Reorganized Fli, Inc. v. Cms Marketing Services ( 2018 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS MAR 27 2018
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re WESTERN STATES WHOLESALE No. 16-17279
NATURAL GAS ANTITRUST
LITIGATION D.C. No. 2:03-cv-01431
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REORGANIZED FLI, INC.,
MEMORANDUM*
Plaintiff - Appellant,
v.
ONEOK, INC., et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the District of Nevada
Robert Clive Jones, Senior District Judge, Presiding
Argued and Submitted February 16, 2018
San Francisco, CA
Before: BEA and N.R. SMITH, Circuit Judges, and LASNIK,** District Judge.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Robert S. Lasnik, Senior District Judge for the
Western District of Washington, sitting by designation.
Appellant Reorganized FLI, Inc. (“RFLI”) appeals from the district court’s
grant of summary judgment to Defendants on the basis of release. We review the
grant of summary judgment de novo, Kaiser Cement Corp. v. Fischbach & Moore,
Inc., 793 F.2d 1100, 1103 (9th Cir. 1986), and reverse.
RFLI alleged that Defendants violated the Kansas Restraint of Trade Act,
Kan. Stat. Ann. §§ 50-101 to 164, by manipulating the price of natural gas and that
its predecessor-in-interest, Farmland,1 was injured in paying inflated prices on
contracts for “physical” natural gas. Defendants moved for summary judgment on
the ground that these claims were barred by settlement releases in a prior class
action, In re Natural Gas Commodity Litigation, No. 03-CV-06186-VM (S.D.N.Y.
2003) (the “NYMEX Action”). In the NYMEX Action, the class alleged the same
manipulative conduct by Defendants, but the NYMEX class alleged they were
injured in paying inflated prices on natural gas futures contracts (as opposed to
retail purchases of physical natural gas). The releases entered in the NYMEX
Action (the “NYMEX Releases”) purported to release any and all claims relating
in any way to the class’s NYMEX trading or any conduct alleged in the class
complaint. The district court below found that the NYMEX Releases barred
1
RFLI is the successor-in-interest to J.P. Morgan, which was in turn the successor-
in-interest, as bankruptcy trustee, to Farmland.
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RFLI’s present claims, and therefore granted summary judgment to Defendants on
their affirmative defense of release.
“Summary judgment is appropriate only if, taking the evidence and all
reasonable inferences drawn therefrom in the light most favorable to the non-
moving party, there are no genuine issues of material fact and the moving party is
entitled to judgment as a matter of law.” Friedman v. Live Nation Merch., Inc.,
833 F.3d 1180, 1184 (9th Cir. 2016) (emphasis added); Chapman v. Rudd Paint &
Varnish Co., 409 F.2d 635, 639 (9th Cir. 1969) (“[S]ummary judgment is not to be
granted merely because there are no [genuine and material] issues of fact. It must
also appear that, on the undisputed facts, the person making the motion ‘is entitled
to a judgment as a matter of law.’” (quoting Fed. R. Civ. P. 56(c))). On appeal,
RFLI argues that the district court erred in granting summary judgment because
Defendants were not “entitled to judgment as a matter of law” on their affirmative
defense of release.2 Specifically, RFLI argues the district court erred in: (1)
interpreting the NYMEX Releases to release absent class members’ claims based
on purchases of physical natural gas, (2) enforcing the NYMEX Releases against
2
Here, there are no facts in dispute. The interpretation of a release—a form of
contract—is a pure legal matter.
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RFLI in violation of the “identical factual predicate” rule,3 and (3) enforcing the
Releases in violation of RFLI’s due process rights as an absent class member.
1. The NYMEX Releases are governed by New York state contract law.
See Mardan Corp. v. C.G.C. Music, Ltd., 804 F.2d 1454, 1460 (9th Cir. 1986)
(applying New York law to determine the scope of a release in a settlement
agreement entered into in New York). Under New York law, “the scope of a
release generally depends on ‘the controversy being settled, and the purpose for
which the release is actually given,’” Mardan Corp., 804 F.2d at 1461 (quoting
Cahill v. Regan, 157 N.E.2d 505, 510 (N.Y. 1959)), but “[t]he best evidence of
what parties to a written agreement intend is what they say in their writing.”
Greenfield v. Philles Records, Inc., 780 N.E.2d 166, 170 (N.Y. 2002); see also
Mardan Corp., 804 F.2d at 1461 (rejecting the appellant’s contextual argument
under New York law because its position was “belied by the very terms of [the
settlement and release]”).
The NYMEX Releases explicitly provide that the class of “claims relating in
any way to trading in NYMEX Natural Gas Contracts” “include[s]”—at least—
claims that:
3
“[A] federal court may release not only those claims alleged in the complaint, but
also a claim ‘based on the identical factual predicate as that underlying the claims in
the settled class action.’” Reyn’s Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741,
748 (9th Cir. 2006) (original alteration omitted) (quoting Class Plaintiffs v. City of
Seattle, 955 F.2d 1268, 1287 (9th Cir. 1992)).
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(a) . . . relate in any way to any conduct complained of in any complaint
filed in the [NYMEX] Action, (b) have been asserted or could have
been asserted in any state or federal court or any other judicial or
arbitral forum against the Released Parties . . . , (c) arise under or relate
to any . . . state antitrust laws . . . . , and/or (d) [were] brought in this
Action.
The instant claims both “relate to conduct complained of . . . in the NYMEX
Action” (i.e., manipulative trading practices such as “wash” trading and
“churning”) and “relate to . . . state antitrust laws” (i.e., the Kansas Restraint of
Trade Act). Furthermore, the NYMEX Releases define “trading in NYMEX
Natural Gas Contracts” to include “purchasing . . . NYMEX Natural Gas
Contract[s] . . . as a hedger.” As Defendants argue, many of Farmland’s physical
gas purchases thus “relate[d] . . . to trading in NYMEX Natural Gas Contracts”
insofar as Farmland hedged those physical gas purchases by purchasing
corresponding NYMEX futures contracts to protect against the risk of increases in
the cost of its physical gas purchases. Therefore, the language of the NYMEX
Releases is broad enough to encompass RFLI’s instant claims.
2. The NYMEX Releases are nonetheless not enforceable against RFLI
under the so-called “identical factual predicate” rule: “A settlement agreement
may preclude a party from bringing a related claim in the future ‘even though the
claim was not presented and might not have been presentable in the class action,’
but only where the released claim is ‘based on the identical factual predicate as that
underlying the claims in the settled class action.’” Hesse v. Sprint Corp., 598 F.3d
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581, 590 (9th Cir. 2010) (quoting Williams v. Boeing Co., 517 F.3d 1120, 1133
(9th Cir. 2008); Class Plaintiffs, 955 F.2d at 1287). Therefore, although the parties
“may have drafted the settlement agreement to include as broad a release as
possible,” the NYMEX Releases are “enforceable [only] as to subsequent claims . .
. depending upon the same set of facts.” Williams, 517 F.3d at 1134 (emphasis in
original and internal quotation omitted).
The complaints in both actions allege that Defendants inflated the price of
natural gas by manipulative trading practices. But even if those elements of the
factual predicates of each claim are identical, the question whether Farmland (and
thus RFLI) was injured by Defendants—as well as the follow-on questions of
when, and where, and how—are also part of the factual predicate of RFLI’s claims
made here. Hesse, 598 F.3d at 589 (holding earlier settlement release was not
enforceable to bar later claims “brought to remedy a different set of injuries”);
accord Reyn’s Pasta Bella, 442 F.3d at 749 (finding the identical factual predicate
rule was satisfied because “the price-fixing predicate . . . and the underlying injury
[we]re identical” (emphasis added)). RFLI’s claims here therefore do not depend
on only a different cause of action (the Kansas Restraint of Trade Act), they also
depend on proof of different facts to establish a different injury: The terms of
Farmland’s physical gas contracts, the effect of Defendants’ alleged misconduct on
the performance and prices of the physical contracts, and the measure of
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Farmland’s losses on the physical contracts due to Defendants’ alleged
misconduct, are all facts which RFLI must prove in this action and which would
have been unnecessary in the NYMEX Action.
At oral argument, Defendants argued that the identical factual predicate rule
was not violated because any injury Farmland suffered on its physical contracts
was offset by its hedging through NYMEX contracts.4 However, the testimony
upon which Defendants rely indicates that Farmland’s hedging did not always
offset its losses on its physical purchases “to the penny.” In support of their
motion for summary judgment below, Defendants submitted the testimony of
Farmland’s Rule 30(b)(6) deponent, who stated, “We were never able to
completely hedge our operation, but we could hedge some of our gas costs.” Nor
was Farmland’s hedging done exclusively through NYMEX contracts during the
relevant time period. Moreover, whether the NYMEX claims and the instant
claims share an “identical factual predicate” is a purely legal question; we need not
4
The Defendants’ Answering Brief raised the hedging argument to argue that the
NYMEX Releases were broad enough to encompass RFLI’s instant claims. For the
reasons stated above, we agree that the NYMEX Releases are so broad. However,
Defendants did not argue in their Answering Brief that RFLI’s hedging practices are
relevant to this court’s “identical factual predicate” inquiry. Therefore, Defendants
waived any such argument. See Ecological Rights Found. v. Pac. Gas & Elec. Co.,
874 F.3d 1083, 1100 (9th Cir. 2017). Furthermore, for the reasons stated below, we
conclude that RFLI’s hedging practices did not and could not render the respective
factual predicates of the NYMEX action and the instant action identical, as required
under this court’s precedents.
7 16-17279
look beyond the complaints in each action to determine that they do not.5
Therefore, Defendants were not “entitled to judgment as a matter of law” on their
affirmative defense of release, and the district court erred in granting Defendants’
motion for summary judgment.
3. In light of our conclusion that enforcing the NYMEX Releases to bar
RFLI’s instant claims violated the “identical factual predicate” rule, we do not
reach RFLI’s remaining claims.
REVERSED and REMANDED.
5
Farmland’s hedging (based on NYMEX or other futures contracts) could require
the district court to reduce any eventual recovery by RFLI to account for offsetting
gains Farmland realized on its futures contracts. But that is a separate inquiry from
the “identical factual predicate” inquiry required under our circuit law to make the
NYMEX Releases enforceable here. We do not reach that separate inquiry as to the
extent of damages, if any, in this decision.
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