Bowen v. Monus , 172 F.3d 270 ( 1999 )

Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit
3-30-1999
Bowen v. Monus
Precedential or Non-Precedential:
Docket 98-3206
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Recommended Citation
"Bowen v. Monus" (1999). 1999 Decisions. Paper 83.
http://digitalcommons.law.villanova.edu/thirdcircuit_1999/83
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Filed March 30, 1999
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 98-3206
IN RE: PHAR-MOR, INC. SECURITIES LITIGATION
IVAN BOWEN, II; ROBERT J. CARR; VERNON L.
CARSON; MERLE T. CARSON; ROBERT M. CHASE;
STEPHEN M. EHRLICHMAN; ROBERT J. FRISBY;
RONALD GOLDBERG; CECILE GUTHMAN; HOWARD D.
HIRSH REVOCABLE TRUST; WALTER JACOBSON; DIANE
DYBSKY JACOBSON; ROBERT A. JUDELSON; EDWARD
L. LEMBITZ PROFIT SHARING PLAN; MARC LEVENSTEIN;
ANGELA LEVENSTEIN; MAURICE SPORTING GOODS,
INC.; PROTECTIVE INSURANCE COMPANY; ROBERT A.
RIESMAN, JR.; PHILLIP E. ROLLHAUS, JR.; JEANETTE
M. SHEA TRUST; SPIEGEL, INC.; SUPPLEMENTAL
EMPLOYEE RETIREMENT PLAN FOR THE BENEFIT OF
JOHN J. SHEA; JACK SHIRE; HELEN SHIRE; BERNARD
M. SUSSMAN REVOCABLE TRUST; GLEN R. TRAYLOR;
UNION LEAGUE BOYS & GIRLS CLUBS; RICHARD E.
WEISS; JOHN B. WHITTED, JR.; STEIN ROE
INVESTMENT TRUST; OLYMPUS PRIVATE PLACEMENT
FUND, L.P.; VENCAP HOLDINGS (1987) PTE LTD.;
ODYSSEY PARTNERS, L.P.; KEMPER TOTAL RETURN
FUND; KEMPER GROWTH FUND; KEMPER SMALL
CAPITALIZATION EQUITY FUND; KEMPER INVESTMENT
PORTFOLIOS- GROWTH PORTFOLIO; KEMPER
INVESTMENT PORTFOLIOS- TOTAL RETURN PORTFOLIO;
KEMPER INVESTORS FUND- EQUITY PORTFOLIO;
KEMPER INVESTORS FUND- TOTAL RETURN
PORTFOLIO; LUMBERMENS MUTUAL CASUALTY
COMPANY; KEMPER FINANCIAL SERVICES, INC.; NEW
ECONOMY FUND; ANCHOR PATHWAY FUND GROWTH
SERIES; AMERICAN VARIABLE INSURANCE SERIES
GROWTH FUND; ALBERT H. BITZER, JR.
REVOCABLE TRUST; THE BOWEN FAMILY
PARTNERSHIP; KEMPER RETIREMENT FUND- SERIES I;
KEMPER RETIREMENT FUND- SERIES II; SELECT
EQUITY FUND OF THE COLLECTIVE TRUST FUNDS OF
THE NORTHERN TRUST COMPANY; STEIN ROE PRIME
EQUITIES; ANDREW K. BLOCK TRUST NO. 2; GROWTH
EQUITY FUND-A OF THE COMMON TRUST FUNDS OF
THE NORTHERN TRUST COMPANY; DAVID A. BRESKIN;
BURTON B. KAPLAN; ARTHUR CHARLES NEILSEN, JR.;
RALPH M. SEGALL TRUST; MITCHELL GOLDSMITH;
ALLAN C. LICHTENBERG TRUST; EVA F. LICHTENBERG;
JAMES D. WINSHIP; M S BLOCK 1985 FAMILY TRUST;
PAGTIP,
Appellants,
v.
MICHAEL I. MONUS; DAVID S. SHAPIRA; PATRICK B.
FINN; JEFFREY C. WALLEY; STANLEY CHERELSTEIN; A.
JOEL ARNOLD; CHARITY J. IMBRIE; IRWIN PORTER;
GERALD E. CHAIT; NATHAN H. MONUS; STANLEY
MORAVITZ; NORMAN WEIZENBAUM; FARRELL
RUBENSTEIN; JONATHAN KAGAN; GIANT EAGLE, INC.;
NATWEST CAP MARKETS; COUNTY NATWEST GLOBAL
SECURITIES LIMITED; CTY NATWEST SECURITIES;
COOPERS & LYBRAND; GIANT EAGLE DE, INC.;
NATIONAL WESTMINSTER BANK PLC,
On Appeal from the United States District Court
for the Western District of Pennsylvania
District Judge: Honorable Donald E. Ziegler
(D.C. Civ. No. 92-1938)
Argued February 16, 1999
BEFORE: GREENBERG, ROTH, and LOURIE,*
Circuit Judges
_________________________________________________________________
*Honorable Alan D. Lourie, Circuit Judge of the United States Court of
Appeals for the Federal Circuit, sitting by designation.
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(Filed: March 30, 1999)
Arthur T. Susman
Robert E. Williams (argued)
Susman & Watkins
Two First National Plaza
Suite 600
Chicago, IL 60603
Attorney for Appellants
Bernard D. Marcus
John M. Burkoff (argued)
Marcus & Shapira, LLP
One Oxford Centre
35th Floor
301 Grant Street
Pittsburgh, PA 15219
Attorney for Appellees
OPINION OF THE COURT
LOURIE, Circuit Judge.
Bowen et al. (collectively the "Bowen plaintiffs") appeal
from a January 13, 1998 order of the United States District
Court for the Western District of Pennsylvania granting a
motion by Giant Eagle, Inc. for a declaration that Giant
Eagle and Shapira et al. (collectively the "Giant Eagle
defendants") had not violated a settlement agreement with
the Bowen plaintiffs and for enforcement of that agreement.
See In Re Phar-Mor, Inc. Sec. Litig., Civ. Action No. 92-1938
(W.D. Pa. Jan. 13, 1998), mot. for recons. denied, (W.D. Pa.
Mar. 3, 1998). Because the district court lacked subject
matter jurisdiction to rule on the motion, we vacate and
remand.
BACKGROUND
In the summer of 1992, Phar-Mor, Inc. announced that
it would take a $350 million accounting charge to cover
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losses that had resulted from alleged fraud committed by
certain Phar-Mor employees. See In Re Phar-Mor, Inc. Sec.
Litig., Docket No. 959 (Judicial Panel on Multidistrict
Litigation, Feb. 17, 1993) (transfer order). Phar-Mor filed for
bankruptcy shortly thereafter, and a number of lawsuits
were filed by dissatisfied investors. The dissatisfied
investors at issue here, collectively known as the"Rule
144A purchasers," bought $110 million of Phar-Mor stock
in a $112 million private placement offering in October of
1991. The Rule 144A purchasers, each of which filed its
own complaint in the Phar-Mor multidistrict litigation, are
actually four separate groups of plaintiffs: the T. Rowe Price
plaintiffs, the MFS plaintiffs, the Bowen plaintiffs, and
Allstate Insurance Company ("Allstate"). The Bowen
plaintiffs, who had invested approximately $83 million in
the private placement offering, filed a securities fraud
action against numerous parties, including Phar-Mor and
the Giant Eagle defendants,1 in the Northern District of
Illinois. Pursuant to a February 17, 1993 order by the
Judicial Panel on Multidistrict Litigation, the case was
transferred to the Western District of Pennsylvania under
28 U.S.C. S 1407 and consolidated with related cases. In
1995, the Rule 144A purchasers settled individually with
the Giant Eagle defendants.2 On August 4, 1995 Giant
Eagle entered into a settlement agreement (the "Settlement
Agreement") with the Bowen plaintiffs in which Giant Eagle
agreed to pay the Bowen Plaintiffs 9.09È/dollar invested, an
amount which totaled greater than $7.5 million. The
Settlement Agreement contained a "most favored nations"
provision which stated that if the Giant Eagle defendants
settled with any other Rule 144A purchaser on more
favorable terms, i.e., greater than 9.09È/dollar, Giant Eagle
_________________________________________________________________
1. The Bowen plaintiffs' complaint reveals that Giant Eagle was sued
because of its status as a controlling entity. This control was manifested
in two principal ways: first, the majority of Phar-Mor's directors were
directors of Giant Eagle, and second, Giant Eagle's wholly owned
subsidiary, Eagle-Delaware, owned over 40% of Phar-Mor's voting shares
during the relevant period.
2. The T. Rowe Price plaintiffs settled on January 27, 1995, the MFS
plaintiffs settled on February 15, 1995, and Allstate settled on November
13, 1995.
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would pay the Bowen plaintiffs based on those more
favorable terms. On August 4, 1995, the Pennsylvania
district court approved the Settlement Agreement and
dismissed the action against the Giant Eagle defendants.
The brief order by the district court read in relevant part:
AND NOW, this 4th day of August, 1995, upon the
Motion of Plaintiffs Ivan Bowen, et al. (the "settling
Plaintiffs") and Defendants David S. Shapira, Irwin W.
Porter, Gerald E. Chait, Stanley Moravitz, Norman
Wiezenbaum, Donald M. Robinson, Farrell Rubenstein
and Jonathan Kagan (the "Director Defendants"), it is
hereby ORDERED that (1) the settlement documented
in the August 4, 1995 Settlement and Release executed
on behalf of the Settling Plaintiffs in favor of the
Director Defendants and others (the "Settlement") is
hereby approved; (2) the Director Defendants, Charity
Imbrie, Giant Eagle, Inc., Giant Eagle of Deleware, Inc.,
Corporate Partners, L.P., Corporate Offshore Partners,
L.P., and Lazard Freres & Co. are hereby dismissed
with prejudice from this lawsuit pursuant to the terms
of the Settlement, each party to pay its own costs . . . .
In Re Phar-Mor, Inc. Sec. Litig., Civ. Action No. 92-1938
(W.D. Pa. Aug. 4, 1995) (emphasis added).
Following the dismissal of the Bowen plaintiffs' action,
Giant Eagle paid the Bowen plaintiffs the agreed
9.09È/dollar. After the Giant Eagle defendants had settled
with all of the other Rule 144A purchasers, the Bowen
plaintiffs requested information concerning the settlement
agreements to determine whether or not they should receive
additional funds under the most favored nations clause of
the Settlement Agreement. Alleging that the Giant Eagle
defendants refused to provide sufficient information for
them to determine whether the most favored nations clause
had been violated and alleging breach of this clause,
eighteen of the seventy original Bowen plaintiffs sued the
Giant Eagle defendants in Illinois state court on September
26, 1997. This action was removed to the Northern District
of Illinois where it is currently pending.
In response to the Illinois action, on October 6, 1997
Giant Eagle alone filed a motion in the Pennsylvania district
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court that had initially approved the Settlement Agreement.
This motion (the "motion to enforce") sought a declaration
that the Giant Eagle defendants had satisfied their
obligations under the Settlement Agreement and requested
that the district court "enforce" its dismissal order of
August 4, 1995. The Bowen plaintiffs responded by
arguing, inter alia, that the district court lacked subject
matter jurisdiction to consider the motion. In a January 13,
1998 order, the district court granted Giant Eagle's motion,
holding that the Giant Eagle defendants had not breached
the most favored nations clause and by "enforcing" its
dismissal order of August 4, 1995. See In Re Phar-Mor, Inc.
Sec. Litig., Civ. Action No. 92-1938 (W.D. Pa. Jan. 13,
1998). The court did not address the Bowen plaintiffs'
arguments regarding subject matter jurisdiction. In a one-
sentence March 3, 1998 order, the court denied the Bowen
plaintiffs' motion for reconsideration. See In Re Phar-Mor,
Inc. Sec. Litig., Civ. Action No. 92-1938 (W.D. Pa. March 3,
1998). The Bowen plaintiffs appealed to this court. We have
jurisdiction pursuant to 28 U.S.C. S 1291 (1994).
DISCUSSION
Whether the district court possessed subject matter
jurisdiction is an issue of law which this court reviews de
novo. Cf. Scelsa v. City Univ. of N.Y., 76 F.3d 37, 40 (2d Cir.
1996); Hagestad v. Tragesser, 49 F.3d 1430, 1432 (9th Cir.
1995).
The Bowen plaintiffs argue that the district court
improperly exercised jurisdiction over Giant Eagle's motion
to enforce under Kokkonen v. Guardian Life Insurance Co.
of America, 511 U.S. 375 (1994). The Bowen plaintiffs
contend that under Kokkonen, the phrase "pursuant to the
terms of the Settlement" in the dismissal order did not
confer subject matter jurisdiction over enforcement of the
Settlement Agreement because it was insufficient to
incorporate the Agreement into the dismissal order. The
Bowen plaintiffs further contend that the mere fact that the
district court approved the Settlement Agreement is also an
insufficient basis for subject matter jurisdiction over its
enforcement. Giant Eagle responds that the district court's
language was sufficient to incorporate the terms of the
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Settlement Agreement into the dismissal order. Giant Eagle
further asserts that even if this language is ambiguous, the
court should defer to the intent of the court that entered
the dismissal order. We understand Giant Eagle to argue
that the district court's intent to retain subject matter
jurisdiction was expressed when it ruled upon Giant Eagle's
motion to enforce.
We agree with the Bowen plaintiffs that the district court
lacked subject matter jurisdiction to rule on Giant Eagle's
motion to enforce. In Kokkonen, the Supreme Court held
that when a federal district court dismisses an action
pursuant to a settlement agreement, that court lacks
jurisdiction to enforce that settlement agreement unless the
obligation of the parties to comply with the settlement
agreement is made part of the dismissal order or there is an
independent basis for exercising jurisdiction. See Kokkonen,
511 U.S. at 381-82. The Court provided explicit guidance
as to the two ways in which a district court can make
compliance with a settlement agreement part of a dismissal
order, thereby ensuring that it would have subject matter
jurisdiction to enforce a breach of that agreement:
The situation would be quite different if the parties'
obligation to comply with the terms of the settlement
agreement had been made part of the order of
dismissal--either by separate provision (such as a
provision "retaining jurisdiction" over the settlement
agreement) or by incorporating the terms of the
settlement agreement in the order. In that event, a
breach of the agreement would be a violation of the
order, and ancillary jurisdiction to enforce the
agreement would therefore exist. That, however, was
not the case here.
Id. at 381.
It was also not the case here. In view of Kokkonen, it is
clear that the parties' obligation to comply with the
Settlement Agreement was not made a part of the dismissal
order. First, the dismissal order does not contain a
provision "retaining jurisdiction" over the Settlement
Agreement. Second, the district court did not incorporate
the Settlement Agreement or any of its terms, including the
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most favored nations clause, into the dismissal order. The
phrase "pursuant to the terms of the Settlement" fails to
incorporate the terms of the Settlement Agreement into the
order because "[a] dismissal order's mere reference to the
fact of settlement does not incorporate the settlement
agreement in the dismissal order." Miener v. Missouri Dep't
of Mental Health, 62 F.3d 1126, 1128 (8th Cir. 1995). As
the Bowen plaintiffs correctly indicate, this view is shared
by several of our sister circuits which have adhered strictly
to Kokkonen in determining whether language in a
dismissal order is sufficient to incorporate a settlement
agreement. See Scelsa v. City Univ. of New York, 76 F.3d
37, 41 (2d Cir. 1996) (holding that "action is dismissed" is
insufficient); Miener, 62 F.3d at 1128 (holding that "[a]ll
matters . . . hav[e] been settled and resolved" is
insufficient); Hagestad, 49 F.3d at 1432-1433 (holding that
"action has been settled" is insufficient); Lucille v. City of
Chicago, 31 F.3d 546, 548-49 (7th Cir. 1994) (holding that
"entered in accordance with" the settlement agreement is
insufficient). While the district court did approve the terms
of the Settlement Agreement, the Supreme Court has made
clear that mere approval of a settlement agreement does not
confer subject matter jurisdiction to enforce that
agreement. See Kokkonen, 511 U.S. at 381 ("The judge's
mere awareness and approval of the terms of the settlement
agreement do not suffice to make them part of his order.");
see also Miener, 62 F.2d at 1128 ("We do not believe the
district court's approval of the settlement agreement is
sufficient to confer ancillary jurisdiction under Kokkonen.")
Giant Eagle further argues that even if the phrase
"pursuant to the terms of the Settlement" is ambiguous, we
should defer to the expressed intention of the district court,
since it is that court which is in the best position to
determine whether it intended to retain jurisdiction over
enforcement of the settlement agreement. We disagree,
because under Kokkonen, unexpressed intent is insufficient
to confer subject matter jurisdiction. Giant Eagle cites
Scelsa in support of its argument, but in that case, as here,
the court concluded that the district court did not have
subject matter jurisdiction to enforce the settlement
agreement because "[f]irst and most importantly, the
Dismissal Order neither expressly retains jurisdiction over
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the Agreement nor incorporates its terms." See Scelsa, 76
F.3d at 41 (emphasis added). The intent of the district court
judge was considered only as a tertiary consideration, and
was cited in support of the court's conclusion that the
district court had not retained jurisdiction. See id. at 42.
Giant Eagle's citation of Ford v. Neese is not persuasive,
because the Seventh Circuit in that case held that the
district court never "lost" jurisdiction over enforcement of
the settlement agreement. See Ford v. Neese, 119 F.3d 560,
562 (7th Cir. 1997) ("The implication is that jurisdiction
had never been lost--that it had been retained from the
outset, in 1978, and never relinquished--to enable the
settlement agreement to be enforced.").
The parties' remaining arguments principally address
whether the district court denied Bowen due process when
it ruled on Giant Eagle's motion to enforce. Because we
conclude that the district court lacked subject jurisdiction
to adjudicate the motion to enforce, we do not reach this
issue.
CONCLUSION
Because the parties' obligation to comply with the
Settlement Agreement was not made part of the dismissal
order, and the district court did not otherwise possess an
independent basis for jurisdiction, the district court lacked
subject matter jurisdiction to rule on Giant Eagle's motion
to enforce. We thus vacate the district court's order and
remand with instruction to dismiss.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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