Court Opinion

ID: 873100
Source: CourtListenerOpinion
Date Created: 2013-05-28 20:28:45.398362+00
Date Added: 2024-06-11T09:07:00.803478
License: Public Domain

FILED
                           NOT FOR PUBLICATION                              MAY 28 2013

                                                                        MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                       U .S. C O U R T OF APPE ALS

                            FOR THE NINTH CIRCUIT

GEORGE PAPPAS, on behalf of himself              No. 11-55570
and all others similarly situated;
ARKANSAS TEACHER RETIREMENT                      D.C. No. 2:07-cv-05295-MRP-
SYSTEM, FIRE & POLICE PENSION                    MAN
ASSOCIATION OF COLORADO;
BARRY BRAHN; SHELLEY B.
KATZEFF; THOMAS P. DINAPOLI,                     MEMORANDUM *
Comptroller of the State of New York, as
Administrative Head of the New York
State and Local Retirement Systems and as
Trustee of the New York State Common
Retirement Fund, and of the New York
City Pension Funds,

              Plaintiffs - Appellees,

    and

COUNTRYWIDE FINANCIAL CORP.;
ANGELO R. MOZILO; ERIC P.
SIERACKI; DAVID SAMBOL;
JEFFREY M. CUNNINGHAM; ROBERT
J. DONATO; MARTIN R. MELONE;
ROBERT T. PARRY; OSCAR P.
ROBERTSON; KEITH P. RUSSELL;
HARLEY W. SNYDER; HENRY G.
CISNEROS; STANFORD L. KURLAND;
BEN ENIS; EDWIN HELLER;

          *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
COUNTRYWIDE HOME LOANS INC.;
COUNTRYWIDE CAPITAL V; FENNER
& SMITH INC.,

                Defendants - Appellees,

    v.

THE BANK OF AMERICA 401(K)
PLAN FOR LEGACY COMPANIES, as a
Successor to the Countrywide Financial
Corporation 401(k) Savings and
Investment Plan,

                Objector - Appellant.

                     Appeal from the United States District Court
                         for the Central District of California
                  Mariana R. Pfaelzer, Senior District Judge, Presiding

                          Argued and Submitted April 9, 2013
                                 Pasadena, California

Before: REINHARDT and MURGUIA, Circuit Judges, and MOLLOY, District
Judge.**

         In the wake of the housing and financial crisis, Countrywide Financial

Corporation’s stock price plummeted and, while it was on the brink of collapse,

Bank of America acquired the company. Numerous class action securities suits

         **
             The Honorable Donald W. Molloy, District Judge for the U.S. District
Court for the District of Montana, sitting by designation.

                                        Page 2 of 9
followed and were consolidated into this action. After extensive litigation, the

claims were narrowed and Plaintiffs moved to certify a class. The district court

granted the motion in part, crafting its own definition of the class:

      All persons or entities that, between March 12, 2004 and March 7,
      2008, inclusive (the “Class Period”), either in the open market or
      pursuant or traceable to a registration statement:

            (i) Purchased or otherwise acquired Countrywide Financial
      Corporation (“Countrywide”) publicly traded common stock or call
      options, and/or sold Countrywide publicly traded put options (the
      “Common Stock Subclass”); or

            [Purchased or otherwise acquired other securities not at issue on
      appeal]

      and were damaged thereby (these Subclasses will collectively be
      referred to as the “Class.”).

While summary judgment motions were pending, the parties reached a Settlement

Agreement, with Defendants agreeing to pay $624 million. Plaintiffs crafted a

Plan of Allocation (“POA”) that described the process of distributing the

Settlement. The court issued a Preliminary Approval Order informing class

members of their right to opt-out or object to the Settlement Agreement and POA.

      The Bank of America 401(k) Plan for Legacy Companies (“the Plan”) is a

class member controlled by a committee of Bank of America executives that faced

a conflict of interest evaluating the Settlement Agreement and POA because they

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were obligated to act in the best interest of the Plan (a member of the plaintiff

class), but also owed loyalty to Bank of America (a Defendant). Pursuant to the

Employee Retirement Income Security Act of 1974, which constrained the

committee from acting in the face of such a conflict, the Plan appointed

Independent Fiduciary Services, Inc. (“IFS”) to evaluate the Settlement and POA.

IFS retained counsel and, on behalf of the Plan, filed an objection to the Settlement

and POA.

      The objection was unique because rather than arguing that the Settlement

Agreement was inadequate, the Plan sought clarification of the terms of the POA.

In fact, at oral argument in these proceedings the Plan explicitly disclaimed any

objection to the Settlement Agreement, stating that it only objected to the district

court’s ruling on the scope of the POA.

      The objection relates to two general issues. First, the Plan argues that stock

registered on a Form S-8 registration statement and distributed to employees as

matching contributions or as a portion of their discretionary salary falls under the

definition of the Common Stock Subclass. Second, the Plan contends that trades of

unitized interests in the Countrywide Common Stock Fund (“the Fund”) also fall

within the definition of the Common Stock Subclass.

                                     Page 4 of 9
      The district court overruled the objection. The district court rejected the

Plan’s argument that the class definition includes common stock “not purchased on

the open market” and “transactions which occurred outside of the class period.” In

light of the scant factual record and the district court’s narrow holding, the

question properly before us is: whether the district court erred when it held that the

POA limits claims relating to Countrywide Common Stock to purchases made “on

the open market” during the class period. See Yahoo! Inc. v. La Ligue Contre Le

Racisme Et L’Antisemitisme, 433 F.3d 1199, 1212 (9th Cir. 2006) (en banc)

(purely legal questions are more likely ripe). We find no error and affirm.

      Interpretation of the POA is controlled by California contract law, Botefur v.

City of Eagle Point, 7 F.3d 152, 156 (9th Cir. 1993), which rejects the traditional

rule that unambiguous language in an agreement is dispositive, Trident Ctr. v.

Conn. Gen. Life Ins. Co., 847 F.2d 564, 568–69 (9th Cir. 1988) (citing Pac. Gas &

Electric Co. v. G.W. Thomas Drayage & Rigging Co., 69 Cal.2d 33 (1968)). The

district court’s factual conclusions based on extrinsic evidence are reviewed for

clear error, and its application of legal principles to those facts is reviewed de

novo. Stephens v. City of Vista, 994 F.2d 650, 655 (9th Cir. 1993).

      This seemingly complex dispute turns on the phrase “either in the open

market or pursuant or traceable to a registration statement.” The parties offer two

                                      Page 5 of 9
competing interpretations of this phrase and its relation to the Common Stock

Subclass. The Plan focuses on the word “or” and argues that because the clause is

phrased in the disjunctive, securities in every Subclass can either be purchased on

the open market or acquired pursuant to a traceable registration statement.

According to the Plan, common stock need not be purchased “in the open market”

because it could also be purchased or acquired “pursuant to a registration

statement.”

      Plaintiffs offer a different reading of the “either . . . or . . .” language. They

argue that it must be read in the context of the entire agreement and extrinsic

evidence. According to Plaintiffs, the language means that securities in some

Subclasses must be purchased or acquired “in the open market,” and securities in

other Subclasses must be purchased or acquired “pursuant to a registration

statement.” Plaintiffs argue that the securities in the Common Stock Subclass must

be purchased “in the open market.”

      The district court’s conclusion that extrinsic evidence supports the

Plaintiffs’s reading of the POA was not clear error. Both the complaint and

Settlement Agreement indicate that claims relating to common stock are limited to

Section 10(b) claims. The complaint’s theory of Section 10(b) liability is premised

on the allegation that Countrywide’s fraudulent statements caused fraud on the

                                      Page 6 of 9
market by inflating the price of stock purchased in the open market, therefore

creating a presumption of reliance. The district court’s thorough and detailed class

certification memorandum indicates that the Section 10(b) claims relied on the

fraud-on-the-market theory and that the Section 11 claims relied on the theory that

the securities were issued pursuant to a valid registration statement.

      The Plan’s principal argument in reply is that the plain text of the POA is

unambiguous but under California law such an argument is unpersuasive in light of

extrinsic evidence suggesting an ambiguity, Trident, 847 F.2d at 568–69.

Additionally, the fact that the Plaintiffs could have alleged Section 11 claims based

on securities in the Common Stock Subclass has no bearing on what they actually

alleged in the complaint.

      We affirm the district court. Securities in the Common Stock Subclass must

have been purchased on the open market during the class period. It is not enough

that securities in the Common Stock Subclass were purchased or acquired pursuant

to a registration statement.

      Our decision is limited to affirming the district court’s interpretation of the

POA. To the extent the parties ask us to make “factual determinations on the

merits of this case to ascertain whether certain individuals were to be included in

the class,” we decline to do so because that type of determination is for the district

                                     Page 7 of 9
court to make in the first instance and is reviewed for an abuse of discretion. Jeff

D. v. Andrus, 899 F.2d 753, 759 (9th Cir. 1989). Thus, we make no attempt to

decide whether certain claims should be compensated under the POA. Because

there is no factual basis in the record, we cannot answer the question as it was

presented to us at oral argument: whether the shares of stock acquired by Plan

members directly from the company or through intra-Plan trades should be treated

the same as common stock purchased in the open market. That question is not ripe

for review. See, e.g., Rodriguez v. W. Publ’g Corp., 563 F.3d 948, 966 (9th Cir.

2009) (objection to distribution of residual settlement funds was not ripe because

existence of such funds was uncertain); see also Thomas v. Anchorage Equal

Rights Comm’n, 220 F.3d 1134, 1138 (9th Cir. 2000) (en banc) (generally

describing ripeness inquiry).

      On numerous occasions the district court expressed dismay at the lack of

evidence supporting the Plan’s objections and suggested that it was unable to

decide some of the issues based on the record it was presented. The parties both

asserted at oral argument that the district court had decided all of the issues

necessary to resolve their dispute and that by affirming the district court we would

end this dispute. We disagree. We affirm the district court, but we do not end the

dispute because we do not decide the question that is not yet ripe.

                                      Page 8 of 9
Requests for Judicial Notice

      We grant Plaintiffs’ request for judicial notice of the Layne settlement

agreement and related court documents because the documents are judicially

noticeable, see Lee v. City of Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001)

(public court documents can be judicially noticed), and relate to events that

occurred after the district court’s fairness hearing, Bryant v. Carleson, 444 F.2d

353, 357 (9th Cir. 1971).

      We deny the Plan’s requests for judicial notice of the Plan’s own founding

document of documents filed in Alvidres, and of documents filed by Countrywide

with the SEC. All of the documents pre-date the fairness hearing and the Plan

could have presented them to the district court. A party may “not cure her failure

to present the trial court with facts sufficient to establish the validity of her claim

by requesting that this court take judicial notice of such facts.” Jespersen v.

Harrah’s Operating Co., Inc., 444 F.3d 1104, 1110 (9th Cir. 2006) (en banc). Not

only did the Plan neglect to submit this evidence to the district court, but it failed to

do so after the district court held a previously unscheduled telephonic conference

to discuss the Plan’s lack of evidence supporting its claim.

      AFFIRMED.

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