Acosta v. Saakvitne et al
Filing
453
ORDER GRANTING MOTION FOR ENTRY OF CONSENT JUDGMENT BETWEEN THE GOVERNMENT AND THE SAAKVITNE DEFENDANTS BUT DELAYING ENTRY OF CONSENT JUDGMENT; ORDER DENYING MOTION FOR ENTRY OF BAR ORDER re 397 , 399 .The court grants the request for en try of the Proposed Consent Order and Judgment but denies without prejudice the request for entry of the Proposed Bar Order. The court, however, will not enter the Proposed Consent Judgment and Order at this time. Instead, it looks for guidance from the Government and the Saakvitne Defendants. If the parties wish to submit an Amended Proposed Bar Order that clearly protects the Nonsettling Defendants' rights to bring independent breach of contract and tort claims arising out of the same fac ts, then this court's analysis of potential prejudice may differ. The parties may, of course, file a second motion for entry of a bar order once the liability of all of the Defendants has been established. Signed by JUDGE SUSAN OKI MOLLWAY on 4/22/2021. (cib)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
MARTY WALSH, Secretary of
Labor, United States
Department of Labor,
)
)
)
)
Plaintiff,
)
)
vs.
)
)
NICHOLAS L. SAAKVITNE, an
)
individual; NICHOLAS L.
)
SAAVITNE, A LAW CORPORATION, )
a California Corporation;
)
BRIAN BOWERS, an individual; )
DEXTER C. KUBOTA, an
)
individual; BOWERS + KUBOTA
)
CONSULTING, INC., a
)
corporation; BOWERS + KUBOTA )
CONSULTING, INC. EMPLOYEE
)
STOCK OWNERSHIP PLAN,
)
)
Defendants.
)
_____________________________ )
CIVIL NO. 18-00155 SOM-WRP
ORDER GRANTING MOTION FOR
ENTRY OF CONSENT JUDGMENT
BETWEEN THE GOVERNMENT AND
THE SAAKVITNE DEFENDANTS BUT
DELAYING ENTRY OF CONSENT
JUDGMENT;
ORDER DENYING MOTION FOR
ENTRY OF BAR ORDER
ORDER GRANTING MOTION FOR ENTRY OF CONSENT JUDGMENT BETWEEN THE
GOVERNMENT AND THE SAAKVITNE DEFENDANTS BUT DELAYING ENTRY OF
CONSENT JUDGMENT; ORDER DENYING MOTION FOR ENTRY OF BAR ORDER
I.
INTRODUCTION.
Brian Bowers and Dexter C. Kubota operated Bowers +
Kubota Consulting, Inc. (the “Company”).
Bowers and Kubota
created an Employee Stock Ownership Plan called Bowers + Kubota
Consulting, Inc. Employee Stock Ownership Plan (the “ESOP”),
which allegedly paid more money for ownership of the Company than
it was worth.
In relevant part, the Secretary of Labor (the
“Government”), proceeding under the Employee Retirement Income
Security Act of 1974 (“ERISA”), is suing Bowers and Kubota, the
Company, the ESOP, Nicholas L. Saakvitne (the now-deceased first
trustee of the ESOP whose successor is Sharon L. Heritage), and
the first trustee’s law firm, alleging that the sale to the ESOP
improperly benefitted Bowers and Kubota to the detriment of the
ESOP.
The Government has settled its claims against Heritage
and Saakvitne’s law firm (collectively, “Saakvitne Defendants”)
and seeks to have this court enter a Proposed Consent Order and
Judgment.
That document is contingent on the filing of a
Proposed Bar Order.
The Proposed Bar Order prohibits Bowers,
Kubota, the Company, and the ESOP (the “Nonsettling Defendants”)
from asserting claims against the Saakvitne Defendants.
The
court grants the unopposed motion for entry of the Proposed
Consent Order and Judgment.
However, the court denies the motion
for entry of the Proposed Bar Order.
Because the motion for
entry of the Proposed Consent Order and Judgment is contingent on
the entry of the Proposed Bar Order, the court will not enter the
Proposed Consent Order and Judgment absent an express request for
such entry from the Government and the Saakvitne Defendants
notwithstanding the absence of the Proposed Bar Order.
II.
BACKGROUND.
The Government has settled its claims against the
Saakvitne Defendants for what remains of a $3,000,000 insurance
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policy.
See ECF No. 398, PageID # 9002 (stating that there is “a
$3 million wasting insurance policy”).
Insurance proceeds from
the $3 million policy are being used to pay for this litigation,
meaning that the amount of insurance proceeds available to pay
for any successful claim will decrease as litigation costs
increase.
See id.
According to Paragraph C of the Proposed Consent Order
and Judgment, the Saakvitne Defendants and the Government agree
to use the insurance proceeds to pay for the following: $50,000
for legal costs and $1,800,000 plus what ever remains of the
insurance policy to settle the claims.
According to Paragraphs
II(A) and (C) of the agreement, $1,458,000 will be paid to the
“ESOP” and $292,000 will be paid to the Government as a penalty.
According to Paragraph II(E) of the agreement, 80 percent of any
remaining insurance policy proceeds and any unused money set
aside for attorneys’ fees will be paid to the ESOP, and 20
percent to the Government as a penalty.
According to Paragraphs III(A) and (C) of the Proposed
Consent Order and Judgment, the Saakvitne Defendants agree:
1) that they have not and will not seek contribution or
indemnification from the Company or the ESOP for money paid to
settle the claims; and 2) that they will not assert any claims
against the Company or the ESOP arising or accruing before the
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date of the Consent Order and Judgment relating to the stock
purchase agreement at issue in this case.
Paragraph IV(A) of the Proposed Consent Order and
Judgment provides that it is a full, final, and complete
resolution of the claims between the Government and the Saakvitne
Defendants.”
Paragraph IV(D) of the Proposed Consent Order and
Judgment further provides, “Nothing in this Consent Order and
Judgment shall preclude the [Government] from initiating or
continuing any audit or investigation, or from pursuing any
claims or actions, against any entities or persons relating to
any ERISA-covered plan.”
preserved.”
Instead, those claims are “expressly
Paragraph VII(B) similarly states, “Nothing in this
Consent Order and Judgment shall limit or impair the
[Government’s] rights of claims for recovery and equitable relief
against Defendant Brian J. Bowers, Defendant Dexter C. Kubota, .
. . [the Company, and the ESOP,] or its insurers, including
rights to attorney’s fees and costs in the lawsuit.”
In
Paragraph III(D), the Saakvitne Defendants agree to cooperate
with the Government with respect to the litigation in this
matter.
According to Paragraph B, the Consent Order and
Judgment is contingent on the entry of the Proposed Bar Order.
Paragraph 1 of the Proposed Bar Order seeks to bar and
enjoin the Nonsettling Defendants from asserting claims of
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contribution and indemnification that arise from or in any way
relate to the claims released in the Consent Order and Judgment.
Paragraph 2 of the Proposed Bar Order similarly bars claims by
the Saakvitne Defendants against the Nonsettling Defendants.
Paragraph 3 of the Proposed Bar Order is intended to
alleviate any prejudice to the Nonsettling Defendants by
providing that, if the Government recovers damages arising from
or relating to the released claims, any judgment “shall be
reduced by an amount equal to the greater of (a) the amount that
represents the proportional share, attributable to the Saakvitne
Defendants, of losses or damages, if any, or (b) the total
Restoration Amount that the Saakvitne Defendants are required to
restore pursuant to the Consent Judgment.”
Paragraph 5 of the Proposed Bar Order provides that it
shall not be construed as indicating that ERISA provides
contribution or indemnity rights among fiduciaries.
III.
ANALYSIS.
A.
The Court Grants the Motion for Entry of the
Consent Judgment and Order But Denies the Motion
for Entry of the Bar Order.
Bowers and Kubota do not object to the entry of the
Proposed Consent Order and Judgment, except insofar as it
contemplates entry of the Proposed Bar Order, which they oppose
in part.
See ECF No. 416, PageID # 9262.
No other party opposes
the entry of the Proposed Consent Order and Judgment.
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Thus, the
court grants as unopposed the motion for entry of the Proposed
Bar Order and Judgment.
However, the court delays entry of the
Proposed Consent Order and Judgment pending guidance from the
Government and the Saakvitne Defendants as to whether they
continue to seek entry of that document in the face of this
court’s decision declining to enter the Proposed Bar Order.
The Ninth Circuit recognizes “an overriding public
interest in settling and quieting litigation.”
Franklin v.
Kaypro Corp., 884 F.2d 1222, 1229 (9th Cir. 1989).
Nevertheless,
it notes that:
obtaining a settlement in multi-party
litigation may be quite complex. The facts
specified in the pleadings may give rise to
cross claims or counterclaims based on
contribution or indemnity. In such cases,
settling defendants cannot obtain finality
unless a “bar order” is entered by the court.
In essence, a bar order constitutes a final
discharge of all obligations of the settling
defendants and bars any further litigation of
claims made by nonsettling defendants against
settling defendants.
Id. at 1225.
Without a bar order, a settling defendant in a
multi-defendant case would be “courting disaster.”
Id. at 1229.
Notwithstanding the “overriding public interest” in settling
claims, this court must ensure that partial settlements do not
prejudice nonsettling defendants.
A court may issue a bar order with respect to
contribution and indemnity claims when: (1) a settlement is in
good faith and (2) the nonsettling parties are not prejudiced,
6
because, for example, a “proportionate share” approach is used to
determine the liability of the nonsettling parties for
contribution and indemnity claims.
See In re Consol. Pinnacle W.
Secs. Litig., 51 F.3d 194, 196-197 (9th Cir. 1995) (examining
whether “the Nonsettlors are left in the same position they would
have been in if the other parties had not settled” (quotation
marks and citation omitted)); accord Renfrew v. Toms, 109 F.
App’x 143, 146 (9th Cir. 2004) (“Bar orders are appropriate so
long as the court finds that (1) the settling defendants are
settling in good faith, and (2) a ‘proportionate share’ approach
is used at trial to determine the liability of non-settling
defendants.”); see also Waller v. Fin. Corp. of Am., 828 F.2d
579, 583 (9th Cir. 1987) (stating that nonsettling parties lack
standing to challenge a partial settlement unless they can
demonstrate “some form of legal prejudice as a result of the
settlement”).
In evaluating partial settlements, the Ninth Circuit
has rejected an offset approach to alleviating prejudice.
that approach,
the entire amount of damage is determined at
a full trial, the settlement amount is
deducted from that amount, and the
nonsettling defendants are required to pay
the remainder.” Id. at 1230. Plaintiffs may
be tempted to engage in collusion with
certain defendants. By accepting a low
partial settlement, plaintiffs would be able
to fund further litigation with no diminution
of the total amount eventually received.
7
Under
Similarly, plaintiffs could effect low
settlements with defendants who had limited
resources, and thereby force wealthier defendants to pay more than
Id.
The Ninth Circuit noted that, under the offset approach, a
good faith hearing would require a pretrial evidentiary hearing
that would negate the benefits of settling. Id.
Additionally, a
settling defendant might settle for less because the plaintiff
would not have to fully litigate the matter.
In that case, under
the offset approach, nonsettling defendants would be forced to
pay for the discount.
Id.
Instead of the offset approach, the Ninth Circuit has
approved of a proportional approach where
a partial settlement [is] approved by the
district court under Rule 23. Nonsettling
defendants are then barred from further
rights of contribution from the settling
defendants. At trial, the jury is asked not
only to determine the total dollar damage
amount, but also the percentage of
culpability of each of the nonsettling
defendants as well as that of the settling
defendants. Nonsettling defendants as a
whole will then be required to pay the
percentage of the total amount for which they
are responsible. The nonsettling defendants
will be jointly and severally liable for that
percentage, and will continue to have rights
of contribution against one another.
Id.
Because the right to contribution is an equitable doctrine,
apportioning damages on the basis of relative culpability is
appropriate.
Id.
The proportional approach serves “the
statutory goal of punishing each wrongdoer, the equitable goal of
8
limiting liability to relative culpability, and the policy goal
of encouraging settlement.”
Id.
In the present case, there is no contention that the
settlement was not in good faith.
Accordingly, this court
examines whether the Nonsettling Defendants are or are not
prejudiced.
See In re Consol. Pinnacle W. Secs. Litig., 51 F.3d
at 196-197.
With respect to potential contribution claims,
Paragraph 3 of the Proposed Bar Order provides that any judgment
in the Government’s favor against the Nonsettling Defendants
“shall be reduced by an amount equal to the greater of (a) the
amount that represents the proportional share, attributable to
the Saakvitne Defendants, of losses or damages, if any, or
(b) the total Restoration Amount that the Saakvitne Defendants
are required to restore pursuant to the Consent Judgment.”
For
purposes of contribution, this apportionment protects the
Nonsettling Defendants by limiting their liability, assuming the
scheduled nonjury trial results in a proportionate share
determination.
The Nonsettling Defendants seek to preserve the
possibility of filing future indemnity claims.
Courts recognize
not only express contracts of indemnity but also equitable
implied indemnity when indemnification is implied from a contract
that does not expressly mention indemnity.
See Singh v. John
Gargas Landslide Repairs, 588 F. Supp. 1359, 1362 (C.D. Cal.
9
1984).
Courts also recognize that a party may have a right to
indemnity “when justice demands there be the right.”
Schweber
Elecs. v. Nat'l Semiconductor Corp., 174 Ariz. 406, 410, 850 P.2d
119, 123 (Ct. App. 1992) (citing Restatement of Restitution,
section 76 (1937)).
At the hearing on the present motions,
Bowers and Kubota indicated that there is no express contract of
indemnity.
Bowers and Kubota’s Opposition to the motions does
not claim that they have indemnity rights that would be
extinguished by the Proposed Bar Order.
They also failed to
identify circumstances from which an indemnity agreement might be
implied or equitably justified.
Given the breadth of the Proposed Bar Order, however,
the court is concerned that it potentially prejudices the
Nonsettling Defendants by encompassing independent claims, not
just conventional claims for contribution and indemnity.
Accordingly, this court is not persuaded that the Nonsettling
Defendants “are left in the same position they would have been in
if the other parties had not settled.”
In re Consol. Pinnacle W.
Secs. Litig., 51 F.3d at 196-197 (quotation marks and citation
omitted).
In re Heritage Bond Litigation, 546 F.3d 667 (9th Cir.
2008), is instructive on this point, even though it arose under
different circumstances.
That case involved the settlement of a
complex securities fraud case in which bar orders issued
prohibiting nonsettling defendants from asserting future claims
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against settling defendants “arising out of or related to . . .
any of the transactions or occurrences alleged.”
Id. at 670.
The Ninth Circuit held that the bar orders were improperly broad
and that, under the Private Securities Litigation Reform Act of
1995 and California Civil Code of Civil Procedure section 877.6,
“the orders should have been limited to claims for contribution
and indemnity or disguised claims for such relief.”
Id.
Instead, the bar orders in the case were impermissibly broad
because they also barred independent claims, which the Ninth
Circuit defined as “those where the injury is not the
non-settling defendant’s liability to the plaintiff.”
671; see also id. at 677-79.
Id. at
Focusing on whether independent
claims were barred, the Ninth Circuit ruled that only claims of
contribution and indemnity (and disguised claims of contribution
and indemnity) could fall within a bar order.
Id. at 679.
Paragraph 1 of the Proposed Bar Order bars and enjoins
the Nonsettling Defendants
from presenting in this action, or in any
other action, proceeding, administrative
agency or any other forum, against the
Saakvitne Defendants any claim for
contribution or indemnification, however
denominated and regardless of the
allegations, facts, law, theories, or
principles, that arise from or relate in any
way to the Secretary’s claims released in the
Consent Judgment.
ECF No. 399-1, PageID # 9023.
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The express terms of the Proposed Bar Order invite
disputes about whether a future claim is limited to one for
contribution and indemnity, or whether the future claim is an
independent claim.
The Proposed Bar Order purports to cover
claims “however denominated and regardless of the allegations,
facts, law, theories, or principles, that arise from or relate in
any way to” the claims being settled.
To the extent the Proposed
Bar Order seeks to draw within the purview of contribution and
indemnity claims even independent claims, it does not leave the
Nonsettling Defendants “in the same position they would have been
in if the other parties had not settled.”
In re Consol. Pinnacle
W. Secs. Litig., 51 F.3d at 196-197 (quotation marks and citation
omitted); In re Heritage Bond Litig., 546 F.3d at 679-80.
It
risks extinguishing Nonsettling Defendants’ claims without
compensation.
In declining to enter the Proposed Bar Order, the court
is not adopting Bowers and Kubota’s contention that the Proposed
Bar Order affects rights under a tolling agreement they entered
into with the Saakvitne Defendants.
The tolling agreement was
intended to stop the running of the limitations period for
claims.
The breach of the tolling agreement is the only express
contract specifically identified in Bowers and Kubota’s
Opposition.
See ECF No. 416, PageID # 9264.
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However, Bowers and
Kubota conceded at the hearing on the present motions that the
tolling agreement is no longer in effect.
Instead, at the hearing on the present motions, the
Nonsettling Defendants mentioned for the first time that
Saakvitne and/or his law firm had a contractual duty to maintain
$3 million in insurance, and that using insurance proceeds to
settle this case deprives the Nonsettling Defendants of their
contractual right to have such insurance proceeds available for
claims they may assert.
Nonsettling Defendants did not point the
court to anywhere in the record that this contractual provision
appears.
This court therefore cannot at this point determine
whether the provision indeed required the maintenance of $3
million of insurance running in favor of the Nonsettling
Defendants.
The Saakvitne Defendants, for their part, did not
protest that there was no such contractual right.
A claim relating to the breach of an alleged
contractual requirement that $3 million in insurance be
maintained may or may not be an independent claim.
At the
hearing on the motion seeking entry of the Proposed Bar Order,
this court pressed the Nonsettling Defendants as to the nature of
claims that they were concerned about preserving.
They responded
with reference to possible legal malpractice claims.
With no
cross-claims or third-party claims filed in this action, they
also mentioned that, if they are ultimately found not liable at
13
all in the present lawsuit, they may commence an entirely new
action against the Saakvitne Defendants seeking reimbursement of
attorneys’ fees and costs incurred in this action.
What the
court is concerned about is the very real possibility that, as
presented to the court, the Proposed Bar Order will give rise to
new litigation about whether specific claims are independent or
are for contribution and indemnity.
This court realizes that it
could enter the Proposed Bar Order and leave it to a future case
to resolve that issue.
But this court sees no reason to put its
stamp of approval on a provision that so loudly cries out for
further lawsuits.
The burden is on the parties seeking the
Proposed Bar Order to establish that the Nonsettling Defendants
are “left in the same position they would have been in if the
other parties had not settled.”
In re Consol. Pinnacle W. Secs.
Litig., 51 F.3d at 196-197 (quotation marks and citation
omitted); In re Heritage Bond Litig., 546 F.3d at 679-80.
The
movants do not meet their burden.
Under these circumstances, the court declines to enter
the Proposed Bar Order notwithstanding the policy of this court
to promote settlement before trial.
This denial is without
prejudice to another motion based on a different proposed bar
order or determination of liability such that the scope of any
bar is more clearly identified.
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IV.
CONCLUSION.
The court grants the request for entry of the Proposed
Consent Order and Judgment but denies without prejudice the
request for entry of the Proposed Bar Order.
The court, however,
will not enter the Proposed Consent Judgment and Order at this
time.
Instead, it looks for guidance from the Government and the
Saakvitne Defendants.
If the parties wish to submit an Amended
Proposed Bar Order that clearly protects the Nonsettling
Defendants’ rights to bring independent breach of contract and
tort claims arising out of the same facts, then this court’s
analysis of potential prejudice may differ.
The parties may, of
course, file a second motion for entry of a bar order once the
liability of all of the Defendants has been established.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, April 22, 2021.
/s/ Susan Oki Mollway
Susan Oki Mollway
United States District Judge
Stewart v. Heritage, et al., Civ. No. 18-00155 SOM-WRP; ORDER GRANTING MOTION FOR
ENTRY OF CONSENT JUDGMENT BETWEEN THE GOVERNMENT AND THE SAAKVITNE DEFENDANTS BUT
DELAYING ENTRY OF CONSENT JUDGMENT; ORDER DENYING MOTION FOR ENTRY OF BAR ORDER
15
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