## Facts

- An investor, acting through an acquisition vehicle, pursued a hostile takeover of a target corporation and retained a law firm to provide legal services connected to the tender offer and related federal litigation.
- The takeover-related federal actions were consolidated in the Southern District of New York.
- Before the consolidated case was resolved on the merits, the target agreed to be acquired by a third party, and the federal litigation was dismissed by stipulation.
- After dismissal, a dispute arose between the investor entities and their former counsel over the amount of legal fees owed for work performed in connection with the takeover and the federal proceedings.
- The investor entities commenced a state-court action in California seeking a determination of the fees owed.
- The law firm moved in the Southern District of New York for the court to exercise ancillary jurisdiction over the fee dispute; a magistrate recommended exercising jurisdiction based on the court’s familiarity with the work performed, avoidance of duplicative litigation, comparable convenience of New York and California, and the court’s responsibility to supervise matters involving its officers.
- The district court adopted the recommendation, exercised ancillary jurisdiction, and entered judgment for the law firm for $354,569.
- The investor entities appealed, challenging the district court’s exercise of ancillary jurisdiction and the resulting fee judgment.

## Issues

1. Whether a federal district court may exercise ancillary jurisdiction, after dismissal of the underlying federal action, to adjudicate a fee dispute between a party and its former counsel arising from counsel’s work in that federal litigation.
2. Whether the district court abused its discretion in retaining the fee dispute rather than leaving it to the pending state-court proceeding.

## Decision

- The Second Circuit affirmed the district court’s judgment.
- The court held that the district court properly exercised ancillary jurisdiction over the attorney–client fee dispute arising from services rendered in connection with the federal takeover litigation.
- The court upheld the $354,569 fee award entered in favor of the law firm.

## Legal Principles

- A federal court may exercise ancillary jurisdiction over attorney-fee disputes that arise from work performed in connection with proceedings before that court.
- Ancillary jurisdiction over such collateral matters may be exercised even after termination or dismissal of the principal action when the fee dispute is closely related to the underlying litigation.
- In deciding whether to exercise ancillary jurisdiction, courts may consider judicial economy, convenience, fairness, and the court’s supervisory responsibility over attorneys appearing before it.
- A district court’s decision to exercise ancillary jurisdiction over a related fee dispute is reviewed for abuse of discretion.

## Conclusion

The Second Circuit held that the district court could, after dismissal of the underlying takeover litigation, retain ancillary jurisdiction to resolve a closely related attorney-fee dispute based on the court’s familiarity with the work performed, efficiency concerns, and the court’s supervisory role, and it affirmed the fee judgment for the law firm.


Cluett, Peabody & Co. v. CPC Acquisition Co., 863 F.2d 251 (2d Cir. 1988)