Opinion
Civil No. 00-1290-KI.
March 8, 2002
OPINION AND ORDER
Before the court is the motion for approval of settlement of claims by CCL and CCL investors against Barclay Grayson (#882) filed by the court-appointed Receiver in this action, Thomas F. Lennon. For the reasons set forth below, I grant the motion.
BACKGROUND
Through the motion for approval of settlement, the Receiver asks the court to approve a settlement that has been negotiated between Barclay Grayson and various persons and entities that have asserted claims against him (the "Claimants") due to the integral role he played in the decision making, investment underwriting, promotion, and management of Capital Consultants, LLC (the "Settlement").
In addition to Barclay Grayson, other persons and entities associated with him are also parties to the Settlement Agreement and are collectively referred to as the "Barclay Grayson Parties."
The Settlement Agreement is attached as Exhibit A to the Declaration of Thomas F. Lennon submitted in support of the motion for approval of settlement.
The Settlement resolves a multitude of claims by Claimants including, without limitation, claims for negligence, fraud, breach of fiduciary duty, violation of federal and state securities laws, ERISA violations, fraudulent transfers, and RICO. In response to such claims, Barclay Grayson has filed for protection under Chapter 13 of the Bankruptcy Code. In addition, he has pled guilty to federal criminal charges of mail and wire fraud and has been sentenced to 24 months in federal prison. The restitution component of his sentencing is still pending.
United States Bankruptcy Court for the District of Oregon, Case No. 301-30932-rld13 (the "Bankruptcy Action"). The reference was withdrawn for that case by this Court in an order dated March 14, 2001.
The primary terms of the Settlement are as follows:
1. Barclay Grayson pays to the Receiver on behalf of all Claimants the total sum of $500,000.00. I note that a large portion of these funds will come from sources other than Barclay Grayson's existing nonexempt assets (such as loans to Barclay Grayson from his relatives).
2. Claimants release all claims against the Barclay Grayson Parties.
3. The Barclay Grayson Parties release all claims against the Claimants and the receivership.
4. The Receiver withdraws his motion to dismiss the Bankruptcy Action.
5. As a condition of the Settlement, any order approving it must serve as a "claims bar order" that bars all claims by anyone subject to the jurisdiction of the U.S. District Court for the District of Oregon against the Barclay Grayson Parties for indemnity and contribution under any theory, arising out of Barclay Grayson's association with CCL.
6. As a condition of the Settlement, any order approving it must provide that the payments to be made by Barclay Grayson shall reduce any claims that Claimants have against any parties who have not settled with Claimants on a "dollar-for-dollar" basis (also known as a "pro tanto" basis).
7. Barclay Grayson must stipulate to a permanent injunction prohibiting his employment or involvement with ERISA plans, assets, or funds.
The Receiver acknowledges in his reply brief that only those parties that received notice of the motion at issue (and the associated hearing) would be subject to such a claims bar.
In support of his motion for approval of settlement, the Receiver summarizes his assessment of the Settlement as follows:
Having considered the likelihood of success on claims against the Barclay Grayson Parties, the defenses and affirmative claims which the Barclay Grayson Parties would assert, the uncertainty of litigation, and the serious problem of collection of any potential judgment, I believe that approval of the Agreement is in the best interests of the receivership estate, CCL Clients and all parties in interest.
Lennon Decl., ¶ 16 (as supported by ¶¶ 17-22).
DISCUSSION
In making my decision regarding the Settlement, I have thoroughly reviewed and considered the memoranda filed by the Receiver and Barclay Grayson in support of the motion for approval of settlement, as well as the thirteen other briefs filed in response to the motion. During the January 24, 2002 hearing on this motion, I addressed and resolved some of the objections to the Settlement that were raised in those briefs. This includes my decision that additional time for discovery is not needed regarding Barclay Grayson's liability or his financial condition. As I stated at the hearing, it is clear that his liability far exceeds his resources and evidence of his financial condition has been readily available for some time as part of the ongoing civil and bankruptcy litigation.
During the hearing, I stated that I would look at an issue raised regarding the release language in Paragraph 3.2 of the Settlement Agreement versus the release language of Paragraph 11.1 as articulated in the memorandum filed by Andrew Wiederhorn, Tiffany Wiederhorn, Lawrence Mendelson, Joyce Mendelson, Fog Cutter Capital Group, Inc., Ted Wiederhorn, and Specialty Finance Investors LLC. Having reviewed those provisions of the Settlement Agreement, I do not believe any changes are necessary.
In addition to making these rulings at the January 24 hearing, I also stated my general approval of the economics of the Settlement. I reiterate here that I concur with the Receiver's assessment that the Settlement is fair and equitable to the Claimants and is in the best interest of the receivership estate. Through the Settlement, the Claimants and the receivership estate will recover an amount that far exceeds what could otherwise be obtained from Barclay Grayson by proceeding to judgment against him, especially given the prospect of a "super discharge" in the Bankruptcy Action and the limits under Oregon law on a judgment creditor's ability to garnish wages. The adages that a bird in the hand is better than two in the bush and that one cannot draw blood from a turnip seem particularly fitting in this instance and the Claimants are wise to be behind this Settlement.
I note that, at the January 24 hearing, a few of the attorneys for Claimants expressed some reluctance to endorse wholeheartedly the Settlement in light of the position taken by the U.S. Department of Labor ("DOL") that, despite the claims bar language in the Settlement Agreement, the DOL was free to pursue claims against Barclay Grayson for the total amount of losses in this matter. Subsequent to the hearing, I have received letters from counsel (including counsel for Barclay Grayson) stating that the Receiver, plaintiffs, and Barclay Grayson all agree that the Settlement may be approved even though DOL has reserved the right to seek additional relief from Barclay Grayson.
The issues that remain relate to the impact that the Settlement will have on non-settling defendants. In short, because the Settlement contemplates that a bar order will be entered to insulate the Barclay Grayson Parties from contribution and indemnity suits, the question exists of how non-settling defendants can be protected from ultimately shouldering the financial liability that Barclay Grayson avoids through the Settlement.
I recognize that true protection from such a shift of liability can only be accomplished through an allocation of liability on a "proportionate share" basis. Under such a system, any future judgment against non-settling defendants must be reduced by the proportion of liability the finder of fact assigns to the settling defendants, such as Barclay Grayson. I also acknowledge that, in many instances, the law favors taking such an approach. However, due to the unique circumstances surrounding the Settlement, I conclude that a different method of allocating liability is appropriate.
The most obvious circumstance that sets Barclay Grayson apart from other defendants in the CCL cases is his Chapter 13 bankruptcy filing. This distinction becomes particularly relevant given that I withdrew the reference in the Bankruptcy Action and, accordingly, preside over that case at the same time that I administer the CCL receivership.
In reconciling these two roles, I conclude that my paramount responsibility is to look after the best interests of the receivership estate and creditors even if my decisions potentially affect certain defendants adversely. Consistent with this approach, I would be remiss to not approve a settlement with a key defendant (even if it is conditioned on a pro tanto allocation of liability) if the settlement allows the estate to receive far more than it would if it litigated against the defendant to judgment. Likewise, for me to insist on a proportionate allocation of liability in this instance would severely handicap the ability of Claimants to recover a significant percentage of their losses, given that Barclay Grayson's inability to pay anywhere close to the monetary value of his liability (which presumably exceeds all but Jeffrey Grayson's liability) would, arguably, reduce the exposure of non-settling defendants to such a point that they would receive a windfall.
I also note that, in the bankruptcy context, there is some authority that the non-settling defendants are not prejudiced by a pro tanto allocation when the settling defendant is paying all that could be effectively collected from it. In re Munford, Inc., 97 F.3d 449, 455-56 (11th Cir. 1996). This conclusion flows from the fact that the non-settling defendants' contribution claims against the settling defendant would be to no avail, as is the case between Barclay Grayson and non-settling defendants in the CCL litigation.
In sum, given the unique circumstances that surround the Settlement and Barclay Grayson, I exercise my discretion to allow a pro tanto allocation of liability and to approve the Settlement as agreed to by the parties. I recognize that I may be called upon to make similar decisions in the future regarding other settlements that emerge from the court-ordered mediation in this case. In such proceedings, this decision shall not be cited as the law of the case or as controlling authority.
CONCLUSION
Based on the foregoing, the motion for approval of settlement of claims by CCL and CCL investors against Barclay Grayson (#882) is GRANTED. The Receiver shall submit proposed orders as necessary to fulfill the provisions of the Settlement Agreement (including orders to be filed in Chao v. Capital Consultants, LLC et al., Civil No. 00-1291, and the Bankruptcy Action).
IT IS SO ORDERED.