New England Health Care Emp. Pension v. Woodruff

• Decision Date: 16 January 2008
• Docket Number: No. 06-1482.,06-1482.
• Parties: NEW ENGLAND HEALTH CARE EMPLOYEES PENSION FUND, on behalf of itself and all others similarly situated; Clifford Mosher, on behalf of himself and all others similarly situated; Tejinder Singh, on behalf of himself and all others similarly situated; Sotpal Singh, on behalf of himself and all others similarly situated, Plaintiffs-Appellees, v. Robert S. WOODRUFF; Joseph P. Nacchio, Defendants-Appellants, and Qwest Communications International, Inc.; Drake S Tempest; James A. Smith; Arthur Andersen L.L.P.; Craig D. Slater; Philip F. Anschutz, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

512 F.3d 1283

NEW ENGLAND HEALTH CARE EMPLOYEES PENSION FUND, on behalf of itself and all others similarly situated; Clifford Mosher, on behalf of himself and all others similarly situated; Tejinder Singh, on behalf of himself and all others similarly situated; Sotpal Singh, on behalf of himself and all others similarly situated, Plaintiffs-Appellees, v. Robert S. WOODRUFF; Joseph P. Nacchio, Defendants-Appellants, and Qwest Communications International, Inc.; Drake S Tempest; James A. Smith; Arthur Andersen L.L.P.; Craig D. Slater; Philip F. Anschutz, Defendants-Appellees.

No. 06-1482.

United States Court of Appeals, Tenth Circuit.

January 16, 2008.

Herbert J. Stern of Stern & Kilcullen, LLC, Roseland, NJ, and David Meister of Clifford Chance, US, LLP, New York, N.Y. (James Miller and David Cook of Clifford Chance, US, LLP, New York, NY; and Jeffrey Speiser and Joel M. Silverstein of Stern & Kilcullen, LLC, Roseland, NJ, with them on the briefs), for Defendants-Appellants.

David R. Boyd of Boies, Schiller & Flexner LLP, Washington, D.C. (Jonathan D. Schiller, Alfred P. Levitt, and Jorge Schmidt P. of Boies, Schiller & Flexner LLP, Washington, D.C.; Terence C. Gill of Sherman & Howard, LLC, Denver, CO; with him on the brief), for Defendant-Appellee Qwest Communications International Inc.

Michael J. Dowd of Lerach Coughlin Stoia Geller Rudman & Robbins LLP, San

Diego, CA (Keith F. Park, Spencer A. Burkholz, and Thomas E. Egler of Lerach Coughlin Stoia Geller Rudman & Robbins LLP, San Diego, CA; Sanford Svetcov and Susan K. Alexander of Lerach Coughlin Stoia Geller Rudman & Robbins LLP, San Francisco, CA, with him on the brief), for Plaintiffs-Appellees.

Before KELLY, BALDOCK, and BRISCOE, Circuit Judges.

PAUL KELLY, JR., Circuit Judge.

Defendants-Appellants Joseph P. Nacchio and Robert S. Woodruff, the former Chief Executive Officer and Chief Financial Officer of Qwest Communications International, Inc. ("Qwest"), respectively, appeal the district court's approval of a class action settlement in a securities fraud case. The settlement was negotiated between the Plaintiff-Appellee class, including lead plaintiffs New England Health Care Employees' Pension Fund, Clifford Mosher, Tejinder Singh, and Sotpal Singh (collectively "Plaintiffs"), and Defendant-Appellee Qwest, including eleven of its officers. Mr. Nacchio and Mr. Woodruff were not included in the approved settlement. Our jurisdiction arises under 28 U.S.C. § 1291 and we remand to the district court so that it might make appropriate findings and conclusions with respect to Mr. Nacchio and Mr. Woodruff's objections to the settlement.

Background

This case began on July 27, 2001 with a class action complaint alleging various federal securities laws violations by employees of Qwest. Aplt. App. at 41. Several other complaints were subsequently filed, and the operative complaint is Plaintiffs' fifth amended complaint filed on February 6, 2004 which includes fourteen former Qwest employees and Arthur Andersen accountants as defendants (Arthur Anderson LLP joins Qwest's brief and contributed to the settlement). Id. at 87, 179-385; Aplt. Br. at 4; Aplee. Br. at 2 n. 1. After "difficult" and "arms' length" negotiations with mediators, Aplt.App. at 710, Qwest and eleven of its officers came to a settlement agreement with the Plaintiff class, and Plaintiffs filed an unopposed motion for preliminary approval of a stipulation for partial settlement on November 23, 2005. Id. at 153, 1057-1109; Pl. Br. at 3-4.

Mr. Nacchio and Mr. Woodruff were not included in the settlement negotiations but were informed that they would be included if they would pay personally into any settlement fund. Aplt.App. at 880-81. Plaintiffs believed that Mr. Nacchio and Mr. Woodruff were especially culpable and should not be allowed to join a settlement in which only Qwest would pay. Id. Mr. Nacchio and Mr. Woodruff were not so inclined and therefore were not included in the final settlement. Id. at 881. Both Mr. Nacchio and Mr. Woodruff have agreements with Qwest that require Qwest to indemnify them for any reasonable amounts they might pay in settlement of a lawsuit against them as former directors or officers. Id. at 554, 655-56.; Aplt. Br. at 7.

The settlement includes three provisions that are at issue in this appeal. Aplt. Br. at 7-8. The first, as required by Section 21D of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u-4, bars contribution claims between and among the Released Persons and Non-Settling Defendants (defined to include Mr. Nacchio and Mr. Woodruff) "based on, relating to, or arising out of the Released Claims." Aplt.App. at 1009. This is the Reform Act Bar.¹ See id.

The second states, in relevant part, that "the Non-Settling Defendants.... are permanently barred, enjoined, and restrained from commencing, prosecuting, or asserting any claim, if any, however styled, whether for indemnification, contribution, or otherwise and whether arising under state, federal, or common law, against the Released Persons based on, arising out of, or relating to the Released Claims." Id. This is the Complete Bar. See id. at 1010.

The third provision includes two separate provisions that are grouped and addressed together as the Contractual Provisions. Id. at 1010-11; Aplee Br. at 12. The first states that "the Class will not settle any claim or judgment against a Non-Settling Defendant without obtaining from the Non-Settling Defendant the release of any and all claims the Non-Settling Defendant may have against any of the Released Persons based on, arising, out of, relating to, or in connection with the Released Claims or the subject matter thereof." Aplt.App. at 1011. The second orders that "to the extent (but only to the extent) not covered by the Reform Act Bar Order and/or the Complete Bar Order, the Lead Plaintiffs, on behalf of themselves and the Class, further agree that they will reduce or credit any settlement or judgment (up to the amount of such settlement or judgment) they may obtain against a Non-Settling Defendant by an amount equal to the amount of any settlement or final, non-appealable judgment that a Non-Settling Defendant may obtain against any of the Released Persons based on, arising out of, relating to, or in connection with the Released Claims or the subject matter thereof." Id. at 1010.

The district court preliminarily approved the partial settlement on January 5, 2006, id. at 156, and, after a motion by Plaintiffs and briefing by the parties, a hearing on final approval of the settlement was held on May 19, 2006. Aplt.App. at 934-94. Mr. Nacchio and Mr. Woodruff objected to the settlement on several grounds. Id. at 952-58. All parties were heard at this hearing. Id. at 934-94. On September 29, 2006, the district court entered its Partial Final Judgment and Order of Partial Dismissal with Prejudice ("PFJ"), overruling Mr. Nacchio and Mr. Woodruff's objections "[b]ased on the reasons stated, arguments advanced, and authorities cited by Qwest in its reply." Id. at 173, 1004. The district court held that the settlement was "fair, reasonable, and adequate" to the extent Fed.R.Civ.P. 23(e)(1)(C) applies to Mr. Nacchio and Mr. Woodruff. Id. at 1005. The district court entered its final Judgment on October 2, 2006. Aplt.App. at 174, 1044.² Mr. Nacchio and Mr. Woodruff's appeal followed. Id. at 178, 1051.

Discussion

Mr. Nacchio and Mr. Woodruff attack the district court's approval of the settlement on several grounds, but we need only address whether they have standing to challenge the settlement and whether the district court provided sufficient findings and conclusions pursuant to the PFJ for appellate review. We hold that Mr. Nacchio and Mr. Woodruff have standing and remand the case for the district court to provide a more extensive explanation for its decision.

I. Standing

It is well established that any party, including the court sua sponte, can raise the issue of standing for the first time at any stage of the litigation, including on appeal. Rector v. City and County of Denver, 348 F.3d 935, 942 (10th Cir. 2003). Qwest did not object to Mr. Nacchio and Mr. Woodruff's standing in the district court but now challenge it. Aplee. Br. at 25 n. 11.

"Whether a plaintiff has standing is a legal question, which we review de novo." Lippoldt v. Cole, 468 F.3d 1204, 1216 (10th Cir.2006). Federal courts may only hear actual "Cases" or "Controversies," U.S. Const. art. III, § 2, cl.1, and a plaintiff bears the burden of proving standing. See Bronson v. Swensen, 500 F.3d 1099, 1106 (10th Cir.2007). A plaintiff must prove (1) it has suffered an "injury in fact" that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision. Id.

In order to have standing to challenge a settlement, non-settling parties must demonstrate that they have been prejudiced by the settlement. In re Integra Realty Res., Inc. (In re Integra I), 262 F.3d 1089, 1102 (10th Cir.2001). "Plain legal prejudice sufficient to confer standing upon a non-settling litigant in a class action has been found to include any interference with a party's contract rights or a party's ability to seek contribution or indemnification." Id. (quoting Agretti v. ANR Freight Sys., 982 F.2d 242, 247 (7th Cir.1992)) (internal brackets omitted). "A party also suffers plain legal prejudice if the settlement strips the party of a legal claim or cause of action, such as a cross claim or the right to present relevant evidence at trial." Id. at 1102-03.

Qwest argues that Mr. Nacchio and Mr. Woodruff do not have ^ standing to challenge the Contractual Provisions, the Complete Bar, or the Reform Act Bar. See Aplee. Br. at 25-30. First, it argues that the...