Smith v. Arthur Andersen Llp
| Citation | 421 F.3d 989 |
| Decision Date | 30 August 2005 |
| Docket Number | No. 03-16899.,No. 03-16803.,No. 03-16791.,03-16791.,03-16803.,03-16899. |
| Parties | Gerald K. SMITH, as Plan Trustee for and on behalf of the Estates of Boston Chicken, Inc., BC Real Estate Investments, Inc., and all Boston Chicken affiliates, Plaintiff-Appellee, v. ARTHUR ANDERSEN LLP, a limited liability partnership, Defendant, and Merrill Lynch & Co., Inc., a corporation; Merrill Lynch Pierce Fenner & Smith Inc., a corporation; Deutsche Banc Securities, Inc., a corporation dba Deutsche Banc Alex.Brown; Morgan Stanley & Co., Inc., a corporation, Defendants-Appellants, Bell, Boyd & Lloyd, a limited liability corporation; Pedersen & Houpt, a professional corporation, Defendants-Appellees. v. Mark W. Stephens, Third-party-plaintiff-Appellee. Gerald K. Smith, as Plan Trustee for and on behalf of the Estates of Boston Chicken, Inc., BC Real Estate Investments, Inc., and all Boston Chicken affiliates, Plaintiff-Appellee, v. Arthur Andersen LLP, a limited liability partnership; Merrill Lynch & Co., Inc., a corporation; Merrill Lynch Pierce Fenner & Smith Inc., a corporation; Deutsche Banc Securities, Inc., a corporation dba Deutsche Banc Alex.Brown; Morgan Stanley & Co., Inc., a corporation; Bell, Boyd & Lloyd, a limited liability corporation; Pedersen & Houpt, a professional corporation, Defendants, and Scott A. Beck, an individual, and the marital community of Scott A. Beck, and his spouse; Saad J. Nadhir, an individual, and the marital community of Saad J. Nadhir, and his spouse, Defendants-Appellants, v. Mark W. Stephens, Third-party-plaintiff. Gerald K. Smith, as Plan Trustee for and on behalf of the Estates of Boston Chicken, Inc., BC Real Estate Investments, Inc., and all Boston Chicken affiliates, Plaintiff-Appellee, v. Arthur Andersen LLP, a limited liability partnership; Merrill Lynch & Co., Inc., a corporation; Merrill Lynch Pierce Fenner & Smith Inc., a corporation; Deutsche Banc Securities, Inc., a corporation dba Deutsche Banc Alex.Brown; Morgan Stanley & Co., Inc., a corporation; Pedersen & Houpt, a professional corporation, Defendants, and Bell, Boyd & Lloyd, a limited liability corporation, Defendant-Appellee, Peer Pedersen, an individual and the marital community of Peer Pedersen and his spouse, Defendant-Appellant, v. Mark W. Stephens, Third-party-plaintiff-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Ronald L. Marmer, C. John Koch, Jenner & Block LLP, Chicago, IL, and Don Bivens, Paul L. Stoller, Meyer, Hendricks & Bivens, P.A., Phoenix, AZ, for defendant-appellant Saad J. Nadhir.
George B. Curtis, Gregory J. Kerwin, Gibson, Dunn & Crutcher LLP, Denver, CO, and Martin Galbut, Galbut & Hunter, P.C., Phoenix, AZ, for defendant-appellants Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith, Inc., Deutsche Banc Securities, Inc., and Morgan Stanley & Co., Inc.
C. Barry Montgomery and David E. Stevenson, Williams Montgomery & John Ltd., Chicago, IL, for defendant-appellant Peer Pedersen.
Leo R. Beus, Nicholas J. DiCarlo, and Christine R. Taradash, Beus Gilbert PLLC, Scottsdale, AZ, for plaintiff-appellee Gerald K. Smith.
Martin Glenn, O'Melveny & Meyers LLP, New York, NY, and Amy J. Longo, O'Melveny & Meyers LLP, Newport Beach, CA, for plaintiff-appellee Mark W. Stephens.
Mark C. Dangerfield and Michael K. Kennedy, Gallagher & Kennedy, LP, Phoenix, AZ, for defendant-appellee Pedersen & Houpt.
James R. Condo, Snell & Wilmer LLP, Phoenix, AZ, and Richard A. Derevan, Marc L. Turman, Snell & Wilmer LLP, Irvine, CA, for defendant-appellee Bell, Boyd & Lloyd.
Appeal from the United States District Court for the District of Arizona; Paul G. Rosenblatt, District Judge, Presiding. D.C. Nos. CV-01-00218-PGR, CV-01-00246-PGR, CV-02-01162-PGR, CV-02-01248-PGR.
Before: WALLACE, RAWLINSON, and BYBEE, Circuit Judges.
Gerald K. Smith, in his capacity as Plan Trustee for the Bankruptcy Estate of Boston Chicken, Inc. and various related entities (the Trustee) filed an action alleging a variety of claims. Later, the Trustee filed motions seeking district court approval of settlements reached with certain of the defendants and requesting bar orders enjoining the non-settling defendants from asserting certain claims against the settling defendants. Over objection of some of the non-settling defendants, the district court granted the approval motions resulting in this appeal.
The district court had jurisdiction pursuant to 28 U.S.C. § 1334. We hold that we have appellate jurisdiction and affirm.
The Trustee's 225-page Second Amended Complaint (complaint) asserts 45 separate claims under state and federal law against certain of Boston Chicken's former officers and directors, attorneys, auditors, and investment bankers. The complaint refers to Scott A. Beck, Saad J. Nadhir, and Mark W. Stephens, who were officers and/or directors of Boston Chicken, as the "Individual Defendants." Defendants Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith, Inc., Deutsche Banc Securities, Inc., d/b/a Deutsche Banc Alex. Brown, and Morgan Stanley & Co., Inc. are the "Underwriter Defendants." The defendants other than the Individual Defendants and PricewaterhouseCoopers (which was Boston Chicken's post-bankruptcy auditor) are the "Professional Defendants."
The complaint alleges the following core facts. Boston Chicken was insolvent from its inception, which the defendants knew or should have known. Rather than acknowledge this fact and seek bankruptcy protection, the defendants sought to keep the firm afloat for various reasons (retaining their corporate positions, salaries and fees, preserving the value of their investments in Boston Chicken and related entities, etc.). This was accomplished by, among other things, misrepresenting (not necessarily intentionally) the firm's financial condition to its outside directors and investors who participated in the firm's various securities offerings. The Individual Defendants, as high-ranking corporate officials, had the authority to implement this plan; the Professional Defendants, as advisors to the firm and underwriters of its securities, provided the services and resources necessary to make it happen. Accordingly, the complaint alleges in part that the Individual Defendants breached the fiduciary duties they owed to Boston Chicken and made false and misleading misrepresentations to Boston Chicken's Board of Directors. The complaint also alleges that the Professional Defendants are liable for breach of certain contracts with Boston Chicken, breach of fiduciary duties owed to Boston Chicken and professional malpractice.
Furthermore, the complaint charges that had these misrepresentations and breaches not occurred, the funds obtained through the capital markets might not have been forthcoming, and the outside directors might have chosen to enter bankruptcy at an earlier date. In that situation, Boston Chicken's assets would not have been squandered on an unviable business plan (or on the defendants' compensation and fees), and the firm would not have been encumbered with additional debt obligations that it had no realistic chance of repaying. In summary, the complaint alleges that the defendants engaged in a course of conduct that plunged Boston Chicken deeper and deeper into insolvency.
In October 1998, Boston Chicken and various related entities filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. In May 2000, the bankruptcy court confirmed Boston Chicken's Third Amended Plan (Debtor's Plan), under which certain of Boston Chicken's assets were sold to the McDonald's Corporation, Boston Chicken was dissolved, and the Trustee was appointed as the representative of the bankruptcy estates. The Trustee commenced a number of lawsuits, all of which are now consolidated into one proceeding in the United States District Court for the District of Arizona (the Trustee's Action).
Before Boston Chicken had entered bankruptcy, over 20 securities class actions were filed in the United States District Court for the District of Colorado. The class actions, which alleged various claims under state and federal securities laws and were based largely on the same conduct at issue in the Trustee's Action, were later consolidated into one proceeding in Colorado (the Class Action). The Class Action was transferred to the United States District Court for the District of Arizona in November 2002 and consolidated with the Trustee's Action "for discovery and pretrial purposes only" in March 2003. However, in May 2003 the consolidation order was vacated and the Class Action was transferred back to Colorado, while the Trustee's Action remained in Arizona. The Class Action remains in Colorado, and is not before us.
During 2003, the Trustee reached settlements with three of the defendants in the Trustee's Action (collectively, including the Trustee, the Settling Parties): Bell Boyd & Lloyd (BB & L) and Pedersen & Houpt (P & H), both of which served as counsel to Boston Chicken, and Stephens, one of the Individual Defendants. The Trustee filed joint motions with each of the settling defendants seeking district court approval of these three settlements (Approval Motions). The proposed orders submitted with the Approval Motions contained provisions enjoining the non-settling defendants from pursuing certain claims against the settling defendants (bar orders), as well as provisions reducing any future judgment rendered in the Trustee's Action against the non-settling defendants by the pro rata share of fault attributable to each settling defendant (judgment reduction credits).
Nadhir, Peer Pedersen (another of Boston Chicken's directors), and the Underwriter Defendants (collectively, the Non-Settling Defendants), as well as certain other parties, objected to the Approval Motions. Their objections generally were not,...
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