Indemnification Risk Does Not Justify Enjoining State In Personam Suits Under the Anti-Injunction Act’s “In Aid of Jurisdiction” Exception

1. Introduction

Out v. Calamari (captioned in the opinion as Mutual Fund Opt-Out Plaintiffs v. Calamari) is a Second Circuit decision defining the limits of the Anti-Injunction Act, 28 U.S.C. § 2283, in a post-collapse mutual fund distribution supervised by a federal district court. The case arises from the collapse of Infinity Q Diversified Alpha Fund (the “Mutual Fund”), a series fund of the Trust for Advised Portfolios (“TAP”). After the collapse, remaining assets were held in a federally supervised pool of money known as the “Special Reserve”, administered by a court-appointed Special Master, Andrew M. Calamari.

The core dispute was not about the fund’s collapse itself, but about whether the federal court could permanently enjoin “opt-out” investors (the Mutual Fund Opt-Out Plaintiffs) from pursuing state-court Securities Act claims against the fund’s underwriter, Quasar Distributors, LLC (“Quasar”), a non-party to the SEC’s federal action. The district court believed an injunction was needed because Quasar’s defense costs and potential indemnity claim against TAP could be paid (via advancement/indemnification) out of the Special Reserve—diminishing the funds available for pro rata distribution to shareholders.

The Second Circuit framed the key legal issue as the reach of the Anti-Injunction Act’s “in aid of jurisdiction” exception: whether a federal court supervising a limited fund may stop state in personam litigation against a non-party merely because that litigation may create contractual advancement/indemnification obligations that could be satisfied from the supervised pool.

2. Summary of the Opinion

The Second Circuit vacated the permanent injunction and remanded. It held that the Anti-Injunction Act generally forbids federal injunctions against state-court proceedings and that the “in aid of jurisdiction” exception is narrow, typically limited to circumstances where state litigation would interfere with the federal court’s possession or control over a res (a thing, such as a pool of money) in an in rem proceeding.

The court emphasized that the Opt-Out Plaintiffs’ claims against Quasar are “run of the mill” in personam actions seeking a liability judgment. The fact that Quasar may have a contractual right to fee advancement and indemnification from TAP—potentially satisfied using the Special Reserve—does not convert the Opt-Out Plaintiffs’ state suits into an interference with federal control over the Special Reserve.

The court further held that the Second Circuit’s rare, “exceptional circumstances” carve-out permitting an injunction against in personam state litigation—recognized in In re Baldwin-United Corp.—did not apply. The injunction here was permanent, cut off preserved opt-out rights, and did not protect a nearly consummated federal class settlement from vexatious state action in the way Baldwin-United did.

3. Analysis

3.1. Precedents Cited

Atlantic Coast Line Railroad Company v. Brotherhood of Locomotive Engineers

The opinion leans on Atlantic Coast Line Railroad Company v. Brotherhood of Locomotive Engineers, 398 U.S. 281 (1970), for the Anti-Injunction Act’s animating principles: federalism, comity, and the need for “lines of demarcation” so state and federal courts do not “fight” over cases. Atlantic Coast Line supplies two critical interpretive instructions applied here:

  • The Anti-Injunction Act’s exceptions must be construed narrowly.
  • Any doubts about an injunction’s propriety should be resolved in favor of letting state courts proceed.

Smith v. Bayer Corp.

Smith v. Bayer Corp., 564 U.S. 299 (2011), is cited for the proposition that the Anti-Injunction Act’s exceptions are “three specifically defined exceptions” that are narrow. This reinforced the court’s refusal to expand “in aid of jurisdiction” to cover merely practical or financial concerns (like preserving a distribution pool).

Kline v. Burke Construction Co.

Kline v. Burke Construction Co., 260 U.S. 226 (1922), provides the foundational distinction:

  • If the federal court first acquires jurisdiction over a res (in rem), it may enjoin state proceedings over the same res, because state control would impair federal control.
  • But parallel in personam suits (liability adjudications) do not, by themselves, impair federal jurisdiction—even if duplicative.

The Second Circuit treated the Opt-Out Plaintiffs’ suits against Quasar as squarely within Kline’s protection for state in personam actions.

In re Baldwin-United Corp.

In re Baldwin-United Corp., 770 F.2d 328 (2d Cir. 1985), is the centerpiece because it is the Second Circuit’s main modern example where an injunction against state in personam actions was upheld as “necessary or appropriate in aid of” federal jurisdiction (under the All Writs Act). Baldwin-United characterized a massively complex, nearly settled multidistrict federal class action as the “virtual equivalent of a res” requiring “full control.”

Here, however, the Second Circuit emphasized that Baldwin-United is an exception for “exceptional circumstances,” and it rejected the Special Master’s attempt to treat Baldwin-United as a general “practical need” test. The court highlighted several limiting features of Baldwin-United:

  • Extraordinary complexity and multidistrict posture.
  • Settlement was imminent/near consummation for most defendants.
  • The injunction was temporary (tied to entry of final judgment).
  • The district court found the state efforts to be harassing/vexatious attempts to extract more settlement money.
  • Critically noted here: the Anti-Injunction Act did not apply there because the injunction issued before state suits commenced.

Retirement Systems of Alabama v. J.P. Morgan Chase & Co.

Retirement Systems of Alabama v. J.P. Morgan Chase & Co., 386 F.3d 419 (2d Cir. 2004), functions as a “do not extend Baldwin-United” precedent. There, despite complex federal securities litigation, the Second Circuit vacated an injunction that delayed an opt-out state trial. The court in Out v. Calamari relied on Retirement Systems to reiterate that Baldwin-United created no blanket authority to enjoin parallel state cases.

Wyly v. Weiss

Wyly v. Weiss, 697 F.3d 131 (2d Cir. 2012), is used for the general proposition that “in aid of jurisdiction” is “generally reserved” for state actions in rem, and that “potential judgments” in state in personam suits do not interfere with federal jurisdiction over a pool of money. The opinion also uses Wyly to underscore that mere retention of “exclusive jurisdiction” language or involvement in complex litigation does not justify an injunction.

United States v. Schurkman

United States v. Schurkman, 728 F.3d 129 (2d Cir. 2013), supplies two important limitations:

  • Baldwin-United is confined to its “exceptional circumstances,” including near-settlement dynamics.
  • Permanent injunctions are particularly problematic because they “seriously undercut principles of comity.”

Out v. Calamari leaned on Schurkman to condemn the permanence of the injunction here and to refuse any doctrinal expansion.

Leopard Marine & Trading, Ltd. v. Easy St. Ltd.

Leopard Marine & Trading, Ltd. v. Easy St. Ltd., 896 F.3d 174 (2d Cir. 2018), is cited for the proposition that adjudicating in personam rights “does not impede the possession or control” needed for an in rem action—even when property is already within a court’s exclusive control. This helped the court articulate why a liability judgment against Quasar would not interfere with federal control of the Special Reserve.

In re Infinity Q. Diversified Alpha Fund Securities Litigation

The decision references In re Infinity Q. Diversified Alpha Fund Securities Litigation, No. 651295/2021, 2023 WL 8846591 (N.Y. Sup. Ct. Dec. 21, 2023), to describe the state court’s approval of a mediated class settlement and the state court’s custody over the settlement fund escrow until distribution. This background supported the Second Circuit’s point that the enjoined opt-out suits did not threaten the already consummated state settlement.

3.2. Legal Reasoning

(a) The statutory framework: All Writs Act vs. Anti-Injunction Act

The district court relied on the All Writs Act, 28 U.S.C. § 1651, but the Second Circuit emphasized that the All Writs Act’s broad remedial authority is constrained by the Anti-Injunction Act, 28 U.S.C. § 2283, which bars federal injunctions of state proceedings unless one of three narrow exceptions applies. Only the “in aid of jurisdiction” exception was in play.

(b) The controlling distinction: in rem interference vs. in personam adjudication

The Second Circuit treated the Opt-Out Plaintiffs’ New York suits against Quasar as plainly in personam (liability under the Securities Act). Under the Kline framework, a state court’s adjudication of Quasar’s liability does not exercise control over the Special Reserve itself and therefore does not impair the federal court’s jurisdiction—regardless of the practical financial consequences.

(c) Indemnification/advancement exposure does not create Anti-Injunction Act necessity

The most important doctrinal move in the opinion is the refusal to treat contractual indemnification and fee-advancement obligations as jurisdictional interference. The court reasoned:

  • Quasar has no ownership right “to the Special Reserve as such.”
  • Any advancement/indemnification rights are contract claims against TAP—i.e., themselves in personam.
  • The Special Reserve is merely a pool from which TAP may satisfy obligations; that does not convert a state liability suit into an assault on federal jurisdiction.

The court suggested that a “closer question” might arise if Quasar obtained a judgment against TAP and tried to attach Special Reserve assets in state court—but that is not what was happening. The injunction instead preemptively extinguished the Opt-Out Plaintiffs’ claims against a non-party defendant to prevent downstream, indirect depletion of a federal distribution pool.

(d) Baldwin-United does not authorize a permanent opt-out claim extinguishment

The Second Circuit rejected the Special Master’s reliance on Baldwin-United for multiple reasons:

  • No res-equivalent settlement posture: Baldwin-United protected a nearly consummated federal settlement process; here, the relevant class settlement was already approved in state court, and opt-outs were not threatening it.
  • Not temporary: Baldwin-United’s injunction was temporary; this one was permanent and thus more offensive to comity (as emphasized in Schurkman).
  • No vexatious harassment finding: There was no basis to view opt-out Securities Act claims as harassing; they were precisely the rights preserved by opting out.
  • Doctrinal posture difference: Baldwin-United’s injunction predated state suits, so the Anti-Injunction Act did not apply there; by contrast, this case directly implicated § 2283’s prohibition.

(e) What the court did not decide

The opinion expressly declined to reach additional arguments, including:

  • Whether enjoining claims against an underwriter conflicts with the Securities Act’s remedial structure (including joint and several liability).
  • Whether the injunction violated due process by making the right to opt out illusory.
  • Whether the injunction was vague or unsupported by factual findings.

The Second Circuit resolved the appeal solely on Anti-Injunction Act grounds.

3.3. Impact

(a) Reinforcing a bright line: financial “practical need” is not jurisdictional necessity

The decision is a strong signal that asset-preservation concerns—even when substantial and even when tied to a federally supervised distribution fund—do not themselves permit federal courts to enjoin state litigation under the “in aid of jurisdiction” exception. The relevant question is whether the state court is exercising control over the same res (or is within the very narrow Baldwin-United exception), not whether the state litigation will indirectly diminish what remains to distribute.

(b) Limiting end-runs around opt-out rights via indemnity/advancement mechanics

In complex financial-collapse litigation, defendants and administrators often point to indemnity and advancement provisions to argue that third-party suits will indirectly drain a protected pool (estate assets, reserves, trust funds, receivership property). This opinion resists turning those contractual dynamics into a basis for stripping opt-outs (or other plaintiffs) of their chosen forum and claims against non-parties.

(c) Likely effects on SEC-supervised wind-down structures

While the SEC action created “exclusive jurisdiction” language over the Special Reserve and installed a Special Master to manage distributions, the Second Circuit’s holding indicates that such supervision does not automatically create a litigation-free zone around non-parties. Future SEC-supervised fund wind-downs will need to manage indemnity/advancement burn rates through means other than broad Anti-Injunction Act “in aid” injunctions— for example, by:

  • Litigating indemnification/advancement scope directly (e.g., whether advancement is owed, whether exclusions apply).
  • Seeking tailored orders addressing payments from the reserve rather than enjoining unrelated state liability adjudications.
  • Using statutory regimes (where applicable) that expressly authorize injunctions (e.g., bankruptcy’s automatic stay), rather than relying on § 2283 exceptions.

(d) Confining Baldwin-United to its historical niche

The decision further cements Baldwin-United as a rare, fact-bound anomaly—tied to extraordinary multidistrict settlement dynamics and temporary injunctive relief— rather than a flexible “complex-case management” tool. This reduces uncertainty for litigants facing federal efforts to halt state opt-out actions.

4. Complex Concepts Simplified

  • Anti-Injunction Act (28 U.S.C. § 2283): A federal statute that generally forbids federal courts from stopping state court proceedings, with only three narrow exceptions.
  • All Writs Act (28 U.S.C. § 1651): Gives federal courts power to issue orders needed to support their jurisdiction—but it cannot be used to bypass the Anti-Injunction Act.
  • In rem vs. in personam:
    • In rem cases decide rights in a “thing” (a res), like a specific fund or property.
    • In personam cases decide whether a person/entity is liable and owes money; the judgment binds the parties but is not control over a particular fund.
  • “In aid of jurisdiction” exception: Allows an injunction only when needed to prevent a state case from interfering with the federal court’s control over a res (or within very rare exceptional circumstances).
  • Indemnification and advancement:
    • Advancement means paying a party’s legal defense fees as they are incurred.
    • Indemnification means reimbursing for losses (including judgments/settlements) under certain conditions.
    The key point in this opinion: even if these obligations might be paid from a federally supervised pool, they remain contract claims against an indemnitor, not a direct state-court seizure/control of the federal pool.
  • Opt-out plaintiffs: Investors who choose not to participate in a class settlement and retain their individual claims. Here, the court treated the injunction as especially problematic because it permanently barred claims the opt-outs preserved.

5. Conclusion

Out v. Calamari clarifies that the Anti-Injunction Act’s “in aid of jurisdiction” exception does not permit a federal court supervising a limited pool of assets to permanently enjoin state-court in personam claims against a non-party defendant merely because those claims may trigger the fund’s contractual advancement or indemnification obligations and thereby reduce the pool. The Second Circuit reaffirmed the Kline in rem/in personam distinction, treated Baldwin-United as a narrowly confined outlier, and underscored comity concerns—especially where the injunction is permanent and extinguishes opt-out claims. The result is a robust constraint on federal efforts to manage distribution funds by shutting down parallel state liability litigation against third parties.