For eight years, billionaire Sam Wyly and his lawyers at Bickel & Brewer campaigned against a $143 million class settlement that Computer Associates International Inc. reached with shareholders in 2003 after a massive accounting scandal.
Their primary targets have been the plaintiffs lawyers who secured the deal, including the infamous Melvyn Weiss, whose firm is now known as Milberg, his co-counsel at Stull, Stull & Brody and the firms now known as Kessler Topaz Meltzer & Check and Robbins Geller Rudman & Dowd. But Wyly’s claims that the plaintiffs firms bungled the case keep missing their mark.
On Wednesday, Wyly and Bickel & Brewer’s William Brewer III ran into another dead end at the U.S. Court of Appeals for the Second Circuit. In a matter of first impression, a three-judge panel decided a federal district judge’s decision to approve the settlement and award “fair and reasonable” attorney fees to the plaintiffs legal team barred Wyly from suing the lawyers for malpractice in state court.
The 22-page opinion by Circuit Judge Jose Cabranes upholds a 2010 ruling that permanently enjoined Wyly from pursuing his malpractice claims related to the settlement. The Second Circuit found the injunction was proper under the “relitigation” exception of the federal Anti-Injunction Act.
“In sum, we hold that where, as here, the parties had a full and fair opportunity to litigate the reasonableness of counsel’s representation, a district court’s award of ‘fair and reasonable’ attorneys’ fees precludes a subsequent action for legal malpractice for counsel’s advocating the settlement,” Cabranes wrote.
Wyly has been sparring with plaintiffs counsel in the shareholder suit since 2004 when the Wall Street Journal reported Computer Associates, now CA Technologies Inc., improperly withheld 23 boxes of documents from the shareholder class and government investigators.
Wyly co-founded Sterling Software, which was sold to CA for $4 billion in 2000.
Bound By Settlement
Wyly and other members of the settlement class pressed the plaintiffs lawyers to move to vacate the settlement to pursue the purported new evidence. When the lawyers for the class declined, Wyly and company moved for relief from the settlement under Rule 60(b) of the Federal Rules of Civil Procedure. After nearly three years of discovery and motion practice, U.S. District Judge Thomas Platt in Central Islip, New York dismissed the motion in 2007.
Wyly and his lawyers at Bickel & Brewer filed their malpractice suit in New York state court months later, alleging Weiss and his co-counsel placed their own financial interests before those of the class. The plaintiffs firms responded by petitioning Platt, who presided over the federal class action, to squelch the state court action under the All Writs Act.
They argued Platt’s settlement fairness hearing, his approval of the global settlement and his denial of the Rule 60(b) motion in the federal litigation all precluded Wyly from moving ahead with his malpractice claims. Platt agreed in November 2010.
The opinion affirms Platt’s decision, albeit on different grounds. The appellate court found, among other things, that the Wyly appellants were fully aware of the date and time of the fairness hearing in the class action but chose not to attend.
“As members of a certified class, they are bound by the judgment of the district court,” Cabranes wrote. “They cannot now, by dint of their decision not to attend the fairness hearing, assume a capacity they would otherwise lack to challenge the outcome of that proceeding.”
Gregory Joseph of the Gregory P. Joseph Law Offices argued the appeal for the plaintiffs firms. He was joined on the briefs by lawyers at Patterson Belknap Webb & Tyler, Eiseman Levine Lehrhaupt & Kakoyiannis and Wilson Elser Moskowitz Edelman & Dicker. Lawyers at those firms did not immediately respond to our calls.
In a statement, Brewer said the Second Circuit’s ruling “further erodes the already limited ability of class members to control the conduct of class counsel.”
“We are disappointed in the decision and believe that our client should have had an opportunity to pursue damages against Milberg for its role in orchestrating a settlement that, in our clients’ view, clearly failed to represent the best interest of the shareholders,” Brewer added.
Despite the ruling, neither Wyly nor his lawyers seem likely to give up. Just last week, Bickel & Brewer filed a Freedom of Information Act complaint in New York federal court the Executive Office for U.S. Attorneys. Bickel & Brewer alleges in the complaint that the firm paid nearly $60,000 for copies of CA-related documents that it has yet to receive.