Opinion ID: 727231
Heading Depth: 2
Heading Rank: 1

Heading: The Intentions of the Parties in Litigating and Settling the Class Action

Text: 22 Judge Mukasey concluded that no one, not Gulf, not Cities, not the lawyers for the class, nor the court, intended to include Cities within the class. He observed that the conduct of the parties in this litigation and in the Oklahoma litigation shows unmistakably that Cities was never intended to be a member of the class, an impression confirmed by statements submitted by counsel who represented the class in this litigation. We agree. 23 A trial court's findings regarding the parties' intentions will be respected on appeal unless they are clearly erroneous. See Manning v. Energy Conversion Devices, Inc., 13 F.3d 606, 609 (2d Cir.1994) (district court's findings regarding intended meaning of settlement term reviewed for clear error); Healy v. Rich Prods. Corp., 981 F.2d 68, 73 (2d Cir.1992) (A district court's findings with respect to the expression of the contracting parties' intent will not be disturbed unless they are clearly erroneous.). Moreover, we note that,  '[f]ew persons are in a better position to understand the meaning of a [settlement] than the district judge who oversaw and approved it.'  United States v. Local 359, United Seafood Workers, 55 F.3d 64, 68 (2d Cir.1995) (quoting Berger v. Heckler, 771 F.2d 1556, 1576 n. 32 (2d Cir.1985)). We do not consider Judge Mukasey's finding to be clearly erroneous; indeed, in our view, he was entirely correct. 24 Gulf's course of conduct in the Oklahoma action after the class action settled makes it clear that Gulf did not view the class settlement as foreclosing Cities from pursuing its claims in Oklahoma. See Local 359, 55 F.3d at 69 (finding that parties' conduct supported the district court's interpretation of the judgment); Ocean Transp. Line, Inc. v. American Philippine Fiber Indus., 743 F.2d 85, 91 (2d Cir.1984) (explaining that parties' interpretation of the contract in practice, prior to litigation, is compelling evidence of the parties' intent); Restatement (Second) of Contracts § 202 cmt. g (The parties to an agreement know best what they meant, and their action under it is often the strongest evidence of their meaning.). After the class action was settled in the district court on May 21, 1992, Gulf waited for three and a half years before moving (on November 13, 1995) for summary judgment in Cities' Oklahoma action on the basis of the preclusive effect of the class settlement. The district court found that Gulf's failure to argue to the Oklahoma court that the action was barred by the settlement for over three years was relevant and persuasive evidence that the parties to this case never considered that Cities would be included in the class. 25 In response Gulf argues, as it did in the district court, that moving for summary judgment prior to November of 1995 would have been futile. Gulf contends that until June of 1993, when an alternative dispute resolution proceeding in a related action was completed, the Oklahoma action was dormant. In addition, Gulf notes that in July 1993, when Cities noticed its intention to resume active litigation in Oklahoma, Cities also requested permission to amend its complaint to add claims based on events which occurred after the termination of the merger agreement. Gulf argues that because these new claims were not barred by the settlement agreement, it had no reason to make its motion for summary judgment sooner. 1 26 We cannot credit Gulf's argument. Although Gulf's res judicata and release defenses may not have protected it from the newly added claims, they would have provided a defense to the old claims. We see no reason why, if Gulf believed all along that Cities was included within the class, Gulf would have delayed moving to dismiss those claims. If Gulf really did believe the claims were barred, then by waiting three and a half years to make its summary judgment motion, Gulf wasted extraordinary amounts of its own, its adversary's, and the court's time and money litigating issues which would have been rendered irrelevant if the settlement precluded Cities' claims. For example, in September 1993, Cities moved for partial summary judgment based on the theory that Judge Mukasey's rulings in the class action precluded some of Gulf's contentions. In response, Gulf failed to cross-move for summary judgment based on the settlement of the class action, and made no mention of its theory that Cities' claims were precluded by the settlement. 27 Then, in November 1994, Cities moved to bifurcate the old and new claims. Over Gulf's opposition, this motion was granted in March 1995. Even then however, when Cities' now allegedly precluded claims were slated for a separate trial, Gulf waited another five months, until the last day allowed by the Oklahoma court for dispositive motions, before advancing the argument that these claims were precluded. 28 In sum, we agree with the district court that had the parties intended to include Cities, Gulf would not have wasted a moment to point that out to the Oklahoma court and to move for appropriate relief. Indeed, the time to do that would have been either immediately after the settlement was concluded, or, at the latest, when Cities noticed its intention to resume active litigation in Oklahoma. Gulf's three and a half year delay in moving for judgment based on the settlement in the class action is powerful evidence that Gulf did not believe that the settlement barred the prosecution of Cities' claims. See Local 359, 55 F.3d at 69; Ocean Transp. Line, 743 F.2d at 91; Restatement (Second) of Contracts, § 202 cmt. g. We agree with Judge Mukasey's conclusion that Gulf did not regard Cities as part of the plaintiff-class; it contrived that theory long after the fact to extricate itself from the Oklahoma action. 29 Our confidence in this conclusion is supported by several other factors. First, Cities' Oklahoma claims differed in significant ways from those of the class in that they were based on different representations and agreements with Gulf and requested different relief. Although the class and Cities each raised fraud and contract claims, 2 these claims were based on different factual predicates. The class's fraud claim was brought on a fraud-on-the-market theory and arose from Gulf's allegedly fraudulent public statements; Cities' fraud claim was based on statements made privately to Cities in contract talks. Moreover, although the class attempted to use the statements made privately to Cities to support its claim, Gulf argued, and the district court agreed, that, except for two members of the class who were members of Cities' board of directors, the class was not entitled to rely on statements made to Cities. See In re Gulf Oil/Cities Serv. Tender Offer Litig., 725 F.Supp. 712, 750-53 (S.D.N.Y.1989). Had anyone considered Cities to be a member of the class, the exception would certainly have run in its favor as well. 30 Similarly, the class's contract claims arose from alleged misstatements in the tender offer documents, while Cities' contract claim was based on an alleged breach of the merger agreement. The class also attempted to assert claims under the merger agreement. As with the fraud claim, however, Gulf argued, and Judge Mukasey agreed, that the class could not rely on the merger agreement because the class members were not parties to the agreement. See In re Gulf Oil, 725 F.Supp. at 730. Had the class been thought to include Cities, an exception would have been necessary. 31 Cities and the class also requested different types of damages. The class sought damages for Gulf's alleged breach of the tender offer, measured by the difference between the tender offer price for Cities stock and the market price after Gulf terminated the offer. Cities, on the other hand, sought damages it incurred in reliance on the merger agreement and in an effort to arrange alternative transactions. 32 These fundamental differences between the class claims and those of Cities give strong support to Judge Mukasey's finding that none of the participants regarded Cities as a member of the class. 33 Second, the class settlement provided no benefits for Cities. Its purchase of its stock from Mesa occurred on June 18, 1982. While the class was sometimes defined to include all purchasers of Cities' stock from June 17 to August 7, 1982, the benefits of the settlement went only to those who purchased between July 13 and August 6, 1982. Thus, an interpretation of the plaintiff-class as including Cities would have had no effect other than to obligate Cities to file for exclusion in order to avoid losing the Oklahoma lawsuit which it had fiercely prosecuted for so many years. 34 Third, throughout the class action litigation, Gulf took positions inconsistent with the idea that Cities was included within the class definition. For example, Gulf argued that Cities ... is not a party to [the class action].... Rather, Cities commenced its own litigation against Gulf in Oklahoma State Court, where it is still pending. Gulf also omitted to make reference to Cities' status as a class member at times when it would have been advantageous to do so. For example, when during the course of discovery in the class action, Gulf sought information within Cities' control, Gulf did not argue that, as a member of the class, Cities should be obligated to provide the information. Although the court did agree to require the class to provide the information, it did so because it found that the class had the obligation to make a reasonable inquiry of third parties. In re Gulf Oil/Cities Serv. Tender Offer Litig., 82 Civ. 5253(MBM) (Dollinger, M.J.). The court found that requiring the class to consult with Cities was reasonable, not because Cities was a member of the class, but rather because the plaintiffs and Cities have plainly parallel interests in their respective lawsuits with Gulf. In re Gulf Oil, 82 Civ. 5253(MBM) (Dollinger, M.J.) (emphasis added). 35 Finally, the affidavits submitted by the parties support our conclusion that no one involved in the class action intended for the settlement to have the effect of releasing Cities' claims. 36 Cities submitted numerous affidavits from lawyers who represented the class in the litigation and settlement. 3 In these affidavits, the lawyers state unequivocally that they never intended Cities to be included within the class definition, in part because of their belief that the inclusion of Cities would have created the potential for an irreconcilable conflict of interest between it and the class members. Typical of these affidavits, is one submitted by Stephen D. Oestreich, 4 lead counsel for the class in negotiating and drafting the settlement agreement and the final judgment and order, which states that: 37 The operative understanding at the time of the Settlement continued to be that the members of the Purchaser Class had made their purchases ... on the open market. During the negotiation of the Settlement, no assertion was made by any participant that Cities Service was a member of the class or that Cities Service's claims in the Tulsa Action were subject to the Settlement. Neither I nor, to my knowledge, any member of Plaintiffs' Executive Committee considered that Cities Service was a member of the class or that it would be affected in any way by the settlement.... [N]o one involved in the Shareholder Litigation, as a party, or as counsel for any party or non-party, ever understood, believed, or imagined that Cities Service could be a member of the class. 38 The affidavits submitted by Gulf's lawyers, on the other hand, are striking for what they fail to say. Although they make much of the fact that they never stated that Cities was excluded from the class definition, the affiants do not assert that they ever understood, intended, or believed, the class definition to include Cities. 39 Even more telling is a statement made by a lawyer for Gulf in the course of a proceeding in the Oklahoma action in August 1993, almost a year after the settlement of the class action. In response to the Oklahoma judge's question why Gulf had advocated that the Oklahoma suit be stayed until the conclusion of the New York proceedings, Gulf's counsel responded that there may have been a feeling that if there were settlements reached [in New York], settlements could be reached in [Oklahoma]. Obviously that didn't happen or hasn't happened yet.... It is clear Gulf would not have made that statement if it believed the class settlement disposed of the Oklahoma litigation. 40 Based on all of this evidence, we find that Judge Mukasey correctly concluded that no one intended that Cities be included within the definition of the class. Gulf is essentially seeking an undeserved windfall in its effort to terminate Cities' lawsuit on the basis of an afterwards-contrived argument based on a technical reading of documents that were never intended or understood to apply to Cities.