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Remember the story about the Montgomery County, Pa., law firm that was paid a $1 million retainer to handle asbestos cases and was fired soon after — but won the right to keep the money when a federal judge said it was explicitly labeled “non-refundable” and an appellate court agreed? Well, it ain’t over. The asbestos company, Raymark Industries Inc., filed for bankruptcy in 1998, and a trustee is now suing the law firm, Butera Beausang Cohen & Brennan, in U.S. Bankruptcy Court in Connecticut. In the suit, trustee Laureen M. Ryan alleges that Raymark paid the retainer to Butera with either “actual intent to hinder, delay or defraud creditors” or without receiving “reasonably equivalent value” at a time when Raymark was insolvent, all in violation of federal bankruptcy law. The trustee alleges that payment of the retainer to Butera was part of an overall scheme by Raymark and others to hinder, delay and defraud creditors. The Butera firm and attorney Michael Beausang responded by filing their own suit in U.S. District Court in Philadelphia, asking for an injunction to bar the trustee from further litigation of the adversary proceeding. The firm’s lawyer, Alan A. Turner, asked U.S. District Judge John R. Padova to enforce the determinations and judgments Padova rendered in his December 1997 opinion. In the alternative, Turner asked Padova for a declaratory judgment with respect to the res judicata effect of certain aspects of the 1997 ruling. Padova had ruled that the firm could keep the money because Raymark was a sophisticated client that controlled all terms of the fee agreement. In his December 1997 opinion, Padova wrote: “This case is not about overreaching attorneys who took unfair advantage of an unsophisticated client by demanding an up-front payment of $1 million, quitting early in the relationship, and keeping money to which they were not entitled.” Instead, Padova said, Raymark “is a highly-sophisticated client with extensive experience in asbestos-related litigation. … Raymark used a $1 million non-refundable retainer to induce [the Butera firm] to represent Raymark on terms set by Raymark.” The decision to fire the Butera firm was also made completely by Raymark, Padova said, without any hesitation and with full knowledge that it was forfeiting the $1 million retainer. FIRST-FILED RULE But the trustee’s lawyer, Kristin B. Meyer of Pepe & Hazard in Hartford, Conn., urged Padova to dismiss the law firm’s new suit under the “first-filed” rule so that the Connecticut bankruptcy court can decide the case without fear of a conflicting judgment. In Butera Beausang v. Ryan Padova found that one of the principal goals of the first-filed rule is to avoid duplicative litigation. Under the rule, he said, “in cases of federal concurrent jurisdiction and absent exceptional circumstances, the court which first has possession of the subject must decide it.” The rule allows a district court to transfer, stay or dismiss an action when a similar complaint has already been filed in another federal court. In deciding whether to apply the rule, Padova said, courts look to three factors: the chronology of the two actions, the similarity of the parties, and the similarity of the issues. Padova found that the rule applies to the Butera firm’s new lawsuit and bars jurisdiction in Philadelphia. All three factors were met, Padova said, because the Connecticut action was filed on March 18, 2000, two months prior to the filing of the Butera firm’s suit; the parties are identical; and the issues in both involve the res judicata effect of the first suit. But Turner disputed that the Connecticut action was the first to be filed. Since the law firm’s new suit “arises out of” Padova’s 1997 decision, he said, it is the “functional equivalent” of a Rule 69 motion to enforce the judgment in the original case. Padova disagreed, saying, “The practical similarity between this action and a Rule 69 motion does not change the fact that plaintiff chose to file a new action, and not a Rule 69 motion, and therefore subjected itself to potential jurisdictional defenses that otherwise might not have been available to [the] defendant.” Although courts have the power to break the first-filed rule for “compelling circumstances,” such as forum-shopping, bad faith or inequitable conduct, Padova said he found no such evidence. Padova also found that he would be doing the Butera firm no favor if he kept the case since the relief it seeks is “inappropriate.” “Even if this court were to retain jurisdiction over this case notwithstanding the first-filed rule, exercise of its authority under the All Writs Act and its inherent power to enforce its order to provide the relief sought by Butera would be inappropriate,” Padova wrote. “Butera asks this court to use its writ power to support res judicata principles that would bar, in whole or in part, the Connecticut adversary proceeding. Ordinarily, the doctrines of collateral estoppel and res judicata provide adequate assurance that one court’s resolution of a controversy will be respected by other courts,” he wrote. Under the All Writs Act, Padova said, a federal court may enjoin parties before it from attempting to relitigate decided issues and to prevent collateral attack of its judgments, especially where the continued litigation is baseless or for the purpose of harassment. But Padova found that “such injunctions are extreme remedies that should be narrowly tailored and sparingly used.” The Butera firm’s case, he said, is not one of those rare cases. “This case does not involve multiple filings of frivolous actions, nor would plaintiff be left without adequate remedy in the absence of such a writ. To the extent that res judicata principles might apply, Butera can raise those issues before the Connecticut court,” Padova wrote. “The extreme remedy of intervention by this court into the proceeding of another federal court is not required. Therefore, even if this court retained jurisdiction despite the first-filed rule, it would decline to exercise its writ authority in this case.” The same logic, he said, applied to the firm’s request for a declaratory judgment. “Here, the declaratory judgment would not serve any function not otherwise available by raising the issue preclusion arguments in the Connecticut bankruptcy court. Furthermore, such a declaratory judgment might not terminate the Connecticut action,” Padova wrote. Padova said he recognized that the Butera firm had raised “serious issue preclusion arguments” that could dispose of the Connecticut litigation, but said he would not offer his own opinion on them. “The court sees little reason to delve into these issues when they may be addressed properly and fully before the Connecticut bankruptcy court,” he wrote.

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