GRITZNER, District Judge.
Plaintiffs John W. Cromeans, Robert Benisch, and Elkton Bank and Trust Company (collectively, "Plaintiffs"), class representatives, appeal the district court's
This appeal arises out of litigation involving Defendants' alleged violations of the Missouri Securities Act relating to a failed bond issue (the Bonds) by the City of Moberly, Missouri. Morgan Keegan served as underwriter of the Bonds, and the bonds were sold on the secondary market by Morgan Keegan and by other broker-dealers.
Plaintiffs, proceeding as a class action, defined the class as all persons nationwide who purchased the Bonds between the date of the first offering and the date Morgan Keegan reduced the price of the bonds. Defendants resisted class certification, arguing that other than those who originally purchased from Morgan Keegan, it would be impossible to identify bondholders who had purchased the Bonds in the secondary market from other broker-dealers or from those who purchased the bonds on the secondary market and later sold them. The district court certified the class in September 2014. By the end of the opt-out period, class members whose aggregate Bond holdings represented most of the par value of the Bonds had retained separate counsel and opted out. The remaining members of the class had purchased or held Bonds with a total par value of $8,455,000. On January 14, 2015, the case settled after the jury had been impaneled for trial but prior to opening statements.
That day, the parties announced their settlement agreement on the record before the district court. That discussion proceeded as follows, in relevant part:
Appellants' App. 84-86. Later, when discussing the claims process for bondholders, an attorney for Defendants stated that the dollar amount of the settlement was to be "[a]ll-inclusive of the unknown folks." Appellants' App. 88.
Eight weeks later, on March 11, 2015, the parties filed a Stipulation of Settlement (the Stipulation) memorializing their agreement. The Stipulation released Defendants from all claims relating to the Bonds and included an appellate waiver binding on Plaintiffs and Defendants, which covered both appeals of the district court's judgment as well as post-judgment proceedings. The Stipulation also included a merger clause and provided that the agreement was to be governed by Missouri law.
In the Stipulation, Defendants agreed to pay up to $8,250,000 (the "Gross Settlement Amount") to settle the litigation. The ultimate payout was to depend on a subsequent tender process. The parties agreed that Defendants would pay a fixed $3,064,863 in attorneys' fees, costs, and class representative enhancements. In addition, Defendants would pay an amount up to $5,185,317 (the "Net Settlement Fund") pursuant to the two-step formula described below.
The Stipulation divided the class into six Groups based on which Bonds a class member purchased and how the Bonds were purchased. Holders of Series B Bonds had received payments not shared by holders of other Bonds, so Series B bondholders were treated differently. The Stipulation set forth the Groups as follows:
Appellants' App. 36. The Stipulation also states, "No allocation of potential net Settlement percentage recovery has been made by Plaintiffs to (i) Group 4 because Class Members in that group sustained no losses, or (ii) Group 5 or Group 6 because it is presently unknown if those Non-Morgan Keegan Purchasers suffered any losses at other Broker-Dealers."
The Stipulation then set forth a two-step process for calculating the ultimate amount of the payment to be made to the class. The Stipulation included a table (Table 1) that set forth the background facts for application of the two-step process.
Appellants' App. 37-38.
On October 2, 2015, the district court granted Plaintiffs' motion for final approval of the Stipulation and dismissed Plaintiffs' claims with prejudice. Once the time for bondholders to tender their Bonds had expired, Morgan Keegan had received Bonds representing $6,970,000 of the outstanding $8,455,000 par value. This represented approximately 82.44% of the par value of the outstanding Bonds. Defendants multiplied the Net Settlement Fund value ($5,185,317) by the percentage of par value Bonds tendered by bondholders in Groups 1 and 2 (82.44%) to reach a value of $4,274,590 owed pursuant to Step 1 of the Stipulation. To this, Defendants added $121,948 owed to Group 3. This resulted in a sum of $4,396,538 that Defendants claimed they were obligated to fund pursuant to Step 1.
Then, applying Step 2, Defendants reallocated a portion of the funds owed to Groups 1 and 2 to Groups 5 and 6 based on the volume of claims submitted by class members in the latter Groups. Class members in Groups 5 and 6 submitted claims corresponding to Bonds with a total par value of $880,000. Defendants then offset these claims against the claims of bondholders in Groups 1 and 2 and did not recalculate the total amount owed to the class. Adding the value of $4,396,538 to the fixed $3,064,683 allocated for fees, costs, and class representatives, Defendants calculated their total liability under the Stipulation to be $7,461,221.
After Defendants paid the $7,461,221, Plaintiffs filed a Motion to Enforce Stipulation of Settlement ("Motion to Enforce"). Plaintiffs argued that the claims made by class members in Groups 5 and 6 reduced the number of "Bonds currently held" under Step 1 because the Bonds sold by class members in Groups 5 and 6 were not held by class members in Groups 1 and 2 at the time of the Stipulation. Plaintiffs claimed that Defendants' refusal to exclude the par value of the Bonds subject to claims by Groups 5 and 6 resulted in a shortfall of $380,954. The district court denied the Motion to Enforce and held that Defendants' payment calculations complied with the Stipulation. The district court held that the Stipulation did not increase Defendants' payment obligations based on claims made by Groups 5 or 6 but merely allocated the funds owed among class members.
Plaintiffs then moved to alter or amend the district court's order, which the district court also denied. Plaintiffs argued that the district court improperly placed the burden of proof upon them, but the district court found that its prior order construed the Stipulation as a matter of law and thus did not take into account burdens of proof. The district court also rejected Plaintiffs' argument that its construction of the Stipulation was unreasonable simply because under certain circumstances application of the calculation process could have resulted in the class receiving nothing, noting that most of the outstanding Bonds actually were tendered. Plaintiffs appeal these rulings.
On May 20, 2016, after Plaintiffs filed their Notice of Appeal, Plaintiffs moved for an order requiring the settlement administrator to distribute to the class the proceeds from the settlement that had been paid by Defendants. The amount to be distributed did not include the disputed $380,954 that is the subject of this appeal. On July 18, 2016, the district court ordered the settlement administrator to distribute the funds to the class. Per the Stipulation, the back of each check was to contain a release of claims against the Defendants "for all claims alleged or which could have been alleged in District Court for the Western District of Missouri case, 2:12-cv-04269-NKL . . . including all claims relating to the Moberly Bonds." Appellants' App. 28. After Plaintiffs filed their opening brief in this appeal, Defendants filed a Motion to Dismiss the Appeal ("Motion to Dismiss") based on this distribution, arguing that the instant case is now moot.
A. Motion to Dismiss
Defendants contend that the distribution of settlement checks to the class moots Plaintiffs' appeal and finally resolves this case. Defendants argue that the releases and waivers contained in the Stipulation and in the settlement checks prevent Plaintiffs from pursuing any further appeals, and that receipt of settlement extinguishes Plaintiffs' claims. Defendants thus argue that Plaintiffs lack Article III standing and that application of the prudential mootness doctrine would also be appropriate.
The fundamental requirement that federal jurisdiction requires "cases or controversies" means that federal courts cannot entertain claims that are moot.
This appeal continues to present a live controversy, notwithstanding the various waivers and releases in the Stipulation and settlement checks and even the distribution of funds to the class. Plaintiffs are not pursuing their original claims relating to the Bonds. Rather, the dispute before this court concerns whether Defendants fully discharged their obligations under the Stipulation. The Stipulation explicitly granted that the district court would have continuing jurisdiction for the purposes of "enforcing this Agreement" and "addressing settlement administration matters." Appellants' App. 33. Settlement agreements are contracts that confer standalone rights and duties upon each party.
This court also declines to dismiss Plaintiffs' appeal as prudentially moot. Prudential mootness is a discretionary doctrine that allows courts to dismiss a case where the court is unable to provide an effective remedy.
B. Construction of the Stipulation
On appeal, Plaintiffs argue that the district court erred in construing the Stipulation by failing to interpret the phrase "Bonds currently held" according to its ordinary meaning. Plaintiffs also argue that the district court failed to consider the Stipulation as a whole and misapplied the burden of proof, and that the resulting construction was patently unreasonable.
This court reviews a district court's construction of a settlement agreement de novo.
Plaintiffs argue that the district court misconstrued the term "Bonds currently held." The provision of the Stipulation setting forth "Step 1" states, "[I]f Bonds currently held by Class Members are not tendered . . . then [Defendants] are not obligated to fund the proportionate amount of Gross Settlement Amount represented by Bonds that are not tendered." Appellants' App. 37. This provision requires the calculation of a percentage of the Net Settlement Fund to be paid by Defendants based on the par value of the Bonds that were eventually tendered. The parties agree that the par value of the Bonds actually tendered was $6,970,000. The parties disagree, however, about how the Stipulation defines the appropriate point of comparison, though both agree that the Stipulation compels a comparison between the Bonds tendered and the "Bonds currently held." Defendants defined the "Bonds currently held" as a constant value of $8,455,000 in par value based on, among other references, Table 1. Plaintiffs argue that the Bonds tendered should only be compared against the par value of Bonds actually held by members of the class (those in Groups 1 and 2) at the time the Stipulation was executed. Because class members in Groups 5 and 6 made claims for losses relating to Bonds totaling $880,000 of par value, the amount of "Bonds currently held" should be reduced accordingly by $880,000. Plaintiffs argue this view best represents the ordinary meaning of the phrase "Bonds currently held." Claims from class members in Groups 5 and 6, who had sold their Bonds, reflect the fact that some number of Bonds were not held by class members at the time of settlement.
The Stipulation, however, unambiguously defines the par value of "Bonds currently held" as a fixed amount: $8,455,000. Table 1 represents that $8,455,000 is the par value of "Bonds Currently Held," and as the district court noted, there is no indication in the Table that this number is subject to change. The Stipulation contains other references to the class members "hold[ing]," in the present tense, Bonds totaling $8,455,000 in par value.
Plaintiffs argue that a view of the Stipulation as a whole shows that the $8,455,000 figure simply represents the par value of the Bonds originally purchased by class members, not those currently held. According to Plaintiffs, the definitions of Groups 5 and 6 — class members who had sold their Bonds for a loss — shows that it was understood that the value of "Bonds currently held" would be less than $8,455,000. Plaintiffs also point to the definition of Step 2, which provides that the amounts that Groups 1 and 2 will receive is conditional on claims submitted by Groups 5 and 6; this, in Plaintiffs' view, also reflects an understanding that class members in Groups 1 and 2 did not currently hold Bonds with a combined par value of $8,455,000 at the time the Stipulation was signed. Nevertheless, as stated above, the Stipulation explicitly represents that $8,455,000 was the value of "Bonds currently held." The district court correctly observed that the definition and inclusion of Groups 5 and 6, and the effect that claims from those Groups have on the Step 2 calculation, each relate not to the total amount owed by Defendants but to the relative amounts owed toward each Group.
Ultimately, the language of the Stipulation clearly states that the value of "Bonds currently held" was a fixed amount, or $8,455,000. Plaintiffs' argument that the Stipulation did not mean to do this relies on assumptions that the parties did not mean to say what the Stipulation says, but instead meant to state that the value of "Bonds currently held" depended on the outcome of the claims process. Under Missouri law, an "[a]mbiguity arises only where the terms are reasonably open to more than one meaning, or the meaning of the language used is uncertain."
Plaintiffs also argue that the district court erred in not considering statements made on the record before the district court regarding the parties' settlement prior to the drafting of the Stipulation. Plaintiffs argue that the statements before the district court are not parol evidence because the transcript of the colloquy before the district court was incorporated into the Stipulation.
Under Missouri law, "[t]o incorporate terms from another document, the contract must `make  clear reference to the document and describe it in such terms that its identity may be ascertained beyond a doubt.'"
The Stipulation states that the parties previously put the settlement on the record in chambers. This reference to the discussion in chambers, included in the section of the Stipulation that recites the history of the litigation, does not convey any clear intent to incorporate the representations made before the district court as contractual terms. The Stipulation also contains a merger clause. Thus, to the extent the transcript constitutes a document that the Stipulation could incorporate, the district court did not err in refusing to look outside the four corners of the Stipulation. Moreover, it is clear from the transcript that even when discussing settlement before the district court, prior to drafting the Stipulation, Defendants had only agreed to pay class members based on Bonds actually tendered, and no statement by either party spells out Plaintiffs' preferred calculation method.
C. Unreasonable Results
Plaintiffs also argue that the district court's interpretation of the Stipulation leads to unreasonable results. Under Missouri law, "courts `reject an interpretation that involves unreasonable results when a probable or reasonable construction can be adopted.'"
D. Burdens of Proof
Finally, Plaintiffs argue that the district court erred by placing the burden of proof on them. Plaintiffs argue that because Defendants seek to assert a special meaning of otherwise unambiguous language, Defendants should have had the burden of proof before the district court. The district court stated in its order denying Plaintiffs' Motion to Enforce that "[a] party requesting specific performance of settlement agreement has the burden of proving the claim `by clear, convincing, and satisfactory evidence.'" Appellees' App. 1256 (quoting
The district court did not err. A party seeking specific performance bears the burden of proof on disputed issues of fact.
We conclude that the district court correctly held that Defendants' payment to the class complied with the unambiguous language of the Stipulation. The judgment of the district court is affirmed.