Court Award of Attorneys’ Fees in Class Action Bars Subsequent Malpractice Action — Injunction Upheld under Anti-Injunction Act’s Relitigation Exception — “In Aid of Jurisdiction” Exception Generally Limited to In Rem Actions
Wyly v. Weiss, 2012 U.S. App. LEXIS 21032 (2d Cir. Oct. 10, 2012):
In this action under the All Writs Act, 28 U.S.C. § 1651, and the Anti-Injunction Act, 28 U.S.C. § 2283, we consider whether, following the approval of a federal class action settlement, the District Court properly enjoined a state court action for legal malpractice directed at counsel for the plaintiff class for advocating the settlement. We hold that the "in aid of jurisdiction" exception to the Anti-Injunction Act cannot form the basis for the District Court's injunction of the state court action, as the limited circumstances in which the injunction of an in personam action may be appropriate "in aid of" the court's jurisdiction are not present in this case. On an issue of first impression, we consider whether the award of "fair and reasonable" attorneys' fees precludes a subsequent malpractice action under the "relitigation" exception to the Anti-Injunction Act. We conclude that where, as here, the parties had a full and fair opportunity to litigate the reasonableness of counsel's representation, a subsequent malpractice action may be enjoined under the relitigation exception. ***
A. Factual Background
1. The 1998 and 2002 Class Actions
Beginning in July 1998, eleven putative class action complaints were filed in the United States District Court for the Eastern District of New York against Computer Associates International, Inc. ("Computer Associates" or "CA") and certain of its then-current and former officers and directors, alleging violations of the federal securities laws and Generally Accepted Accounting Principles ("GAAP"). By Order dated October 9, 1998, the District Court consolidated those complaints into a single action, In re Computer Assocs. Class Action Sec. Litig., No. 98-cv-4839 (TCP) (E.D.N.Y.) (the "1998 Class Action"), and appointed the law firms of Milberg Weiss LLP and Stull, Stull & Brody as co-lead counsel for the class. The plaintiffs in the 1998 Class Action alleged that officers and directors of Computer Associates participated in a scheme to artificially inflate the price of CA stock, artificially inflate its reported revenues, and conceal the deterioration of its business. The class period in the 1998 Class Action spanned approximately six months, from January 20, 1998 through July 22, 1998.
Between February and May 2002, thirteen additional putative class action complaints were filed against Computer Associates and certain of its then-current and former officers and directors, again alleging violations of the federal securities laws and GAAP. By Order dated July 25, 2002, the cases were consolidated into a single action, In re Computer Assocs. 2002 Class Action Sec. Litig., No. 02-cv-1226 (TCP) (E.D.N.Y.) (the "2002 Class Action"), and Milberg Weiss LLP and Schiffrin & Barroway, LLP were appointed co-lead counsel for the class. The class period in the 2002 Class Action spanned approximately two years and nine months, from May 28, 1999 through February 25, 2002. In connection with the 2002 Class Action, class counsel decided not to conduct any discovery and instead elected to rely exclusively on the discovery conducted in the 1998 Class Action.
2. The Government Investigation
In February 2002, the United States Attorney's Office for the Eastern District of New York. and the Securities & Exchange Commission (jointly, the "Government") launched a joint investigation into CA's accounting practices. In July 2003, CA's defense counsel in the Government investigation, Wachtell, Lipton, Rosen & Katz ("WLRK"), informed the CA Board of Directors (the "CA Board" or the "Board") that up to $200 million of revenue was prematurely or improperly recognized in one quarter of fiscal year 2000 alone. WLRK further informed the Board that anything less than an independent internal investigation would be viewed by the Government as non-cooperation. As a result, the CA Board authorized its Special Litigation Committee ("SLC") to conduct an internal investigation. The SLC then retained Sullivan & Cromwell LLP to assist in that investigation.
3. The Class Action Settlement
In early 2003, with the trial of the 1998 Class Action approaching and at the direction of the District Court, the parties entered into mediation. In August 2003, following approximately seven months of mediation, the parties reached a global settlement of the 1998 and 2002 Class Actions by which the class members were to receive 5.7 million shares of CA common stock, valued at approximately $130 to 150 million at the time of the settlement.
Footnote 6. The Government investigation ultimately resulted in payment of an additional $225 million in restitution to CA shareholders, as well as other structural and non-monetary relief.
As its fee, class counsel would receive approximately 1.4 million shares of CA common stock, valued at approximately $30 to 40 million. In return, CA and its officers and directors were to receive broad-based liability releases.
On December 5, 2003, the District Court conducted a fairness hearing on the projected global settlement, as required by Federal Rule of Civil Procedure 23(e)(2). No class member objected to the settlement. At the fairness hearing, class counsel stated that:
As we all are aware, there is a criminal investigation [of CA] that is ongoing, and I just wanted the Court to understand, as we have stated in our papers, that we've [taken] all of that into account in coming to the conclusions we did as to what would be a fair, reasonable and adequate settlement for the class members.
Joint App'x 1: 270 at 5:5-5:10. On December 8, 2003, the District Court certified a single class encompassing the 1998 Class Action and the 2002 Class Action and approved the settlement. On December 16, 2003, the District Court issued an Amended Order and Final Judgment (the "Settlement Order"), which (1) held that the settlement was "fair, reasonable[,] and adequate," (2) awarded class counsel fees, which the Court held to be "fair and reasonable," and (3) retained exclusive jurisdiction "over the parties and the Settlement Class Members for all matters relating to the[se] Actions."
4. Subsequent Discoveries Within months of the District Court's approval of the global settlement, several CA executives pleaded guilty to federal securities violations and obstruction of justice. On April 26, 2004, Computer Associates announced that it was restating more than $2.2 billion in revenue. On September 22, 2004, CA's general counsel, Steven Woghin, pleaded guilty to conspiracy to commit securities fraud and obstruction of justice, and CA entered into a Deferred Prosecution Agreement ("DPA") in order to avoid criminal prosecution. In the DPA, CA admitted that many of its senior executives participated in a multi-billion dollar accounting fraud and cover-up.
On September 24, 2004, the Wall Street Journal reported that CA had improperly withheld 23 boxes of documents (the "23 boxes") during the class actions and the Government investigation. See Charles Forelle & Joann S. Lublin, In CA Probe: Recovered E-mails, Surprise Cache of Documents, The Wall St. J., Sept. 24, 2004, at A1. Although the 23 boxes were not produced during discovery in the class actions, CA had turned over the 23 boxes to Sullivan & Cromwell in connection with the internal investigation in September 2003--prior to the approval of the global settlement.
5. The Rule 60(b) Motion
In light of the foregoing developments, Sam Wyly and other members of the Settlement Class (jointly, the "Wyly Appellants") contacted class counsel on October 18, 2004, and requested that they move to vacate the Settlement Order pursuant to Federal Rule of Civil Procedure 60(b).8 On November 24, 2004, class counsel declined. On December 7, 2004, the Wyly Appellants moved for relief from the Settlement Order under Rule 60(b).
Nearly three years of discovery and motion practice followed. During that time, the District Court ordered that the 23 boxes be produced to counsel for the Wyly Appellants for their review. Although the Wyly Appellants continue to attach great significance to the 23 boxes on appeal, the U.S. Attorney's Office and the SLC stressed to the District Court that "the 23 boxes . . . rendered no additional evidence of fraud beyond that which [the Wyly Appellants] already had." Joint App'x 4: 902 (SLC Report) (internal quotation marks omitted).
At a discovery conference on August 1, 2007, the District Court dismissed the Rule 60(b) motion sua sponte. The next day, the District Court entered an order memorializing its ruling (the "Rule 60(b) Order"), holding that "the moving parties have failed to set forth cause to permit further discovery to be conducted in conjunction with the 60(b) motions." In re Computer Assocs., 2007 WL 2261683, at *1 (E.D.N.Y. Aug. 2, 2007). Specifically, the District Court concluded that "in the three years since the filing of the original 60(b) motions in 2004, the parties have failed to produce any 'new' evidence of fraud upon th[e] Court . . . and have failed to establish that the contents of the '23 boxes' allegedly withheld during discovery . . . warrant granting further discovery and reopening the 2003 settlement." Id., 2007 WL 2261683 at *2. The Wyly Appellants appealed, and on July 23, 2009, we affirmed the District Court's order on procedural grounds. See Federman v. Artzt, 339 F. App'x 31, 33-34 (2d Cir. 2009).
B. Procedural History
The Wyly Appellants filed an initial complaint in the Supreme Court of New York on November 26, 2007, and an amended complaint on December 11, 2007, alleging that class counsel placed its own financial interests before those of the class. The amended complaint, captioned Wyly v. Milberg Weiss LLP, No. 07/603883 (N.Y. Sup. Ct.), asserted claims for, inter alia, breach of fiduciary duty, legal malpractice, unjust enrichment, and fraud.
On January 2, 2008, the movants-appellees ... moved in the District Court for an order permanently enjoining the Wyly Appellants from prosecuting the state court action. The Appellees argued that the District Court's holdings at the fairness hearing, its approval of the global settlement, and its dismissal of the Rule 60(b) motion permitted the issuance of an injunction under the All Writs Act, 28 U.S.C. § 1651, barring the state court proceedings against class counsel.
On September 29, 2010, the District Court granted the injunction and directed class counsel to submit a proposed order. The District Court entered the proposed order on November 3, 2010, holding, inter alia, that "this Court's determination of Class Counsel's entitlement to fees necessarily determined the adequacy of their representation of the class members (including Wyly) and collaterally estops claims of attorney malpractice or misconduct in connection with the Settlement." Barroway v. Computer Assocs., No. 98-cv-4839 (TCP) (ETB) (E.D.N.Y. Nov. 3, 2010), Doc. No. 402. The District Court further held that the state court action "seeks to relitigate and nullify [its] findings as to the adequacy of [class counsel's] representation of the plaintiff class," as reflected in the Settlement Order and the Rule 60(b) Order. Id. ***
The All Writs Act, 28 U.S.C. § 1651, authorizes federal courts to "issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law." Id. § 1651(a). "This grant of authority is limited by the Anti-Injunction Act, 28 U.S.C. § 2283, which bars a federal court from enjoining a proceeding in state court unless that action is 'expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.'" Ret. Sys. of Ala. v. J.P. Morgan Chase & Co., 386 F.3d 419, 425 (2d Cir. 2004) (quoting 28 U.S.C. § 2283). In interpreting the Anti-Injunction Act, the Supreme Court has directed that "[a]ny doubts as to the propriety of a federal injunction against state court proceedings should be resolved in favor of permitting the state courts to proceed in an orderly fashion to finally determine the controversy." Atl. Coast Line R.R. Co. v. Bhd. of Locomotive Eng'rs, 398 U.S. 281, 297 (1970). ***
A. The "In Aid Of Jurisdiction" Exception
Under the Anti-Injunction Act, the "in aid of jurisdiction" exception applies "where the effect of [a state court proceeding] would be to defeat or impair the jurisdiction of the federal court." Kline v. Burke Constr. Co., 260 U.S. 226, 229 (1922). The exception is generally reserved for state court actions in rem, because the state court's exercise of jurisdiction "necessarily impairs, and may defeat," the federal court's jurisdiction over the res. Id. By contrast, "an in personam action involves a controversy over liability rather than over possession of a thing." Ret Sys. of Ala., 386 F.3d at 426. For that reason, an in personam action generally "'does not tend to impair or defeat the jurisdiction of the court in which a prior action for the same cause is pending.'" Id. (quoting Kline, 260 U.S. at 230).
The Supreme Court has never held that a district court may enjoin a parallel in personam action under the "in aid of jurisdiction" exception. Id. (citing Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623, 642 (1977) ("We have never viewed parallel in personam actions as interfering with the jurisdiction of either court.")). We have recognized, however, that an in personam injunction may be appropriate under certain limited circumstances. Id. In In re Baldwin-United Corp., 770 F.2d 328 (2d Cir. 1985), we held that an injunction was appropriate where "the district court had before it a class action proceeding so far advanced that it was the virtual equivalent of a res over which the district judge required full control." Id. at 337 (italics added). But, as we have explained in detail, see Ret Sys. of Ala., 386 F.3d at 426-28, Baldwin-United involved a multidistrict federal securities class action on the verge of settlement. Indeed, by the time the State of New York gave notice of its intent to file a state court action, eighteen of the twenty-six defendants had already signed stipulations of settlement, which the district court had preliminarily approved. Baldwin-United, 770 F.2d at 332-33. On those facts, we affirmed the district court's grant of an in personam injunction***.
We have since cautioned that "[c]learly, our decision in Baldwin-United did not create a blanket rule or presumption that a federal court in any multidistrict action may enjoin parallel state proceedings." Ret Sys. of Ala., 386 F.3d at 427-28. Rather, it was "crucial to our analysis" in Baldwin-United that "most of the defendants had already settled, and that there was a 'substantially significant prospect that the other eight defendants [would] settle in the reasonably near future.'" Id. at 428 (brackets omitted) (quoting Baldwin-United, 770 F.2d at 338). We explicitly noted that if "it should appear that prompt settlement was no longer likely, . . . the situation would fall within the [Kline] rule that in personam proceedings in state court cannot be enjoined merely because they are duplicative of actions being heard in federal court." Baldwin-United, 770 F.2d at 338.
***In this case, the District Court summarily invoked the "in aid of jurisdiction" exception but made no mention of the in personam nature of the injunction. On appeal, the Wyly Appellants argue that the "in aid of jurisdiction" exception does not apply, and that Baldwin-United is inapposite, because the state court action "does not seek to frustrate, nullify or in any way undermine the 2003 Settlement." Appellants' Br. 27. Indeed, none of the claims in the state court action are duplicative of the claims in the federal class actions, and none of the defendants in the state court action were defendants in the federal class actions. The parties do not dispute that if the Wyly Appellants were to prevail in the state court action, none of the shares received in connection with the settlement would be returned, and none of the releases that the CA defendants received would be affected. The Wyly Appellants therefore assert that the claims in the state court action will have no effect on the 2003 Settlement, and urge this Court to vacate the injunction.
In response, the Appellees argue that the "in aid of jurisdiction" exception applies because (1) the federal class actions were complex, large-scale proceedings involving years of oversight by the District Court, and (2) the District Court expressly retained exclusive jurisdiction "over the parties and the Settlement Class Members for all matters relating to the [Class] Action." Joint App'x 1: 92 (¶ 14); Both of these contentions are without merit. We have never held that a district court's involvement in complex litigation justifies, without more, issuance of an injunction "in aid of" the court's jurisdiction, and we decline to create such a rule here. Moreover, in the "retention of jurisdiction" cases cited by the Appellees, the injunctions were directed at state court actions where the terms or enforcement of the federal settlement were clearly at issue. Here, by contrast, there is no overlap between the federal and state court claims or defendants, so the case for applying the "in aid of jurisdiction" exception is much weaker.
On these facts, we hold that the limited circumstances in which the injunction of an in personam action may be appropriate "in aid of" the court's jurisdiction are not present in this case. We therefore conclude that the "in aid of jurisdiction" exception cannot form the basis for the District Court's injunction of the state court action.
B. The "Relitigation" Exception
Having determined that the "in aid of jurisdiction" exception is inapplicable, we now turn to the Anti-Injunction Act's so-called "relitigation" exception, which permits a federal court to enjoin a state court proceeding "to protect or effectuate its judgments." 28 U.S.C. § 2283. The relitigation exception, which was "designed to implement 'well-recognized concepts' of claim and issue preclusion," authorizes a federal court to enjoin "state litigation of a claim or issue 'that previously was presented to and decided by the federal court.'" Smith v. Bayer Corp., 131 S. Ct. 2368, 2375 (2011) (quoting Chick Kam Choo v. Exxon Corp., 486 U.S. 140, 147 (1988)). In applying this exception, the Supreme Court has "taken special care to keep it 'strict and narrow,'" id. (quoting Chick Kam Choo, 486 U.S. at 148), because "issuing an injunction under the relitigation exception is resorting to heavy artillery," id. at 2375-76. Indeed, "a court does not usually get to dictate to other courts the preclusion consequences of its own judgment. Deciding whether and how prior litigation has preclusive effect is usually the bailiwick of the second court"--in this case, the New York state court. Id. at 2375 (internal citation and quotation marks omitted). Thus, "the fact that an injunction may issue under the Anti-Injunction Act does not mean that it must issue." Chick Kam Choo, 486 U.S. at 151; see Mitchum v. Foster, 407 U.S. 225, 243 (1972) (noting that the Anti-Injunction Act does not "qualify in any way the principles of equity, comity, and federalism that must restrain a federal court when asked to enjoin a state court proceeding").
The preclusive effect of a federal court's judgment issued pursuant to its federal-question jurisdiction is governed by the federal common law of preclusion. See Marvel Characters, Inc. v. Simon, 310 F.3d 280, 286 (2d Cir. 2002) (applying the federal common law of preclusion in a federal-question case); see also Taylor v. Sturgell, 553 U.S. 880, 892 (2008) ("For judgments in federal-question cases . . . federal courts participate in developing 'uniform federal rule[s]' of res judicata, which this Court has ultimate authority to determine and declare." (quoting Semtek Int'l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508 (2001))); 18B C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure § 4466; cf. Bayer Corp., 131 S. Ct. at 2376 n.6. As the Supreme Court recently summarized:
The preclusive effect of a judgment is defined by claim preclusion and issue preclusion, which are collectively referred to as "res judicata." Under the doctrine of claim preclusion, a final judgment forecloses "successive litigation of the very same claim, whether or not relitigation of the claim raises the same issues as the earlier suit." New Hampshire v. Maine, 532 U.S. 742, 748 (2001). Issue preclusion, in contrast, bars "successive litigation of an issue of fact or law actually litigated and resolved in a valid court determination essential to the prior judgment," even if the issue recurs in the context of a different claim. Id. at 748-49. By "preclud[ing] parties from contesting matters that they have had a full and fair opportunity to litigate," these two doctrines protect against "the expense and vexation attending multiple lawsuits, conserv[e] judicial resources, and foste[r] reliance on judicial action by minimizing the possibility of inconsistent decisions." Montana v. United States, 440 U.S. 147, 153-54 (1979).
Taylor, 553 U.S. at 892.
The Appellees do not assert claim preclusion, cf. S.E.C. v. First Jersey Sec., Inc., 101 F.3d 1450, 1465 (2d Cir. 1996) (claim preclusion generally does not apply to "a claim that arose after a suit was commenced"), and instead focus their argument on issue preclusion, see Appellees' Br. 34-36 (arguing that state court suit raises the "same issue" as previously decided).
The Supreme Court has listed the various requirements of issue preclusion on numerous occasions. Without purporting to state a complete test, the Court recently stated "at least two conditions" for a federal court's decision to have preclusive effect: "First, the issue the federal court decided must be the same as the one presented in the state tribunal. And second, [the party to be bound] must have been a party to the federal suit, or else must fall within one of a few discrete exceptions to the general rule against binding nonparties." Bayer Corp., 131 S. Ct. at 2376 (internal citation omitted); see Taylor, 553 U.S. at 892. The latter of these rules preserves the due process restraint against binding a litigant who "has never had an opportunity to be heard." Parklane Hosiery Co. v. Shore, 439 U.S. 322, 327 n.7 (1979). Moreover, issue preclusion requires that the issue was "actually litigated and resolved in a valid court determination essential to the prior judgment." Taylor, 553 U.S. at 892 (quotation marks omitted). Our summary of the four requirements for issue preclusion is in harmony with these various Supreme Court statements: "(1) the identical issue was raised in a previous proceeding; (2) the issue was actually litigated and decided in the previous proceeding; (3) the part[ies] had a full and fair opportunity to litigate the issue; and (4) the resolution of the issue was necessary to support a valid and final judgment on the merits." Marvel Characters, Inc., 310 F.3d at 288-89.
Before applying the elements of issue preclusion to this case, we begin with a preliminary observation about the Appellees' argument. In the course of the federal class action litigation, the District Court did not "actually decide" whether the Appellees committed legal malpractice; that claim was not presented, and therefore the Court had no reason to address malpractice as such. The Appellees' issue-preclusion argument is focused not on whether the District Court previously adjudicated a malpractice claim, however, but on whether the Court resolved one of the elements of a malpractice claim — namely, counsel's deficient performance. See AmBase Corp. v. Davis Polk & Wardwell, 8 N.Y.3d 428, 434 (2007) (a plaintiff alleging malpractice under New York law must show, inter alia, that "the defendant attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession . . . ." (emphasis supplied)). If the Appellees can show that issue preclusion prevents a future court from finding this element satisfied, then any malpractice claim that would require a finding that counsel's performance was deficient is precluded under federal law. See Parklane Hosiery Co. v. Shore, 439 U.S. 322, 337 (1979) (judge-made findings may bind the parties in a subsequent action at law).
We begin by examining the issue raised and decided in the federal class action proceedings--elements one and two of our preclusion analysis. The Settlement Order held, inter alia, that the global settlement of the 1998 and 2002 class actions was "fair, reasonable[,] and adequate," and that class counsel was entitled to an award of fees that the District Court found to be "fair and reasonable." Whether an award of "fair and reasonable" attorneys' fees necessarily decides the deficient-performance prong of a legal malpractice claim is an issue of first impression in this Circuit. We conclude that the deficient-performance prong of New York's legal malpractice rule is identical to the reasonable-performance issue that the District Court decided as a necessary component of the Settlement Order.
Even a cursory review of the allegations in the amended complaint belies the Wyly Appellants' contention that the state court action does not seek to relitigate the District Court's determination that class counsel's representation was reasonable. ***The[ir] allegations ... are designed to state a claim that the Appellees "failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession," AmBase Corp., 8 N.Y.3d at 434 (emphasis supplied), constitute a collateral attack on the District Court's findings that the Settlement was "fair, reasonable and adequate," that class counsel was entitled to an award of attorneys' fees, and that those fees were "fair and reasonable." Those findings were possible only if counsel's performance met or exceeded the minimal standards of professional competence--otherwise an award of fees would not have been fair and reasonable in the circumstances. We therefore conclude that the state court action seeks to relitigate the same issue that the District Court already resolved. See Achtman v. Kirby, McInerney & Squire, LLP, 464 F.3d 328, 336 (2d Cir. 2006) ("In the course of approving those settlements and the resulting fee awards, the court found [counsel's] representation reasonable and adequate . . . .").
The limited case law from other Courts of Appeals on the relitigation exception accords with our conclusion that a district court's finding regarding the adequacy of counsel may have preclusive effect in a future malpractice action. ***
The Wyly Appellants seek to distinguish the foregoing authority by contesting the third element of issue preclusion--in other words, by arguing that they were deprived of a "full and fair opportunity" to litigate the issue of their counsel's representation. The Appellants point to the fact that, unlike the plaintiffs in the foregoing cases, they were not physically present or represented by separate counsel at the fairness hearing. This argument is unavailing.
"It is a violation of due process for a judgment to be binding on a litigant who was not a party or a privy and therefore has never had an opportunity to be heard." Parklane Hosiery Co., 439 U.S. at 327 n.7. This rule, however, does not prevent preclusive effect from applying to suits by members of a certified class action. See Bayer Corp., 131 S. Ct. at 2380 (noting that "unnamed members of a class action [may] be bound, even though they are not parties to the suit"). There is no dispute that the Wyly Appellants were members of the certified Settlement Class, and were therefore bound by both the Settlement Order and the Rule 60(b) Order. The Wyly Appellants also were fully aware of the date and time of the fairness hearing, and it was their choice not to attend. As members of a certified class, they are bound by the judgment of the District Court. See In re Am. Exp. Fin. Advisors Sec. Litig., 672 F.3d 113, 129 (2d Cir. 2011) ("Absent a violation of due process or excusable neglect for failure to timely opt out, a class-action settlement agreement binds all class members who did not do so."). 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.
The Wyly Appellants further contend that the relitigation exception does not apply here because many of the facts and events giving rise to claims alleged in the state court action "were unknown, or had not yet occurred, at the time the District Court approved the 2003 Settlement." Appellants' Br. 35. This argument might have more force were it not for the fact that the Wyly Appellants litigated their fraud allegations for nearly three years in connection with their Rule 60(b) motion--and lost. See Greene v. United States, 79 F.3d 1348, 1352 (2d Cir. 1996) (noting that issue preclusion may be inappropriate if "'controlling facts or legal principles have changed significantly' since the initial decision" (quoting Montana v. United States, 440 U.S. 147, 155 (1979)). In the Rule 60(b) Order, the District Court held that the Wyly Appellants "failed to produce any 'new' evidence of fraud," notwithstanding the "[a]mple opportunity . . . given to the parties to illuminate and bring to th[e] Court's attention any fraud or reasonable basis for a finding of fraud upon th[e] Court." The Court further held that the Wyly Appellants "failed to establish that the contents of the '23 boxes' allegedly withheld during discovery and prior to the settlement warrant granting further discovery and reopening the 2003 settlement." Given that the District Court was fully aware of the pending Government investigation at the time of the fairness hearing, see Joint App'x 1: 270 at 5:5-5:10, and that the parties exhaustively litigated further allegations of fraud in connection with the Rule 60(b) motion, we conclude that the relitigation exception applies notwithstanding the alleged subsequent discoveries.
Finally, we note that the District Court's finding regarding class counsel's adequacy was necessary to its judgment accepting the settlement and fees award. See In re Am. Int'l Grp., Inc. Sec. Litig., 689 F.3d 229, 238 (2d Cir. 2012) ("Before approving a class settlement agreement, a district court . . . must separately evaluate whether the settlement agreement is 'fair, reasonable, and adequate' under Rule 23(e)." (emphasis supplied)). The fourth element of issue preclusion, requiring "the resolution of the issue [that] was necessary to support a valid and final judgment on the merits," Marvel Characters, Inc., 310 F.3d at 289, is therefore satisfied as well. ***
To summarize, we hold that:
(1) The "in aid of jurisdiction" exception to the Anti-Injunction Act, 28 U.S.C. § 2283, cannot form the basis for the District Court's injunction of the state court action, since the limited circumstances in which the injunction of an in personam action may be appropriate "in aid of" the court's jurisdiction are not present in this case.
(2) The District Court's injunction of the state court action was proper under the "relitigation" exception to the Anti-Injunction Act, since the award of "fair and reasonable" attorneys' fees in the class action precludes a subsequent malpractice action where, as here, the parties had a full and fair opportunity to litigate the reasonableness of counsel's representation.
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