Opinion ID: 532526
Heading Depth: 2
Heading Rank: 4

Heading: Other Damage Issues

Text: 27 A. Oak Class Action Settlement. One of the common stocks selected by Grace that lost money for the Fund was Oak Industries (Oak). Sometime after GCI and Grace were fired, the Fund received a payment of $233,357.54 in connection with the settlement of a class action against the directors and officers of Oak for malfeasance in office. In re Oak Industries Securities Litigation, Master File No. 83 0537-G(M) (S.D.Cal.1985). Defendants now argue that the District Court erred in failing to credit this entire sum against the amount of loss calculated by the method outlined above. In crediting only about 28% of this settlement against the loss, they argue, the District Court granted a windfall to the Fund. 28 This argument fails because it ignores the District Court's correct assumption that the Fund would have received much of this settlement payment even if the defendants had not overinvested in common stocks. Crediting the whole amount of the settlement could be justified only by assuming that the entire settlement was attributable to Oak stock that GCI would have sold if it had complied with the 50% limit. Such an approach effectively ignores the presumption that GCI would have liquidated only a proportionate share of the Oak stock; in that event, much of the settlement represents earnings on Oak shares that the Fund would have owned even if the 50% ceiling had been observed. 29 B. Preferred Stock. The original Guidelines attached to the 1981 Agreement between GCI and the Trustees stated that common stocks would not exceed 25% of the cost of the securities in the Fund's account. The minutes of the Trustees' meetings, where GCI's requests for increases in the ceiling to 35% and then to 50% were approved and its request for an increase beyond 50% was rejected, use the words equity investments, investments in equities, or equity in stocks in describing the percentage limit. Appellants acknowledge that preferred stock falls within the category of equities, but contend that at some point the Trustees agreed that preferred stock would not be counted in applying the 50% limit. In an affidavit and a deposition, Grace represented that the Trustees had approved a separate category for preferred stock within the overall equities that could include up to 7 1/2% of the assets without being counted against the equity investment limit. In their brief appellants contend that the minutes of the meeting approving this carve-out provision were never delivered. Though the record is less than clear, it appears that this carve-out issue, to the extent that it affected calculation of damages, involves a factual dispute that might not be appropriate for summary judgment. 30 In its liability opinion, the District Court had held that a carve-out of preferreds might reduce the damages owed to the Fund. 664 F.Supp. at 109. In its opinion on damages, however, the Court rejected the carve-out because the 50% limit had to be strictly observed. Though that conclusion is correct, as we have held, it does not resolve the dispute as to whether preferred stock should not have been counted in determining, for purposes of damages, the extent to which the 50% limit was exceeded. That dispute might require fact-finding, although we cannot be entirely certain because of the lack of clarity in defendants' presentation of this point both here and in the District Court. 3 31 Though this dispute is extremely limited, we will vacate the judgment, order a remand, and direct the District Court to afford the defendants an opportunity to make a clear presentation of whatever evidence they have to support their carve-out contention. If the District Court concludes that such evidence does not suffice to raise a triable issue as to whether preferred stock should not be counted against the 50% limit for purposes of calculating damages, it may reenter the original judgment; if such a triable issue is presented, the Court should proceed to have this limited factual dispute resolved and make whatever adjustment in damages may be warranted.