Opinion ID: 2994681
Heading Depth: 2
Heading Rank: 3

Heading: State Law Action

Text: The final issue in this case is whether the district court properly disposed of class counsel’s lawsuit against Aetna Plywood and the four managers who purchased control of the company (the Krislov suit). The district court assumed jurisdiction over the suit, which was filed originally in state court and alleged a variety of state law causes of action arising out of a purported breach of the attorneys’ fees provision of the settlement agreement, and dismissed the suit for failure to state a claim. Class counsel challenges both the district court’s refusal to remand the lawsuit back to state court and the district court’s decision to dismiss the lawsuit on its merits. We consider counsel’s jurisdictional challenge first.
Class counsel contends that there was no basis for removing the Krislov suit to federal court and that, therefore, the district court should have remanded the case back to state court. Ordinarily, a case filed in state court can be removed to federal court only if the case falls within the original jurisdiction of the federal district courts. 28 U.S.C. sec. 1441. Because it is based entirely on state law and involves non-diverse parties, however, the Krislov suit does not come within the original jurisdiction of the federal district courts. The district court nevertheless concluded that removal was proper under the doctrine of ancillary jurisdiction since the lawsuit involved claims relating to an alleged breach of the settlement agreement resolving the Montgomery case and the court had expressly retained jurisdiction to enforce the terms of that settlement agreement when it entered a final judgment in the Montgomery case. Precedent in this circuit firmly establishes that the doctrine of ancillary jurisdiction confers federal jurisdiction over a case otherwise outside federal jurisdiction in which the plaintiff seeks to enforce a settlement agreement, as long as the district court incorporated the agreement into its final order or retained jurisdiction to enforce the terms of the agreement. Ford v. Neese, 119 F.3d 560, 562 (7th Cir. 1997); In re VMS Sec. Litig., 103 F.3d 1317, 1321-22 (7th Cir. 1996); Lucille v. City of Chicago, 31 F.3d 546, 548 (7th Cir. 1994); McCall-Bey v. Franzen, 777 F.2d 1178, 1188 (7th Cir. 1985); see also Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 381-82 (1994). Thus, where a party to a settlement agreement approved by a federal court brings a new suit in federal court alleging a breach of the agreement, federal jurisdiction exists over the suit, provided the federal court incorporated the agreement into its final order or reserved jurisdiction to enforce the agreement. See, e.g., Ford, 119 F.3d at 562; McCall- Bey, 777 F.2d at 1188-90. What is less firmly established is when a case filed in state court that nevertheless comes within a federal court’s ancillary jurisdiction may be removed. Our court addressed this issue in In re VMS Securities Litigation, 103 F.3d 1317 (7th Cir. 1996), which considered whether a pair of district courts had properly removed and enjoined a state law class action alleging fraud and misrepresentation relating to the settlement of a pair of prior class action lawsuits approved by those two district courts. The court first determined that the two district courts possessed ancillary jurisdiction over the state law actions at issue. Id. at 1321- 23. The court then turned to whether the district courts had the authority to remove the state law actions from state court. Relying on authority from the Second Circuit, specifically In re Agent Orange Product Liability Litigation, 996 F.2d 1425, 1431-32 (2d Cir. 1993), the court concluded that the All Writs Act, 28 U.S.C. sec. 1651, which provides that federal courts may issue orders necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law, granted the district courts the necessary authority. 103 F.3d at 1323-24. The court explained, however, that the All Writs Act does not permit removal in every case. Id. at 1324. Again relying on the Second Circuit’s decision in In re Agent Orange, the court suggested that only the presence of exceptional circumstances threatening the integrity of a court’s rulings in complex litigation would justify removal under the All Writs Act.\4 Id. Reading In re VMS Securities together with this circuit’s law on ancillary jurisdiction, two different standards for exercising ancillary jurisdiction emerge. In a suit otherwise outside federal jurisdiction brought in federal court, a district court may assume jurisdiction over the suit if it satisfies the ordinary requirements for ancillary jurisdiction. In a suit otherwise outside federal jurisdiction brought in state court, a district court may assume jurisdiction over the suit if it satisfies the ordinary requirements for ancillary jurisdiction and exceptional circumstances threatening the integrity of its prior rulings are present./5 Strictly speaking, the Krislov suit does not involve the sort of extraordinary circumstances described in In re VMS Securities. Any threat it presents to the integrity of the district court’s rulings in the Montgomery case is minimal, involving ordinary collateral estoppel and res judicata issues. Pacheco de Perez v. AT&T Co., 139 F.3d 1368, 1380 (11th Cir. 1998) (holding that such a threat would not supply exceptional circumstances); In re Agent Orange, 996 F.2d at 1431 (suggesting the same). And, the Montgomery case was not particularly complex litigation--it was a relatively straight-forward class action. Still, the Krislov suit is not an ordinary action to enforce a term of a settlement agreement involving a dispute regarding whether a party has reneged on its post-judgment obligations through some out-of-court action or failure to act. Rather, the Krislov suit involves a dispute over whether the Krislov defendants reneged on their pre-judgment obligations by obtaining a ruling (they promised not to seek) from the district court. The district court is uniquely positioned to resolve this sort of dispute. It involves events that occurred before the court and revolves, in part, around the impetus for one of the district court’s rulings. Moreover, it would be awkward, to say the least, for a state court to pass on certain issues raised by this case, such as what prompted the district court to rule in the way it did. In our view, the unusual nature of the Krislov suit--involving the alleged procurement of a court ruling through a breach of a pre-judgment settlement obligation--does present a set of circumstances that make it appropriate for a federal court to remove a case from state court in aid of its jurisdiction. Therefore, although it does not involve the sort of extraordinary circumstances described in In re VMS Securities, we conclude that the Krislov suit does involve a set of extraordinary circumstances that justifies removal under the All Writs Act. Accordingly, the district court properly assumed jurisdiction over the Krislov suit and did not err in refusing to remand the case to state court.
Class counsel also contends that the district court erred in dismissing the Krislov suit on its merits. The suit alleged a breach of contract claim against Aetna Plywood and the four managers who purchased control of the company, as well as claims of aiding and abetting a breach of contract and intentional interference with a contractual relationship against the individual defendants, all arising out of the defendants’ efforts to oppose class counsel’s request for attorneys’ fees, in violation of the settlement agreement resolving the Montgomery case. In dismissing the lawsuit, the district court concluded that class counsel was collaterally estopped from arguing that the amount of attorneys’ fees the court awarded was other than the proper amount and that, consequently, counsel could not establish that the alleged breach of contract (or associated aiding and abetting and intentional interference) caused it any damages. On appeal, the Krislov defendants advance this argument, as well as several others, in support of the district court’s decision. We need not go through each argument they make, however, as their argument that class counsel cannot establish causation is dispositive. The Krislov defendants argue that, because the district court made an independent determination as to the appropriate attorneys’ fee (as it is required to do, see Strong v. BellSouth Telecomms. Inc., 137 F.3d 844, 849-50 (5th Cir. 1998)), class counsel cannot establish that they caused counsel’s alleged damages, an element of each of the causes of action at issue, see Dallis v. Don Cunningham & Assocs., 11 F.3d 713, 717 (7th Cir. 1993) (tortious/intentional interference with contract); Gonzalzles v. American Express Credit Corp., 733 N.E.2d 345, 351 (Ill. App. Ct. 2000) (breach of contract); Restatement (Second) of Torts sec. 876 (1979) (aiding and abetting/6). We agree. It would beimpossible for class counsel to prove that the objections filed by Rassin, Minnaert, and Weller, rather than the district court’s efforts in fulfilling its duty to independently evaluate counsel’s attorneys’ fee request, were the proximate cause of any alleged diminution of counsel’s attorneys’ fee award. The district court did cite the objections filed by Rassin, Minnaert, and Weller, but that only means that the court read, and perhaps was persuaded by, their objections, it says nothing about whether the court would have reached a different result in the absence of the objections or whether the objections caused the court to rule the way it did. In fact, assuming (as we always do) that the district court took its duty to independently evaluate class counsel’s request seriously, the only proximate cause of the court’s ruling could be its own determination that the amount of attorneys’ fees awarded was an appropriate amount. In short, it is impossible, as a matter of law, to establish the proximate cause for a judicial ruling of the sort involved here. Accordingly, the Krislov suit deserved to be dismissed for failure to state a claim.