FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

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 No. 06-55265 and all others similarly situated,

Plaintiffs-Appellants, D.C. No.  CV-03-02446-RGK

v.

OPINION CARDINAL HEALTH, INC.; ROBERT D.

WALTER; PAUL S. WILLIAM,

Defendants,

and

SYNCOR INTERNATIONAL

CORPORATION; ROBERT G. FUNARI;

MONTY FU,

Defendants-Appellees. 

Appeal from the United States District Court

for the Central District of California

R. Gary Klausner, District Judge, Presiding

Argued and Submitted

November 9, 2007—Pasadena, California

Filed February 19, 2008

Before: Kim McLane Wardlaw, Carlos T. Bea, and

N. Randy Smith, Circuit Judges.

1431
Opinion by Judge N.R. Smith

1432 IN RE: SYNCOR ERISA LITIGATION
COUNSEL

T. David Copley, Law Offices of Keller Rohrback, L.L.P.,

Seattle, Washington, and Edward W. Ciolko, Law Offices of

Schiffrin & Barroway, LLP, Radnor, Pennsylvania, for the

plaintiffs-appellants. 

Daniel S. Floyd, Law Offices of Gibson, Dunn & Crutcher

LLP, Los Angeles, California, for the defendants-appellees.

1434 IN RE: SYNCOR ERISA LITIGATION
OPINION

N.R. SMITH, Circuit Judge: 

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.

I. Factual Background

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

IN RE: SYNCOR ERISA LITIGATION 1435
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 governmentoperated 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

Funari, 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

1The 401(k) component of the Plan is not at issue in this matter. 

1436 IN RE: SYNCOR ERISA LITIGATION
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. 

II. Procedural History & Settlement

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

IN RE: SYNCOR ERISA LITIGATION 1437
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

1438 IN RE: SYNCOR ERISA LITIGATION
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. 

III. Standard of Review

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 erroneous finding of material

fact.” Bateman v. United States Postal Serv., 231 F.3d 1220,

1223 (9th Cir. 2000). 

We also review the denial of a motion to alter or amend a

judgment under Rule 59(e) of the Federal Rules of Civil Procedure for abuse of discretion. Smith v. Pac. Props. & Dev.

Corp., 358 F.3d 1097, 1100 (9th Cir. 2004). “Rule 59(e)

amendments are appropriate if the district court (1) is presented with newly discovered evidence, (2) committed clear

error or the initial decision was manifestly unjust, or (3) if

there is an intervening change in controlling law.” Dixon v.

Wallowa County, 336 F.3d 1013, 1022 (9th Cir. 2003) (internal quotation marks omitted). 

We review de novo the district court’s grant of summary

judgment and, viewing the evidence in the light most favorable to the non-moving party, determine whether there are any

IN RE: SYNCOR ERISA LITIGATION 1439
genuine issues of material fact for trial. Gammoh v. City of La

Habra, 395 F.3d 1114, 1122 (9th Cir. 2005). 

IV. Discussion 

A. The Settlement Agreement 

[1] Federal Rule of Civil Procedure 23(e) requires the district court to “approve any settlement of a certified class”

before such a settlement becomes final. Fed. R. Civ. P. 23(e).

In evaluating a class action settlement under Rule 23(e), the

district court determines whether the settlement is fundamentally fair, reasonable, and adequate. Id. The purpose of Rule

23(e) is to protect the unnamed members of the class from

unjust or unfair settlements affecting their rights. See Davis v.

City and County of San Francisco, 890 F.2d 1438, 1444 n.5

(9th Cir. 1989). Here, the district court never considered

whether to approve the settlement because the court found

that its summary judgment order mooted the tentative settlement agreement. 

[2] The parties agree that they had reached an enforceable

settlement agreement subject to court approval. Our court has

previously held that the requirement that the district court

approve a class action settlement does not affect the binding

nature of the parties’ agreement. See Collins v. Thompson,

679 F.2d 168, 172 (9th Cir. 1982) (“Judicial approval of a

[class action settlement] is clearly a condition subsequent, and

should not affect the legality of the formation of the proposed

[settlement] as between the negotiating parties.”) At the time

of the settlement, Defendants knew they had dispositive

motions pending and chose the certainty of settlement rather

than the gamble of a ruling on their motions. Thus, Defendants chose to forego the chance that the district court would

grant summary judgment in their favor. Because the parties

bound themselves to a settlement agreement subject only to

court approval (which they had agreed to seek) and gave the

required notice of the agreement, the district court should not

1440 IN RE: SYNCOR ERISA LITIGATION
have (1) filed its order granting the motions for summary

judgment and (2) entered final judgments against the Class. 

The facts of this case are somewhat analogous to Sheng v.

Starkey Labs, Inc., 117 F.3d 1081 (8th Cir. 1997). Although

the settlement in Sheng did not involve a class action, the

Eighth Circuit’s reasoning that the district court abused its

discretion is equally applicable here. In Sheng, the district

court signed (but did not enter) an order granting summary

judgment the Friday before the mediation was to commence.

Id. at 1082. The following Monday, the parties settled the

matter and the district court vacated its summary judgment

order and dismissed the case. Id. Thereafter, the defendant

filed a Rule 60(b) motion seeking to vacate the order dismissing the case. After remand for an evidentiary hearing, a new

district court judge reinstated the summary judgment order.

Id. at 1083. The Eighth Circuit held the defendant was bound

by the settlement, notwithstanding the court’s ruling on the

merits. “Rule 60(b) does not allow district courts to indulge

a party’s discontent over the effects of [the party’s] bargain.”

Id. at 1083 (internal quotation omitted). Accordingly, the

court held that because the parties had entered into a binding

settlement, the district court abused its discretion in granting

the defendant’s Rule 60(b) motion. Id.

Additionally, there is a strong judicial policy that favors

settlements, particularly where complex class action litigation

is concerned. See Class Plaintiffs, 955 F.2d at 1276. In Officers for Justice v. Civil Service Comm’n of the City and

County of San Francisco, 688 F.2d 615 (9th Cir. 1982), we

specifically stated that, “it must not be overlooked that voluntary conciliation and settlement are the preferred means of

dispute resolution. This is especially true in complex class

action litigation . . . .” Id. at 625. This policy is also evident

in the Federal Rules of Civil Procedure and the Local Rules

of the United States District Court, Central District of California, which encourage facilitating the settlement of cases. See

Fed. R. Civ. P. 16(a)(5) (one of the five purposes of a pretrial

IN RE: SYNCOR ERISA LITIGATION 1441
conference is to facilitate settlement); L.R. 16-2.9 (requiring

parties to exhaust all possibilities of settlement); L.R. 16-15

to 15.9 (setting forth policies and procedures for settlement

including encouraging disposition of civil litigation by settlement by any reasonable means). The record demonstrates that

the Class complied with the local rules by reporting the settlement immediately to the trial judge’s courtroom deputy clerk

and timely memorializing the settlement. See L.R. 16-15.7.

The district court, nevertheless, refused to vacate the summary judgment order and subsequent final judgments even

though the parties had entered a binding settlement agreement

subject only to the district court’s approval pursuant to Rule

23(e). 

[3] Defendants argue that the district court has the discretion to enter final judgment rather than review the proposed

settlement in order to manage its calendar. Defendants argue

that, because the settlement was not yet final, the district court

did not abuse its discretion by entering the judgments on the

merits. These arguments, however, are not compelling under

these circumstances. Because the parties provided appropriate

notice to the district court of the settlement agreement, the

court should never have filed its order or entered the final

judgments. The parties informed the district court that they

had entered a binding settlement agreement the day before the

district court entered its summary judgment order and two

days before the district court entered the final judgments. The

district court thus should have reviewed the settlement document as required under Fed. R. Civ. P. 23(e). The district

court’s management of its docket must not undercut a valid

settlement agreement between the parties that is appropriately

provided to the district court for review. 

[4] That the district court had already drafted a summary

judgment order is not justification for refusing to approve an

otherwise enforceable settlement agreement between the parties. The district court is not a party to the settlement. The

court’s role in the class action settlement process is to protect

1442 IN RE: SYNCOR ERISA LITIGATION
the right of those not involved in negotiating the settlement,

generally the unnamed class members. Officers for Justice,

688 F.2d at 624 (stating the primary concern of section 23(e)

is the protection of those class members, whose rights may

not have been given due regard by the negotiating parties). 

[5] Therefore, we hold that the district court abused its discretion by entering the final judgments and by refusing to

vacate the final judgments under Rules 59(e) and 60(b)(6).

The district court erred when it did not apply Rule 23(e) and

review the settlement agreement prior to the entry of the judgments. Therefore, we reverse the district court’s denial of the

Class’s motion to vacate the entry of final judgments and

remand with instructions to the district court to review the settlement pursuant to Rule 23(e). Accordingly, we also vacate

the district court’s entries of judgments in favor of Syncor,

Fu, and Funari. 

B. Summary Judgment

Defendants moved for summary judgment on the basis that

they did not breach their fiduciary duties because (1) 29

U.S.C. § 1104 exempted them from the duty to diversify holdings in company stock, and (2) Syncor stock was not an

imprudent investment. In reviewing the motions for summary

judgment, the district court applied the so-called “Moench

presumption,” under which fiduciaries of ESOPs are presumed to have acted consistently with ERISA in their decisions to invest assets in employer stock. See Moench v.

Robertson, 62 F.3d 553, 571 (3d Cir. 1995). A plaintiff may

rebut this presumption by establishing that the fiduciary

abused its discretion and a prudent investor under the circumstances would not have followed the plan’s mandate to invest

in employer securities. Id. The district court granted Defendants’ motions, finding the Class failed to rebut the Moench

presumption because the Class failed to present any evidence

that Syncor knew that its financial condition was seriously

IN RE: SYNCOR ERISA LITIGATION 1443
deteriorating and that there was a genuine risk of insider selfdealing. 

[6] Viewing the evidence in the light most favorable to the

Class, we find there are genuine issues of material fact for

trial rendering summary adjudication inappropriate. As an initial matter, this Circuit has not yet adopted the Moench presumption, see Wright v. Oregon Metallurgical Corp., 360

F.3d 1090, 1098 n.3. (9th Cir. 2004), and we decline to do so

now. In any event, the district court’s determination that the

Class did not rebut the Moench presumption based solely

upon Syncor’s financial viability (as shown by evidence that

Syncor stock outperformed both the NASDAQ and S&P 500)

is not an appropriate application of the prudent man standard

set forth in either Moench or 29 U.S.C. § 1104. 

[7] The plain language of 29 U.S.C. § 1104(a)(2) does not

require fiduciaries of an eligible individual account plan to

diversify their investment outside of company stock in order

to meet the prudent man standard of care. See Wright, 360

F.3d at 1096-97. However, 29 U.S.C. § 1104(a)(2) does not

exempt fiduciaries from the first prong of the prudent man

standard, which requires a fiduciary to act with care, skill,

prudence, and diligence in any investment the fiduciary

chooses. See Wright, 360 F.3d at 1097, 29 U.S.C.

§ 1104(a)(1)(B). A prudent man standard based only upon a

company’s alleged financial viability does not take into

account the myriad of circumstances that could violate the

standard. A violation may occur where a company’s stock did

not trend downward over time, but was artificially inflated

during that time by an illegal scheme about which the fiduciaries knew or should have known, and then suddenly

declined when the scheme was exposed. While financial viability is a factor to be considered, it is not determinative of

whether the fiduciaries failed to act with care, skill, prudence,

or diligence. 

[8] We find that genuine issues of material fact exist

regarding whether Defendants breached the “prudent man”

1444 IN RE: SYNCOR ERISA LITIGATION
standard set forth in 29 U.S.C. § 1104(a). The “prudent man”

standard of care requires a fiduciary to discharge his duties

with respect to a plan solely in the interest of participants

“with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like

capacity and familiar with such matters would use in the conduct of an enterprise of a like character with like aims.” 29

U.S.C. § 1104(a)(1)(B). Here, there is a genuine issue whether

the fiduciaries breached the prudent man standard by knowing

of, and/or participating in, the illegal scheme while continuing

to hold and purchase artificially inflated Syncor stock for the

ERISA Plan. 

V. Conclusion 

We conclude that the district court abused its discretion by

entering the final judgments and by refusing to vacate the

final judgments under Rules 59(e) and 60(b)(6). We further

hold that the district court erred in granting summary judgment. We therefore reverse the district court’s summary judgment in favor of Defendants. We also reverse the order of the

district court denying the Class’s Rule 60(b)(6) and Rule

59(e) motions and remand with instructions to the district

court to review the settlement agreement pursuant to Rule

23(e) and to take further actions consistent with this opinion.

REVERSED and REMANDED. 

IN RE: SYNCOR ERISA LITIGATION 1445