Protecting a 2009 settlement in a multidistrict Racketeer Influenced and Corrupt Organizations Act case worth as much as $530 million, a federal judge has enjoined a similar lawsuit brought by the Pennsylvania attorney general in state court.

U.S. District Judge Mary A. McLaughlin of the Eastern District of Pennsylvania is presiding over the MDL that included class-action suits brought on behalf of nearly 400,000 elderly investors who say they were lured by deceptive marketing practices to purchase long-term annuities that often had maturity dates far beyond their own life expectancies. The 2009 settlement is estimated to be worth between $184 million and $530 million, according to court filings.

Based on the same underlying circumstances, Pennsylvania's attorney general brought a suit in state court alleging that the defendants had violated the state's Unfair Trade Practices and Consumer Protection Law, according to McLaughlin's opinion in In re American Investors Life Insurance Co. Annuity Marketing and Sales Practices Litigation.

"The court must weigh the attorney general's interests against the multiple other interests at stake, most importantly those of the parties to the settlement," McLaughlin said.

"The court will not allow the class members, or the attorney general acting on their behalf, to demand more money from the defendants at this juncture," she said. "These claims for restitution are in effect post-negotiation 'collateral attacks' on the settlement, and, given the thousands of potential class members who could have submitted a claim, the potential for disruption to the settlement is great."

During discovery in the state court action, the defendants got two letter templates from the state that were sent out to Pennsylvania plaintiffs in March of this year informing them that the attorney general would be seeking restitution and, if they wanted to make a claim, would need to return a form.

The 2009 federal settlement stipulated that plaintiffs who took part wouldn't make additional future claims, according to the opinion.

But, 36 plaintiffs who were part of the federal settlement returned the forms, prompting the defendants to ask McLaughlin to enjoin the class members from seeking or receiving restitution as part of the attorney general's lawsuit.

McLaughlin cited the All Writs Act, saying, "In the context of state court proceedings, district courts are limited by the Anti-Injunction Act, which states that federal courts may only grant injunctions to stay state court proceedings under three circumstances: (1) with congressional authorization; (2) when the injunction is needed to aid the district court's jurisdiction; and (3) when the injunction is needed to protect or effectuate its judgments."

She found that she had authority under the third circumstance, McLaughlin said, noting precedent from the U.S. Court of Appeals for the Third Circuit endorsing that course.

"The instant case is a complex litigation that involves a consolidation of cases from multiple districts," McLaughlin said. "The parties have spent years navigating the substantial interests involved, and the court has expended significant effort in overseeing the settlement process. If a state court were to now issue additional damages for certain class members covered by the settlement's terms, such a holding would disrupt this court's jurisdiction over the administration of the settlement, and would impair the federal court's flexibility and authority to interpret its order and judgment."

Also, she noted, since class members have already received some amount of settlement money, restitution beyond that amount could be double recovery, which would violate the standard set by the U.S. Supreme Court in EEOC v. Waffle House.

In a footnote, McLaughlin dismissed the attorney general's suggestion that the Commonwealth Court could award an "equitable remedy that does not result in double recovery."

Having the state court figure out a remedy is not practical, she said, noting the complexity of the case and its settlement.

"The court sees no reason to put upon the Commonwealth Court the task of somehow calculating a cap on restitution that protects against double recovery, especially when the calculation is primarily based upon a settlement that is within the purview and jurisdiction of this court," McLaughlin said.

The judge also noted that she has not left the attorney general without other avenues, saying that the consumer protection law affords the attorney general the ability to seek injunctions and civil penalties.

Lauren Bozart, spokeswoman for the Attorney General's Office, said, "We're reviewing our options."

Jason Gould of Jorden Burt in Washington, D.C., represented the defendants and couldn't be reached for comment.

Saranac Hale Spencer can be contacted at 215-557-2449 or sspencer@alm.com. Follow her on Twitter @SSpencerTLI.

(Copies of the 25-page opinion in In re American Investors Life Insurance Co. Annuity Marketing and Sales Practices Litigation, PICS No. 13-1592, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.)