General Retirement System of the City of Detroit v. The Wells Fargo Mortgage Backed Securities 2006-AR18 Trust et al

Filing 472

ORDER Denying Objectors' Oral Motion for Leave to Seek Discovery. Signed by Judge Lucy H. Koh on 11/14/11. (lhklc3, COURT STAFF) (Filed on 11/14/2011)

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UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION

United States District Court
For the Northern District of California

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In Re WELLS FARGO MORTGAGEBACKED CERTIFICATES LITIGATION

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Case No.: 09-CV-01376-LHK
ORDER DENYING OBJECTORS’
ORAL MOTION FOR LEAVE TO SEEK
DISCOVERY

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Pursuant to the Court’s July 26, 2011 Order Preliminarily Approving Settlement, Providing

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for Notice and Scheduling Hearing (“Preliminary Approval Order,” ECF No. 447), the Court held a

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fairness hearing (“Final Approval Hearing”) on October 27, 2011 on Lead Plaintiffs’ Motion for

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Final Approval of Class Action Settlement (ECF No. 451) and Motion for Attorneys’ Fees and

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Reimbursement of Litigation Expenses (ECF No. 452). The Preliminary Approval Order provided

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that any Class Member who timely served proper written objections would be given the

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opportunity to be heard at the Final Approval Hearing and to show cause why the proposed

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Settlement should or should not be approved as fair, reasonable, adequate, and in the best interests

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of the Settlement Class, or why Judgment should or should not be entered thereon. See ECF No.

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447 ¶ 13; see also Fed. R. Civ. P. 23(e)(5).

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Only two Class Members filed an objection to the Settlement. Neuberger Berman Europe,

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Ltd., as Agent for Sealink Funding, Ltd., and Bayerische Landesbank (“Objectors”) object solely

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on grounds that the Settlement’s release is vague and does not clearly disavow release of
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Case No.: 09-CV-01376-LHK
ORDER DENYING OBJECTORS’ ORAL MOTION FOR LEAVE TO SEEK DISCOVERY

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contractual representation and warranty claims allegedly held by the Offerings’ trusts—which are

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indisputably not Class Members—against various affiliates of Wells Fargo, and which are

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allegedly worth up to $1.2 billion. Objectors do not contend that these claims are unfairly released

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by the Settlement; rather, “in an abundance of caution,” they seek an order “clarifying that the

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Settlement does not intend to, and does not, compromise in any fashion the potential contractual

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representation and warranty claims belonging to the Offerings’ trusts.” ECF No. 460 at 4.

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Objectors were given the opportunity to be heard at the Final Approval Hearing.

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The Court declines to require additional “clarifying” language. Objectors have not
identified what specific representations and warranties were purportedly breached, and to the

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United States District Court
For the Northern District of California

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Court’s knowledge, no such claims have yet been asserted. In the face of nothing more than

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unidentified and purely hypothetical “potential” claims held by the Offerings’ trusts, such

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clarifying language would amount to an advisory opinion, which is generally disfavored. See, e.g.,

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Cicero v. DirecTV, Inc., 2010 WL 2991486, at *7-8 (C.D. Cal. July 27, 2010) (refusing to address

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whether particular claims fell within the release because to do so would involve “rendering an

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advisory opinion”); Larson v. Sprint Nextel Corp., 2010 WL 234934, at *15-16 (D.N.J. Jan 15,

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2010) (rejecting objection seeking to have court declare release ineffective as to certain potential

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claims, explaining that “such matters are not presently before this Court and, therefore, will not be

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addressed at this juncture”); In re AOL Time Warner ERISA Litig., 2006 WL 2789862, at *12

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(S.D.N.Y. Sep. 27, 2006) (declining to rule on whether objector’s state court claims would be

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released by the settlement because the “facts necessary for a resolution of this question are not

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before the Court”).

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Moreover, the Court finds the scope of the Settlement’s release language proper. The

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Release applies only to Class Members, which both Objectors and the Parties alike agree the Trusts

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are not, and releases only Class Members’ “Settled Claims,” which are limited to claims “that were

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asserted, could have been asserted, or that arise out of the same transactions or occurrences as the

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claims that were asserted, in the action.” See Stip. ¶ 1(ll). The Settlement’s release language is

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similar to language previously approved by the Ninth Circuit and by other courts in this District.

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See, e.g., Class Plaintiffs v. City of Seattle, 955 F.2d 1268, 1287 (9th Cir. 1992) (“The weight of
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Case No.: 09-CV-01376-LHK
ORDER DENYING OBJECTORS’ ORAL MOTION FOR LEAVE TO SEEK DISCOVERY

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authority holds that a federal court may release not only those claims alleged in the complaint, but

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also a claim based on the identical factual predicate as that underlying the claims in the settled

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class action even though the claim was not presented and might not have been presentable in the

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class action.” (internal quotation marks omitted)); In re Connetics Corp. Sec. Litig., Case No. 07-

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02940-SI (N.D. Cal.) (Final Judgment and Order of Dismissal with Prejudice dated Oct. 9, 2009),

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ECF No. 199 (approving similar release language, see ECF No. 190-2); In re Maxim Integrated

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Prods., Inc. Sec. Litig., Case No. C-08-00832-JW (N.D. Cal.) (Final Judgment and Order of

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Dismissal with Prejudice dated Sep. 29, 2010), ECF No. 294 (same, see ECF No. 271). The Court

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therefore does not find Objectors’ objection to be a proper basis for withholding final approval of

United States District Court
For the Northern District of California

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the Settlement.
Objectors were given the opportunity to be heard at the Final Approval Hearing, and at the

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end of the hearing, orally moved for leave to seek discovery from the parties relating to the content

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of their settlement negotiations for the purpose of proving that the alleged contractual

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representation and warranty claims belonging to the Offerings’ trusts were not contemplated as part

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of this suit or its settlement.

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At the outset, the Court notes that Objectors waived their discovery request by failing to

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raise it at the time they filed their objection. However, even if Objectors had timely filed their

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request, the Court does not find that they are entitled to the discovery they seek. “Class members

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who object to a class action settlement do not have an absolute right to discovery.” Jaffe v.

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Morgan Stanley & Co., 2008 WL 346417 at *2 (N.D. Cal. Feb. 7, 2008) (Henderson, J.); accord

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Wixon v. Wyndham Resort Dev. Corp., 2011 WL 3443650 at *2 (N.D. Cal. Aug. 8, 2011) (White,

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J.); Hemphill v. San Diego Ass’n of Realtors, Inc., 225 F.R.D. 616, 619 (S.D. Cal. 2004). “While

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objectors are entitled to meaningful participation in the settlement proceedings, and leave to be

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heard, they are not automatically entitled to discovery,” particularly not when discovery would

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unduly burden the parties or cause unnecessary delay. Jaffe, 2008 WL 346417 at *2. In

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determining whether to grant an objector’s request for discovery, courts generally consider three

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factors: (1) the nature and amount of previous discovery; (2) whether there is a reasonable basis for

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Case No.: 09-CV-01376-LHK
ORDER DENYING OBJECTORS’ ORAL MOTION FOR LEAVE TO SEEK DISCOVERY

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the discovery requests; and (3) the number and interests of objectors. See Wixon, 2011 WL

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3443650 at *2 (citing Hemphill, 225 F.R.D. at 620 (internal citations omitted)).

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Here, all three factors weigh against granting Objectors leave to seek discovery. First, the
parties engaged in extensive discovery in an adversarial setting before reaching the proposed

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Settlement. Second, Objectors fail to identify a reasonable basis for requiring the parties to

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disclose the highly sensitive contents of their settlement negotiations. “Settlement negotiations

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involve sensitive matters,” and therefore “discovery of settlement negotiations is proper only where

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the party seeking it lays a foundation by adducing from other sources evidence indicating that the

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settlement may be collusive.” Lobatz v. U.S. W. Cellular of Cal., Inc., 222 F.3d 1142, 1148 (9th

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United States District Court
For the Northern District of California

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Cir. 2000) (internal quotation marks, citations, and alterations omitted); see also Hemphill, 225

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F.R.D. at 620 (“[D]iscovery of evidence pertaining to settlement negotiations is appropriate only in

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rare circumstances.”). This Settlement was the product of a hard-fought case litigated for over two

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years. Objectors have made no allegation of suspected collusion between the parties. Finally, only

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two Class Members of the more than 7,000 that received Court-approved notices filed an objection,

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and their objection asserts not their own interests as Class Members, but rather the interests of the

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Offerings’ trusts, which, as previously discussed, both Objectors and the Parties agree are not

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members of the Settlement Class.

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The Court finds that Objectors have had a meaningful opportunity to be heard, the Court

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has sufficient facts before it to evaluate the Settlement, and discovery would unduly burden the

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parties and cause unnecessary delay. Accordingly, Objectors’ requests for clarifying language in

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the Settlement release terms and for leave to seek discovery regarding the Parties’ settlement

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negotiations are DENIED.

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IT IS SO ORDERED.

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Dated: November 14, 2011

_________________________________
LUCY H. KOH
United States District Judge

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Case No.: 09-CV-01376-LHK
ORDER DENYING OBJECTORS’ ORAL MOTION FOR LEAVE TO SEEK DISCOVERY