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ACHTMAN v. KIRBY

December 12, 2005.

JOSEPH ACHTMAN, SHIRLEY ACHTMAN, BLAIR AMBACH, THEODORE ANDREOZZI, SONDRA BAER-MILLER FOR THE ESTATE OF JENNY BAER, SANDY BERKOWITZ, JOSEPH BERLINGER, ELISSA BERLINGER, GUSTAVE BIRNBERG, FAITH BIRNBERG, GEORGE CAGEN, YVETTE COHEN, SELMA DAUBER, MARTIN DAUBER, ISABEL EZERSKY, PAUL EZERSKY, DOROTHY FEIGENBAUM, RICHARD FLYNN, INDIVIDUALLY, AND RICHARD FLYNN FOR THE ESTATE OF HERBERT FLYNN, DOROTHY GASTON, ERWIN GASTON, GUNTHER GLASER, GRACE GLUCK, SAUL GLUCK, RONA GREENBERG, BERNARD GREENBERG, BRIAN HENRY, ALBERT HODES, ARNOLD JACOBS, HAGOP JAMGOCHIAN, SHAMIRAM JAMGOCHIAN, HARRY KAISERMAN, LAWRENCE KESSLER, CARL KEVORKIAN, LINDA TABRIS FOR THE ESTATE OF BERNICE KRAMER, FREDERICK KROLL, WILLIAM LENNEY, SYLVIA LEVINE, SIDNEY LEVINE, DORIS LEVY, LAWRENCE LINDY, ANTHONY LONGO, JOSEPH LONGO, HARRY MANDELBAUM, BLANCHE MANDELBAUM, HENRY MEDVIN, SELMA MEDVIN, CAROL PEYSER, HARVEY PFAU, RENEE PFAU, HYMAN ROCK, PHILLIP ROSS, BARBARA SCHILDCROUT, LLOYD SCHILDCROUT, ALBERT SHERIDAN, ELEANOR SILVERSTEIN, STANLEY SINGER, JOE SINGER, KENNETH SMITH, HAROLD SOMMERS, MELVIN SPENCER, BEN SPENCER, RUSSELL STOTT, ANNE STOTT, PAUL TRUSIK, HARRIET WALLSHEIN, S. JOSEPH WALLSHEIN, JOHN WEIDEMEYER, ELEANOR WEIDEMEYER, HARRY WEINSTEIN, EDITH WEINSTEIN, ELAINE ZINBERG, GENIA ZWIRN, DAVID ZWIRN, AND OTHER JOHN DOES, Plaintiffs,
v.
KIRBY, McINERNEY & SQUIRE, LLP and BERNSTEIN, LITOWITZ, BERGER & GROSSMANN, LLP, Defendants.



The opinion of the court was delivered by: JOHN SPRIZZO, District Judge

MEMORANDUM OPINION AND ORDER

The issues before the Court, as raised by a panel of the Second Circuit in a Summary Order dated September 19, 2005 ("Remand Order"), are the applicability to this action of an Order for Preliminary Injunction dated July 30, 2002 and entered in the action captioned In re Bennett Funding Group, Inc. Securities Litigation, 96 Civ. 2583 ("Injunction Order"), the propriety of entering the Injunction Order, and the bases for subject matter jurisdiction over the present action. This Court finds that the Injunction Order is clearly applicable to the present action, that the Injunction Order was properly entered pursuant to this Court's authority under the All Writs Act, 28 U.S.C. § 1651, and that there are several bases for subject matter jurisdiction in this action.

BACKGROUND

  The present action stems from a federal securities class action arising from an alleged Ponzi scheme perpetrated by the Bennett Funding Group. See Achtman v. Kirby, McInerney & Squire, LLP, 336 F. Supp. 2d 336, 338 (S.D.N.Y. 2004). By Order dated August 1, 1996 a series of putative class actions were consolidated as In re Bennett Funding Group, Inc. Securities Litigation, 96 Civ. 2583 ("underlying action"), see Aff. of Bertrand C. Sellier, dated Apr. 14, 2003, Ex. B ("Consolidation Order"), and defendants in the present action, Kirby, McInerney & Squire, LLP and Bernstein, Litowitz, Berger & Grossmann, LLP ("defendants" or "law firms"), were named lead counsel, Consolidation Order at 7.*fn1

  In April 1997 the Court certified the class in the underlying action, Achtman, 336 F. Supp. 2d at 338, and on behalf of the class the law firms secured a series of settlements totaling more than $166.5 million, see Order, dated June 5, 2003; Order, dated Oct. 19, 2000; Order, dated July 25, 2000 (collectively "Fee Orders"). As to each settlement, pursuant to Federal Rule of Civil Procedure 23, this Court approved the notices provided to class members, held settlement hearings, heard any objections as to attorneys' fees, found the settlements to be fair, reasonable, and adequate, and approved the law firms' applications for attorneys' fees and expenses. See Fee Orders.

  In April 2002, upset over the law firms' failure to name Arthur Andersen & Co. ("Andersen") as a defendant in the underlying action, the firm of Shapiro & Shapiro began soliciting class members to file malpractice actions against the law firms. See Mem. of Law in Supp. of Mot. for Prelim. or Permanent Inj., dated June 5, 2002 ("Injunction Mem."), at 1-2. In response, the law firms filed a motion seeking to enjoin Shapiro & Shapiro from communicating with class members without Court approval and from bringing its proposed malpractice action in another forum. Following briefing and oral argument, this Court determined that "[t]he legal malpractice litigation . . . against Class counsel for failure to join Anders[e]n as a defendant will seek to recover Bennett related losses from class counsel," Injunction Order at 1, and therefore the Court ordered that:
Shapiro & Shapiro [defined as "Chikovsky and Shapiro, P.A., Shapiro & Shapiro, and other firms acting in concert with them"], their principals, shareholders, officers, directors, employees, successors, assigns, suppliers, agents, servants, attorneys and customers, all members of the Class certified herein, as well as those persons in active concert, participation, or privity with them, or any of them who receive notice of this order by personal service or otherwise, are PRELIMINARILY RESTRAINED AND ENJOINED FROM:
A. Sending further notices to Class members without prior Court approval:
B. Filing and/or proceeding with any legal malpractice claim against Class counsel relating to losses incurred in Bennett Funding securities in courts other than in this Court.
Id. at 2.

  The present action, a putative class action brought on behalf of the class members in the underlying action "by their attorneys, CHIKOVSKY & SHAPIRO, P.A.," Compl. at 1, ¶ 2, was commenced by Complaint dated December 3, 2002 and seeks relief from the law firms for their alleged malpractice in failing to name Andersen as a defendant in the underlying action, id. ¶¶ 177-78. Finding that the Complaint failed to state a cause of action under New York law, this Court, in a Memorandum Opinion and Order dated September 17, 2004, dismissed the Complaint pursuant to Rule 12(b) (6) of the Federal Rules of Civil Procedure. Achtman, 336 F. Supp. 2d at 339-42.

  As stated above, the Second Circuit remanded the action and raised the jurisdictional issues posed at the outset of this Opinion. This Court held a Pre-Trial Conference on September 29, 2005 and ordered the parties to submit simultaneous briefs on the issue of jurisdiction by November 7, 2005. See Order, dated Sept. 30, 2005. Plaintiffs' local counsel, Arnold E. DiJoseph, III, refused to appear at this Conference, opting instead to send a wholly unprofessional and wildly accusatory letter directly to the Court of Appeals. See Letter of Arnold E. DiJoseph, III, dated Sept. 22, 2005. Defendants submitted their brief on the issue of jurisdiction on October 28, 2005. Plaintiffs failed to offer a submission.

  DISCUSSION

  The first issue raised by the Remand Order is the applicability of the Injunction Order to the present action. According to the Second Circuit, "[i]t is unclear . . . how [the Injunction Order] applies to the plaintiffs in the current action" since they "are not represented by the law firms named therein." See Remand Order at 2.

  As stated above, the Injunction Order applied to Chikovsky and Shapiro, P.A., Shapiro & Shapiro, other firms acting in concert with these two firms, and a host of others. The Complaint in the present action indicates that the action was brought by "CHIKOVSKY & SHAPIRO, P.A.," Compl. at 1, and Arnold E. DiJoseph, III represented himself as "Trial/Local Counsel," id. at 41. It seems clear, therefore, that plaintiffs are represented by a firm specifically named in the Injunction Order and that their Complaint was signed by local counsel who is acting in concert with that firm. As such, the Injunction Order is patently applicable to the present action.

  The next two issues raised by the Remand Order are the propriety of entering the Injunction Order and the bases for subject matter jurisdiction over the present action.

  The All Writs Act empowers federal courts to "issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law." 28 U.S.C. § 1651.*fn2 The Supreme Court has indicated that "federal injunctive relief may be necessary to prevent a state court from so interfering with a federal court's consideration or disposition of a case as to seriously impair the federal court's flexibility and authority to decide that case," Atl. Coast Line R.R. v. Bhd. of Locomotive Eng'rs, 398 U.S. 281, 295 (1970), and courts have used this power to prevent state court litigation of claims that were being settled in a federal class action, In re Baldwin-United Corp., 770 F.2d 328, 336-38 (2d Cir. 1985); In re Corrugated Container Antitrust Litig., 659 F.2d 1332, 1334 (5th Cir. 1981), and to prevent the relitigation in state court of issues that were determined in federal court, Hutton Constr. Co. v. County of Rockland, Nos. 87-4027, 93-2465, 1997 WL 291954, 1997 U.S. Dist. LEXIS 7666, at *10-13 & n. 2 (S.D.N.Y. June 2, 1997), aff'd, 1998 U.S. App. LEXIS 14968 (2d Cir. 1998); Thomas v. Albright, 77 F. Supp. 2d 114, 118-23 (D.D.C. 1999). Because the court's power under the All Writs Act is limited to that necessary "in aid" of its jurisdiction, it is a prerequisite to the power's use that the court first have original jurisdiction over an underlying case or controversy. See Syngenta Corp Prot., Inc. v. Henson, 537 U.S. 28, 33 (2002).

  This Court finds that the Injunction Order was properly entered pursuant to the All Writs Act, and therefore, under the terms of the Injunction Order, this Court has ...


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