DUX CAPITAL MANAGEMENT CORPORATION; JERRY DAVIS v. YAGEO CORPORATION; YAGEO HOLDING (BERMUDA) LIMITED; YAN SHENG CHAN; AN-EHR CHEN; CHENG-LING LEE; EQUITY PLUS SECURITIES, LIMITED; REX Y.C. YANG; WEN-CHIN YEH; REXTRON INTERNATIONAL LIMITED; E. LYNN SCHOENMANN; GEORGE Q. CHEN
No. 04-16911
No. 04-16973
No. 04-17272
No. 05-16497
United States Court of Appeals, Ninth Circuit
March 2, 2007
478 F.3d 1083
Before: Betty B. Fletcher and Marsha S. Berzon, Circuit Judges, and David G. Trager, Senior District Judge.
Appeal from the United States District Court for the Northern District of California. William H. Alsup, District Judge, Presiding. Argued and Submitted September 12, 2006—San Francisco, California.
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
JERRY DAVIS, Plaintiff-Appellee, v. YAGEO CORPORATION; YAGEO HOLDING (BERMUDA) LIMITED; YAN SHENG CHAN; AN-EHR CHEN; CHENG-LING LEE, Defendants-Appellants, EQUITY PLUS SECURITIES, LIMITED; REX Y.C. YANG; WEN-CHIN YEH, Defendants-Appellants.
DUX CAPITAL MANAGEMENT CORPORATION, Plaintiff-Appellee, v. YAGEO CORPORATION; YAGEO HOLDING (BERMUDA) LIMITED; YAN SHENG CHAN; AN-EHR CHEN; CHENG-LING LEE, Defendants-Appellants, EQUITY PLUS SECURITIES, LIMITED; REX Y.C. YANG; WEN-CHIN YEH, Defendants-Appellants.
DUX CAPITAL MANAGEMENT CORPORATION; JERRY DAVIS, Plaintiffs-Appellants, v. YAGEO CORPORATION; YAGEO HOLDING (BERMUDA) LIMITED; YAN SHENG CHAN; AN-EHR CHEN; EQUITY PLUS SECURITIES, LIMITED; CHENG-LING LEE; REX Y.C. YANG; WEN-CHIN YEH; REXTRON INTERNATIONAL LIMITED, Defendants-Appellees.
DUX CAPITAL MANAGEMENT CORPORATION, Plaintiff-Appellant, and JERRY DAVIS, Plaintiff, v. E. LYNN SCHOENMANN, Defendant-Appellee, GEORGE Q. CHEN, Appellee, YAGEO CORPORATION; YAGEO HOLDING (BERMUDA) LIMITED; PIERRE T.M. CHEN; REXTRON INTERNATIONAL LIMITED; AN-EHR CHEN; YAN SHENG CHAN; CHENG-LING LEE, Intervenors.
Argued and Submitted September 12, 2006—San Francisco, California
Filed March 2, 2007
Before: Betty B. Fletcher and Marsha S. Berzon, Circuit Judges, and David G. Trager,* Senior District Judge.
Opinion by Judge B. Fletcher
Robin Meadow (argued), Alison M. Turner, Eric R. Cioffi, Cynthia E. Tobisman, Greines, Martin, Stein & Richland LLP, Los Angeles, California, and William McGrane, Mau-
Rodney R. Patula (argued), Eric G. S. Marcks, Daniel T. Balmat, and Penn A. Butler, Squire, Sanders & Dempsey LLP, San Francisco, California, for plaintiffs-appellees-cross-appellants and plaintiffs-appellants Dux Capital Management Corp. and Jerry Davis.
Merle C. Meyers (argued), Kathy L. Quon, Goldberg, Stinnett, Meyers & Davis, San Francisco, California, for defendant-appellee E. Lynn Schoenmann.
K. John Shaffer, Stutman, Treister & Glatt, PC, Los Angeles, California, for cross-appellee-intervenor Rextron International Ltd.
Iain A. Macdonald, MacDonald & Associates, San Francisco, California, for appellee George Chen.
Jon R. Vaught, Vaught & Bourtris LLP, Oakland, California, for cross-appellees Equity Plus Securities, Ltd., Rex Y.C. Yang, and Wen-Chin Yeh.
OPINION
B. FLETCHER, Circuit Judge:
These consolidated cases arise out of a corporate dispute between majority and minority shareholders over the minority shareholder‘s right to elect two of the five directors to the Long Life Noodle Company, Inc.‘s board of directors. Plaintiffs Dux Capital Management Corp. and its agent, Jerry
In a jury trial, the jury found defendants Yageo Corp., Yageo Corp. subsidiaries Yageo Holding (Bermuda) Ltd. and Rextron International Ltd., and Yageo Corp. employees An-Ehr Chen, Yan Sheng Chan, and Cheng-Ling Lee1 liable for breach of fiduciary duty. On appeal, defendants argue that plaintiffs lack standing to sue as assignees of the corporate claim and that their breach of fiduciary duty claims are preempted by federal bankruptcy law and barred by res judicata. The district court held that plaintiffs have standing and that their claims are neither preempted nor barred by res judicata. Plaintiffs cross-appeal the district court‘s damages calculations and its determination that they did not have standing to assert the claims of minority shareholders. Plaintiffs filed a separate appeal of the district court‘s refusal to entertain their
A. Yageo‘s Investment in LLNC
Long Life Noodle Company, Inc. (“LLNC“), was formed in 1996 by George Chen and George “Geordy” Murphy. In 1998, George Chen approached Pierre Chen, director and general manager/president of defendant Yageo Corp. (“Yageo“) in Taiwan, about investing in LLNC. Pierre Chen directed An-Ehr Chen, his assistant, to investigate this investment opportunity. An-Ehr Chen recommended that Yageo invest through Rextron International Ltd. (“Rextron“), a wholly-owned subsidiary of another subsidiary, Yageo Holding (Bermuda) Ltd. (“Yageo Holding“), and Equity Plus Securities Ltd. (“Equity Plus“), another Yageo affiliate. Yageo Holding and Rextron were merely holding companies, and their investments were determined by Pierre Chen as general manager of Yageo.
In late 1998, Rextron invested approximately $1.2 million in LLNC in return for all of the preferred stock and some of the common stock and thereby became the majority shareholder. Murphy and George Chen owned the balance of the common stock as minority shareholders. After Rextron‘s initial investment, LLNC borrowed approximately one million dollars from Equity Plus. These loans were secured by all of LLNC‘s assets. The loans were negotiated by attorney Gayle Chan, whom LLNC hired to handle these transactions. She was Rextron‘s corporate counsel and she did not inform LLNC of this conflict of interest.
Under LLNC‘s Articles of Incorporation, Rextron could elect three of the five directors of the board. Rextron elected defendants An-Ehr Chen, Cheng-Ling Lee, and Yan Sheng Chan to the board, all of whom were Yageo employees. An-Ehr Chen was the assistant to the president of Yageo and a director of Rextron, Lee succeeded Pierre Chen as general manager/president of Yageo in 2000, and Chan was the vice-
In February 2001, George Chen resigned as an officer and director of LLNC. Murphy resigned in March 2001. Their seats remained vacant after their resignations; this left control of the LLNC board of directors to Rextron. The LLNC By-Laws provided that board actions had to be unanimous, and unanimity could be achieved since only Rextron-controlled directors remained on the board.
B. Chen-Dux Settlement
Around the same time period, George Chen was involved in separate litigation with Dux Capital Management Corp. (“Dux“) and Jerry Davis, Dux‘s agent.2 In September 1998, Dux lent Chen $150,000, for which Chen executed a promissory note to Dux secured by Chen‘s stock in LLNC. Chen defaulted on the loan, and Dux demanded repayment. In March 2000, Chen sued Dux in California state court for declaratory relief, alleging that he never received the $150,000. Dux cross-claimed. On April 25, 2001, Chen and Dux entered into a settlement agreement. Pursuant to the settlement agreement, Chen was to transfer 200,000 shares of common stock in LLNC and voting proxies for all of his 411,538 shares (including the 200,000 transferred) to Dux. These shares were to be held in escrow for Dux “pending the expiration of the right of first refusal described in the Long Life Noodle Company Shareholder Agreement.”3 Settlement Agreement and Mutual General Release (“Settlement Agreement“) ¶ 1. Dux had the right to vote the 200,000 shares pending expiration or exercise of the right of first refusal. Moreover, Paragraph 12.18 of the Settlement Agreement expressly provided, “A finding by the court that this Agree-
C. LLNC Directors’ Decision to File Bankruptcy
On April 26, 2001, the day after Chen and Dux reached their settlement agreement, Dux and Davis demanded a meeting of the shareholders to elect directors to the two vacant seats on the board. Dux‘s counsel, Lorne Polger, sent a formal demand letter on April 30, 2001. After receiving plaintiffs’ demand, Rextron and its representatives, particularly An-Ehr Chen and Gayle Chan, discussed ways to prevent plaintiffs from voting directors to the board and participating in the management of the corporation. Defendants began to consider bankruptcy at the end of April or beginning of May 2001.
The LLNC By-Laws provided that shareholders were to elect directors at the annual meeting on May 1. No meeting was held on May 1, 2001. From May 1 to May 3, the directors and Rextron attorneys continued to discuss options for preventing the minority shareholders from electing their two directors. On May 3, 2001, the board of directors (consisting of three directors elected by Rextron) unanimously voted to petition for bankruptcy. The By-Laws required any action taken by the board to be unanimous.
On May 4, Polger faxed another letter to LLNC and Rextron attorneys demanding a meeting and an inspection of LLNC‘s books and records. Rextron counsel Gayle Chan denied this request on May 7, 2001, and even though she knew of the board‘s resolution to pursue bankruptcy, she stated that she would try to arrange for an inspection on May 15. Also on May 7, 2001, An-Ehr Chen, on behalf of Rextron,
D. Proceedings in Bankruptcy Court
On July 9, 2001, Dux moved for appointment of a Chapter 11 trustee for cause “on the grounds of dishonesty, gross mismanagement and breach of fiduciary duty.” Dux Capital‘s Mot. to Appoint Chapter 11 Trustee at 1. Among other things, Dux alleged that Rextron “orchestrated and carried out a systematic plan to control the Debtor [LLNC] in order to ensure that its interests were protected to the detriment of the Debtor‘s legitimate creditors, including Dux,” id., that Rextron refused to hold the annual shareholder meeting in order to prevent Dux from filling the two vacant seats on the board of directors, and that Rextron, through its control of LLNC, breached its fiduciary duty to creditors and the estate and committed fraud by failing to give full and honest disclosure of its financial condition.
On August 29, 2001, LLNC filed its Chapter 11 plan of reorganization. In October 2001, Dux filed an objection to confirmation of the plan. Dux asserted that Rextron had breached its fiduciary duty by not holding a shareholder meeting according to the By-Laws. At a hearing on October 11, 2001, the bankruptcy court appointed a Trustee to address whether any amendments to the plan were necessary in order for the plan to be considered fair. The Trustee, David Bradlow, recommended adoption of the plan with some modifications. The bankruptcy court confirmed the plan with minor modifications. The court‘s order provided, “All claims, defenses, causes of action, and objections to claims are reserved for the benefit of the estate and may be asserted by the Disbursing Agent.”4 Order Confirming Debtor‘s Chapter
Under the plan, Equity Plus acquired the assets of LLNC. As a primary unsecured creditor, Rextron received cash for its loans. The equity of the minority shareholders was eliminated. However, the bankruptcy court approved an assignment to Dux and Davis of all pre-petition claims for relief LLNC owned against the majority shareholder, its directors, and affiliates. The Disbursing Agent negotiated this assignment with Dux and Davis in exchange for their waiver of all their general unsecured claims against the estate except for administrative expenses. Rextron and Equity Plus objected to this assignment. The bankruptcy court overruled these objections and stated in its order:
The Disbursing Agent is authorized to transfer and assign to Davis/Dux certain of Debtor‘s claims that existed on May 9, 2001 (i.e., immediately prior to the Chapter 11 filing), as described in and according to the terms of the Letter Agreement. The Disbursing Agent makes no representation that the Debtor had any valid claims, rights or causes of action on May 9, 2001, and nothing contained in this Order shall be deemed to constitute a finding as to the existence of any such[ ] cla[i]ms, rights or causes of action.
Order Authorizing Compromise of Controversy and Assignment of Claims (“Order Authorizing Compromise“) ¶ 6.
E. Proceedings in the District Court
In early 2002, Geordy Murphy, Davis, and Dux filed suit against the Yageo defendants in California state court. They alleged, among other things, breach of fiduciary duty, RICO violations, fraud, conspiracy to commit fraud, violation of the
Dux and Davis also filed a separate complaint containing similar allegations in California superior court. Both cases were removed to the federal district court in 2003 under
In January 2004, defendants moved for summary judgment on the ground that all of Dux‘s claims were barred by res judicata. They argued that the bankruptcy court already ruled on Dux‘s claims in its order confirming the LLNC reorganization plan and that any issues not ruled on should have been asserted in the bankruptcy court. On March 12, 2004, the district court granted in part and denied in part defendants’ summary judgment motion. The district court held that res judicata barred Dux‘s post-petition claims—claims that collaterally attacked the decisions and orders of the bankruptcy court. Dux and Davis do not appeal that portion of the district court‘s order.
However, the district court denied defendants’ motion for summary judgment as to plaintiffs’ pre-petition claims—claims arising out of events occurring prior to the filing of the bankruptcy petition. The district court held, “the bankruptcy court did not adjudicate plaintiffs’ pre-petition claims against non-debtor defendants to the extent plaintiffs did not seek to recover from the debtor. Pre-petition claims against a non-debtor [are] normally nondischargeable.” Order Granting in
The case proceeded to a jury trial. At the end of plaintiffs’ case, defendants moved for judgment under
F. Jury Instructions and Verdict
The parties dispute whether the jury determined that plaintiffs Dux and Davis suffered any damages prior to May 9, 2001, the date LLNC filed for bankruptcy. One of the jury instructions provided:
If you find that plaintiffs have proven any liability by any defendant, then you would have to decide whether plaintiffs have proven by the preponderance of the evidence any damages. To do so, plaintiffs
would have to prove the value of the shares held by the common stockholders as of the date of the decision to commence bankruptcy proceedings. The measure of damages would be the value of those shares as of that date less the expected value of those shares in bankruptcy proceedings expected as of the date of the board‘s vote.
Jury Instruction XXXVIII (emphasis added). The jury was also instructed, “[i]n this case, plaintiffs challenge [the directors‘] decision to commence bankruptcy as having not been in the best interests of the corporation,” Jury Instruction XIX (emphasis added), and “[l]iability in this case depends, in the first instance, upon whether the board‘s decision to commence bankruptcy proceedings was improper,” Jury Instruction XXIX (emphasis added).
With respect to the LLNC claim, the jury determined after a first round of deliberations that the three Rextron-controlled directors (An-Ehr Chen, Cheng-Ling Lee, and Yan Sheng Chan) had breached their fiduciary duties owed to the corporation and common shareholders in connection with the vote to commence bankruptcy proceedings. The jury initially delivered an inconsistent verdict with respect to the harm caused by defendants’ breach of fiduciary duty. In response to Question One of the Special Verdict Form—“Have plaintiffs proven by a preponderance of the evidence that the common stock of Long Life Noodle Company, Inc., had any value as of the company‘s petition to commence bankruptcy proceedings on May 9, 2001?“—the jury answered, “No.” However, in response to Question Six—“If you have determined that any defendant has liability, what damages, if any, have plaintiffs proven by preponderance of the evidence?“—the jury answered, “$400,000.” After discussing this inconsistency with the parties, the district court gave the following curative instructions to the jury:
[O]ur intent was . . . to ask you to tell us what value, if any, the stock had immediately before the bankruptcy proceedings commenced. . . .
And I want you to understand [question] number 1 to mean that it is have plaintiffs proven by a preponderance of the evidence that the common stock of Long Life Noodle Company, Inc. had any value as of immediately before the company‘s petition to commence bankruptcy proceedings on May 9, 2001.
Before giving these curative instructions, the district court re-read Jury Instruction XXXVIII twice.
After receiving the curative instructions, the jury returned with a consistent verdict. With respect to the Minority Shareholder claim, the jury determined that Rextron breached its fiduciary duty as a majority shareholder to the minority shareholders. The jury found $400,000 in damages.6 The jury also determined that the total dollar value of the 200,000 shares transferred from George Chen to Dux in their settlement agreement as of May 9, 2001, was $2 per share and $400,000 total.7
G. District Court Ruling on Standing and June 30, 2004 Judgment
On June 30, 2004, the district court returned to the standing issue it had set aside during trial. It held that Dux and Davis did not have standing to assert the Minority Shareholder
Defendants also argued in its post-trial brief on standing that plaintiffs failed to prove an assigned claim for breach of fiduciary duty to the corporation because no damages to the corporation had accrued as of the time immediately prior to the bankruptcy filing. Id. at *6. The district court noted that although “this issue is outside the scope of the standing issue reserved by the Court,” it would address it because “[d]efendants may have believed there was some latitude . . . due to the Court‘s request for precise information on what the trial record showed was the number of common shares outstanding as of May 9, 2001.” Id. The district court held that plaintiffs had standing to sue on the assigned LLNC claim because a breach of fiduciary duty claim accrued when the directors decided to file for bankruptcy on May 3, 2001. Id. at *6-7. With respect to the LLNC claim, then, the district court entered judgment for plaintiffs Dux and Davis against defendants An-Ehr Chen, Yan Sheng Chan, Cheng-Ling Lee, Yageo, and Yageo Holding. The district court held that these defendants were jointly and severally liable to Dux and Davis as assignees of the corporate claim in the amount of $2,692,306 ($2 per share as found by the jury x 1,346,153 common shares). Id. at *7.
H. Defendants’ Fed. R. Civ. P. 50(b) Motion
Defendants sought judgment as a matter of law (“JMOL“) on five renewed motions. See Dux Capital Mgmt. Corp. v. Chen, Nos. C03-00539WHA, C03-00540WHA, 2004 WL 1936309, at *7 (N.D. Cal. Aug. 31, 2004). Two are relevant here: First, defendants contended that the LLNC claims were
The district court granted defendants’ request to exclude Rextron‘s eventual common shares (the 700,000 shares converted from preferred to common) from the damages calculation. Defendants argued that damages on the assigned LLNC claim must exclude Rextron‘s shares because there were only 646,153 shares of common stock as of the directors’ resolution to petition for bankruptcy on May 3, 2001. The parties had proffered 1,346,153 shares of common stock in their post-trial briefs on standing. See id. at *18. The district court amended the judgment entered on June 30, 2004 to hold defendants An-Ehr Chen, Yan Sheng Chan, Cheng-Ling Lee, Yageo, and Yageo Holding jointly and severally liable in the sum of $1,292,306 ($2 per share x 646,153 shares). Id. at *19.
I. Plaintiffs’ Post-Judgment Fed. R. Civ. P. 60(b) Motion
After the district court entered its Amended Judgment on August 31, 2004, plaintiffs moved to vacate the judgment and
J. Dux‘s Adversary Proceeding Against George Chen
After Dux filed its appeal to this court seeking review of the district court‘s denial of its request to entertain Dux‘s Rule 60(b) motion, Dux sought George Chen‘s ratification of the Minority Shareholder claim under
Chen moved to dismiss on the ground that he had no authority to ratify because a Trustee had already been appointed to his bankruptcy estate. The Trustee moved for summary judgment on the ground that the Settlement Agreement created no obligation to ratify the suit or otherwise transfer Chen‘s claims against the Yageo defendants to Dux. Dux moved for partial summary judgment on liability for breach of the agreement and requested declaratory relief and specific performance.
The bankruptcy court granted Chen‘s and the Trustee‘s motions and denied Dux‘s motion. Dux appealed to the district court. The district court held that
II. JURISDICTION AND STANDARD OF REVIEW
We have jurisdiction over the appeal and cross-appeal of the district court civil judgment under
We review questions of preemption, standing, availability of damages, and the denial of summary judgment on res judicata grounds de novo. See, e.g., Greany v. W. Farm Bureau Life Ins. Co., 973 F.2d 812, 816 (9th Cir. 1992); Mortensen v. County of Sacramento, 368 F.3d 1082, 1086 (9th Cir. 2004); Hemmings v. Tidyman‘s Inc., 285 F.3d 1174, 1197 (9th Cir. 2002); Akootchook v. United States, 271 F.3d 1160, 1164 (9th Cir. 2001). A motion for judgment as a matter of law is reviewed de novo. See, e.g., City Solutions Inc. v. Clear Channel Commc‘n, Inc., 365 F.3d 835, 839 (9th Cir. 2004). In reviewing a judgment as a matter of law, the evidence must be viewed in the light most favorable to the nonmoving party, and all reasonable inferences must be drawn in favor of that party. See Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 149-50 (2000).
This court reviews de novo questions of jurisdiction concerning
III. DISCUSSION
A. Standing
1. Plaintiffs Have Standing to Litigate the Assigned LLNC Claim
[1] In order for plaintiffs to have standing, they must show that they suffered an injury in fact, there was a causal connection between the injury and the conduct complained of, and the injury is likely to be redressed by a favorable decision. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992).
[2] Defendants argue that Dux and Davis lack standing to raise the LLNC claims because they were assigned only claims that accrued as of immediately prior to the bankruptcy filing, and no such claims accrued as of that date because plaintiffs suffered damages only when the bankruptcy petition was filed. Plaintiffs argue that the jury found damages as of the LLNC board of directors’ decision to file bankruptcy on May 3, 2001, and therefore the LLNC claim accrued on that date. Thus, the question is whether the jury found actual dam-
Plaintiffs had standing to assert the LLNC claim because they suffered harm before May 9, 2001. Several of the original jury instructions clearly asked the jury whether the defendants breached their fiduciary duty as a result of the LLNC board‘s decision to file bankruptcy on May 3, 2001, and the jury‘s original verdict found several defendants had breached their duty on this basis. We agree with the district court‘s analysis:
Defendants’ argument fails to consider the main factual issue for the jury: whether the directors on the board breached their fiduciary duty by choosing the bankruptcy alternative rather than some other course of action expected to provide the company and its shareholders with more value. The directors decided to file for bankruptcy on May 3, 2001. It is at this point in time that a breach of fiduciary duty claim may have accrued. If plaintiffs’ damages were reasonably certain and not speculative at the time of wrongdoing, then the cause of action accrued.
Dux Capital Mgmt. Corp., 2004 WL 2472247, at *6 (citations omitted).
Believing that the jury may have interpreted Question One on the special verdict form to ask what the value of the stock was “once the bankruptcy proceeding started” — that is, after the bankruptcy petition was filed — the district court re-instructed the jury. In giving its curative instruction, the district court first re-read Jury Instruction XXXVIII, which stated in part, “plaintiffs would have to prove the value of the shares held by the common stockholders as of the date of the decision to commence bankruptcy proceedings.” Jury Instruc
Rather, what our intent was was to ask you to tell us what value, if any, the stock had immediately before the bankruptcy proceedings commenced. . . . have plaintiffs proven by a preponderance of the evidence that the common stock of Long Life Noodle Company, Inc. had any value as of immediately before the company‘s petition to commence bankruptcy proceedings on May 9, 2001.
. . . it is a before and after comparison. If you were to find that there were any value immediately before and that that got wiped out in the bankruptcy and that there was another alternative that would have preserved more value to the shareholders, then that is what we are trying to get at . . . .
(Emphasis added).
[3] Seizing upon this curative instruction, defendants argue on appeal (as they argued below) that the district court told the jury to ignore May 3, the date of the decision to file, and instead instructed it to compare the loss caused by the actual filing of the petition on May 9. See Dux Capital Mgmt. Corp., 2004 WL 1936309, at *16-17. But the district court did not tell the jury to ignore May 3. The jury determined that LLNC common stock had a value of $2 per share prior to defendants’ decision to commence bankruptcy proceedings on May 3, 2001, and that this stock had no expected value after the defendants’ decision. See id. at *16-18. This is clear in light of the district court‘s concern that the jury had originally interpreted Question One to mean the value of the shares after the bankruptcy petition and its addressing this by reminding
2. Plaintiffs Lack Standing to Litigate the Minority Shareholder Claim
The standing issue as to the Minority Shareholder claim is whether the Chen-Dux Settlement Agreement gave Dux any legal right to the LLNC shares and endowed it with standing as of May 9, 2001. Dux bases its standing to sue as a minority shareholder for breach of fiduciary duty by the majority shareholder, Rextron, on the 200,000 common shares of LLNC transferred pursuant to its settlement with Chen. Because the Settlement Agreement does not assign Chen‘s accrued legal claims as a shareholder to Dux, Dux only would have standing to sue for loss in share value caused by Rextron‘s breach of fiduciary duty if it actually owned those shares at the time the injury occurred. Neither party disputes that the Chen-Dux Settlement Agreement was executed on April 25, 2001, that it contained a good-faith determination provision, and that a California court did not make this good-faith determination until July 25, 2001. The district court held that the settlement agreement could not be construed to provide Dux any legal right to the LLNC shares prior to May 9, 2001. Dux Capital Mgmt. Corp., 2004 WL 2472247, at *3. On cross-appeal, Dux and Davis argue that the issue is not whether they had standing to sue as minority shareholder, but
[4] We hold that Dux does not have standing to sue on the Minority Shareholder claim. Whether or not Dux was the real-party-in-interest, it lacks standing. In order to have standing, Dux must show injury in fact. See Lujan, 504 U.S. at 560. If Dux did not own the shares at the time that the injury (breach of fiduciary duty) was inflicted and damage to the value of the stocks was sustained, then it did not suffer any injury in fact.9 Paragraph 12.18 of the Chen-Dux Settlement Agreement clearly provides that the court‘s good faith determination is “a condition to the validity and enforceability of this Agreement,” and the California superior court did not make this finding until July 25, 2001. Thus, as the district court correctly held, on May 9, 2001, “George Chen retained all his legal rights as a minority shareholder of Long Life and was under no duty yet to transfer the shares or the right to vote to Dux. (Thus, the cause of action accrued to George Chen. There was no assignment of the cause of action.).” Dux Capital Mgmt. Corp., 2004 WL 2472247, at *3.10
Moreover, we agree with the district court‘s analysis comparing the Chen-Dux agreement to the buy-sell agreement in Stephenson v. Drever, 947 P.2d 1301 (Cal. 1997). See Dux Capital Mgmt. Corp., 2004 WL 2472247, at *3-4. In Stephenson, the plaintiff was an employee and minority shareholder in a closely held corporation. 947 P.2d at 1302. The buy-sell agreement between the plaintiff and the corporation provided that the corporation “‘shall have the right and obligation to repurchase‘” all of the plaintiffs shares in the event of termination of employment. Id. After the plaintiff was terminated, there was a disagreement as to the fair market value of the shares, and the plaintiff did not deliver the shares back to the corporation. Id. at 1305. The plaintiff sued directors and officers of the corporation for breach of fiduciary duty that they owed as majority shareholders to him, the minority shareholder. Id. at 1302-03. Defendants argued that the plaintiff ceased having shareholder rights upon termination of his
[5] Likewise, nothing in the Chen-Dux Settlement Agreement indicates that Dux had any right to the shares prior to the good faith determination by the California superior court. Furthermore, the agreement had a provision for making Dux‘s voting rights valid “during the pendency of any writ of mandate which may be filed by any party to the Action to overturn the Court‘s determination of good faith.” Settlement Agreement ¶ 12.18. But, as the district court held, “No similar voting right was created pending the initial application for good-faith determination. . . . The fact that the settlement agreement expressly provided rights in one situation and not another tends to negate any inference that the parties intended for Dux to obtain voting rights or any other rights prior to the superior
Siegel v. Anderson Homes, Inc., 118 Cal. App. 4th 994 (2004), which held that the cause of action for building damage accrues to the owner who suffers a compensable economic injury, even though the damage to the building occurred prior to the time the plaintiff owned the building, does not provide support for Dux‘s position. In general, “a cause of action accrues at the moment the party who owns it is entitled to bring and prosecute an action thereon.” Id. at 1003 (internal citations and quotation marks omitted). But when the property damage is not discovered until later, “a cause of action for construction defects does not accrue until the property owner discovers the resulting damages.” Id. at 1009. In Siegel, the defect was latent, so the original owner was not aware of the defect to the building when he sold it to the plaintiff. Since plaintiffs and not the original owner discovered the damage, the cause of action accrued to plaintiffs. In other words, when the original owner sold the house to plaintiffs, the price of the house presumably did not reflect the latent defect, and plaintiffs paid more for it than they would have had they known about the defect. They got the short end of the stick.
Here, in contrast, George Chen — the original owner of the 200,000 shares of LLNC stock — was aware of the loss of value to the stock caused by the decision to file bankruptcy. The cause of action accrued to him. Although Dux and Chen reached their settlement (on April 25, 2001) before damage to the stock value occurred, an express condition of the settlement was that it would not be final until a court made the
[6] For these reasons, whether or not Dux was the real-party-in-interest, it does not have standing, and it cannot cure its standing problem through an invocation of
B. Plaintiffs’ Breach of Fiduciary Duty Claims Are Not Preempted by the Bankruptcy Code
Defendants argue that plaintiffs’ breach of fiduciary duty claims are preempted by federal bankruptcy law because they are claims that LLNC directors improperly used the bank
[7] Plaintiffs’ breach of fiduciary duty claims are not preempted by federal bankruptcy law because these claims concern conduct that occurred prior to bankruptcy. The cases upon which defendants rely hold only that state law causes of action for abuse of process and malicious prosecution involving conduct that occurred during bankruptcy are preempted. E.g., MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910 (9th Cir. 1996) (holding that state malicious prosecution actions for events taking place within bankruptcy court proceedings are preempted); Gonzales v. Parks, 830 F.2d 1033 (9th Cir. 1987) (holding that state courts lack jurisdiction over claim that filing of a bankruptcy petition is an abuse of process); see also Miles v. Okun (In re Miles), 430 F.3d 1083, 1091 (9th Cir. 2005) (holding that
MSR Exploration and Gonzales involved claims between creditors and debtors that were litigated in bankruptcy court, involved the bankruptcy process, or otherwise required consideration of what relief was available under federal law. For example, in MSR Exploration, a creditor filed a claim against the debtor in bankruptcy court, and the bankruptcy court sustained the debtor‘s (MSR Exploration‘s) objection to the creditor‘s claim. Instead of pursuing sanctions or another remedy in bankruptcy court, the debtor waited until after the reorganization plan was confirmed and filed a state law malicious prosecution claim against the creditor in district court. MSR Exploration, 74 F.3d at 912. We held, “Whether creditors should be deterred, and when, is a matter unique to the flow of the bankruptcy process itself — a matter solely within the hands of the federal courts.” Id. at 916. Disputes between
Similarly, in Gonzales, a debtor filed a bankruptcy petition in an attempt to delay a creditor foreclosure sale. The creditor subsequently filed an abuse of process claim in state court, and the state court entered a judgment against the debtor. Gonzales, 830 F.2d at 1033-34. The debtor filed an adversary proceeding in bankruptcy court seeking relief from the state court judgment. Id. at 1034. We held that “[f]ilings of bankruptcy petitions are a matter of exclusive federal jurisdiction” because “[s]tate courts are not authorized to determine whether a person‘s claim for relief under a federal law, in a federal court, and within that court‘s exclusive jurisdiction, is an appropriate one.” Id. at 1035 (emphasis added).
[8] By contrast, Dux and Davis did not allege that LLNC‘s bankruptcy petition was filed in bad faith, and their claim does not require the adjudication of rights and duties of creditors and debtors under the Bankruptcy Code. The complaint alleged that the directors and majority shareholder engaged in self-dealing to the detriment of the corporation through their decision to pursue bankruptcy and sought damages for breach of fiduciary duty under California state law. Unlike in MSR Exploration and In re Miles, the complaint was not “self-consciously and entirely one which seeks damages for a claim filed and pursued in the bankruptcy court,” MSR Exploration, 74 F.3d at 912; see In re Miles, 430 F.3d at 1092-93 (noting that “[t]he complaints state on their faces that Appellants seek damages for the filing and prosecution of the involuntary bankruptcy petitions against their relatives. . . . Because
Finally, as the district court correctly noted, the bankruptcy court explicitly assigned to plaintiffs all pre-bankruptcy claims of LLNC against its directors and the Yageo defendants, over defendants’ objections. Defendants argue that the bankruptcy court could not assign claims over which it had exclusive jurisdiction. Even if this were true, plaintiffs’ breach of fiduciary duty claims are not based on “activities that might be undertaken in the management of the bankruptcy process.” MSR Exploration, 74 F.3d at 914. Since the bankruptcy court limited the assignment to claims that “existed on May 9, 2001 (i.e., immediately prior to the Chapter 11 filing),” the assignment was valid.
C. Res Judicata Does Not Bar Plaintiffs’ Breach of Fiduciary Duty Claims
[9] “The doctrine of res judicata bars a party from bringing a claim if a court of competent jurisdiction has rendered final judgment on the merits of the claim in a previous action involving the same parties or their privies.” Robertson v. Isomedix, Inc. (In re Int‘l Nutronics, Inc.), 28 F.3d 965, 969 (9th Cir. 1994) (citation omitted). Since the bankruptcy court issued a final judgment on the merits, and that action involved the same parties or their privies, the issue here is whether the LLNC claim was or could have been litigated by the Trustee (who became the owner of any claims of LLNC against its directors after the bankruptcy petition was filed) in the bank
The order of confirmation explicitly reserved all claims and causes of action for the benefit of the estate to the Disbursing Agent (former Trustee). After confirmation, the bankruptcy court authorized the Disbursing Agent “to transfer and assign to Davis/Dux certain of Debtor‘s claims that existed on May 9, 2001 (i.e., immediately prior to the Chapter 11 filing), as described in and according to the terms of the Letter Agreement.” Order Authorizing Compromise ¶ 6. This assignment was part of a settlement agreement that the Disbursing Agent reached with Dux and Davis in connection with their claims against the estate of LLNC. In return, Dux and Davis waived their general unsecured claims against the LLNC estate except for seeking payment of administrative expenses. The bankruptcy court authorized the assignment over Rextron and Equity Plus‘s objections.
Defendants argue that (1) the Trustee could have litigated the breach of fiduciary duty claim of LLNC against its directors during the bankruptcy proceeding, (2) Dux/Davis actually litigated the claim and lost, (3) the assignment of claims to Dux/Davis was too general to prevent preclusion, and (4) the trustee was required to assert the claims before the order of confirmation. Plaintiffs respond that (1) defendants should have appealed the bankruptcy court‘s assignment of claims to Dux/Davis, and their failure to do so bars their claim, (2) the LLNC claim does not pertain to the confirmation plan and therefore was not the same claim, and (3) the bankruptcy court did not resolve the LLNC claim because it expressly reserved it and assigned it to plaintiffs.
[10] Res judicata does not bar plaintiffs’ LLNC claim for several reasons. First, the LLNC claim is a claim for breach of fiduciary duty that does not “pertain[ ] to the [reorganization] plan.” Trulis v. Barton, 107 F.3d 685, 691 (9th Cir. 1995) (holding that “[o]nce a bankruptcy plan is confirmed,
[11] Second, plaintiffs’ claim for breach of fiduciary duty on the part of the Rextron-controlled directors was not decided by the bankruptcy court. While Dux/Davis did argue that the reorganization plan should not be confirmed because it was not filed in good faith, the breach of fiduciary duty claim with respect to the directors and the majority shareholder was not raised in, much less decided by, the bankruptcy court. The breach of fiduciary duty claim that Dux raised in its motion to appoint a Chapter 11 Trustee was based on debtor LLNC‘s fiduciary duty to creditors and shareholders in bankruptcy. This is clearly a different duty than that of the board of directors and Rextron to the corporation itself and the minority shareholders prior to bankruptcy. Moreover, Dux‘s objection to the reorganization plan as being in bad faith in violation of
The Trustee recommended confirmation of the plan in part because the parties could resolve their intra-corporate disputes afterwards:
there are a number of factual and legal issues that simply will not be resolved before the continued confirmation hearing set for November 26, 2001 .... Equity Plus has indicated that it may withdraw
its “offer” if a sale . . . is not approved at [that time]. As a result, the Trustee believes that the Court should proceed to sell the assets and business to Equity Plus under the general terms set forth in the Plan . . . . The parties (Davis/Dux, Rextron and Equity Plus) will retain whatever rights they may have against one another and can litigate their disputes after consummation of the sale.
Trustee‘s Report and Recommendation Pursuant to
[12] Third, the bankruptcy court‘s authorization of the assignment of the LLNC claim to plaintiffs was valid. The confirmation order did not extinguish plaintiffs’ LLNC claim. LLNC‘s plan of reorganization provided, “The Disbursing Agent shall have the right to pursue any and all Retained Claims and other pre-petition obligations or claims in favor of the Debtor . . . . No such claims shall be waived or relinquished under the Plan or by virtue of its Confirmation. The Disbursing Agent hereby reserves all Claims, defenses, powers and interests of the Debtor and/or Trustee, existing as of Confirmation.” Debtor‘s Chapter 11 Plan of Reorganization Dated August 29, 2001 (“Plan of Reorganization“) at 8. The plan defined “Retained Claims” as “all claims that Debtor had as of the Filing Date.” Id. at 3. The plan‘s definition of “claim” included the LLNC claim. See id. at 1. The effect of the confirmation was to discharge the debtor — LLNC — from all claims, not the directors or Rextron, the majority shareholder. See id. at 12 (“Confirmation of the Plan will discharge Debtor from all liability for Claims arising prior to Confirmation . . . .“).
[13] Finally, the Trustee‘s assignment of all pre-petition claims to Dux/Davis was not so general as to render it invalid. To support their argument that the Trustee‘s assignment was too general, defendants rely on In re Kelley, which suggests that a blanket reservation is insufficient to prevent application of res judicata to a specific action, see 199 B.R. at 704. However, the Bankruptcy Appellate Panel subsequently limited that language. See Akary Corp. v. Sims (In re Associated Vintage Group, Inc.), 283 B.R. 549, 563-64 (9th Cir. B.A.P. 2002) (“While we did find the purported reservation in the Kelley plan to be . . . vague in the context of all the facts of that case, and observed that another court had once found a general reservation to [sic] rights to be insufficient, our comment was pure dictum . . . and cannot be construed as a gen
D. District Court‘s Damages Calculations Were Not Erroneous
As of May 3, 2001, there were 646,153 shares of common and 1,507,695 shares of Series A preferred convertible stock issued and outstanding. On May 7, 2001, An-Ehr Chen requested that the LLNC board of directors convert 700,000 of Rextron‘s shares of preferred stock to common. On May 8, 2001, the board granted that request. The jury was asked to determine whether plaintiffs proved that the common stock of LLNC had any value as of the company‘s petition to commence bankruptcy proceedings. The jury was also asked to determine the value (both total and per share) of the shares transferred pursuant to the Chen-Dux Settlement Agreement. Those transferred shares were common. The jury found that the common stock was worth $2 per share.
In its June 30, 2004 Judgment, the district court calculated damages as $2,692,306, which included Rextron‘s 700,000 shares that had been converted to common on May 8, 2001. This figure did not include the preferred shares because the jury never was asked to determine a loss in value for the pre
Plaintiffs cross-appeal this damages calculation and make two arguments. First, they argue that there was sufficient evidence to show the preferred shares had a minimum value of $2 per share, since they were at least as valuable as the common shares. They argue that the district court should have included this “minimum value” of the preferred stock in its damages calculation and that the parties agreed to use the value of all LLNC stock to measure damages on the assigned LLNC claim. Second, they argue that the 700,000 converted shares should not have been excluded from the damages calculation because while the LLNC claim accrued on May 3, 2001, the amount of damages was not tied to that date.
[14] The district court did not err in excluding the preferred shares from its damages calculation. Plaintiffs’ theory of damages on the assigned LLNC claim throughout trial and after trial did not include damage to the preferred shares. Before trial, they sought relief for diminution in value of the company as a going concern and loss of goodwill. See Joint Final Pretrial Order at 7. During trial, plaintiffs urged the jury to find that the common shares were worth at least $2 per share, but they never urged the jury to make any finding with regard to the preferred shares. During the discussions about the special verdict form and the jury instructions, plaintiffs did not request the inclusion of any instruction or question to the jury regarding the value of the preferred shares. After trial, plaintiffs clearly recognized that LLNC had both outstanding common and outstanding preferred shares,14 but they nonetheless
Moreover, no evidence concerning the value of the preferred shares was presented at trial. See Dux Capital Mgmt. Corp., 2004 WL 2472247, at *7 (noting that “[a]t trial, the only evidence proffered was for the value of common shares. Hence, plaintiffs only proved, as found by the jury, the value of the common stock at $2 per share.“). The jury did not determine the value of the preferred shares; it determined only that plaintiffs proved that the common stock of LLNC had value as of the bankruptcy petition, and that the (common) shares transferred between Chen and Dux were worth $2 per share.
Pointing to LLNC‘s Articles of Incorporation, plaintiffs argue that the preferred shares must have been worth at least as much as the common shares, since the preferred shares “enjoyed significant procedural and financial benefits over the common shares.” The Articles of Incorporation provided that the holders of the preferred shares enjoyed certain rights superior to that of the common shares, including the right to receive greater dividends and the right to elect three of the five directors to the board. Even so, the fact remains that plaintiffs presented no evidence at trial to establish the value of the preferred shares, and they did not ask the jury to determine the value of the preferred shares. It is no surprise, then, that the jury determined only the value of the common shares. The jury did not make any finding on the “minimum value” — or any value — of the preferred shares. Damages are
As assignees of the corporate LLNC claim, plaintiffs would have been entitled to the loss in value for all the corporation‘s shares, preferred and common, if they had timely made a request in the district court to include the preferred shares in the damages calculation.15 At this point, however, we cannot grant plaintiffs’ request to instruct the district court to enter judgment for $4,307,700 on this claim. The district court did not err in excluding the value of the preferred shares in its damages calculation.16
Plaintiffs also argue that the district court erred by amending its judgment to exclude Rextron‘s 700,000 converted shares in the damages calculation. Defendants respond that while the amount of damages may increase after the injury is
The district court did not err in amending the judgment to exclude the 700,000 converted shares from its damages calculation. The injury for which the jury determined that plaintiffs should be compensated was the loss of value in the shares and injury to the corporation caused by the board of directors’ decision to pursue bankruptcy on May 3, 2001. Therefore, the damaging action was complete before those shares came into existence, and those shares cannot be the basis for assessing that already-complete action. The question was whether the directors violated their “duty to weigh the various alternative courses of action for the corporation and to select the one best calculated to return the most value for the shareholders as a whole.” Jury Instruction XIX. Those 700,000 Rextron shares were not converted to common until after the board‘s decision to petition for bankruptcy on May 3, 2001. Morever, the jury determined that the common shares had a value of $2 per share prior to this board decision and no value afterwards. If the jury found that the common shares had zero value on May 3, then the Rextron shares that were converted into common shares on May 8 had zero value, and plaintiffs’ damages could not be increased even if it were proper to increase damages for shares converted to common only after May 3, 2001.
E. Plaintiffs’ Fed. R. Civ. P. 60(b) Motion
[15] Once an appeal is filed, the district court no longer has jurisdiction to consider motions to vacate judgment. Gould v. Mut. Life Ins. Co. of N.Y., 790 F.2d 769, 772 (9th Cir. 1986). However, a district court may entertain and decide a
Here, an amended judgment was filed on August 31, 2004. Notice of appeal was filed on September 20, 2004. Plaintiffs filed their motion asking the district court to entertain and grant their
[16] Plaintiffs have followed the procedures outlined in Gould. They filed their
We decline this second request for remand. In any case, the issue is moot, since we hold that plaintiffs cannot cure their standing defect through the use of
IV. CONCLUSION
For the foregoing reasons, the district court is AFFIRMED.