Petro-Ventures, Inc. v. Takessian

• Decision Date: 22 June 1992
• Docket Number: INC,PETRO-VENTURE,No. 90-55349,90-55349
• Parties: Fed. Sec. L. Rep. P 96,842 , an Oklahoma corporation, Plaintiff-Appellant, v. Gary G. TAKESSIAN, an individual, Defendant-Appellee, Stephen R. Vrable, N. Russell Walden, and Wayne Hamersly, Intervenors-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1337

967 F.2d 1337

Fed. Sec. L. Rep. P 96,842

PETRO-VENTURES, INC., an Oklahoma corporation, Plaintiff-Appellant, v. Gary G. TAKESSIAN, an individual, Defendant-Appellee Stephen R. Vrable, N. Russell Walden, and Wayne Hamersly Intervenors-Appellees.

No. 90-55349.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Jan. 9, 1992.

Decided June 22, 1992.

Benjamin T. Willey, Willey & Shoemaker, Oklahoma City, Okl., for plaintiff-appellant.

John S. Einhorn, San Diego, Cal., for defendant-appellee.

Maureen Folan, Hoge, Fenton, Jones & Appel, San Jose, Cal., for intervenors-appellees.

Appeal from the United States District Court for the Southern District of California.

Before: POOLE, WIGGINS, and LEAVY, Circuit Judges.

LEAVY, Circuit Judge:

We decide the validity of a release of all unknown claims in the context of a settlement of ongoing litigation, where potential violations of federal securities laws were later discovered. The general rule in this circuit is that "[a] release is valid for purposes of a federal securities claim only if [there was] 'actual knowledge' that such claims existed." Burgess v. Premier Corp., 727 F.2d 826, 831-32 (9th Cir.1984) (citation omitted). However, we must decide if the facts of this case warrant an exception to this rule.

In a business venture in May of 1986, Petro-Ventures exchanged certain oil- and gas-producing properties for partnership units in Great American Partners. Two months after the exchange, Great American Partners and its general partner, Great American Resources, Inc. (Great American Resources) filed an action against Petro-Ventures in San Diego Superior Court for breach of contract, fraud, and recission. The basis of the complaint was that the oil- and gas-producing properties did not yield the monthly revenue that had been represented by Petro-Ventures. The action was removed from San Diego Superior Court to the United States District Court for the Southern District of California.

Petro-Ventures countersued Great American Partners and Great American Resources in the Western District of Oklahoma. The action was transferred to the Southern District of California.

On May 29, 1987, Petro-Ventures, Great American Partners, and Great American Resources settled their dispute. They memorialized the terms in a comprehensive settlement agreement in which California law was selected to govern the terms and conditions. The release provision at issue is in paragraph 9 of the agreement. Paragraph 9 states:

PVI [Petro-Ventures], CUDD [the president of Petro-Ventures], GAP [Great American Partners], GAR [Great American Resources], NEEDCO [a Texas limited partnership], and Takessian hereby release any and all claims demands, damages or causes of action they might have, each against the other, based upon the negotiations for sale and the conveyance of the producing oil and gas properties which were the subject of sale and conveyance from PVI to Needco in May of 1986, regardless of whether or not said claims have been set forth in the litigation referred to in Paragraph B.1. and 2. of this agreement. ¹ This release shall be effective as to PVI, CUDD, GAR, GAP, NEEDCO and Takessian and as to their successors, assigns, affiliated entities, directors, officers, employees, agents and attorneys. In further consideration and inducement for the compromise settlement contained herein, the parties expressly waive the benefit of Section 1542 of the California Civil Code which provides:

"A general release does not extend to claims which a creditor does not know or suspect to exist in his favor at the time of executing this release, which, if known by him must have materially affected his settlement with debtor."

In recognition of the settlement, Petro-Ventures paid $181,000 to Great American Resources and reassigned limited partnership The mutual parting of ways ended when Petro-Ventures filed an action against Gary Takessian ² on December 7, 1987, in the Southern District of California, seeking damages for violations of federal and state securities laws. Vrable, Walden, and Hamersly intervened in the action. On October 20, 1988, Petro-Ventures filed another action in Oklahoma District Court against Takessian, Vrable, Walden, Hamersly, and Peter R. Crystl, alleging the same facts and issues. The Oklahoma litigation was stayed pending resolution of the action in California.

                units to them.   In turn, certain wells were reassigned to Petro-Ventures
                

Takessian moved to dismiss on the ground that Petro-Ventures' actions were precluded by the release provision. The district court of the Southern District of California dismissed with prejudice. The court found that "the evidence indicates that the parties attempted to draw as broad a release as possible." Memorandum Decision and Order, Civ. No. 87-1744-E (CM), May 26, 1989, at 2. Observing that both parties were represented by counsel, the court stated:

In a case such as the one before this court, where the parties have negotiated at arms length and the intent of the settlement agreement is clearly to release all claims, known or unknown, it would be detrimental to allow a party to assert claims that should have been covered by the agreement. Such a result would be inequitable in light of the fact that the consideration rendered in the settlement was based upon an understanding that no further litigation would result. Furthermore, allowing the assertion of a federal securities claim in the face of such a complete settlement agreement would discourage settlement negotiations in all litigation in which a federal securities claim may eventually be discovered.

Id. at 5. The intervenors were granted a dismissal on the same grounds and the entire action was dismissed.

Petro-Ventures appeals, contending it did not know the partnership units it obtained in the exchange might not have been registered properly with the Securities and Exchange Commission. ³ Petro-Ventures maintains that the release of securities law claims was not discussed during settlement negotiations and that Takessian represented to its president, B. Keaton Cudd, III, that the units were properly registered:

During the settlement negotiations neither defendant nor anyone else connected with Great American Resources, Inc. or Great American Partners disclosed to me or Petro-Ventures, Inc. the earlier misrepresentations and omissions surrounding the May, 1986 purchase agreement. In particular, defendant continued to lead me to believe that the Great American Partners securities were in fact registered with the Securities and Exchange Commission.

Declaration of B. Keaton Cudd, III, at para. 8.

Petro-Ventures contends that unknown claims pursuant to federal securities law cannot be released under the law of this circuit, even by the execution of a settlement agreement that releases all known or unknown claims.

DISCUSSION

Standard of Review

The following standard of review applies to a dispute over a settlement agreement When an appellate court restricts its review of the trial court's interpretation of a contract to an analysis of the language used in the contract, the issue of interpretation is a matter of law and freely reviewable. Thus, the determination of whether contract language is ambiguous is a matter of law. When the interpretation includes a review of factual circumstances surrounding the contract, the principles of contract interpretation applied to those facts present issues of law which this court can freely review. When the inquiry extends beyond the words of the contract and focuses on related facts, however, the trial court's consideration of extrinsic evidence is entitled to great deference and its interpretation of the contract will not be reversed unless it is clearly erroneous.

In Re U.S. Financial Sec. Litigation, 729 F.2d 628, 631-32 (9th Cir.1984) (citations omitted).

Because the district court reviewed both the prior and current litigation to decide whether the settlement agreement was a bar to the current litigation, it "focuse[d] on related facts." Therefore, we give great deference to the district court and reverse only for clear error.

Whether State Or Federal Law Applies

In the settlement agreement, the parties agreed that "[t]he terms and provisions of this Agreement shall be construed according to California law." However, in a non-securities case, we held that "federal law always governs the validity of releases of federal causes of action." Mardan Corp. v. C.G.C. Music, Ltd., 804 F.2d 1454, 1457 (9th Cir.1986) (citing Dice v. Akron, Canton & Youngstown Railroad, 342 U.S. 359, 361, 72 S.Ct. 312, 314, 96 L.Ed. 398 (1952); Salmeron v. United States, 724 F.2d 1357, 1361 (9th Cir.1983); Jones v. Taber, 648 F.2d 1201, 1203 (9th Cir.1981)). An action involving securities is no different. Where a settlement agreement calls for the application of state law, but where violations of both federal and state securities law are alleged, "[i]t is well established that federal law governs all questions relating to the validity of and defenses to purported releases of federal statutory causes of action." Locafrance U.S. Corp. v. Intermodal Sys. Leasing, Inc., 558 F.2d 1113, 1115 (2d Cir.1977). The reason for this rule is that "[f]ederal statutory rights could be easily defeated if state law could be used to control the incidents of those rights and the defenses to them." Id. at 1115 n. 3. ⁴ This is especially true where

[d]espite the fact that some of the California Securities Laws are modeled to some degree after the Federal Securities Laws and references in the former are made to the latter, there is nothing to suggest that the two statutory schemes are to be interdependent rather than separate, autonomous systems.

Blake v. Pallan, 554 F.2d 947, 952 (9th Cir.1977) (footnotes omitted). Cf. Burgess, 727 F.2d at 831-32 (Washington State would apply federal law because the state securities act provides that it is to be...