## Facts

- Investors, including Sam Wyly, were members of a certified class in consolidated federal securities-fraud actions against Computer Associates International, Inc. (CA).
- Court-appointed class counsel negotiated a global settlement providing class members 5.7 million shares of CA stock and awarding counsel 1.4 million CA shares as attorneys’ fees.
- The federal district court approved the settlement as fair and reasonable and approved the fee award.
- After approval, CA executives pleaded guilty to criminal charges related to the misconduct, CA restated significant revenue, and additional documents were located.
- Certain class members sought Rule 60(b) relief from the settlement order based on claimed newly discovered evidence and alleged misconduct; after discovery and briefing, the district court denied relief.
- The same class members then filed a Texas state-court action against class counsel alleging malpractice, breach of fiduciary duty, and related claims, contending counsel settled too early for counsel’s financial gain.
- Class counsel obtained a federal injunction barring the Texas case under the All Writs Act and the Anti-Injunction Act, on the ground that the malpractice claims were precluded by the federal settlement and fee-approval determinations.

## Issues

1. Whether the Anti-Injunction Act’s “in aid of jurisdiction” exception permitted a federal court to enjoin the state-court malpractice action.
2. Whether the Anti-Injunction Act’s “relitigation exception” permitted an injunction because the malpractice action would relitigate issues necessarily decided in the federal settlement and fee-approval proceedings, as reinforced by the denial of Rule 60(b) relief.

## Decision

- The Second Circuit affirmed the injunction barring the Texas malpractice action.
- The court rejected reliance on the “in aid of jurisdiction” exception because the state case was an in personam damages action and did not threaten federal control over a res or ongoing federal proceedings.
- The court upheld the injunction under the “relitigation exception” because the state claims would require revisiting the adequacy and reasonableness of class counsel’s representation already decided in the federal action.
- The court concluded the class members had a full and fair opportunity to litigate counsel’s adequacy through the settlement/fee proceedings and later, extensive Rule 60(b) litigation.

## Legal Principles

- The Anti-Injunction Act generally bars federal injunctions of state proceedings unless a narrow statutory exception applies, including the “relitigation exception” allowing injunctions to protect or effectuate federal judgments.
- The “in aid of jurisdiction” exception typically applies where state litigation threatens a federal court’s control over a res or similar special circumstances; it does not cover an ordinary, post-judgment state malpractice damages suit.
- The “relitigation exception” is governed by issue preclusion: an injunction is permissible when (1) the identical issue was raised previously, (2) actually litigated and decided, (3) after a full and fair opportunity to litigate, and (4) the determination was necessary to a valid final judgment.
- Approval of a class settlement and fee award requires the court to determine settlement fairness and the adequacy of representation, making counsel’s adequacy and fee reasonableness issues necessary to the judgment.
- When those determinations were made and later challenged through Rule 60(b) proceedings, a subsequent state malpractice action premised on counsel’s alleged disloyalty or inadequate representation may be enjoined as an impermissible collateral attack.

## Conclusion

The Second Circuit held that a federal court may enjoin a state-law malpractice suit against class counsel under the Anti-Injunction Act’s relitigation exception when the federal court’s settlement-approval and fee-award orders necessarily determined counsel’s adequacy and the class members had a full and fair chance to litigate that issue in the federal proceedings.


Wyly v. Weiss, 697 F.3d 131 (2d Cir. 2012)