Opposition Brief — Greenblatt v. Smith Barney Shearson, Inc.

No. 94-949

In The

Supreme Court of the Unitéd States

October Term, 1994

’

LINDA M. GREENBLATT,

Petitioner,

VS.

SHEARSON LEHMAN HUTTON, INC.,

Respondent.

.

LINDA M. GREENBLATT,

Petitioner,

VS.

SHEARSON LEHMAN HUTTON, INC.,

Respondent.

+

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

+

BRIEF IN OPPOSITION TO PETITION

FOR WRIT OF CERTIORARI

*

JouHN R. REESE

Donn P. Pickett*

*Counsel of Record

KAREN KENNARD

Three Embarcadero Center

San Francisco, California 94111

Telephone: (415) 393-2000

Attorneys for Respondent

McCutcHen, Doy ie,

Brown & ENERSEN

Of Counsel

SE

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

more) AVA AN DV

QUESTIONS PRESENTED

Two district courts enforced class action settlement

orders that barred a class member who chose to stay in

the class and cash her settlement checks from prosecuting

her dismissed class action claims in arbitration. The

Court of Appeals held that the district court orders were

not an abuse of discretion. Should the Court review the

Court of Appeals’ decision, given that:

(1) The decision does not conflict with any decision

of any other federal circuit court or any state court of last

resort;

(2) The decision raises no substantial federal issue;

(3) The decision is unpublished and may not be

cited as precedent in the Ninth Circuit; and

(4) The legal issues sought to be reviewed are well-

settled?

il

TABLE OF CONTENTS

Page

PET RAIA. COs 6k vcd ecercennecaudeareserteseuel 2

STATEMENT OF Tite CAGE 26 2.6 cccnsdnctareceeas 2

1. The Radisson Plaza Class Action....... 2

2. The Stamford Towers Class Action..... A

ep we eee ree 6

4. The Orders Enforcing the Settlements.... 10

5. Fine AMG ss siscneceentecastensensnns 11

SUMMARY OF ARGUMENT... ......2cscccscenes: 12

PTI gs «onc vib scnnsddunkanssenseus ane 13

I.

Il.

THIS CASE DOES NOT MEET THE CRITERIA

FOR CERTIORARI UNDER SUPREME COURT

PEE Bs snc dnkovesis ehakeeaeuensseaeeeaae

A. THERE IS NO CONFLICT IN DECISIONS. .-

B. THERE IS NO SUBSTANTIAL FEDERAL

CRIBSEIG TEP TU VOOe occ vccenecetdascnes

THE LEGAL ISSUES PETITIONER RAISES ARE

WHAAAGETE CRE 6d c0s dr eeens.ceseabianetacense

A. THE COURT BELOW APPLIED THE

PROPER STANDARD OF REVIEW ........

B. THE DECISION OF THE COURT BELOW

AFFIRMING THE INHERENT AUTHORITY

OF FEDERAL COURTS TO ENFORCE

THEIR OWN INJUNCTIONS DOES NOT

CONTRAVENE THE FEDERAL ARBITRA-

Bee DE 4dnedachieus cheese antadeeinaee:

C. EVEN IF SHEARSON HAD AGREED TO

ARBITRATE THESE CLAIMS, THE DIS-

TRICT COURTS HAD AUTHORITY TO

ENFORCE THEIR OWN JUDGMENTS.....

17

19

PRE EY OR EAEE OE Ne Oy

~ OCONEE pC Tee

—

iii

TABLE OF CONTENTS - Continued

Page

D. PETITIONER’S REMAINING ARGUMENTS

Ce. ar len 22

E. THE SETTLEMENT NOTICES SATISFIED

CONSTITUTIONAL REQUIREMENTS...... 23

Re ree ee ee 26

TABLE OF AUTHORITIES

Page

CASES

Beaton v. Thompson, 913 F.2d 701 (9th Cir. 1990) ..... 16

Bennett v. Behring Corp., 96 F.R.D. 343 (S.D. Fla.

Ds 6 va vote doa 1a ONO Ter a Ce REe Ae eens Deas 24

Callie v. Near, 829 F.2d 888 (9th Cir. 1987)........... 16

Delta Air Lines, Inc. v. McCoy Restaurants, Inc., 708

& Bo gt. 2k eS err oor reo 20

Grunin v. International House of Pancakes, 513 F.2d

114 (8th Cir.), cert. denied, 423 U.S. 864 (1975). .24, 25

Halley Optical Corp. v. Jagar Int'l Marketing Corp.,

foe 8 Ce GO COAT... TOGO) 5 oi sew venw ences Z3

Hartley v. Stamford Towers Limited Partnership, et

ee: gy Perr Per err eer ye rere passim

In re Four Seasons Securities Laws Litigation, 525

aR Be ae Ae 3. | ee eee 25

In re VMS Securities Litigation, 145 F.R.D. 458 (N.D.

Ill. 1992), aff'd, 21 F.3d 139 (7th Cir. 1994) ..... a4, 22

Kelly v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,

985 F.2d 1067 (11th Cir. 1993), cert. denied, ___

5 oe?) 2 ee Oe ere rrenrrr ree 20, 21

Kinnear-Weed Corp. v. Humble Oil & Refining Co.,

441 F.2d 631 (5th Cir.), cert. denied, 404 U.S. 941

gg) Pe ee eee eee eee eee or eet ee 20

Marshall v. Holiday Magic, Inc., 550 F.2d 1173 (9th

Re cg PPT OTERO OTe eee re ee re 24

Mendoza v. United States, 623 F.2d 1338 (9th Cir.

1980), cert. denied, 450 U.S. 912 (1981)............. 24

TABLE OF AUTHORITIES - Continued

Page

Multnomah Legal Services Workers Union v. Legal

Services Corp., 936 F.2d 1547 (9th Cir. 1991) ....... 16

Nielsen v. Greenwood, Fed. Sec. L. Rep. (CCH)

Oy ee AP ee ED oven co ed wee tee a es 19

PaineWebber Inc. v. Hartmann, 921 F.2d 507 (3d Cir.

PO Cok Seva haa ods k ee Oe ee 23

Shearson/American Express, Inc. v. McMahon, 482

Ra ee Es awa a oe chk Kaeaalee esata on 20

Sullivan v. Shearson California Radisson Plaza

Partners Limited Partnership, et al., Case No.

TERS 6 05 5 5 440 508 in Venda epee eee passim

Wilkinson v. Federal Bureau of Investigation, 922 F.2d

Se a a. SEC a 0 bo a oe ho eee a ee 16

STATUTES

SP Aas eis os ve eeeab ous eaaneraeranwaracneeee 6

cy Pee ee 5 65 ose ekc 3s eek eden eee 6

a eat IE Ooo ae ea eee eeu 20, 21

Federal Arbitration Act, 9 U.S.C. § 2................ 17

Federal Rule of Civil Procedure 23.................. 19

RULES AND REGULATIONS

NASD Code of Arbitration Procedure, Section

12(d) (as amended October 28, 1992)........... 15, 22

NASD Code of Arbitration Procedure, Section

Ge ee RS ee Sane cals ating ar pera nent Y

TABLE OF

Supreme Ct.

Supreme Ct.

Supreme Ct.

Supreme Ct.

Supreme te

Supreme Ct.

Rule

Rule

Rule

Rule

Rule

Rule he

Vi

AUTHORITIES - Continued

No. 94-949

+

In The

Supreme Court of the United States

October Term, 1994

6

LINDA M. GREENBLATT,

Petitioner,

VS.

SHEARSON LEHMAN HUTTON, INC.,

Respondent.

°

LINDA M. GREENBLATT,

Petitioner,

SHEARSON LEHMAN HUTTON, INC.,

Respondent.

+

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

2

BRIEF IN OPPOSITION TO PETITION

FOR WRIT OF CERTIORARI

¢

INTRODUCTION

There is nothing to review here. It is well-settled that

district courts have broad authority to enforce their own

prior injunctions. It is also well-settled that class mem-

bers who choose to accept a settlement payment rather

than opt out of the class may not subsequently relitigate

their settled class action claims in arbitration or any other

forum.

In short, the legal issues raised by this case are not

new or unsettled. There is no conflict between the deci-

sion below and any other federal or state decision. Nor is

this unpublished decision important enough to merit

review by this Court. The Petition should be denied.

A

STATEMENT OF THE CASE

1. The Radisson Plaza Class Action

On August 28, 1989, a securities class action was filed

in the Central District of California against Respondent

Shearson Lehman Hutton Inc. (“Shearson”)! and others

' Pursuant to Supreme Court Rule 29.1, Shearson states

that, after this litigation commenced, Primerica Inc. and Smith

Barney, Harris, Upham & Co. (“Smith Barney”) acquired the

asset management and certain retail operations of Shearson

Lehman Brothers Inc., formerly known as Shearson Lehman

Hutton Inc. (exciuding the retail operations of Lehman Brothers

Inc.). Primerica Inc. merged subsequently with The Travelers

inc. The Travelers Inc., a public company whose shares are

traded on the New York Stock Exchange, is the parent company

of Smith Barney Holdings Inc., which in turn is the parent

company of Smith Barney. Smith Barney has no subsidiaries

asserting claims arising from the purchase of units in the

Shearson California Radisson Plaza Limited Partnership

(“Radisson Plaza”). Sullivan v. Shearson California Radisson

Plaza Partners Limited Partnership, et al., Case No. 89-5472-

JMI (“Sullivan”). The class action was based, in part, on

alleged misrepresentations regarding the Radisson Plaza

investment in the written prospectus and various adver-

tisements. The complaint also alleged that Shearson and

its selling agents misrepresented that Radisson Plaza was

a safe and secure investment “appropriate for individual

retirement accounts, pension and profit sharing plans and

fixed income investors.”

On May 31, 1990, District Judge James Ideman pre-

liminarily approved a $5.5 million settlement of the class

action, and approved the form of notice to be sent to all

class members. In June 1990, notice of the proposed set-

tlement was sent to Petitioner, who was a Radisson Plaza

investor and a member of the class. The notice summa-

rized the class action and the settlement, and listed each

claim alleged in the case, which was generally described

as “arising out of the offer and sale of the Units” in

Radisson Plaza. The notice advised Petitioner that she

could address any questions to class counsel, or could

seek the advice of her own attorney. Most important, the

notice informed Petitioner that she could examine the

actual pleadings and records in the class action, including

the complete Settlement Agreement, at any time.

The notice further informed Petitioner that she had a

right to be excluded from the class, and warned her that,

(other than wholly-owned subsidiaries).

if she remained a class member, she would benefit from

and be bound by the results of the class action lawsuit:

By remaining a class member, any claims against

the defendants for damages arising from the

defendants’ conduct as alleged by the Class will

be determined in this lawsuit and cannot be pre-

sented by you in any other lawsuit... .

Finally, the notice listed the time and place of the

approval hearing, and informed Petitioner of her right to

attend the hearing or submit written objections to the

settlement.

Upon receiving this notice, Petitioner had two

choices: agree to be bound by the settlement and collect

her share of the settlement fund, thereby releasing all

claims regarding her Radisson Plaza invesment, or opt

out of the class and pursue her claims against Shearson

on her own. She chose to take the money, and cashed

Shearson’s settlement checks for $1,370.

On July 16, 1990, Judge Ideman approved the settle-

ment and entered final judgment. The judgment provided

that Petitioner and the other class members were “sever-

ally and permanently enjoined and barred from institut-

ing or further prosecuting any action or proceeding in any

court or tribunal of this or any other jurisdiction based

upon any claim that is a Settled Claim. . . all of which

claims are hereby declared to be released, discharged,

compromised, settled, and extinguished.” “Settled

Claims” were defined as:

any and all existing causes of action or claims,

known or unknown, that have been or could have

been asserted by Plaintiffs against the Settling

Defendants, based upon or related to: (i) an invest-

ment in Radisson Securities, or (ii) the facts, trans-

actions, events, occurrences, acts or omissions which

relate to any of the matters alleged in the Radisson

Actions.

The Settlement Agreement defined “Settling Defen-

dants” to include Shearson and its employees. Petitioner

did not challenge the settlement or entry of judgment.

Judge Ideman expressly retained jurisdiction to enforce

the settlement and injunction.

2. The Stamford Towers Class Action

Two weeks later another securities class action was

filed in the Northern District of California against Shear-

son, among others. Hartley v. Stamford Towers Limited Part-

nership, et al., C-90-2146-JPV (“Hartley”). The class

asserted claims arising from the purchase of Stamford

Towers Limited Partnership units (“Stamford Towers”).

Like Sullivan, the Hartley case was based, in part, on

alleged misrepresentations regarding the Stamford

Towers investment in the written prospectus, sales bro-

chures, and oral “sales pitches.” The class alleged that

Shearson and its selling agents misrepresented Stamford

Towers to be a secure investment “appropriate for inves-

tors seeking capital appreciation, cash distributions and

investment safety.”

In an order entered nunc pro tunc as of May 9, 1991,

District Judge John Vukasin, Jr. preliminarily approved a

$6.5 million settlement of the Hartley action, and

approved the form of notice to be sent to class members,

including Petitioner, who was an investor in Stamford

Towers and a member of the class.

3. The Arbitration

On May 20, 1991, a year after Sullivan was settled and

nearly a year after Hartley was filed, Petitioner filed an

arbitration proceeding with the National Association of

Securities Dealers (“NASD”) against Shearson and her

Shearson broker, Kenneth Silva. Her arbitration claims

involved almost 200 different investments, two of which

were Radisson Plaza and Stamford Towers. Petitioner

admits that her investments in Stamford Towers and

Radisson Plaza represented a relatively small percentage

of her total claimed damages in arbitration.

Like the Sullivan and Hartley complaints, Petitioner’s

arbitration complaint alleged violations of § 10(b) and

Rule 10b-5, fraud, negligent misrepresentation, and negli-

gence. Petitioner also alleged that her broker, Silva,

advised her to invest in Stamford Towers and Radisson

Plaza although the investments were not liquid and were

excessively speculative. This allegation matches those

made in Sullivan and Hartley that Shearson brokers mis-

represented that these units were “appropriate” or “suita-

ble” investments. Petitioner herself recognized the

similarity, as her arbitration complaint alleges that her

limited partnership investments were “financially dis-

tressed and/or the subject of class action lawsuits.”

One month after Petitioner filed her arbitration com-

plaint, she received notice of the class action settlement in

Hartley. Like the notice in Sullivan, the Hartley notice

summarized the class action and the settlement, advised

Petitioner that she should address any questions to class

counsel or consult her own attorney, and informed her of

her right to see the pleadings in the case, including the

full Settlement Agreement. The notice listed the causes of

action alleged in the case, and described them as “arising

out of, among other claims, [Shearson’s] services as sell-

ing agent in connection with the offer and sale of the

Units” in Stamford Towers.

The notice informed Petitioner of her right to be

excluded from the class, and of the consequences of fail-

ing to opt out:

By remaining a class member, any claims against

the Defendants for damages arising from the

Defendants’ conduct as alleged by the Class

Action Complaint will be determined in this

lawsuit and cannot be presented by you in any other

lawsuit...

If you remain a member of the Class: You will be

bound by all further orders and judgments of the

Court.

Finally, the notice informed her of her right to attend

the approval hearing or to submit written objections to

the settlement.

Once again, Petitioner faced the choice of cashing her

settlement check and releasing her claims, or opting out

and pursuing her claims against Shearson. This time,

however, she did not face that choice alone. When she

received this notice, Petitioner was represented by her

current counsel, and was actively pursuing her arbitra-

tion claims against Shearson. Yet she did not opt out of

the class, or object to the settlement. Instead, she cashed

Shearson’s settlement check for $23,168.2

On July 11, 1991, Judge Vukasin approved the settle-

ment and entered final judgment. The judgment provided

that Petitioner and the class were “severally and perma-

nently enjoined and barred from instituting or further

prosecuting any action or proceeding in any court or tribunal

of this or any other jurisdiction based on any claim that is a

Settled Claim .. . all of which claims are hereby declared

to be released, discharged, compromised, settled and

extinguished.” “Settled Claims” were defined as:

any and all existing causes of action or claims,

known or unknown, that have been or could have

been asserted by Plaintiffs against Defendants,

based upon or related to investments in the Units of

limited partnership interest in Stamford Towers

Limited Partnership or the matters alleged in the

Hartley action, including claims for breach of

fiduciary duty, negligence, breach of contract, or

any other alleged claim arising in connection with

the development, construction and operation of

the Partnership and its assets or as a result of,

among other things, defendant Shearson Lehman

Hutton, Inc.'s services as a selling agent in connec-

tion with the offer and sale of the Units of limited

partnership interest in Stamford Towers Limited

Partnership as set forth in the Prospectuses.

2 Petitioner’s attempt to have it both ways by cashing her

settlement check with an endorsement that it was without preju-

dice to her arbitration*claims was judged to be an invalid objec-

tion to the settlement by the district court. Appendix, at A-33.

Petitioner did not challenge this ruling on appeal.

The Settlement Agreement defined “Defendants” to

include Shearson and its employees.

Again, Petitioner never challenged the settlement or

appealed the judgment. Judge Vukasin expressly retained

jurisdiction to enforce the settlement and injunction.

Although she had cashed Shearson’s settlement

checks in both Sullivan and Hartley, Petitioner continued

to press her released Radisson Plaza and Stamford

Towers claims in arbitration. Because her assertion of

these claims in arbitration was in direct violation of the

Sullivan and Hartley injunctions, Shearson timely

answered the arbitration complaint on September 20,

1991, and simultaneously moved to dismiss the Radisson

Plaza and Stamford Towers claims. In its Answer, Shear-

son expressly preserved its objection to the arbitrability

of the Radisson Plaza and Stamford Towers claims. The

Answer stated: “Greenblatt is a member of the classes

and therefore, cannot pursue any claims related to [the

Radisson Plaza or Stamford Towers limited partnerships]

in this lawsuit.”

While its motion to dismiss was pending, Shearson

participated in the arbitration process with respect to

Petitioner’s other, non-released claims, which comprised

the majority of her claimed damages. Appendix, at A-14

n.1.° As required by Code of Arbitration Procedure Sec-

tion 25(b), Shearson and Silva executed form Submission

3 Citations in this brief to the Appendix submitted by Peti-

tioner are designated as “App.” followed by the page number.

Citations to the Petition For Writ of Certiorari itself are desig-

nated as “Petition.”

10

Agreements. The Submission Agreements contained a

clear limitation on what was being submitted to arbitra-

tion: “the present matter in controversy, as set forth in the

attached statement of claim and answers. ” App. A-60;

A-64. Because Shearson expressly waned: in its Answer

that the Radisson Plaza and Stamford Towers claims were

not arbitrable, the Submission Agreements did not submit

those claims to arbitration.

The Director of Arbitration referred Shearson’s

motion to dismiss to a hearing before a panel of arbitra-

tors, but several months went by without a panel being

appointed. As the arbitration date approached, Shearson

withdrew its motion without prejudice, and sought relief

from the district courts.

4. The Orders Enforcing the Settlements

In August 1992, Shearson filed a motion to enforce

the Stamford Towers judgment and enjoin Petitioner from

relitigating her dismissed claims in arbitration. On Octo-

ber 5, 1992, the district court granted the motion. App.

A-29. The court held that Petitioner, as a class member,

was bound by the settlement and injunction. App. A-33.

The court held that Shearson had not waived either its

right, or the court’s authority, to enforce the judgment

and injunction by participating in the arbitration. App.

A-34. In so ruling, the court noted that Shearson had

asserted that the Stamford Towers claims were barred

from the inception of arbitration. App. A-34. Accordingly,

the court held that Petitioner was permanently enjoined

11

and barred from further arbitrating her Stamford Towers

claims. App. A-35.

On October 5, 1992, Shearson filed a similar motion

to enforce the Sullivan settlement and injunction.4 On

November 9, 1992, the court granted that motion. App.

A-37. The court held that Petitioner chose to remain a

class member, and had ratified the settlement by cashing

Shearson’s settlement checks. App. A-44. Finally, the

court found that, by participating in the arbitration pro-

cess, Shearson had not waived its right or the court’s

authority to enforce the Sullivan judgment and injunction.

App. A-47. Accordingly, the court held that Petitioner

was “permanently enjoined and barred” from arbitrating

her Radisson Plaza claims. App. A-49.

5. The Appeal

Petitioner appealed both orders, and the Ninth Cir-

cuit affirmed. The court held that the district courts did

not abuse their broad discretion to enforce their own

judgments. App. A-12. It also upheld the findings that

Shearsor, nad not waived its right to seek judicial enforce-

ment oi the settlements, and that the settlement notices

were adequate to fairly apprise class members of the

nature of the suits, the terms of the settlements, and their

opportunity to be heard. App. A-24-25.

4 Prior to filing its motion to enforce the settlement and

injunction, Shearson filed an ex parte application seeking a tem-

porary restraining order enjoining Petitioner’s arbitration of her

dismissed Radisson Plaza claims. The court denied the ex parte

application, but expressly invited Shearson to submit a fully

noticed motion to enforce the settlement agreement. App. A-59.

= CE

12

Petitioner did not seek rehearing by the Ninth Cir-

cuit. Instead, she seeks review by this Court.

*

SUMMARY OF ARGUMENT

The Court should refuse to grant review of this deci-

sion for these reasons:

1. Petitioner has made no showing that this

unpublished decision meets the criteria for certiorari pro-

vided in Supreme Court Rule 10, nor could such a show-

ing be made here. There is no conflict of decisions and no

substantial federal question to review.

2. The legal issues raised by Petitioner are well-

settled. The law is clear with respect to the preclusive

effects of class action settlements, the adequacy of class

notices, and the district courts’ authority to enforce their

own judgments and injunctions. Petitioner provides no

legal authority to support her claim that she may pursue

settled class action claims in arbitration after accepting

the benefits of a class action settlement and releasing

those claims. Indeed, both the Third and Eleventh Cir-

cuits have published decisions that reject Petitioner’s

position.

3. Even if the court below erred, this case does not

merit review, because Petitioner’s claims are indisputably

precluded from arbitration regardless of the outcome

here.

13

ARGUMENT

I. THIS CASE DOES NOT MEET THE CRITERIA FOR

CERTIORARI UNDER SUPREME COURT RULE 10

Petitioner fails to present a single viable reason why

this Court should review this case. Petitioner’s only

stated basis for seeking review is that the court below got

it wrong. Of course, if that were a criterion for granting

review, there would be no case that did not qualify, in the

opinion of one of the parties.

However, that is not a criterion. Supreme Court Rule

10 provides a representative list of the types of cases this

Court will consider on a writ of certiorari. None of those

circumstances are present here. Nor has Petitioner even

argued that they are, despite the fact that Supreme Court

Rule 14(j) expressly requires a “direct and concise argu-

ment amplifying the reasons relied on for the allowance

of the writ” pursuant to Rule 10.

The reason for Petitioner’s omission of such a “direct

and concise argument” is simple: This case does not meet

any of the criteria for certiorari.

A. THERE IS NO CONFLICT IN DECISIONS

This case presents no split of authority between two

federal appellate courts, or between a federal appellate

court and this Court. Supreme Ct. Rule 10.1(a), (c).

Indeed, the Third and Seventh Circuits have published

opinions that directly support the Ninth Circuit decision

here. In fact, Petitioner has not found a single federal

decision, district court or appellate, that supports her

position that class members who release their claims and

14

accept a settlement payment can later prosecute those

released claims in arbitration.

Not only are there no federal cases that support Peti-

tioner’s position, there are no state court decisions that

do. Thus, this case does not present any conflict between

a decision of a state court of last resort and another state

or federal appellate court. Supreme Ct. Rule 10.1(b).

B. THERE IS NO SUBSTANTIAL FEDERAL

QUESTION TO REVIEW

Nor does this case present any “important ques-

tion|s] of federal law which [have] not been, but should

be, settled by this Court.” Supreme Ct. Rule 10.1(c).

Again, Petitioner does not claim this is such a case. Had

she thought to make such a claim, however, she would

have been wrong. Indeed, the court below did not find its

decision important enough for publication. Ninth Circuit

Rule 36-2(d).5 As a result, it cannot be cited or relied on in

the Ninth Circuit or any district court in that Circuit.

Ninth Circuit Rule 36-2.

This case lacks significance for another reason. Even

if this Court were to grant review and agree with Peti-

tioner that the arbitrability of these claims should be

decided by the arbitrators, rather than the district courts,

> Indeed, the court below refused to publish the decision

even after Shearson requested that it do so. In making its

request, however, Shearson did not claim any important federal

questions were involved. In fact, Shearson noted that the deci-

sion reinforced “established law,” and, if published, would be

important only because it would prevent the spurious relitiga-

tion of dismissed class action claims in arbitration.

15

her claims would still be precluded. Indeed, Petitioner

never argues that her Stamford Towers and Radisson

Plaza claims are not precluded by the class action settle-

ments and injunctions. She simply argues that she did not

realize they were precluded, and that the wrong people

were allowed to tell her that her claims were barred.

Petitioner’s whole argument seems to be that the

arbitrators, not the district courts, should be allowed to

tell her that she may not arbitrate her released class

action claims. Petitioner concedes that amendments to the

NASD Code of Arbitration Procedure, which became

effective after the district court orders barring Petitioner’s

claims were issued, make it crystal clear that “[a]ny claim

filed by a member or members of a putative or certified

class action is . . . ineligible for arbitration at the Associa-

tion if the claim is encompassed by a putative or certified

class action filed in federal or state court.” NASD Code of

Arbitration Procedure, Section 12(d) (as amended Octo-

ber 28, 1992). Though these amendments were enacted.

too late to help Shearson, they presumably will apply to

any proceeding before the NASD on remand. Thus, Peti-

tioner’s claims are precluded. Period. Accordingly, if

there were an important federal question here, which

there is not, this would not be the case to address it.®

Moreover, this rule also settles the issue for all future

cases, so there is no need for the Court to act. The

6 Petitioner does not suggest, nor could she, Rule 10’s other

ground for review, that the courts here “so far departed from the

accepted and usual course of judicial proceedings . . . as to call

for an exercise of this Court’s power of supervision.” Supreme

Ct. Rule 10.1(a).

16

problem Petitioner complains of here should not come up

again. Thus, reviewing this case would not be time well

spent.

II. THE LEGAL ISSUES PETITIONER nae ARE

WELL-SETTLED

In addition to the fact that this case raises no impor-

tant federal question, the legal issues involved here are

well-settled, and simply do not merit review by this

Court.

A. THE COURT BELOW APPLIED THE PROPER

STANDARD OF REVIEW

First, Petitioner claims the court below applied the

wrong standard of review. She asserts that the scope of

arbitration clauses should be reviewed de novo. But the

standard of review applicable to arbitration clauses is not

the issue. The orders from which Petitioner appealed are

orders enforcing the Sullivan and Hartley settlements and

injunctions. The district court’s enforcement of a settle-

ment agreement is reviewed for an abuse of discretion.

Wilkinson v. Federal Bureau of Investigation, 922 F.2d 555,

558 (9th Cir. 1991); Callie v. Near, 829 F.2d 888, 890 (9th

Cir. 1987). Likewise, the district court’s grant of a perma-

nent injunction is reviewed for an abuse of discretion.

Multnomah Legal Services Workers Union v. Legal Services

Corp., 936 F.2d 1547, 1552 (9th Cir. 1991); Beaton uv.

Thompson, 913 F.2d 701, 702 (9th Cir. 1990). The abuse of

discretion standard applied by the court below was

undoubtedly correct.

17

B. THE DECISION OF THE COURT BELOW

AFFIRMING THE INHERENT AUTHORITY

OF FEDERAL COURTS TO ENFORCE THEIR

OWN INJUNCTIONS DOES NOT CONTRA-

VENE THE FEDERAL ARBITRATION ACT

Next, Petitioner asserts that the court below some-

how created an improper “judicial exception” to the Fed-

eral Arbitration Act (“FAA”), 9 U.S.C. § 2, by affirming

the district courts’ enforcement of the Sullivan and Hart-

ley class action settlements and injunctions. In fact, there

was no agreement to arbitrate the settled claims. To con-

jure up such an agreement, Petitioner must ignore both

the fact that she was judicially enjoined from arbitrating

her released Stamford Towers and Radisson Plaza claims

in the first place, and the fact that Shearson never

“agreed” to arbitrate those claims.

In order to bring this case within the confines of the

FAA, Petitioner asserts that the court below erred in

failing to find that Shearson agreed to arbitrate the arbi-

trability of the Stamford Towers and Radisson Plaza

claims. But the court below was right. Shearson never

made such an agreement. In claiming that it did, Peti-

tioner’s argument is circular: Because Shearson first

raised its preclusion defense in arbitration and partici-

pated in arbitration before seeking relief in the district

court, Shearson “agreed” to arbitrate the arbitrability of

those claims. Petition, at 45-50. This defies the facts and

common sense.

As the court below correctly noted, Shearson’s

Answer in arbitration expressly preserved its objection

that the Radisson Plaza and Stamford Towers claims were

18

precluded and barred. App. A-10. The Submission Agree-

ments, which Shearson was required by NASD rules to

submit in order to proceed with the remainder of Peti-

tioner’s arbitration claim, contained a clear limitation on

what Shearson was agreeing to submit to arbitration: “the

present matter in controversy, as set forth in the attached

statement of claim and answers. ...” App. A-60; A-64.

Shearson stated in its Answer that Petitioner’s Radisson

Plaza and Stamford Towers clairns were not arbitrable.

Thus, the Submission Agreements did not submit the

arbitrability of Petitioner’s released claims to arbitration.

In any event, the interpretation of disputed submis-

sion agreements presents a fact-specific question peculiar

to this case, not an issue of widespread and continuing

interest. This is another reason the Court should decline

to review the decision below.

After mischaracterizing Shearson’s conduct as an

agreement to arbitrate, Petitioner engages in a lengthy

discussion of the federal policy favoring arbitration

which is entirely beside the point. Petition, at 30. Equally

irrelevant is her discussion of the legal standard for

determining arbitrability when claim preclusion is not an

issue. Petition, at 31-40. None of the cases Petitioner cites

for determining whether a dispute is arbitrable involved

an attempt to arbitrate settled and released claims. The

issue is not whether courts tend to encourage arbitration

or rigorously enforce agreements to arbitrate. The issue is

whether the courts that enjoined Petitioner from arbitrat-

ing her settled class action claims here had authority to

enforce those injunctions and properly did so. In the

absence of any agreement to arbitrate the impact of the

19

class action settlements, Petitioner has no viable argu-

ment that the district courts erred in enforcing their own

injunctions.

C. EVEN IF SHEARSON HAD AGREED TO

ARBITRATE THESE CLAIMS, THE DISTRICT

COURTS HAD AUTHORITY TO ENFORCE

THEIR OWN JUDGMENTS

Even if Shearson had agreed to arbitrate the question

of whether Petitioner’s Stamford Towers and Radisson

Plaza claims were barred, which it did not, the district

courts properly enforced the Sullivan and Hartley injunc-

tions with respect to these claims. As Petitioner notes, the

FAA provides that a written agreement to submit a con-

troversy to arbitration is valid and enforceable absent

legal or equitable grounds for its revocation. However,

Petitioner’s own cases hold that an agreement to arbitrate

statutory rights will not be enforced where the statutory

rights at issue (here, a district court’s power to enforce its

own injunction) give rise to “an inherent conflict between

arbitration and the statute’s underlying purposes.”7 See,

7 On this point, Petitioner notes that one court has ruled

that there is no “inherent conflict” between Federal Rule of Civil

Procedure 23, which governs class actions, and the FAA. Nielsen

v. Greenwood, Fed. Sec. L. Rep. (CCH) ¥ 97,408 (N.D. Ill. 1993).

However, the issue in Nielsen was whether two investors who

had agreed to arbitrate claims against an underwriter could

assert the policy favoring class actions to invalidate their arbi-

tration agreements. The court held that they could not. That

holding has no bearing on the inherent conflict between allow-

ing arbitration of enjoined claims and a court’s broad authority

to enforce its own injunction.

20

e.g., Shearson/American Express, Inc. v. McMahon, 482 U.S.

220, 226 (1987). Thus, any such “agreement” would be

unenforceable in light of the inherent conflict between

such an agreement and the expansive language of 28

U.S.C. § 1651.

Section 1651 grants the federal courts broad injunc-

tive power to protect their own judgments. 28 U.S.C.

§ 1651; Kelly v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,

985 F.2d 1067, 1069 (11th Cir.), cert. denied, __ U.S. __,

114 S. Ct. 600 (1993); Kinnear-Weed Corp. v. Humble Oil &

Refining Co., 441 F.2d 631, 637 (5th Cir.), cert. denied, 404

U.S. 941 (1971). Under Section 1651, federal courts have

the power to issue “all writs necessary or appropriate in aid

of their respective jurisdictions and agreeable to the

usages and principles of law.” 28 U.S.C. § 1651 (emphasis

added). This power rests with the court, not the litigants,

and is not limited to relief the parties may request. See,

e.g., Delta Air Lines, Inc. v. McCoy Restaurants, Inc., 708

F.2d 582, 587 (11th Cir. 1983) (district court can best

determine whether its judgment is threatened by subse-

quent litigation, and is thus empowered to enjoin arbitra-

tion proceedings that jeopardize its prior judgment

regardless of a party’s action or inaction). Thus, this

power is independent from, and unaffected by, the FAA.

A district court acting to enforce its own judgment and

injunction, and an appellate court that affirms such an

act, are not creating an “exception” to anything.

Thus, Petitioner is wrong when she suggests that

parties can agree to arbitrate claims that a federal court

has ordered enjoined and barred merely because there is

a federal policy favoring arbitration. To adopt such a rule

would raise an inherent conflict between arbitration and

————————_E_

21

the authority of the court, and would eviscerate Section

1651’s express purpose of providing federal courts with

the power to do whatever is necessary or appropriate to

enforce their own judgments.

This broad authority clearly includes the power to

enjoin arbitration proceedings. As a general principle, the

district court’s injunctive power specifically includes the

authority to enjoin arbitration to prevent relitigation of

claims. Kelly v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,

985 F.2d 1067, 1069 (11th Cir.), cert. denied, __ U.S. ___,

114 S. Ct. 600 (1993). And more to the point, the district

court’s jurisdiction to enforce the terms of a class action

settlement includes the power to enjoin further prosecu-

tion of settled claims by class members in arbitration

proceedings.

This rule is illustrated by In re VMS Securities Litiga-

tion, 145 F.R.D. 458 (N.D. Ill. 1992), aff'd, 21 F.3d 139 (7th

Cir. 1994). In the VMS case, the district court granted

defendant’s motion to enforce a class action settlement

despite the fact that the defendant had already litigated

the matter in arbitration, unsuccessfully raised the

defense that the arbitration claims were precluded by the

class action settlement, and then proceeded on the merits

and lost the arbitration. The district court ruled that it

retained jurisdiction to enforce its class action judgment

and settlement agreement and enjoined the customer

from enforcing the arbitration award. The Seventh Circuit

affirmed, and held in addition that the arbitrators had

exceeded their authority by even considering the barred

class action claims in the arbitration proceeding. Id. at

145. Indeed, the VMS case is particularly instructive here,

22

because it establishes that a district court properly exer-

cises its authority to enforce its prior injunction even after

the merits of released class action claims have been

addressed in arbitration.

D. PETITIONER’S REMAINING ARGUMENTS

LACK MERIT

In her struggle to create an unsettled issue of law

where none exists, Petitioner argues that Ninth Circuit's

decision renders Section 12(d) of the NASD Code of

Arbitration Procedure “null and void.” This is prepos-

terous. As Petitioner acknowledges, Section 12(d) was not

enacted until after the orders in question here were

issued.® Thus, the procedures and deadlines delineated in

Section 12(d) did not apply to, and were not violated by,

Shearson’s conduct. Its applicability is not, and never has

been, an issue in this case. In any event, the Ninth Cir-

cuit’s decision is completely consistent with Section

12(d), which expressly provides that a party who believes

claims encompassed by a class action are improperly

being pursued in arbitration “may elect... to petition the

court with jurisdiction over the putative or certified class

action to resolve such disputes.” Section 12(d).

Finally, Petitioner complains that the Ninth Circuit's

decision is “unfair,” because it allows a party who sub-

mits a case to arbitration to remove the matter to a

8 Because Section 12(d) was not effective until October,

1992, it would have been literally impossible for Shearson to

have complied with that rule within ten days of the arbitration

panel’s January, 1992 notice referring the matter to an arbitra-

tion panel. Petition, at 43 n.8.

23

judicial forum if the arbitration does not go in its favor.

Petition, at 44. She suggests that such an outcome was

condemned in Halley Optical Corp. v. Jagar Int'l Marketing

Corp., 752 F. Supp. 638, 639-40 (S.D.N.Y. 1990).

That result has been approved in other cases (see, ¢.g.,

PaineWebber Inc. v. Hartmann, 921 F.2d 507, 512-14 (3d Cir.

1990); In re VMS Securities Litigation, 145 F.R.D. 458 (N.D.

Ill. 1992), aff'd, 21 F.3d 139 (7th Cir. 1994)), but that is not

what happened here. In Halley, a defendant moved to

vacate an unfavorable arbitration award. Here, the arbi-

trators have never ruled, favorably or unfavorably, on

Petitioner’s Stamford Towers and Radisson Plaza claims.

Thus, Shearson did not go to the district court to forum

shop with the benefit of hindsight, as Petitioner suggests.

Indeed, the only thing “unfair” about this case is that

Shearson, who paid millions to finally settle all claims

regarding Radisson Plaza and Stamford Towers, has been

forced to face them again in arbitration by Petitioner, who

cashed Shearson’s settlement checks in exchange for her

release of these claims. Nor is it fair for Shearson to

undergo the process of review by this Court, when all

Petitioner seeks is a chance to have her claims precluded

by a different forum.

E. THE SETTLEMENT NOTICES SATISFIED

CONSTITUTIONAL REQUIREMENTS

Finally, Petitioner complains that the court below

erroneously ruled that the settlement notices she received

adequately informed her of the consequences of remain-

ing a class member, as required by the Fifth Amendment

to the Constitution. But this is a fact-specific dispute over

24

the adequacy of information in a particular notice. It does

not present a question of interest to anyone other than

Petitioner. Thus, it is not an appropriate issue for review

by the Court.

Moreover, it is well-settled that the notice given to

class members for the approval of a class settlement need

only fairly apprise them of the subject matter of the suit,

the proposed terms of the settlement, and their oppor-

tunity to be heard. Marshall v. Holiday Magic, Inc., 550 F.2d

1173, 1177 (9th Cir. 1977). Accordingly, the notice may

contain only a “very general description” of the proposed

settlement. Mendoza v. United States, 623 F.2d 1338, 1351

(9th Cir. 1980), cert. denied, 450 U.S. 912 (1981); Grunin v.

International House of Pancakes, 513 F.2d 114, 122 (8th Cir.),

cert. denied, 423 U.S. 864 (1975). As stated in Bennett v.

Behring Corp., 96 F.R.D. 343 (S.D. Fla. 1982), “[iJt is not the

function of the settlement notice to fully inform the class

of all the details of the settlement, but merely to put class

members on notice of the general parameters of the set-

tlement and to inform them of where information as to

the specifics may be obtained.” See also Grunin, 513 F.2d

at 122.

This is exactly what was provided by the settlement

notices here. As Petitioner concedes, the court-approved

notices in question generally described the litigation, lis-

ted the causes of action in the complaints, stated that

those claims and others would be dismissed, advised Peti-

tioner of her options with respect to remaining a class

member, invited her to examine the full settlement agree-

ments, and gave her the opportunity to consult with class

counsel or her own lawyer. Finally, the notices provided

the dates and times of the settlement hearings, and

Oe ee a a

25

informed Petitioner of her right to appear at the hearings

or object to the settlements.

Petitioner supports her claim that the class notices

were inadequate by misquoting those notices. As noted in

the Opposition of Respondents and Plaintiffs’ Class

Counsel to Petition for Writ of Certiorari, Petitioner selec-

tively fails to quote the language in both notices describ-

ing the preclusive effects of remaining a class member,

and misquotes the language she does cite to create the

impression that the description of the claims being

released was narrower than the notices actually provided.

See Class Counsel’s Opposition, at 2-4.

Petitioner also glosses over her own failure to review

the complete Sullivan and Hartley settlement agreements.

Where, as here, a class notice satisfies due process

requirements, class members have a duty to ascertain any

additional facts necessary to their decision to opt out or

accept the benefits of the settlement. In re Four Seasons

Securities Laws Litigation, 525 F.2d 500, 503 (10th Cir. 1975)

(party who made no effort to examine available court

files “cannot now be heard to complain that he did not

know what they would have revealed.”). “Class members

are not expected to rely upon the notices as a complete

source of settlement information.” Grunin v. International

House of Pancakes, 513 F.2d 114, 122 (8th Cir.), cert. denied,

423 U.S. 864 (1975). Petitioner could easily have obtained

more information, including the entire Settlement Agree-

ments containing the detailed language of the class mem-

bers’ release of claims, had she taken the time to do so.

The notices provided in Sullivan and Hartley were ade-

quate and satisfied constitutional due process requirements.

26

Petitioner cannot blame her failure to understand the impli-

cations of these settlements on any defect in the notices

themselves.

CONCLUSION

There is no reason for this Court to review this case,

which presents neither a conflict in decisions, nor any

substantial federal question. The Petition should be

denied.

Respectfully Submitted,

JOHN R. REESE

Donn P. Picxett*

KAREN KENNARD

Three Embarcadero Center

San Francisco, CA 94111

Telephone: (415) 393-2000

Attorneys for Respondent

* Counsel of Record

McCuTcHEN, Doy_e,

BROWN & ENERSEN

Of Counsel

January 27, 1995.