Appendix — International Rectifier Corp. v. Cohen

APPENDIX

APPENDIX A

UNITED STATES COURT OF APPEALS

For The Eighth Circuit

No. 81-1652

Peter R. Cohen, Individually and Debra Riordan, Adminis-

tratrix of the Estate of Edward Joseph Riordan, Deceased,

Appellee,

V.

International Rectifier Corporation, a California

corporation,

Appellant.

Appeal from the United States District Court for

the District of Minnnesota

Before Heaney, Bricut and Ross, Circuit Judges.

ORDER

The judgment of the trial court is affirmed and the stay

order of this court dated June 26, 1981, is withdrawn.

This interlocutory determination is without prejudice to

the right of International Rectifier Corporation to raise the

issue of the lack of ancillary jurisdiction on appeal after

the district court has decided the case on the merits.

Judge Ross would reverse and remand with directions

to the trial court to dismiss the case for lack of ancillary

jurisdiction. See Bounougias v. Peters, 369 F. 2d 247 (7th

Cir. 1966), cert. denied, 386 U.S. 983 (1967).

Dated this 5th day of April, 1982.

App. 2

APPENDIX B

UNITED STATES COURT OF APPEALS

For The Eighth Circuit

No. 81-1652 September Term 1981

Peter R. Cohen, etc.,

Appellee,

vs.

International Rectifier Corp., ete.,

Appellant.

Appeal from the United States District Court

for the District of Minnesota

The Court, having considered appellant’s petition for

rehearing and suggestions for rehearing en banc and being

now fully advised in the premises, hereby orders the peti-

tion for rehearing and suggestions for rehearing en banc

denied. Judges Ross, MeMillian and John R. Gibson

would grant the petition for rehearing en banc.

July 7, 1982

App. 3

APPENDIX C

Peter R. COHEN and Deborah D. Riordan as the Adminis-

tratrix of the Estate of Edward Joseph Riordan, deceased,

Petitioners,

v.

INTERNATIONAL RECTIFIER CORPORATION,

Respondent.

Nos. M 19-93A, 4-71 Civ. 434, 4-74 Civ. 372 and

4-81 Civ. 273.

United States District Court,

D. Minnesota,

Fourth Division.

July 24, 1981.

ORDER AND MEMORANDUM

Muzs W. Lonb, Chief Judge.

I. INTRODUCTION AND CASE HISTORY

This proceeding commenced upon a Petition filed on

May 28, 1981, by Peter R. Cohen (Cohen) and Deborah

D. Riordan (D. Riordan) as administratrix of the estate

of Edward J. Riordan (E. Riordan), deceased, against

respondent International Rectifier Corporation (Rectifier).

Cohen and E. Riordan (C&R) represented Rectifier in the

matter of International Rectifier Corporation et al. v.

American Cyanamid Company et al., 69-2484 HP, (Cal.),

70 Civ. 180 (N.Y.) and 474 Civil 372 (Minn.) from De-

cember 16, 1969, to August 14, 1975 (the ‘‘main action’’).

The main action was first transferred from California to

New York, as a ‘‘tagalong’’ case by the Multidistrict Panel,

pursuant to 28 U.S.C. § 1407 for coordinated and con-

App. 4

solidated pretrial proceedings together with over one hun-

dred other cases there pending and known as the broad

spectrum antibiotics litigation, Jn Re Coordinated Pre-

trial Proceedings In Antibiotic Anti-trust Actions. See

In Re Multidistrict Civil Antitrust Actions Involving Anti-

biotic Drugs, 295 F.Supp. 1402 (1968). The majority of

those cases were disposed of in a negotiated settlement

which was approved and affirmed by the New York District

Court. West Virginia v. Chas. Pfizer d Co., 314 F.Supp.

710 (S.D.N.Y. 1970), a d 440 F.2d 1079 (2d Cir. 1971).

On November 30, 1970, Mr. Chief Justice Burger desig-

nated this Judge to the Southern District of New York,

pursuant to 28 U.S.C. $292 et seg., and on December 2,

1970, the Multidistrict panel assigned all of the sixty ‘‘non-

settling cases to this Court for coordinated and con-

solidated pretrial proceedings pursuant to 28 U.S.C.

91407 (b). In Re Antibiotic Drugs, 320 F.Supp. 586 (Jud.

Pan.Mult.Lit. 1970); Pfizer Inc. v. Lord, 447 F.2d 122 (2d

Cir. 1971). The main action was one of the ‘‘competitor

cases’’ thereby assigned to this court. In Re Coordinated

Pretrial Proceedings in Antibiotic Antitrust Actions, CCH

1972 Trade Cases 93,067 (D.Minn.1971). On May 17, 1971,

this Court transferred the majority of the ‘‘non-settling’’

cases to the District of Minnesota for trial before this

Court under 28 U.S.C. § 1404(a). The basis of this Court's

decision was that the convenience of the parties and wit-

nesses and the interests of justice would be served by that

transfer. This Court was affirmed in so doing. Pfizer

Inc. v. Lord, 447 F. 2d 122 (2d Cir. 1971). During coordi-

nated and consolidated discovery proceedings before this

Court, C&R were among the most active, if not the most

active lawyers, in preparing the liability issues common

to all cases for trial. On July 11, 1974, this Court trans-

ferred the main action to the District of Minnesota for

trial, and on August 1, 1974, this Court consolidated the

main action for trial with five other cases then set before

App. 5

this Court for trial. That consolidated trial began on

November 18, 1974.

Prior thereto, four independent patent infringement ac-

tions instituted in the Central District of California against

Rectifier, two by Cyanamid and two by Pfizer, (the ‘‘re-

lated actions), were transferred to this Court by the

Multidistrict Panel for coordinated and consolidated pre-

trial proceedings. One of those actions, entitled Pfizer Inc.

v. International Rectifier, 73-58-R. (Cal.); 4-73 Civil 188

(Minn.) (1973) (the ‘‘doxycycline case’’), charging Rec-

tifier with infringement of U.S. Patent No. 3,200,149 (the

**doxycycline patent) was transferred to this Court by the

Multidistrict Panel on March 12, 1973, for such coordinated

and consolidated pretrial proceedings, In Re Antibiotic

Drugs Antitrust Litigation, 355 F.Supp. 1400 (Jud.Pan.

Mult.Lit.1973), on the gronnas, among others, that:

App. 6

proceedings and even during the trial of the consolidated

cases. Pfizer Inc. v. International Rectifier Corp., 182

U.S.P.Q. 595 (D.Minn. 1974); Pfizer Inc. v. International

Rectifier Corp., CCH 1975 Trade Cases (D.Minn.1975) ;

Pfizer Inc. v. International Rectifier Corp., 186 U.S.P.Q.

511 (D.Minn.1975); Pfizer Inc. v. International Rectifier

Corp,, 538 F. 2d 180 (8th Cir 1976). In one of those cases,

this Court said:

The commonality of issues in this patent infringe-

able background knowledge of both the issues and the

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App. 8

In January of this year [1976], the Mutual of Omaha

case and the Malcolm-Gregg case also settled. (Mutual

of Omaha v. American Cyanamid Co. et al., 4-71 Civil

6; Maleolm-Gregg Co. Inc. et al. v. Chas. Pfizer & Co.

Inc. et al. Civil 4-74-373).

This Court has received a special mandate to conduct

this litigation ‘‘with scrupulous fairness and impar-

tiality.”’ . . . Pfizer v. Lord, 456 F.2d 542 [532] (8th

Cir. 1972), cert. denied, 406 US. 97 (976, 92 8. Ot. 2411,

32 L.Ed.2d 676] (1972).

After the main action settled, C&R were retained as

special trial counsel by the plaintiffs and their counsel in

the Mutual of Omaha class action cases and also by the

plaintiffs and their counsel in the Union Healtl, and Wel-

lion and the latter for $4 million.

In September of 1973, prior to the start of the trial in

the Rectifier main action and the five other consolidated

eases, the six non-settling state cases settled. In this

Court’s decision in Jn Re Coordinated Pre-trial Proceed-

ings, etc., 410 F.Supp. 706 (D. Minn. 1975), this Court in

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The Court feels that these particular private

attorneys have fulfilled their role as private attorneys.

as if they were private lawyers.

Id. at 717.

The role of the United States rnment attorneys

and counsel for Iniernational ifier Corporation,

a competitor, also contributed to the result. [empha-

sis added]

Id. at 722. The Court was, again, there referring to C&R.

C&R conducted the majority of the 400 depositions con-

cerning the common liability issues and also took the lead

with respect to the non-settling plaintiffs’ joint sets of

interrogatories to the antitrust defendants. C&R’s role in

pretrial and trial activities contributed to, not only the

settlement of the farm cases and the state cases, but also

to the settlement of the Union Health and Welfare cases

and the Mutual of Omaha cases. C&R did not petition for

any fees or costs in the farm cases, the state cases, or any

of the other cases which were disposed of in the Court.

The various members of the PNSC, however, reimbursed

Rectifier for a percentage of out-of-pocket costs incurred

by Rectifier in financing common discovery conducted by

the PNSC for the benefit of all nonsettling plaintiffs. In

mid-1976, after the Rectifier main action was settled and

dismissed, and upon Rectifier’s Petition for relief, this

Court enforced the PNSC agreement requiring reimburse-

ment of certain financing costs to Rectifier against Con-

tinental Vitamin. Rectifier did not assert at that time that

App. 10

this Court had no continuing or ancillary jurisdiction to

do so, but then asked for and received the aid of this

Court.

In April of 1976, C&R petitioned this Court for reason-

able fees and costs in representing the Mutual of Omaha

class action cases and the Union Health and Welfare class

action cases as special trial counsel between August 1975

and February 1976. This Court awarded C&R $300,000 in

the Mutual of Omaha cases and $100,000 in the Union

Health and Welfare cases on C&R’s representation and

the Court’s understanding that C&R would receive fair

compensation for its services as special trial counsel when

the total of $400,000 awarded in those cases was considered

in conjunction with the contractual contingency fee Recti-

fier agreed to pay to C&R for its services. See Farmington

Dowel Products Co. v. Forster Mfg. Co., 421 F.2d 61 (Ist

Cir. 1969).

C&R’s May 28, 1981, Petition sought to invoke the ancil-

lary jurisdiction of this Court to resolve a fee dispute

between C&R and Rectifier arising out of Rectifier’s em-

ployment of C&R pursuant to a May 16, 1974, letter agree-

ment between Rectifier and C&R. It is asserted by C&R

and admitted by Rectifier in its ‘‘Motion for Stay of Tem-

porary Restraining Order,“ filed in the United States

Cireuit Court of Appeals, Eighth Circuit, on June 12, 1981,

and denied by that Court without prejudice on June 15,

1981, that ‘‘the litigation out of which the escrow arose

did occur in Minnesota. C&R’s Petition and their affi-

davits filed herein make it clear beyond question that the

instant fee dispute arose out of the C&R-Rectifier May 16,

1974, fee agreement letter which contemplated the start

of the trial of the main action in this Court before the

end of 1974 and the performance of that agreement by

App. 11

C&R in this Court, and escrow instructions entered into

between C&R and Rectifier on September 15, 1975, pursu-

ant to that fee agreement whereunder C&R posted their

834% bonus fee, amounting to approximately $2.4 million,

in escrow as security for the indemnity set forth in the fee

agreement letter.

C&R’s Petition and other moving papers filed herein

recite the following factual chronology. In 1969, Rectifier

retained the Beverly Hills, California law firm of Rosen-

feld, Meyer and Susman (RM&S) in order to obtain the

legal services of Cohen and E. Riordan in the contemplated

main action. Rectifier so retained RM&S on March 12,

1969, pursuant to a written 4% contingent fee agreement

signed by Cohen for RM&S and by E. Lidow for Rectifier.

On April 30, 1974, C&R withdrew from RM&. On May

14, 1974, Rectifier, which had retained Kaplan, Livingston,

Goodwin & Selvin, concerning the break-up of RM&S, and

with that firm’s advice and counsel, discharged RM&S and

terminated the RM&S-Rectifier fee agreement. On May

16, 1974, Rectifier, again with the advice and counsel of

the Kaplan firm, retained C&R, who had then formed the

firm of Cohen and Riordan to represent Rectifier in the

antibiotics (BSA’s) which

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} the Tariff Commission pro-

ceeding now pending between Pfizer and you (‘‘the

related actions’’).

App. 12

C&R shall devote substantially all of Edward J.

Riordan’s (‘‘EJR’’) and Peter R. Cohen’s (‘‘PRC’’)

professional services to said action (and during a trial

anticipated to commence in the fall of 1974, all of

their services) so long as the same are reasonably

necessary to the proper prosecution of said action,

such services to be rendered until the conclusion of

said action, whether by final judgment or settlement.

C&R shall receive for their services in said action

and the related actions (during the pendency of said

action) the following:

A. You shall pay C&R the sum of —

per year, prorated for any one of a year. .

C. Eight and three-quarters percent (834%) of

the net amount recovered by you in said action,

less all sums paid by you to us pursuant to sub-

paragraphs A and B above. For the purposes of

this subparagraph, ‘‘net amount recovered by you

shall be computed as follows:

(1) The gross amount recovered by you in said

action shall be that cash amount which you re-

cover and actually receive by way of final judg-

ment or settlement, including attorneys’ fees, less

any amount awarded to any defendant in said

action or the related actions.

(2) From the gross amount recovered by you

there shall be deducted:

(a) All out-of-pocket costs and expenses paid or

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App. 13

(d) For the purpose of assuring you that sufficient

funds will be available to satisfy the indemnity

and hold harmless provisions set forth in para-

graph 4 below, within thirty (30) days of your

receipt of the net amount recovered by you from

any settlement or judgment in said action, you

shall place eight and three-quarters percent

(834%) thereof in an interest-bearing escrow ac-

count, to there remain (except for accrued inter-

est, which we may withdraw) until the later of

(i) the final resolution of any proceeding involv-

ing any claim referred to in paragraph 4 below,

or (ii) one (1) year following the date of such

receipt.

(4)(a) Up to the limit of any amounts payable

to us pursuant to paragraph 2c above, provided

the total fees agreed to be paid by you to any

other counsel you may engage to represent you

along with us in said action do not exceed six per-

cent (6%) of the net amount recovered by you,

we will indemnify you against and hold you harm-

less from any and all claims by anyone other than

parties to this agreement, or liability, loss, cost

or expense directly or indirectly arising out of

your employment of us or out of the execution or

performance of this agreement to the extent that

such liability, cost or expense exceeds thirty-three

and one-third percent (33½ % of the gross

amount of money received by you by way of final

judgment or settlement, inclading attorneys’ fees

recovered, less court costs recovered in said ac-

tion.

(b) The indemnity and hold harmless provisions

set forth in paragraph 4(a) shall not apply to

any decision obtained in any arbitration proceed-

ing (whether or not confirmed by a court of com-

petent jurisdiction) or to any settlement with any

such third party unless we consent in writing to

such arbitration or settlement prior thereto. [em-

phasis added]

App. 14

On May 17, 1974, C&R were substituted of record in the

main action and the related actions were all before this

Court. The main action sought to invalidate, specifically,

the Jukes Patent involved in American Cyanamid Co. v.

International Rectifier Corp., 71 Civil 2683, and the doxy-

cycline patent involved in Pfizer v. International Rectifier

Corp. et al., 4-73 Civil 188 (Minn.) and to render all broad

spectrum antibiotic patents unenforceable for various al-

leged violations of the federal antitrust laws, (15 U.S.C.

§§ 1, 2 and 14), and sought over $100 million in single

damages. .

As noted above, the main action began trial together

with the other five actions consolidated for trial before

this Court on November 18, 1974. On August 14, 1975,

the Rectifier case was settled for $33 million. That settle-

ment included the settlement of three of the four related

actions for royalty-free licenses, but excluded the doxy-

eyeline case and the main action which was pleaded as an

affirmative defense therein from that overall settlement.

The settlement amount of $33 million included an unspeci-

fied amount for Rectifier’s attorneys’ fees and Rectifier’s

costs which were also unspecified. The doxycycline case

was then on appeal by Pfizer Inc. from this Court’s partial

summary judgment of July 16, 1975, holding the doxy-

cycline patent to be invalid. Pfizer Inc. v. International

Rectifier Corp., 186 U.S. P. Q. 511 (D.Minn. 1975).

The settlement agreement and the dismissals with preju-

dice of the main action and the related actions (other than

the doxycycline case) were filed and lodged in this Court

together with a side letter dated August 12, 1975, from all

defendants to Rectifier stating:

It is the understanding of the Defendants that nei-

ther the settlement agreement nor the stipulation

App. 15

of dismissal with prejudice in this case is intended to

affect one way or another whether the United States

District Court for the District of Minnesota would

have jurisdiction to hear or resolve any claim against

Rectifier which is based upon or related to the filing,

prosecution or settlement of this case and which is

made by any attorney or law firm who has been, or

may claim to have been, counsel for Rectifier or for

any of the other parties of the first part [Rectifier

affiliates} to the settlement agreement. [emphasis

added]

The settlement agreement provides in paragraph 12 that:

The parties of the first part [Rectifier] shall jointly

and severally indemnify and defend each and any of

the parties of the second part [the antitrust defen-

dants], and hold them harmless, from any and all

claims, controversies, disputes, differences, actions or

judgments which may be asserted by any attorney or

any law firm. . . claiming, or who may claim, to have

been counsel for any of the parties of the first part

[Rectifier] and to have any lien, interest or any other

claim of any nature whatsoever upon the claims hereir

settled or the proceeds thereof, the sums being paid

in settlement, or the civil actions being settled. The

parties of the second part [the antitrust defendants]

shall promptly notify the parties of the first part

[Rectifier] of any such claim.

C&R’s verified Petition asserts that the side letter was

intended to reserve this Court’s ancillary jurisdiction over

all Rectifier attorney-client fee disputes, including the

C&R-Rectifier dispute raised by the Petition, while at the

same time terminating this Court’s jurisdiction over the

antitrust defendants for any such dispute to the extent

that the parties could control that jurisdiction. Rectifier

has not offered any verified explanation for the side letter,

but in argument of counsel has relied upon the phrase ‘‘to

App. 16

affect one way or another’’ to mean that Rectifier and its

attorneys intended to forego ancillary jurisdiction over

any later attorney-client fee dispute in this Court.

On August 15, 1975, the antitrust defendants paid the

sum of $33 million to Rectifier by federal wire transfer.

In September of 1975 Rectifier and C&R created an escrow

account at the Security Pacific National Bank (the ‘‘Cali-

fornia Bank’’) to carry out the intent of the ‘‘interest

bearing escrow account’’ provided for by Paragraph 2.C.

(2)(d) of the C&R-Rectifier fee agreement. Paragraph

2.C.(2)(d) requires that:

. . . within thirty (30) days of your receipt of the

net amount recovered by. . . settlement or judgment

in said action [which is the main action] [Rectifier]

shall place eight and three-quarters percent (834%)

thereof in an interest bearing escrow account to there

remain (except for accrued interest, which [C&R] may

withdraw).

Paragraph 2.C.(2)(d) also provides that the purpose of

the interest-bearing account is to provide sufficient

funds for the C&R ‘indemnity and hold harmless provi-

sions set forth in paragraph 4.

Paragraph 2.C.(2)(d) of the C&R-Rectifier fee agree-

ment therefore required creation of the interest-bearing

escrow account, or escrow, for the purpose of C&R posting

their 834% bonus fee as security that C&R would have

sufficient funds for the paragraph 4 indemnity expressly

referred to in paragraph 2.C.(2)(d), which indemnity is

limited by paragraph 4(a) to the amount of the 8%%

bonus fee.

The Court therefore notes at the outset that the escrowed

funds are the property of C&R, not Rectifier, and that

Rectifier has no right to any part of the escrowed funds

until and unless an indemnity event occurs.

App. 17

The September 15, 1975, Escrow Instructions required

Rectifier to deposit therein by September 18, 1975, the

sum of $2.4 million and either add to or receive back a

sum which, by March 1, 1976, Rectifier and C&R would

agree to ‘‘as a result of the final accounting agreed to’’

between Rectifier and C&R regarding C&R’s 834% bonus

fee. By March 1, 1976, Rectifier and C&R had entered into

that final accounting and since that date the escrow has

contained the sum of $2,450,518 pursuant to the Rectifier-

C&R final accounting. Under the terms of the Escrow In-

structions, C&R have invested the principal amount of

$2,450,000 in authorized securities and have received all

of the income and interest derived from that principal

amount, as provided in the Escrow Instructions and also

as provided in paragrah 2.C.(2)(d) of the fee agreement

letter. The Escrow Instructions also provide that the Cali-

fornia Bank shall not be concerned with the C&R-Rectifier

fee agreement’s terms, but shall pay over the principal

amount of $2,450,518 as directed by Rectifier and C&R

upon final determination of certain related matters re-

ferred to in the C&R-Rectifier fee agreement.

By their verified Petition and by affidavit, C&R state

that the paragraph 4 indemnity was intended to cover any

liability imposed upon Rectifier by a trial court judgment

in the expected suit by RM&S for the one-third contingency

fee or for quantum meruit, i. e., an attorneys’ fee award

recovered by RM&S if when added to C&R’s fee of $250,000

per annum and their 834% contingent bonus fee, exceeded

the one-third continge fee as defined in the RM&S-Recti-

fier fee agreement. C&R assert that the indemnity of

paragraph 4 was intended by the parties to insure that the

policy of Fracasse v. Brent, 6 Cal.3d 784, 100 Cal.Rptr. 385,

494 P.2d 9 (1972), would not require Rectifier to pay more

than one-third of any recovery in the main action to its

App. 18

former and present attorneys, and that to the extent that

any trial court judgment for RM&S plus C&R’s fees ex-

ceeded that one-third, C&R would pay to RM&S from the

escrowed 834% or $2.45 million, so much as was necessary

to insure that Rectifier paid only a total of one-third for

all attorneys’ fees to the conclusion of the main action.

C&R also state that C&R’s 8%,% bonus fee... . would

under no circumstances ever be paid to Rectifier, but upon

final resolution of the expected RM&S suit, would be paid,

in whole or in part, either to C&R or to RM&S,’’ by C&R’s

and Rectifiers’ instructions to the California Bank.

On October 15, 1975, RM&S instituted suit in the Su-

perior Court of the State of California in and for the

County of Los Angeles (the ‘‘California trial court’’)

against Rectifier and C&R. RM&S’s first count was on

the RM&S-Rectifier contingent fee contract and sought to

recover the one-third contingent fee. RM&S’s second

count alternatively sought quantum meruit. Both the first

and second counts were against Rectifier only. RM&S’s

third count alleged that C&R had wrongfully dissolved

the at-will RM&S partnership and sought to recover all

fees that Rectifier had paid to C&R—the annual $250,000

and the 8%% contingent bonus fee. The RM&S fourth

and fifth counts pleaded that C&R had induced Rectifier

to discharge RM&S and that Rectifier had induced C&R

to dissolve the RM&S partnership, respectively.

The RM&S case began trial in the California trial court

in March 1980. At that time, all of RM&S’s counts had

been dismissed except the quantum meruit count against

Rectifier only and the separate inducement count against

C&R only. In June 1980, the inducement count was dis-

missed by the California trial court by nonsuit at the close

of RM&S’s case in chief. RM&S appealed therefrom and

App. 19

that appeal is pending in the District Court of Appeal of

the State of California, Second Appellate District (the

„California appeals court). In July 1980, RM&S re-

ceived a (approximately) $4.4 million jury verdict on the

quantum meruit count, to which the California trial court

added (approximately) $1.5 million in prejudgment inter-

est and thereafter entered a total judgment for (approxi-

mately) $5.9 million. On the last day permitted for appeal,

Rectifier appealed to the California appeals court from

the $5.9 million judgment. After the time for a direct

appeal had expired, but within the time provided for a

cross appeal, RM&S appealed and protectively cross ap-

from all previously dismissed counts but did not

from the $5.9 million judgment recovered against

Rectifier its second count. Thus, if Rectifier had not

appealed on the last day, RM&S’s cross appeal thereafter

would have been a nullity and the $5.9 million judgment

would have become final for all purposes.

On January 19, 1981, C&R demanded in writing that

Rectifier instruct the California Bank to release the prin-

cipal amount of the escrowed funds asserting that (1) the

terms of the paragraph 4 indemnity so required because

the $4.4 million RM&S judgment (with or without interest

and with or without Rectifier’s reasonable fees, which

were not covered by the indemnity) did not trigger the

indemnity, and (2) the paragraph 4 indemnity by its terms,

and as interpreted by California case law, ended the in-

demnity when a trial court judgment failed to reach and

therefore to trigger the indemnity in whole or in part.

On February 22, 1981, Rectifier refused in writing to

instruct the California Bank to release the escrowed funds

asserting that the paragraph 4 indemnity remained in ef-

fect even if RM&S was willing to accept a California trial

court judgment and only Reetif - appealed to improve

App. 20

upon that judgment and even though Rectifier’s appeal

could only benefit Rectifier. Rectifier further asserted that

if its appeal resulted in a new trial and ultimately a larger

judgment for RM&S which did reach the C&R indemnity,

that C&R would then have to instruct the Security Bank

to pay the escrowed funds to RM&S, up to the whole there-

of depending on the amount of the RM&S judgment. Sec-

ondly, Rectifier asserted that although the paragraph 4(a)

indemnity did not cover any adverse result in the doxy-

eyeline case, paragraph 2.C.(1) requires that any mone-

required a ‘‘recomputation’’ of C&R’s 83% bonus fee

and that therefore C&R had impliedly also indemnified

Rectifier against any future adverse judgment in the doxy-

cycline case. Thus, according to Rectifier, if Pfizer were

parties, and which this Court encouraged by its Order of

June 4, 1981, the C&R 834% or $2.45 million in escrowed

funds, was an indemnity- insurance policy’’ for any future

adverse monetary judgment, and for all fees and costs in-

curred in the doxycycline case.

App. 21

It thus appears to be Rectifier’s position that (1) Rec-

tifier can gamble C&R’s 834% bonus fee in an appeal and/

or a retrial of the RM&S case and (2) that the C&R bonus

fee was also intended to pay Rectifier’s attorneys’ fees

and costs in the doxycycline case after the main action

concluded and the C&R-Rectifier fee agreement also cou-

eluded in August of 1975, and that C&R also indemnified

Rectifier against an adverse judgment in the doxycycline

case.

After the main case settled in August 1975 and the

Mutual of Omaha cases and the Union Health and Welfare

cases settled in January-February 1976, the other two con-

solidated trial cases were also settled and the United

States government’s civil case proceeded alone until a

mistrial was declared by this Court on August 16, 1976,

United States v. Pfizer, Inc., 471 Civil 403 (D.Minn.),

In Re Coordinated Pretrial Proceedings in Antibiotic Anti-

trust Actions. OCH 1976-2 Trade Cases 69,774.

On June 16, 1976, the Eighth Circuit Court of Appeals

reversed this Court’s partial summary judgment in the

doxycycline case, on the ground that there were triable

issues of fact, and remanded the case for a trial of the

factual issues presented thereby.

At the time of the Eighth Circuit’s mandate, there was

no broad spectrum antibiotic case pending before this

Court, the United States’ case and the foreign government

eases having been reassigned by the Multidistrict Panel

to the District Court in Philadelphia. Thereafter, the

doxycycline case was transferred by the Multidistrict Panel

to the Central District of California to be consolidated and

coordinated with another case against Pfizer Inc. pend-

ing in that district. Judge M. Pence of the District of

Hawaii was assigned to sit in the Central District of Cali

fornia for those cases.

App. 22

In September of 1975, Rectifier and C&R orally agreed

that C&R had fully performed the May 16, 1974, C&R-

Rectifier fee agreement, that the escrow instructions creat-

ing the escrow at the California Bank would result in a

final accounting between them not later than March 1,

1976, for C&R’s bonus fee of 834% and that C&R’s bonus

fee vould be escrowed as security fer C&R’s indemnity

in the RM&S case. After September of 1975, Rectifier

paid C&R an hourly rate pursuant to that oral agreement.

In June 1980, the California District Court held the

doxycycline patent to be valid. On November 11, 1980,

Cohen and Ehrmann (successor to Cohen & Riordan) were

substituted out of the doxycycline case at their request

App. 23

Rectifier’s spokesman at that hearing, Mr. Blecher, con-

ceded that a judgment in that amount or a fraction of

that amount would bankrupt Rectifier. After that hearing,

and after Cohen & Ehrmann withdrew from and were sub-

stituted out of the doxycycline case, and against Cohen’s

advice and without C&R’s consent, (1) Rectifier volun-

tarily dismissed the antitrust affirmative defense; (2) vol-

untarily dismissed its pending appeal from the preliminary

injunction; and (3) agreed to commence discovery on and

to try the damage issues before the Court of Appeals

decided the patent validity issues.

The facts set forth above appear from the verified Peti-

tion and the affidavits filed on behalf of C&R in support

of this Court’s ancillary jurisdiction and the Court’s tem-

porary restraining orders and preliminary injunction.

Rectifier has not filed an answer to the Petition nor has

Rectifier filed any affidavit which relates to the factual

basis for this Court’s ancillary jurisdiction or the factual

basis for this Court’s temporary restraining orders or pre-

liminary injunction.

Neither party requested an evidentiary hearing on the

order to show cause re preliminary injunction. Because

Rectifier did not file any affidavit concerning the issues of

ancillary jurisdiction or the issues of injunctive relief,

there are no contested factual issues for this Court to re-

solve. Thus the Court accepts as true the facts which

are stated in the C&R moving papers. Milton Roy Co. v.

Bausch & Lomb Inc., 418 F.Supp. 975, 978 (D.Del.1978).

To the extent that this Memorandum Opinion has and will

address the merits, such discussion is limited to the present

issues of ancillary jurisdiction and injunctive relief. See

Minn. Ass’n of Health Care Facilties, etc., 602 F.2d 150,

155 (8th Cir. 1979).

App. 24

IL. LEGAL DISCUSSION

A. The Exstence of This Court's Ancillary Jurisdiction

C&R urge that jurisdiction of the matter of attorneys’

fees may be sustained under the doctrine of federal ancil-

lary jurisdiction. That very issue was considered at length

in State of lowa v. Union Asphalt & Roadoils Inc., 281 F.

Supp. 391 (S. D. Iowa 1968), where the District Court said

at pp. 396-99:

The applicants urge that jurisdiction of the matter of

attorney fees may be sustained by the doctrine of federal

ancillary jurisdiction. The ancillary jurisdiction theory is

relatively simple—once federal jurisdiction properly at-

taches to a primary case, the court also has jurisdiction

over certain subsidiary cr subordinate disputes even

though it might not independently be able to proceed to

adjudicate them.... In the situation at hand, the Court’s

jurisdiction to fix attorney fees is generated by its auxili-

ary relation to the antitrust action by the State. .. The

precepts of the ancillary jurisdiction doctrine dictate that

the federal courts should extend their jurisdiction to en-

compass orbital disputes subordinate to the principal ac-

tion so that complete justice may be done.... Considera-

tions of judicial economy and fairness to all parties under-

lie the ancillary jurisdiction theory.... And once juris-

diction has attached, it will generally continue until it has

been fully exhausted.... It would appear that the sound

policies behind the doctrine and its elasticity would com-

mand the Court to retain jurisdiction over the auxiliary

matter of attorney fees even though it entered a previous

Order allowing the counsel to withdraw without such a

condition.

App. 2

However, assuming that the process is irregular, the

Staie has acquiesced in the retention of jurisdiction by

this Court over the determination of fees.

Thus, as a matter of law the Court has power to adjudi-

cate the matter of attorney fees for applicants under fed-

eral ancillary jurisdiction, by amendment of its Order un-

der Rule 60(b) and under its inherent power to correct

orders. (emphasis added)

In State of lowa v. Union Asphalt & Roadoils, Inc., 409

F.2d 1239 (8th Cir. 1969), the Eighth Circuit affirmed the

existence of and the exercise of ancillary jurisdiction by

the Iowa District Court concerning the attorney-client fee

dispute there involved, stating at pp. 1242-44:

We observe preliminarily that the district court was

vested with jurisdiction over the subject matter of the

antitrust suit filed on December 6, 1966, out of which

is the concept of ‘‘ancillary jurisdiction,’ by

which it is held that a district court acquires jur-

isdiction of a case or controversy as an entirety,

2

:

2

|

|

App. 26

matter properly before it, possess jurisdiction to

decide other matters raised by the cases of which

it could not take cognizance were they indepen-

dently presented.

If the court has jurisdiction of the principal

action, it also has cognizance of any ancillary pro-

ceeding therein, regardless of the citizenship of

the parties, the amount in controversy or any other

factor that would ordinarily determine jurisdic-

tion.

Ancillary jurisdiction exists because without it

the court could neither effectively dispose of the

principal case nor do complete justice in the

premises. It is a common-sense solution of the

problems of piecemeal litigation which otherwise

would arise by virtue of the limited jurisdiction of

federal courts.

Forrester, Federal Jurisdiction and Procedure 294-95

(Dobie and Ladd, 2d ed., 1950) explains the theory and use

of ancillary jurisdiction, as follows:

The definitive statements of most legal authorities

appear to found the doctrine of ancillary jurisdic-

tion on the basic principles of justice, necessity and

efficiency. Ancillary jurisdiction exists because of

the relation of the incidental proceeding to the prin-

cipal case over which original jurisdiction already ex-

ists. This relation alone creates and establishes such

ancillary jurisdiction.

See also Wright on Federal Courts, § 9, at 17 (1963);

Fins, Federal Jurisdiction and Procedure 71-74 (1960) ; 21

C.J.8. Courts § 88 (1940).

There is case law which, in our view lends support for

the conclusion that the court had the power to resolve

appellees’ claim under its ancillary jurisdiction. In Na-

tional Equipment Rental, Lid. v. Mercury Typesetting

App. 27

Co., 323 F.2d 784 (2d Cir. 1963), Caddy, the attorney,

represented one of the litigants from June 13, 1961, until

his discharge on January 29, 1963, during which period

an action was brought in the United States district court.

After his discharge Caddy filed a motion in the pending

district court case seeking the fixing of fees and disburse-

ments due him from his former client. Judge Lumbard

observed :

The law seems well settled that a federal district

court may condition the substitution of attorneys in

litigation pending before it upon the client’s either pay-

ing the attorney or posting security for the attorney’s

reasonable fees and disbursements, as these may be

determined. [Citing cases] This power resides in the

federal court as ancillary to its conduct of the litiga-

tion. Id. at 786.

In a footnote Judge Lumbard stated:

The termination of relations between a party in liti-

tion in a federal court and his attorney is a matter re-

lating to the protection of the court’s own officers and

is not subject to the doctrine of Erie Railroad Co. v.

Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L.Ed. 1188. Id.

See also First lowa Hydro Elec. Coop. v. lowa-Illinois

Gas d Elec. Co., supra [245 F.2d 613 (8th Cir.) ].

Here, of course, the order of January 10, 1967, per-

mitting appellees to withdraw was not conditioned upon the

state of Iowa paying the attorneys or posting security. We

do not believe the failure to enter a conditional order de-

prived the court of authority to entertain a subsequent mo-

tion by appellees and to grant such relief as was required

to do full and complete justice. In our view, the order,

interlocutory in nature as it was, did not have the legal

effect of destroying jurisdiction which existed by force of

law.

We are satisfied that on this record power resided in the

district court to adjudicate the disagreement between ap-

App. 28

pellees and the attorney general of Iowa as ancillary to

its jurisdiction over the principal action. As Judge Han-

son’s opinion discloses, he also concluded that he had the

authority under Rule 60(b), F. R. Civ. P., or under his in-

herent power to grant appellees relief. In view of our

holding we find it unecessary to consider or discuss these

alternative theories. [emphasis added]

The majority view, generated by the State of Ion cases,

supra, is that ancillary jurisdiction over attorney-client fee

disputes is inherent and exists in the District Courts in-

dependent of jurisdiction conferred by statute, or statu-

tory venue requirements or federal rules of procedure. Jn

Re Hoy’s Claim, 93 F.Supp. 265-66 (D. Mass. 1950); Moore

Bros. Const. Co. v. City of St. Louis, 159 F.2d 586 (7th Cir.

1947); American Federation of Tobacco Growers Inc. v.

Allen, 186 F.2d 590 (4th Cir. 1950); Grimes v. Chrysler

Motors Corp., 565 F.2d 841 (2d Cir. 1977); Murphy v.

Tode, 351 F.2d 163 (9th Cir. 1965) ; Clark v. United States,

379 F.Supp. 1399 (N.D.lowa 1974); National Equipment

Rental Ltd. v. Mercury Typesetting Co., 323 F.2d 784 (2d

Cir. 1963); City of Hankinson, North Dakota v. Otter Tail

Power Co., 294 F.Supp. 249 (D.N.D. 1969); John Griffiths

& Son Co. v. United States, 72 F.2d 466 (7th Cir. 1934).

Ice Projects Inc. v. World Hockey Ass u., 443 F. Supp. 483,

487 (E.D.Pa. 1977).

As the Court said in State of Iowa, at 281 F.Supp. 396:

The ancillary jurisdiction theory is relatively simple

—once federal jurisdiction properly attaches to a

primary case, the court also has jurisdiction over

certain subsidiary and subordinate disputes even

though it might not independently be able to proceed

to adjudicate them.

In the attorney-client fee dispute presented by the C&R

Petition, it cannot be disputed that this Court had subject

matter jurisdiction over the main action which was an

App. 29

antitrust case brought by Rectifier and its subsidiary cor-

porations under the federal antitrust laws against Ameri-

can Cyanamid Company, Pfizer Inc., Bristol-Myers Com-

pany, E.R. Squibb & Sons, Inc., and the Upjohn Company

(‘‘under and pursuant to Sections 4, 12 and 16 of the Clay-

ton Act (U.S.C. Sections 15, 22 and 26) to secure . . relief

[under] Sections 1 and 2 of the Sherman Act (15 U.S.C.

Sections 1 and 2) and Section 3 of the Clayton Act (15

US.C. Section 14).’’) Where the Court has subject mat-

ter jurisdiction over the main action, its ancillary juris-

diction is inherent and consideratons of removal jurisdic-

tion, diversity, pendent jurisdiction and venue are inherent.

Travis v. Anthes Imperial Limited, 473 F.2d 515, 528-29

(8th Cir. 1973):

At the outset, we note that for e purposes,

our decision with respect to subject matter jurisdiction

also decides the question of venue.

Accord, Continental Grain etc. v. Oil Seeds Inc., 592 F. 2d

409, 422 (8th Cir. 1979).

Rectifier argues that ancillary jurisdiction expired when

the main action was settled and dismissed with prejudice

and that ancillary jurisdiction does not exist six years

after that event. Rectifier emphasizes the dismissal was

with prejudice and without attorneys’ fees or costs. Such

dismissals cannot oust the Court of ancillary jurisdiction

and has no bearing on whether the Court has ancillary

jurisdiction. Schmidt v. Zazzara, 544 F.2d 412, 414 (9th

Cir. 1976):

Zazzara first argues that the district court erred in

retaining jurisdiction over the question of attorney’s

fees after the consent judgment had been entered. We

do not agree. Allowance of attorney’s fees ‘‘is part

of the historic equity jurisdiction of the federal

courts.’’ Sprague v. Ticonic Bank, 1939, 307 U.S. 161,

164, 59 S.Ct. [777], 779, 83 L.Ed. 1184, and the district

court could properly retain jurisdiction to determine

appropriate attorney’s fees ancillary to the case

App. 30

It was not necessary to relegate Plaintiff to a sep-

arate action to recover fees.

Likewise, Zazzara claims that the award was be-

yond the district court’s jurisdiction because of the

clause in the consent judgment requiring ‘‘each party

to bear its own costs and attorneys fees is without

merit.

Ancillary jurisdiction does not depend on the pendency

of the main action, but exists both during and after the

main action for the same policy reasons which determine

whether the court should exercise that jurisdiction and

entertain the Petition. Sprague v. Ticonic Bank, 307 U.S.

161, 59 S.Ct. 777, 83 L.Ed. 1184 (1939); State of lowa v.

Union Asphalt & Roadoils Inc., 281 F.Supp. 391 (S. D. Iowa

1968), af d 409 F.2d 1239 (8th Cir. 1969); American Fed-

eration of Tobacco Growers Inc. v. Allen, 186 F.2d 590 (4th

Cir. 1951); John Griffiths d Son Co. v. United States, 72

F.2d 466 (7th Cir. 1934); In Re Hoy’s Claim, 93 F.Supp.

265 (D.Mass.1950).

It would be anomalous if federal ancillary jurisdiction

existed to protect the plaintiff’s attorney who was dis-

charged during the pendency of the main action but did

not exist to protect the plaintiffs attorney who successfully

settled and dismissed the main action for the plaintiff in

the main action and thereafter became involved in a fee

dispute with that plaintiff. Such is not the law. Ancillary

jurisdiction was exercised after the main action concluded

in Schmidt v. Zazzara, supra; In Re Hoy Claim, supra;

and Moore Bros. Const. Co. v. City of St. Louis, 159 F. 2d

586 (7th Cir. 1974). If ancillary jurisdiction exists, the

District Court need not resort to the procedural device of

amending the judgment in the main action or vacating

and reinstating that judgment. State of Iowa v. Union

App. 31

Asphalt & Roadoils Inc., supra. Ancillary jurisdiction is

not dependent on procedural devices afforded by the Fed-

eral Rules of Civil Procedure. Ibid.

Attorney-client fee disputes within the Court’s ancillary

jurisdiction are best determined after the main action is

concluded in order not to interfere with or delay the prose-

cution of the main action. Moore v. Telfon Communica-

tions Corp., 589 F.2d 959 (9th Cir. 1978). Ancillary juris-

diction exists not only to fix the attorneys’ fee but also

to resolve any attorney-client contractual fee dispute. City

of Hankinson, North Dakota v. Otter Tail Power Co., 294

F.Supp. 249 (D.N.D. 1969); John Griffiths d Son Co. v.

United States, 72 F.2d 466 (7th Cir. 1934); Farmington

Dowel Products v. Forster Mfg. Co., 421 F.2d 61 (Ist Cir.

1969). In the present case, C&R seek release of their

escrowed funds on the ground that the paragraph 4 in-

demnity has been exonerated by subsequent events. Al-

ternatively C&R allege that Rectifier has repudiated the

May 16, 1974, fee agreement which entitles them to elect

quantum meruit. C&R also plead additional alternative

counts for rescission and fraud. This Court should not

resolve those issues on the merits at this preliminary stage

of the proceedings. Chicago Great Western Ry. Co. v.

Chicago, BO R. Co., 193 F.2d 975 (8th Cir. 1952):

The other contentions urged on behalf of defendant

go to the merits of the controversy between the par-

ties. These issues are substantial and cannot proper-

ly be determined in advance of the trial of the case

on its merits. . . . [C]ounsel for defendant has briefed

and argued the issues as if they had been determined

on the merits and insist that we determine them on

this appeal. This we must decline to do. The applica-

tion here was addressed to the judicial discretion of

the court.... Orderly procedure in the circumstances

here disclosed required that the parties try this case

on its merits before attempting to present to this court

the issues going to the merits of the action.

Id. at 978.

App. 32

Rectifier also argues that the side letter of August 12,

1975, evidences the intent of both Rectifier and C&R to

waive ancillary jurisdiction over future attorney-client fee

disputes. C&R assert by verified Petition and by affidavit

that the side letter was intended to ‘‘reserve and pre-

serve’’ ancillary jurisdiction over future attorney-client

fee disputes while at the same time terminate ancillary

jurisdiction to the extent that the exercise thereof would

involve any of the antitrust defendants or affect the finality

of the settlement and dismissal of the main action. Both

parties agree that Rectifier and the antitrust defendants

could not confer subject matter jurisdiction or ancillary

jurisdiction upon the court. See State of lowa v. Union

Asphalt and Roadoils, Inc., supra. Similarly, the parties

could not limit the Court’s jurisdiction or deprive the

Court of existing jurisdiction. Thus the parties’ intent in

attempting to preserve or waive the Court’s ancillary jur-

isdiction is addressed to the Court’s discretionary exercise

of that jurisdiction rather than to the existence of jurisdic-

tion itself. Consequently, the side letter will be considered

in discussing the factors which militate in favor of and

against the exercise of ancillary jurisdiction. However, be-

fore considering that question of the discretion exercise

of jurisdiction, the Court notes that Rectifier argues that:

The letter clearly states that the settlement agree-

ment and stipulation to dismiss the main action were

not intended to affect one way or another whether

this Court is to have continuing jurisdiction to resolve

attorney’s fee claims against Rectifier.

Rectifier thus concedes that the issue is not inherent juris-

diction, but rather the discretionary exercise thereof.

Rectifier cites Bownougias v. Peters, 369 F.2d 247, 249

(7th Cir. 1966) ; Minersville Coal Co. Inc. v. Anthracite Ex-

port Ass’n., 55 F.R.D. 429 (M.D.Pa.1972) and Adams v.

Allied Chemical Corp., 503 F.Supp. 253 (E.D.Va.1980) ;

App. 33

for the proposition that this Court does not have ancillary

jurisdiction. Bounougias, Minersville, and Adams repre-

sent the minority view that an attorney-client dispute is

ipso facto collateral and independent of the main action

and therefore has no ‘‘direct connection’’ to the main ac-

tion upon which to predicate ancillary jurisdiction. Boun-

ougias and its progeny rely on the absence of a ‘‘direct

relation’’ for ancillary jurisdiction, quoting Fulton Nation-

al Bank of Atlanta v. Hozier, 267 U.S. 276, 45 S.Ct. 261,

69 L.Ed. 609 (1925), and conclude that all attorney-client

fee disputes do not have that ‘‘direct relation.“

The majority view espoused by State of lowa, supra,

(and the cases following State of Iowa, supra) hold that

the ‘‘direct relation’’ does exist for attorney-client dis-

putes. In Grimes v. Chrysler Motors Corp., 565 F.2d 841

(2d Cir. 1977), the Second Circuit also cited Fulton Nation-

al Bank of Atlanta v. Hozier in support of the majority

view stating:

Although the exact jurisdictional question involved

in this suit rarely arises there is ample authority to

support the general proposition that:

A district court acquires jurisdiction of a case or

controversy as an entirety, and may, as an inci-

dent to the disposition of a matter properly before

it, possess jurisdiction to decide other matters

raised by the case of which it could not take cogni-

zance were they independently presented.

... The Supreme Court has established that the

exercise of ancillary jurisdiction is appropriate

where the subsidiary controversy ‘‘has direct re-

lation to property or assets actually or construc-

tively drawn into the court’s possession or control

by the principal suit.’’ Fulton National Bank of

Atlanta v. Hozier ... Under these standards, the

District Court’s distribution of the Grimes settle-

ment funds and its 1

disbursements was clearly ancillary. .

App. 34

Cases such as Fulton, supra, and United Mineworkers

v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 LEd.2d 218

(1936) (cited by Rectifier), were concerned with the scope

of pendent jurisdiction, not ancillary jurisdiction, and are

analogous only insofar as the policy considerations of

judicial economy and convenience and economy to the par-

ties is common, but are not otherwise applicable because

the other pendent jurisdiction considerations are different

from the reasons for the existence of and the exercise of

ancillary jurisdiction. For pendent jurisdiction a ‘‘direct

connection’’ exists if the state claims are involved in the

federal claims and must, will, or should be decided in one

court and without burdening the federal court with side

issues. Ancillary jurisdiction, however, is based upon the

strong federal policy reasons discussed below.

This Court must follow the majority rule established by

the Eighth Circuit in State of lowa, supra, which is the

majority view and the better rule of law.

Neither Dounougias, supra, nor any of its offspring in-

volved a situation where the main case was a federal anti-

trust case and the policy of Section 4 of the Clayton Act

or the federal policy of inherent equity jurisdiction

to protect attorneys’ rights to fees under Sprague v. Ticon-

ic Bank, supra, was brought to bear to support the discre-

tionary exercise of ancillary jurisdiction.

This Court determines that it does have ancillary juris-

diction and will now consider the discretionary exercise of

that jurisdiction.

B. The Considerations Controlling This Court’s Ex-

ercise of Ancillary Jurisdiction

Ancillary jurisdiction should be entertained if the fol-

lowing policy considerations tip the balance in the petition-

er’s favor: (1) effectuating the private attorney general

policy of Section 4 of the Clayton Act; (2) assuring the

App. 5

just, expeditious and economical resolution of attorney-

client fee disputes; and (3) protecting the attorneys who

are officers of the Court from expensive and protracted

state court proceedings.

(1) To effectuate the private attorney-general policy of

Section 4 of the Clayton Act.

If the main action is a federal antitrust case, policy

favors effectuating the private attorney-general policy of

Section 4 of the Clayton Act by awarding the plaintiff’s

attorneys the agreed fee or a reasonable fee, if the plain-

tiff’s attorney is entitled thereto, without the delay and

expense occasioned by a state court action.“

The policy of Section 4 requires that the antitrust defen-

dants pay the successful plaintiff’s attorneys a reasonable

fee in order to encourage attorneys to act as private at-

torneys-general in enforcing the antitrust laws. The rea-

sonableness of that fee, whether contractual between the

parties, ol fixed by the Court, or in combination, is within

the subject matter jurisdiction of the Court that tried the

main antitrust case. Farmington Dowel Products Co. v.

Forster Mfg. Co., 421 F. 2d 61, 86-92 (Ist Cir. 1969); In Re

Uranium Antitrust Litigation, 617 F.2d 1248, 1261 (7th Cir.

1980); Perma Life Mufflers v. International Parts Corp.,

392 U.S. 134, 88 S.Ct. 1981, 20 L. Ed. 2d 982 (1968). That

same policy requires that the Court exercise its ancillary

jurisdiction over an attorney-client fee dispute where the

Court can resolve the fee dispute more expeditiously and

economically than would be the case if the parties were

Section 4+ of the Clayton Act, 15 U.S.C. § 15, provides that:

“Any person who shall be injured in his business or property by

reason of anything forbidden in the antitrust laws may sue therefor

and shall recover threefold the damages by him sustained, and

the cost of suit, including a reasonable attorneys fee.” (emphasis

added )

App. 36

relegated to a state court action. American Federation of

Tobacco Growers, Inc. v. Allen, supra:

Plaintiff may not include such fees in the settlement

and then ignore the rights of counsel therein. It is

argued that the controversy over fees is one which the

parties should settle in the state courts as there is no

iversi citizenship; but the controversy is ancil-

lary to the handling of a case in the federal court, the

he

officer of the court . AIT

funds i

b.

41

—

As noted above, the 633 million paid to Rectifier by the

antitrust defendants inclu-_d an unspecified amount for

attorneys’ fees.

Nor is it disputed that if C&R or Rectifier brought this

suit in the California trial court it would take almost five

years to come to trial because of the congested trial calen-

dar in that Court. This Court can act with the far greater

expedition that Section 4 reyuires, and for which ancillary

jurisdiction exists. Attorneys who act as private attor-

neys-general in enforcing the federal antitrust laws would

hardly be encouraged to do so in the future if the client

repudiates the fee agreement at or after the main case ends

and the attorney is faced with years of expense in a state

court to collect his fee. The antitrust plaintiff who prays

in the federal court for attorneys’ fees and, recovering an

amount which includes attorneys’ fees, cannot justly ex-

pect that, upon refusing to pay his attorneys, he can avoid

the jurisdiction of the federal court and litigate that issue

at his leisure in the state court.

In Farmington Dowel, the Court said (at p. 89) that:

. Section 4 contemplates an estimate of reasonable-

ness [of the attorney’s fee] of one looking back over

the litigation.

App. 37

This Court has expended six years of judicial time in

supervising all of the discovery in the main action and the

related actions and in trying the main action for eight

months. This Court should effectuate the policy of Section

4 of the Clayton Act by now finishing its work and resolving

the fee dispute between C&R and Rectifier.

(2) To assure the just, expeditious, and economical resolu-

tion of attorney-client fee disputes.

Case law dictates that courts utilize ancillary jurisdic-

tion as an expeditious and economical method in revolving

attorney-client fee disputes. State of Iowa v. Union

Asphalt & Roadoils, Inc., 281 F.Supp. 391, 396 (D. Iowa

1968), (“. . . so that complete justice may be done

considerations of judicia] economy and fairness to all par-

ties underlie the ancillary jurisdiction theory.) Andrews

v. Central Surety Insurance Co., 295 F.Supp. 1223, 1230

(D.S.C. 1969), (“It would be a useless waste of judicial

time and costs for this court not to accept its responsibility

and determine the issues herein presented.’’); Grimes v.

Chrysler Motors Corp., 565 F.2d 841, 843 (2d Cir. 1977),

(‘considerations of judicial economy, convenience and fair-

ness to litigants will be furthered thereby.)

In this case, there is no doubt that judicial economy, fair-

ness to both parties and economy for both parties will be

promoted by this court’s acceptance of ancillary jurisdic

tion. Rectifier’s announced intent to.. keep you [CAR

tied up in court for at least five years’’ is an objective that

the policy underlying ancillary jurisdiction and Section 4

of the Clayton Act must preclade.

It is not disputed that the instant attorneys’ fee dispute

between C&R and Rectifier is not presently involved in

either the RM&S case or in the doxycycline case. Rectifier’s

memorandum admits that ‘‘. . the California state court

App. 38

has not assumed jurisdiction over the [escrowed] funds

in the pending RM&S action

Thus it is conceded that this Court’s exercise of ancillary

jurisdiction does not interfere with the jurisdiction of any

court in any pending case.

Rectifier’s threatened Chapter 11 bankruptcy proceeding

appears to be dependent on a future damages award in the

doxycycline case. (It is not, however, clear whether Recti-

fier will await that event or would have filed a Chapter 11

proceeding to involve the escrowed funds if this Court's

temporary restraining order had not issued.) If Rectifier

ultimately files that proceeding, the substantive issues will

be the same as those presented by the petition—namely,

must Rectifier relase C&R’s escrowed funds because no in-

demnity event has occurred or can occur in the future.

C&R are entitled to a speedy adjudication of that issue and

should not be forced to await the outcome of the RM&

case, or the doxycycline case or a future Rectifier bank-

ruptey proceeding. If C&R’s indemnity is exonerated and

if C&R did not indemnnify Rectifier against an adverse

monetary judgment in the doxycycline case, then C&R are

entitled to the reelase of their escrowed funds, and were so

entitled in November 1980, when only Rectifier appealed

from the RM&S judgment. Rectifier is not entitled to delay

the determination of that issue by arguing that this Court’s

jurisdiction interferes with the California court’s, which

it does not, or by asserting that its position on the merits

is correct, which is irrelevant to this Court’s jurisdiction,

or that Rectifier has a right to delay in order to involve

C&R’s escrowed funds in a contemplated future Chapter

11 proceeding. If Rectifier files for a Chapter 11 bank-

ruptey reorganization, the preliminary issue raised there-

by will be whether the escrowed funds are the property

of Rectifier or the property of C&R. A speedy resolution

App. 39

of the merits in this Court will also resolve that issue under

the principles of res adjudicata.

This Court’s exercise of its inherent ancillary juris-

diction also does not interfere with the pending RM&S

case which is now on appeal. That appeal does not involve

any of the issues raised by the Petition. The judgments

of the California trial court, while on appeal, are presumed

to be correct. Argabrite v. Argabrite, 56 Cal.App. 650, 652,

206 P. 81 (1922); Jenner v. Murphy, 6 Cal.App. 434, 437,

92 P. 405 (1907). If those trial court judgments are re-

versed and the issues herein are made issues therein by

amendment to the pleadings before a retrial, this Court

can frame its decision herein to protect any RM&S right

which may appear. In the intervening period of time, this

Court may have already resolved the issue of whether

C&R or Rectifier are entitled to the escrowed funds.

Resolution of that issue will advance the interests of

RM&S, Rectifier and C&R in the RM&S case. If RM&S

ultimately prevails against Rectifier only, it cannot reach

the escrowed funds until the issue herein is determined ex-

cept by asserting prior lien rights. RM&S cannot execute

upon a judgment against Rectifier upon funds which are

the property of C&R. In the interim, RM&S may intervene

in this case to protect any lien right it may ultimately be

able to assert concerning the escrowed funds. Andrews v.

Central Surety Insurance Co., 295 F.Supp. 1223, 1230

(D.S.C. 1969) ; City of Hankinson, North Dakota v. Otter

Tail Power Co., supra; Ice Products Inc. v. World Hockey

Ass'n, supra.

Indeed, the respective lien rights of RM&S and C&R

appear to be controlled by federal and not state law,

Sprague v. Ticonic National Bank, supra, and should be

decided in this Court in order to supplement the policy

considerations of Section 4 of the Clayton Act. The policy

App. 40

considerations of Section 4 of the Clayton Act would afford

secant protection for the attorney for the successful plain-

tiffs without also protecting that fee from liens or claims

of others under the equitable priority thereto afforded by

Sprague v. Ticonic Bank, supra.

Based on the present status of the RM&S case, any

RM&S lien claims would be based on its prior representa-

tion of Rectifier in the main action until May 14, 1974,

whereas C&R appears to have a superior lien under

Sprague v. Ticonic Bank, supra, for their services between

May 16, 1974, and August 14, 1975, which resulted in the

$33 million settlement and the C&R 8%%4 C&R escrowed

bonus fee.

Thus, this Court’s adjudication of the issues raised by

the Petition will necessarily resolve all of those potential

issues before they become actual issues, if they do, in any

pending or possible future action or proceeding. Conse-

quently, this Court’s exercise of its ancillary jurisdiction

will prevent the potential multiplicity of actions which is

threatened by a present or future RM&S lien claim or a

future Rectifier Chapter 11 proceeding before they become

issues in those threatened actions and proceedings. It is

the very delay inherent in a California state court action

between C&R and Rectifier which is likely to cause that

multiplicity of actions. Such considerations are valid and

important in deciding whether or not to exercise ancillary

jurisdiction. Indeed they are so valid and important that

those reasons, in and of themselves, can give rise to a

whole different jurisdiction, pendent jurisdiction.

Rectifier argues that the interpretation of the May 16,

1974, C&R-Rectifier fee agreement is controlled by Cali-

fornia law and that the California courts should apply that

law. That argument is not compelling. Federal courts

have consistently held that if there is jurisdiction over the

App. 41

main action there is ancillary jurisdiction over an attorney-

client contractual fee dispute arising out of the main ac-

tion irrespective of whether only state law controls that

fee agreement. State of lowa v. Union Asphalt Roadoils

Inc., supra; Chicago Great Western Ry. Co. v. Chicago

B&Q R. Co., supra; Grimes v. Chrysler Motor Corp., supra;

Murphy v. Kode, 351 F. zd 163 (9th Cir. 1965).

Moreover, state law does not control these aspects of the

Rectifier-C&R fee dispute:

a) if C&R are entitled to elect quantum meruit, federal

substantive law controls the amount of that entitlement,

and

b) if RM&S decides to intervene to assert any claimed

state lien right to the escrowed funds, federal law appears

to control priority of lien rights under what has been

referred to as the Equitable Fund doctrine. Sprague v.

Ticonic Bank, supra; In Re Hoy’s Claim, supra.

(3) To protect the attorneys who are officers of the court

from expensive and protracted state court proceedings.

In City of Hankinson, North Dakota v. Otter Tail Power

Co., supra, the Court said:

The termination of relations between a party in liti-

gation and his attorney is a matter relating to the pro-

tection of the Court's own officers.

Accord, State of Iowa v. Union Asphalt & Roadoiis, Inc.,

supra; National Equipment Rental Ltd. v. Mercury Type-

setting Co., supra; American Federation of Tobacco Grow-

ers, Inc. v. Allen, supra.

As noted above, Rectifier asserts that the side letter from

the antitrust defendants, setting forth their understanding

that the settlement and dismissal with prejudice was not in-

tended to affect one way or another future jurisdiction

App. 42

of this Court over an attorney-client fee dispute, was in-

tended to abandon jurisdiction concerning such a dispute

or waive jurisdiction. C&R asserts that by the side letter

Rectifier and C&R intended to reserve ancillary jurisdic-

tion for all future fee disputes without involving the anti-

trust defendants if possible.

The side letter is careful to state that it is ‘‘the under-

standing of Defendants that the dismissal of the main ac-

tion shall not affect ‘one way or the other’ the ancillary

jurisdiction of this Court over future fee disputes between

Rectifier and its former attorneys (RM&S) or then at-

torneys (C&R).’’ The understanding of Rectifier and its

then attorneys, C&R, is left unstated. It appears from

Cohen’s affidavit, and without challenge from Rectifier,

that the parties to the main action intended to end juris-

diction over the antitrust defendants and preserve juris-

diction over future disputes between Rectifier and its at-

torneys to the extent that they could do so. The parties

to the main action were represented by competent counsel

who are presumed to know the law, and to therefore also

know that if they did not affect this Court’s ancillary

jurisdiction ‘‘one way or another’’ that jurisdiction would

continue to exist. The fact that the antitrust defendants

obtained an indemnity and a defense from Rectifier in the

event this Court's ancillary jurisdiction was invoked sup-

ports C&R’s position that all parties were well aware that

the Court had and would continue to have ancillary juris-

diction over any later attorney-client fee dispute. The

Court therefore accepts C&R’s position that jurisdiction

over this dispute was not intended to be abandoned but

rather intended to be preserved. Thus the Court concludes

that C&R cannot, in effect, be estopped from asking this

Court to exercise its jurisdiction.

App. 43

Rectifier next asserts that by failing to employ a pro-

cedural method to bring the RM&S case before this Court

C&R are also estopped from bringing the C&R-Rectifier dis-

pute before this Court. The RM&S case did not involve

any dispute between Rectifier and C&R concerning the own-

ership of the escrowed funds or the scope of the C&R in-

demnity. To the contrary, the trial court result in that

case, according to C&R and Rectifier, is a condition prec-

edent to Rectifier’s obligation to release C&R’s escrowed

fund The instant dispute did not arise until after the

California trial court judgment against Rectifier and the

time period for a direct appeal expired. In fact the dis-

pute did not actually arise until February 22, 1981, when

Rectifier rejected C&Ri’s demand that the escrowed funds

be released. Whether the Court should have accepted the

issues raised in the RM&S case under its discretionary

ancillary jurisdiction, had C&R petitioned therefor, was

raised by Rectifier orally at the June 17, 1981, hearing and

has not been briefed by either party. The Court deems the

issue to be, in any event, a false issue because the RM&S

case did not involve any issue between C&R and Rectifier

who were both defendants therein. Thus, any analysis of

whether C&R could have invoked this Court’s ancillary

jurisdiction is a useless exercise. Absent any express

agreement between C&R and Rectifier to litigate their ex-

isting fee disputes in the California courts, this Court

should exercise its discretion in favor of protecting its

officers from dilatory and multiplicitous litigation.

The real issue as to whether this Court should exercise

its discretion is whether Rectifier can show any prejudice

by reason of the RM&S case, or by reason of the passage

of time since the August 1975 settlement and dismissal, or

by reason of anything else. Rectifier has not addressed

App. 44

Thus the Court must conclude that Rectifier and C&R

intended to preserve this Court’s ancillary jurisdiction for

the very dispute involved herein, that Rectifier can show

no prejudice if this Court exercises that jurisdiction, and

that therefore this Court should not relegate C&R to the

dilatory and multiplicitous and costly litigation which ap-

pears to be inevitable if the Court refuses to exercise its

discretion.

Every factor discussed above virtually compels this

Court to exercise its jurisdiction. C&R were an essential

part of the coordinated and consolidated pretrial proceed-

ings and the consolidated trial before this Court which re-

sulted in the settlement of five of six of those consolidated

eases. As this Court said in enjoining Pfizer Inc. from

further proceeding before the Tariff Commission in Pfizer

Inc. v. International Rectifier Corp., No. 473 Civil 188,

CCH 1975 Trade Cases 66,074 (D.Minn.1975) :

Rectifier’s principal counsel are two lawyers who are

fully engaged in the trial of the antibiotic antitrust action

before the Court. They have been involved in the antibiotic

antitrust action since 1969 and are taking an active role in

the case. Any division of their energies to duplicative

proceeding in the Trade Commission would adversely af-

fect the progress of this trial and the interests of the many

other participants therein. [emphas‘s added]

This Court was there referring 0 Cohen and E. Riordan,

whose efforts contributed to the settlement of all of the

cases which were pending in ‘his Court, and this Court

should therefore exercise its discretion to protect C&R,

as Officers of this Court, by speedily resolving their fee

dispute.

App. 45

C. 28 U.S.C. § 1404(a) Transfer.

(1) Analogy to ancillary jurisdiction

The reasons for exercising ancillary jurisdiction are

analogous to the reasons supporting a 28 U.S.C. § 1404(a)

transfer.’

On September 8, 1971, this Court issued an order to show

cause why the main action should not be transferred to the

District of Minnesota for trial. In September of 1971, both

Rectifier and the PNSC filed briefs supporting the transfer.

In December 1973 and January 1974, Rectifier and the anti-

trust defendants again briefed that issue. At that time,

the United States government case, the Mutual of Omaha

class action case and the Union Health and Welfare class

action case were set for trial before this Court. Tlrough-

out the period from September 1971 to January 1974, and

thereafter, Rectifier sought a § 1404(a) transfer to this

Court for trial asserting that ‘‘ Judicial efficiency will be

best served by Transfer,, . . it will obviously save

judicial time if the same judge who conducted the pretrial

proceedings and is therefore already familiar with the case

also tries the case,’’ ‘‘Moreover, a transfer and consolida-

tion of the International Rectifier case will also serve the

overall convenience of the parties and the witnesses,’’ ‘‘a

handful of the witnesses whom the International Rectifier

Plaintiffs intend to call reside in California, . . that

none of [the antitrust Defendants) arguments, either legal

or factual, presents any valid argument. for delaying

the trial of the International Rectifier case, . . that

228 U.S.C. § 1404(a) provides that: “For the convenience of

the parties and witnesses, in the interest of justice, a district court

may transfer any civil action to any other district or division where

it might have been brought.” See Pfiser Inc. v. Lord, 447 F.2d 122

(2d Cir. 1971).

App. 46

what [the antitrust Defendants] have in mind is to transfer

the International Rectifier case to California in the hope

that before a judge who is not familiar with the case...

they can delay the case indefinitely,’’ and ‘‘transfer and

consolidation . . . will serve not only the interests of judicial

economy and the convenience of the International Rectifier

Plaintiffs and all of the witnesses, but also will serve all

of the legitimate interests of [the antitrust defendants].’"

This Court finally granted Rectifier’s § 1404(a) motion

on July 11, 1974, in the interests of justice and for the

convenience of the parties and the witnesses.

Rectifier, of course, made the same arguments of judicial

economy, convenience of the parties and its witnesses in

successfully resisting the antitrust defendants’ motion be-

fore the Multidistrict Panel to remand the main action to

the District of California in 1971 and in successfully

transferring the four related actions to this Court for co-

ordinated and consolidated pretrial proceedings in 1971,

1972, 1973, and 1974. See, e.g., In Re Antibiotic Drug Anti-

trust Litigation (Pfizer Inc. v. International Rectifier Corp.

et al.) 177 US.P.Q. 649 (JPML 1973).

The same considerations of judicial economy and the

convenience of the parties and the witnesses coupled with

the other policy considerations for exercising ancillary

jurisdiction have convinced this Court to exercise its dis-

cretion in favor of accepting jurisdiction of the attorney-

client fee dispute raised by the Petition. Pfizer Inc. v.

Lord, 447 F.2d 122 (2d Cir. 1971).

3 The parties joint exhibit 12 to the hearing on the order to show

cause re preliminary injunction on June 17, 1981, before this Court

entitled “Memorandum of Points and Authorities in Opposition to

[the antitrust defendants’} latest Memorandum Opposing a 28

U.S.C. Section 1404(a) Transfer and a Rule 42 Consolidation of

the International Rectifier Case.”

App. 47

(2) Rectifier’s current 28 U.S.C. § 1404(a) motion

On June 17, 1981, Rectifier filed ‘‘Respondents List of

Possible Witnesses’’ in support of its pending § 1404(a)

motion. ‘‘C&R’s Present List of Expected Trial Witnesses

Ete. filed June 18, 1981, states, as does Cohen’s affidavit,

that the only witnesses on the liability issues raised by the

Petition are Mr. Cohen and Mr. Koris, Rvctifier’s Vice

President, Secretary, general counsel and chief legal officer.

Rectifier’s list of possible witnesses does not explain how

any of the other listed Rectifier witnesses have or could

have any knowledge concerning the liability issues raised

by the Petition. Nor does Rectifier’s list of possible wit-

nesses dispute C&R’s assertion that the only witnesses on

the liability issues are Mr. Cohen and Mr. Koris. To the

contrary, it appears that Rectifier’s ‘‘possible’’ witnesses’

testimony concerns primarily the Court’s discretionary ex-

ercise of its ancillary jurisdiction or the Court’s temporary

restraining orders and preliminary injunction. For ex-

ample, Rectifier’s list does not explain how any members

of the RM&S firm can have any knowledge concerning the

scope of the C&R indemnity set forth in paragraph 4 of the

C&R-Rectifier fee agreement. Similarly, Rectifier’s list

states for its seventh (and last) witness that ‘‘Stuart L.

Kadison, attorney for RMS firm’’ can testify concerning

„facts re RMS case and RMS firm’s claims to escrowed

funds. The only relevance of the RM&S case to the

liability issues raised in this Court appears to be the

RM&S judgment and the appeals therefrom which are a

matter of record rather than witnesses’ testimony. Similar-

ly the RM&S firm’s claims to the escrowed funds appear

to have only two bases: first, its asserted contractual lien

on the escrowed funds which is discussed above; second,

its dismissed count for alleged wrongful dissolution by

C&R of RM&S claiming damages entitlement to the es-

App. 48

crowed funds—from which dismissal RM&S’s appeal is

pending in the California appellate court. As stated here-

tofore, the California trial court judgments are presumed

to be correct, and will in any event be decided by the Cali-

fornia courts. Even if this Court were to speculate that

RM&S’s appeal against C&R would be successful and that

RM&S would establish its claim to those funds as com-

pensable damages, RM&S could still not reach those funds

until a court decides whether the escrowed funds belong

to C&R or to Rectifier. That is the issue in this case and

is not an issue in the RM&S case or any other pending case,

As also stated above, RM&S can intervene herein to pro-

tect any interest it may have.

The Court must therefore accept C&R,’s verified asser-

tion that the only liability witnesses are Mr. Cohen and

Mr. Koris. Rectifier’s unverified and generalized list of

possible witnesses does not contradict that assertion. More-

over, C&R’s list of witnesses shows that if this Court

reaches the quantum meruit damage issue, five of C&R’s

expert witnesses on that issue reside in Minnesota, and

the remaining four reside in San Francisco, California,

Sewickley, Pennsylvania, Topeka, Kansas, and Washing-

ton, D. C. Although the Court may not reach that issue,

see Newburger Loeb d Co., Inc. v. Gross, 563 F.2d 1057,

1067 (2d Cir. 1977), it cannot make that determination at

this time. In addition, Rectifier is free to renew its

§ 1404(a) motion in the future.

The § 1404(a) considerations support this Court’s ex-

ercise of ancillary jurisdiction and those same factors re-

quire the Court to deny Rectifier’s § 1404(a) motion to

transfer the case to the California Federal District Court.

In addition, the California Federal District Court does not

have ancillary jurisdiction because it did not handle any

of the pretrial proceedings or the trial. Nor does the Cali-

App. 49

fornia District Court have removal jurisdiction, pendent

jurisdiction or federal subject matter jurisdiction. An-

drews v. Central Surety Insurance Company, supra; Grimes

v. Chrysler Motor Corp., supra. Consequently, if this

Court were to grant Rectifier’s § 1404(a) motion to trans-

fer, the California Federal District Court would have to

dismiss the Petition for lack of jurisdiction and C&R

would be relegated to the California State Court. That

result would be the same as this Court refusing to accept

ancillary jurisdiction. For this reason also the Court

denies Rectifier’s § 1404(a) motion.

D. The Temporary Restraining Orders and the

Preliminary Injunction.

Upon filing their petition, C&R applied for and this

Court issued a temporary restraining order on May 28,

1981. By stipulation and Order dated June 4, 1961, this

Court suspended that Order pending settlement negoti.-

tions by the parties. The parties’ settlement efforts began

on June 10, 1981, and failed on that date. On June 12,

1981, C&R applied for reinstatement of the temporary

cluded as Exhibit A a form letter for Rectifier to sign

and deliver to the California Bank directing the transfer

of the escrowed funds. The Minnesota Bank had agreed

to administer those funds according to the very same terms

App. 50

contained in the Escrow Instructions between the parties

and the California Bank, and the Court's Orders required

the Minnesota Bank to do so.

Process was served on Rectifier on May 31, 1981. On

June 3, 1981, Rectifier instructed the California Bank to

**. . examine the mechanics of this type of transfer so

that we may be in a position to promptly comply with the

Order. The California Bank advised Rectifier that its

said instructions did not provide authorization for the bank

to transfer the funds and that more explicit instructions

were required. Rectifier advised the California Bank that

it would contact the Bank later in that regard.

After the June 12, 1981, hearing reinstated the tempo-

rary restraining order, Rectifier appealed to the Kighth

Cireuit. That appeal was dismissed, without prejudice, on

June 15, 1981.

On June 15, 1981, Rectifier instructed the California Bank

to transfer the escrowed funds, by simply signing and de-

livering the Exhibit A form letter to the California Bank.

The escrowed funds were then transferred to the Minne-

sota Bank by federal wire and book entry and by endorse-

ment and delivery of certificates, and that transfer was

completed without cost or expense to the parties, prior to

the June 17, 1981, hearing on the order to show cause re

On June 17, 1981, this Court issued a preliminary in-

junction ordering the Minnesota Bank to hold, maintain

and pay out the escrowed funds as provided in the escrow

instructions and again restrained Rectifier from interfer-

*The Escrow Instructions provide that the instructions of both

Rectifier and C&R are required te release or transfer the escrowed

funds. C&R has previously instructed the California Bank to trans-

fer the escrowed funds to the Minnesota Bank.

App. 51

ing with the bank’s possession or administration of those

funds.

Rectifier admits that C&R are entitled to all of the in-

come and earnings derived from the escrowed funds under

the terms of the May 16, 1974, C&R-Rectifier fee agree-

ment and the Escrow Instructions until the issues raised by

the Petition are finally adjudicated. In its appeal to the

Eighth Circuit, Rectifier stated that. under the present

escrow arrangement the plaintiffs [C&R] have been and

will continue to receive the interest paid on said funds.

Rectifier has not filed any affidavits relating to the in-

junction issues, but, by memoranda of law and argument

of counsel, asserted that preliminary injunctive relief is

inappropriate and improper.

In particular, Rectifier has not offered any explanation

as to why the maintenance of the escrowed funds in the

California Bank is of any significance or importance to

Rectifier.

This Court issued the tempora: y and preliminary injunc-

tions to preserve the status quo during the pendency of

this case based upon the erified Petition and the affidavits

filed by C&R and which Rectifier has not controverted. The

status quo in this case is not, as Rectifier asserts, the situs

of the escrowed funds. The status quo is that the funds

remain in escrow and that C&R continue to receive the in-

come and interest therefrom during the pendency of this

case. The Court’s temporary and preliminary injunctions

have assured that status quo pending the outcome of this

case.

The Cohen affidavit dated May 28, 1981, states that

„transfer of the escrowed funds to a Minneapolis, Minne-

sota Bank, as requested herein, cannot conceivably harm

Rectifier in any way since the escrowed funds will re-

App. 52

main on deposit until the final conclusion of the Petition

and will be subject to the very same terms and provi-

sions which Rectifier initially agreed to.’’ Rectifier has

not denied that assertion. To the contrary, both at the

hearing on June 12, 1981, and at the hearing on June 17,

1981, Rectifier’s counsel conceded that neither Rectifier

nor any of its creditors nor any alleged claimant to the

escrowed funds would possibly suffer any conceivable harm

if the escrowed funds remain on deposit in the Minnesota

Bank pending final adjudication in this Court.

As an adjunct of this Court’s ancillary jurisdiction, we

have the power to order the parties to the main action

to deposit the settlement funds into the court's registry

pending adjudication of the ancillary attorneys’ fee dis-

pute Grimes v. Chrysler Motors Corp., supra; Andrews v.

Central Surety Insurance Co., supra. The injunctions is-

sued by this Court were simply in aid of its powers. In

Re Uranium Antitrust Litigation, 617 F.2d 1248, 1261 (7th

Cir. 1980).

... The Supreme Court has established that the ex-

ercise of ancillary jurisdiction is appropriate where

the subsidiary controversy has direct relation to

property or assets actually or constructively drawn

into the court’s possession or control by the principal

suit... .’’ Fulton National Bank of Atlanta v. Hoster,

267 U.S. 276 [45 S.Ct. 261, 69 L.Ed. 609) . . (1925).

Under these standards the District Court’s [action]

was clearly ancillary to its approval of the settlement

in the case. [Citing State of Iowa.] [emphasis added)

Where the Court has ancillary jurisdiction in an attor-

ney-client fee dispute, it also has constructive possession

of the settlement funds wherever located and even if in

the possession of the client. American Federation of

Tobacco Growers, Inc. v. Allen, 186 F.2d 590, 592 (4th Cir.

1952) :

App. 53

. . it is manifest that the court’s power in the prem-

ises is no less merely because one of the parties before

the court has taken the funds into its own possession

— of having them paid into the hands of the

e

In this case the Court used its injunctive powers to require

the parties to transfer the C&R 834% bonus fee which

Rectifier had effectively paid to C&R in 1975 and which

C&R had posted in escrow as security for the indemnity

which is at issue herein, to the Minnesota Bank in order

to maintain the status quo pending resolution of those

issues.

The power of this Court to do so by issuing a mandatory

temporary restraining order, without notice, in the cir-

cumstances of this case is clear. In Re Uranium Antitrust

Litigation, supra; Matter of Vuitton et Fils S. A., 606 F.2d

1, 45 (2d Cir. 1979).

Rectifier asserts that injunctive relief cannot be em-

ployed where the dispute involves only the payment of

money, since a money judgment at a later date precludes

irreparable injury in the interim.

That nonsequitur is fully answered in In Re Uranium

Antitrust Litigation, supra; Matter of Vuitton et Fils S. A.,

supra, where ex parte injunctive relief was granted to pre-

serve the funds pending adjudication of the plaintiff’s en-

titlement to a monetary judgment and by Grimes v. Chrys-

ler Motors Corp., supra, and Andrews v. City Central Sure-

ty Insurance Co., supra, where in ancillary attorney-client

fee disputes the courts required the deposit of the settle-

ment funds into the court to protect the petitioner’s en-

forcement of an ultimate money judgment.

The same standards which apply to the issuance of a

temporary restraining order also apply to the issuance of a

App. 54

preliminary injunction. Chicago Great Western Ry. Co. v.

Chicago B&Q R. Co., supra.

Rectifier quotes the four factors authorizing temporary

and preliminary injunctive relief, citing Dataphase Sys-

tems, Inc. v. C. L. Systems, Inc., 640 F.2d 109, 113 (8th Cir.

1981) as follows:

... (1) a threat of irreparable harm to the Plaintiff;

(2) the state of the balance between this harm and the

injury that granting the injunction on other parties

litigant; (3) the probability that Plaintiff will succeed

on the merits; and (4) the public interest.

Petitioners agree that these are the relevant consid-

erations and have heretofore cited Granny Goose Foods

Inc. v. Brotherhood of Teamsters and Auto Truck Drivers,

etc., 415 U.S. 423, 439, 94 S.Ct. 1113, 1124, 39 L.Ed.2d 435

(1974) and Dow Chemical Co. v. Blum, 469 F.Supp. 892,

901 (D.Mich.1979), for that very same proposition.

Factor 1: Irreparable harm to the plaintiff.

Of the three threatened and potential actions and pro-

ceedings described in the Petition and the affidavit of

Peter R. Cohen, the most serious appears to be Rectifier’s

intent to file a Chapter 11 bankruptcy proceeding under the

Bankruptcy Code.

Rectifier does not deny that intent by affidavit or other-

wise, but represented in the June 4, 1981, ‘‘Stipulation and

Order that it:

... has no intention of initiating such a proceeding

or any other proceeding under the Bankruptcy Code

prior to June 17, 1980.

To date, Rectifier has not denied that it intends to file

a Chapter 11 proceeding if a damage award in the doxycy-

cline case comes to pass. This Court has not been advised

as to when the Court in that case will try the damages

App. 55

issues other than the assertion in Mr. Cohen’s affidavit

that this case, as distinguished from a California state

court action, can be finally concluded before the potential

award of damages in the doxycycline case.

At the hearing on June 17, 1981, Rectifier’s counsel

argued that Pfizer Inc. might have a claim to the escrowed

funds, for damages awarded to Pfizer Inc. in the doxycy-

cline case, as a general creditor of Rectifier in a Rectifier

bankrutcy proceeding, citing Sanders v. Providence Wash-

ington Insurance Co., 442 F. 2d 1317 (8th Cir. 1971). That

argument supports the undenied assertion that Rectifier

intends to file a bankruptcy proceeding in the event of a

substantial monetary judgment in the dorycycline case.

The Sanders case was cited by Rectifier for the propo-

sition that this Court’s assumption of ancillary jurisdiction

would interfere with the future jurisdiction of the bank-

ruptey court. The case is inapposite for several reasons,

(some of which are explained above): 1. The is-

sues raised by the Petition can be decided by

this Court and may well be decided before any

Rectifier bankruptcy proceeding is instituted. 2. <A

decision by this Court will also resolve the issue of whether

the escrowed funds are the property of the bankrupt

over which a bankruptcy court has any jurisdiction. 3. If

this Court decides that the escrowed funds are the prop-

erty of C&R, then neither C&R nor the escrowed funds

will be involved in the bankruptcy and C&R will be saved

the time, effort and expense of resisting any bankruptcy

court’s demand for the escrowed funds and/or the priority

of C&R’s claims to those funds against Rectifier’s credi-

tors’ claims to those funds. The avoidance of those priori-

ty issues is one of the grounds for the exercise of this

Court’s ancillary jurisdiction as those issues wil! be

mooted if this Court finds that the escrowed funds are the

App. 56

property of C&R irrespective of whether C&R or Rectifier

prevails herein on the issue of whether Rectifier was obli-

gated to release those funds upon C&R’s demand in Janu-

ary of 1981. 4. If a Rectifier bankruptcy court proceed-

ing is instituted before this Court’s decision is issued, the

bankruptcy court may well decide to allow the issues of

whether the escrowed funds are C&R’s or Rectifier’s

‘*property’’ to be determined by this Court, which will be

substantially further along at that time than the bank-

ruptey court. Halpert v. Engine Air Service, 212 F.2d 860,

862 (2d Cir. 1954). 5. Indeed, this Court may require the

bankruptcy court to determine the issue of whether the

escrowed funds are C&R ’s or Rectifier’s property in this

Court. Ibid. 6. If this Court defers to a potential future

bankruptcy court proceeding and refuses to exercise its

jurisdiction becaase of that potential proceeding, the same

issues will be issues in a California stute court action in-

stituted by C&R against Rectifier. 7. If C&K’s right to

possession of the escrowed funds has matured, C&R

should not be delayed in establishing at the earliest pos-

sible date its right to possession and actual possession.

8. This Court is in the best position to expeditiously

and economically determine the property issue and the

priority issues.

9. If this Court deferred to the potential future bank-

ruptey proceeding, the Court would be sanctioning the

multiplicity of actions and the delay and unnecessary ex-

pense which ancillary jurisdiction is designed to avoid.

Similarly, if the Court had not issued its temporary in-

junctions and the preliminary injunction, the same mis-

chief which C&R assert might cause irreparable injury

might have resulted. Rectifier could have instituted a

California state court action involving the same issues

which would have necessitated further injunctive proceed-

ings in this Court. Rectifier could have advised RM&S

App. 57

of the pending Petition which would have also caused fur-

ther injunctive proceedings in the Court. And Rectifier

might have filed a Chapter 11 proceeding which would have

initially raised the preliminary issue of whether the es-

crowed funds are the property of the Bankrupt or are

C&R’s property. If the bankruptcy court had attempted to

gain possession of the escrowed funds before the ‘‘prop-

erty’’ issue was decided, that attempt would cause fur-

ther injunctive proceedings in this Court. As C&R’s mov-

ing papers state, the California Bank would, undoubtedly,

pay over the escrowed funds to the bankruptcy court upon

Rectifier’s instructions. If the bankruptcy court obtained

possession of the escrowed funds, thereby temporarily cut-

ting off the payment of income and interest to C&R, the

status quo would be disturbed. Although the possibilities

of irreparable injury to C&R are stated by the Court as a

series of ‘‘ifs,’’ those possibilities pose a real and present

threat of irreparable injury to C&R which is more than

just speculative in view of Rectifier’s refusal to deny its

intention of filing a Chapter 11 proceeding. Once filed, the

string of possibilities might have become realities in one

day’s time. This Court’s injunctions were and are neces-

sary to prevent that threatened harm. This Court can

protect the rights of all parties and claimants without the

expense, delay and alteration of the status quo which those

multiple proceedings could have caused.

Rectifier asserts that the ‘‘anti-injunction act,’’ 28 U.S.C.

§ 2283, prevents this Court from interfering with any

California state court proceeding. That statute is inap-

plicable herein since this Court’s exercise of ancillary juris-

diction does not, and will not interfere with any pending

California proceeding.

28 U.S.C. § 2283 states that:

A Court of the United States may not grant an in-

junction to stay proceedings in a state court except

App. 58

as expressly authorized by act of Congress, or where

necessary in aid of its jurisdiction, or to protect or

effectuate its judgments. emphasis added]

The case law engrafts a fourth exception onto § 2283;

a federal court can always issue an injunction to prevent

irreparable injury. Wulp v. Corcoran, 454 F.2d 826, 831

n. 5 (Ist Cir. 1972).

This Court’s injunctions are permitted by the express

exceptions to § 2283, by its engrafted power to prevent

irreparable injury and also by its inherent injunctive

powers. Wulp v. Corcoran, supra; Matter of Vuitton et

Fils S. A., supra; In Re Uranium Antitrust Litigation,

supra; Doe v. Ceci, 517 F.2d 1203 (7th Cir. 1975).

In addition, § 2283 is applicable only to a case which is

first filed in the state court and is inapplicable to the federal

courts’ injunctive powers where the federal court action

was the first in time, the state court action was second

in time and the state court action seeks by injunction or

otherwise to interfer with the federal court’s prior juris-

diction, pendente lite injunctive relief, or ultimate judg-

ment. Doe v. Ceci, supra; Pacific Telephone d Telegraph

Co. v. Star Pub. Co., 2 F.2d 151, 153-4 (5th Cir. 1924).

Furthermore, the All Writs Act, 28 U.S.C. § 1651(a) and

the inherent equity power of federal courts confer upon the

Court injunctive power to control the transfer of funds

to maintain the status quo and to protect and preserve the

Court’s jurisdiction. In Re Uranium Antitrust Litigation

617 F.2d 1248, 1258-60 (7th Cir. 1980):

With regard to the requisite threat of irreparable

harm, it is evident that witheut the Court’s use of

injunctive powers the plaintiff's ability to satisfy the

judgment would be seriously jeopardized.

App. 59

The Court’s injunctive orders do not place an oner-

ous burden on the defaulting defendants [at p. 1261]

The all writs act“ and the ‘‘anti-injunction act

are therefore entirely consistent as applied herein.

C&R assert, and Rectifier does not deny, that the income

and interest from the escrowed funds are necessary to

support D. Riordan and her and E. Riordan’s children and

that both petitioners need that income and interest to de-

fray the continuing expenses of the RM&S case in its appel-

late stage and to prepare for trial and try the C&R cross-

complaint for an accounting. The affidavit of D. Riordan

emphasizes that necessity and also explains that delay in

deciding these issues is and will continue to cause in-

soluble tax problems for the E. Riordan estate, as fol-

lows :

2. The income and interest from the escrowed

funds, held pursuant to the letter agreement of May

16, 1974 between Cohen & Riordan and International

Rectifier Corporation, have been, are now, and will

continue to be necessary and essential for the follow-

ing purposes :

(a) To support myself and Ted’s and my children

during the pendency of the RM&S case and there-

after. Our children are: John, age 19 now attending

UCLA; Laura, age 17; and Daniel, age 12.

(b) To defray the out of pocket costs (including

attorney’s fees, reporters’ fees, ete.) during the pen-

dency of the RM&S case.

(c) To defray the additional out of pocket costs

(attorneys’ fees, reporters’ fees, etc.) which have been

and will continue to be incurred by C&R in connection

with the action in which this Affidavit is filed.

(d) To defray the out of pocket costs (including

attorneys’ fees, etc.) involving tax matters concerning

the Estate of Edward J. Riordan.

App. 60

3. It is respectfully requested that this court do

what it can to resolve the dispute regarding the pay-

ment of the escrowed funds. I am advised by my coun-

sel that if this court does not accept jurisdiction and

determine the question involved, that the matter will

then have to be resolved in the courts of the State

of California. If the matter must be decided by the

State Courts of California, I understand that the case

will not be tried due to the congested calendar of the

court in less than five years from the filing of the

Complaint.

4. The federal and state taxing authorities have

taken the position that one-half of the entire fee due

to Ted Riordan from the escrowed funds must be taken

into account in valuing the interest of Ted Riordan

in the firm of Cohen & Riordan at the time of Ted’s

death. That one-half, if the government prevails, would

add $514,285.00 to the value of the taxable estate. With

the additional charges for estate and inheritance taxes

being made, coupled with interest at 12 percent per

annum (accruing at the rate of $63.51 per day for

estate tax purposes and $23.67 per day for state in-

heritance tax purposes), the entire $514,285.00 will be

used up by taxes and interest before five years from

the date of this Affidavit.

5. In other words, if the federal and state taxing

authorities’ positions are correct (which we are dis-

puting), it will make no difference whether the estate

is right or wrong in the pending dispute with Interna-

tional Rectifier unless the matter can be resolved

promptly. If the matter has to be decided by the

State Courts of California, by the time that court

could rule in favor of C&R, all of the fees earned by

Ted and attributable to the estate would be due for

taxes and interest.

App. 61

Factor 2: Balancing the threat of irreparable injury to

C&R with the risk of injury to Rectifier.

Rectifier has been unable to explain why it has persisted

in its efforts to prevent the transfer of the escrowed funds

to the Minnesota Bank or why it persists in its attempts

to have the escrowed funds retransferred to the California

Bank. Rectifier admits that no harm can result from the

escrowed funds being administered by the Minnesota Bank

rather than by the California Bank. There being no con-

ceivable harm to Rectifier by either the temporary or the

preliminary injunctions, even a slight risk of potential

harm to C&R by not having granted those injunctions tips

the balance in favor of those injunctions. The showing

made by C&R and discussed under Factor 1, supra, far

exceeds slight risk and demonstrates immediate and ir-

reparable threatened and potential injury. If Rectifier

is able to demonstrate any threatened injury in the future,

the Court has the power to consider any Rectifier applica-

tion to modify the preliminary injunction. The escrowed

funds can always be re urned, if necessary, to the Cali-

fornia Bank with the samc dispatch and also without cost

to the parties, just as those funds were transferred to the

Minnesota Bank.

There being no conceivable harm or injury to Rectifier

by granting the injunctions and there being serious and

irreparable risk of harm and injury to C&R by not granting

the injunctions, the Court’s discretion and duty in grant-

ing the injunctions is clear.

Factor 3: The probability that petitioners will succeed

on the merits.

As stated in the verified Petition and the accompanying

affidavits, Rectifier concedes that the escrowed funds would

be releasable to petitioners and Rectifier would have to

release those funds if (a) the paragraph 4(a) C&R in-

App. 62

demnity was not triggered by the RM&S $5.9 million judg-

ment and does not extend to an appeal by Rectifier only

and/or (b) there is no indemnity for any result in the dox-

yeycline case after the main action concluded in August

of 1975.

Rectifier insists that C&R must rely upon oral evidence

to modify the written fee agreements in order to prevail

on the merits. The Court disagrees. Both the Petition and

the Cohen affidavit make it clear that C&R’s primary posi-

tion is that the May 16, 1974, fee agreement letter on its

face and withiz, its four corners, and also as interpreted

by case law only, contains no implied indemnity for any

result in the doxycycline case and exonerated the RM&S

fee judgment when the RM&S California trial court judg-

ment failed to reach the indemnity amount. Rectifier is

confusing the alternative allegations regarding recission

and fraud, upon which parol evidence is clearly admissible,

with the primary count for enforcement of the fee agree-

ment according to its terms.

A. The Rudd case fee indemnity.

C&R have alleged that:

Rectifier’s trial counsel conceded on the record during

the RM&S case trial that C&R’s paragraph 4(a) indemnity

would not be triggered unless RM&S received a fee judg-

ment which exceeded $7 million.

Rectifier’s trial counsel conceded during the June 10,

1981, settlement discussion that the RM&S judgment, with

or without prejudgment interest, did not trigger C&R’s

indemnity, and even if construed to cover an appeal by

Rectifier the indemnity was unlikely to ever come into

play.

Only Rectifier appealed from the judgment in the time

provided by law; after the time for a direct appeal ex-

pired, RM&S filed a protective cross-appeal only.

App 63

C&R and Rectifier intended that the paragraph 4(a)

indemnity would end if an RM&S trial court judgment did

not reach the threshold indemnity amount and only Rec-

tifier appealed as the parties did not intend that Rectifier

could gamble on an appeal and a retrial for its sole benefit

and at C&R’s risk.

The paragraph 4(a) indemnity covers only liability im-

posed on Rectifier for retaining C&R and paying C&R for

their retained future services. The RM&S case complaint

did not attempt to impose any such liability upon Rectifier

nor does the RM&S judgment impose any such liability.

To the contrary, the RM&S judgment is for quantum

meruit for RM&S legal services rendered prior to Recti-

fier’s retention of C&R.

Thus if Rectifier relies upon the literal language of para-

graph 4(a), there is no indemnity and, alternatively, if

Rectifier agrees with C&R that the coverage is limited

to an RM&S fee judgment, then the indemnity amount has

not been reached during the term of the indemnity. (In-

cluding the judgment, prejudgment interest and Rectifier’s

reasonable attorneys’ fee would still not trigger the in-

demnity coverage.)

The Court agrees that C&R’s interpretation of the fee

agreement is consistent with the language of the agree-

ment, and the admissions of Rectifier quoted by C&R as to

the agreement’s proper construction also supports C&R’s

position on the merits. Other than the bare conclusions

of Rectifier’s counsel, Rectifier has offered no other in-

terpretation of the fee agreement.

App. 64

B. The claimed doxycycline case ‘‘indemnity-

in surance p olicy „*

C&R have alleged that:

When C&R demanded release of the escrowed funds on

January 19, 1981, Rectifier for the first time ‘‘interpreted’’

the May 16, 1974, agreement to require a recomputation

of C&R’s 834% bonus fee at the final conclusion of the

doxycycline case.

The preamble paragraphs on page 1 provides that the

C&R’s obligation to render legal services in the main action

and the related actions also ends therewith.

Paragraph 2.C.(2)(d) provides that when the main ac-

tion is settled Rectifier will deposit C&Ri’s 834% bonus

fee in an interest-bearing account within 30 days thereafter

as security for C&R’s indemnity in paragraph 4(a) for an

RM&S fee judgment.

The paragraph 4(a) indemnity covers an RM&S fee

judgment only and no other indemnity can be implied.

Nowhere in the fee agreement is there any provision

or implication that the 834% bonus fee was to be recom-

puted after the main action was settled for any later result

in the doxycycline case or for anything else.

Paragraph 2.C.(1) provides that Rectifier can deduct

only amounts paid to or awarded to an antitrust defendant

in the main action or a related action prior to or upon

the settlement of the main action in computing C&R’s

834% bonus fee.

Paragraph 2.C.(2)(c) provides that only attorneys’ fees

ineurred in the doxycycline action prior to May 16, 1974,

can be deducted from the settlement amount in computing

C&R’s 834% bonus.

App. 65

After August 14, 1975, the parties entered into an accord

and satisfaction and a final accounting and agreed that the

escrowed funds were at risk only for an RM&S fee judg-

ment.

If the agreement can be construed to cover a money judg-

ment in the doxycycline case and indemnify Rectifier

against that judgment, Rectifier has exonerated the in-

demnity as a matter of law by involuntarily dismissing the

antitrust affirmative defense in that case without C&R’s

consent and against C&R’s advice. Rectifier does not con-

tend that the paragraph 4(a) indemnity covers the dox-

yeycline case, rather it construes the indemnity via its

recomputation assertion, which results in indemnification

without any other paragraph ever using that word or even

a colorable synonym.

Again the Court must agree with C&R’s construction of

the fee agreement. The Court must also agree that even

if, by resort to parol evidence, Rectifier could prove that the

parties intended are computation of the C&R 89% bonus

fee after the agreement was fully performed and thereby

meant to indemnify Rectifier against a future judgment for

damages in the doxycycline case, the waiver of the af-

firmative antitrust defense would appear to have prej-

udiced C&R and that the implied indemnity was therefore

exonerated. Again, Rectifier relies only on its counsel’s

pure conclusions, and Rectifier offers no favorable con-

struction whatsoever.

The Court reemphasizes that the foregoing summary of

the merits is a reiteration of the allegations set forth in

the Petition and the Cohen affidavits. Rectifier has not

yet stated its position, Unopposed, the Court finds that

C&R’s position on the merits does demonstrate the req-

nisite likelihood of success on the merits.

App. 66

Factor 4: The Public Interest.

The Court’s exercise of its injunctive power does no dis-

service to the public interest, but to the contrary enforces

the private attorney-general public policy of Section 4 of

the Clayton Act, and the strong federal policy of Sprague

v. Ticonic Bank, supra, by insuring that if the successful

plaintiffs’ attorney is entitled to his agreed fee or a rea-

sonable fee from the plaintiff recovery which included at-

torneys’ fees, there will be a fund from which to pay that

fee. See Grimes v. Chrysler Motors Corp., supra, and that

the successful plaintiff will not defeat the attorney’s rights

to a fee or the ultimate judgment of the Court by placing

those funds beyond the reach of the Court. /n Re Uranium

Antitrust Litigation, 617 F.2d 1248, 1251-61 (7th Cir. 1980).

Accordingly, IT IS HEREBY ORDERED That the pre-

liminary injunction issued on June 22, 1981, shall remain

in effect according to its terms and that Rectifier’s motions

to vacate the Court’s injunction, to dismiss the Petition and

to transfer this case to the District Court in California are

denied.