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ARONOFF v. DWYER

February 2, 1996

MELVIN S. ARONOFF and RITA PATRICIA ZILBERMANN, as Independent Executrix of the Last Will and Testament of ANDRE H. ZILBERMANN, Plaintiffs, against ANDREW T. DWYER, ERNEST GRENDI, JOSEPH GRENDI, INNIS O'ROURKE, JR., CRAIG C. PERRY, EDMUND S. TWINING, JR., GEORGE M. DUFF, JR. and ERNST & YOUNG, Defendants.


The opinion of the court was delivered by: CONNER

 CONNER, Senior D.J.:

 Plaintiffs have made a motion requesting this court to exercise supplemental jurisdiction over their state law claims against Ernst & Young ("E&Y") for common law fraud and negligent misrepresentation. For the reasons set forth below, plaintiffs' motion is denied.

 BACKGROUND

 This case is one of four related actions pending before this court that arise from the collapse of JWP, Inc. ("JWP"). The other three are: In Re JWP, Inc. Securities Litigation, Master File No. 92 Civ. 5815 (WCC), which is a consolidated class action brought by shareholders against members of JWP's management and E&Y, JWP's independent auditor for the relevant time period; AUSA Life Insurance Co. v. Dwyer, No. 93 Civ. 6830 (WCC), which is a suit by several large institutional investors that purchased JWP's debt securities against members of JWP's management; and AUSA Life Insurance Co. v. Ernst & Young ("AUSA action"), No. 94 Civ. 3116 (WCC), which was brought by several of the same institutional investors against E&Y.

 The present action arises out of JWP's purchase, in August 1991, of a company owned by Andre H. Zilberman *fn1" and plaintiff Melvin S. Aronoff. Under the merger agreement, Zilberman and Aronoff received a mixture of cash and JWP common stock. Approximately one year later, JWP made public announcements that indicated that it was experiencing financial difficulties. Share prices dropped, and shareholders filed a number of securities fraud lawsuits. Zilberman and Aronoff sold virtually all of their stock in August 1992.

 On October 12, 1994, E&Y filed a motion to dismiss the amended complaint. In a ruling from the bench delivered on January 6, 1995, Judge Brieant held that plaintiffs' federal securities claims against E&Y were barred by the statute of limitations. Judge Brieant declined to retain supplemental jurisdiction over plaintiffs' state law claims against E&Y and dismissed those claims without prejudice.

 In the AUSA action, the institutional investors have also asserted federal securities law claims, as well as state law claims for common law fraud and negligent misrepresentation, against E&Y. Those claims involve the period from 1988 to 1992 and concern no-default certificates issued by E&Y, as well as audit reports for each of those years. See AUSA Complaint, at PP 3-6, 46-48, 50, attached as Exhibit 2 to Zwerling Aff. The claims therefore include allegations relating to E&Y's unqualified audit reports on JWP's 1990 and 1991 financial statements. When Judge Brieant made his January 6 ruling in this case, E&Y's motion to dismiss the complaint in the AUSA action was pending. On March 30, 1995, Judge Brieant issued a written ruling denying that motion. This court therefore retained supplemental jurisdiction over the institutional investors' state law claims.

 Plaintiffs subsequently filed this motion requesting us to modify Judge Brieant's January 6 order and to exercise supplemental jurisdiction over plaintiffs' state law claims against E&Y.

 DISCUSSION

 "In any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy . . . ." 28 U.S.C. § 1367(a). A district court may, as Judge Brieant did in this case, decline to exercise that jurisdiction if the court has dismissed all claims over which it has original jurisdiction. See 28 U.S.C. § 1367(c)(3). That decision is ordinarily within the district court's discretion. See Morse v. University of Vermont, 973 F.2d 122, 127 (2d Cir. 1992).

 As a preliminary matter, we note that the heart of plaintiffs' argument is their contention that judicial efficiency will be served if their state law claims against E&Y are litigated before us. Plaintiffs have made this argument before. In their opposition to E&Y's motion to dismiss, plaintiffs argued that even if Judge Brieant were to dismiss plaintiffs' federal securities claims, this court should retain supplemental jurisdiction over plaintiffs' state law claims because judicial efficiency concerns counseled that all of the claims arising out of the collapse of JWP should be litigated in one forum. Plaintiffs pointed out that their state law claims against E&Y arose out of facts and circumstances already before the court in the related class action. See Plaintiffs' Memorandum of Law in Opposition, dated Nov. 30, 1994, at 24, attached as Exhibit A to Affidavit of Martin L. Perschetz, dated June 26, 1995; Consolidated Amended Class Action Complaint, dated January 15, 1993, at PP 133-39 (containing allegations identical to plaintiffs' allegations concerning E&Y's audit reports on JWP's 1991 financial statements; class plaintiffs asserted no claims on audit reports for 1990 statements). Judge Brieant rejected plaintiffs' argument. While plaintiffs presently rely on the similarity between their claims against E&Y and the institutional investors' claims, rather than on the similarity between their claims and the class plaintiffs' claims, the concerns that they raise are the same. Because the court has previously considered and rejected plaintiffs' argument, they face an uphill battle on this motion.

  Judge Brieant's January 6 order is clearly interlocutory in nature. Indeed, Judge Brieant explicitly declined to enter final judgment under Rule 54(b) on the claims that he dismissed. See Transcript, dated Jan. 6, 1995, at 38, attached as Exhibit 3 to Zwerling Aff. Plaintiffs' motion is therefore addressed to the court's power to modify interlocutory orders at any time before the entry of judgment. See Fed. R. Civ. P. 54(b). *fn2" The court's exercise of its power to reconsider its own decisions is guided by the strictures of the law of the case doctrine. See Virgin Atlantic Airways, Ltd. v. National Mediation Board, 956 F.2d 1245, 1255 (2d Cir.), cert. denied, 506 U.S. 820, 121 L. Ed. 2d 34, 113 S. Ct. 67 (1992). Although the Second Circuit has explained that application of this doctrine is discretionary, it has stated that "'where litigants have once battled for the court's ...


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