In re Syncor Erisa Litigation
| Decision Date | 19 February 2008 |
| Docket Number | No. 06-55265.,06-55265. |
| Citation | 516 F.3d 1095 |
| Parties | In re 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. |
| Court | U.S. Court of Appeals — Ninth Circuit |
T. David Copley, Lynn Lincoln Sarko, Ron Kilgard, Elizabeth A. Leland, Laura R. Gerber, Keller Rohrback, L.L.P., Seattle, WA; Edward W. Ciolko, Joseph Meltzer, Gerald Wells III, and Mark Gyandoh, Schiffrin Barroway Topaz & Kessler, LLP, Radnor, PA; and Christopher Kim, Lisa J. Yang, Lim, Ruger & Kim, LLP, Los Angeles, CA, for the plaintiffs-appellants.
Daniel S. Floyd, Law Offices of Gibson, Dunn & Crutcher LLP, Los Angeles, CA, for the defendants-appellees.
Appeal from the United States District Court for the Central District of California; R. Gary Klausner, District Judge, Presiding. D.C. No. CV-03-02446-RGK.
Before: KIM McLANE WARDLAW, CARLOS T. BEA, and N. RANDY SMITH, Circuit Judges.
We hold that, when parties (1) enter into a binding class action settlement agreement, which requires court approval pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, and (2) provide the required notice of the settlement to the district court prior to the district court's entry of the final judgments, the district court should hold a hearing and review the settlement agreement to determine if it is fair, reasonable, and adequate. See Fed. R.Civ.P. 23(e)(2). Failure to do so—even when the district court has already drafted a summary judgment order—is an abuse of discretion. We also hold that genuine issues of material fact exist regarding whether the Defendants breached their fiduciary duty under ERISA as set forth in 29 U.S.C. § 1104(a), which precludes an award of summary judgment. Accordingly, we reverse and remand.
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), 29 U.S.C. § 1001 et seq. Committee members appointed by Syncor's board of directors administered the Plan. Syncor's board of directors also had final decision-making authority regarding all aspects of the Plan's administration. Defendants-Appellees Monty Fu ("Fu") and Robert G. Funari ("Funari") were both members of Syncor's board of directors.
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 period to any of the nine available investment funds chosen by Syncor.1 The second component of the Plan allowed participants to invest as much as an additional two percent of their compensation in an employee stock ownership plan ("ESOP"), which was designed to invest primarily in Syncor's common stock.
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 share 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"), 15 U.S.C. § 78dd-1 et seq.
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 Funary, 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 exchange rate to 0.47 shares of Cardinal stock for each Syncor share. This change resulted in a loss of between 24 and 65.5 million dollars to members of the Plan. As a result of this loss, a class action complaint was filed on behalf of all persons who were participants in the Plan. ("the Class"). On March 28, 2005, the district court certified the lawsuit as a class action.
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 agreed to pay a fine of $500,000. Fu surrendered $2,500,000 worth of his own Syncor stock to reimburse Syncor for the fines.
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. §§ 404(a)(1)(A)-(D) & 405. In its January 10, 2005 Order Re: Civil Jury Trial, the district court ordered the parties to comply with the local rules setting out mandatory settlement procedures. On October 19, 2005, the district court entered an order granting the parties additional time to participate in a settlement procedure. In November 2005, Defendants Syncor and Funari filed a joint Motion for Summary Judgment and Defendant Fu filed a separate Motion for Summary Judgment. The parties engaged in formal mediation on December 12, 2005, with settlement negotiations continuing after that date. During the time period following mediation, the parties"continued to file documents regarding the summary judgment motions. On December 16, 2005, the district court took the motions "under submission."
On January 10, 2006, without notice that the district court had reached a decision regarding the summary judgment motions, the parties signed a "Revised Term Sheet," with a proposed settlement. The term sheet stated, "Court approval is a condition of this settlement." Pursuant to Central District of California Local Rule 16-15.7, which instructs litigants on how to report a settlement, the parties left a message for the district court's clerk regarding the parties' term sheet. Counsel for the Class also delivered a letter to the district court stating, "The parties have signed a term sheet and have begun the process of formally documenting the settlement." Neither party provided the term sheet to the district court. On the same day, the district court signed an order granting Syncor's, Funari's, and Fu's motions for summary judgment, holding Plaintiffs failed to demonstrate genuine issues of material fact existed as to whether Defendants breached their duty of prudence.
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 the 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 60(b) and 59(e) requesting that the district court set aside the final judgments. The Class also filed a motion for preliminary approval of the settlement pursuant to Rule 23(e) of the Federal Rules of Civil Procedure. On March 2, 2006, the district court denied the Class's Rule 60(b) and Rule 59(e) motions and the Class's motion for preliminary approval of the settlement holding that merely because "the parties reached a tentative settlement on the same day the Court issued its summary judgment rulings does not, without more, mean that a manifest injustice will result if the Court allows its summary judgment rulings to stand."
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 28 U.S.C. § 1291. We reverse and remand.
Motions for relief from judgment pursuant to Rule 60(b) of the Federal Rules of Civil Procedure are addressed to the sound discretion of the district court and will not be reversed absent an abuse of discretion. See United States v. Washington, 394 F.3d 1152, 1157 (9th Cir.2005). "A district court abuses its discretion if it does not apply the correct law or if it rests its decision on a clearly...
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