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A debate about whether a lawsuit to collect a judgment from lawyers and auditors who provided services to defendants in a previous class action is an enforcement action or an entirely new case dominated an oral argument at the U.S. Court of Appeals for the 1st Circuit. The court’s July 25 hearing consolidated appeals of two cases, Zimmerman v. Epstein Becker & Green and Zimmerman v. BDO Seidman LLP. The named plaintiffs, Andrew and Kelly Zimmermann, are certified class representatives in an underlying case, Zimmermann v. Cambridge Credit Counseling Corp., which yielded a District of Massachusetts judgment of $256.5 million against the credit repair company and other defendants for a large class of plaintiffs. In the underlying case, the Zimmermanns brought a complaint under the Credit Repair Organization Act against Cambridge Credit and the other defendants in 2003. The court certified classes in December 2007 and ultimately awarded the $256.5 million judgment in March 2009. Judge Michael Ponsor also created a constructive trust for the Zimmermann class, which called for “the imposition of constructive trust over all fees that consumers paid to the current or former defendant entities, including Cambridge Credit Counseling Corp.” In November 2009, the Zimmermanns filed the two cases now on appeal to the 1st Circuit, one against auditors, and the other against law firms and attorneys. Aside from Epstein Becker, the lawyer defendants are Sheppard, Mullin, Richter & Hampton of Los Angeles; Paul Kaplan, a lawyer who previously worked at both Epstein Becker and Sheppard Mullin, according to court papers; New York lawyer Brian Davis, his prior New York practice and his Garden City, N.Y., successor firm, Spence & Davis; and New York attorney Douglas Viviani and his firm. The auditor defendants are BDO Seidman, Chipetine Neu & Silverman of New York and Massachusetts-based Kostin, Ruffkes & Co. According to court papers, the attorney and auditor cases are each based on the same two claims. The first is that the cases are “enforcing a constructive trust seeking the return of [the plaintiffs'] own money” that was fraudulently taken by the individual and corporate defendants in the Cambridge Credit case and given to the auditor and attorney defendants. The second claim is that the defendants, except Sheppard Mullin, provided material assistance to the Cambridge Credit Counseling defendants that violated the Credit Repair Organizations Act. In July 2010, Ponsor dismissed the two cases. He wrote, “although Plaintiffs seek class-based relief, they have failed even to allege that they satisfy the Rule 23 requirements, let along demonstrate they can.” He also rejected the plaintiffs’ arguments that “enforcement jurisdiction permits the class to bring a separate claim against these Defendants to obtain damages pursuant to this order.” He further noted that “a Receiver has been appointed to enforce the constructive trust and to defend the rights of the…class.” Ponsor wrote, “this complaint rests on an unprecedented and rather startling premise: that a class certified in one action may on its own institute an independent lawsuit against different parties, never provide these new parties any opportunity to challenge the propriety of the class action mechanism, and expose these new defendants to the risk of a massive class-based damage award.” The plaintiffs’ 1st Circuit brief argues that some fees paid by the Zimmermann class to the defendants in the underlying case are traceable to fees later paid to the attorney and auditor defendants. These include the following: more than $6.9 million to Epstein Becker & Green, nearly $1.2 million to Paul Kaplan, about $249,000 to Sheppard Mullin and roughly $330,000 to the Davis defendants. The plaintiffs’ brief argues that “the attorney defendants accepted these monies with the actual knowledge that such proceeds were claimed by the Zimmermann Class to be included among constructive trust assets.” Judges Michael Boudin and Juan Torruella heard the appeal, along with Federal Circuit Judge Timothy Dyk, who sat on the panel by designation. The appeal is the Zimmermanns’ third trip to the 1st Circuit in an eight-year litigation that involves a class of more than 260,000 plaintiffs, said the plaintiffs’ lawyer, Joseph Tusa, a New York-based solo practitioner. Dyk asked Tusa why the consolidated appeal is an enforcement proceeding: “Why is that an effort to enforce the judgment rather than an effort to bring a new judgment?” Dyk asked. Tusa said both claims in the case are “based on the exact same underlying conduct” but the answer is more clear-cut for the constructive trust claim according to prior 1st Circuit case law. Tusa said previous 1st Circuit cases deal with “when you are merely trying to ask the court to enforce the mode of collection for an existing judgment.” Dyk later told Tusa, “I don’t understand how transfers made before the constructive trust was established can have anything to do with enforcement of the judgment.” After some debate with Dyk about the topic, Tusa said 1st Circuit cases and the U.S. Supreme Court in Harris Trust & Savings Bank v. Salomon Smith Barney, a 2000 case, held that a plaintiff cannot file an action to receive a constructive trust until the court recognizes such a trust, but that date isn’t necessarily the trust’s beginning date. “The trust was recognized in 2009, and of course we couldn’t do anything about collecting constructive trust [monies] until after it was recognized by the court, but that’s not necessarily the same as the timeframe the trust covers,” Tusa said. Dyk also asked Tusa whether the plaintiffs were seeking to bring Credit Repair Organizations Act claims with a newly certified class or only with respect to the old class. Tusa replied that the district court tried to convert these consolidated actions on appeal into a class, but the plaintiffs are not seeking to certify a new class. He also said that the “main thrust of Judge Posner’s ruling had a problem” because he was trying to convert the case to a class action “when it wasn’t and it didn’t have to be.” Neil Dilloff, a partner at DLA Piper who represented Epstein Becker & Green, said the answer to the question of whether the consolidated cases involve the same judgment as rendered in the lower court is “absolutely not.” “If you take a look at the [Credit Repair Organizations Act] claim, this is a new claim against new defendants asserting new theories of liability,” Dilloff said. If the defendants had alienated assets, “would the effort to recover those [have] been an effort to enforce the judgment or not?” Dyk asked. “That’s a different case,” said Dilloff, one of several defense lawyers who split the oral argument time. The other lawyers included Maura Barry Grinalds, a New York Partner at Skadden, Arps, Slate, Meagher & Flom who represented Paul Kaplan; Lisa Wood, a partner at Boston’s Foley Hoag who represented BDO Seidman; Anthony Scibelli, a Boston Hiscock & Barclay partner who represented Chipetine Neu & Silverman; and Mark Goidell, a Garden City, N.Y., lawyer who represented Davis, Spence & Davis and Viviani. Dilloff said the current case does not involve allegations that defendants were involved in fraudulent conveyances. “As far as the plaintiffs are concerned, they can go after anyone in the world,” including the grocer and the dentist who provided false teeth, Dilloff said. He added that the plaintiffs are trying to do “an end run around statute of limitations against the lawyers who sat across the table from them during the underlying lawsuits.” “This is not a guilt by association society we live in, and lawyers should be encouraged to defend everybody,” Dilloff said. Sheri Qualters can be contacted at [email protected] .

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