In rе: SYNCOR ERISA LITIGATION, CAROL PILKINGTON; DONNA BROWN; KAREN THOMPSON; CYNTHIA DUNN; ANTOINETTE HART; SHIRLEY NOBREGA; DEBORAH PINNER; PAMELA THOMSON; CHERIE BRANNAN, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. CARDINAL HEALTH, INC.; ROBERT D. WALTER; PAUL S. WILLIAM, Defendants, and SYNCOR INTERNATIONAL CORPORATION; ROBERT G. FUNARI; MONTY FU, Defendants-Appellees.
No. 06-55265
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
February 19, 2008
516 F.3d 1095
D.C. No. CV-03-02446-RGK. Argued and Submitted November 9, 2007—Pasadena, California. Filed February 19, 2008. Before: Kim McLane Wardlaw, Carlos T. Bea, and N. Randy Smith, Circuit Judges.
Appeal from the United States District Court for the Central District of California R. Gary Klausner, District Judge, Presiding
T. David Copley, Law Offices of Keller Rohrback, L.L.P., Sеattle, Washington, and Edward W. Ciolko, Law Offices of Schiffrin & Barroway, LLP, Radnor, Pennsylvania, for the plaintiffs-appellants.
Daniel S. Floyd, Law Offices of Gibson, Dunn & Crutcher LLP, Los Angeles, California, for the defendants-appellees.
N.R. SMITH, Circuit Judge:
We hold that, when parties (1) enter into a binding class action settlement agreement, which requires court approval pursuant to
I. Factual Background
Syncor International Corp. (“Syncor“), a health care services company, merged with Cardinal Health, Inc. (“Cardinal“) on January 1, 2003. Prior to the merger, Syncor was the administrator and fiduciary of the Syncor Employee‘s Saving and Stock Ownership Plan (“the Plan“), a retirement plan governed by the Employee Retirement Income Security Act of 1974 (ERISA),
The Plan consisted of two components. First, the Plan‘s 401(k) component allowed participants to contribute between one and fourteen percent of their compensation each pay
On June 14, 2002, Syncor and Cardinal announced that Cardinal would acquire Syncor in a stock-for-stock merger. The merger agreement provided that Syncor shareholders would receive 0.52 shares of Cardinal common stock for each outstanding shаre of Syncor common stock. Pursuant to the merger agreement, Cardinal conducted a due diligence review of Syncor‘s operations. In October 2002, after conducting the review, Cardinal notified Syncor that certain payments made by Syncor‘s Taiwanese subsidiary, Syncor Taiwan, Inc., may have violated the Foreign Corrupt Practices Act (“FCPA“),
Cardinal discovered that, beginning in approximately 1985, Defendant Fu and Moses Fu (Defendant Fu‘s brother, who was in charge of Syncor‘s Taiwan subsidiary) knowingly made cash bribes to doctors at Taiwanese government-operated hospitals in order to increase sales and grow Syncor‘s business. Syncor also systematically encouraged the managers of its other foreign operations to use bribes in the countries in which they did business. Despite these illegal practices, the Plan‘s committee members, including Fu and Funari, allowed the Plan to hold and acquire Syncor stock when they knew or had reason to know of Syncor‘s foreign bribery scheme.
Thereafter, Cardinal announced that it had discovered illegal payments made by Syncor‘s subsidiaries in Taiwan and China. After this disclosure, Syncor‘s stock price dropped, losing almost half its value. Cardinal then reduced the merger
Syncor then entered into a non-prosecution agreement with the Department of Justice. Syncor Taiwan, Inc. entered a guilty plea to one count of violating the FCPA and paid a fine of $2,000,000. Syncor also entered a consent decree with the Securities Exchange Commission in which Syncor agreed to the entry of a cease-and-desist order and agrеed to pay a fine of $500,000. Fu surrendered $2,500,000 worth of his own Syncor stock to reimburse Syncor for the fines.
II. Procedural History & Settlement
On February 24, 2004, the Class filed its consolidated complaint, which alleged that Syncor and the Plan‘s committee members breached their fiduciary duties to the Plan and its participants in violation of ERISA
On January 10, 2006, without notice that the district court had reached a decision regarding the summary judgment
The following day, January 11, 2006, the parties submitted a signed stipulation and a proposed order asking the district court, among other things, to “not issue a ruling on the Motions for Summary Judgment.” Again neither party provided the term sheet to the district court. Even though the parties provided the required notice of settlement to the district court, the district court nevertheless entered its order granting the motions for summary judgment on January 11, 2006. The district court entered final judgments against thе Class on January 12, 2006. Thereafter, the district court denied the parties’ proposed order regarding settlement as moot.
On January 25, 2006, the Class filed a motion under Federal Rules of Civil Procedure
The Class appeals from the district court‘s rulings and raises two issues: (1) whether the district court abused its discretion by not considering the class action settlement and (2) whether the district court erred by concluding plaintiffs failed to demonstrate genuine issues of fact existed as to whether the fiduciaries breached their fiduciary duty to the Plan and participants. We have jurisdiction under
III. Standard of Review
Motions for relief from judgment pursuant to
We also review the denial of a motion to alter or amend a judgment under
We review de novo the district court‘s grant of summary judgment and, viewing the evidence in the light most favorable to the non-moving party, determine whether there are any
IV. Discussion
A. The Settlement Agreement
[1]
[2] The parties agree that they had reached an enforceable settlement agreement subject to court approval. Our court has previously held that the requirement that the district court approve a class action settlement does not affect the binding nature of the parties’ agreement. See Collins v. Thompson, 679 F.2d 168, 172 (9th Cir. 1982) (“Judicial approval of a [class action settlement] is clearly a condition subsequent, and should not affect the legality of the formation of the proposed [settlement] as between the negotiating parties.“) At the time of the settlement, Defendants knew they had dispositive motions pending and chose the certainty of settlement rather than the gamble of a ruling оn their motions. Thus, Defendants chose to forego the chance that the district court would grant summary judgment in their favor. Because the parties bound themselves to a settlement agreement subject only to court approval (which they had agreed to seek) and gave the required notice of the agreement, the district court should not
The facts of this case are somewhat analogous to Sheng v. Starkey Labs, Inc., 117 F.3d 1081 (8th Cir. 1997). Although the settlement in Sheng did not involve a class action, the Eighth Circuit‘s reasoning that the district court abused its discretion is equally applicable here. In Sheng, the district court signed (but did not enter) an order granting summary judgment the Friday before the mediation was to commence. Id. at 1082. The following Monday, the parties settled the matter and the district court vacated its summary judgment order and dismissed the case. Id. Thereafter, the defendant filed a Rule 60(b) motion seeking to vacate the order dismissing the case. After remand for an evidentiary hearing, a new district court judge reinstated the summary judgment order. Id. at 1083. The Eighth Circuit held the defendant was bound by the settlement, notwithstanding the court‘s ruling on the merits. “Rule 60(b) does not allow district courts to indulge a party‘s discontent over the effects of [the party‘s] bargain.” Id. at 1083 (internal quotation omitted). Accordingly, the court held that because the parties had entered into a binding settlement, the district court abused its discretion in granting the defendant‘s Rule 60(b) motion. Id.
Additionally, there is a strong judicial policy that favors settlements, particularly where complex class action litigation is concerned. See Class Plaintiffs, 955 F.2d at 1276. In Officers for Justice v. Civil Service Comm‘n of the City and County оf San Francisco, 688 F.2d 615 (9th Cir. 1982), we specifically stated that, “it must not be overlooked that voluntary conciliation and settlement are the preferred means of dispute resolution. This is especially true in complex class action litigation . . . .” Id. at 625. This policy is also evident in the Federal Rules of Civil Procedure and the Local Rules of the United States District Court, Central District of California, which еncourage facilitating the settlement of cases. See
[3] Defendants argue that thе district court has the discretion to enter final judgment rather than review the proposed settlement in order to manage its calendar. Defendants argue that, because the settlement was not yet final, the district court did not abuse its discretion by entering the judgments on the merits. These arguments, however, are not compelling under these circumstances. Because the parties prоvided appropriate notice to the district court of the settlement agreement, the court should never have filed its order or entered the final judgments. The parties informed the district court that they had entered a binding settlement agreement the day before the district court entered its summary judgment order and two days before the district court entered the final judgments. The district court thus shоuld have reviewed the settlement document as required under
[4] That the district court had already drafted a summary judgment order is not justification for refusing to approve an otherwise enforceable settlement agreement between the parties. The district court is not a party to the settlement. The court‘s role in the class action settlement process is to protect
[5] Therefore, we hold that the district court abused its discretion by entering the final judgments and by refusing to vacate the final judgments under Rules 59(e) and 60(b)(6). The district court erred when it did not apply Rule 23(e) and review the settlement agreement prior to the entry of the judgments. Therefore, we reverse the district court‘s denial of the Class‘s motion to vaсate the entry of final judgments and remand with instructions to the district court to review the settlement pursuant to Rule 23(e). Accordingly, we also vacate the district court‘s entries of judgments in favor of Syncor, Fu, and Funari.
B. Summary Judgment
Defendants moved for summary judgment on the basis that they did not breach their fiduciary duties because (1)
[6] Viewing the evidence in the light most favorable to thе Class, we find there are genuine issues of material fact for trial rendering summary adjudication inappropriate. As an initial matter, this Circuit has not yet adopted the Moench presumption, see Wright v. Oregon Metallurgical Corp., 360 F.3d 1090, 1098 n.3. (9th Cir. 2004), and we decline to do so now. In any event, the district court‘s determination that the Class did not rebut the Moench presumption based solely upon Syncor‘s financial viability (as shown by evidence that Syncor stock outperformed both the NASDAQ and S&P 500) is not an appropriate application of the prudent man standard set forth in either Moench or
[7] The plain language of
[8] We find that genuine issues of material fact exist rеgarding whether Defendants breached the “prudent man”
V. Conclusion
We conclude that the district court abused its discretion by entering the final judgments and by refusing to vacate the final judgments under Rules 59(e) and 60(b)(6). We further hold that the district court erred in granting summary judgment. We therefore reverse the district court‘s summary judgment in favor of Defendants. We also reverse the order of the district court denying the Class‘s Rule 60(b)(6) and Rule 59(e) motions and remand with instructions to the district court to review the settlement agreement pursuant to Rule 23(e) and to take further actions consistent with this opinion.
REVERSED and REMANDED.