47 F.3d 373 (9th Cir. 1995), 94-55935, In re Pacific Enterprises Securities Litigation
| Docket Number | 94-55935. |
| Citation | 47 F.3d 373 |
| Date | 09 February 1995 |
| Parties | 31 Fed.R.Serv.3d 746 In re PACIFIC ENTERPRISES SECURITIES LITIGATION. Lee J. PRINCIPE; Ken Rudd; Steven Friedland; Myra Friedland; Leonard Held; Pisnoi Lumber & Trim Co., Inc. Pension Trust; Charles Thomas Miller; William Steiner; Pacific Enterprises, by Pisnoi Lumber & Trim Co., Inc. Pension Trust; Sheldon Shore; Edith Citron; William P. Anglim; W |
| Court | U.S. Court of Appeals — Ninth Circuit |
Page 373
Argued and Submitted Dec. 7, 1994.
Page 374
Richard G. McCracken, Davis Cowell & Bowe, San Francisco, CA, for objector-appellant.
William S. Lerach & William S. Dato, Milberg Weiss Bershad Hynes & Lerach, San Diego, CA, for plaintiffs-appellees.
Richard H. Borow, Irell & Manella, Raymond C. Fisher, Heller, Ehrman, White & McAuliffe, James E. Lyons, Skadden, Arps, Slate, Meagher & Flom, John C. Morrissey, McCutchen, Doyle, Brown & Enersen, William W. Vaughn, O'Melveny & Myers, Los Angeles, CA, for defendants-appellees.
Page 375
Appeal from the United States District Court for the Central District of California.
Before: FARRIS, POOLE and KOZINSKI, Circuit Judges.
FARRIS, Circuit Judge:
The district court approved a simultaneous settlement of a derivative class action lawsuit and a securities class action lawsuit. Weinstein, one of the derivative plaintiffs, contests the derivative settlement only. The questions are whether the district court 1) had jurisdiction over the derivative plaintiffs' claims, 2) properly responded to Weinstein's settlement objections, or 3) abused its discretion by approving the settlement and the award of attorneys' fees. We affirm.
I. FACTS
Pacific Enterprises was once a successful gas distribution utility company. In the late 1980s it tried to diversify its business by acquiring the Thrifty store chain, an oil and gas exploration company, and a number of retail drug store chains. The diversification program, as described by the district court, was "incredibly bad." By 1992 Pacific Enterprises sold all of its non-utility assets and restructured its operations at a loss of approximately $750 million. It also eliminated its dividend for the first time in eighty years.
According to Weinstein Pacific Enterprises's management later revealed their rationale for diversification. They feared that the SEC would limit utility holding company diversification. Weinstein alleges that by rapidly diversifying management hoped to present regulators with transactions so hard to unscramble that the company's diversification would be permitted through "grandfather" exemptions.
Shareholders filed several derivative lawsuits in Los Angeles Superior Court against the company's former officers and directors. The lawsuits challenged the company's diversification acquisitions and their subsequent mismanagement. The derivative suits also alleged that management, in an attempt to improve the appearance of Pacific Enterprises's bottom line, wasted corporate assets by rapidly drawing down oil and gas reserves despite low market prices. Shareholders later brought derivative claims against the company's auditors, Deloitte & Touche, who had certified the allegedly misleading financial statements. The state court consolidated these lawsuits and appointed attorneys from Milberg Weiss Bershad Specthrie & Lerach and Spector & Roseman to be co-lead counsel. Weinstein and members of his union who owned stock in Pacific Enterprises joined the derivative lawsuit, accepting Milberg Weiss as co-lead counsel.
Shareholders who purchased stock between June 5, 1990, and February 4, 1992, filed several security class action lawsuits in federal court. They eventually consolidated their claims and added Deloitte & Touche as a defendant. The federal court appointed Milberg Weiss; Barrack, Rodos & Bacine; and Wolf Popper Ross Wolf & Jones as co-lead counsel. Defendants moved to dismiss the securities claims. Although Judge Letts never entered an order on these motions, he held a hearing where he indicated that many defendants were "probably going to win" on summary judgment.
Aided by two settlement mediators, Judge Tevrizian and Judge Irving, the parties reached a global settlement of all federal and state actions. To settle the derivative lawsuit, the parties agreed that Pacific Enterprises would receive $12 million from its officers' and directors' insurers and Deloitte & Touche. Attorneys for the derivative plaintiffs would receive $8 million out of this $12 million award. The derivative settlement would also require Pacific Enterprises to resume its dividend and to enact restrictions on future diversifications. To settle the securities lawsuit, Pacific Enterprises would pay $21 million and the insurance companies would pay $12 million into a settlement fund. Final approval of both settlements are conditioned on the defendants' demand that the two settlements be linked. If either settlement is vacated, both settlements are void.
Weinstein objected to the proposed derivative settlement. He argued that the district court did not have jurisdiction over the derivative claims and that the proposed derivative settlement would be unjust. Over 1700 shareholders joined his objections. Many
Page 376
joinders came from current and former employees. Non-employee objectors included Wells Fargo Bank, GE Investments, IDS, Continental Trust, and Connecticut General Life Insurance. Many more shareholders might have joined Weinstein except that the notice of settlement did not inform shareholders that Pacific Enterprises was paying for most of the securities settlement.
At the settlement hearing, the district court announced that it was satisfied with the total recovery on the derivative claims. Judge Letts stressed that he was relying primarily on the judgment of counsel involved. Nevertheless, he agreed with Weinstein that an $8 million fee award for the derivative attorneys appeared excessive. Judge Letts concluded the settlement hearing by indicating that he intended to hire an independent expert to examine the value of the non-monetary elements of the derivative settlement. Without further hearings or explanatory filings, on May 5, 1994, plaintiffs' counsel reduced their derivative fee request from $8 million to $4 million, and Judge Letts approved the global settlements and dismissed both actions.
II. DISTRICT COURT JURISDICTION OVER DERIVATIVE LAWSUIT
Weinstein raises two arguments contesting the district court's jurisdiction over the derivative lawsuit. We review legal issues concerning jurisdiction de novo. See Nike, Inc. v. Comercial Iberica de Exclusivas Deportivas, S.A., 20 F.3d 987, 990 (9th Cir.1994).
Weinstein contends that amending the federal lawsuit to include the state derivative lawsuit violated our decision in American Int'l Underwriters, Inc. v. Continental Ins. Co., 843 F.2d 1253 (9th Cir.1988). In American Int'l Underwriters, we held that a plaintiff may not file a lawsuit in state court and then file the same lawsuit in federal court. Filing the "repetitive lawsuit" was an attempt to circumvent the federal removal statute, 28 U.S.C. Sec. 1441, which does not grant a right of removal to plaintiffs. American Int'l Underwriters, 843 F.2d at 1260-61. Weinstein contends that by amending the federal complaint "plaintiffs are essentially removing the state-law case to federal court." 1
The rationale for our decision in American Int'l Underwriters does not apply to this case. The derivative lawsuit plaintiffs were not attempting to circumvent the removal statute and continue their lawsuit in federal court. Rather, they sought to refile in federal court to end the litigation. The district court's order expressly provided that the refiling was "for settlement purposes only." Extending the holding in American Int'l Underwriters would waste judicial resources and create an arbitrary barrier to settlement negotiations. Thus, plaintiffs may refile their case in federal court, even if they previously filed the identical case in state court, if that refiling permits the parties to immediately settle their lawsuit.
Weinstein also contends that Fed.R.Civ.P. 23.1(2) does not permit the parties to bring the derivative action into federal court. Rule 23.1(2) provides that shareholders may not bring a derivative action in...
To continue reading
Request your trial
-
No nexus, no problem: no jurisdictional error related to defendant's conviction for drug trafficking overseas.
...note 39, at 294. (71.) See id. (analyzing distinction between stateless and registered vessels in Ninth Circuit). (72.) See Caicedo, 47 F.3d at 373 (comparing drug smugglers on stateless ships to those on registered boats). Drug dealers on flagged boats are very much the international paria......