Opinion ID: 7016470
Heading Depth: 2
Heading Rank: 2

Heading: Appropriateness of Exercising Ancillary Jurisdiction

Text: Whether it was appropriate for the District Court to exercise ancillary jurisdiction over the forfeiture petition is a somewhat closer question. The matter is complicated by the unusual circumstances of the litigation. The Consolidated Class Action began, proeedurally at least, as a traditional Rule 23 lawsuit against the German banks. It ended, however, with a voluntary dismissal sought to enhance the prospects for implementing an extraordinary extra-judicial remedy of historic proportions, a dismissal virtually compelled by the provision of the Joint Statement that the contribution of DM 5 billion from German companies to the German Foundation would not begin until pending lawsuits, including the Consolidated Class Action, were dismissed. In this unusual context, Zeisl’s claim of unprofessional conduct by the Austrian Settlement Class Counsel poses substantial risks of propelling the District Court into a dubious inquiry concerning several delicate issues within the framework of the negotiations that resulted in the German Compact. These risks are exacerbated by the way Zeisl framed his allegations of unprofessional conduct. His essential claim in the District Court was that Class Counsel “violated their ethical and fiduciary obligations of undivided loyalty to the Austrian Bank [Settlement] Class when they agreed to the German Bank settlement 13 in which they impaired the Austrian [settlement] Class members’ rights” by giving up the Assigned Claims. Memorandum in Support of Motion to Forfeit and Preclude Payment of Fees at 11 (“Zeisl Memorandum”). The District Court could not assess that allegation without exploring the negotiations, not only between the victims and the German banks but also between the United States and German governments. Over the course of these negotiations, it became clear that the German contributors to the DM 10 billion fund, with the full support of the German legislature, were unwilling to provide any payments to anyone who was not a direct victim of the Holocaust, ie., to deny Foundation funds to assignees of the claims of the Austrian banks. Because of that unwillingness, any assessment of the professional obligation of Austrian Settlement Class Counsel in agreeing to the German Compact would require examination of the risks to the establishment of the fund and the reasonableness of opposing the strongly asserted view of the United States that pursuit of the Assigned Claims within the German Compact should not be permitted to derail the entire enterprise. We have previously recognized that the existence of ancillary jurisdiction to adjudicate a fee dispute after the dismissal of a lawsuit calls for the sound exercise of a district court’s discretion whether to entertain the merits of the dispute, and, in a case overlaid with international comity considerations, have ruled that it would exceed a court’s discretion to do so. Chesley, 927 F.2d at 65-68. In the pending case, we have substantial doubts whether, even on the assumption that ancillary jurisdiction was available, it would have been an appropriate exercise of such jurisdiction for the District Court to assess the professional propriety of counsel’s negotiating stance in the circumstances disclosed on this record. Although there is some support within this panel for affirming the denial of forfeiture simply on the basis that exercise of ancillary jurisdiction was beyond the discretion of the District Court, there is also some support for considering the merits, at least as an alternative basis for decision. We therefore proceed to the merits.