OBJECTIONS TO FINDINGS AND RECOMMENDATION

Robert C. Weaver, Jr., OSB #801350 

E-Mail: rweaver@gsblaw.com 

Gary I. Grenley, OSB #751380 

E-Mail: ggrenley@gsblaw.com 

Paul H. Trinchero, OSB #014397 

E-Mail: ptrinchero@gsblaw.com 

Eryn Karpinski Hoerster, OSB #106126 

E-Mail: ehoerster@gsblaw.com 

Daniel L. Keppler, OSB #923537 

E-Mail: dkeppler@gsblaw.com 

Garvey Schubert Barer 

121 SW Morrison Street, Eleventh Floor 

Portland, Oregon 97204-3141 

Telephone: (503) 228-3939 

Peter A. Wald (admitted pro hac vice) 

E-Mail: peter.wald@lw.com 

Gavin M. Masuda (admitted pro hac vice) 

E-Mail: gavin.masuda@lw.com 

Latham & Watkins LLP 

505 Montgomery Street, Suite 2000 

San Francisco, California 94111 

Telephone: (415) 391-0600 

Attorneys for Defendant Deloitte & Touche LLP 

(Additional Counsel Listed on Signature Page) 

UNITED STATES DISTRICT COURT 

DISTRICT OF OREGON 

PORTLAND DIVISION 

LAWRENCE P. CIUFFITELLI, for himself 

and as Trustee of CIUFFITELLI 

REVOCABLE TRUST, et al., 

Plaintiffs, 

v. 

DELOITTE & TOUCHE LLP; 

EISNERAMPER LLP; SIDLEY AUSTIN 

LLP; TONKON TORP LLP; TD 

AMERITRADE, INC.; and INTEGRITY 

BANK & TRUST, 

Defendants.

Case No. 3:16-cv-00580-AC 

OBJECTIONS TO MAGISTRATE 

JUDGE’S FINDINGS AND 

RECOMMENDATION REGARDING 

PRELIMINARY APPROVAL OF 

PARTIAL CLASS SETTLEMENT 

(TONKON) 

Request for Oral Argument 

Case 3:16-cv-00580-AC Document 494 Filed 04/02/19 Page 1 of 34
PAGE i ˗˗ OBJECTIONS TO FINDINGS AND RECOMMENDATION 

TABLE OF CONTENTS 

Page 

I. INTRODUCTION ...............................................................................................................1

II. BACKGROUND .................................................................................................................3

A. The Aequitas Entities And Claims At Issue ............................................................3

B. The Tonkon Settlement ............................................................................................5

C. The Parties’ Positions And The Magistrate Judge’s Findings & 

Recommendation .....................................................................................................7

III. STANDARD OF REVIEW .................................................................................................8

IV. ARGUMENT .......................................................................................................................9

A. The Magistrate Judge Clearly Erred In Finding That Pro Tanto Judgment 

Reduction Is Available Under The OSL, And Any Purported Factual

Findings Should Be Stricken ...................................................................................9

1. The OSL Does Not Permit Pro Tanto Judgment Reduction ........................9

2. Even If The OSL Did Permit Pro Tanto Judgment Reduction, 

Plaintiffs Have Not Made The Required Factual Showings ......................17

B. The Magistrate Judge Clearly Erred In Provisionally Certifying The 

Tonkon Settlement Class .......................................................................................19

V. CONCLUSION ..................................................................................................................27

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PAGE ii ˗˗ OBJECTIONS TO FINDINGS AND RECOMMENDATION 

TABLE OF AUTHORITIES 

 Page(s) 

CASES 

Adams v. Perkins & Co., P.C., 

No.1110-12903 (Or. Cir. Ct.) (Nov. 25, 2014) ..................................................................13, 17 

Ainslie v. Spoylar, 

144 Or. App. 134 (1996) ..........................................................................................................10 

Amchem Prods., Inc. v. Windsor, 

521 U.S. 591 (1997) ...................................................................................................2, 7, 20, 21 

Barrie v. Intervoice-Brite, Inc., 

No. 3:01–CV–1071–K, 2009 WL 3424614 (N.D. Tex. Oct. 26, 2009) ..................................20 

Blackie v. Barrack, 

524 F.2d 891 (9th Cir. 1975) ...................................................................................................26 

Burdick v. Comm’r, 

979 F.2d 1369 (9th Cir. 1992) ...................................................................................................9 

Calderon v. Experian Info. Solutions, Inc., 

290 F.R.D. 508 (D. Idaho 2013) ................................................................................................9 

In re Coburn, 

175 B.R. 400 (Bankr. D. Or. 1994) ..........................................................................................16

Easley v. Cromartie, 

532 U.S. 234 (2001) ...................................................................................................................9 

Facciola v. Greenberg Traurig, LLP, 

281 F.R.D. 363 (D. Ariz. 2012) ...............................................................................................26 

Fluck v. Blevins, 

969. F. Supp. 1231 (D. Or. 1997) ................................................................................12, 13, 14 

Franklin v. Kaypro Corp., 

884 F.2d 1222 (9th Cir. 1989) ......................................................................................... passim

In re Hyundai and Kia Fuel Economy Litigation, 

881 F.3d 679 (9th Cir. 2018), reh’g granted 897 F.3d 1003 (9th Cir. 2018) ................7, 21, 22 

Juniper Networks, Inc. v. SSL Servs., LLC, 

No. C 08-5758 SBA, 2009 WL 3837266 (N.D. Cal. Nov. 16, 2009), aff’d, 404 

F. App’x 499 (Fed. Cir. 2010) .................................................................................................20 

Case 3:16-cv-00580-AC Document 494 Filed 04/02/19 Page 3 of 34
PAGE iii ˗˗ OBJECTIONS TO FINDINGS AND RECOMMENDATION 

In re Lehman Bros. Sec. and ERISA Litig., 

No. 08 CIV. 5523 LAK, 2013 WL 440622 (S.D.N.Y. Jan. 23, 2013) ....................................25 

Merrihew v. Charles Schwab et al., 

No. 0907-10596 (Or. Cir. Ct. Aug. 11, 2010) ..........................................................................18 

Moore v. PaineWebber, Inc., 

306 F.3d 1247 (2d Cir. 2002)...................................................................................................25 

Ortiz v. Menu Foods, Inc., 

525 F. Supp. 2d 1220 (D. Haw. 2007) .......................................................................................9 

Pacific Radiation Oncology, LLC v. Queen’s Med. Ctr., 

No. 12–00064 LEK–KSC, 2015 WL 419654 (D. Haw. Jan. 30, 2015) ................................8, 9 

Quatama Park Townhomes Owners Ass’n v. RBC Real Estate Fin., Inc., 

No. 3:18-CV-00023-SB, 2019 WL 1237147 (D. Or. Mar. 18, 2019) .......................................8 

Rael v. Children’s Place, Inc., 

No. 3:16-cv-00370-GPC-JMA, 2018 U.S. Dist. LEXIS 56909 (S.D. Cal. Apr. 

2, 2018) ....................................................................................................................................21 

SEC v. Aequitas Mgmt. LLC, 

No. 3:16-cv-00438-JR (D. Or. Nov. 21, 2018) ..........................................................................5 

SEC v. Aequitas Mgmt., LLC, 

No. 3:16-cv-00438-PK (D. Or. filed Mar. 10, 2016) .................................................................3 

State v. Gaines, 

346 Or. 160 (2009) .....................................................................................................................9 

Veloz v. Foremost Ins. Co., 

306 F. Supp. 3d 1271 (D. Or. 2018) ........................................................................................21 

Vinole v. Countrywide Home Loans, Inc., 

571 F.3d 935 (9th Cir. 2009) ...................................................................................................20 

Wolpin v. Philip Morris Inc., 

189 F.R.D. 418 (C.D. Cal. 1999) ...............................................................................................8 

Wright v. Farouk Sys., Inc., 

701 F.3d 907 (11th Cir. 2012) .................................................................................................21 

STATUTES 

ORS 31.815 ....................................................................................................................................15 

ORS 59.115 ............................................................................................................................ passim

Case 3:16-cv-00580-AC Document 494 Filed 04/02/19 Page 4 of 34
PAGE iv ˗˗ OBJECTIONS TO FINDINGS AND RECOMMENDATION 

ORS 59.135 ................................................................................................................................4, 26 

ORS 59.335(1) ...............................................................................................................................21 

ORS 67.615(1) ...............................................................................................................................19 

RULES 

Fed. R. Civ. P. 23 ................................................................................................................... passim

Fed. R. Civ. P. 23(a) ................................................................................................................2, 7, 8 

Fed. R. Civ. P. 23(b)(3).......................................................................................................... passim

Fed. R. Civ. P. 72(a) ........................................................................................................................8 

TREATISES 

RESTATEMENT (THIRD) OF TORTS: APPORTIONMENT OF LIABILITY, § 16 ....................13, 14, 15, 16 

OTHER AUTHORITIES 

Cornerstone Research, SECURITIES CLASS ACTION SETTLEMENTS 2018 REVIEW 

AND ANALYSIS 20 (2018), available at 

https://www.cornerstone.com/Publications/Reports/Securities-Class-ActionSettlements-2018-Review-and-Analysis ..................................................................................16 

Case 3:16-cv-00580-AC Document 494 Filed 04/02/19 Page 5 of 34
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I. INTRODUCTION 

In this complex putative securities class action arising from the collapse of Aequitas 

Capital Management and its affiliated entities (“Aequitas Entities” or “Aequitas”), Plaintiffs seek 

to recover an estimated $500 million in losses from six Defendants. None of the Defendants are 

alleged to have been complicit in Aequitas’s alleged fraud. Instead, Plaintiffs allege that 

Defendants’ services—whether legal, accounting, custodial, or otherwise—constituted 

“participation or material aid in” Aequitas’s illegal sales. See ORS 59.115(3). Plaintiffs seek to 

hold the Defendants jointly and severally liable for all investor losses (subject to certain 

limitations on the liability of each Defendant imposed by the Magistrate Judge in his rulings on 

various motions to dismiss), regardless of the Defendant’s relative importance to Aequitas’s 

securities sales at issue. 

Yet, Plaintiffs have reached an early settlement, amounting to just 3% of the estimated 

class-wide losses, with the one Defendant whose services were central to all of Aequitas’s sales 

during the putative class period: Tonkon Torp LLP (“Tonkon”), the law firm that drafted 

approximately 95% of the offering documents Aequitas used to sell securities, and advised 

Aequitas on its securities sales throughout the class period. Tonkon is paying only its remaining 

insurance limits, and the Tonkon partners who actually worked on Aequitas’s engagements have 

contributed nothing—even though the settlement purports to release them from all related 

liability. Plaintiffs and Tonkon know this settlement is insufficient, because they have 

conditioned it on the Court issuance of a pro tanto claims bar order that will (1) prevent the nonsettling Defendants from exercising their right to contribution from Tonkon and its partners, and 

(2) reduce the non-settling Defendants’ liability by just the dollar amount of Tonkon’s 

settlement, rather than Tonkon’s proportional fault. 

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On March 19, 2019, the Magistrate Judge preliminarily approved the Tonkon settlement 

over the non-settling Defendants’ objections, issuing the pro tanto claims bar order and 

preliminarily certifying the settlement class under the “heightened” standard the Supreme Court 

has instructed district courts to apply in determining whether a settlement class satisfies the 

requirements of Rules 23(a) and (b)(3) of the Federal Rules of Civil Procedure.1 See Amchem 

Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997). The Magistrate Judge overruled both 

objections by making findings of fact that were—as even Plaintiffs and Tonkon have 

acknowledged—unsupported by record evidence. The Magistrate Judge instead cited his own 

“intimate[] familiar[ity]” with the parties’ theories of the case, and unspecified evidence filed in 

connection with discovery and substantive motions. See Findings and Recommendations Prelim. 

Approval of Partial Class Settlement (“F&R”) at 26-27 (Dkt. 481). But this case was at the 

pleadings stage through November 2018, when the non-settling Defendants filed their answers 

and affirmative defenses. In other words, the only “theories” and “facts” that have been litigated 

involve the allegations in Plaintiffs’ various complaints, which the Magistrate Judge was 

obligated to accept as true for pleading purposes. But to demonstrate that a pro tanto bar order is 

appropriate under Oregon law, and that the putative settlement class preliminarily should be 

certified for settlement purposes, Plaintiffs were required to submit evidence supporting the 

necessary factual findings—not simply recycle allegations from previously filed pleading and 

 

1

 Although these objections are made to an order preliminarily approving the proposed 

settlement, and while the Magistrate Judge has indicated his intention to revisit certain findings 

upon final approval, the Court should consider these objections now because it is imprudent to 

grant preliminary approval and give notice to putative class members of a settlement that 

cannot stand as constituted; the Settlement is contingent on a pro tanto bar order that is 

unavailable under Oregon law, and requires the Court to certify a class that does not, on the 

record presented, meet the stringent requirements of Rule 23. 

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discovery motions. This they failed to do, and the lack of a factual record constitutes clear error 

that must be remedied by this Court. 

II. BACKGROUND 

A. The Aequitas Entities And Claims At Issue 

This putative class action arises from the collapse of Oregon-based Aequitas Capital 

Management and its affiliated entities,2 which invested in and sold securities related to the 

purchase and financing of trade receivables. The Securities and Exchange Commission (“SEC”) 

brought suit against the Aequitas Entities and certain of its former officers on March 10, 2016, 

alleging that they perpetrated a “Ponzi-like” scheme upon investors by at least July 2014. See 

Complaint, SEC v. Aequitas Mgmt., LLC, No. 3:16-cv-00438-PK (D. Or. Mar. 10, 2016). The 

Aequitas Entities were placed into receivership (the “SEC Receivership” or “Receiver”) shortly 

thereafter. See Stip. Interim Order Appointing Receiver, SEC v. Aequitas Mgmt., LLC, No. 3:16-

cv-00438-PK (D. Or. March 16, 2016). 

In the wake of the SEC Receivership, numerous groups of investors, who purchased 

securities issued by the Aequitas Entities, filed lawsuits seeking to recover their losses. In this 

action, seven named plaintiffs (“Plaintiffs”) who purchased private notes, partnership interests, 

and other securities issued by six different Aequitas entities3

 purport to represent a class of 

persons who purchased various Aequitas securities on or after June 9, 2010. See SAC ¶ 203. 

 

2

 Forty-eight of these functionally and legally distinct entities were placed into the “SEC 

Receivership” in March 2016 and remain in receivership. See SEC v. Aequitas Mgmt., LLC, 

No. 3:16-cv-00438-PK (D. Or. filed Mar. 10, 2016). 

3

 The named plaintiffs purchased securities issued by following Aequitas entities: Aequitas 

Commercial Finance, LLC (“ACF”); Aequitas Capital Opportunities Fund, LP (“ACOF”); 

MotoLease Financial, LLC (“AMLF”); Aequitas Income Opportunity Fund, LLC (“AIOF”); 

Aequitas Income Protection Fund, LLC (“AIPF”); and Aequitas Income Opportunity Fund II, 

LLC (“AIOF-II”). See Second Am. Class Action Compl. (“SAC”) ¶¶ 196-202 (Dkt. 257). 

Case 3:16-cv-00580-AC Document 494 Filed 04/02/19 Page 8 of 34
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Each of the six entities at issue sold a different security. For example, ACF sold secured 

subordinated private notes (debt instruments) that permitted Aequitas to use investor proceeds to 

fund general corporate obligations or repay prior investors. See Non-settling Defendants’ Resp. 

to Mot. (“Response”) at 5 (Dkt. 370). ACOF, meanwhile, sold limited partnership interests 

(equity instruments) to investors. Id. Each of these securities was sold in a private placement 

transaction between Aequitas and its investors, by means of numerous different private 

placement memoranda (“PPMs”). Moreover, purchasers of Aequitas securities received 

documents and information about those securities that varied widely from transaction to 

transaction, even for sales that occurred during the same period by the same Aequitas fund. Id. 

None of these securities could be resold—meaning there was no “market” for any Aequitas 

security. Id. 

Plaintiffs allege that the Aequitas Entities committed “primary” violations of the Oregon 

Securities Laws (“OSL”) by selling securities that were not registered with the State of Oregon 

(in violation of ORS 59.115(1)(a)), and that contained materially false or misleading statements 

(in violation of ORS 59.115(1)(b) and ORS 59.135(2)). According to Plaintiffs, these alleged 

false statements were made in more than a dozen PPMs issued by the Aequitas Entities over the 

six-year class period—but, as the Magistrate Judge noted, each PPM was allegedly false or 

misleading for different reasons. See April 10, 2017 F&R at 2-3, 49 (Dkt. 242) (recognizing that 

“whether a statement was misleading when made depends on changing circumstances,” and 

recommending that the Court dismiss any allegations that do not “differentiate between the 

Aequitas entities and the securities they sold,” or fail to “state when and where the misleading 

statements occurred”). 

Plaintiffs further allege that Defendants are jointly and severally liable with the Aequitas 

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Entities because they “participate[d] or materially aid[ed] in” the sales of securities at issue. See 

ORS 59.115(3). To prevail on their claims, Plaintiffs must adequately allege and prove both 

“primary liability” (i.e., that the sales to them were made in violation of the Oregon Securities 

Laws, specifically ORS 59.115(1)), and “secondary liability” (i.e., that Defendants 

“participate[d] or materially aid[ed]” in “the sale” that violated those laws). Id. 

The SEC Receiver has estimated that the putative class has suffered roughly $500 million 

in losses on their investments. See Reply Mem. of Settling Def. Tonkon Torp LLP iso Mot. for 

Prelim. Approval (“Tonkon’s Reply) at 16-17 n.8 (Dkt. 385).4 The Receiver has also performed 

an investigation into the conduct of the Aequitas entities in receivership and concluded that 

Aequitas was insolvent no later than July 3, 2014—which is notable as the proposed class would 

cover investors who purchased as early as June 2010—and that Aequitas’s financial condition 

continued to change from 2014 into 2015. See Report Regarding The Investigation of The 

Receivership’s Business Conduct at, e.g., 7-10, 39-40, 90-91, SEC v. Aequitas Mgmt. LLC, No. 

3:16-cv-00438-JR (D. Or. Nov. 21, 2018) (“Receiver’s Report”).5

B. The Tonkon Settlement 

One professional service provider from which Plaintiffs seek to recover losses is Tonkon. 

Plaintiffs allege that, “[a]t all material times, Tonkon provided legal services to Aequitas in 

connection with the sale of securities that are at issue in this action.” See SAC ¶ 19. Indeed, 

 

4

 To date, the non-Settling Defendants have had little opportunity to evaluate the Receiver’s legal 

or factual conclusions. A litigation stay in the Receivership action prevents Defendants from 

seeking discovery from either the Receivership entities or Aequitas’s former officers and 

employees, who would have first-hand knowledge of facts about the company’s financial 

condition. 

5

 Although the Receiver’s report suggests that Aequitas could have been insolvent before July 3, 

2014, the Receiver concluded that it would not be a “beneficial use of Receivership resources 

to undertake the extensive analysis necessary to support or refute a hypothesis of insolvency 

prior to July 2014.” Receiver’s Report at 11. 

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Tonkon advised Aequitas on the sales of its securities, prepared the legal documentation 

necessary to complete those sales—including offering documents, risk disclosures, subscription 

agreements, and promissory notes—and was identified in Aequitas offering documents as 

counsel to the offering entities. Id. 

On August 21, 2018, Plaintiffs moved the Court to certify provisionally a settlement class 

(the “Class”) and preliminarily approve the proposed settlement (the “Settlement”) between 

Tonkon and the Class, on terms set forth in the May 31, 2018 Stipulation and Agreement of 

Settlement (the “Stipulation”) and the August 21, 2018 Amendment No. 1 to the Stipulation. See 

generally, Am. Mot. for Prelim. Approval of Partial Settlement (“Motion” or “Mot.”) at 3 (Dkt. 

350). The Class is defined to include any person who purchased a security issued by eight 

distinct Aequitas entities on or after June 9, 2010, and who had an account balance related to that 

security as of March 31, 2016. Id. at 8. Under the Stipulation, Plaintiffs, on behalf of the Class, 

agree to release claims against Tonkon, and its current and former partners of liability, in 

exchange for payment of $12,913,000 to the putative class—representing just 3% of the 

Receiver-estimated losses—from what remains under Tonkon’s insurance policy.6

 See id. at 3; 

see Stipulation ¶ 2 (Dkt. 355). Further, the Settlement is expressly conditioned upon: (1) the 

entry of an injunction barring contribution claims by the non-settling Defendants against Tonkon 

and every individual lawyer employed by Tonkon, past or present; and (2) the entry of an order 

limiting the non-settling Defendants to a pro tanto credit for this Settlement, if any judgment is 

entered against them in this action. See Mot. at 19-20. 

 

6

 Tonkon and its insurers have agreed to allocate the $18.5 million remaining under its insurance 

policy between the Ciuffitelli Class Action at 69.8% ($12,913,000) and the Individual Actions

in the aggregate at 30.2% ($5,587,000). Stipulation ¶ 2. 

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C. The Parties’ Positions And The Magistrate Judge’s Findings & 

Recommendation 

On September 24, 2018, Deloitte & Touche LLP, Sidley Austin LLP, EisnerAmper LLP, 

Duff & Phelp LLP, and TD Ameritrade, Inc. (together, non-settling Defendants) jointly filed 

their Response to the Motion, arguing first that the Court should hold the Settlement in abeyance 

pending the Ninth Circuit decision in In re Hyundai and Kia Fuel Economy Litigation, 881 F.3d 

679, 693 (9th Cir. 2018), reh’g granted 897 F.3d 1003 (9th Cir. 2018), which will clarify the 

standard that the Court must apply when making findings under Rules 23(a) and 23(b)(3) of the 

Federal Rules of Civil Procedure at the preliminary approval stage. See Resp. at 14. Nonsettling Defendants also explained that Plaintiffs offer no evidence by which the Court can 

satisfy its obligation—extant even before Hyundai—to afford “undiluted, even heightened, 

attention” to the requirements of Rules 23(a) and (b)(3) at the provisional certification stage. See 

id. at 10, 22 (citing Amchem, 521 U.S. at 620). With respect to the requested pro tanto 

contribution claims bar, non-settling Defendants further argued that pro tanto reduction is 

contrary to the OSL, and that even if pro tanto reduction were permissible under certain 

circumstances, Tonkon cannot plausibly invoke its proposed “partially solvent” standard to 

obtain a pro tanto reduction under the facts of this case. See id. at 27, 29. 

On March 19, 2019, the Magistrate Judge issued Findings and Recommendations [re] 

Preliminary Approval of Partial Class Settlement (“F&R”), recommending that the District Court 

grant Plaintiffs’ Motion and preliminarily certify a settlement class. F&R at 46. First, the 

Magistrate Judge declined to hold the Settlement in abeyance pending the Ninth Circuit’s en 

banc review of Hyundai. Id. at 12. Regarding Plaintiffs’ requested bar order, the Magistrate 

Judge found that pro tanto reduction is available under the Oregon Securities Laws, and 

“preliminarily” found that the requested pro tanto contribution claims bar is “appropriate in the 

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circumstances of this case.” Id. at 23-24, 44. However, the Magistrate Judge expressly noted 

that “a final determination [will] be made after the Settlement Hearing.” Id. at 44. 

Regarding provisional certification of the Class for settlement purposes, the Magistrate 

Judge found that “Plaintiffs have provided a sufficient evidentiary record upon which th[e] court 

can make a preliminary ruling.” Id. at 26. In reaching this conclusion, the Magistrate Judge 

acknowledged the requirement to apply “heightened” judicial scrutiny to the question of whether 

Rule 23(a) and 23(b)(3) requirements have been satisfied. Id. at 27. Although Plaintiffs 

submitted no evidence to support these findings, the Magistrate Judge relied on his “intimate[] 

familiar[ity] with the parties’ theories of the case” and other unspecified “evidence” to conclude 

that “Plaintiffs have provided sufficient evidence from which this court can apply heightened 

scrutiny” to the Settlement. Id. at 26-27. The Magistrate Judge also indicated that he intends to 

revisit these provisional findings at the final approval stage. See id. at 39 (“the court cannot fully 

assess all of the fairness factors until after the final approval hearing”). 

Respectfully, non-settling Defendants submit that the foregoing findings in the F&R were 

in error and should be corrected on review. 

III. STANDARD OF REVIEW 

A district court reviews a magistrate judge’s findings of fact under a “clearly erroneous or 

contrary to law” standard. Fed. R. Civ. P. 72(a); Quatama Park Townhomes Owners Ass'n v. 

RBC Real Estate Fin., Inc., No. 3:18-CV-00023-SB, 2019 WL 1237147, at *2 (D. Or. Mar. 18,

2019); see also Wolpin v. Philip Morris Inc., 189 F.R.D. 418, 421 (C.D. Cal. 1999). The “clearly 

erroneous” standard applies to findings of fact. See Pacific Radiation Oncology, LLC v. Queen’s 

Med. Ctr., No. 12–00064 LEK–KSC, 2015 WL 419654, at *3 (D. Haw. Jan. 30, 2015). The 

“contrary to law” standard applies to conclusions of law and requires de novo review of matters 

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PAGE 9 ˗˗ OBJECTIONS TO FINDINGS AND RECOMMENDATION 

to which a party objects. See id.; see also Calderon v. Experian Info. Solutions, Inc., 290 F.R.D. 

508, 511 (D. Idaho 2013). A finding of fact is clearly erroneous where, “on the entire evidence 

the Court is left with the definite and firm conviction that a mistake has been committed.” 

Easley v. Cromartie, 532 U.S. 234, 242 (2001) (citation and quotations omitted); see also 

Burdick v. Comm'r, 979 F.2d 1369, 1370 (9th Cir. 1992) (same). A decision is contrary to law if 

it applies an incorrect legal standard or fails to consider an element of the applicable standard. 

Ortiz v. Menu Foods, Inc., 525 F. Supp. 2d 1220, 1222 (D. Haw. 2007). 

IV. ARGUMENT 

A. The Magistrate Judge Clearly Erred In Finding That Pro Tanto Judgment 

Reduction Is Available Under The OSL, And Any Purported Factual

Findings Should Be Stricken 

The Magistrate Judge’s finding that pro tanto judgment reduction is “appropriate in the 

circumstances of this case,” F&R at 23-24, 44, was clearly erroneous for two reasons. First, the 

OSL does not permit pro tanto judgment reduction in the case of partial settlements. Second,

even if the OSL did permit pro tanto reduction in certain circumstances, Tonkon and Plaintiffs 

admittedly have not made the evidentiary showing required of them to justify application of that 

methodology. There simply was no record upon which the Magistrate Judge could have 

concluded that pro tanto reduction is “appropriate in the circumstances of this case”—and any 

“findings” suggesting the contrary should be stricken from the record. 

1. The OSL Does Not Permit Pro Tanto Judgment Reduction 

The parties agree that the availability of pro tanto judgment reduction is a question of 

Oregon law. See F&R at 16. When interpreting Oregon law, the Oregon Supreme Court has 

instructed courts first to examine the text of a statute and its context. See State v. Gaines, 346 

Or. 160, 164 (2009) (“First, the court examines the text and context of the statute.”). The plain 

language and context of the OSL indicate that it does not permit the pro tanto judgmentCase 3:16-cv-00580-AC Document 494 Filed 04/02/19 Page 14 of 34
PAGE 10 ˗˗ OBJECTIONS TO FINDINGS AND RECOMMENDATION 

reduction upon which Plaintiffs have conditioned this settlement. A plaintiff who prevails on an 

ORS 59.115 claim is entitled to rescissory damages: upon tender of the security, the plaintiff 

shall receive “the consideration paid for the security” (including statutory interest), “less any 

amount received on the security.” See ORS 59.115(2). The Oregon Court of Appeals in Ainslie 

v. Spoylar held—and Plaintiffs do not dispute—that prior settlement payments constitute 

“amount[s] received on the security” and therefore reduce a plaintiff’s damages award on a 

dollar-for-dollar basis. See Ainslie v. Spoylar, 144 Or. App. 134, 145-46 (1996); Pls.’ Reply iso 

Am. Mot. for Prelim. Approval (“Pls.’ Reply”), at 9-10 (Dkt. 389) (discussing Ainslie without 

disputing its holding that prior settlement amounts reduce a plaintiff’s damages claim on a 

dollar-for-dollar basis). Therefore, even without a court order, non-settling Defendants would be 

entitled by statute to reduce any judgments against them by the $12.9 million Tonkon will have 

paid to the putative class. 

Meanwhile, ORS 59.115(3) provides “every person who participates or materially aids 

in” an illegal securities sale has the right to “contribution from those jointly and severally liable 

with that person.” Id. The statute grants this right not as an alternative but in addition to the 

right to an offset for recoveries received. The claims bar order Plaintiffs ask the Court to sign 

will eliminate non-settling Defendants’ right to contribution while providing them with nothing 

in return⸻other than the dollar-for-dollar reduction to which they are already entitled. This 

result is inconsistent with the text and context of ORS 59.115, which indicates the Oregon 

legislature’s clear intent to provide defendants with the rights both to offset damages by the 

amounts of prior settlements, and to seek contribution from settling defendants.7

 

 

7

 The Magistrate Judge appears to have misunderstood Defendants’ position, characterizing 

Defendants as arguing that the OSL precludes entry of a contribution bar order. See F&R at 

222 (“Non-Settling Defendants argue that the [OSL] gives them a statutory right to 

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The correct rule—which would fairly compensate non-settling Defendants for the loss of 

their contribution claims against Tonkon—is that the liability of non-settling Defendants must be 

reduced by the proportionate fault of the settling defendant. The Ninth Circuit adopted this 

“proportionate fault” rule in Franklin v. Kaypro Corp., 884 F.2d 1222 (9th Cir. 1989), a case 

involving partial settlement of claims arising under Section 11 of the Securities Act of 1933. 

In Kaypro, one defendant reached a partial settlement with plaintiffs, but conditioned 

settlement on obtaining an order barring contribution claims by non-settling defendants. Id. at 

1225. The district court issued the bar order, and the non-settling defendants appealed, arguing 

that the bar order infringed on their right to full contribution from the settling defendants. Id. at 

1226. The Ninth Circuit discussed at length the respective merits of pro tanto and proportionate 

fault reduction, and ultimately remanded the case to the district court because the proposed 

settlement “did not limit the subsequent exposure of the non-settling defendants. The limit must 

be the non-settling defendants’ actual percentage of liability for the amount of total damages 

determined at trial.” Id. at 1232. As the Ninth Circuit explained, proportional liability is favored 

because it “satisfies the statutory goal of punishing each wrongdoer” while protecting nonsettling defendants from paying “more than they would if all parties had gone to trial.” Id. at 

1231. By contrast, the pro tanto approach encourages plaintiffs to “engage in collusion with 

certain defendants” and “effect low settlements with defendants who had limited resources, and 

thereby force wealthier defendants to pay more than if all parties proceeded to trial.” Id. at 1230 

 

contribution that a bar order may not preclude.”). That is not (and has never been) Defendants’ 

position. Defendants agree that contribution claims can be barred, but only if non-settling 

defendants are fairly compensated for the loss of their contribution claims. See Response at 

27-28. 

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(emphasis in original). For this reason, the Ninth Circuit held that the proportionate fault rule 

should apply as a matter of law in the case of partial settlements of federal securities law claims. 

The Magistrate Judge declined to follow the proportionate fault rule—and instead found 

that both methods of judgment reduction “are available under Oregon law”—for several 

erroneous reasons. First, citing Judge Ashmanskas’ analysis in Fluck v. Blevins, 969. F. Supp. 

1231, 1236 (D. Or. 1997), the Magistrate Judge observed that “there are serious problems with 

both the pro tanto and the proportionate liability methods of crediting partial settlements,” and 

that, as a result, Oregon law should permit both methods depending on the circumstances. See 

F&R at 19. But in Fluck, Judge Ashmanskas reconciled these “problems” by adopting the 

methodology Congress chose to follow when enacting the Private Securities Litigation Reform 

Act of 1995 (“PSLRA”)—which credits non-settling defendants in federal securities cases with 

the greater of the dollar amount of the settlement or the proportionate fault of the settling 

defendant. Id.8

 There is no contention here that the pro tanto rule would result in a greater 

credit to non-settling Defendants than the proportionate fault rule,9 and as a consequence, the 

Magistrate Judge’s findings run directly contrary to those of Judge Ashmanskas in Fluck by 

crediting non-settling Defendants with the lesser of the dollar amount of the settlement or the 

proportionate fault of the defendant. This is precisely the structure—warned against by both the 

Ninth Circuit and Judge Ashmanskas—that leads to collusive settlements between plaintiffs and 

less solvent but highly culpable defendants. See Kaypro, 884 F.2d at 1230 (explaining that the 

“proportionate fault rule” prevents plaintiffs from “effect[ing] low settlements with defendants 

 

8

 As Judge Ashmanskas observed in Fluck, Congress, in enacting the PSLRA’s dual judgment 

reduction method, “attempted to redress the weaknesses of the pro tanto and proportionate 

liability approaches by combining them.” Fluck, 969 F. Supp. at 1237. 

9

 Non-settling Defendants would not object to a credit for the greater of those amounts if the 

Court chooses to follow that holding. 

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who had limited resources, and thereby forc[ing] wealthier defendants to pay more than if all 

parties had proceeded to trial” (emphasis in original)); see also Fluck, 969 F. Supp. at 1234 

(acknowledging that a “problem with the pro tanto method is that it encourages collusion. A 

plaintiff can settle rather cheaply with some of the defendants, in return for their assistance in 

prosecuting the plaintiffs’ case against the remaining defendants, i.e., those with deeper pockets, 

or in return for an interim ‘war chest’ to finance the litigation against the deep pocket 

defendants.”). 

Second, citing an order by Judge You (then of the Multnomah County Circuit Court) in 

Adams v. Perkins & Co., P.C., No.1110-12903 (Or. Cir. Ct.) (Nov. 25, 2014), the Magistrate 

Judge found that pro tanto reduction would be consistent with Oregon’s “one satisfaction” rule, 

and with the policies in the Restatement (Third) of Torts, Apportionment of Liability § 16, 

Comment c (the “Restatement”). See F&R at 22. But the Magistrate Judge erred by following 

Adams, because the Adams settlement was global and the bar order uncontested. This means that 

the issue of which judgment reduction methodology to apply was not litigated, and there were no 

“non-settling defendants” who were prejudiced by the bar order. See Defs.’ Uncontested Joint 

Mot. for Claim Bar Order and Inj., Adams, No. 1110-12903 (May 19, 2014). Critically, Judge 

You was not presented with the kind of significant unfairness concerns related to non-settling 

defendants that are present here. Cf. Kaypro, 884 F.2d at 1232.10

 

10The Magistrate Judge correctly recognized that the Oregon Court of Appeals’ decision in 

Ainslie does not hold that pro tanto judgment reduction is required under Oregon law. See 

F&R at 20-21. Similarly, the Magistrate Judge did not give weight to the Interim Merrihew

Order, recognizing that “the Merrihew final order is brief and Judge Rees does not explain why 

he initially embraced the pro tanto method and later switched to proportionate liability.” See 

F&R at 18. 

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But even if Adams had actually decided the issue presented here, its reasoning should not 

persuade the Court. As to the “one satisfaction” rule, that rule provides only that a plaintiff 

should recover only once for a particular injury. See Fluck, 969 F. Supp at 134 (“a plaintiff may 

obtain only one satisfaction for an injury”). In other words, it is a cap on plaintiff’s recovery—

not an entitlement to full recovery where a plaintiff decides to settle its claims rather than face 

the risk and expense of taking them to trial.11 See Mot. at 14 (acknowledging the many risks 

Plaintiffs face in bringing their claims to trial). As the Ninth Circuit held in Kaypro, “plaintiffs 

manage their own litigation, they could easily withdraw their complaint or settle with all 

defendants: there is no requirement in the statute that defendants pay a given amount of money.” 

See Kaypro, 884 F.2d at 1231 (emphasis added). The same is true here, where Plaintiffs are free 

to pursue their claims through trial in order potentially to secure full recovery on behalf of the 

putative class. While Plaintiffs may elect to avoid the risk of doing so by settling their claims 

against one or more Defendants, that decision does not entitle Plaintiffs to recover the entirety of 

their alleged losses from the non-settling Defendants. 

Nor should the Court follow the approach that is suggested in the Restatement (Third) of 

Torts: Apportionment of Liability. The Restatement’s default rule is the rule Plaintiffs seek to 

circumvent: proportionate fault. See RESTATEMENT (THIRD) OF TORTS: APPORTIONMENT OF 

LIABILITY, § 16 (“The plaintiff’s recoverable damages from a jointly and severally liable 

tortfeasor are reduced by the comparative share of damages attributable to a settling tortfeasor 

who otherwise would have been liable for contribution to jointly and severally liable defendants 

 

11 The “one satisfaction” rule is fully consistent with the rescissory damages remedy of ORS 

59.115(2), which limits recovery for ORS 59.115 claims to “consideration paid for the security, 

and interest from the date of payment . . . less any amount received on the security”⸻including 

“amounts” received from partial settlements. See ORS 59.115(2). 

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who do not settle.”). As an exception to that default, the Restatement outlines an alternative 

procedure whereby a court might apply a pro tanto setoff if the court first conducts a pre-trial 

evidentiary hearing and determines that the settling defendant is insolvent. Id. § 16, cmt. c, g. 

Neither the Restatement exception nor the procedure it proposes find any support under 

Oregon law. Indeed, even Oregon’s tort statutes do not follow the Restatement approach. As 

explained more fully in TD Ameritrade’s Objections to the F&R, the Oregon legislature has 

enacted a tort statute that requires proportionate fault reduction in partial settlements of multidefendant tort actions. See ORS 31.815; see also TD Ameritrade Objection at 7. It does not 

authorize pro tanto judgment reduction—with or without a pretrial insolvency proceeding. 

Given the Oregon legislature’s rejection of pro tanto reduction in the tort context, it strains 

credulity to believe that the legislature intended to authorize such offsets under the OSL. 

Against this backdrop, it is unsurprising that no precedential Oregon case has ever 

adopted the Restatement exception in an OSL lawsuit. Nor have Plaintiffs or Tonkon cited a 

single federal case (even before Kaypro and the PSLRA) that adopts the Restatement exception 

in the context of federal securities claims. There are good reasons why Oregon authorities have 

not adopted the Restatement exception. 

First, the exception undermines the sound policy goals that the proportional fault rule 

advances. As the Ninth Circuit observed in Kaypro, one “evil” of a pro tanto regime is that 

“plaintiffs c[an] effect low settlements with defendants who had limited resources, and thereby 

force wealthier defendants to pay more than if all parties proceeded to trial.” Kaypro, 884 F.2d 

at 1230; cf. RESTATEMENT (THIRD) OF TORTS: APPORTIONMENT OF LIABILITY § 16, cmt. c (“A 

pro tanto credit has the disadvantage of imposing any inadequacy in a partial settlement between 

the plaintiff and a settling tortfeasor on nonsettling tortfeasors against whom the plaintiff prevails 

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at trial.”). That tendency can be checked only by holding a complex fairness hearing involving 

evidentiary submissions and argument on the settling defendant’s degree of responsibility. 

Kaypro, 884 F.2d at 1230. As the Ninth Circuit observed, such a procedure—the precise 

procedure contemplated by the Restatement exception—would require a significant expenditure 

of resources that “would negate many of the benefits of settlement.” Id. 

Second, adopting the Restatement exception in the context of securities actions would 

allow that exception to swallow the proportionate fault “rule.” In modern securities lawsuits, 

potential damages can and frequently do exceed hundreds of millions of dollars. Because few 

securities defendants are able to satisfy such awards, the Restatement exception would apply in 

virtually every partial settlement, depriving non-settling Defendants of valuable contribution 

rights as a matter of course. See Cornerstone Research, SECURITIES CLASS ACTION 

SETTLEMENTS 2018 REVIEW AND ANALYSIS 20 (2018) (chart of maximum dollar loss for 

securities class actions, listing $818 million median maximum dollar loss and $2.97 billion 

average maximum dollar loss in 2018).12 In other words, adopting the Restatement approach 

would thwart the express intent of the Oregon legislature to provide non-settling Defendants with 

both a right to judgment reduction based on prior settlements and a right to seek contribution 

from others jointly and severally liable for the OSL violation at issue. See supra; see also In re 

Coburn, 175 B.R. 400, 404 (Bankr. D. Or. 1994) (“Courts are not legislative bodies.”). 

This Court should find, based on the plain language and context of the OSL, persuasive 

federal authority, and the absence of contrary authority from the Oregon courts, that pro tanto 

 

12 Available at https://www.cornerstone.com/Publications/Reports/Securities-Class-ActionSettlements-2018-Review-and-Analysis. 

Case 3:16-cv-00580-AC Document 494 Filed 04/02/19 Page 21 of 34
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judgment reduction is unavailable in the case of partial OSL claim settlements. The Magistrate 

Judge’s contrary finding constituted clear legal error. 

2. Even If The OSL Did Permit Pro Tanto Judgment Reduction, 

Plaintiffs Have Not Made The Required Factual Showings 

 Following Adams, the Magistrate Judge found that pro tanto reduction is appropriate 

under Oregon law “where there is joint and several liability and there are limited fund concerns.” 

See F&R at 22. Although the Magistrate Judge did not explain when such “limited fund 

concerns” could be found to exist, Judge You in Adams wrote that such concerns may exist 

where “it would not have made economic sense for plaintiffs to have continued to litigate in 

hopes of recovering more, no matter how strong plaintiffs’ claims or weak defendants’ defenses 

might have been. . . . The most likely end result would have been that it would have cost 

plaintiffs more and they would have recovered less.” See Order Approving Compromise at 11, 

Adams, No. 1110-12903 (Nov. 25, 2014) (quotations omitted). In Adams, Judge You analyzed 

several factors before deciding that settling defendants possessed limited funds⸻including the 

amount of consideration to be paid in settlement, the actual amount of remaining insurance left 

on the settling defendants’ policies, “the nature of [settling] defendants’ personal services 

businesses and their limited liability,” and whether plaintiffs could potentially recover more from 

settling defendants through additional litigation. Id. at 10-12. 

As even Tonkon acknowledged in its submissions to the Magistrate Judge, the entry of a 

pro tanto bar order requires findings of fact, based on record evidence. Specifically, although 

Tonkon argued that preliminary approval was proper because it could “plausibly claim” to be 

“partially insolvent,” Tonkon asserted that further discovery into its financial condition was 

unnecessary at this stage because “Tonkon and the Plaintiffs are not asking the Court to actually 

enter a pro tanto bar order as part of preliminary approval.” See Tonkon’s Reply at 26-27. 

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However, in the parallel state court proceedings, Tonkon submitted expert declarations (one from 

Serena Morones, on Tonkon’s anticipated “liquidation value” after trial, and another from 

Anthony Spain, regarding Tonkon’s anticipated litigation expenses through trial) in an attempt to 

satisfy the “partial solvency” criteria of Adams and the interim order in Merrihew v. Charles 

Schwab et al., No. 0907-10596 (Or. Cir. Ct. Aug. 11, 2010) (“Interim Merrihew Order). The 

Circuit Court decided to defer to the Magistrate Judge on these issues—but before doing so, 

entered a schedule that provided for the depositions of Tonkon’s experts, the submission by 

defendants of rebuttal expert declarations, and an evidentiary hearing to decide Tonkon’s “partial 

solvency” as a prerequisite to entry of a pro tanto claims bar. 

The Magistrate Judge appears to have recognized that additional proof on the issue of 

Tonkon’s “partial solvency” needs to be considered at the final approval stage, reserving “final 

determination” on the issue until “after the Settlement Hearing.” See F&R at 44. Yet, the 

Magistrate Judge provided for none of the procedural safeguards or evidence-gathering rights 

that the Circuit Court judge provided, and seemed to make findings that require consideration of 

evidence and expert opinion. Specifically, citing “the reality of facts in this case,” the Magistrate 

Judge found that: 

• “Tonkon’s largest asset for payment of a judgment is its insurance policy”; 

• Tonkon’s insurance policy “provides the maximum possible recovery for Plaintiffs 

and Tonkon”;13 and 

 

13While Tonkon’s proposed release and bar order would include not only the firm itself, but also 

its partners individually, the Court did not make any findings regarding their ability to pay 

towards a future judgment. The Court also made no findings regarding the propriety of 

distributions Tonkon has made to its partners during the pendency of this litigation—or 

whether any of those distributions might be available to satisfy a judgment against the firm. 

The Oregon LLP statute limits an LLP’s ability to distribute assets in the face of a significant 

contingent liability, such as the one Tonkon faces in this litigation. Specifically, it provides 

Case 3:16-cv-00580-AC Document 494 Filed 04/02/19 Page 23 of 34
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• “Should this case proceed through trial, not only would Tonkon use much of the 

available insurance policy in its own defense costs, the threat of a potentially large 

judgment against the firm may hasten the departure of attorneys, leaving few, if any 

assets by which to pay a judgment and little recourse for future recovery.” 

See F&R at 24. These are all facts that will be hotly contested through fact and expert 

discovery—as Tonkon’s own submissions to the state court acknowledge. See Def. Tonkon 

Torp LLP’s Notice of Suppl. to the R., Exs. 1-6 (Dkts. 458 and 459). To the extent the 

Magistrate Judge reached these conclusions before considering contrary evidence from the 

Defendants and before holding an evidentiary hearing on the factual issues presented, it 

constitutes clear error. Such “findings” cannot support application of the pro tanto methodology 

in this case and should be stricken from any order adopted by this Court.14

B. The Magistrate Judge Clearly Erred In Provisionally Certifying The Tonkon 

Settlement Class 

The Magistrate Judge’s “provisional approval of a settlement class,” F&R at 3, is also 

clearly erroneous. The F&R correctly recognizes that this decision can have no bearing on 

certification of a litigation class against the non-settling Defendants. F&R at 9 (quoting 

provision in proposed order); see also id. at 43 (recognizing the class “faces legal challenges at 

 

that an LLP may make distributions to partners “only if, after giving effect to the distribution, 

in the judgment of the partners approving the distribution . . . [t]he partnership would be able to 

pay its debts as they become due in the ordinary course of business; and the fair value of the 

total assets of the partnership would equal or exceed its total liabilities.” ORS 67.615(1) 

(emphasis added). 

14 Notably, in a related case, Brown v. Price, Case No. 3:17-CV-00869-HZ (D. Or. 2017), the 

Court approved the settlement of claims by a class of Aequitas investors where advisory firms 

and related individuals contributed both insurance proceeds and personal assets to the 

settlement fund. To support that settlement, the individuals submitted financial statements and 

testimony regarding their personal ability to contribute. The record here is devoid of any such 

evidence. 

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the class certification level”). Yet, even for purposes of provisionally certifying a settlement 

class as to Tonkon alone, the Magistrate Judge erred in finding that Plaintiffs satisfied the 

requirements set forth in Rule 23 of the Federal Rules of Civil Procedure. When confronted 

“with a request for settlement-only class certification,” the Court must apply “undiluted, even 

heightened, attention” to ensuring that each of the Rule 23 requirements are met. Amchem, 521 

U.S. at 620. Plaintiffs’ submission fails to meet this standard. 

First, as the party seeking certification, Plaintiffs bear the burden of demonstrating that 

each of the Rule 23 requirements are satisfied—including that “questions of law or fact common 

to class members predominate over any questions affecting only individual members” under 

Rule 23(b)(3). See Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935, 944 n.9 (9th Cir. 

2009). Plaintiffs come nowhere close to meeting this burden. In fact, they provided no evidence 

whatsoever that would allow the Court to make the necessary findings. Instead, Plaintiffs—and 

the Magistrate Judge—rely entirely upon allegations contained in Plaintiffs’ SAC and other court 

pleadings. See F&R at 26-27. The Magistrate Judge notes, for example, that he is familiar with 

the “parties’ theories of the case” because he has read their “discovery and substantive motions.” 

F&R at 26-27. The Magistrate Judge does not explain how those motions pertain to the class 

certification inquiries (they do not), or how those motions constitute evidence upon which the 

Court can find that certification of a settlement class is appropriate. “Allegations in pleadings 

are not evidence,” and Plaintiffs’ failure to provide a record upon which the Court can find that 

the Rule 23 requirements have been met (including, for example, deposition testimony or expert 

declarations) make certification inappropriate. See Barrie v. Intervoice-Brite, Inc., No. 3:01–

CV–1071–K, 2009 WL 3424614, at *9 (N.D. Tex. Oct. 26, 2009) (noting that allegations in 

pleadings cannot be used as evidence to support class certification findings); see also Juniper 

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Networks, Inc. v. SSL Servs., LLC, No. C 08-5758 SBA, 2009 WL 3837266, at *3 (N.D. Cal. 

Nov. 16, 2009), aff'd, 404 F. App’x 499 (Fed. Cir. 2010) (“allegations in pleadings are not 

evidence”); Wright v. Farouk Sys., Inc., 701 F.3d 907, 911 n.8 (11th Cir. 2012) (“pleadings are 

only allegations, and allegations are not evidence of the truth of what is alleged”); Veloz v. 

Foremost Ins. Co., 306 F. Supp. 3d 1271, 1281 (D. Or. 2018) (“pleadings are not evidence”). 

In addition, the Magistrate Judge made these findings while the Ninth Circuit is 

considering Hyundai en banc. See In re Hyundai and Kia Fuel Econ. Litig., 881 F.3d 679, 693 

(9th Cir. 2018), reh’g granted 897 F.3d 1003 (9th Cir. 2018). As the Court is aware, the Ninth 

Circuit’s Hyundai decision has created significant uncertainty in the standard applicable to 

settlement class certification—particularly regarding the plaintiffs’ burden under Rule 23(b)(3) 

to establish that common issues “predominate” over individualized inquiries. See Rael v. 

Children's Place, Inc., No. 3:16-cv-00370-GPC-JMA, 2018 U.S. Dist. LEXIS 56909, at *4 (S.D. 

Cal. Apr. 2, 2018) (noting that a stay pending Hyundai “would provide the Court with clarity on 

the standards applicable in this nationwide settlement”).15 For these reasons alone, the 

 

15 If the panel’s decision is affirmed, the Court’s analysis will be impacted in two significant 

ways. First, the panel held that district courts are required to perform a choice-of-law analysis 

to determine whether other states’ laws apply to class members’ claims—and whether 

variations in those laws preclude a finding of predominance. Id. at 691. Plaintiffs failed to 

establish that Oregon law applies to all of the putative class members’ claims. See F&R at 37. 

At least three Aequitas entities⸻ACF, AIPF, AIOF-II⸻sold securities to Integrity, a Colorado 

company with no offices in Oregon, which in turn sold different securities (“interests” in the 

Aequitas securities) to purchasers from across the country. See Response at 5-7. These 

transactions are outside the reach of Oregon’s long-arm statute. See ORS 59.335(1) (limiting 

the reach of ORS 59.115 to “persons who sell or offer to sell when: (a) an offer is made in 

[Oregon]; or (b) an offer to buy is made and accepted in [Oregon]”). 

 Second, the panel held that even if the class had consisted only of California consumers 

(removing choice-of-law concerns), certification of a settlement class was still inappropriate 

because the district court failed to consider whether “factual differences regarding [the class 

members’] exposure to the misleading statements translate into significant legal differences 

regarding the viability of these class members’ claims.” Id. at 703-05 (citing Amchem, 521 U.S. 

at 624). This inquiry was not made here. 

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Magistrate Judge should have deferred his recommendation until the Ninth Circuit issued its 

decision in Hyundai. See Response at 12-14 (citing district court decisions staying consideration 

of nationwide settlements pending the en banc review). In any event, it would be prudent for 

this Court to hold its provisional certification decision in abeyance pending the outcome in 

Hyundai. 

Second, certification of the settlement class—at least as currently defined—is 

inappropriate because common issues do not predominate over individualized inquiries. See 

Fed. R. Civ. P. 23(b)(3) (to maintain the class, Plaintiffs must establish that “questions of law or 

fact common to class members predominate over any questions affecting only individual 

members”). Plaintiffs seek to certify a class of “all persons who purchased ‘Covered Aequitas 

Securities’”—which include any securities issued on behalf of eight separate entities—“on or 

after June 9, 2010, and had an account balance as of March 31, 2016.” See F&R at 8. As nonsettling Defendants explained in their Response, given the nature of the securities at issue and the 

way in which Aequitas and numerous third-party investment advisors sold those securities, 

Plaintiffs have failed to demonstrate that questions common to the class predominate over 

individualized inquiries. See Response at 22-26. 

In particular, each of the Aequitas entities sold different types of securities. Some, for 

example, sold debt instruments, while others sold equity interests. See supra, Section II.A. 

Furthermore, all of the securities were sold through PPMs, which contained information that 

varied widely by transaction, and were sold only to accredited investors who were required to 

certify their accredited status and perform their own due diligence. See id.; see also Response at 

22-26. In fact, the PPMs (and investors’ transactions in the various securities) differed so 

substantially that Plaintiffs allege the statements contained within those PPMs are false or 

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misleading for different reasons, depending upon the Aequitas entity at issue and the time of 

purchase. See supra, Section II.A. Furthermore, none of the securities were allowed to be 

resold. Id. Accordingly, and as the investors were informed at the time they made their 

investments, there was no trading in these securities—and thus, no “market” for them. Response 

at 24-25; see also supra, Section II.A. 

The uniqueness of the multiple securities at issue renders certification of a settlement 

class inappropriate, at least in the absence of evidence upon which the Court can ground the 

necessary Rule 23 findings⸻or any explanation from the Plaintiffs as to why these differences 

can be ignored for purposes of certifying this settlement class. As the Magistrate Judge 

acknowledged, to prevail in this action Plaintiffs must first “establish that Aequitas committed a 

primary violation of the Oregon Securities law by selling unregistered securities, or by making 

untrue statements of material fact or omitting statements of material fact.” F&R at 36. Each 

individual investor must also prove that he or she did not know of the alleged misrepresentations 

or omissions. See id. at 34 (citing ORS § 59.115). Then, to establish non-settling Defendants’ 

secondary liability, Plaintiffs must demonstrate that non-settling Defendants “participated in or 

materially aided the sale of those securities.” Id. On the current evidentiary record, common 

questions do not predominate over individual inquiries with respect to either element. In fact, 

just the opposite is true. 

As an initial matter, the absence of a common market for Aequitas securities means that 

each sale must be examined individually—or, at minimum, in groups based on time period and 

fund—including an analysis of the information that investors received in connection with the 

sales made to them, and the reason that such information was false or misleading at the time it 

was given. See Response at 25-26. In particular, it is unquestionably true that each sale: 

Case 3:16-cv-00580-AC Document 494 Filed 04/02/19 Page 28 of 34
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• Was made pursuant to unique information—including through different PPMs 

and different oral representations; 

• Pertained to different Aequitas entities that had different investment goals and 

strategies (whose statements are alleged to be false and misleading for different 

reasons, and whose circumstances changed over time); 

• Was made to sophisticated investors who had diverse knowledge about the 

investments; and 

• Was made to investors who were directed by the PPMs and offering materials to 

perform their own individual due diligence—and signed subscription agreements 

explicitly stating that he, she, or it had in fact done so. 

By provisionally certifying the settlement class, the Magistrate Judge construed nonsettling Defendants’ arguments as bearing only on the last point—whether each investor had 

conducted due diligence. F&R at 34. The Magistrate Judge concluded that investors’ diligence 

had no bearing on class certification because “only an investor’s actual knowledge is relevant 

and the statute does not impose an obligation of inquiry.” Id. But the issue is not whether 

investors “should have” inquired; the issue is that many of them actually did inquire—and were, 

in many instances, provided with information the class representatives now claim was omitted 

from the PPMs identified in the Complaint. Indeed, Aequitas’s offering documents required 

every investor to certify that he/she/it (combined with their advisors) performed due diligence, 

including speaking with Aequitas personnel as necessary to complete that diligence. The F&R 

assumes, without basis, that none of these sophisticated investors or their investment advisors 

actually performed the diligence that they certified they performed. 

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Setting aside the fact that investors had different knowledge about their investments, the 

variations in the offering materials, the facts surrounding different funds at different points in 

time, and the manner in which the sales were accomplished mean that—at least without evidence 

or explanation to the contrary—Plaintiffs cannot establish that common questions predominate 

over individualized inquiries with respect to whether a false or misleading statement was made in 

connection with the sales at issue. See Response at 25-26 (citing Moore v. PaineWebber, Inc., 

306 F.3d 1247, 1253 (2d Cir. 2002) (noting that “the Third, Fourth, Fifth, Sixth, and Seventh 

Circuits . . . have held that oral misrepresentations are presumptively individualized”); In re 

Lehman Bros. Sec. and ERISA Litig., No. 08 CIV. 5523 LAK, 2013 WL 440622, at *3-4 

(S.D.N.Y. Jan. 23, 2013) (denying certification of Section 12 claims, explaining that “the 

knowledge of each potential class member . . . would cut against a finding that common 

questions predominate, and that Section 12(a)(2) classes could be certified only or generally in 

circumstances in which the putative class plaintiff had evidence common to the class members 

generally that would permit or warrant a finding of lack of knowledge.”)). 

Indeed, the Magistrate Judge’s determination that the question of whether the various 

Aequitas securities sales were made through false or misleading statements was “amenable to 

common proof,” see F&R at 36, is difficult to reconcile with his prior legal rulings. In ruling on 

motions to dismiss Plaintiffs’ First Amended Complaint, for example, the Magistrate Judge 

explained that Plaintiffs were not entitled to pursue an “integrated offering theory” by which they 

could allege that “all the ‘Aequitas Securities’” were the same. See April 10, 2017 F&R at 30. 

Rather, he explained that such a theory was “unsupported by the Oregon Securities Law,” and 

that Plaintiffs were required to “distinguish between the securities sold by different Aequitas 

Case 3:16-cv-00580-AC Document 494 Filed 04/02/19 Page 30 of 34
PAGE 26 ˗˗ OBJECTIONS TO FINDINGS AND RECOMMENDATION 

entities.” Id. The same logic applies—with heightened force—in determining whether to certify 

a settlement class here. 

The Ninth Circuit’s Blackie v. Barrack, 524 F.2d 891, 902 (9th Cir. 1975) decision, upon 

which the Magistrate Judge relied, see F&R at 34-35, does not support certification on this 

record. Rather, in Blackie, the Ninth Circuit found that individual questions regarding investors’ 

reliance did not predominate where the securities at issue were traded on the open market 

through a national stock exchange. 524 F.2d at 906 (adopting fraud-on-the-market theory of 

establishing class-wide reliance). In that situation, the Court explained, a “purchaser on the 

stock exchange . . . relies generally on the supposition that the market price is validly set and that 

no unsuspected manipulation has artificially inflated the price, and thus [he relies] indirectly on 

the truth of the representations.” Id. at 907. That the statements were made over a period of time 

was not an impediment to certifying the class, because “the amount of price inflation during the 

period can be charted and the process of computing individual damages will be virtually a 

mechanical task.” Id. at 905. The exact opposite is true here. Aequitas securities were not 

traded at all. There was no market through which investors could purchase these securities. And 

Plaintiffs have offered no proof that individualized questions regarding each sale could be dealt 

with “mechanically,” as was the case in Blackie.

16 

 

16 Nor is the decision in Facciola v. Greenberg Traurig, LLP, 281 F.R.D. 363 (D. Ariz. 2012) 

relevant to whether this settlement class should be certified. See F&R at 35-36. As an initial 

matter, at issue in Facciola were Arizona securities laws pursuant to which plaintiffs were

pursuing a “scheme” or “course of conduct” theory of liability. Here, Plaintiffs have not pled a 

claim under the OSL “scheme” provisions, ORS 59.135(1), (3). The Court, moreover, has 

already found that Plaintiffs are not entitled to pursue a similar “integrated offering theory” by 

which they could allege that “all the ‘Aequitas Securities’” were the same. See April 10, 2017 

F&R at 30. Thus, that decision is not relevant to the issues in this case. Furthermore, the 

Magistrate Judge’s reliance on Facciola demonstrates the necessity for staying any decision 

preliminarily to certify the settlement class pending the en banc decision in Hyundai, as it is 

Case 3:16-cv-00580-AC Document 494 Filed 04/02/19 Page 31 of 34
PAGE 27 ˗˗ OBJECTIONS TO FINDINGS AND RECOMMENDATION 

For all of these reasons, the non-settling Defendants request that the Court hold in 

abeyance any decision regarding the preliminary approval of the Tonkon settlement class, 

pending the Ninth Circuit’s decision in Hyundai, and otherwise decline to certify the settlement 

class on the current record. 

V. CONCLUSION

For the reasons set forth above, non-settling Defendants respectfully request that this

Court sustain its Objections to the Magistrate Judge’s Findings and Recommendation. 

possible (indeed, likely) that different state statutory schemes impose different rules on the 

challenged conduct, thus rendering certification inappropriate. 

Case 3:16-cv-00580-AC Document 494 Filed 04/02/19 Page 32 of 34
PAGE 28 ˗˗ OBJECTIONS TO FINDINGS AND RECOMMENDATION 

Dated: April 2, 2019 Respectfully submitted, 

THE FERRANTI FIRM LLC 

By: s/ William P. Ferranti 

William P. Ferranti, OSB No. 160069 

1819 SW 5th Avenue, Suite 403 

Portland, OR 97201 

Telephone: (503) 877-9220 

Email: wpf@ferrantiappeals.com

-And –

Linda T. Coberly (admitted pro hac vice) 

Joanna Rubin Travalini (admitted pro hac 

vice) 

WINSTON & STRAWN LLP

35 West Wacker Drive 

Chicago, IL 60601 

Telephone:(312) 558-5600 

Email: lcoberly@winston.com 

jtravalini@winston.com 

Of Attorneys for Defendant EisnerAmper 

LLP 

LATHAM & WATKINS LLP 

By s/ Peter A. Wald

Peter A. Wald (admitted pro hac vice) 

Gavin M. Masuda (admitted pro hac 

vice) 

Nicole C. Valco (admitted pro hac vice) 

Marcy C. Priedeman (admitted pro hac 

vice) 

505 Montgomery Street, Suite 2000 

San Francisco, CA 94111-6538 

Telephone: (415) 391-0600 

Email: peter.wald@lw.com 

gavin.masuda@lw.com 

nicole.valco@lw.com 

marcy.priedeman@lw.com 

–And–

Nicholas J. Siciliano (admitted pro hac 

vice) 

LATHAM & WATKINS LLP 

330 North Wabash Avenue, Suite 2800 

Chicago, IL 60611 

Telephone: (312) 876-7700 

Email: nicholas.siciliano@lw.com 

–And–

Robert C. Weaver, Jr., OSB No. 

801350 

Gary I. Grenley, OSB No. 751380 

Paul H. Trinchero, OSB No. 014397 

Eryn Karpinski Hoerster, OSB No. 

106126 

Daniel L. Keppler, OSB No. 923537 

GARVEY SCHUBERT BARER 

121 SW Morrison Street, 11th Floor 

Portland, OR 97204 

Telephone: (503) 228-3939 

Facsimile: (503) 226-0259 

Email: rweaver@gsblaw.com 

ggrenley@gsblaw.com 

ptrinchero@gsblaw.com 

ehoerster@gsblaw.com 

dkeppler@gsblaw.com 

Case 3:16-cv-00580-AC Document 494 Filed 04/02/19 Page 33 of 34
PAGE 29 ˗˗ OBJECTIONS TO FINDINGS AND RECOMMENDATION 

HARRANG LONG GARY RUDNICK P.C. 

By: s/ Sharon A. Rudnick 

William F. Gary, OSB No. 770325 

Sharon A. Rudnick, OSB No. 830835 

360 E. 10th Avenue, Suite 300 

Eugene, OR 97401-3273 

Telephone: (541) 485-0220 

Email: william.f.gary@harrang.com 

sharon.rudnick@harrang.com 

-And –

Stephen V. D’Amore (admitted pro hac vice)

Scott M. Ahmad (admitted pro hac vice) 

WINSTON & STRAWN LLP 

35 West Wacker Drive 

Chicago, IL 60601 

Telephone: (312) 558-6468 

Email: sdamore@winston.com 

Scott.ahmad@wisnton.com 

Andrew C. Nichols (admitted pro hac vice)

WINSTON & STRAWN LLP 

1700 K Street NW 

Washington, D.C. 20006-3817 

Email: anichols@winston.com 

Of Attorneys for Defendant Duff & Phelps, 

LLC

Of Attorneys for Defendant Deloitte & 

Touche LLP 

MARKOWITZ HERBOLD PC 

s/ Chad M. Colton 

Chad M. Colton 

David B. Markowitz

Jeffrey M. Edelson 

1211 SW Fifth Avenue, Suite 3000 

Portland, OR 97204 

Email: chadcolton@markowitzherbold.com

davidmarkowitz@markowitzherbold.com

jeffedelson@markowitzherbold.com 

-AndBruce A. Abbott (admitted pro hac vice) 

Brad D. Brian (admitted pro hac vice) 

Zachary M. Briers (admitted pro hac vice) 

Trevor N. Templeton (admitted pro hac

vice) 

Michael R. Doyen (admitted pro hac vice) 

Lauren M. Harding (admitted pro hac 

vice) 

Alexander S. Gorin (admitted pro hac vice) 

MUNGER TOLLES & OLSON LLP

350 South Grand Avenue, 50th Floor 

Los Angeles, CA 90071 

Email: bruce.abbott@mto.com

brad.brian@mto.com

zachary.briers@mto.com 

trevor.templeton@mto.com

michael.doyen@mto.com 

lauren.harding@mto.com 

alex.gorin@mto.com

Of Attorneys for Defendant Sidley Austin 

LLP

Case 3:16-cv-00580-AC Document 494 Filed 04/02/19 Page 34 of 34