Opinion ID: 553337
Heading Depth: 2
Heading Rank: 3

Heading: Ancillary Equitable Jurisdiction

Text: 50 Rule 60(b) provides, in pertinent part, that a party may make a motion seeking relief from a final judgment on the grounds of, inter alia, fraud ..., misrepresentation, or other misconduct of an adverse party. Fed.R.Civ.P. 60(b)(3). The Rule also states that provision for such a motion does not limit the power of a court to entertain an independent action to relieve a party from a judgment [or] order. Fed.R.Civ.P. 60(b). The independent action referred to in this Rule is what had been historically known simply as an independent action in equity to obtain relief from a judgment. 11 C. Wright & A. Miller, Federal Practice and Procedure Sec. 2868, at 238 (1973). 51 If a party were to proceed under Rule 60(b) by motion in the underlying suit, the court would of course have jurisdiction to decide the motion because of its jurisdiction of the suit. An independent action for relief from the judgment, however, must be supported by its own jurisdictional grounds. When the basis for federal jurisdiction of the original suit no longer exists, either because there is no longer diversity of citizenship or because the claims in the new suit do not arise under federal law, the district court that entered the original judgment has inherent ancillary equitable jurisdiction to entertain the suit for relief from the judgment. See, e.g., Pacific R.R. of Missouri v. Missouri Pac. Ry. Co., 111 U.S. 505, 521-22, 4 S.Ct. 583, 592-93, 28 L.Ed. 498 (1884) (though the diversity on which jurisdiction of the earlier suit rested did not exist in the second suit, there can be no doubt that the [lower court that entered the earlier decree] had jurisdiction over a suit to vacate that decree for alleged fraud); Martina Theatre Corp. v. Schine Chain Theatres, Inc., 278 F.2d 798, 800 n. 1 (2d Cir.1960) (when the action to set aside judgment is brought in the federal court that rendered the initial judgment, there is ancillary jurisdiction over the action despite absence of a federal question or diversity of citizenship). 52 Ancillary jurisdiction is sufficiently flexible that the action may be maintained against a person who was not a party to the original action. See, e.g., Valerio v. Boise Cascade Corp., 645 F.2d 699, 700 (9th Cir.) (per curiam), cert. denied, 454 U.S. 1126 (1981); 7 Moore's Federal Practice p 60.38, at 60-398 (1990). For example, parties who seek to vacate a judgment on the ground of fraud on the court are allowed to join as defendants in the second suit persons who were attorneys, not parties, in the first suit. See Valerio v. Boise Cascade Corp., 645 F.2d at 700. 53 Since Cresswell I, like the present action, was brought in the Southern District of New York, we conclude that the district court had ancillary equitable jurisdiction over the present claims against S & C.III. THE MERITS 54 On the merits, plaintiffs contend that (a) S & C was not entitled to summary judgment because there existed a genuine issue of fact as to whether Swan justifiably relied on S & C's implied representation that all pertinent documents had been produced; (b) the district court should have allowed them to amend their second amended complaint to assert another basis for recovery; and (c) the court erred in barring Swan from participating in this case as plaintiffs' attorney and from accepting a contingent fee. We conclude that the claims against S & C should be remanded for consideration within the proper jurisdictional framework and that plaintiffs' other contentions lack merit. A. Summary Judgment in Favor of S & C 55 In granting summary judgment in favor of S & C, the district court ruled that, as a matter of law, Swan could not reasonably have relied on S & C's nonproduction to conclude that there were no documents relating to any inquiry or investigation of the Bache Spreads by NYSE. We are inclined toward the view that, if this were an ordinary common-law fraud action, we would affirm. The issue of justifiability of reliance is not one that is inherently unsuitable for determination as a matter of law, and the record supports the district court's finding that Swan had actual knowledge that not all of the documents he thought he had called for had been produced. It is indisputable, for example, that Swan had some of the unproduced documents in his possession, having been given them by Gregory more than a year before the settlement. He also received copies of unproduced NYSE-related documents from S & C when he represented Gregory at her deposition; at that time Burnett explicitly identified those documents as having come from the files of Bache. Swan had available obvious means for determining whether there were other such documents or other information of which he was unaware, such as inquiring of S & C or contacting NYSE. Instead, he made no effort whatever to follow up or inquire. Considering this issue solely as a matter of law, we would conclude that the district court did not err in ruling that if Swan relied on the earlier nonproduction to mean that there were no such documents, he did not do so justifiably. 56 As indicated in Part II.C. above, however, the present action is not an action at law but is one addressed to the court's equity powers. See generally Martina Theatre Corp. v. Schine Chain Theatres, Inc., 278 F.2d 798; 7 Moore's Federal Practice p 60.38 (1990). Decisions in such an action are committed to the court's discretion, informed by traditional equitable principles. Thus, in order to pursue an independent action to set aside a judgment, a plaintiff 57 must show a recognized ground, such as fraud ..., for equitable relief and that there is no other available or adequate remedy. It must also appear that the situation in which the party seeking relief finds himself is not due to his own fault, neglect or carelessness. In this type of action, it is fundamental that equity will not grant relief if the complaining party has, or by exercising proper diligence would have had, an adequate remedy at law, or by proceedings in the original action    to open, vacate, modify, or otherwise obtain relief against, the judgment. The granting of relief in this unusual type of proceeding lies largely within the discretion of the trial judge. 58 Winfield Associates, Inc. v. Stonecipher, 429 F.2d 1087, 1090 (10th Cir.1970) (emphasis added). Most important for purposes of the present case is the principle that in order to obtain the requested equitable relief, a plaintiff must show the absence of fault or negligence on his own part. Bankers Mortgage Co. v. United States, 423 F.2d 73, 79 (5th Cir.), cert. denied, 399 U.S. 927, 90 S.Ct. 2242, 26 L.Ed.2d 793 (1970); see 11 C. Wright & A. Miller, Federal Practice and Procedure Sec. 2868, at 238. 59 In the present case, the district court did not make its findings within this framework. Rather, both the court and the parties treated the action as one at law and the court dismissed the claims against S & C solely on the basis of its ruling that any reliance by Swan was, as a matter of law, not justifiable. It is, of course, arguable that this ruling means that the court would not find that the situation in which plaintiffs find themselves is not due to their own attorney's neglect. Since, however, the court did not purport to decide the latter question or to exercise its discretion or its equitable powers, and since the decision of such questions should be made by the district court in the first instance, we conclude that the matter should be remanded for consideration in light of these principles. 60 B. The Denial of Leave To Amend the Complaint 61 In October 1988, plaintiffs unsuccessfully moved for leave to amend their complaint to include a claim under New York Judiciary Law Sec. 487, which grants an injured party a private right of action for treble damages against an attorney who is guilty of intentionally deceiving the court. They contend that the district court's denial of their motion to amend was an abuse of discretion. We disagree. 62 Generally, permission to amend should be freely granted. See Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962). The court plainly has discretion, however, to deny leave to amend where the motion is made after an inordinate delay, no satisfactory explanation is offered for the delay, and the amendment would prejudice the defendant. See, e.g., Tokio Marine & Fire Insurance Co. v. Employers Insurance of Wausau, 786 F.2d 101, 103 (2d Cir.1986). The burden is on the party who wishes to amend to provide a satisfactory explanation for the delay, see Sanders v. Thrall Car Mfg. Co., 582 F.Supp. 945, 952 (S.D.N.Y.1983), aff'd, 730 F.2d 910 (2d Cir.1984), and the court is free to conclude that ignorance of the law is an unsatisfactory excuse, see, e.g., Goss v. Revlon, Inc., 548 F.2d 405, 407 (2d Cir.1976). 63 In the present case, plaintiffs filed their initial complaint in April 1987. In May 1987, they filed an amended complaint. In March 1988, near the end of a yearlong period of discovery, plaintiffs were allowed to file a second amended complaint. In July 1988, discovery having been completed, S & C moved for summary judgment. Plaintiffs responded to that motion in August 1988. They did not move to amend their second amended complaint to assert the Sec. 487 claim until September 30, 1988, i.e., more than 17 months after bringing suit, more than six months after filing their second amended complaint, and more than one month after responding to the motion for summary judgment. The only excuse offered for the delay was that plaintiffs' counsel had been unaware of Sec. 487. 64 The district court denied the motion to amend, noting that Sec. 487 was hardly new, having been in effect in its present form for some two decades, and finding that S & C would be prejudiced by plaintiffs' inordinate delay in making this motion. In all the circumstances, we see no abuse of discretion in the denial of the motion. C. The Disqualification of Swan 65 Finally, plaintiffs challenge the district court's order disqualifying Swan from participation in this case as their attorney and barring him from receiving a contingent fee. They contend principally that Disciplinary Rules 5-101(B) and 7-109(C) of the Code of Professional Responsibility were not applicable because the fee agreement between Swan and Cooper-Brown states that Swan's rights to payment ... shall be entirely independent of [his] testimony and shall not be affected if [he does] not testify, and that the court should have refrained from disqualifying Swan because Disciplinary Rule 5-101(B)(4) makes an exception for cases in which the client will suffer a substantial hardship if the attorney cannot represent him. We reject these arguments. 66 The disqualification of an attorney in order to forestall violation of ethical principles is a matter committed to the sound discretion of the district court. See, e.g., Allegaert v. Perot, 565 F.2d 246, 248 (2d Cir.1977); W.T. Grant Co. v. Haines, 531 F.2d 671, 676 (2d Cir.1976); Hull v. Celanese Corp., 513 F.2d 568, 571 (2d Cir.1975). Disciplinary Rule 5-101(B) of the ABA Code provides that A lawyer shall not accept employment in contemplated or pending litigation if he knows or it is obvious that he ... ought to be called as a witness.... Disciplinary Rule 7-109(C) provides that A lawyer shall not ... acquiesce in the payment of compensation to a witness contingent upon the content of his testimony or the outcome of the case. 67 Notwithstanding the language of Swan's fee agreement, purporting to make his right to payment independent of his testimony, the facts remain that (a) the agreement gave Swan the right to receive one-sixth of any fees received in this by Cooper-Brown, (b) Cooper-Brown's fee was contingent on plaintiffs' recovery, and (c) Swan's testimony would be essential to the proof of plaintiffs' claims. The disqualification of Swan was appropriate substantially for the reasons stated by the district court and was well within the bounds of discretion. Nor have plaintiffs shown any respect in which they will suffer hardship if Swan is allowed only to testify and not to act as their attorney and if he is barred from agreeing to a contingent fee. The record provides no basis on which we might conclude that the hardships to plaintiffs, if any, would outweigh the ethical considerations. 68 After oral argument of this appeal, plaintiffs wrote to advise us that New York State would soon adopt a modified version of Disciplinary Rule 5-101(B) allowing an attorney who is to be a trial witness to represent a party in a capacity other than that of advocate. Such a modification would appear to have no bearing on the ruling that Swan may not accept a contingent fee. However, we do not preclude the district court's reconsideration, if necessary, of the extent of Swan's disqualification in the light of any pertinent new rules.