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CRESSWELL v. SULLIVAN & CROMWELL

July 17, 1991

EDWARD CRESSWELL, ET AL., PLAINTIFFS,
v.
SULLIVAN & CROMWELL AND PRUDENTIAL BACHE SECURITIES, INC., DEFENDANTS. PERCY HERBERT MEADOWS, ET AL., PLAINTIFFS, V. SULLIVAN & CROMWELL AND PRUDENTIAL BACHE SECURITIES, INC., DEFENDANTS. EDWARD CRESSWELL, ET AL., PLAINTIFFS, V. SULLIVAN & CROMWELL, DEFENDANT. ELIZABETH E. NOBLE, ET AL., PLAINTIFFS, V. SULLIVAN & CROMWELL AND PRUDENTIAL BACHE SECURITIES, INC., DEFENDANTS.



The opinion of the court was delivered by: Sweet, District Judge.

  In Cresswell v. Sullivan & Cromwell, 87 Civ. 2685 (RWS) ("Cresswell II"), defendant Sullivan & Cromwell ("S & C") has moved on remand for summary judgment dismissing the complaint of plaintiff Edward Cresswell ("Cresswell"). In Meadows v. Sullivan & Cromwell, 88 Civ. 2221 ("Meadows"), plaintiff Percy Herbert Meadows ("Meadows") has moved to stay all proceedings, and in Cresswell v. Sullivan & Cromwell, 91 Civ. 0333 ("Cresswell III"), and Noble v. Sullivan & Cromwell, 91 Civ. 0676 ("Noble") plaintiffs Cresswell and Elizabeth E. Noble ("Noble") have moved to remand their cases to the New York State Supreme Court. Cresswell has also moved to stay or dismiss Cresswell II. For the following reasons, S & C's motion is granted, the other motions are denied, and summary judgment is entered in S & C's favor on all of the complaints.*fn1

BACKGROUND

The parties, underlying facts, and prior proceedings are fully described in the prior opinions of this Court and the Court of Appeals, familiarity with which is assumed. Cresswell v. Sullivan & Cromwell, 922 F.2d 60 (2d Cir. 1990), rev'g 704 F. Supp. 392 (S.D.N.Y. 1989).

In December 1990, the Second Circuit opinion reversed on jurisdictional grounds the grant of summary judgment in S & C's favor on the Cresswell II fraud claim and remanded it to this Court for consideration in light of the proper jurisdictional basis. Shortly thereafter, Cresswell and Noble instituted the Cresswell III and Noble actions in New York State Supreme Court, essentially repeating the allegations and claims for relief made in Cresswell II and in Meadows.

On January 15, 1991, S & C removed both of the new actions to this Court and at the same time moved for summary judgment dismissing Cresswell II. On February 19, Cresswell responded with his motion to remand Cresswell III and to stay or dismiss Cresswell II, and on February 20 Meadows and Noble filed moved to remand Noble and to stay Meadows. All of the motions were argued and fully submitted on March 29.

DISCUSSION

1.  There Is Jurisdiction Over the Cresswell II Fraud
        Claim.

In seeking to differentiate the claim in Cresswell II from those in the New Actions, Plaintiffs assert that the Second Circuit impliedly dismissed their common law fraud claim against S & C and upheld federal jurisdiction only over their equitable claims. Arguing that they never intended to assert such claims and that as "masters of their complaints" they have the right to determine which claims they will press and which law will govern those claims, they seek dismissal of Cresswell II and permission to prosecute their common law claims in the only court which they believe has subject matter jurisdiction over those claims, namely the New York State court.

However, analysis of the Circuit Court's opinion indicates that it did not dismiss any of the Plaintiffs' claims and instead explicitly upheld this Court's jurisdiction to adjudicate them.

At the outset of its jurisdiction discussion, the Court of Appeals summarized its decision, stating

  [W]e conclude that there is neither diversity
  jurisdiction nor federal question jurisdiction
  under the provisions relied on by plaintiffs. We
  are persuaded, however, that the district court
  had ancillary equitable jurisdiction to entertain
  the action.

922 F.2d at 68. The court proceeded to clarify that "plaintiffs' claim is that S & C committed common-law fraud." Id. at 69.

After dismissing diversity and federal question as the basis for jurisdiction, the court again stated

  Notwithstanding the absence of federal question
  jurisdiction and the apparent absence of
  diversity, however, we concluded for the reasons
  below that the court had ancillary equitable
  jurisdiction to entertain an attack on the
  Cresswell I judgment.

Id. at 70.

Following an explanation of the origins of this type of jurisdiction, the court, finding that "[a]ncillary jurisdiction is sufficiently flexible that the action may be maintained against a person who was not a party to the original action," id., concluded that "the district court had ancillary equitable jurisdiction over the present claims against S & C." Id.

Thus, the Circuit Court held that this Court "had . . . jurisdiction to entertain the action," an action in which "plaintiffs' claim is that S & C committed common-law fraud," which represented "an attack on the Cresswell I judgment." Far from dismissing any of the Plaintiffs' claims, the Court of Appeals explicitly held that there was jurisdiction over the Plaintiffs' "present claims." There is simply no support in the opinion for the Plaintiffs' contention that in speaking of the "present claims against S & C" the Court of Appeals meant to refer to anything but the claims pled in the Cresswell II complaint. Therefore there is federal jurisdiction over the Cresswell II claims.

2.  In Holding That Equitable Standards Would Govern the
        Plaintiffs' Fraud Claim, the Court of Appeals Implied
        that the Claim Was Federal in Nature.

Significantly, the Circuit Court did not merely hold that this Court would have had equitable ancillary jurisdiction if the Plaintiffs' had chosen to frame their fraud claim in equity, but rather determined that there was jurisdiction over the claim as it had been pled. Moreover, after expressly acknowledging that the claim was for common-law fraud, the Circuit Court stated that

  Considering this issue solely as a matter of law,
  we would concluded that the district court did not
  err in [finding no reliance as a matter of law.]
    As indicated . . . above, however, the present
  action is not an action at law, but is one
  addressed ...

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