Case Information
*1 FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT (cid:252)
In re: H B ITIGATION , R USSEL B ETKER ; V IRGINIA ETKER ; B ETKER P ARTNERS O NE , LP; B ETKER P ARTNERS T HREE , LP; L ORI
O’S HEA ; M ICHAEL O’S HEA ,
Plaintiffs-Appellees, v.
U.S. T RUST C ORP ., N.A., et al., No. 05-55072
Defendant-Appellee, (cid:253) D.C. No. and CV-01-05752-DT B RUCE R. T ALLEY ,
Defendant-Appellant, V ALUATION C OUNSELORS G ROUP , NC ., doing business as CBIZ Valuation Inc., formerly known as CBIZ Valuation Counselors,
Defendant-Appellee, R OBERT A. K ASIRER ; D EBRA
K ASIRER , (cid:254) Defendants-Appellees.
ERITAGE B OND L (cid:252) In re: H B ITIGATION , R USSEL B ETKER ; V IRGINIA ETKER ; B ETKER P ARTNERS O NE , LP; B ETKER P ARTNERS T HREE , LP; L ORI
O’S HEA ; M ICHAEL O’S HEA , Plaintiffs-Appellees, No. 05-55371 v. (cid:253) D.C. No.
U.S. T RUST C ORP ., N.A., et al., CV-01-05752-DT Defendant-Appellee, OPINION and B RUCE R. T ALLEY ,
Defendant-Appellant, R OBERT A. K ASIRER ; D EBRA
K ASIRER ; CBIZ V ALUATION G ROUP ; C ENTURY B USINESS S VC , (cid:254) Defendants-Appellees.
Appeal from the United States District Court for the Central District of California Dickran M. Tevrizian, District Judge, Presiding Argued and Submitted May 6, 2008—Pasadena, California Filed October 1, 2008 Before: Raymond C. Fisher and Richard A. Paez, Circuit Judges, and James L. Robart,* District Judge. *The Honorable James L. Robart, United States District Judge for the Western District of Washington, sitting by designation.
Opinion by Judge Paez COUNSEL Robert Scott Dreher and Matthew R. Miller (argued), Dreher Law Firm, San Diego, California, for Bruce Talley, appellant. Daniel M. Harkins, Feldhake, August & Roquemore, Irvine, California, for Russel Betker, Virginia Betker, Betker Partners One, LP, Betker Partners Three, LP, Lori O’Shea, and Michael O’Shea, appellees.
G. Cresswell Templeton, III, Hill, Farrer & Burrill LLP, Los Angeles, California, for U.S. Trust Corp., N.A., appellee. Gary Kurtz, Law Offices of Gary Kurtz, Woodland Hills, Cal- ifornia, for Robert A. Kasirer and Debra Kasirer, appellees. Garland Kelley, Irell & Manella, LLP, Los Angeles, Califor- nia, for CBIZ and Century Business Services, appellees. OPINION
PAEZ, Circuit Judge:
This case arises from the settlement of a complex of securi- ties fraud cases involving the sale of municipal bonds for ren- ovation and construction of health care facilities. The litigation was commonly referred to as the In re Heritage Bond Litigation . The district court ultimately approved multi- ple settlement agreements between different plaintiffs and defendants pursuant to Federal Rule of Civil Procedure 23 (“Rule 23”), California Code of Civil Procedure section 877.6 (“section 877.6”), and the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4. In approving the settlements, the district court issued five bar orders that barred non-settling defendants from bringing against settling defendants any future claims “arising out of or related to . . . any of the transactions or occurrences alleged.” Appellant Bruce Talley (“Talley”), a non-settling defendant, objected to the scope of the bar orders on the ground that he sought to pursue independent state law claims against several of the settling defendants.
The district court, applying the “interrelatedness” test from Wisconsin Investment Board v. Ruttenberg , 300 F. Supp. 2d 1210 (N.D. Ala. 2004) (following In re U.S. Oil & Gas Liti- gation , 967 F.2d 489 (11th Cir. 1992)), determined that Tal- ley’s claims were related to and arose out of the litigation involving the Heritage Bonds and, in the five bar orders, spe- cifically barred his claims. In this appeal, Talley challenges the scope of the bar orders and argues that under federal com- mon law, the PSLRA, and section 877.6, the orders should have been limited to claims for contribution and indemnity or disguised claims for such relief. [1] Talley concedes that any claims for indemnity, contribution, and comparative fault were appropriately barred by the orders at issue here. He con- tests the bar orders only to the extent they bar his allegedly independent state law claims. Appellees [2] argue that the dis- trict court has broad authority to issue bar orders and that this court should apply the “interrelatedness” test to determine that Talley’s state law claims arise from the same core facts as those extinguished by the district court’s approval of the set- tlement agreements.
We have jurisdiction under 28 U.S.C. § 1291, and we
vacate the bar orders and remand for modification. In so
doing, we adopt the approach of the Second Circuit in
Gerber
v. MTC Electronics Technologies Co.
,
[2] Appellees include Russel Betker; Virginia Betker; Betker Partners One, LP; Betker Partners Three, LP; Lori O’Shea; Michael O’Shea; U.S. Trust Corp., N.A., et al.; Robert A. Kasirer; Debra Kasirer; CBIZ; Century Business Services; and Valuation Counselors Group, Inc. Although Valua- tion Counselors Group, Inc. is not listed on this court’s docket, they were part of Talley’s Notice of Appeal and filed a supplemental brief in this appeal.
[3]
As discussed,
infra
at 13967, although the PSLRA had become effec-
tive by the time the Second Circuit issued its decision, it was not in effect
at the time the parties brought the underlying action. Therefore, the
Ger-
ber
court analyzed the challenged bar order under federal common law
rather than the PSLRA.
Gerber
, 329 F.3d at 309-10. We agree with the
Eleventh Circuit, however, that
Gerber
is relevant to the interpretation of
the PSLRA’s contribution bar, which essentially codified federal common
law allowing for issuance of a bar order as part of a securities fraud class
action settlement.
See AAL High Yield Bond Fund v. Deloitte & Touche,
LLP
,
I. Background
The underlying litigation in this case involved investor plaintiffs’ securities fraud claims against the individuals responsible for creating, operating, marketing and selling Her- itage Bonds; certain defendants’ cross-claims against each other for indemnity and contribution; and Talley’s separate tort claims against certain co-defendants—his employers and the creators and operators of the Heritage Bonds.
In the mid-1990s, defendant Robert Kasirer joined with
several other entities to develop a series of fraudulent munici-
pal bond offerings (the Heritage Bonds), ostensibly to finance
or renovate healthcare facilities in several states.
See In re
Heritage Bond Litigation
,
The first lawsuit was filed in June 2001 in the United States District Court for the Central District of California, Case No. 01-CV-5752, captioned Betker Partners One, et al. v. U.S. Trust Company, et al. (“ Betker lawsuit”). [4] The Betkers were investors in the Heritage Bonds. Their claims included securi- ties fraud and control person liability under the Securities Exchange Act of 1934 and violations of the Securities Act of 1933. They also alleged state law claims for breach of fidu- ciary duty, violations of the California Corporations Code, misrepresentation, breach of contract, and negligence.
In August 2002, the Betker lawsuit and other related class action lawsuits that had been filed around the country were consolidated by the Judicial Panel on Multi-District Litigation and transferred to the Central District of California under the title of In re Heritage Bond Litigation , Case No. 02-ML-1475. See 28 U.S.C. § 1407. Talley was a defendant only in the Bet- ker lawsuit. He filed an answer and cross-claims against sev- eral co-defendants in the consolidated case. His cross-claims were for indemnity and contribution.
[4] Parties to the Betker lawsuit include Russel and Virginia Betker, as Trustees of the Betker Family Trust; Betker Partners One, LP; Betker Part- ners Three, LP; Lori O’Shea; Michael O’Shea (the Betker plaintiffs); U.S. Trust Corp., N.A.; U.S. Trust Company of Texas, N.A.; Bank of New York, Inc.; Heritage Geriatric Housing Development VII, Inc.; Heritage Geriatric Housing Development VIII, Inc.; Heritage Geriatric Housing Development IX, Inc.; Heritage Care of Chicago, Inc.; Heritage Care of Sarasota, Inc.; Heritage Housing Development, Inc.; Health Care Hold- ings, LLC; CareContinuum, LLC; Heritage Acceptance Corp.; Affiliated Metropolitan Contractors, Inc.; Valuation Counselors Group, Inc.; Robert Kasirer; Jerold Goldstein; Onofrio v. Bertolini; Debra Kasirer, individu- ally and as Trustee of the Debra Kasirer Trust; Canon Realty Corp; Heri- tage Housing V, Inc.; BHMC Corp.; JDDJ Holdings, LP; James E. Iverson; Victor P. Dhooge; John M. Cleary; James F. Dlugosh; Edward J. Hentges; Kenneth R. Larsen; Jerome E. Tabolich; Steven W. Erickson; Paul R. Elholm; Joel T. Boehm; Sabo & Green; Coddington Appraisal Services; Capital Valuation Group; CBIZ (formerly Century Business Ser- vices); Healthcare Financial Solutions Group, Inc.; and Zelemkofske, Axelrod & Co., Ltd (the Betker defendants).
In December 2002, Talley filed a complaint in the Califor- nia Superior Court, County of San Diego, No. GIC 802187, against many of the Heritage Bonds co-defendants and others, alleging claims for breach of fiduciary duty, negligence, inter- ference with economic advantage, avoidance of fraudulent transfer, unfair or unlawful business practices, constructive fraud, and violation of California Labor Code section 2802, and requesting declaratory relief and both economic and reputational damages. [5] He also alleged the same claims for indemnity and contribution that he had alleged in his answer in the Betker lawsuit. In August 2003, upon motion by the defendants, the Superior Court stayed Talley’s case pending the outcome of the claims against Talley in the In re Heritage Bond Litigation . In May 2004, this state court case was dis- missed without prejudice while Talley pursued settlement dis- cussions with the Betkers.
In October 2004, while settlement discussions with the Bet- kers were in progress, Talley filed a second state court lawsuit in the California Superior Court, County of San Diego, Case No. GIC 836807. This case concerned only Talley’s affirma- tive claims for damages and did not include the contribution and indemnity claims that he had previously alleged in his answer and cross-claims in the Betker lawsuit. While the instant appeal was pending, Talley’s second state court case moved forward through the California court system, and all of his claims were ultimately dismissed pursuant to the bar orders at issue here. See Talley v. Miller & Schroeder , No. D048438, 2007 WL 2660059 (not reported in Cal. Rptr. 3d) (Cal. Ct. App. Sept. 12, 2007). On appeal, “[d]ue to the broad language of all th[e] Bar orders,” the California Court of [5] In addition to the majority of the Betker defendants, including all of the Appellees other than the Betkers and the O’Sheas, the defendants named in Talley’s complaint include: Miller & Schroeder Financial, Inc.; The Marshall Group, Inc.; Jim Arias; Kenneth Halloran; Jim Morrell; Tom Nelson; John Peterson; William Sexton; Larry A. Rubin; Virgil Lim; Leo Dierckman; Berman & Bertolini, Inc.; and Kasirer Family Holdings #4 LLC.
Appeal affirmed the majority of the trial court’s dismissal orders. [6] Id . at *3. The decision allowed Talley to pursue cer- tain of his claims against U.S. Trust Corporation and U.S. Trust Company, N.A. (“U.S. Trust”) and Valuation Counsel- ors Group, Inc. (“Valuation”), but, pursuant to the bar orders at issue here, [7] the superior court, on remand, dismissed the remaining claims with prejudice as to these two defendants; Talley did not appeal. [8]
By February 2005, Talley’s settlement with the Betkers was finalized, and Talley was dismissed from the In re Heri- tage Bond Litigation . During this time, other defendants were also negotiating settlements with the In re Heritage Bond Liti- [6] Appellees urge us to conclude that the state court decision moots this appeal. We disagree and address this argument, infra .
[7] The California Court of Appeal did not address whether the bar orders applied to U.S. Trust and Valuation because they were not part of the state court appellate record. The court concluded that, in the absence of the bar orders, Talley’s state court claims against these defendants could proceed. See Talley , 2007 WL 2660059, at *24. In so concluding, the court held that these claims were not subject to claim preclusion or res judicata as a result of the dismissal of Talley’s indemnity claims in the Betker lawsuit. Id .
[8]
U.S. Trust and Valuation both request that we take judicial notice of
five documents relating to the state court proceedings. Specifically, U.S.
Trust requests that we take judicial notice of 1) the California Court of
Appeal’s decision in
Talley
, 2007 WL 2660059; 2) Notice of Ruling on
Defendant the U.S. Trust Defendants’ Demurrer to Plaintiff’s Amended
Complaint, California Superior Court for the County of San Diego, Case
No. GIC 836807, filed and served on February 11, 2008; 3) Notice of
Entry of Order of Dismissal with Prejudice as to the U.S. Trust Defen-
dants, California Superior Court for the County of San Diego, Case No.
GIC 836807, filed and served on February 20, 2008; 4) Order of the Cali-
fornia Court of Appeal, Fourth Appellate District, Case No. D048438
(July 13, 2006); and 5) Order regarding Joint Stipulation to Dismiss the
Betker Plaintiffs’ Sixth Amended Complaint as to Bruce Talley Only and
Dismissal of Bruce Talley’s Cross-Complaint, in
Betker v. U.S. Trust Cor-
poration, N.A., et al.
, U.S. District Court, Central District of California,
Case No. CV 01-5752-DT (Dec. 1, 2004). Valuation’s request is essen-
tially identical. We grant both requests.
See Borneo
,
In November 2004, defendants BHMC Corporation; Care- Continuum, LLC; Health Care Holdings, LLC; JDDJ Hold- ings, LP; Debra Kasirer; and Robert Kasirer (“Kasirer Defendants”) filed a Motion for Approval of Settlement, Good Faith Determination and Bar Order in the Betker law- suit before the district court. The motion included a request that the court enter a broad bar order extinguishing any future claims by non-settling defendants against the settling defen- dants related to or arising out of the In re Heritage Bonds Liti- gation . Talley filed an opposition to this motion, urging the court to bar only claims for contribution and indemnity. He argued that the bar orders would preclude his independent state court claims against the settling defendants. The district court rejected Talley’s arguments and granted the motion and entered two orders—one granting preliminary approval and another granting final approval of the settlement—on Decem- ber 9, 2004. The district court specifically identified Talley’s state court case in the final order.
In doing so, the district court considered whether the pro-
posed settlement satisfied the requirements of Rule 23(e),
which requires that class action settlements be “fair, reason-
able, and adequate,”
see Hanlon v. Chrysler Corp.
, 150 F.3d
1011, 1026 (9th Cir. 1998), and section 877.6, which requires
that a settlement be made in good faith.
See Tech-Bilt
, 698
P.2d at 163. The court was guided by the following factors:
the fact that the proposed settlement was the result of arms-
length, informed, and court-assisted negotiations; the ade-
quacy and reasonableness of the settlement amount; the
absence of any evidence of collusion or fraud aimed to injure
non-settling defendants; and the fairness of the settlement
amount relative to both the proportionate liability of the set-
tling defendants and the approximate total recovery of the
plaintiffs.
See Staton v. Boeing Co.
,
Additionally, in response to Talley’s challenge to the bar orders, the court evaluated the appropriate scope of the orders by reference to the “interrelatedness” test of Wisconsin Invest- ment Board v. Ruttenberg , 300 F. Supp. 2d 1210 (N.D. Ala. 2004) (following In re U.S. Oil & Gas Litigation , 967 F.2d 489 (11th Cir. 1992)), which asks “whether the claims extin- guished by the bar order arise out of the same facts as those in the underlying . . . securities litigation.” Ruttenberg , 300 F. Supp. 2d at 1219. The district court found that “Talley’s bald assertions that his claims rely on facts that are separate and distinct from the facts alleged in the present securities litiga- tion are insufficient to support a finding that the proposed Bar Order is overly broad.” Talley filed a Notice of Appeal on January 4, 2005, appealing the final approval order (Appeal No. 05-55072).
In January 2005, defendants Jerold Goldstein; Valuation Counselors Group, Inc.; CBIZ; Bank of New York; U.S. Trust Company; Leo Dierckman; and HFS Consultants in the Heri- tage Bonds consolidated case each filed an identical Motion for Approval of Settlement, Good Faith Determinations, and Bar Orders. Talley filed an opposition to these motions, asserting the same arguments that he raised in his opposition to the similar motion noted above. The district court held a good faith hearing on the motions and entered two orders granting preliminary approval. The court again rejected Tal- ley’s arguments. The district court subsequently entered four final orders approving the settlements and bar orders on Feb- ruary 7, 2005. [9] The district court specifically identified Tal- ley’s state court case in the challenged bar orders, with the exception of the Goldstein bar order. Talley filed his second Notice of Appeal on March 2, 2005 appealing the four Febru- ary 7, 2005 final approval orders (Appeal No. 05-55371). [10]
In sum, each of the five final settlement approval orders from which Talley appeals includes a broad bar order that specifically bars his state court claims that relate to the In re Heritage Bond Litigation .
II. Discussion
A. Standard of Review
A district court may approve a proposed settlement in a class action only if the compromise is fundamentally fair, ade- quate, and reasonable. Fed. R. Civ. P. 23(e); Hanlon , 150 F.3d at 1026. Ordinarily, we review a district court’s decision to approve a settlement for abuse of discretion. Hanlon , 150 F.3d at 1026; Resolution Trust Corp. v. Rice ( In re Consol. Pinnacle W. Sec. Litig. ) (“ Resolution Trust ”), 51 F.3d 194, 197 (9th Cir. 1995). Talley, however, does not question the [9] In May 2005, the district court granted Final Approval of Settlement, Good Faith Determination and Bar Order in the consolidated In re Heri- tage Bond Litigation , and on June 10, 2005, the court entered a Final Judg- ment and Order of Dismissal.
[10]
We subsequently consolidated these two appeals for all purposes.
district court’s authority to approve a settlement; he chal-
lenges the district court’s interpretation of section 877.6 and
the PSLRA to determine the permissible scope of a bar order
issued pursuant to those statutes. “The district court’s inter-
pretation of a statute is a question of law” that we review de
novo.
Beeman v. TDI Managed Care Servs.
, 449 F.3d 1035,
1038 (9th Cir. 2006);
see also In re McLinn
,
B. Mootness
As discussed above, Talley’s state law claims were dis-
missed pursuant to the bar orders challenged here.
Talley
,
[1]
The Court of Appeal stated clearly that its reliance on
the bar orders was premised on its view that it was bound by
the broad language of the orders because the bar orders should
be considered final while Talley’s federal appeals were pend-
ing.
See Talley
, 2007 WL 2660059, at *3, 16 (“Plaintiff has
appealed that [bar] order to the Ninth Circuit Court of
Appeals, and appeal is pending, but for our purposes, under
the rule of
Levy v. Cohen
(1977)
We therefore agree with Talley that this appeal is not moot because we can still grant relief in his favor. We have previ- ously held that “[a]n appeal is moot when, by virtue of an intervening event, a court of appeals cannot grant any effec- tual relief whatever in favor of the appellant.” United States v. Strong , 489 F.3d 1055, 1059 (9th Cir. 2007). However, “[t]he party asserting mootness bears a heavy burden of estab- lishing that there is no effective relief remaining for a court to provide.” Id . (internal quotation marks and citations omit- ted).
[2]
Although the federal courts are unable to grant Talley
the ultimate relief he seeks—reinstatement of his state law
claims—he has outlined several procedures he could follow in
state court, such as filing a motion under California Code of
Civil Procedure section 473 to vacate the judgment or filing
a new action in state court, once the bar orders are modified.
See Romadka v. Hoge
, 283 Cal. Rptr. 878 (Cal. Ct. App.
1991) (reversing denial of plaintiff’s motion to vacate where
plaintiff’s attorney requested dismissal with prejudice without
authorization);
Hoover v. Galbraith
,
C.
Scope of the Bar Orders
Talley argues that, to the extent that they would bar him
from bringing independent, non-indemnity or contribution
claims in the superior court, the five bar orders challenged in
this appeal exceed the scope allowed by the contribution bar
provisions of the PSLRA, 15 U.S.C. § 78u-4(f)(7)(A)
[11]
and
section 877.6.
[12]
We agree with Talley and the Second Circuit
that a bar order issued in a partial settlement of a securities
fraud class action case cannot bar independent claims.
See
Gerber
,
[3] We have already acknowledged the authority of a dis- trict court under federal common law to issue bar orders bar- [11] In its entirety, section 4(f)(7)(A) of the Private Securities Litigation Reform Act provides:
(7) Settlement discharge
(A) In general
A covered person who settles any private action at any time before final verdict or judgment shall be discharged from all claims for contribution brought by other persons. Upon entry of the settlement by the court, the court shall enter a bar order con- stituting the final discharge of all obligations to the plaintiff of the settling covered person arising out of the action. The order shall bar all future claims for contribution arising out of the action—
(i) by any person against the settling covered person; and (ii) by the settling covered person against any person, other than a person whose liability has been extinguished by the settle- ment of the settling covered person.
[12] Adopted in 1980, California Code of Civil Procedure section 877.6(c) is a settlement bar statute. It provides:
A determination by the court that the settlement was made in good faith shall bar any other joint tortfeasor or co-obligor from any further claims against the settling tortfeasor or co-obligor for equitable comparative contribution, or partial or comparative indemnity, based on comparative negligence or comparative fault.
ring future claims for contribution and indemnity as part of its
approval of a proposed settlement in a class action securities
fraud case, once it has found that the settlement satisfies the
requirements of Rule 23.
See Resolution Trust
, 51 F.3d at
197;
Kaypro
,
i. Private Securities Litigation Reform Act Section 4(f)(7)(A)
As we have previously acknowledged, “Congress passed
the PSLRA [in 1995] because it was distressed with the pro-
liferation and cost of allegedly meritless federal securities
class actions. The PSLRA sought to curb abusive and frivo-
lous securities suits by imposing new procedural and substan-
tive requirements.”
U.S. Mortgage, Inc. v. Saxton
, 494 F.3d
833, 841 (9th Cir. 2007);
see also In re Silicon Graphics Inc.
Secs. Litig.
, 183 F.3d 970, 978 (9th Cir. 1999) (noting that
Congress enacted the PSLRA in part to prevent abusive secur-
ities fraud class actions designed “to impose costs so burden-
some that it [was] often economical for the victimized party
to settle”). “Its provisions limit recoverable damages and
attorney’s fees, provide a ‘safe harbor’ for forward-looking
statements, impose new restrictions on the selection of (and
compensation awarded to) lead plaintiffs, mandate imposition
of sanctions for frivolous litigation, and authorize a stay of
discovery pending resolution of any motion to dismiss.”
Mer-
rill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit
,
In its effort to reform litigation and settlement of securities
fraud class actions, Congress also included the provision at
issue here, which makes the entry of a bar order against future
claims for contribution mandatory upon a court’s approval of
a settlement in such a case.
[13]
15 U.S.C. § 78u-4(f)(7)(A). We
are asked to determine whether the scope of a bar order under
the PSLRA may also encompass independent claims, meaning
claims other than those for contribution and indemnity, and
we hold that it may not. In so holding, we adopt the federal
common law approach taken by the Second Circuit in
Gerber
,
[4]
Gerber
was not decided under the PSLRA.
Gerber
, 329
F.3d at 309-10. Prior to adoption of the PSLRA, federal
courts determined the appropriate scope of bar orders issued
in partial settlements of class action cases by reference to fed-
eral common law evolving from Rule 23(e)(2).
See Kaypro
,
made the imposition of a bar against future claims for contri- bution mandatory in securities fraud class action settlements. 15 U.S.C. § 78u-4(f)(7)(A). Because the text of the PSLRA, which is geared to orders that bar “claims for contribution,” id. , does not speak to whether a court may issue an order that bars independent claims, we look to the reasoning of cases determining the appropriate scope of similar bar orders under federal common law.
Appellees urge us to affirm the district court’s application of the approach taken by the Eleventh Circuit in In re U.S. Oil & Gas Litigation , 967 F.2d 489 (11th Cir. 1992). [14] In deter- mining the scope of the challenged bar orders, the district court relied upon the holding of In re U.S. Oil & Gas Litiga- tion , as applied in Ruttenberg , 300 F. Supp. 2d at 1219, that
[t]he propriety of the settlement bar order should turn upon the interrelatedness of the claims that it precludes, not upon the labels which parties attach to those claims. If the cross-claims that the district court seeks to extinguish through the entry of a bar order arise out of the same facts as those underlying the litigation, then the district court may exercise its discretion to bar such claims in reaching a fair and equitable settlement.
In re U.S. Oil & Gas Litigation , 967 F.2d at 496.
However, the Eleventh Circuit called this “interrelatedness”
test and its opinion in
In re U.S. Oil & Gas Litigation
into
question with its decision in
AAL High Yield Bond Fund v.
[14]
In re U.S. Oil & Gas Litigation
was decided under federal common
law, not the PSLRA, but courts have subsequently applied its “interre-
latedness” test to PSLRA bar orders.
See Ruttenberg
,
[5]
Instead, we hold that the correct standard for determin-
ing the appropriate scope of a bar order issued pursuant to the
PSLRA is the federal common law test articulated by the Sec-
ond Circuit in
Gerber
,
settling defendant’s claims are independent.
Id
. at 306. We are
persuaded that limiting bar orders issued pursuant to the
PSLRA to claims for contribution and indemnity accords with
the purpose and plain language of the statute and strikes an
appropriate balance between the judicial policies of encourag-
ing settlements, on the one hand, and protecting the legal
rights of non-settling parties in class-action lawsuits, on the
other.
See, e.g.
,
Kaypro Corp.
,
Like the instant case, Gerber addressed a challenge by cer- tain non-settling defendants in a securities fraud class action to the district court’s approval of a settlement bar order “ex- tinguishing any claims against [certain co-defendants] relating to or arising from the allegations of [the] litigation.” Gerber , 329 F.3d at 300. The parties did not contest the authority of the district court to bar claims for contribution and indemnity and conceded that “a ‘disguised’ contribution or indemnity claim, such as a negligence claim where the injury to the non- settling defendants was their liability to the plaintiffs, could be barred.” Id . at 305. Instead, the appellants argued that the district court’s bar order was impermissibly broad only inso- far as it barred independent claims. Id . The Gerber court determined under federal common law that if a non-settling defendant is able “to prove that it sustained independent reputational damages or losses relating to the cost of defense arising out of a breached contractual or fiduciary relationship with [the settling defendant], it has not been compensated for those losses by the judgment credit, and any such claims should not be extinguished [by the bar order].” Id . at 306.
In addressing which claims should not be precluded, the court explained that the only claims that could appropriately be barred by such an order, in addition to those for contribu- tion and indemnity, were “disguised” claims for contribution or indemnity—those “in which the injury is the non-settling defendant’s liability to the plaintiff,” or “where damages are calculated based on the non-settling defendants’ liability to the plaintiffs.” Id . at 305-06. This distinction turns not on the presence of “independent ‘claims’ ” but on whether the injured party can assert “independent ‘damages.’ ” Id . at 306- 07. Having determined that the bar order was impermissibly broad, the court remanded to the district court with instruc- tions to determine whether any such claims existed and to modify the bar order to “ensure that the only claims that are extinguished are claims where the injury is the non-settling defendants’ liability to the plaintiffs.” Id . at 307.
The reasoning in Gerber is particularly apt in the context of this appeal. Like the appellants in Gerber , Talley does not question the district court’s authority to issue bar orders that bar claims for contribution or indemnity, or disguised claims that seek such relief. He asserts precisely the same type of allegedly independent claims raised by the non-settling defen- dants in Gerber , arguing that his state law claims are not based on indemnity, contribution, or comparative fault with respect to Appellees’ alleged liability.
[6]
We conclude that the reasoning of
Gerber
is persuasive
and that its holding regarding the permissible scope of bar
orders issued in securities fraud class action settlements
should be extended to apply to bar orders issued pursuant to
the PSLRA. We therefore hold that such bar orders may only
bar claims for contribution and indemnity and claims where
“the injury is the non-settling defendant’s liability to the
plaintiff.”
Id
. at 306. When we apply this standard to the bar
orders at issue in this appeal, it is clear that they are imper-
missibly broad insofar as they bar any genuinely independent
claims.
See Masters Mates
,
ii. California Code of Civil Procedure Section 877.6
[7]
By barring future claims for contribution and indemnity
arising out of a partial settlement, section 877.6 seeks to
encourage settlement and prevent settling and non-settling
parties from bearing more than their proportionate share of
liability.
See Tech-Bilt
,
The California Supreme Court has held that, in making a good faith determination,
the intent and policies underlying section 877.6 require that a number of factors be taken into account including a rough approximation of plain- tiffs’ total recovery and the settlor’s proportionate liability, the amount paid in settlement, the alloca- tion of settlement proceeds among plaintiffs, and a recognition that a settlor should pay less in settle- ment than he would if he were found liable after a trial. Other relevant considerations include the finan- cial conditions and insurance policy limits of settling defendants, as well as the existence of collusion, fraud, or tortious conduct aimed to injure the inter- ests of nonsettling defendants.
Tech-Bilt
,
In his challenge to the bar orders here, Talley does not claim that the settlements were entered into in bad faith in violation of section 877.6, and he concedes that the district court has the authority to bar claims for contribution or indemnity under this statute. Rather, he argues that the district court exceeded the scope of the statutory settlement bar by drafting the orders to bar claims other than those for contribu- tion and indemnity. We agree.
[8]
A finding of good faith under section 877.6, under the
terms of the statute, bars only claims of “equitable compara-
tive contribution, or partial or comparative indemnity based
on comparative negligence or comparative fault.” Cal. Civ.
Proc. Code § 877.6(c). California courts apply a test similar
to the one adopted in
Gerber
to determine the appropriate
scope of a bar order issued pursuant to section 877.6. A bar
order under section 877.6 may not bar claims other than those
for contribution and indemnity or artfully pled claims that
amount to claims for contribution and indemnity.
Cal-Jones
Props. v. Evans Pac. Corp.
,
As the California Court of Appeal explained in Cal-Jones : If the claims between the joint tortfeasors are identi- cal to those made by the plaintiffs or if the damages sought by the joint tortfeasors are those that the court would consider in determining the proportionate lia- bility of the settling tortfeasor, then the claims are indemnity claims regardless of whether one or more of the claims are couched in affirmative language. A claim by a joint tortfeasor seeking neither indemnity nor contribution and which the trial court would not contemplate in determining the proportionate liabil- ity of a settling tortfeasor is not a claim for indem- nity and hence survives a good faith settlement under section 877.6. If a claim is in fact one of indemnity, then it is barred pursuant to section 877.6.
Id .
[9] Because the bar orders here extinguish claims other than those for contribution and indemnity or artfully pled claims that amount to claims for contribution and indemnity, they do not pass muster under section 877.6 and must be mod- ified in accordance with the standard set forth in Cal-Jones .
D. Proceedings on Remand [10] We vacate the challenged bar orders and remand for the district court to modify them in a manner consistent with this opinion. Once the bar orders have been modified, Talley will be able to pursue reinstatement of his claims in the supe- rior court through the available procedures outlined above.
[11] Talley argues that the superior court, rather than the district court, should determine whether his state law claims are truly independent. [16] If at the time the district court is asked to approve a settlement agreement, there is litigation pending that raises related but allegedly independent claims, the court should consider whether those claims are independent under the standard set forth today. In that event, the party seeking to pursue the claims would bear the burden of establishing that they meet the independence standard established here. When allegedly independent claims are brought after final approval of the settlement, however, the question of indepen- dence should be decided by the court where the claims are brought. Here, although Talley’s claims were pending when the district court approved the settlements and issued the chal- lenged bar orders, those claims have been dismissed and that dismissal has been affirmed on appeal. See Talley , 2007 WL 2660059. In this unique circumstance, once the bar orders have been modified and Talley obtains reinstatement of his claims, the state court can make the independence determina- tion.
III. Conclusion
We vacate the five challenged bar orders and remand to the district court to modify the bar orders in a manner consistent [16] In an effort to demonstrate to this court that his state law claims are independent, Talley included as Exhibit 4 of the Addendum to Appellant’s Opening Brief a copy of his state court complaint. Appellees have moved to strike this document because it is not part of the district court record. Talley never filed an opposition to this motion, nor did he ever file a request that this court take judicial notice of the complaint. Because the document is not properly the subject of judicial notice and is not part of the district court record, we grant Appellees’ motion and strike Exhibit 4 of the Addendum to Talley’s Opening Brief. See Fed. R. App. Proc. 10(a); Fed. R. Evid. 201.
with this opinion.
VACATED and REMANDED.