New York Central Transportation Co., 456 F.2d 1046, 1048 (2d Cir. 1972).
We recognize that the exceptions to the Anti-Injunction Act must be narrowly construed See Salaried Retirement Plan v. Nobers, 968 F.2d 401 (3d Cir. 1992); Atlantic Coast Line R.R. Co., 398 U.S. at 297, and that the Court should exercise its All-Writs powers only under exceptional circumstances. See Pan Atlantic v. Republic Ins. Co., 878 F. Supp. 630, 643-44 (S.D.N.Y. 1995). Nonetheless, under the unique circumstances of this case and the analytical sequence through which it must necessarily be decided, we have no choice but to utilize our power under the Anti-Injunction Act and the All-Writs Act to remove, at least for initial analysis, the state UCUA/BCUA dispute to this Court.
The issues raised by UCUA in its state court action must be decided under a two-pronged sequence of analysis. First, it must be determined whether or not the decisions and injunction in Atlantic Coast II relate back in time to retroactively void the Agreement. In order to determine Atlantic Coast II 's retroactive effect, a court must (1) interpret, as a substantive matter, whether the injunction mandates abrogation of contracts that, if entered into today, would be clearly illegal, see Beam, 501 U.S. 529, 115 L. Ed. 2d 481, 111 S. Ct. 2439; Harper, 509 U.S. 86, 125 L. Ed. 2d 74, 113 S. Ct. 2510; Hyde, 514 U.S. 749, 131 L. Ed. 2d 820, 115 S. Ct. 1745), and (2) decide, as a remedial matter, whether a modification of the injunction is appropriate. See Hyde, 514 U.S. at 759; Atlantic Coast II, 112 F.3d at 672. These are purely questions of federal law and ones which require this Court to revisit in depth issues it has been struggling with since the inception of this litigation. Second, and only if the analysis under federal law does not lead to an invalidation of the Agreement, a court must decide the state contract issues implicated by the UCUA/BCUA dispute.
Because analysis under the first prong requires (1) an interpretation of the injunction and its retroactive application and (2) potentially a modification of the remedy provided in Atlantic Coast II, see Beam, Harper and Hyde, this Court must be the one to undertake it. If the state court were to undertake this analysis it would threaten our jurisdiction over and the effectuation of the Atlantic Coast II injunction. Thus, we shall exercise out powers under the Anti-Injunction Act and the All Writs Act in order to undertake the analysis required under the first prong. Then, if we find that the Agreement has not be rendered null and void as a result of Atlantic Coast II, we will remand the case back to state court for interpretation of the remaining state law issues.
A The Rule of Retroactivity
Prior to the recent Supreme Court cases analyzing the rule of retroactivity, the leading case was Chevron Oil Co. v. Huson, 404 U.S. 97, 30 L. Ed. 2d 296, 92 S. Ct. 349 (1971). Chevron Oil set forth a three-part test for determining whether or not a judicial mandate has a retroactive effect: (1) whether the decision announced a new principle of law; (2) whether non-retroactive application would undermine the purpose of that decision; and (3) whether retroactive application would work a significant inequity. Id. at 106-108. Thus, Chevron Oil provided several exceptions to the rule of retroactive application. Under the inequity exception, reliance upon a prior decision was often held adequate to bar a new decision form being applied retroactively. Recently, however, the exceptions of Chevron Oil, in particular the notion that inequity caused by reliance permits an escape from the retroactive application of a new rule of law, have been refined and tightened by the Supreme Court.
The first Supreme Court case to revisit the Chevron Oil exceptions was Beam, 501 U.S. 529, 115 L. Ed. 2d 481, 111 S. Ct. 2439. In Beam, the Court considered whether a rule of law newly announced in a judicial decision must be applied retroactively "to claims arising on facts antedating that decision." Id. at 532. Justice Souter concluded that selective retroactivity "breaches the principle that litigants in similar situations should be treated the same, a fundamental component of stare decisis and the rule of law generally." Id. at 537-38. He reasoned that "the nature of precedent, as a necessary component of any system that aspires to fairness and equality," dictates that "when the Court has applied a rule of law to the litigants in one case it must do so with respect to all others barred by procedural requirements or res judicata." Id. at 543. He warned that "the applicability of rules of law is not to be switched on and off according to individual hardship." Id.
However, Beam did leave open the possibility that a court might, as a remedial matter, decline to apply a judicial decision retroactively and consider the equitable and reliance interests of a party otherwise adversely impacted by the new rule of law. See id. at 538-39. ("respondent [may] demonstrate reliance interest entitled to consideration in determining the nature of the remedy that must be provided . . . .").
Two years later, however, in Harper the Supreme Court solidified its position, holding that the Court's "application of a rule of federal law to the parties before [it] requires every court to give retroactive effect to that decision." 509 U.S. at 90. "Once announced and applied to the parties to the controversy, [a rule of federal law] must be given full retroactive effect by all courts adjudicating federal law." Id. at 96.
Nonetheless, the Harper Court still did not definitively decide whether it adhered to Beam 's distinction between retroactivity as a substantive matter and retroactivity as a remedial question. However, the Court seemed to suggest that reliance interests did not justify withholding retroactive remedial relief, finding that "the federal law applicable to a particular case does not turn on whether the litigants actually relied on an old rule or how they would suffer from retroactive application of a new one." See id. at 95 n.9. The Court, declining to affirmatively overrule Chevron Oil, left open the possibility that retroactive application of a new rule of law may not bar a federal court from fashioning remedial relief which effectively modified the impact of the new rule of law. In fact, the outcome in Harper suggests that, retroactivity notwithstanding, a court could still offer "appropriately crafted" remedial relief where necessary. Holding that an unconstitutional tax law must be applied retroactively, the Court still declined to order that the amounts paid under the unconstitutional tax be refunded, giving that decision to the Virginia courts to "craft any appropriate remedy." Id. at 102.
Finally, in Hyde, 514 U.S. 749, 131 L. Ed. 2d 820, 115 S. Ct. 1745, the Supreme Court clearly held that the retroactive application of new rule of law, except in certain limited and specifically defined circumstances, may not be thwarted by a court's equitable considerations in fashioning a remedy. The plaintiff in Hyde asked the Court to view Chevron Oil as a case relating only to the remedial stage of an action applying a new rule of law to a previously constitutional, but now unconstitutional, action. The Court rejected this argument, stating:
We do not see how . . . [an inferior court] could change a legal outcome that federal law . . . would otherwise dictate simply by calling its refusal to apply that federal law an effort to create a remedy.
Id. at 753.
The Court clearly held that Chevron Oil does not allow a court to depart, as a general rule even at the remedial stage, from Harper 's requirement that a judicial decision be applied retroactively. However, it also articulated four specific circumstances where other than retroactive application of a prior decision can be awarded:
[A court may find] (1) [an] alternative way of curing the constitutional violation, (2) [a] previously existing, independent legal basis (having nothing to do with retroactivity) for denying relief, or (3) . . . a well-established legal rule that trumps the new rule of law, which general rule reflects both reliance interests and other significant policy justifications, or (4) a principle of law that limits the principle of retroactivity itself.