are required before Heritage may receive injunctive relief.
Heritage argues that it has no adequate legal remedy “[s]hould the Court allow
ECE/Genesys to proceed along the course it has charted for itself [because] it seems that Heritage,
its employees, and its affiliated companies will be in litigation in some form or another for years

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to come over the same stale claims.” (Filing No. 44 at 31.) Heritage continues, “[t]he defensive
assertion of issue preclusion in the State Court Action simply does not offer Heritage an adequate
legal remedy under these circumstances. ECE/Genesys has proven over and over again that it will
take untenable positions in a blatant attempt to avoid comporting with the decision that has been
rendered against it.” (Filing No. 44 at 30.)
Regardless of whether this argument is analyzed more appropriately under the irreparable
harm element or the no adequate remedy at law element, the Court is not persuaded that an
injunction is appropriate on this basis in this case. In making this determination, the Court relies
on the Seventh Circuit’s decision in Ramsden. There, the appellate court concluded that the district
court abused its discretion in granting an injunction against state court proceedings when the
district court concluded, “the obvious prospect of relitigation suffices to show that defendant will
suffer irreparable harm if an injunction does not issue to stop the state court proceeding.” Ramsden,
214 F.3d at 871. In that case, the state court already had addressed the defenses of claim and issue
preclusion, determining that they were not applicable and the state court proceeding could
continue. After the state court’s decision, the district court disregarded principles of comity and
enjoined the state court action on the basis that re-litigation would cause irreparable harm. Id. The
Seventh Circuit vacated the district court’s decision to grant the injunction.
On point with this case where the Missouri state court has not addressed claim or issue
preclusion arguments, the Seventh Circuit noted, “the expense and uncertainty of litigation may
sometimes be sufficient to warrant an injunction pursuant to sec. 2283 prior to a clear and express
state court ruling on the preclusion defense.” Id. (emphasis added). The prospect of additional
litigation may sometimes justify an injunction against state court proceedings, but it does not
demand it. “Just because a federal court has the statutory power to enjoin a state court proceeding

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does not mean that it should exercise that authority.” Id. at 869. “While a federal injunction of state
court proceedings might, in some cases, be cost-effective, inefficient simultaneous litigation in
state and federal courts on the same issue is one of the costs of our dual court system.” Id. at 872
(internal citation and quotation marks omitted).
Under the circumstances of this case, the potential for additional expense and delay from
another already pending case, without more, is not enough to show irreparable harm or a lack of
adequate legal remedies. The Missouri state court is capable of determining the issues of res
judicata, claim preclusion, issue preclusion, collateral estoppel, or other similar theories that
Heritage may seek to employ in the Missouri state court action. If Heritage receives an
unsatisfactory decision regarding those defenses, it has recourse through the state appellate
channels.
The Court finds it important to note that in opposing the injunctive relief sought by
Heritage, ECE has focused much of its argument on its view that the Missouri state court action is
not duplicative of this action and is based on different contracts among different parties. Because
ECE has taken this position, the Court anticipates that ECE will promptly fulfill its obligations
mandated by the Arbitration Award, which was confirmed by this Court.
III.

Conclusion

Because the Court has determined that an injunction is not appropriate for lack of
irreparable harm and the existence of adequate legal remedies, Heritage’s Motion to Permanently
Enjoin Duplicative State Court Action and Other Proceedings is DENIED.1

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This Order in no way precludes Heritage or any of the other defendants in the Missouri state court action from
asserting res judicata, claim preclusion, issue preclusion, or other similar defenses or theories, nor does this Order
suggest the likelihood of success on such course of action by the Missouri state court defendants.

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ECE filed a related Motion for Leave to File Sur-Reply in Opposition to Motion to Enjoin
on January 23, 2015 (Filing No. 49). Because the Court denies Heritage’s Motion to Permanently
Enjoin Duplicative State Court Action and Other Proceedings, ECE’s Motion for Leave to File
Sur-Reply is DENIED AS MOOT.
SO ORDERED.

Date: 5/4/2015

Distribution:
Briana Lynn Clark
BINGHAM GREENEBAUM DOLL LLP
[e-mail]

Jayna Morse Cacioppo
TAFT STETTINIUS & HOLLISTER LLP
[e-mail]

Phillip J. Fowler
BINGHAM GREENEBAUM DOLL LLP
[e-mail]

Tracy Nicole Betz
TAFT STETTINIUS & HOLLISTER LLP
[e-mail]

Carly Duvall
DENTONS US LLP
[e-mail]

Trent J. Sandifur
TAFT STETTINIUS & HOLLISTER LLP
[e-mail]

Wade P.K. Carr
DENTONS US LLP
[e-mail]
Jason R. Scheiderer
SONNENSCHEIN, NATH & ROSENTHAL
LLP
[e-mail]

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