102 F.3d 1524 (9th Cir. 1996), 95-15759, In re American Continental Corporation/Lincoln Sav. & Loan Securities Litigation

Docket Nº:95-15759, 95-16403, 95-16595 and 95-16754.
Citation:102 F.3d 1524
Party Name:96 Daily Journal D.A.R. 15,315 In re AMERICAN CONTINENTAL CORPORATION/LINCOLN SAVINGS & LOAN SECURITIES LITIGATION. LEXECON INC.; Daniel R. Fischel, Plaintiffs-Appellees, v. MILBERG WEISS BERSHAD HYNES & LERACH, a partnership; Patrick Coughlin; William S. Lerach; Kevin P. Roddy; Leonard B. Simon; Melvyn I. Weiss; Patricia Hynes; Michael C. Spencer;
Case Date:December 20, 1996
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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102 F.3d 1524 (9th Cir. 1996)

96 Daily Journal D.A.R. 15,315

In re AMERICAN CONTINENTAL CORPORATION/LINCOLN SAVINGS &

LOAN SECURITIES LITIGATION.

LEXECON INC.; Daniel R. Fischel, Plaintiffs-Appellees,

v.

MILBERG WEISS BERSHAD HYNES & LERACH, a partnership;

Patrick Coughlin; William S. Lerach; Kevin P. Roddy;

Leonard B. Simon; Melvyn I. Weiss; Patricia Hynes;

Michael C. Spencer; Stephen R. Steinberg, Defendants-Appellants.

In re AMERICAN CONTINENTAL CORPORATION/LINCOLN SAVINGS &

LOAN SECURITIES LITIGATION.

LEXECON INC.; Daniel R. Fischel, Plaintiffs-Appellants,

v.

MILBERG WEISS BERSHAD HYNES & LERACH, a partnership;

Patrick Coughlin; William S. Lerach; Kevin P. Roddy;

Leonard B. Simon; Melvyn I. Weiss; Patricia Hynes;

Michael C. Spencer; Stephen R. Steinberg, Cotchett, Illston

& Pitre; Joseph Cotchett; Susan Illston, Defendants-Appellees.

In re AMERICAN CONTINENTAL CORPORATION/LINCOLN SAVINGS &

LOAN SECURITIES LITIGATION.

LEXECON INC.; Daniel R. Fischel, Plaintiffs-Appellants,

Cross-Appellees,

v.

MILBERG WEISS BERSHAD HYNES & LERACH, a partnership;

Patrick Coughlin; William S. Lerach; Kevin P. Roddy;

Leonard B. Simon; Melvyn I. Weiss; Patricia Hynes;

Michael C. Spencer; Stephen R. Steinberg,

Defendants-Appellees, Cross-Appellants.

Nos. 95-15759, 95-16403, 95-16595 and 95-16754.

United States Court of Appeals, Ninth Circuit.

December 20, 1996

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Argued and Submitted June 13, 1996.

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Jerold S. Solovy, Ronald L. Marmer, C. John Koch and Jeffrey T. Shaw, Jenner & Block, Chicago, IL, for defendants-appellants-appellees.

Gerald Maltz, Miller, Pitt & McAnally, Tucson, AZ, for Joseph Cotchett, Susan Illston and Cotchett Illston & Pitre.

Mark C. Hansen, Kellogg, Huber, Hansen Todd & Evans, Washington, D.C.; Michele Odorizzi, Mayer, Brown & Platt, Chicago, IL; for plaintiffs-appellees-appellants.

Appeals from the United States District Court for the District of Arizona, John M. Roll, District Judge, Presiding. D.C. No. CV-93-01087-JMR.

Before: SNEED, PREGERSON and KOZINSKI, Circuit Judges.

SNEED, Circuit Judge:

Of the many consequences of the failure of Lincoln Savings and Loan and its parent, American Continental Corporation, the litigation that produced these consolidated appeals was just one. At the heart of these appeals is a suit by Lexecon Inc. against a number of the attorneys who represented the consolidated class of investors who lost money in the collapse of Lincoln Savings and its parent. Lexecon is a law and economics consulting firm that frequently serves as a defense expert in securities class actions prosecuted by the law firms that are defendants here. Lexecon had prepared several reports for Lincoln Savings and American Continental, and consequently became a target of the class' claims. In due course these claims were resolved. Thereafter Lexecon and its principal, Professor Daniel R. Fischel of the University of Chicago Law School, brought an action for, inter alia, malicious prosecution and defamation in federal district court for the Northern District of Illinois against several of the class attorneys--Milberg Weiss Bershad Hynes & Lerach and affiliated attorneys ("Milberg Weiss"), and Cotchett Illston & Pitre and affiliated attorneys ("Cotchett"). 1 The underlying theory is that Milberg Weiss and Cotchett wrongfully dragged Lexecon into the Lincoln Savings litigation to satisfy a personal vendetta against Lexecon and Fischel. The Judicial Panel on Multidistrict Litigation ("JPML") transferred this case to the District of Arizona and assigned it to Judge John M. Roll.

The resolution of Lexecon's claims in Judge Roll's court generally was unfavorable, as were its rulings on Milberg Weiss' counterattacks. These have resulted in four appeals to this court which have been consolidated.

In No. 95-16595, Lexecon appeals the adverse judgment on its malicious prosecution and abuse of process claims and the denial of its motion for leave to amend, as well as the denial of its motion to remand the case to Illinois. In No. 95-16403, Lexecon appeals from the final judgment in favor of the Cotchett defendants.

Milberg Weiss appeals, in No. 95-15759, the district court's denial of its efforts to obtain injunctive relief against Lexecon's prosecution of its claims, and, in No. 95-16754, the dismissal of its counterclaims against Lexecon.

We have jurisdiction under 28 U.S.C. § 1291, and we affirm the judgments of the district court.

I.

SOURCES OF THIS LITIGATION

Following the collapse of Lincoln Savings, investors residing in many districts of the federal judicial system brought actions charging violations of federal securities laws and RICO. In due course, these cases were transferred to the District of Arizona, consolidated into MDL 834 (sometimes designated as "Shields " or "Lincoln Savings ") and assigned to Judge Richard Bilby.

As early as 1990, the consolidated plaintiff class, now represented by (among others)

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Milberg Weiss and Cotchett, sought to add Lexecon and Fischel as defendants by filing a fifth amended complaint. Judge Bilby denied their motion to do so without prejudice. In February 1991, Judge Bilby granted the class' motion to file a sixth amended complaint, which added only Lexecon as a defendant, and alleged that:

during 1987 and 1988 defendant Lexecon was engaged by ACC/Lincoln to perform services, including writing reports advocating the safeness of Lincoln's operations and the value of ACC/Lincoln's assets which were submitted to federal and state regulators in order to persuade them not to take regulatory action adverse to Lincoln.

Following a period of discovery, Lexecon's motion for summary judgment was denied. See In re American Continental Corp./Lincoln S & L Sec. Litig., 794 F.Supp. 1424, 1448-49 (D.Ariz.1992). Judge Bilby found there existed material issues as to whether Lexecon's reports were false and misleading, and whether Lexecon possessed reckless scienter as to Lincoln's fraudulent activities. In March 1992, the trial commenced. Almost four months later, and shortly before the close of evidence, Lexecon moved for a directed verdict. Judge Bilby denied the motion, again finding a jury question as to the level of Lexecon's knowledge of, and involvement in, Lincoln Savings' actions and practices.

On June 22, 1992, the class attorneys and Lexecon's counsel met in Judge Bilby's chambers to consider a means by which Lexecon's exposure to a jury verdict could be resolved without harmful consequences to its professional credibility and reputation. In furtherance of this end, Lexecon urged that any agreement that might be reached not be designated a "settlement." To accommodate Lexecon's concern, the term "resolution" was adopted. The terms of the resolution provided: First, that the court would enter an order dismissing Lexecon without prejudice; second, that the parties would sign a stipulation dismissing Lexecon with prejudice, which stipulation would be held by Judge Bilby to be entered on the court's record only if a new suit was initiated against Lexecon on the same claims; and, third, that Lexecon would provide class services as a subcontractor to Touche Ross who, as another defendant in MDL 834, had settled its liability for $7.5 million. The resolution also placed restrictions on class counsel's ability to cross-examine Lexecon experts in future lawsuits about Lexecon's involvement in MDL 834.

This unusual arrangement was implemented, although because of disagreements between Lexecon and class counsel, Lexecon discharged its obligations by turning over to the class the approximately $700,000 it had received in professional fees from Lincoln Savings and American Continental, rather than performing the class services. This discharge was accomplished in October 1992.

Those who then thought that the concerns of Lexecon had been relieved were wrong. On November 25, 1992, Lexecon filed in the Northern District of Illinois (Lexecon's home state) the action now before us on appeal. The complaint set forth claims for malicious prosecution, abuse of process, tortious interference, defamation, and common law and statutory commercial disparagement. In June 1993, the JPML transferred the case to the District of Arizona for consolidation with MDL 834, and assigned it to Judge Roll because Judge Bilby had recused himself.

Judge Bilby's recusal obviously resulted in part from his reaction on learning of Lexecon's suit in Illinois. He arranged a telephonic hearing held on December 7, 1992, and therein charged Lexecon with what he viewed as its incorrect portrayal of the resolution of its role as a defendant in MDL 834. Following this hearing and the submission of letter briefs by the parties, Judge Bilby placed an order in the record of MDL 834 in which he found portions of Lexecon's Illinois complaint to be "a false description of the conditions under which Lexecon was dismissed from this case." 2 The key portions

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of his order disputed Lexecon's characterization of its payment to the Lincoln Savings class as "voluntary," and of the resolution as a termination of the litigation in Lexecon's favor:

The Class Plaintiffs/Lexecon resolution was a bargained-for exchange wherein consideration flowed both ways.

...

Moreover, under no circumstances was the Class Plaintiffs/Lexecon compromise a resolution in favor of either party or, more importantly, an adjudication on the merits. Instead, it was a bargained-for resolution of a disputed matter from which both parties benefited.

...

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