The attorneys who filed a federal putative class action challenging state officials over their management of a troubled insurance company have been found in civil contempt for violating anti-suit injunctions in court orders.

Last year, Acting Supreme Court Justice John Galasso in Nassau County (See Profile)approved a plan to liquidate Executive Life Insurance Company of New York and create a new company—despite objections from policyholders who would experience shortfalls (NYLJ, April 17, 2012). The ruling contained a provision that “all persons are enjoined and restrained from commencing or further prosecuting any actions at law or other proceedings against…the Receiver for the New York Liquidation Bureau, or their present or former employees, attorneys or agents.” After appealing the ruling, the shortfall payees sued in the Southern District, asserting claims against state officials in their personal capacities for breach of fiduciary duty and fraudulent omission.

Attorneys for the state officials moved for civil contempt before Galasso, arguing the federal action violated the injunction. The payees countered the action was outside the scope of the liquidation while the contempt motion was “akin to a strategic lawsuit against public participation.”

But Galasso determined that the federal action violated the injunctions and said the fine amount would be determined later. In Matter of the Rehabilitation of Executive Life Insurance of New York, 91-8023, he said that “the prior court orders were clearly expressed and the continuing order of discharge from liability was unequivocal.”

Edward Stone of Greenwich, Conn., one of the payees’ attorneys, said he respected the ruling, “with all rights reserved” as to a possible appeal, but would not withdraw the federal suit.