No Relitigation Injunction for Post‑Complaint Conduct: Third Circuit Limits Claim and Issue Preclusion Under the Anti‑Injunction Act

No Relitigation Injunction for Post‑Complaint Conduct: Third Circuit Limits Claim and Issue Preclusion Under the Anti‑Injunction Act

Introduction

In Erie Indemnity Co. v. Troy Stephenson, the U.S. Court of Appeals for the Third Circuit vacated a federal preliminary injunction that had barred subscribers of the Erie Insurance Exchange from pursuing state-court fiduciary duty claims against Erie Indemnity Company (the Exchange’s attorney-in-fact). The district court had enjoined the state action by invoking the All Writs Act and the Anti-Injunction Act’s relitigation exception, concluding that earlier federal judgments (Beltz and Ritz) precluded the subscribers’ claims. The Third Circuit disagreed, holding that preclusion did not attach because the new state claims were predicated on conduct occurring after the earlier suits were filed, and because the prior issue-preclusion ruling did not address the precise issues now presented.

The decision clarifies two core principles with immediate practical force:

  • Claim preclusion generally does not bar claims based on post-complaint conduct—even when the parties, legal theories, and contractual relationships are the same.
  • The Anti-Injunction Act’s relitigation exception is strictly construed; it cannot be used to enjoin state litigation unless the identical issues were actually litigated and necessarily decided in prior federal judgments.

Summary of the Opinion

The Third Circuit (Judge Phipps) vacated the preliminary injunction and remanded, holding that Erie Indemnity failed to show a likelihood of success on the merits of its preclusion defenses—an essential prerequisite to preliminary injunctive relief.

On claim preclusion, the court emphasized the Supreme Court’s rule that res judicata does not ordinarily bar claims premised on events that postdate the filing of the earlier complaint. Because the Stephenson plaintiffs challenged management-fee decisions and conflict-oversight conduct from 2019 and 2020—years after the Beltz (2016) and Ritz (2017) complaints—the earlier judgments could not preclude those later claims.

On issue preclusion, the court rejected Erie Indemnity’s “preclusion-on-preclusion” theory, which sought to treat Ritz’s determination about Beltz’s claim-preclusive effect as dispositive of the Stephenson claims. The court found no identity of issues: Ritz addressed fees through 2016 and whether those could have been raised in Beltz; Stephenson concerns new material facts (2019–2020 fee-setting and oversight) that Ritz did not and could not have resolved.

Having found no likelihood of success on preclusion, the court deemed it unnecessary to address the remaining preliminary injunction factors (irreparable harm, balance of harms, public interest) or to decide whether the Anti-Injunction Act’s relitigation exception would otherwise permit an injunction.

Case Background

Reciprocal Insurance and Erie’s Structure

Reciprocal insurance is a unique form in which each insured is also an insurer, operating through an unincorporated exchange of “subscribers.” Subscribers appoint an attorney-in-fact to manage underwriting, claims, and operations in exchange for a fee, often a percentage of premiums. Erie Insurance Exchange is the unincorporated association of subscribers; Erie Indemnity Company is the attorney-in-fact, compensated by a “management fee” capped by the Subscriber’s Agreement at 25% of premiums.

Fee Practices and Prior Litigation

  • Beltz (2016): Subscribers sued over Erie Indemnity’s retention of non-premium fees (installment-plan and late fees). The district court dismissed fiduciary-duty claims as time-barred; this Court affirmed (forfeiture of arguments on appeal).
  • Ritz (2017): Another subscriber sued over the annual December decisions (2006–2016) to set the management fee at 25%. The magistrate judge dismissed under claim preclusion, concluding Ritz could have raised those claims in Beltz and that the parties were in privity. No appeal followed.
  • Stephenson I–III (2021–2025): Plaintiffs alleged breaches tied to the 2019 and 2020 25% fee decisions and failure to implement conflict-resolution procedures. After removal skirmishes and a remand affirmed by the Third Circuit (68 F.4th 815), Erie Indemnity filed this collateral action (Stephenson III) seeking to enjoin the state-court case under the All Writs Act and the Anti-Injunction Act’s relitigation exception. The district court granted a preliminary injunction; the Third Circuit vacated it.

Analysis

Precedents Cited and Their Influence

  • Lucky Brand Dungarees, Inc. v. Marcel Fashions Group, Inc., 590 U.S. 405 (2020): The Supreme Court’s clear directive that claim preclusion generally does not bar claims predicated on events occurring after the first complaint. This was the linchpin for the Third Circuit’s conclusion that Beltz/Ritz could not foreclose claims based on 2019–2020 conduct.
  • Morgan v. Covington Township, 648 F.3d 172 (3d Cir. 2011): Third Circuit authority mirroring Lucky Brand—res judicata does not bar post-complaint claims. The court deployed this to reinforce the temporal limitation on claim preclusion.
  • Cromwell v. County of Sac, 94 U.S. 351 (1876): Classic articulation that claim preclusion covers issues actually decided and those that could have been raised—subject to the critical limit that later-arising facts are not captured. The court balanced Cromwell’s breadth against Lucky Brand’s temporal qualifier.
  • New Hampshire v. Maine, 532 U.S. 742 (2001) and Raytech Corp. v. White, 54 F.3d 187 (3d Cir. 1995): Core elements of issue preclusion—identity of issues, actual litigation, and necessity to judgment. The court relied on these to reject Erie Indemnity’s attempt to bootstrap Ritz’s preclusion holding to different, later facts in Stephenson.
  • Smith v. Bayer Corp., 564 U.S. 299 (2011), and Chick Kam Choo v. Exxon Corp., 486 U.S. 140 (1988): The Anti-Injunction Act’s relitigation exception is narrowly construed; federal courts must ensure strict identity between issues previously decided and those in the state action. These cases informed the court’s reluctance to bless a relitigation injunction where identity was lacking.
  • Semtek International Inc. v. Lockheed Martin Corp., 531 U.S. 497 (2001): Federal common law governing the preclusive effect of federal diversity judgments ordinarily incorporates the forum state’s preclusion law. The panel observed that Pennsylvania preclusion law should have applied—but both sides forfeited the point by briefing only federal law (see Schaffner v. Monsanto Corp., 113 F.4th 364 (3d Cir. 2024)). The court therefore applied federal standards.
  • Preliminary injunction standards: Winter v. NRDC, 555 U.S. 7 (2008); Reilly v. City of Harrisburg, 858 F.3d 173 (3d Cir. 2017); Transcontinental Gas Pipe Line Co. v. Pa. Environmental Hearing Board, 108 F.4th 144 (3d Cir. 2024). These cases frame the “likelihood of success” gateway finding that proved dispositive.
  • All Writs/Ancillary enforcement jurisdiction: Johnson v. Mazie, 144 F.4th 146 (3d Cir. 2025); Kokkonen v. Guardian Life, 511 U.S. 375 (1994); United States v. Apple MacPro Computer, 851 F.3d 238 (3d Cir. 2017). The court confirmed jurisdiction to consider an All Writs Act request to protect prior judgments, but relief still depends on valid preclusion. The merits failed on preclusion, so no injunction could issue.

Legal Reasoning

1) Claim Preclusion Fails Because the Claims Are Based on Post‑Complaint Conduct

Claim preclusion under federal law requires: (1) a final judgment on the merits; (2) a later suit involving the same cause of action; and (3) the same parties or privies. The parties disputed only the second element. Applying Lucky Brand and Morgan, the court held that even if the earlier judgments in Beltz and Ritz qualified as final and involved the requisite parties, they could not preclude claims based on events occurring after those complaints were filed. Here, the Stephenson claims target December 2019 and December 2020 fee-setting decisions and contemporaneous fiduciary oversight—concededly later in time than the filing of Beltz (2016) and Ritz (2017). Because those facts postdated the initial pleadings, they were not (and could not have been) part of the earlier “cause of action” for res judicata purposes.

This temporal limit is substantive, not just procedural: it preserves plaintiffs’ ability to challenge new and discrete wrongful acts in ongoing relationships, even when earlier litigation addressed similar theories about past conduct. The court therefore concluded Erie Indemnity was unlikely to prevail on claim preclusion.

2) Issue Preclusion Fails for Lack of Identity of Issues

Erie Indemnity advanced a “preclusion-on-preclusion” theory: because Ritz held that Beltz had claim-preclusive force against Ritz’s fee claims (through 2016), that issue-preclusion holding should itself bind the Stephenson plaintiffs. The Third Circuit rejected this argument because the issues were not identical:

  • Ritz decided whether the claims there—rooted in fee decisions through 2016—could have been raised in Beltz. It expressly noted no new material facts postdating Beltz.
  • Stephenson centers on later, distinct facts: fee-setting and oversight in 2019 and 2020. Ritz did not, and could not, adjudicate the preclusive effect of Beltz on those later years.

Issue preclusion requires that the precise issue was actually litigated, determined, and essential to the prior judgment. Because the Stephenson claims rest on new material facts, the necessary identity of issues was absent.

3) No Need to Reach the Anti‑Injunction Act

A federal court may enjoin a state proceeding only if an exception to the Anti-Injunction Act applies, including the relitigation exception to “protect or effectuate” federal judgments. Having found no likelihood of success on either claim or issue preclusion, the court had no occasion to analyze whether the relitigation exception would authorize an injunction. The lack of preclusion was an “insuperable barrier” to preliminary relief.

4) Procedural Nuance: Forfeiture of State Preclusion Law

Because the prior judgments arose in diversity/supplemental jurisdiction, Semtek normally requires applying the forum state’s preclusion law (here, Pennsylvania), absent a conflict with federal interests. Neither side argued for Pennsylvania standards; both briefed federal law. The panel deemed state-law arguments forfeited and applied federal preclusion principles. This is a cautionary point: counsel should preserve and brief Semtek’s choice-of-law rule where outcome-determinative differences may exist.

Impact

  • Serial litigation over ongoing conduct: Defendants cannot rely on earlier judgments as a blanket shield against later suits premised on subsequent acts. Where the defendant repeats or renews a decision (e.g., annually setting a fee), each later act may generate a fresh, non-precluded claim.
  • Limits on relitigation injunctions: The Anti-Injunction Act’s relitigation exception remains narrow. Federal courts may not enjoin state litigation unless (i) the identical claim was—or could have been—resolved in the earlier action (subject to the post-complaint limit), or (ii) the identical issue was actually litigated and necessary to the prior judgment. “Preclusion-on-preclusion” cannot bridge gaps where new material facts are present.
  • Corporate governance and fiduciary oversight claims: Even where earlier fiduciary-duty challenges failed (e.g., as untimely), plaintiffs can pursue later-year oversight or fee-setting claims that rest on new decisions or omissions.
  • Preliminary injunction practice: Likelihood of success is a gateway factor. If preclusion is doubtful, courts should not proceed to irreparable harm or public interest. Parties seeking to halt state litigation must foreground airtight preclusion showings.
  • Forum strategy and CAFA: Plaintiffs’ selection of capacities (individual, derivative, trustee ad litem) and class status can affect removability. The related decision affirming remand in Stephenson II (68 F.4th 815) underscores the importance of precise pleading to control forum—though it does not insulate later claims from ordinary defenses.
  • Preclusion choice of law: Practitioners should brief state preclusion law under Semtek when enforcing diversity judgments; forfeiture can lead courts to apply federal law by default.

Complex Concepts Simplified

  • Reciprocal insurance: A structure where every policyholder is also an insurer (a “subscriber”). Subscribers appoint an “attorney-in-fact” to manage underwriting, claims, and operations, usually paid a percentage of premiums as a management fee.
  • Attorney-in-fact: The management entity appointed by each subscriber via uniform powers of attorney to run the exchange’s insurance business. Erie Indemnity was Erie Insurance Exchange’s attorney-in-fact.
  • CAFA (Class Action Fairness Act): Expands federal diversity jurisdiction for certain class actions, enabling removal of qualifying state class suits to federal court.
  • Res judicata (claim preclusion): Bars later suits between the same parties or privies on the same cause of action for matters actually decided or that could have been raised—except, as clarified, for claims predicated on events occurring after the earlier complaint was filed.
  • Collateral estoppel (issue preclusion): Bars relitigation of specific issues that were actually litigated and necessary to a prior judgment. Requires identity of issues.
  • All Writs Act: Authorizes federal courts to issue orders necessary to aid their jurisdiction and effectuate their judgments; it does not create jurisdiction and cannot override statutory limits like the Anti-Injunction Act.
  • Anti-Injunction Act and relitigation exception: Generally prohibits federal courts from enjoining state proceedings, but allows such injunctions to protect or effectuate federal judgments—applied narrowly and only with strict identity of claims or issues.
  • Ancillary enforcement jurisdiction: A federal court’s power to enforce its own judgments, including through All Writs Act orders, provided an underlying federal judgment exists to be protected.
  • Preliminary injunction standards: The movant must show a likelihood of success on the merits and irreparable harm, and then courts weigh equities and public interest. Failure on likelihood of success is fatal.

Conclusion

Erie Indemnity Co. v. Stephenson reinforces a principled, practical limit on preclusion: when later suits target conduct occurring after prior complaints, res judicata ordinarily does not bar them. The decision also confirms that the Anti-Injunction Act’s relitigation exception remains a tight fit, unavailable when the new suit involves different, later-arising facts or issues that were not actually litigated and essential to the earlier judgment.

For litigants, the message is clear. Defendants seeking to quell state proceedings via federal injunctions must demonstrate true identity between the earlier and later actions; overlap in parties, contracts, and legal theories is not enough where the operative facts postdate the earlier pleading. Plaintiffs, conversely, retain the ability to challenge new decisions and omissions in ongoing relationships notwithstanding adverse resolutions of earlier disputes. Finally, counsel should heed Semtek’s choice-of-law rule and preserve state preclusion arguments; failure to do so can affect outcomes at the margins.

By vacating the injunction, the Third Circuit ensures that preclusion remains a shield against repetitive litigation of the same past conduct, not a sword to prevent adjudication of later, potentially wrongful acts. The ruling provides a clear template for evaluating relitigation injunctions: start with preclusion, apply the post-complaint conduct rule, insist on identity of issues, and reach the Anti-Injunction Act only if those predicates are satisfied.

Case Details

Year: 2025
Court: Court of Appeals for the Third Circuit

Comments