9th Circuit: Bar Orders in Settled Case Were Too Broad

A 9th Circuit panel found that bar orders issued in a settled class action did not extinguish state claims brought by a non-settling defendant against other defendants named in the class action. As a result, an employee of a firm that was the underwriter in an allegedly fraudulent municipal bond issue could pursue state tort claims against certain co-defendants, including his employers and the creators and operators of the bond offerings.

After approving the settlement of the class action, the district court issued several orders that barred non-settling defendants from bringing any future claims “arising out of or related to...any of the transactions or occurrences alleged" against their co-defendants. The 9th Circuit panel agreed with the employee's challenges to the scope of the bar orders, and held that under the PSLRA and California law that the orders should have been limited to claims for contribution and indemnity or disguised claims for such relief. According to the appellate court, "such bar orders may only bar claims for contribution and indemnity and claims where the injury is the non-settling defendant’s liability to the plaintiff." The question of "whether the allegedly independent claims arise from the same facts as the settled ones is not determinative of whether a particular claim is a disguised claim for contribution or indemnity," concluded the panel.

In re Heritage Bond Litigation