In re Prudential Insurance Co. of America Sales Practice Litigation

Several class actions were filed by policyholders (plaintiffs) against Prudential Insurance Company of America (Prudential) (defendant) alleging that Prudential had used illegal practices to sell life-insurance policies. In one federal district-court action, Prudential and the policyholders proposed a nationwide settlement of the policyholders’ claims, with a class certified under Federal Rule of Civil Procedure 23(b)(3). Under the settlement, if class members had purchased multiple Prudential policies, the class members could opt out for some policies and stay in the class for other policies. As part of the settlement agreement, the federal district court issued an injunction preventing class members from litigating any claim in any jurisdiction that was based on or related to the facts and circumstances underlying the claims released in the settlement. Marvin and Alice Lowe (plaintiffs) were class members who opted out of the class for two of their five policies, but who remained class members for the other three policies. After the settlement was approved, for the two policies that they had excluded from the settlement, the Lowes filed a Florida state-court action alleging sales-practices claims that were highly similar to the settled claims. The Lowes intended to introduce evidence that Prudential had engaged in a pattern of bad conduct by showing how Prudential had violated the law when it sold other policies, such as the Lowes’ three released policies. The Lowes also brought other claims, including for fraud and breach of fiduciary duty, against Prudential for their two opted-out policies. At Prudential’s request and pursuant to the settlement injunction, the federal district court ordered the Lowes to avoid presenting any evidence in their state-court lawsuit relating to the facts and circumstances of Prudential’s common sales practices or any other issue underlying the claims they had released for their three class policies. The Lowes appealed the district court’s order to the Third Circuit.