Betker v. U.S. Trust Corp., N.A. , 546 F.3d 667 ( 2008 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: HERITAGE BOND LITIGATION, 
RUSSEL BETKER; VIRGINIA BETKER;
BETKER PARTNERS ONE, LP; BETKER
PARTNERS THREE, LP; LORI
O’SHEA; MICHAEL O’SHEA,
Plaintiffs-Appellees,
v.
U.S. TRUST CORP., N.A., et al.,
Defendant-Appellee, No. 05-55072
and  D.C. No.
CV-01-05752-DT
BRUCE R. TALLEY,
Defendant-Appellant,
VALUATION COUNSELORS GROUP,
INC., doing business as CBIZ
Valuation Inc., formerly known as
CBIZ Valuation Counselors,
Defendant-Appellee,
ROBERT A. KASIRER; DEBRA
KASIRER,
Defendants-Appellees.

13951
13952 IN RE: HERITAGE BOND LITIGATION
In re: HERITAGE BOND LITIGATION, 
RUSSEL BETKER; VIRGINIA BETKER;
BETKER PARTNERS ONE, LP; BETKER
PARTNERS THREE, LP; LORI
O’SHEA; MICHAEL O’SHEA,
Plaintiffs-Appellees,
No. 05-55371
v.
U.S. TRUST CORP., N.A., et al.,  D.C. No.
CV-01-05752-DT
Defendant-Appellee,
OPINION
and
BRUCE R. TALLEY,
Defendant-Appellant,
ROBERT A. KASIRER; DEBRA
KASIRER; CBIZ VALUATION GROUP;
CENTURY BUSINESS SVC,
Defendants-Appellees.

Appeal from the United States District Court
for the Central District of California
Dickran M. Tevrizian, District Judge, Presiding
Argued and Submitted
May 6, 2008—Pasadena, California
Filed October 1, 2008
Before: Raymond C. Fisher and Richard A. Paez,
Circuit Judges, and James L. Robart,* District Judge.
*The Honorable James L. Robart, United States District Judge for the
Western District of Washington, sitting by designation.
IN RE: HERITAGE BOND LITIGATION 13953
Opinion by Judge Paez
IN RE: HERITAGE BOND LITIGATION 13955
COUNSEL
Robert Scott Dreher and Matthew R. Miller (argued), Dreher
Law Firm, San Diego, California, for Bruce Talley, appellant.
Daniel M. Harkins, Feldhake, August & Roquemore, Irvine,
California, for Russel Betker, Virginia Betker, Betker Partners
One, LP, Betker Partners Three, LP, Lori O’Shea, and
Michael O’Shea, appellees.
G. Cresswell Templeton, III, Hill, Farrer & Burrill LLP, Los
Angeles, California, for U.S. Trust Corp., N.A., appellee.
Gary Kurtz, Law Offices of Gary Kurtz, Woodland Hills, Cal-
ifornia, for Robert A. Kasirer and Debra Kasirer, appellees.
13956 IN RE: HERITAGE BOND LITIGATION
Garland Kelley, Irell & Manella, LLP, Los Angeles, Califor-
nia, for CBIZ and Century Business Services, appellees.
OPINION
PAEZ, Circuit Judge:
This case arises from the settlement of a complex of securi-
ties fraud cases involving the sale of municipal bonds for ren-
ovation and construction of health care facilities. The
litigation was commonly referred to as the In re Heritage
Bond Litigation. The district court ultimately approved multi-
ple settlement agreements between different plaintiffs and
defendants pursuant to Federal Rule of Civil Procedure 23
(“Rule 23”), California Code of Civil Procedure section 877.6
(“section 877.6”), and the Private Securities Litigation
Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4. In
approving the settlements, the district court issued five bar
orders that barred non-settling defendants from bringing
against settling defendants any future claims “arising out of or
related to . . . any of the transactions or occurrences alleged.”
Appellant Bruce Talley (“Talley”), a non-settling defendant,
objected to the scope of the bar orders on the ground that he
sought to pursue independent state law claims against several
of the settling defendants.
The district court, applying the “interrelatedness” test from
Wisconsin Investment Board v. Ruttenberg, 300 F. Supp. 2d
1210 (N.D. Ala. 2004) (following In re U.S. Oil & Gas Liti-
gation, 967 F.2d 489 (11th Cir. 1992)), determined that Tal-
ley’s claims were related to and arose out of the litigation
involving the Heritage Bonds and, in the five bar orders, spe-
cifically barred his claims. In this appeal, Talley challenges
the scope of the bar orders and argues that under federal com-
mon law, the PSLRA, and section 877.6, the orders should
have been limited to claims for contribution and indemnity or
IN RE: HERITAGE BOND LITIGATION 13957
disguised claims for such relief.1 Talley concedes that any
claims for indemnity, contribution, and comparative fault
were appropriately barred by the orders at issue here. He con-
tests the bar orders only to the extent they bar his allegedly
independent state law claims. Appellees2 argue that the dis-
trict court has broad authority to issue bar orders and that this
court should apply the “interrelatedness” test to determine that
Talley’s state law claims arise from the same core facts as
those extinguished by the district court’s approval of the set-
tlement agreements.
We have jurisdiction under 28 U.S.C. § 1291, and we
vacate the bar orders and remand for modification. In so
doing, we adopt the approach of the Second Circuit in Gerber
v. MTC Electronics Technologies Co., 329 F.3d 297 (2d Cir.
2003), in limiting the scope of a bar order issued as part of a
securities fraud class action settlement.3 We hold that bar
1
Talley also requests that we take judicial notice of certain joint stipula-
tions made by the settling parties and approved by the district court in the
underlying In re Heritage Bond Litigation. Because these documents arise
from proceedings that have a direct relation to this appeal, we grant the
request. See Fed. R. Evid. 201; U.S. ex rel. Robinson Rancheria Citizens
Council v. Borneo (“Borneo”), 971 F.2d 244, 248 (9th Cir. 1992) (“[This
court] may take notice of proceedings of other courts, both within and
without the federal judicial system, if those proceedings have a direct rela-
tion to matters at issue.”).
2
Appellees include Russel Betker; Virginia Betker; Betker Partners
One, LP; Betker Partners Three, LP; Lori O’Shea; Michael O’Shea; U.S.
Trust Corp., N.A., et al.; Robert A. Kasirer; Debra Kasirer; CBIZ; Century
Business Services; and Valuation Counselors Group, Inc. Although Valua-
tion Counselors Group, Inc. is not listed on this court’s docket, they were
part of Talley’s Notice of Appeal and filed a supplemental brief in this
appeal.
3
As discussed, infra at 13967, although the PSLRA had become effec-
tive by the time the Second Circuit issued its decision, it was not in effect
at the time the parties brought the underlying action. Therefore, the Ger-
ber court analyzed the challenged bar order under federal common law
rather than the PSLRA. Gerber, 329 F.3d at 309-10. We agree with the
Eleventh Circuit, however, that Gerber is relevant to the interpretation of
the PSLRA’s contribution bar, which essentially codified federal common
law allowing for issuance of a bar order as part of a securities fraud class
action settlement. See AAL High Yield Bond Fund v. Deloitte & Touche,
LLP, 361 F.3d 1305, 1311 (11th Cir. 2004).
13958 IN RE: HERITAGE BOND LITIGATION
orders issued pursuant to the PSLRA or section 877.6 may
only bar claims for contribution and indemnity or disguised
claims for such relief. Independent claims—those where the
injury is not the non-settling defendant’s liability to the
plaintiff—may not be barred under either federal law or sec-
tion 877.6. See Gerber, 329 F.3d at 306 (federal common
law); Cal-Jones Props. v. Evans Pac. Corp., 264 Cal. Rptr.
737, 739 (Cal. Ct. App. 1989) (section 877.6). The bar orders
issued by the district court here do not pass muster under the
PSLRA or section 877.6, and because they are impermissibly
broad, they must be vacated.
I. Background
The underlying litigation in this case involved investor
plaintiffs’ securities fraud claims against the individuals
responsible for creating, operating, marketing and selling Her-
itage Bonds; certain defendants’ cross-claims against each
other for indemnity and contribution; and Talley’s separate
tort claims against certain co-defendants—his employers and
the creators and operators of the Heritage Bonds.
In the mid-1990s, defendant Robert Kasirer joined with
several other entities to develop a series of fraudulent munici-
pal bond offerings (the Heritage Bonds), ostensibly to finance
or renovate healthcare facilities in several states. See In re
Heritage Bond Litigation, 289 F. Supp. 2d 1132, 1137 (C.D.
Cal. 2003). The principals of the Heritage Bonds offerings
included Talley’s employer, Miller & Schroeder, Inc., which
was the underwriter for the offerings. See id. In 1999, inves-
tors discovered that the Heritage Bonds principals had been
stealing and commingling the bond investors’ funds, that the
Heritage Bonds principals had lied about their backgrounds
and the nature of the healthcare facilities that were the sub-
jects of the bond offerings, and that Miller & Schroeder’s
principals and lawyers had known of these facts. See id. at
1140.
IN RE: HERITAGE BOND LITIGATION 13959
The first lawsuit was filed in June 2001 in the United States
District Court for the Central District of California, Case No.
01-CV-5752, captioned Betker Partners One, et al. v. U.S.
Trust Company, et al. (“Betker lawsuit”).4 The Betkers were
investors in the Heritage Bonds. Their claims included securi-
ties fraud and control person liability under the Securities
Exchange Act of 1934 and violations of the Securities Act of
1933. They also alleged state law claims for breach of fidu-
ciary duty, violations of the California Corporations Code,
misrepresentation, breach of contract, and negligence.
In August 2002, the Betker lawsuit and other related class
action lawsuits that had been filed around the country were
consolidated by the Judicial Panel on Multi-District Litigation
and transferred to the Central District of California under the
title of In re Heritage Bond Litigation, Case No. 02-ML-1475.
See 28 U.S.C. § 1407. Talley was a defendant only in the Bet-
ker lawsuit. He filed an answer and cross-claims against sev-
eral co-defendants in the consolidated case. His cross-claims
were for indemnity and contribution.
4
Parties to the Betker lawsuit include Russel and Virginia Betker, as
Trustees of the Betker Family Trust; Betker Partners One, LP; Betker Part-
ners Three, LP; Lori O’Shea; Michael O’Shea (the Betker plaintiffs); U.S.
Trust Corp., N.A.; U.S. Trust Company of Texas, N.A.; Bank of New
York, Inc.; Heritage Geriatric Housing Development VII, Inc.; Heritage
Geriatric Housing Development VIII, Inc.; Heritage Geriatric Housing
Development IX, Inc.; Heritage Care of Chicago, Inc.; Heritage Care of
Sarasota, Inc.; Heritage Housing Development, Inc.; Health Care Hold-
ings, LLC; CareContinuum, LLC; Heritage Acceptance Corp.; Affiliated
Metropolitan Contractors, Inc.; Valuation Counselors Group, Inc.; Robert
Kasirer; Jerold Goldstein; Onofrio v. Bertolini; Debra Kasirer, individu-
ally and as Trustee of the Debra Kasirer Trust; Canon Realty Corp; Heri-
tage Housing V, Inc.; BHMC Corp.; JDDJ Holdings, LP; James E.
Iverson; Victor P. Dhooge; John M. Cleary; James F. Dlugosh; Edward J.
Hentges; Kenneth R. Larsen; Jerome E. Tabolich; Steven W. Erickson;
Paul R. Elholm; Joel T. Boehm; Sabo & Green; Coddington Appraisal
Services; Capital Valuation Group; CBIZ (formerly Century Business Ser-
vices); Healthcare Financial Solutions Group, Inc.; and Zelemkofske,
Axelrod & Co., Ltd (the Betker defendants).
13960 IN RE: HERITAGE BOND LITIGATION
In December 2002, Talley filed a complaint in the Califor-
nia Superior Court, County of San Diego, No. GIC 802187,
against many of the Heritage Bonds co-defendants and others,
alleging claims for breach of fiduciary duty, negligence, inter-
ference with economic advantage, avoidance of fraudulent
transfer, unfair or unlawful business practices, constructive
fraud, and violation of California Labor Code section 2802,
and requesting declaratory relief and both economic and
reputational damages.5 He also alleged the same claims for
indemnity and contribution that he had alleged in his answer
in the Betker lawsuit. In August 2003, upon motion by the
defendants, the Superior Court stayed Talley’s case pending
the outcome of the claims against Talley in the In re Heritage
Bond Litigation. In May 2004, this state court case was dis-
missed without prejudice while Talley pursued settlement dis-
cussions with the Betkers.
In October 2004, while settlement discussions with the Bet-
kers were in progress, Talley filed a second state court lawsuit
in the California Superior Court, County of San Diego, Case
No. GIC 836807. This case concerned only Talley’s affirma-
tive claims for damages and did not include the contribution
and indemnity claims that he had previously alleged in his
answer and cross-claims in the Betker lawsuit. While the
instant appeal was pending, Talley’s second state court case
moved forward through the California court system, and all of
his claims were ultimately dismissed pursuant to the bar
orders at issue here. See Talley v. Miller & Schroeder, No.
D048438, 2007 WL 2660059 (not reported in Cal. Rptr. 3d)
(Cal. Ct. App. Sept. 12, 2007). On appeal, “[d]ue to the broad
language of all th[e] Bar orders,” the California Court of
5
In addition to the majority of the Betker defendants, including all of the
Appellees other than the Betkers and the O’Sheas, the defendants named
in Talley’s complaint include: Miller & Schroeder Financial, Inc.; The
Marshall Group, Inc.; Jim Arias; Kenneth Halloran; Jim Morrell; Tom
Nelson; John Peterson; William Sexton; Larry A. Rubin; Virgil Lim; Leo
Dierckman; Berman & Bertolini, Inc.; and Kasirer Family Holdings #4
LLC.
IN RE: HERITAGE BOND LITIGATION 13961
Appeal affirmed the majority of the trial court’s dismissal
orders.6 Id. at *3. The decision allowed Talley to pursue cer-
tain of his claims against U.S. Trust Corporation and U.S.
Trust Company, N.A. (“U.S. Trust”) and Valuation Counsel-
ors Group, Inc. (“Valuation”), but, pursuant to the bar orders
at issue here,7 the superior court, on remand, dismissed the
remaining claims with prejudice as to these two defendants;
Talley did not appeal.8
By February 2005, Talley’s settlement with the Betkers
was finalized, and Talley was dismissed from the In re Heri-
tage Bond Litigation. During this time, other defendants were
also negotiating settlements with the In re Heritage Bond Liti-
6
Appellees urge us to conclude that the state court decision moots this
appeal. We disagree and address this argument, infra.
7
The California Court of Appeal did not address whether the bar orders
applied to U.S. Trust and Valuation because they were not part of the state
court appellate record. The court concluded that, in the absence of the bar
orders, Talley’s state court claims against these defendants could proceed.
See Talley, 2007 WL 2660059, at *24. In so concluding, the court held
that these claims were not subject to claim preclusion or res judicata as a
result of the dismissal of Talley’s indemnity claims in the Betker lawsuit.
Id.8
U.S. Trust and Valuation both request that we take judicial notice of
five documents relating to the state court proceedings. Specifically, U.S.
Trust requests that we take judicial notice of 1) the California Court of
Appeal’s decision in Talley, 2007 WL 2660059; 2) Notice of Ruling on
Defendant the U.S. Trust Defendants’ Demurrer to Plaintiff’s Amended
Complaint, California Superior Court for the County of San Diego, Case
No. GIC 836807, filed and served on February 11, 2008; 3) Notice of
Entry of Order of Dismissal with Prejudice as to the U.S. Trust Defen-
dants, California Superior Court for the County of San Diego, Case No.
GIC 836807, filed and served on February 20, 2008; 4) Order of the Cali-
fornia Court of Appeal, Fourth Appellate District, Case No. D048438
(July 13, 2006); and 5) Order regarding Joint Stipulation to Dismiss the
Betker Plaintiffs’ Sixth Amended Complaint as to Bruce Talley Only and
Dismissal of Bruce Talley’s Cross-Complaint, in Betker v. U.S. Trust Cor-
poration, N.A., et al., U.S. District Court, Central District of California,
Case No. CV 01-5752-DT (Dec. 1, 2004). Valuation’s request is essen-
tially identical. We grant both requests. See Borneo, 971 F.2d at 248.
13962 IN RE: HERITAGE BOND LITIGATION
gation plaintiffs. As part of the settlements that emerged from
these negotiations, each agreement required a good faith set-
tlement determination and bar order pursuant to section 877.6
and a bar order pursuant to the PSLRA. These determinations
were an essential part of the settlement agreements because
they allowed the court to make a finding that the settling party
would pay its fair share of liability to the settling plaintiffs
and, if so, to bar any further obligation by that settling defen-
dant to contribute funds to the settling plaintiffs, either
directly or indirectly by indemnifying another liable party.
See Cal. Civ. Proc. Code § 877.6; PSLRA, 15 U.S.C. § 78u-
4)(f)(7)(A); Tech-Bilt, Inc. v. Woodward Clyde & Assocs.,
698 P.2d 159 (Cal. 1985) (discussing section 877.6); Franklin
v. Kaypro Corp., 884 F.2d 1222, 1231-32 (9th Cir. 1989)
(holding that a bar order in a class action securities fraud case
should bar future claims for contribution to ensure that liabil-
ity is equitably distributed among settling and non-settling
defendants).
In November 2004, defendants BHMC Corporation; Care-
Continuum, LLC; Health Care Holdings, LLC; JDDJ Hold-
ings, LP; Debra Kasirer; and Robert Kasirer (“Kasirer
Defendants”) filed a Motion for Approval of Settlement,
Good Faith Determination and Bar Order in the Betker law-
suit before the district court. The motion included a request
that the court enter a broad bar order extinguishing any future
claims by non-settling defendants against the settling defen-
dants related to or arising out of the In re Heritage Bonds Liti-
gation. Talley filed an opposition to this motion, urging the
court to bar only claims for contribution and indemnity. He
argued that the bar orders would preclude his independent
state court claims against the settling defendants. The district
court rejected Talley’s arguments and granted the motion and
entered two orders—one granting preliminary approval and
another granting final approval of the settlement—on Decem-
ber 9, 2004. The district court specifically identified Talley’s
state court case in the final order.
IN RE: HERITAGE BOND LITIGATION 13963
In doing so, the district court considered whether the pro-
posed settlement satisfied the requirements of Rule 23(e),
which requires that class action settlements be “fair, reason-
able, and adequate,” see Hanlon v. Chrysler Corp., 150 F.3d
1011, 1026 (9th Cir. 1998), and section 877.6, which requires
that a settlement be made in good faith. See Tech-Bilt, 698
P.2d at 163. The court was guided by the following factors:
the fact that the proposed settlement was the result of arms-
length, informed, and court-assisted negotiations; the ade-
quacy and reasonableness of the settlement amount; the
absence of any evidence of collusion or fraud aimed to injure
non-settling defendants; and the fairness of the settlement
amount relative to both the proportionate liability of the set-
tling defendants and the approximate total recovery of the
plaintiffs. See Staton v. Boeing Co., 327 F.3d 938, 959-60 (9th
Cir. 2003) (Rule 23); Dunk v. Ford, 56 Cal. Rptr. 2d 483 (Cal.
Ct. App. 1996) (section 877.6); Tech-Bilt, 698 P.2d at 166-67(section 877.6).
Additionally, in response to Talley’s challenge to the bar
orders, the court evaluated the appropriate scope of the orders
by reference to the “interrelatedness” test of Wisconsin Invest-
ment Board v. Ruttenberg, 300 F. Supp. 2d 1210 (N.D. Ala.
2004) (following In re U.S. Oil & Gas Litigation, 967 F.2d
489 (11th Cir. 1992)), which asks “whether the claims extin-
guished by the bar order arise out of the same facts as those
in the underlying . . . securities litigation.” Ruttenberg, 300 F.
Supp. 2d at 1219. The district court found that “Talley’s bald
assertions that his claims rely on facts that are separate and
distinct from the facts alleged in the present securities litiga-
tion are insufficient to support a finding that the proposed Bar
Order is overly broad.” Talley filed a Notice of Appeal on
January 4, 2005, appealing the final approval order (Appeal
No. 05-55072).
In January 2005, defendants Jerold Goldstein; Valuation
Counselors Group, Inc.; CBIZ; Bank of New York; U.S. Trust
Company; Leo Dierckman; and HFS Consultants in the Heri-
13964 IN RE: HERITAGE BOND LITIGATION
tage Bonds consolidated case each filed an identical Motion
for Approval of Settlement, Good Faith Determinations, and
Bar Orders. Talley filed an opposition to these motions,
asserting the same arguments that he raised in his opposition
to the similar motion noted above. The district court held a
good faith hearing on the motions and entered two orders
granting preliminary approval. The court again rejected Tal-
ley’s arguments. The district court subsequently entered four
final orders approving the settlements and bar orders on Feb-
ruary 7, 2005.9 The district court specifically identified Tal-
ley’s state court case in the challenged bar orders, with the
exception of the Goldstein bar order. Talley filed his second
Notice of Appeal on March 2, 2005 appealing the four Febru-
ary 7, 2005 final approval orders (Appeal No. 05-55371).10
In sum, each of the five final settlement approval orders
from which Talley appeals includes a broad bar order that
specifically bars his state court claims that relate to the In re
Heritage Bond Litigation.
II. Discussion
A. Standard of Review
A district court may approve a proposed settlement in a
class action only if the compromise is fundamentally fair, ade-
quate, and reasonable. Fed. R. Civ. P. 23(e); Hanlon, 150 F.3d
at 1026. Ordinarily, we review a district court’s decision to
approve a settlement for abuse of discretion. Hanlon, 150
F.3d at 1026; Resolution Trust Corp. v. Rice (In re Consol.
Pinnacle W. Sec. Litig.) (“Resolution Trust”), 51 F.3d 194,
197 (9th Cir. 1995). Talley, however, does not question the
9
In May 2005, the district court granted Final Approval of Settlement,
Good Faith Determination and Bar Order in the consolidated In re Heri-
tage Bond Litigation, and on June 10, 2005, the court entered a Final Judg-
ment and Order of Dismissal.
10
We subsequently consolidated these two appeals for all purposes.
IN RE: HERITAGE BOND LITIGATION 13965
district court’s authority to approve a settlement; he chal-
lenges the district court’s interpretation of section 877.6 and
the PSLRA to determine the permissible scope of a bar order
issued pursuant to those statutes. “The district court’s inter-
pretation of a statute is a question of law” that we review de
novo. Beeman v. TDI Managed Care Servs., 449 F.3d 1035,
1038 (9th Cir. 2006); see also In re McLinn, 739 F.2d 1395,
1403 (9th Cir. 1984) (en banc) (“Whether the district court
properly construed state law is a question we review de
novo.”).
B. Mootness
As discussed above, Talley’s state law claims were dis-
missed pursuant to the bar orders challenged here. Talley,
2007 WL 2660059. The California Court of Appeal affirmed
the superior court’s dismissal “[d]ue to the broad language of
all th[e] Bar orders.” Id. at *3. Appellees argue that because
Talley’s state law claims have been dismissed and the dis-
missal has been affirmed, this appeal is moot. We disagree.
[1] The Court of Appeal stated clearly that its reliance on
the bar orders was premised on its view that it was bound by
the broad language of the orders because the bar orders should
be considered final while Talley’s federal appeals were pend-
ing. See Talley, 2007 WL 2660059, at *3, 16 (“Plaintiff has
appealed that [bar] order to the Ninth Circuit Court of
Appeals, and appeal is pending, but for our purposes, under
the rule of Levy v. Cohen (1977) 19 Cal.3d 165, 172 . . . it is
currently deemed to be final. We must consider ourselves
bound by the broad language of that Bar order.”). The court
followed the federal res judicata rule applied by the California
Supreme Court in Levy, 19 Cal.3d at 172, that “a judgment or
order, once rendered, is final for purposes of res judicata until
reversed on appeal or modified or set aside in the court of ren-
dition.” See Talley, 2007 WL 2660059, at *16 (quoting Levy,
19 Cal. 3d at 172). By specifying that it affirmed the dismissal
13966 IN RE: HERITAGE BOND LITIGATION
of Talley’s claims solely on this basis, the court implied that
modification of the bar orders could revive Talley’s claims.
We therefore agree with Talley that this appeal is not moot
because we can still grant relief in his favor. We have previ-
ously held that “[a]n appeal is moot when, by virtue of an
intervening event, a court of appeals cannot grant any effec-
tual relief whatever in favor of the appellant.” United States
v. Strong, 489 F.3d 1055, 1059 (9th Cir. 2007). However,
“[t]he party asserting mootness bears a heavy burden of estab-
lishing that there is no effective relief remaining for a court
to provide.” Id. (internal quotation marks and citations omit-
ted).
[2] Although the federal courts are unable to grant Talley
the ultimate relief he seeks—reinstatement of his state law
claims—he has outlined several procedures he could follow in
state court, such as filing a motion under California Code of
Civil Procedure section 473 to vacate the judgment or filing
a new action in state court, once the bar orders are modified.
See Romadka v. Hoge, 283 Cal. Rptr. 878 (Cal. Ct. App.
1991) (reversing denial of plaintiff’s motion to vacate where
plaintiff’s attorney requested dismissal with prejudice without
authorization); Hoover v. Galbraith, 498 P.2d 981, 985 (Cal.
1972) (“[W]here it is not possible to bring an action to trial
pending determination of an appeal in a related case, the time
consumed on such appeal is impliedly excluded from the
period of limitations.”). We cannot order the superior court to
reinstate Talley’s claims, but by limiting the scope of the
orders, we make it reasonably likely that he can succeed in
obtaining reinstatement of his claims and, to the extent they
are truly independent, have them heard on the merits. Because
Talley can point to avenues for relief that will be open to him
when the district court modifies the bar orders at issue here,
Appellees have not carried their burden of demonstrating that
there is no effective relief remaining for us to provide.
Accordingly, we hold that this appeal is not moot and proceed
to the merits of Talley’s arguments.
IN RE: HERITAGE BOND LITIGATION 13967
C. Scope of the Bar Orders
Talley argues that, to the extent that they would bar him
from bringing independent, non-indemnity or contribution
claims in the superior court, the five bar orders challenged in
this appeal exceed the scope allowed by the contribution bar
provisions of the PSLRA, 15 U.S.C. § 78u-4(f)(7)(A)11 and
section 877.6.12 We agree with Talley and the Second Circuit
that a bar order issued in a partial settlement of a securities
fraud class action case cannot bar independent claims. See
Gerber, 329 F.3d 297.
[3] We have already acknowledged the authority of a dis-
trict court under federal common law to issue bar orders bar-
11
In its entirety, section 4(f)(7)(A) of the Private Securities Litigation
Reform Act provides:
(7) Settlement discharge
(A) In general
A covered person who settles any private action at any time
before final verdict or judgment shall be discharged from all
claims for contribution brought by other persons. Upon entry of
the settlement by the court, the court shall enter a bar order con-
stituting the final discharge of all obligations to the plaintiff of
the settling covered person arising out of the action. The order
shall bar all future claims for contribution arising out of the
action—
(i) by any person against the settling covered person; and
(ii) by the settling covered person against any person, other
than a person whose liability has been extinguished by the settle-
ment of the settling covered person.
12
Adopted in 1980, California Code of Civil Procedure section 877.6(c)
is a settlement bar statute. It provides:
A determination by the court that the settlement was made in
good faith shall bar any other joint tortfeasor or co-obligor from
any further claims against the settling tortfeasor or co-obligor for
equitable comparative contribution, or partial or comparative
indemnity, based on comparative negligence or comparative
fault.
13968 IN RE: HERITAGE BOND LITIGATION
ring future claims for contribution and indemnity as part of its
approval of a proposed settlement in a class action securities
fraud case, once it has found that the settlement satisfies the
requirements of Rule 23. See Resolution Trust, 51 F.3d at
197; Kaypro, 884 F.2d at 1231; In re First Alliance Mortgage
Co., 471 F.3d 977, 1004 (9th Cir. 2006) (“In Kaypro, this
court concluded under federal common law that a partial pre-
trial settlement in a securities case, pursuant to which non-
settling defendants’ rights to contribution are satisfied and
further contribution barred, may be approved under Rule 23
if the liability of non-settling defendants is limited to their
actual percentage of liability for the amount of total damages
determined at trial.”). We have not, however, previously
addressed the question of whether the bar order provisions of
section 877.6 and the PSLRA permit a district court, having
found a good faith settlement in accordance with section
877.6 and Rule 23, to issue bar orders barring future claims
other than those for contribution and indemnity. We address
each statute in turn.
i. Private Securities Litigation Reform Act Section
4(f)(7)(A)
As we have previously acknowledged, “Congress passed
the PSLRA [in 1995] because it was distressed with the pro-
liferation and cost of allegedly meritless federal securities
class actions. The PSLRA sought to curb abusive and frivo-
lous securities suits by imposing new procedural and substan-
tive requirements.” U.S. Mortgage, Inc. v. Saxton, 494 F.3d
833, 841 (9th Cir. 2007); see also In re Silicon Graphics Inc.
Secs. Litig., 183 F.3d 970, 978 (9th Cir. 1999) (noting that
Congress enacted the PSLRA in part to prevent abusive secur-
ities fraud class actions designed “to impose costs so burden-
some that it [was] often economical for the victimized party
to settle”). “Its provisions limit recoverable damages and
attorney’s fees, provide a ‘safe harbor’ for forward-looking
statements, impose new restrictions on the selection of (and
compensation awarded to) lead plaintiffs, mandate imposition
IN RE: HERITAGE BOND LITIGATION 13969
of sanctions for frivolous litigation, and authorize a stay of
discovery pending resolution of any motion to dismiss.” Mer-
rill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71,
81 (2006).
In its effort to reform litigation and settlement of securities
fraud class actions, Congress also included the provision at
issue here, which makes the entry of a bar order against future
claims for contribution mandatory upon a court’s approval of
a settlement in such a case.13 15 U.S.C. § 78u-4(f)(7)(A). We
are asked to determine whether the scope of a bar order under
the PSLRA may also encompass independent claims, meaning
claims other than those for contribution and indemnity, and
we hold that it may not. In so holding, we adopt the federal
common law approach taken by the Second Circuit in Gerber,
329 F.3d 297, and apply it to bar orders issued pursuant to the
PSLRA.
[4] Gerber was not decided under the PSLRA. Gerber, 329
F.3d at 309-10. Prior to adoption of the PSLRA, federal
courts determined the appropriate scope of bar orders issued
in partial settlements of class action cases by reference to fed-
eral common law evolving from Rule 23(e)(2). See Kaypro,
884 F.2d at 1228-29 (holding that federal common law should
govern the issue of contribution bars in securities class action
settlements). Under the federal common law rule, once a court
determined that a proposed settlement satisfied the require-
ments of Rule 23(e)(2), it could impose a bar order barring
non-settling defendants’ future claims for contribution and
indemnity. Kaypro, 884 F.2d at 1231. The contribution bar
provision of the PSLRA essentially codified this rule and
13
We note that Congress gave no indication as to why the contribution
bar was included or whether it was intended to encompass related state
law claims. See S. Rep. No. 104-98, at p. 5-6, 104th Cong., 1st Sess.1995,
reprinted in 1995 U.S.C.C.A.N. 679; H.R. Conf. Rep. No. 104-369, 104th
Cong., 1st Sess.1995, reprinted in part at 1995 U.S.C.C.A.N. 730, 1995
WL 709276.
13970 IN RE: HERITAGE BOND LITIGATION
made the imposition of a bar against future claims for contri-
bution mandatory in securities fraud class action settlements.
15 U.S.C. § 78u-4(f)(7)(A). Because the text of the PSLRA,
which is geared to orders that bar “claims for contribution,”
id., does not speak to whether a court may issue an order that
bars independent claims, we look to the reasoning of cases
determining the appropriate scope of similar bar orders under
federal common law.
Appellees urge us to affirm the district court’s application
of the approach taken by the Eleventh Circuit in In re U.S. Oil
& Gas Litigation, 967 F.2d 489 (11th Cir. 1992).14 In deter-
mining the scope of the challenged bar orders, the district
court relied upon the holding of In re U.S. Oil & Gas Litiga-
tion, as applied in Ruttenberg, 300 F. Supp. 2d at 1219, that
[t]he propriety of the settlement bar order should
turn upon the interrelatedness of the claims that it
precludes, not upon the labels which parties attach to
those claims. If the cross-claims that the district
court seeks to extinguish through the entry of a bar
order arise out of the same facts as those underlying
the litigation, then the district court may exercise its
discretion to bar such claims in reaching a fair and
equitable settlement.
In re U.S. Oil & Gas Litigation, 967 F.2d at 496.
However, the Eleventh Circuit called this “interrelatedness”
test and its opinion in In re U.S. Oil & Gas Litigation into
question with its decision in AAL High Yield Bond Fund v.
14
In re U.S. Oil & Gas Litigation was decided under federal common
law, not the PSLRA, but courts have subsequently applied its “interre-
latedness” test to PSLRA bar orders. See Ruttenberg, 300 F. Supp. 2d at
1216-17 (following In re U.S. Oil & Gas Litigation to hold that the
PSLRA “does not divest the court of the power to fashion bar orders extin-
guishing claims other than those for contribution in the settled case”).
IN RE: HERITAGE BOND LITIGATION 13971
Deloitte & Touche, LLP, 361 F.3d 1305 (11th Cir. 2004). In
AAL, certain non-settling defendants in a securities fraud class
action suit challenged the district court’s bar orders as imper-
missibly broad under the PSLRA contribution bar when they
precluded the non-settling defendants from bringing future
claims against settling co-defendants. Id. The AAL court
explicitly distanced itself from In re U.S. Oil & Gas Litigation
by explaining that its holding in that case had narrow applica-
bility because it had barred the cross-claims at issue there
only because they were disguised contribution and indemnity
claims, not truly independent claims. AAL, 361 F.3d at 1312(noting that In re U.S. Oil & Gas Litigation “expressly
declined to address the issue of ‘truly independent claims’ ”).
The court also declined to consider Ruttenberg as persuasive
authority because of its reliance on In re U.S. Oil & Gas Liti-
gation. Id. Because we find the reasoning of AAL persuasive,
we likewise decline Appellees’ invitation to adopt the federal
common law rule articulated in In re U.S. Oil & Gas Litiga-
tion to determine the appropriate scope of a bar order issued
pursuant to the PSLRA.15
[5] Instead, we hold that the correct standard for determin-
ing the appropriate scope of a bar order issued pursuant to the
PSLRA is the federal common law test articulated by the Sec-
ond Circuit in Gerber, 329 F.3d 297, that asks whether a non-
15
Rather than resolving the question of whether the PSLRA contribution
bar permits a district court to issue a bar order that precludes “truly inde-
pendent claims,” the AAL court vacated and remanded the challenged
orders, in part because no allegedly independent claims had been brought
against any settling party at that point. AAL, 361 F.3d at 1312. In addition
to remanding for the district court to make findings of fact and articulate
its rationale for imposing a broad bar order, the court instructed the district
court to “address in the first instance whether the PSLRA mandates that
the bar order it requires is exclusive or whether the statute suggests cau-
tion with respect to broader bar orders.” Id.; see also AAL High Yield Bond
Fund v. Ruttenberg, No. 00-cv-1404, 2005 WL 5926936, at *3 (N.D. Ala.
June 2, 2005) (applying, on remand, the federal common law test articu-
lated in Gerber to determine the appropriate scope of the contested bar
orders under the PSLRA).
13972 IN RE: HERITAGE BOND LITIGATION
settling defendant’s claims are independent. Id. at 306. We are
persuaded that limiting bar orders issued pursuant to the
PSLRA to claims for contribution and indemnity accords with
the purpose and plain language of the statute and strikes an
appropriate balance between the judicial policies of encourag-
ing settlements, on the one hand, and protecting the legal
rights of non-settling parties in class-action lawsuits, on the
other. See, e.g., Kaypro Corp., 884 F.2d at 1229-31 (identify-
ing policy of encouraging settlements in support of allowing
contribution bars in partial settlements under federal common
law); New England Health Care Employees Pension Fund v.
Woodruff, 512 F.3d 1283, 1289 (10th Cir. 2008) (holding that
non-settling defendants had standing to challenge “Bar Orders
that eliminate certain independent claims” because they “pal-
pably interfere with [the non-settling defendants’] preexisting
rights and potential legal claims”). Similarly, interpreting the
PSLRA to bar disguised claims for contribution and indem-
nity prevents non-settling defendants from engaging in an end
run around a settlement agreement and an accompanying con-
tribution and indemnity bar, while allowing them to pursue
genuinely independent claims. See, e.g., In re Masters Mates
& Pilots Pension Plan & IRAP Litig., 957 F.2d 1020, 1026
(2d Cir. 1992).
Like the instant case, Gerber addressed a challenge by cer-
tain non-settling defendants in a securities fraud class action
to the district court’s approval of a settlement bar order “ex-
tinguishing any claims against [certain co-defendants] relating
to or arising from the allegations of [the] litigation.” Gerber,
329 F.3d at 300. The parties did not contest the authority of
the district court to bar claims for contribution and indemnity
and conceded 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.” Id. at 305. Instead, the appellants argued that the
district court’s bar order was impermissibly broad only inso-
far as it barred independent claims. Id. The Gerber court
determined under federal common law that if a non-settling
IN RE: HERITAGE BOND LITIGATION 13973
defendant is able “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 [the settling defendant], it has not been compensated for
those losses by the judgment credit, and any such claims
should not be extinguished [by the bar order].” Id. at 306.
In addressing which claims should not be precluded, the
court explained that the only claims that could appropriately
be barred by such an order, in addition to those for contribu-
tion and indemnity, were “disguised” claims for contribution
or indemnity—those “in which the injury is the non-settling
defendant’s liability to the plaintiff,” or “where damages are
calculated based on the non-settling defendants’ liability to
the plaintiffs.” Id. at 305-06. This distinction turns not on the
presence of “independent ‘claims’ ” but on whether the
injured party can assert “independent ‘damages.’ ” Id. at 306-
07. Having determined that the bar order was impermissibly
broad, the court remanded to the district court with instruc-
tions to determine whether any such claims existed and to
modify the bar order to “ensure that the only claims that are
extinguished are claims where the injury is the non-settling
defendants’ liability to the plaintiffs.” Id. at 307.
The reasoning in Gerber is particularly apt in the context
of this appeal. Like the appellants in Gerber, Talley does not
question the district court’s authority to issue bar orders that
bar claims for contribution or indemnity, or disguised claims
that seek such relief. He asserts precisely the same type of
allegedly independent claims raised by the non-settling defen-
dants in Gerber, arguing that his state law claims are not
based on indemnity, contribution, or comparative fault with
respect to Appellees’ alleged liability.
[6] We conclude that the reasoning of Gerber is persuasive
and that its holding regarding the permissible scope of bar
orders issued in securities fraud class action settlements
should be extended to apply to bar orders issued pursuant to
13974 IN RE: HERITAGE BOND LITIGATION
the PSLRA. We therefore hold that such bar orders may only
bar claims for contribution and indemnity and claims where
“the injury is the non-settling defendant’s liability to the
plaintiff.” Id. at 306. When we apply this standard to the bar
orders at issue in this appeal, it is clear that they are imper-
missibly broad insofar as they bar any genuinely independent
claims. See Masters Mates, 957 F.2d at 1033 (finding similar
bar order overly broad where it was impossible to predict state
law claims potentially arising from litigation because non-
settling defendant should not be forced to give up potential
state law claims without compensation). The district court
erred in relying upon the “interrelatedness” test to reject Tal-
ley’s challenge to the scope of the bar orders; whether the
allegedly independent claims arise from the same facts as the
settled ones is not determinative of whether a particular claim
is a disguised claim for contribution or indemnity. See TBG,
Inc. v. Bendis, 36 F.3d 916, 928-29 (10th Cir. 1994). Given
the broad language of the orders, “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.” Gerber, 329 F.3d at
307. The modified orders should also reflect that the Gerber
standard, rather than the “interrelatedness” test, defines the
appropriate scope of the bar orders.
ii. California Code of Civil Procedure Section 877.6
[7] By barring future claims for contribution and indemnity
arising out of a partial settlement, section 877.6 seeks to
encourage settlement and prevent settling and non-settling
parties from bearing more than their proportionate share of
liability. See Tech-Bilt, 698 P.2d 159 (explaining the rationale
behind the section 877.6 good faith hearing). However, the
bar orders adopted by the district court here went beyond both
the purpose and the plain language of this statute by barring
all claims “arising out of or related to . . . any of the transac-
tions or occurrences alleged.”
IN RE: HERITAGE BOND LITIGATION 13975
The California Supreme Court has held that, in making a
good faith determination,
the intent and policies underlying section 877.6
require that a number of factors be taken into
account including a rough approximation of plain-
tiffs’ total recovery and the settlor’s proportionate
liability, the amount paid in settlement, the alloca-
tion of settlement proceeds among plaintiffs, and a
recognition that a settlor should pay less in settle-
ment than he would if he were found liable after a
trial. Other relevant considerations include the finan-
cial conditions and insurance policy limits of settling
defendants, as well as the existence of collusion,
fraud, or tortious conduct aimed to injure the inter-
ests of nonsettling defendants.
Tech-Bilt, 698 P.2d at 166-67. The trial court’s determination
that the settlement is in good faith operates as a bar against
future claims for contribution and indemnity from the settling
defendants. Cal. Civ. Proc. Code § 877.6(c); see Far W. Fin.
Corp. v. D & S Co., 760 P.2d 399, 407 (Cal. 1988).
In his challenge to the bar orders here, Talley does not
claim that the settlements were entered into in bad faith in
violation of section 877.6, and he concedes that the district
court has the authority to bar claims for contribution or
indemnity under this statute. Rather, he argues that the district
court exceeded the scope of the statutory settlement bar by
drafting the orders to bar claims other than those for contribu-
tion and indemnity. We agree.
[8] A finding of good faith under section 877.6, under the
terms of the statute, bars only claims of “equitable compara-
tive contribution, or partial or comparative indemnity based
on comparative negligence or comparative fault.” Cal. Civ.
Proc. Code § 877.6(c). California courts apply a test similar
to the one adopted in Gerber to determine the appropriate
13976 IN RE: HERITAGE BOND LITIGATION
scope of a bar order issued pursuant to section 877.6. A bar
order under section 877.6 may not bar claims other than those
for contribution and indemnity or artfully pled claims that
amount to claims for contribution and indemnity. Cal-Jones
Props. v. Evans Pac. Corp., 264 Cal. Rptr. 737, 739 (Cal. Ct.
App. 1989).
As the California Court of Appeal explained in Cal-Jones:
If the claims between the joint tortfeasors are identi-
cal to those made by the plaintiffs or if the damages
sought by the joint tortfeasors are those that the court
would consider in determining the proportionate lia-
bility of the settling tortfeasor, then the claims are
indemnity claims regardless of whether one or more
of the claims are couched in affirmative language. A
claim by a joint tortfeasor seeking neither indemnity
nor contribution and which the trial court would not
contemplate in determining the proportionate liabil-
ity of a settling tortfeasor is not a claim for indem-
nity and hence survives a good faith settlement under
section 877.6. If a claim is in fact one of indemnity,
then it is barred pursuant to section 877.6.
Id.[9] Because the bar orders here extinguish claims other
than those for contribution and indemnity or artfully pled
claims that amount to claims for contribution and indemnity,
they do not pass muster under section 877.6 and must be mod-
ified in accordance with the standard set forth in Cal-Jones.
D. Proceedings on Remand
[10] We vacate the challenged bar orders and remand for
the district court to modify them in a manner consistent with
this opinion. Once the bar orders have been modified, Talley
IN RE: HERITAGE BOND LITIGATION 13977
will be able to pursue reinstatement of his claims in the supe-
rior court through the available procedures outlined above.
[11] Talley argues that the superior court, rather than the
district court, should determine whether his state law claims
are truly independent.16 If at the time the district court is asked
to approve a settlement agreement, there is litigation pending
that raises related but allegedly independent claims, the court
should consider whether those claims are independent under
the standard set forth today. In that event, the party seeking
to pursue the claims would bear the burden of establishing
that they meet the independence standard established here.
When allegedly independent claims are brought after final
approval of the settlement, however, the question of indepen-
dence should be decided by the court where the claims are
brought. Here, although Talley’s claims were pending when
the district court approved the settlements and issued the chal-
lenged bar orders, those claims have been dismissed and that
dismissal has been affirmed on appeal. See Talley, 2007 WL
2660059. In this unique circumstance, once the bar orders
have been modified and Talley obtains reinstatement of his
claims, the state court can make the independence determina-
tion.
III. Conclusion
We vacate the five challenged bar orders and remand to the
district court to modify the bar orders in a manner consistent
16
In an effort to demonstrate to this court that his state law claims are
independent, Talley included as Exhibit 4 of the Addendum to Appellant’s
Opening Brief a copy of his state court complaint. Appellees have moved
to strike this document because it is not part of the district court record.
Talley never filed an opposition to this motion, nor did he ever file a
request that this court take judicial notice of the complaint. Because the
document is not properly the subject of judicial notice and is not part of
the district court record, we grant Appellees’ motion and strike Exhibit 4
of the Addendum to Talley’s Opening Brief. See Fed. R. App. Proc. 10(a);
Fed. R. Evid. 201.
13978 IN RE: HERITAGE BOND LITIGATION
with this opinion.
VACATED and REMANDED.