Opinion ID: 781984
Heading Depth: 2
Heading Rank: 3

Heading: Scope of the Bar Order

Text: 22 With respect to the scope of the bar order entered by the district court, the parties' disagreement is again quite limited. The non-settling defendants do not dispute that the district court properly barred their contribution and indemnification claims. See Masters, 957 F.2d at 1031-32 (approving settlement bars of claims for indemnity and contribution if the non-settling defendant received a judgment credit of at least the amount paid by settling defendants toward damages for which the nonsettling defendant would be jointly and severally liable). They also clarified at oral argument that a disguised contribution or indemnity claim, such as a negligence claim where the injury to the non-settling defendants was their liability to the plaintiffs, could be barred. Instead, the non-settling defendants argue that the district court's bar order is too broad in that it extinguished independent claims, including claims arising from comfort letters issued by BDO to Daiwa in connection with underwriting of the 1993 secondary offering. The settling defendants, in turn, claim that they seek to bar only those claims where damages are calculated based on the non-settling defendants' liability to the plaintiffs. In a potentially contradictory position, however, BDO also maintains that it is entitled to a broader bar of any claims related to the transaction giving rise to its involvement in this litigation, namely, the certification of MTC's financial statements. 6 23 In Masters, we addressed the extinguishment of indemnity and contribution claims under a pro tanto recovery rule, and required a hearing on the fairness of the settlement to protect the due process rights of third parties in recognition of the possibility of collusion between the settling parties. 957 F.2d at 1031. Under the capped proportionate share rule adopted by the courts below, however, no such fairness hearing is necessary because the non-settling defendants' credit will be the greater of the proportionate fault or the settlement amount. By ensuring that, at the end of the day, the non-settling defendants are not held responsible for any damages for which the settling defendants are proven liable, the judgment credit adequately compensates the non-settling defendants for their indemnity and contribution claims, as well as for any other claims where the harm to the non-settling defendants is based on their liability to the plaintiffs. See id. at 1029-31. 24 Daiwa argues that the bar order impermissibly extinguishes independent claims that do not relate to any duty owed by BDO to plaintiffs, but rather involve a relationship between BDO and Daiwa based on the issuance of the comfort letters by BDO to Daiwa. If, however, Daiwa proves at trial that it acted as it did in reasonable reliance on BDO's comfort letters, the jury's apportionment of liability to BDO, and the judgment credit that results from that apportionment, will adequately protect Daiwa for any damages it owes to plaintiffs. To the extent that Daiwa and the other non-settling defendants were injured by their reliance on the comfort letters only inasmuch as they owe damages to plaintiffs as a result of that reliance, those claims were properly extinguished. 25 This resolution of the scope of the bar order corresponds with BDO's position that those claims where damages are calculated based on the non-settling defendants' liability to the plaintiffs should be barred. More problematic is BDO's alternative position that it is entitled to peace of mind on all claims arising out of the duties it may have breached with respect to the certification of the MTC financial statements, without regard for whether Daiwa might have a claim for damages that goes beyond its liability to the plaintiffs. It may well be, as BDO argues, that the non-settling defendants are only damaged to the extent they are liable to the plaintiffs in the underlying litigation. If, however, Daiwa were to prove that it sustained independent reputational damages or losses relating to the cost of defense arising out of a breached contractual or fiduciary relationship with BDO, it has not been compensated for those losses by the judgment credit, and any such claims should not be extinguished. See TBG, Inc. v. Bendis, 36 F.3d 916, 928 (10th Cir.1994) (Courts that have allowed bar orders have only barred claims in which the damages are `measured by' the defendant's liability to the plaintiff. Besides contribution and indemnity claims, these include any claims in which the injury is the non-settling defendant's liability to the plaintiff. No court has authorized barring claims with independent damages. (citations omitted)); In re U.S. Oil & Gas Litig., 967 F.2d 489, 495-96 (11th Cir.1992) (holding that the district court properly barred fraud and negligence claims against the settling defendants because those claims were simply another theory for recovering the damages the non-settling defendant had to pay to the plaintiff). The issue, in other words, is less one of independent claims than independent damages. 26 We express no view on the likely merit of any claims for independent damages that the non-settling defendants may assert. We also recognize that the orders' reference to claims arising out of or reasonably flowing from the claims or allegations in the Kayne action may have been intended to encompass only claims where damages are based on liability owed by the non-settling defendants to the Kayne plaintiffs. In light of the position taken by BDO in this appeal, and in the absence of any finding from the courts below that no such claims exist, however, a modification to the bar orders is necessary to ensure that the only claims that are extinguished are claims where the injury is the non-settling defendants' liability to the plaintiffs. 7 Accordingly, the BDO settlement order approved by the district court is modified as follows: 27 Each of the Non-Settling Defendants is hereby permanently BARRED, ENJOINED and RESTRAINED from commencing, prosecuting, or asserting any claim for indemnity or contribution against BDO (or any other claim against BDO where the injury to the Non-Settling Defendant is the Non-Settling Defendant's liability to the plaintiffs), arising out of or reasonably flowing from the claims or allegations in the Kayne action, whether arising under state, federal or foreign law as claims, cross-claims, counterclaims, or third-party claims, in the Kayne action, in this Court, in any federal or state court, or in any other court, arbitration proceeding, administrative agency, or other forum in the United States, Canada or elsewhere (collectively, the Barred Claims). These Barred Claims include, but are not limited to, any and all claims arising out of or reasonably flowing from comfort letters issued to Non-Settling Defendant Daiwa by BDO in connection with MTC, to the extent that the injury to the Non-Settling Defendant under any such claim is its liability to the Kayne plaintiffs. 8