Waller v. Financial Corp. of America, s. 86-6028
| Citation | 828 F.2d 579 |
| Decision Date | 22 September 1987 |
| Docket Number | Nos. 86-6028,86-6034,s. 86-6028 |
| Parties | , Fed. Sec. L. Rep. P 93,397, 9 Fed.R.Serv.3d 92 John L. WALLER, et al., Plaintiff-Appellee, v. FINANCIAL CORPORATION OF AMERICA, Defendant-Appellee, and Arthur Anderson & Co., Intervenor-Appellant. Nessim HUSNI, et al., Plaintiffs-Appellees, v. FINANCIAL CORPORATION OF AMERICA, Defendant-Appellee, and Arthur Anderson & Co., Intervenor-Appellant. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
Stuart L. Kadison, Michael C. Kelley and Thomas H. Keeling, Los Angeles, Cal., for intervenor-appellant.
Wesley G. Howell, Jr. and Patrice I. Kopistansky, Los Angeles, Cal., for defendant-appellee Financial Corp. of America.
George C. Zachary, Walter S. Weiss, John J. Stumreiter and James Y. Leong, Beverly Hills, Cal., David J. Bershad, Virginia A. LoPreto, San Diego, Cal., and Edward Labaton, Joseph Sternberg and Stuart D. Wechsler, New York City, for plaintiffs-appellees Waller and Husni, et al.
Appeal from the United States District Court for the Central District of California.
Before KENNEDY, SCHROEDER and POOLE, Circuit Judges.
This appeal arises out of two consolidated Rule 10b-5 class action lawsuits brought by shareholders against Financial Corporation of America (FCA), several of its officers and directors, and its accountant, Arthur Anderson & Co. (Anderson). Plaintiffs reached a settlement agreement with FCA alone, in parallel actions filed for the purpose of expediting the settlement. Anderson sought to object to the settlement by filing a motion "to establish limited standing to object to the proposed settlement." The district court denied Anderson's motion and approved the settlement. We view Anderson's motion as a motion to both intervene as a matter of right and object to the settlement. We hold that while Anderson should have been granted intervenor status, it did not have standing to object to the settlement between plaintiffs and FCA.
On May 2, 1983 John L. Waller sued FCA and its then chief executive officer on behalf of a class of buyers of FCA common stock, alleging violations of federal securities laws and pendant state law claims (Waller I ). The claims were based on the dissemination of allegedly inaccurate financial statements for 1982. Anderson and other officers and directors were added subsequently by amendments. 1 In August 1984, following a restatement of FCA's financial statements, other plaintiffs filed a series of lawsuits 2 that were later consolidated into a single action (Husni I ). 3
On April 7, 1986, at a joint status conference, plaintiffs and FCA informed the district court that they had agreed in principle to settle Waller I and Husni I. The settlement did not purport to affect the plaintiffs' claims against Anderson and the FCA officers and directors or cross-claims among Anderson, the individual defendants, and FCA. The court was told that a condition of the settlement was an expansion of the classes. 4 Counsel for Anderson declined to consent to the proposed amendments. In an effort to expedite matters, the classes suggested filing new, separate actions against FCA only, defining the classes as proposed by the settlement but otherwise substantially identical to the original actions. The district court approved this procedure and on April 10, 1986 the new law suits (Waller II and Husni II ) were filed.
The settlement was signed by FCA and the classes on April 11, 1986. Under its provisions, FCA agreed to pay at least $32 million to the classes in cash or stock. FCA also pledged to "co operate" in the prosecution of actions against Anderson and the individual defendants. In addition, FCA and plaintiffs agreed to share in the proceeds of the ongoing, unsettled actions At a hearing on April 14, 1986 the district judge gave preliminary approval to the settlement. The court instructed Anderson to file a motion to establish standing if it wished to present objections to the settlement. 5 In compliance with the court's directive Anderson filed a motion on May 9, 1986 to "Establish Arthur Anderson & Co.'s Limited Standing to Object to Proposed Settlement." The motion alleged that the proposed settlement would adversely affect Anderson's formal legal rights by requiring FCA to "cooperate" with plaintiffs in the ongoing litigation and share in the proceeds obtained therefrom. Anderson contended that this arrangement would require FCA to breach a joint defense agreement entered into in June 1985 by FCA, Anderson and the other defendants in the original Waller and Husni actions. The purpose of the agreement was to protect privileged and confidential information exchanged in the course of the case preparation. The agreement provided that (1) privileged communications would remain privileged when communicated to other clients or counsel, (2) defendants who are dismissed or settle would continue to protect the confidentiality of "joint defense information", (3) specific enforcement or injunction are the appropriate remedies to compel performance, and (4) federal law governing the attorney-client work product privilege would govern. There was a further agreement to toll the statute of limitations with respect to any claims the defendants had against one another arising out of these proceedings. Anderson's motion was denied by the district court on June 5, 1986. Anderson timely appealed.
according to a specified formula, with FCA's share to be approximately one-third. FCA also agreed to assert claims against Anderson and certain FCA officers and directors, and both FCA and plaintiffs pledged not to settle their respective suits without the prior approval of the other.
On July 3, 1986 a motions panel of this court construed the district court's order of June 5 as an order denying a petition to intervene as of right under Fed.R.Civ.P. 24(a)(2) and denied Anderson's motion to stay the upcoming settlement hearing. 6 The panel did, however, grant motions for expedited consideration and consolidation of the two cases.
At the hearing held July 7, 1986, the district court approved the settlement as provided by Fed.R.Civ.P. 23(e).
As discussed above, Anderson's motion sought both to intervene and to establish its standing as a non-settling party to offer objections to the settlement. An order denying intervention as of right is subject to de novo review. U.S. v. Stringfellow, 783 F.2d 821, 825 (9th Cir.1986); U.S. v. $129,374 in U.S. Currency, 769 F.2d 583, 585 (9th Cir.1985). The denial of a motion to establish standing to object to a settlement presents a mixed question of law and fact which we review de novo. U.S. v. McConney, 728 F.2d 1195, 1202 (9th Cir.) (en banc), cert. denied, 469 U.S. 824, 105 S.Ct. 101, 83 L.Ed.2d 46 (1984).
A party may intervene as of right if it satisfies the four-part test formulated by this circuit on the basis of Fed.R.Civ.P. 24(a)(2):
(1) The party's motion must be timely; (2) the party must assert an interest relating to the property or transaction which is the subject of the action; (3) the party must be so situated that without intervention the disposition of the action may as a practical matter impair or impede its ability to protect that interest; and (4) the party's interest must be inadequately represented by the other parties.
County of Fresno v. Andrus, 622 F.2d 436, 438 (9th Cir.1980).
Anderson's motion was timely and there is no reason to believe that the parties to Waller II and Husni II represent Anderson's interests. The extent of Anderson's interest and the impairment of that interest--the second and third factors--are closer questions to which we now turn.
This court has "rejected the notion that Rule 24(a)(2) requires a specific legal or equitable interest." Id. See also Blake v. Pallan, 554 F.2d 947, 952 (9th Cir.1977). We have noted that the "interest test" is "primarily a practical guide to disposing of lawsuits." County of Fresno, 622 F.2d at 438 (quoting Nuesse v. Camp, 385 F.2d 694, 700 (D.C.Cir.1967)). As a result, "Rule 24 traditionally has received a liberal construction in favor of applications for intervention." Washington State Building & Construction Trades v. Spellman, 684 F.2d 627, 630 (9th Cir.1982), cert. denied, 461 U.S. 913, 103 S.Ct. 1891, 77 L.Ed.2d 282 (1983). See also Sagebrush Rebellion, Inc. v. Watt, 713 F.2d 525, 527 (9th Cir.1983).
Applying these principles we find that Anderson has interests in the litigation sufficient to permit it to intervene as of right. The gravaman of plaintiffs' claims is that FCA's 1982 financial statements were inaccurate. Anderson, as FCA's auditor and accountant, has an obvious interest in defending against such allegations. Furthermore, without intervention Anderson's capacity to effectively defend its interest would be both impaired and impeded. We therefore hold that Anderson should have been permitted to intervene. We now turn to the entirely separate issue whether Anderson had standing to object to the settlement.
The Ninth Circuit has not previously addressed the issue when, if ever, a defendant has standing to object to a settlement involving other...
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