A fight over fees from a class settlement between an attorney and his old firm is outside the jurisdiction of the federal court that approved the deal, the Third Circuit ruled Dec. 20.

The issue should be resolved by the state court where the fee fight was filed, not the federal court exercising ancillary jurisdiction, Judge Patty Shwartz wrote for the U.S. Court of Appeals for the Third Circuit.

The jurisdiction question was an issue of first impression in the Third Circuit. It joined the Fourth Circuit in holding that the federal court didn’t have jurisdiction because it had no control over the funds after they were paid to the attorney.

R. Bruce Carlson was co-lead counsel representing the plaintiffs in a class action against lenders who paid illegal kick-backs to undisclosed third parties. He was at Specter Specter Evans & Manogue when he first worked on the case, then left the firm while the case was pending.

Carlson made an agreement with SSEM for how to share the attorneys’ fees.

The third version of a settlement among the parties—$24 million for the class and $8.4 million for counsel—survived Third Circuit scrutiny.

SSEM sued Carlson in the Pennsylvania state court for a portion of his fee award. The federal court that approved the settlement confirmed Carlson’s award.

But the district court didn’t have jurisdiction to consider the dispute, the Third Circuit said.

It vacated the order confirming the award and left the merits of the case to the state court.

Judges Jane R. Roth and Judge D. Michael Fisher joined the opinion.

Stanley M. Stein in Pittsburgh represented Specter Specter Evans & Manogue.

Carlson Lynch Sweet & Kilpela represented Carlson.

The case is In re Cmty. Bank of N. Va. Mortg. Lending Practices Litig., 2018 BL 472254, 3d Cir., No. 17-3012, 12/20/18.