Achtman v. Kirby, McInerney & Squire, Llp
| Decision Date | 25 September 2006 |
| Docket Number | Docket No. 04-5473-cv. |
| Citation | 464 F.3d 328 |
| Parties | 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 for the estate of Herbert Flynn, Dorothy Gatson, Erwin Gatson, Gunther Glaser, Grace Gluck, Saul Gluck, Bernard Greenberg, Rona Greenberg, Brian Henry, Albert Hodes, Arnold Jacobs, Hagop Jamgochian, Shamiram Jamgochian, Harry Kaiserman, Lawrence Kessler, Carl Kevorkian, Linda Tabris, for the estate of Bernice Kramera, Frederick H. Kroll, William Lenney, Sylvia Levine, Sidney Levine, Doris Levy, Lawrence Lindy, Anthony Longo, Joseph A. Longo, Harry Mandelbaum, Blanche Mandelbaum, Henry Medvin, Selma Medvin, Carol Peyser, Renee Pfau, Hyman Rock, Phillip Ross, 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, Eleanor Weidemeyer, Harry Weinstein, Edith Weinstein, Elaine Zinberg, Genia Zwirn, and David Zwirn, Plaintiffs-Appellants, v. KIRBY, McINERNEY & SQUIRE, LLP and Bernstein, Litowitz, Berger & Grossman, LLP, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Second Circuit |
Arnold E. DiJoseph, III, DiJoseph & Portegello, P.C., New York, N.Y., for Plaintiffs-Appellants.
Bertrand C. Sellier, Proskauer Rose, LLP, New York, N.Y. (Tom Stein, on the brief), for Defendants-Appellees.
Before CARDAMONE, McLAUGHLIN, and POOLER, Circuit Judges.
Plaintiffs brought a putative class action against their former attorneys, Kirby, McInerney & Squire, LLP ("Kirby") and Bernstein, Litowitz, Berger & Grossman LLP ("Bernstein") in the United States District Court for the Southern District of New York (Sprizzo, J.). Both firms had served as class counsel in a separate earlier securities class action and it is the firms' conduct in litigating the securities action that is now alleged by the plaintiffs to have constituted malpractice. The district court dismissed the malpractice complaint for failure to state a claim after determining that defendants' actions were reasonable as a matter of law.
We remanded to the district court for the limited purpose of having it explain its basis for exercising subject matter jurisdiction over the action. The district court subsequently identified three possible bases for subject matter jurisdiction: (1) the terms of an injunction it entered in the underlying securities class action pursuant to its authority under 28 U.S.C. § 1651; (2) diversity jurisdiction if non-diverse plaintiffs are dismissed as unnecessary parties; and (3) supplemental jurisdiction under 28 U.S.C. § 1367(a). While we are querulous as to the first two contentions, we agree that supplemental jurisdiction exists. Accordingly, we now reach the merits and affirm the judgment of the district court.
In April 1996, the first of several class action complaints were filed in federal courts against the Bennett Funding Group ("BFG"), an equipment finance company based in Syracuse, New York. The complaints alleged that BFG and other entities had committed securities fraud by swindling investors out of more than $500 million through an elaborate "Ponzi" scheme involving sham contracts and chimerical financial statements. The various BFG actions were ultimately referred by the Judicial Panel on Multi-District Litigation to the United States District Court for the Southern District of New York for pre-trial consolidation before Judge John E. Sprizzo.
In August 1996, Kirby and Bernstein were appointed co-lead counsel in the consolidated BFG action, and several months later the district court certified a class of over 20,000 investors in BFG securities. A Notice of Pendency was mailed to the class, advising them of the nature of the suit and listing all parties named as defendants. Conspicuously absent from the catalog of alleged wrongdoers was the accounting firm of Arthur Andersen & Co. ("Andersen"), which had audited BFG's allegedly misleading 1989 and 1990 financial statements.
The district court ultimately approved a $125 million settlement with BFG's insurers and a $14 million settlement with the accounting firm of Mahoney Cohen & Co. ("Mahoney Cohen"), which had succeeded Andersen as BFG's auditor. On three occasions in approving fee applications by Kirby and Bernstein, the district court repeatedly lauded the "novel and creative" approach of the firms, which produced an "exceptional result for the class." Plaintiffs here-who were also plaintiffs in the BFG securities class action-did not object to either settlement or the award of attorneys' fees.
Meanwhile, since 1996, other law firms had been bringing individual actions against Andersen on behalf of BFG investors and had met some success. When some of these firms eventually attempted to bring a class action against Andersen in the Southern District of New York in May 1999, the district court dismissed the claims on statute of limitations grounds.
In April 2002, the law firm of Chikovsky & Shapiro began contacting BFG litigation class members about pursuing a possible malpractice action against Kirby and Bernstein specifically for their failure to sue Andersen. Kirby and Bernstein quickly moved for an injunction prohibiting Chikovsky & Shapiro and related firms from contacting class members without court approval. In July 2002, Judge Sprizzo issued an injunction (the "Injunction") barring such communications and prohibiting Chikovsky & Shapiro, related firms, and members of the BFG securities class from "[f]iling 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."
Foreclosed by the statute of limitations from suing Andersen itself, plaintiffs brought the present malpractice putative class action in December 2002 on behalf of BFG litigation class members against Kirby and Bernstein in the Southern District of New York.1 Plaintiffs alleged that defendants failed to: (1) name Andersen as a defendant in the BFG class action litigation; (2) list Andersen as a party who could be sued-but was not-in the Notice of Pendency; and (3) advise the plaintiffs as to the statute of limitations on claims against Andersen.
In September 2004, the district court dismissed plaintiffs' complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. Achtman v. Kirby, McInerney & Squire, LLP, 336 F.Supp.2d 336, 338 (S.D.N.Y.2004). The court acknowledged that some individual BFG investors had already sued Andersen in separate actions and had reached settlements. It determined, however, that because of the doctrinal uncertainty surrounding auditor securities fraud liability and because BFG securities issued during Andersen's tenure had been largely paid down by the time the BFG litigation started, defendants' decision not to sue Andersen was reasonable as a matter of law. Id. at 340-41.
When plaintiffs appealed to this court, we expressed some doubt as to whether subject matter jurisdiction existed over the malpractice claims. We instructed the parties to supplement their merits briefs with letter briefs on the jurisdictional issue. Concerned that the complaint based jurisdiction solely on the Injunction's requirement that any legal malpractice action be brought in the Southern District of New York, we remanded to allow the district court to clarify its basis for exercising subject matter jurisdiction over this suit. See Achtman v. Kirby, McInerney & Squire, LLP, 150 Fed.Appx. 12, 15 (2d Cir.2005).
On remand, the district court identified three possible bases for subject matter jurisdiction:
• First, the district court stated that it had the authority to issue the Injunction under 28 U.S.C. § 1651 (the "All Writs Act"), and it "therefore, under the terms of the Injunction Order, . . . has subject matter jurisdiction over the [malpractice] action." Achtman v. Kirby, McInerney & Squire, LLP, 404 F.Supp.2d 540, 544-45 (S.D.N.Y.2005).
• Second, the court noted that diversity jurisdiction could be salvaged pursuant to Federal Rule of Civil Procedure 21 if all non-diverse plaintiffs were dismissed as unnecessary parties. Id. at 547-48.
• Third, the district court analogized the present malpractice action to a fee dispute and found that supplemental jurisdiction existed pursuant to 28 U.S.C. § 1367. Id. at 546-47.
Plaintiffs raise both the jurisdictional argument and the dismissal of their complaint for failure to state a claim. We (a) find that supplemental jurisdiction exists over the malpractice claims, and (b) affirm the district court's dismissal on the merits.
"In reviewing a district court's determination of whether it has subject matter jurisdiction, we review factual findings for clear error and legal conclusions de novo." Gualandi v. Adams, 385 F.3d 236, 240 (2d Cir.2004) (citing London v. Polishook, 189 F.3d 196, 198 (2d Cir.1999)).
"The power of the inferior federal courts is `limited to those subjects encompassed within a statutory grant of jurisdiction.'" Bechtel v. Competitive Tech., Inc., 448 F.3d 469, 471(2d Cir.2006) (quoting Ins. Corp. of Ir., Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 701, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982)). Although an exercise of "judicial power [may be] desirable or expedient," a suit may not proceed absent statutory authorization. United States v. Town of N. Hempstead, 610 F.2d 1025, 1029 (2d Cir. 1979). In short, jurisdiction cannot simply be ...
To continue reading
Request your trial
-
Jackson v. Reed Smith LLP (In re Jackson)
... ... , 678 F. Supp. 2d at 209 ( quoting, Achtman v. Kirby, McInerney & Squire, LLP , 464 F.3d 328, 337 (2d Cir. 2006) ) ... ...
-
Matthias v. United States
... ... conclusions will not suffice to [defeat] a motion to dismiss." Achtman v. Kirby, McInerney & Squire, LLP , 464 F.3d 328, 337 (2d Cir. 2006) ... ...
-
Lee v. Ahne Law, P.C. (In re Basic Food Grp., LLC)
... ... Achtman v ... Kirby , McInerney & Squire , LLP , 464 F.3d 328, 337 (2d Cir. 2006) ... ...
-
Bosch v. LaMattina
... ... 640, 642 (2d Cir.2009) (quoting [901 F.Supp.2d 409] Achtman v. Kirby, McInerney & Squire, LLP, 464 F.3d 328, 337 (2d Cir.2006)). A ... ...
-
Iqbal 'Plausibility' in Pharmaceutical and Medical Device Litigation
...in original) (quoting Chongris v. Bd. of Appeals, 811 F.2d 36, 37 (1st Cir. 1987))); Achtman v. Kirby, McInerney & Squire, LLP, 464 F.3d 328, 337 (2d Cir. 2006) (“[C]onclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to [defeat] a motion to dismi......
-
The pleading problem.
...test for determining which allegations must and must not be accepted as true. (150.) See Achtman v. Kerby, McInerney & Squire, LLP, 464 F.3d 328, 337 (2d Cir. 2006) ("[C]onclusory allegations or legal conclusions ... will not suffice to defeat a motion to dismiss." (citation omitted)); ......
-
On Equipoise, Knowledge, and Speculation: a Unified Theory of Pleading Under the Defend Trade Secrets Act -- Jurisdiction, Identification, Misappropriation, and Inevitable Disclosure
...linked to a claim based on federal law," without specifying what test that "link" needs to meet); Achtman v. Kirby, McInerney & Squire, 464 F.3d 328, 335 (2d Cir. 2006) ("When both pendent and ancillary jurisdiction were codified in 1990 as §1367, however, the [Gibbs] 'common nucleus' test ......