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Erie Indemnity Co. v. Stephenson

Erie Insurance Exchange (Exchange) is a reciprocal insurance exchange in which policyholders, known as subscribers, insure one another through a common pool into which the subscribers pay premiums. Exchange’s business and affairs are managed by Exchange’s attorney-in-fact and management agent, Erie Indemnity Company (Indemnity). In 2021, three Exchange subscribers filed a lawsuit on the Exchange’s behalf in Pennsylvania state court, alleging that Indemnity had breached its fiduciary duty to the Exchange in December 2019 and thereafter by extracting excessive management fees from the pool of premiums and distributing the proceeds to its own shareholders. Indemnity responded by filing a federal lawsuit against the three subscribers, seeking an injunction that would forbid the state-court action from proceeding. According to Indemnity, two prior federal lawsuits – one filed in 2016, and the other filed in 2017 – barred the state-court lawsuit because the claims raised in the state-court action could have been raised in those earlier suits. The district court in Indemnity’s federal action held that Indemnity was likely to prevail on the merits of its request for a permanent injunction of the state-court proceedings and that Indemnity would suffer irreparable harm if those proceedings continued while the district court adjudicated this request. The district court accordingly granted a preliminary injunction of the state-court proceedings.

Co-counseling with attorneys from the law firms Wade Kilpela Slade LLP and East End Trial Group LLC, Public Citizen represents the subscribers on appeal, asking the Third Circuit to vacate the injunction. Our brief explains that the district court erred in holding that Indemnity is likely to prevail on the merits, because the earlier lawsuits do not bar the claims raised in the state-court action, which address claims that could not have been brought in those lawsuits. In addition, a federal injunction is inappropriate because the state court is capable of adjudicating Indemnity’s argument that the claims there are barred. Moreover, the brief explains that having to present its legal arguments as a defendant in state court rather than as a plaintiff in federal court does not constitute irreparable harm, as is necessary to support a preliminary injunction.