No. 95-358

In the Supreme Court of the United States

OCTOBER TERM, 1995

GENE E. RICE, ET AL., PETITIONERS

v.

RESOLUTION TRUST CORPORATION, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

BRIEF FOR THE 
RESOLUTION TRUST CORPORATION
IN OPPOSITION

WILLIAM F. KROENER, III
General Counsel

ANN S. DUROSS
Associate General Counsel

ROBERT D. MCGILLICUDDY
MARTA W. BERKLEY
Attorneys
Federal Deposit Insurance Corporation
Washington, D.C. 20429

DREW S. DAYS, III
Solicitor General

Department of Justice
Washington, D.C. 20530
(202) 514-2217

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QUESTIONS PRESENTED

1. Whether the district court exceeded its juris-
diction, in the context of approving a global settle-
ment of ten consolidated actions, when it issued an
order barring the nonsettling parties from asserting
contribution and noncontractual indemnity claims
against Pinnacle West Capital Corporation.
2. Whether the settlement imposed a penalty ag-
ainst the nonsettling parties without due process of
law and in violation of the Financial Institutions Re-
form, Recovery and Enforcement Act of 1989, Pub. L.
No. 101-73,103 Stat. 183. 
3. Whether, in determining the permissibility of
the district court's order barring the nonsettling par-
ties' noncontractual indemnity claims, the court of
appeals appropriately considered applicable provisions
of Arizona law.

(I)

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     TABLE OF CONTENTS
				                    Page
Opinions below  . . . . 1
Jurisdiction  . . . .  1
Statement . . . .  2
Argument  . . . .  7
Conclusion  . . . .14

TABLE OF AUTHORITIES

Cases:

Associated Elec. Coop. v. Mid-America Transpor-
tation Co., 931 F.2d 1266(8th Cir. 1991)  . . . .14 
Cella Barr Assocs., Inc. v. Cohen, 868 P.2d 1063
(Ariz. Ct. App. 1994)  . . . . 9
FDIC v. Geldermann, Inc., 975 F.2d 695(10th Cir.
1992)  . . . . 10, 11
Kokkonen v. Guardian Life Ins. Co. of America,
114 S. Ct. 1673(1994)  . . . .10 
Masters Mates & Pilots Pension Plan & IRAP
Litig., In re, 957 F.2d 1020 (2d Cir. 1992)  . . . .8 
McDermott, Inc. v. Amclyde, 114 S. Ct. 1461
(1994)  . . . . 11
Modzelewski v. RTC, 14 F.3d 1374(9th Cir. 1994)..6
Mountain States Tel. & Tel. Co. v. Corbin-Dykes 
Electric Co., 559 P.2d 1067(Ariz. Ct. App. 1976)  . . . .9 
NBW Commercial Paper Litig., In re, 807 F. Supp.
801 (D.D.C. 1992)  . . . . 8, 9
Nucorp Energy Sec. Litig., In re, 661 F. Supp. 1403
(S.D. Cal. 1987)  . . . . 8
O'Melveny & Meyers v. FDIC, 114 S. Ct.2048
(1994)  . . . . 13-14
U. S. Oil & Gas Litig., In re, 967 F.2d 489(11th
Cir. 1992)  . . . . 7, 14

Constitution, statute and rules:
U.S. Const.:
Amend. V  . . . . 6, 12

 (III)

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IV

Constitution, statute and rules-Continued:      Page

Amend. VI  . . . . 13
Financial Institutions Reform, Recovery, and
Enforcement Act of 1989, Pub. L. No. 101-73, 103
Stat. 183  . . . .  6
Fed. R. Civ. P.:
Rule 17  . . . .  11
Rule 17(a)  . . . .  11

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In the Supreme Court of the United States

OCTOBER TERM, 1995

No. 95-358

GENE E. RICE, ET AL., PETITIONERS

v.

RESOLUTION TRUST CORPORATION, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI 
TO THE UNITED STATES' COURT OF APPEALS
    FOR THE NINTH CIRCUIT

    BRIEF FOR THE
RESOLUTION TRUST CORPORATION
    IN OPPOSITION

       OPINIONS BELOW

The opinion of the court of appeals (Pet. App. B1-
B19) is reported at 51 F.3d 194. The opinion of the
district court (Pet. App. A1-A47) is unreported.

       JURISDICTION

The judgment of the court of appeals was entered on
March 23, 1995. A petition for rehearing was denied
on June 5, 1995. Pet. App. C1-C2. The petition for a
writ of certiorari was filed on August 31, 1995. The
jurisdiction of this Court is invoked under 28 U.S.C.
1254(1).

(1)

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2

        STATEMENT

1. Petitioners Gene E. Rice and Ernest F. Modze-
lewski are former officers and directors of MeraBank,
a Federal Savings Bank (MeraBank), which failed in
February, 1990. Pet. 5. Rice had been MeraBank's
chairman and chief executive officer and a director of
its parent company, Pinnacle West Capital Corpor-
ation (Pinnacle West); Modzelewski was MeraBank's
president.  Ibid.  Along with their co-petitioner
spouses, Rice and Modzelewski seek review of
the court of appeals' decision affirming the district
court's approval of a partial settlement of a suit
brought by the Resolution Trust Corporation (RTC)
against several former MeraBank officers and direc-
tors, including Rice and Modzelewski.
The partial settlement of the RTC suit was part of
a larger, global settlement-achieved after almost
two years of vigorous, judicially supervised negotia-
tions-of ten consolidated lawsuits pending in the
United States District Court for the District of
Arizona. Those. suits, which arose out of the failure
of MeraBank, included two shareholder class actions
(Class Actions), a shareholders' derivative action
(Derivative Action), and six actions brought against
the RTC by former MeraBank officers and directors
who sought compensation allegedly owed them for
their service at Merabank (Compensation Claims).
Pet. App. B9-B10. More than forty persons joined the
global settlement, including both of the relevant
directors' and officers' liability insurers (D & O In-
surers) and Pinnacle West, which was a named de-
fendant in the Class Actions and a nominal defendant
in the Derivative Action, and which would have been a

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defendant in the RTC suit but for its execution of a
tolling agreement with the RTC. Id. at B10, A18-A19.
Under the Stipulation of Settlement, executed on
November 24, 1993, Pet. App. B10 n.2, Pinnacle West
contributed $5.75 million to the settlement fund,1 and
the D & O Insurers (whose premiums were paid by
Pinnacle West) contributed an additional $55.875
million, id. at A17-A18. Of the total, $34 million has
been allocated to the settlement of the Class Actions,
and the balance of $27.625 million has been deposited
in a separate account to be applied toward the partial
settlement of the RTC Action ($25 million) and the
complete settlement of the Derivative Action ($2.625
million). Id. at B10 n.2.
The individual defendants made no out-of-pocket
contributions to the settlement fund, but were re-
quired to give up their contested compensation claims
against the RTC in exchange for full releases from
personal liability. Pet. App. B11-B12. Although peti-
tioners Rice and Modzelewski participated fully in
the settlement discussions, and were offered the same
terms as the other former officers and directors, they
declined to join the settlement, preferring to pursue
their individual compensation claims and to forego
settlement on any basis that would require them to
compromise those claims. Id. at A20.2
  
___________________(footnotes)

1 Pinnacle West had earlier paid $465,500,000 to the RTC (as
receiver for Merabank) pursuant to a settlement with the
Office of Thrift Supervision of claims made against Pinnacle
West under a capital maintenance agreement. Pet. App. A17;
Pet. 5-6.
2 When Rice appeared to be the sole holdout, the RTC made
a number of proposals to settle with him on terms more
favorable than those offered to the other former officers and
directors, including proposals under which Rice would have

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Consummation  of the settlement was made
contingent on receipt of judicial approval and issuance
of an order barring petitioners from pursuing against
the settlers claims for contribution and/or noncon-
tractual indemnity relating to the RTC suit. Pet.
App. A2-A3.
2. On December 29, 1993, after a final settlement
hearing, the district court rejected petitioners'
arguments in opposition to the settlement and en-
tered orders (i) approving the Stipulation of Settle-
ment; (ii) dismissing the settling defendants' Compen-
sation Claims, the Class Actions, the Derivative Ac-
tion, and all of the claims asserted by the RTC
(except as to petitioners); (iii) barring petitioners
from asserting contribution or noncontractual indem-
nity claims relating to the RTC suit against the
settling defendants and Pinnacle West (the bar order);
and (iv) adopting the proportionate share offset rule
with respect to the RTC's claims against petitioners,
so as to limit petitioners' potential liability to their
proportionate share of fault for the RTC's losses.
Pet. App. A4-A5.
In its findings of fact and conclusions of law, the
district court found that the settlement had been
arrived at in good faith, and that it represented a fair
and reasonable resolution of the RTC suit and the
other consolidated actions. Pet. App. A28, B 11. The
court rejected petitioners' contentions that the
settlement reflected a collusive attempt to injure

___________________(footnotes)

received compensation in the form of receivership certificates.
Pet. App. A20. Rice rejected those proposals, however (ibid.),
and after Modzelewski joined Rice in his refusal to settle, the
RTC discontinued- its attempts to pursue an individually
tailored solution, id. at A13, A20.

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5

them, id. at A10-A11, A21-A24, observing that peti-
tioners "were offered an opportunity to participate in
the settlement on the same terms as offered to, and
accepted by, co-defendant Settling Parties who are
essentially similarly situated," id. at A19.3
The court also rejected petitioners' challenge to
the bar order, concluding that "each of the settling
RTC Defendants [wa]s entitled to protection against
the expense and burden of further claims and
litigation relating to the RTC Action," Pet. APP. A29,
and that extension of the settlement bar to Pinnacle
West was appropriate "in the circumstances of this
case," id. at A31. The court noted that, although Pin-
nacle West was not presently a named defendant in
the RTC suit, "the RTC ha[d] indicated that [in the
absence of a settlement] it would pursue claims
against Pinnacle West." In addition, the court ex-
plained that the settlement of the various cases was
"inextricably interrelated," id. at A17, and that
Pinnacle West's direct contribution of $5.75 million
and its authorization of the D & O Insurers' pay-
ments made Pinnacle West "a critical party to the
overall settlement of the consolidated actions," with-
out whose participation "the partial settlement in the
RTC Action could not have occurred," id. at A34.
The court of appeals affirmed. Pet. App. B1-B19. It
found nothing in the record "indicating that] the

___________________(footnotes)

3 The court noted, in addition, that because it had adopted a
proportionate share offset rule, petitioners were `left in the
same position they would have been in if the other parties had
not settled," Pet. App. A43, and that petitioner Rice would
affirmatively benefit from the settlement, since, at no personal
expense, he was being dismissed from the Class and Derivative
Actions, in which he had substantial personal exposure, id. at
A45.

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6

district court abused its discretion in finding the
settling parties- reached their agreement in good
faith," and "no- evidence that the settling parties
singled out the Nonsettlors for disparate treatment,."
Id. at B13. The court commented that, while the
compensation claims asserted by petitioners were
potentially more valuable than those of the individuals
who settled (because petitioners had been more highly
compensated officers), the worth of their claims was
speculative.4 In addition, the court reasoned that,
since petitioners Rice and Modzelewski "were among
the highest ranking officers at MeraBank, and
therefore potentially subject to the greatest liability,
they may have benefited more from the settlement
than their settling counterparts, had they chosen to
participate." Id. at B13-B14.
The court of appeals rejected petitioners' argument
that the settlement violated their procedural rights
under the Fifth Amendment and under the Financial
Institutions Reform, Recovery, and Enforcement Act
of 1989 (FIRREA), Pub. L. No. 101-73, 103 Stat. 183.
`The court observed that, because of the district
court's use of the proportionate share offset rule,
petitioners were "left in the same position they would
have been in if the other parties had not settled." Pet.
App. 1315. They "were not prejudiced by the settle-
ment, and therefore the RTC did not unfairly penalize
           
___________________(footnotes)

4 The speculative nature of petitioners' claims was demon-
strated soon thereafter in Modzelewski v. RTC, 14 F.3d 1374
(1994), when the `Ninth Circuit affirmed the dismissal of
petitioner Modzelewski's suit against the RTC cm the ground
that his deferred compensation rights had not vested at the
time the RTC took over MeraBank. Id. at 1378. The court
concluded that Rice's compensation rights had vested, and re-
manded his claim for further adjudication. Ibid.

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7

them or deprive them of a property or liberty inter-
est." Id. at B17.
Further, the court concluded that the district court
did not abuse its discretion by barring petitioners'
contribution and noncontractual indemnity claims
against the settling parties. Pet. App. B17-B19. The
court found no support for petitioners' categorical
assertion that a settlement bar can never apply to
preclude claims against nonparties, and it affirmed
the application of the bar in this case to claims
against Pinnacle West, since Pinnacle West was a
critical participant in, and contributor to, the overall
settlement, and in light of the district court's appli-
cation of the proportionate share offset rule. Id, at
B17-B18. The court also rejected petitioners' conten-
tion that a settlement bar cannot be applied to pre-
clude claims for noncontractual indemnity, "finding
`not a shred of logic upon which [to] base a principled
distinction between bar orders against contribution,
on the one hand, and orders against indemnity  . . . . 
on the other.'" Id. at B18-B19 (quoting In re U.S. Oil
& Gas. Litig., 967 F.2d 489,495 (11th Cir. 1992)).

        ARGUMENT

1. Petitioners argue (Pet. 13-19) that the district
court exceeded its authority in barring the non-
settling defendants' potential contribution and non-
contractual indemnity claims against Pinnacle West,
because Pinnacle West was not a party in the RTC
suit. That argument is without merit. There is no
jurisdictional impediment to the entry of an order
barring claims for contribution or indemnity against
a nonparty that has fully participated in the settle-
ment. The district court properly exercised its dis-
cretion to apply such a bar under the circumstances

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8

of this case. The court of appeals' decision affirming
the district court does not conflict with any decision
of this Court or of any other court of appeals.
"There is little disagreement that contribution
bars may be implemented; without them, settlement
would be unlikely." In re NBW Commercial Paper
Litig., 807 F. Supp. 801, 810 (D.D.C. 1992); see also In
re Nucorp Energy Sec. Litig., 661 F. Supp. 1403, 1408
(S.D. Cal. 1987) ("Anyone foolish enough to settle
without barring contribution is courting disaster.
They are allowing the total damages from which their
ultimate share will be derived to be determined in a
trial where they are not even represented."). Al-
though, like other aspects of a settlement agreement
that affect the rights of third persons, application of a
settlement bar is subject to scrutiny for its fairness
to nonsettlors, see, e.g., In re Masters Mates & Pilots
Pension Plan & IRAP Litig., 957 F.2d 1020 (2d Cir.
1992), we know of no case holding that a court is
jurisdictionally incapable of precluding contribution
or noncontractual indemnity claims against a settling
party that was not a defendant in the underlying
litigation. Petitioners provide no citation that
supports that alleged jurisdictional limitation.
Nor do petitioners offer any substantive reason
why a settlement bar should not apply to nonparties
who have participated fully in the settlement. The
settlement bar complements, and provides the justi-
fication for, the proportionate share offset rule, which
limits the nonsettlors' liability in the principal suit to
their share of fault in recognition of the nonsettlors'
inability to recover from the settling parties in a
later suit for contribution. Correspondingly, there is
no unfairness in precluding the nonsettlors' rights to
seek contribution when they will not be held liable in

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the principal suit for more than their proportionate
share of fault.5 Having been accorded the benefits of
the proportionate share offset rule (including protec-
tion against liability for damages caused by the acts
or omissions of Pinnacle West), petitioners should not
be permitted to disengage_ those benefits from the
settlement bar, with which the offset rule was
inextricably tied.
While repeatedly noting that Pinnacle West was
not a party in the RTC suit, petitioners advance no
reason why the settlement bar should not extend to
Pinnacle West, which was a named defendant in the
Class Actions, a nominal defendant in the Derivative
Action, and would have been named as a defendant in
the RTC suit "but for the tolling agreement's
suspending the statute of limitations." Pet. App. A18-
                                        .   
___________________(footnotes)

5 In contrast, equitable indemnity provides a basis to shift
the entire liability for the underlying judgment to a person
with greater fault. A bar on equitable indemnity may there-
fore leave a nonsettling party in a worse position than it would
have been in absent the settlement, even taking into account
the effect of the proportionate share rule. See NBW, 807 F.
Supp. at 810-811. That concern is not present in this case,
because under Arizona law (which petitioners claim is applic-
able (Pet. 25-27)) "the party seeking indemnity must be free
from any negligence (regardless of the nature of that negli-
gence) contributing to the liability creating event." Mountain
States Tel. & Tel. Co. v. Corbin-Dykes Electric Co., 559 P.2d
1067, 1069 (Ariz. Ct. App. 1976). See also Cells Barr Assocs.,
Inc. v. Cohen, 868 P.2d 1063, 1068 (Ariz. Ct. App. 1994) ("Gen-
erally, there is no indemnity among joint tortfeasors."). Since
the RTC's claims against petitioners are based upon allegations
of tortious conduct, Pet. 6-7; Pet. App. A42-A43, if petitioners
are found liable, they would not have any right to seek equit-
able indemnity from Pinnacle West even in the absence of a
settlement bar.

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A19. The district court had strong reasons for
including Pinnacle West within the scope of the
settlement bar. As the court recognized (id. at A17-
A18), since Pinnacle West and its D & O Insurers
contributed 100% of the funds for the settlement}
Pinnacle West was a "critical party to the overall
settlement of the consolidated actions," which would
not have occurred without its participation. Id. at
A34. And because of the district court's adoption of
the proportionate share offset rule, petitioners are no
worse off under the order barring claims against
Pinnacle West than they would have been in the
absence of the settlement. Id. at 1315.
Kokkonen v. Guardian Life Ins. Co. of America,
114 S. Ct. 1673 (1994], provides no support for peti-
tioners' claim that the district court lacked authority
to include Pinnacle West within the scope of the
settlement bar. In Kokkonen, this Court held that,
when a suit had been dismissed with prejudice and the
order of dismissal did not incorporate (or reserve the
court's jurisdiction to enforce) the parties' settle-
ment agreement, the district court could not enter-
tain a later suit for breach of the settlement absent an
independent basis for subject matter jurisdiction. Id.
at 1677. This case does not involve a suit to enforce a
settlement agreement, but rather a court's authority
to approve a settlement and a related settlement bar
in a case over which it indisputably had subject
matter jurisdiction.
Nor does the court of appeals' decision in this case
conflict with FDIC v. Geldermann, Inc., 975 F.2d 695
(10th Cir. 1992). Geldermann involved an attempt by
the FDIC to obtain an order barring the defendants in
that action from seeking indemnity or contribution
from various nonparties with whom the FDIC had

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11

entered into a settlement in wholly unrelated liti-
gation. .975 F.2d at 696. The nonparty beneficiaries
for whom the FDIC sought the settlement bar in
Geldermann were never before the court. 975 F.2d at
698-699. For that reason, the Tenth Circuit held that
"the FDIC [was] not the real party in interest" to
request a bar order, and, therefore, that Rule 17(a) of
the Federal Rules of Civil Procedure prevented the
court from addressing the FDIC'S request. 975 F.2d.
at 697.
Rule 17 does not support petitioners' argument in
this case. That rule, which requires generally that
an action be prosecuted in the name of the real party
in interest, is not a limitation on jurisdiction. To the
contrary, the Rule expressly anticipates that the
absent beneficiary of the requested relief may ratify
the request for relief and thereby give the request
"the same effect as if the action had been commenced
in the name of the real party in interest." Fed. R.
Civ. P. 17(a). Moreover, here, unlike in Geldermann,
the beneficiary of the bar order-Pinnacle West-was
a party before the court in several of the consolidated
cases, and it participated in its own right in the
extensive negotiations and hearings that culminated
in the settlement. There is doubt that, as the district
court found, Pinnacle West "[wa]s seeking a bar order
for itself." Pet. App. A33.
Geldermann is also distinguishable because the
district court in that case applied a pro tanto offset
rule, under which a nonsettling defendant is entitled
to a credit only for the amount actually paid in
settlement by the settling parties. 975 F.2d at 699;
see McDermott, Inc. v. Amclyde, 114 S. Ct. 1461, 1465-
1469 (1994). Application of a settlement bar in those
circumstances raises fairness concerns not present

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12

here, because under the pro tanto rule the non-
settling parties may be saddled in the principal liti-
gation with liability exceeding their share of fault.
Pet. App. A33-A34.6
2. Petitioners argue (Pet. 19-24) that they have
been denied due process under the Fifth Amendment
and FIRREA. They contend (Pet. 19-20), first, that
Pinnacle West was not a party defendant to all of the
consolidated lawsuits, and "as a matter of due process
the court cannot adjudicate the rights of entities
whose claims are not before the court," Pet. 20. It is
petitioners, however, that complain of a due process
violation, and petitioners (along with their objections
to the settlement) were indisputably before the court.
Moreover, Pinnacle West (which was a party in the
related Derivative and Class Actions) participated
fully and openly in the settlement negotiations and
the hearings, Pet. App. A18-A19, A34-A35, and was
treated by the court for purposes of the settlment as
if it has been a party defendant in the RTC suit.7
Petitioners identify no procedural impediment occa-
sioned by Pinnacle West's nonparty status.
Second, petitioners contend (Pet. 20-24) that by
requiring them to relinquish their Compensation
Claims as a condition to the dismissal of the RTC's
claims against them, the RTC has penalized them and
taken their property (i.e., their legal claims) without
           
___________________(footnotes)

6 As the district court recognized (Pet. App. A40), applica-
tion of a pro tanto offset rule may nonetheless be appropriate
in certain contexts.
7 The district court found that it had been "fully informed
on all aspects of the RTC's claims against the Nonsettling RTC
Defendants and the Nonsettling RTC Defendants' claims
against the RTC and possible claims over against other parties
and nonparties." Pet. App. A9 (emphasis added).

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according them procedural due process.  Before
requiring a party to give up claims against the RTC
as a quid pro quo for settlement, the RTC is bound (in
petitioners' view) to afford them the same procedural
protections that would have been due under FIRREA
in an action seeking a suspension, injunction, or civil
penalty, Pet. 21-22, as well as "all of the protections
afforded by the Fifth and Sixth Amendments,
including notice, confrontation,- jury- trial, the
requirement of proof beyond a reasonable doubt and
compulsory process," Pet. 23.
The proposition that a demand made by the
government as a condition to the settlement of a civil
action amounts to a "penalty" has no foundation. Such
a demand has no effect on the opposing party's extant
legal rights or obligations. It does not change the
strength of that party's claims or defenses. Although
the terms of the government's settlement offer may
affect the desirability of a settlement, the government
is not constitutionally required to offer settlement on
any basis whatever, and the opposing part y is under
no legal compulsion to accept terms that it deems
unfavorable.
In this case, more-over, petitioners were not singled
out for adverse treatment, but were instead offered a
settlement on the same terms as those accepted by
the other individual defendants. And, after exercising
their rights to reject that settlement offer, petition-
ers were left in no worse position than they would
have occupied had the offer never been extended.
3. Petitioners argue that the court of appeals
improperly looked to federal law rather than to the
law of Arizona to analyze the permissibility of im-
posing a settlement bar on nonsettling defendants'
indemnity claims. Pet. 25-27 (citing O'Melveny &

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14

Myers v. FDIC, 114 S. Ct. 2048 (1994)). It is unclear
whether the court of appeals applied federal or state
law, but in the context of this case the question is
wholly academic. Petitioners cite no Arizona author-
ity for the proposition that a settlement bar cannot be
applied to claims for noncontractual indemnity.8
Moreover, because (in the context of the RTC's tort
suit) petitioners could have no claim for equitable
indemnity under Arizona law, see note 5, supra, the
existence vel non of an order barring such a claim
can have no impact on their substantive rights.

       CONCLUSION

The petition for a writ of certiorari should be
denied.

Respectfully submitted.

DREW S. DAYS, III
Solicitor General

WILLIAM F. KROENER, III
General Counsel

ANN S. DUROSS
Assistant General Counsel

ROBERT D. MCGILLICUDDY
MARTA W. BERKLEY
Attorneys
Federal Deposit Insurance Corporation

DECEMBER 1995

                   
___________________(footnotes)

8 The application of a settlement bar to claims based on
equitable indemnity is, se the courts below noted (Pet. App.
A35-A36, B18-B19), consistent with the majority rule under fed-
eral law. See In re U.S. Oil & Gas Litig., 967 F.2d 489, 496
(11th Cir. 1992); In re Masters Mates & Pilots, 957 F.2d 1020,
1028 (2d Cir. 1992); Associated Elec. Coop. v. Mid-America
Transportation Co., 931 F.2d 1266, 1272 (8th Cir. 1991).