Filed: Dec. 08, 1997
Latest Update: Feb. 21, 2020
Summary: [PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 95-9418 _ D.C. Docket No. 1:94-cv-744-RLV IN RE: T2 MEDICAL, INC. SHAREHOLDER LITIGATION. _ KENNETH and LAURA BENDER, HAL BLOOMBERG, ARNOLD BRUSTIN, JONATHAN BURSTEIN, MARGARET C. CARNETT, et al., Plaintiffs-Appellants, versus JOSEPH C. ALLEGRA, T2 MEDICAL, INC., DAVID HERSH, J. LEE LEDBETTER, Defendants-Appellees, DAVID SACHS, Objector, pro se; RICHARD A. LAWRENCE; CORAM HEALTHCARE CORPORATION, Movants. _ Appeal from
Summary: [PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 95-9418 _ D.C. Docket No. 1:94-cv-744-RLV IN RE: T2 MEDICAL, INC. SHAREHOLDER LITIGATION. _ KENNETH and LAURA BENDER, HAL BLOOMBERG, ARNOLD BRUSTIN, JONATHAN BURSTEIN, MARGARET C. CARNETT, et al., Plaintiffs-Appellants, versus JOSEPH C. ALLEGRA, T2 MEDICAL, INC., DAVID HERSH, J. LEE LEDBETTER, Defendants-Appellees, DAVID SACHS, Objector, pro se; RICHARD A. LAWRENCE; CORAM HEALTHCARE CORPORATION, Movants. _ Appeal from ..
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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________________
No. 95-9418
________________________________
D.C. Docket No. 1:94-cv-744-RLV
IN RE:
T2 MEDICAL, INC. SHAREHOLDER LITIGATION.
____________________________
KENNETH and LAURA BENDER, HAL BLOOMBERG,
ARNOLD BRUSTIN, JONATHAN BURSTEIN,
MARGARET C. CARNETT, et al.,
Plaintiffs-Appellants,
versus
JOSEPH C. ALLEGRA, T2 MEDICAL, INC.,
DAVID HERSH, J. LEE LEDBETTER,
Defendants-Appellees,
DAVID SACHS, Objector, pro se; RICHARD
A. LAWRENCE; CORAM HEALTHCARE CORPORATION,
Movants.
_________________________________________________________________
Appeal from the United States District Court
for the Northern District of Georgia
_________________________________________________________________
(December 8, 1997)
Before HATCHETT, Chief Judge, ANDERSON, Circuit Judge, and LAY*, Senior Circuit
Judge.
HATCHETT, Chief Judge:
Appellants, class members of a federal securities lawsuit that concluded in a
settlement, moved, after final judgment had been entered, “to enforce” the settlement
agreement, asserting state-law claims against appellees for alleged misconduct occurring
during the period of the settlement negotiations. The district court, finding that
appellants’ motion constituted a contractually-prohibited attempt to modify the settlement
agreement, held that it had “no authority or jurisdiction” to entertain it. We affirm.
BACKGROUND
On August 24, 1994, the district court in the Northern District of Georgia certified
a class of persons (appellants) who purchased T² Medical, Inc. (T²) common stock from
________________________________________
*
Honorable Donald P. Lay, Senior U.S. Circuit Judge for the Eighth Circuit, sitting by
designation.
2
December 2, 1991, through August 12, 1993, and “suffered damages as a result thereof.”1
Less than two months later, the parties executed a memorandum of understanding which
memorialized the material terms of a settlement.
In April 1995, the parties filed a stipulation of settlement with the district court.
The stipulation provides that appellants release and discharge all claims against appellees
in exchange for $25,000,000 and 2,520,000 warrants to purchase Coram common stock.
The adjusted exercise price of the warrants, calculated pursuant to a formula outlined in
paragraph 2.3 of the stipulation, was $22.125.2 Paragraph 9.7 of the stipulation states that
[t]his Stipulation of Settlement . . . shall not be subject to limitation,
impairment, modification, or termination for any reason . . . , including
without limitation the following:
(a) Any judicial . . . decision . . . of any type which allegedly
relates to any of the terms of this settlement or to any issue,
claim, allegation or defense which has been or might have
been asserted in the Litigation;
(b) Any change, whether adverse or positive, in the financial
condition, assets, liabilities, business, or any other corporate .
. . activity of any of the Parties;
1
In July 1994, T² merged with other companies to form appellee Coram Healthcare
Corp. (Coram). The parties agree that for purposes of this lawsuit Coram is the successor
in interest to T². The individual appellees served as officers of T².
2
Pursuant to paragraph 2.3, the adjusted exercise price of the warrants was derived
from an agreed-upon initial exercise price of $20.25 that was adjusted "based on the
average closing price for Coram common stock for the ten business days preceding the
date at which the Judgment has become Final." Pursuant to the stipulation, the judgment
became “Final” on Saturday, June 17, 1995, “thirty (30) days after entry of the
Judgment,” and thus the ten-day adjustment period transpired June 5-9 and 12-16, 1995.
The warrants have a four-year term from their date of issuance.
3
(c) Any allegedly newly discovered facts, legal issues, events
or allegations of any type which allegedly relate to any of the
terms of this settlement . . . ; or
(d) Any other action or conduct of any type which allegedly
relates to any of the terms of this settlement . . . .
Paragraph 10.7 of the stipulation provides that the stipulation and its exhibits "constitute
the entire agreement among the parties hereto and no representations, warranties or
inducements have been made to any party concerning the Stipulation . . . other than the
representations, warranties and covenants contained and memorialized in such
documents." Paragraph 10.10 of the stipulation reads: “The Court shall retain
jurisdiction with respect to implementation and enforcement of the terms of the
Stipulation, and the Settling Parties hereto submit to the jurisdiction of the Court for
purposes of implementing and enforcing the settlement embodied in the Stipulation.”
After conducting a fairness hearing, on May 19, 1995, the district court, in a Final
Judgment and Order of Dismissal, approved the "settlement set forth in the Stipulation,"
and "direct[ed] that it . . . be effectuated in accordance with its terms." The court also
wrote:
Without affecting the finality of this Judgment in any way, this Court
hereby retains continuing jurisdiction over (a) implementation and
administration of the settlement; (b) distribution of the Settlement Fund; (c)
determination of any questions or applications for attorneys' fees, costs,
interest, and expenses; (d) determination of any other applications for
payments out of the Settlement Fund; and (e) all parties heretofore [sic] the
purpose of enforcing and administering the Stipulation and Exhibits thereto
and the Litigation until the Judgment contemplated hereby has become
effective and each and every act agreed to be performed by the parties has
been performed pursuant to the Stipulation.
4
Thereafter, the conditions of settlement were fulfilled.3
Appellants allege that "[d]uring the pendency of the settlement, Coram made
numerous, materially false and misleading announcements to the investing public
regarding its business ventures and financial status, which inflated the market price of its
common stock." These announcements related to the following business activity: In
January 1995, Coram announced it would merge with Caremark International; on April 6,
1995, Coram reported the completion of this acquisition; and on April 18, 1995, Coram
announced a merger agreement with Lincare. According to appellants,
[i]n early June of 1995, Coram learned that its analysis regarding the
value of the consummated Caremark merger was grossly erroneous. As a
consequence of this discovery, the pending merger with Lincare was
terminated. However, these facts were not disclosed to the plaintiffs or the
investing public until late July and early August. Thus, at the very time that
plaintiffs and defense counsel were determining the exercise price of the
Warrants under the terms of the Stipulation, the defendants knew that the
value of the Coram stock (which was used to establish th[e] exercise price .
. .) was grossly inflated.
....
Had the plaintiffs and the investing public known of the materially
adverse information concealed by Coram, the average market price of
Coram common stock during the Adjustment Period would have been
approximately $5.25 per share, resulting in an Adjusted Exercise Price of
approximately $6.30 per share. Instead, on August 11, 1995, the truth
surrounding Coram's financial condition was revealed, and the price of
Coram common stock fell dramatically, virtually destroying the value of the
3
Appellees represent, and appellants do not dispute, that “Coram caused $25 million
to be transferred to Plaintiffs’ escrow agent, and also issued and transferred 2,520,000
warrants convertible to Coram common stock at the negotiated exercise price to
Plaintiffs’ escrow agent.”
5
Warrants and revealing Coram's breach of its obligations under the
Stipulation.
Appellants' Br. at 6-8.4
On August 29, 1995, appellants filed a Motion to Enforce Stipulation of Settlement
(motion to enforce), alleging, without any accompanying evidentiary support: (1) breach
of the covenant of good faith and fair dealing under Georgia law; (2) appellees’
commission of fraud upon the court; and (3) the doctrine of mutual mistake of fact under
Georgia law. Appellants requested the following relief:
[P]laintiffs move this Court to declare that Coram is in breach of the
Stipulation and award the plaintiffs the appropriate measure of damages
reflecting the difference in value between 2,520,000 warrants with an
exercise price of $20.[25] with Coram at a stock value of $18.50 (the value
the day the Settlement Order became Final as defined in the Stipulation)
and the same number of warrants in Coram at the same exercise price with
Coram at a stock value of $5.25 (the closing price on August 14, 1995, the
day following Coram’s August 11 announcement).
In the alternative, plaintiffs move this Court for a decree of specific
performance of the terms of the Stipulation entailing the delivery of new
warrants with an Adjusted Exercise Price which is calculated using an
Effective Price that accurately reflects the true value of Coram during the
Adjustment Period.
Finally, in the event that the Court disagrees with the Plaintiffs’
assertion that the false reports disseminated by Coram and its agents were
the product of a fraudulent scheme to inflate the Adjusted Exercise Price,
the law of mutual mistake of fact provides a basis upon which this Court
can remedy the destruction of the value of the warrants and effectuate the
clear intent of the Stipulation by reforming the Stipulation to provide for an
Adjusted Exercise Price which reflects the true value of Coram during the
Adjustment Period.
4
On August 11, 1995, Coram announced a second-quarter loss of $66,300,000.
6
In an Order filed October 12, 1995, the district court denied appellants' motion,
holding:
Despite the clear language of Paragraph 9.7, the plaintiffs seek to have this
court modify the Stipulation agreed to by the parties.¹
This court has no authority or jurisdiction to consider the plaintiffs'
motion because there is nothing left to "enforce" with respect to the
Stipulation. Additionally, the very terms of the Stipulation, as set out in
paragraph 9.7, prohibit the plaintiffs from seeking the kind of modification
they now desire. The fact that the value of the warrants received by the
plaintiffs has decreased provides no basis for this court [to] change the
terms agreed upon by the parties after extensive and intensive negotiations
by able counsel.
In footnote 1, the court noted that “[t]he plaintiffs’ attempt to characterize their motion as
a motion to 'enforce’ is unavailing. The court will certainly enforce the Stipulation,
including the terms included in Paragraph 9.7.”
7
Appellants filed a notice of appeal on November 3, 1995.5 On November 28,
1995, appellees filed a motion to dismiss the appeal for lack of appellate jurisdiction,
which this court ordered carried with the case.
DISCUSSION
5
“Unsure of the outcome of this appeal as to whether the district court possessed
jurisdiction to enforce the Stipulation,” Appellants’ Br. at 4 n.5, the warrant holders filed
a separate lawsuit against Coram and its officers in the Northern District of Georgia on
November 21, 1995, asserting claims for violations of (1) section 10(b) of the Securities
Exchange Act of 1934 (the 1934 Act), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. §
240.10b-5; (2) section 20(a) of the 1934 Act, 15 U.S.C. § 78t(a); (3) O.C.G.A. § 10-5-
12(a)(2) (unlawful securities practices); (4) O.C.G.A. § 51-6-4 (fraud by silence); and (5)
the implied covenant of good faith and fair dealing. In February 1997, the district court
dismissed the action pursuant to Federal Rule of Civil Procedure 12(b)(6). According to
the court, the warrant holders’ claims “essentially involve[d] fraud in the inducement of
the Stipulation.” Hall v. Coram Healthcare Corp., Civ. Action No. 1:95-cv-2994-WBH,
slip op. at 9 n.6 (N.D. Ga. Feb. 13, 1997). After reciting paragraph 10.7 of the
stipulation, the court stated that
[u]nder Georgia state law, merger clauses are enforceable and may prevent
a party from recovering for fraud in the inducement of a contract. If a
contract contains a merger or "entire agreement" clause and the injured
party seeks damages on the contract rather than rescission, then the clause
will prevent recovery by estopping the claimant from asserting reliance on
any misrepresentations (or omissions) allegedly made outside of the four
corners of the contract.
Hall, slip op. at 9 (footnote omitted). The court applied the Georgia rule to the federal
common law context and found that because “plaintiffs show[ed] no statements within the
Stipulation by which they were defrauded,” their federal securities claims could not
survive defendants’ motion. Hall, slip op. at 10. The court then declined to entertain the
warrant holders’ supplemental state-law claims. Hall, slip op. at 10-11. The warrant
holders have appealed the district court’s judgment in Hall in case number 97-8246, and
this court denied their subsequent motion to consolidate that appeal with the instant one.
8
A district court’s determination that it lacked subject matter jurisdiction constitutes
a question of law that we review de novo. Fleming Cos. v. Abbott Lab. (In re Infant
Formula Antitrust Litig., MDL 878), 72 F.3d 842, 842-43 (11th Cir. 1995).
The prescriptions of the Supreme Court’s unanimous decision in Kokkonen v.
Guardian Life Insurance Co. of America, 114 S. Ct. 1673 (1994), control this case. In
Kokkonen, the parties settled a federal lawsuit based on diversity jurisdiction involving
state-law claims and counterclaims. Pursuant to Federal Rule of Civil Procedure
41(a)(1)(ii), the parties executed a Stipulation and Order of Dismissal With Prejudice,
which the district judge signed. Subsequently, the parties disagreed about Kokkonen’s
obligation to return certain files under the settlement agreement. Guardian Life moved to
enforce the agreement, and Kokkonen opposed the motion, arguing, in part, that the
district court lacked subject matter jurisdiction. The Ninth Circuit ultimately rejected
Kokkonen’s argument, holding that the district court retained jurisdiction under its
inherent supervisory power.
Kokkonen, 114 S. Ct. at 1674-75.
In reversing, the Supreme Court made clear that “[e]nforcement of [a] settlement
agreement . . . is more than just a continuation or renewal of the dismissed suit, and hence
requires its own basis for jurisdiction.” Kokkonen, 114 S. Ct. at 1675-76. In response to
Guardian Life’s assertion that ancillary jurisdiction supported its position, the Court
addressed its precedents concerning the doctrine and concluded that none “has, for
purposes of asserting otherwise nonexistent federal jurisdiction, relied upon a relationship
so tenuous as the breach of an agreement that produced the dismissal of an earlier federal
9
suit.” Kokkonen, 114 S. Ct. at 1676. The Court recognized that it had asserted ancillary
jurisdiction in “two separate, though sometimes related,” instances: “(1) to permit
disposition by a single court of claims that are, in varying respects and degrees, factually
interdependent, and (2) to enable a court to function successfully, that is, to manage its
proceedings, vindicate its authority, and effectuate its decrees.”
Kokkonen, 114 S. Ct. at
1676 (citations omitted). The Court found that neither instance matched the
circumstances before it. With regard to the second, which is pertinent to this case, the
Court stated:
We think . . . that the power asked for here is quite remote from what courts
require in order to perform their functions. . . . [T]he only order here was
that the suit be dismissed, a disposition that is in no way flouted or
imperiled by the alleged breach of the settlement 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.
Kokkonen, 114 S. Ct. at 1677.
We believe that the district court properly determined that it lacked jurisdiction to
entertain appellants’ motion. In our view, appellants' misdenominated “motion to
enforce” seeks a modification of the settlement agreement because it requests
compensation pursuant to an adjusted exercise price for the warrants that differs from the
one generated by the formula in the stipulation. As the district court correctly held, it did
not retain jurisdiction, pursuant to paragraph 9.7 of the stipulation, over a party's
10
attempted modification of the settlement. Accordingly, the court had no authority to
exercise ancillary jurisdiction over appellants' motion. Because appellants have not urged
that any other provision of law enabled the district court to exercise jurisdiction, we
affirm the district court's judgment .6
AFFIRMED.7
6
At oral argument, appellants' counsel expressly disavowed that the motion to enforce
was one arising under Federal Rule of Civil Procedure 60(b).
7
Appellees' motion to dismiss this action for want of appellate jurisdiction is denied.
11
