Hillman v. Webley
| Decision Date | 18 November 1985 |
| Citation | 115 F.3d 1461 |
| Parties | 97 CJ C.A.R. 1013 Elsie Hilliard HILLMAN; C.G. Grefenstette, trustees of the Henry Lea Hillman Trust U/A dated |
| Court | U.S. Court of Appeals — Tenth Circuit |
Gerald Padmore, Theresa M. Moore, Jonathan C.S. Cox, and Vicki Marolt Buchanan, of Cox, Buchanan, Padmore & Shakarchy, Denver, Colorado, for appellant.
Tim Atkeson, of Arnold & Porter, Denver, Colorado, and Jay Kelly Wright, of Arnold & Porter, Washington, DC, for appellee Coopers & Lybrand.
Before EBEL, KELLY, and BRISCOE, Circuit Judges.
Glen W. Barnard, a defendant in several securities cases consolidated in the United States District Court for the District of Colorado for pretrial purposes as multidistrict litigation under 28 U.S.C. § 1407, appeals the orders entered in one of those cases assuming jurisdiction over and subsequently dismissing his cross-claims against Coopers & Lybrand. We reverse and remand.
This court recently disposed of an appeal by Barnard in another of the consolidated securities cases, Hillman v. Webley, 98 F.3d 1349 (10th Cir. Sept.30, 1996) (table), where we reviewed at length the tortuous factual and procedural history of this litigation. Because it is necessary for an understanding of the instant appeal, we must again revisit that history.
Alert Holdings, Inc., (AHI) is a Delaware corporation with its principal offices in Colorado. At all times relevant to this litigation, AHI was engaged in the business of providing remote electronic monitoring of business and residential security systems throughout the United States. Barnard is a former director and president of AHI.
In the late 1980's, AHI began contacting investors about the possibility of investing in AHI equity securities and loaning funds to AHI or its affiliated entities. One proposed opportunity was for investors to purchase interests in various limited partnerships which were established to purchase alarm monitoring accounts from small, local companies and collect revenues therefrom. AHI allegedly agreed to provide alarm monitoring services for the partnership accounts in return for approximately 20% of the total account revenues of each of the limited partnerships. In addition to collecting fees for the monitoring services, AHI allegedly received account acquisition and set-up fees, as well as other fees.
To induce investors to purchase the partnership interests, AHI allegedly projected that investors would receive cash distributions of at least a 14-15% annual rate of return. AHI allegedly predicted it would eventually exercise purchase options and acquire the assets of the limited partnerships at a premium of 35% to 50% over what investors would pay for their partnership interests. Further, AHI allegedly predicted it would ultimately become a fully integrated company after exercising these purchase options, and purchasers of AHI securities would achieve even higher rates of return than purchasers of the limited partnership interests.
AHI offerings took place in 1989, 1990, and the first half of 1991. Among the many investors who took part in the offerings were a group of entities, including a company called Wilmington Securities, Inc., owned and/or controlled by Henry Hillman (hereinafter the Hillman Group). Between June 1989 and December 1990, the Hillman Group purchased thousands of shares of AHI stock and, between March 1990 and July 1991, the Hillman Group loaned millions of dollars to AHI and at least one of its related limited partnerships.
Due to their large investment in AHI, the Hillman Group sought and obtained representation on AHI's board of directors, as well as in AHI's management. Specifically, in June 1989, Steven Hutchinson, an individual associated with the Hillman Group, was appointed as a member of AHI's board. In December 1990, Frank "Terry" Savage, another individual associated with the Hillman Group, was appointed as Senior Vice President of AHI. In May 1991, Savage became President and Chief Executive Officer of AHI, replacing Barnard.
During 1990, AHI lost approximately thirty million dollars. In November 1991, AHI notified investors in the limited partnerships that scheduled third-quarter cash distributions would not be made. In December 1991 and January 1992, AHI and its related partnerships filed Chapter 11 bankruptcy petitions in the Southern District of New York.
A series of lawsuits were subsequently filed in California, Colorado, New York, and Delaware by investors with shares in AHI and/or partnership interests in AHI-related limited partnerships. The suits alleged violations of federal and state securities laws, and named as defendants various individuals, including Barnard, who were involved in the management of AHI and/or AHI-related entities. Also named in several of the suits were Coopers & Lybrand, the accounting firm that assisted AHI in the offerings, and Otten, Johnson, Robinson, Neff & Ragonetti (Otten, Johnson), a law firm that also assisted AHI in the offerings.
According to plaintiffs in the underlying actions, AHI's statements and promises to investors were simply a cover-up for an "elaborate Ponzi scheme." In particular, plaintiffs alleged that, at the time of the offerings, AHI's basic business of monitoring alarm accounts was losing money. AHI offset those losses, plaintiffs alleged, by arranging the sale of limited partnership interests. Plaintiffs further alleged AHI's representations of potential profits, as well as its underlying assumptions and representations about the alarm monitoring business, were untrue and/or lacked any reasonable basis in fact.
The cases were eventually consolidated for pretrial purposes on April 9, 1992, pursuant to an order of the Judicial Panel on Multidistrict Litigation, in the United States District Court for the District of Colorado, under 28 U.S.C. § 1407.
AHI filed its Chapter 11 bankruptcy petition on December 11, 1991. AHI filed its second amended plan of reorganization on May 6, 1993. Contained in the second amended plan of reorganization was AHI's broad release of all claims and potential claims against Wilmington. On June 24, 1993, the bankruptcy court confirmed AHI's Chapter 11 reorganization plan, finding the AHI bankruptcy petition had been filed in good faith. By confirming the reorganization plan, the bankruptcy court also affirmed the portions of the plan in which AHI released the Hillman Group from any and all liability, thereby eliminating any and all potential derivative causes of action that could be filed against the Hillman Group for harm done to AHI.
In 1993, a settlement between the proposed class of plaintiffs (including plaintiffs from the other consolidated lawsuits) and a number of defendants was achieved in conjunction with a reorganization plan for AHI and its related entities that was eventually approved by the bankruptcy court. The settlement, valued in excess of $50 million, was funded substantially by the Hillman Group, Coopers & Lybrand, and Otten, Johnson. Barnard was not among the settling defendants.
One section of the settlement agreement is relevant for purposes of this appeal. Specifically, a section entitled "Protection of Settling Defendants against Claims over from Non-Settling Defendants and/or Third Parties" provided the class plaintiffs and the settling defendants would jointly apply to the district court for a bar order prohibiting, among other things, cross-claims made by non-settling defendants against settling defendants.
On June 9, 1993, following notice to the class and to the non-settling defendants, the district court conducted a hearing on the fairness of the proposed settlement and on issues raised in motions filed by the parties concerning the proposed bar order. On June 22, 1993, the court approved the settlement agreement. The settlement agreement, in conjunction with the order of approval, enjoined the non-settling defenda...
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