The opinion of the court was delivered by: Robert W. Sweet, District Judge.
By notice of motion dated March 20, 2000, the Receiver in this
action, Carl H. Loewenson, Jr., moved for an order under the All
Writs Act, 28 U.S.C. § 1651(a) and the inherent power of the
Court, to stay the action styled Brandon v. J&H Marsh & McLennan
and Lloyds Underwriters of London, No. 99-476, pending in the
United States District Court for the Eastern District of Kentucky
(the "Kentucky Action"). This matter was set down for argument on
April 12, 2000.
After receiving submissions from the parties and hearing
argument on April 12, the matter was deemed fully submitted.
Douglas C. Brandon ("Brandon") is hereby enjoined from
prosecuting the Kentucky Action. This order is made pursuant to
the All Writs Act, 28 U.S.C. § 1651(a), and this Court's inherent
power to issue all orders necessary or appropriate in aid of its
On November 16, 1999, the SEC commenced this action (the
"Enforcement Action") in the United States District Court for the
Southern District of New York against Credit Bancorp, Ltd.,
Credit Bancorp, Inc., and all subsidiaries and affiliated
entities (referred to collectively as "Credit Bancorp") and
several individual defendants, including Brandon. Subsequently, a
number of customers of Credit Bancorp filed claims against these
same defendants and based on the same conduct alleged by the SEC.
Most of these claims are in this Court. On December 14, 1999,
Brandon filed the Kentucky Action, which seeks a declaratory
judgment against two of Credit Bancorp' s insurers, J&H Marsh &
McLennan and Lloyds, for coverage for the claims alleged against
him in the Enforcement and the customers' actions. Brandon later
voluntarily dismissed Marsh from the Kentucky Action.
As part of the Enforcement Action, by order dated January 21,
2000, this Court appointed the Receiver and authorized him to,
inter alia, make claims against Credit Bancorp's insurance
policies. On February 23, 2000, the Receiver filed his
third-party complaint for declaratory judgment against Lloyds, and on
March 13, 2000, the Receiver filed his first amended third-party
complaint against Lloyds, London Market Companies, Gulf Insurance
Company, and Federal Insurance Company, and cross-claim against
Thomas Michael Rittweger and Brandon. In the third-party action
and cross-claim, the Receiver seeks a declaration of the rights,
duties and obligations of the parties under the Credit Bancorp
insurance policies. These policies are the largest contingent
asset of the Receivership estate.
The Lloyds policy includes a Primary Comprehensive Crime,
Bankers Professional Liability, Fiduciary Liability, and
Directors and Officers/Corporate Reimbursement Policy. This
policy insures Credit Bancorp from losses caused by the allegedly
dishonest or fraudulent acts of its employees; insures Credit
Bancorp from losses caused by errors and omissions resulting from
any claims made against Credit Bancorp for a "wrongful act" in
the performance of "professional services"; and insures the
directors, offices, and trustees of Credit Bancorp, including
Brandon, for any loss resulting from a claim made during the
policy period for any "wrongful act". The policy contains a
$10,000,000 aggregate limit clause, pursuant to which the total
monies available are reduced on a "first come, first served"
basis by the amount of any payments made.
The Supreme Court has recognized that among the inherent powers
of a federal court is the authority, which is codified in the All
Writs Act, "to issue such commands . . . as may be necessary or
appropriate to effectuate and prevent the frustration or orders
it has previously issued in its exercise of jurisdiction
otherwise obtained." United States v. New York Telephone Co.,
434 U.S. 159, 172 (1977) (citations omitted). Pursuant to this
inherent power, a federal court may enjoin actions in other
jurisdictions that would undermine its ability "to reach and
resolve the merits of the dispute before it." In re
Baldwin-United Corporation, 770 F.2d 328, 338-39 (2d Cir. 1985).
Moreover, where a court has appointed a receiver and obtained
jurisdiction over the receivership estate, as here, the power to
stay competing actions falls within the court's inherent power to
prevent interference with the administration of that estate. See
SEC v. Wencke, 622 F.2d 1363, 1370 (9th Cir. 1980); Eller
Industries, Inc. v. Indian Motorcycle Manufacturing, Inc.,
929 F. Supp. 369, 372 (D. Colo. 1995). The power of a receivership court
to prevent the commencement, prosecution, continuation, or
enforcement of such actions has been recognized specifically in
the context of securities fraud cases. See Wencke, 622 F.2d at
1370; SEC v. An-Car Oil Co., 604 F.2d 114, 117 (1st Cir. 1979);
Lankenau v. Coggeshall & Hicks, 350 F.2d 61, 63 (2d Cir. 1965).
If Brandon were to prevail in the Kentucky Action, under the
policy's Aggregate Limit provision any payment to him would serve
to reduce the total estate assets — specifically, insurance
monies — available to other claimants, including Credit
Bancorp's customers. Thus, permitting Brandon to continue
prosecuting his action would thwart this Court's January 21 order
directed at obtaining an orderly and equitable administration of
Furthermore, because the factual and legal issues at issue in
the Kentucky Action will be raised in the action before this
Court, allowing Brandon to pursue his claim in the Kentucky forum
poses a clear risk of duplicative discovery and inconsistent
rulings. See Pinto v. Doskocil, No. 91 Civ. 1518, 1992 WL 111344,
at *2 (S.D.N.Y. May 8, 1992); see also Baldwin-United Corp., 770
F.2d at 336. Finally, the action before this Court is a
comprehensive one, whereas the Kentucky Action is not, and the
risk of piecemeal litigation over the availability and extent of
insurance coverage should be avoided. See General Reinsurance
Corp. v. Ciba-Geigy Corp., 853 F.2d 78, 81 (2d Cir. 1988).
Brandon fails to raise any viable argument to the contrary.
First, his contention that for this Court to enjoin his action
would contravene its duty to exercise "caution and restraint" in
these matters is without merit. Under the circumstances,
enjoinment of the Kentucky Action is not incautious but, rather,
is entirely appropriate and necessary to allow this Court to
exercise its jurisdiction over the receivership estate and
resolve the merits of the Enforcement Action. Moreover, none of
the cases cited by Brandon are on point. They do not concern
actions involving a limited res, receivership, or estate that is
to be distributed among multiple claimants. See, e.g., Peters v.
Brandt Grocery, 990 F. Supp. 1337, (M.D. Ala. 1998). Nor do they
address the issue of when one federal court may stay proceedings
in another federal court. See, e.g., Atlantic Coast Line Railroad
Co. v. Brotherhood of Locomotive Engineers, 398 U.S. 281, 285-86
(1970). Instead, they either concern the question of when a
federal court may stay a state court proceeding under the
Anti-Injunction Act, 28 U.S.C. § 2238, which implicates federalism
concerns not at issue here, see id., or scenarios other than the
enjoinment of proceedings, see ITT Community Development Corp. v.
Barton, 569 F.2d 1351, 1360-61 (5th Cir. 1978).
Second, Brandon's contention that this Court's February 25,
2000 order "specifically protect[s]" his continued litigation of
the Kentucky action is inaccurate. The February 25 order did not
address whether Brandon could prosecute a separate declaratory
judgment action in Kentucky, but instead merely clarified that
the January 21, 2000 Receivership order ...