NAVELLIER V SLETTEN

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

LOUIS G. NAVELLIER, an individual

and Trustee and Shareholder of

the Navellier Series Fund (recently

renamed the MFS Series Trust);

ROSEMARY J. MCLACHLAN; MARTIN

BILLETT; WILLIAM RAUTENBERG;

FAITH C. RAUTENBERG; MARK

No. 99-17059

SCHULZ; GAIL SULLIVAN; THOMAS

D.C. No.

SULLIVAN, CV-97-01258-WHO

Plaintiffs-Appellants,

v.

KENNETH SLETTEN, an individual

and Trustee of the Navellier Series

Fund (recently renamed the MFS

Series Trust); DONALD SIMON, et

al.,

Defendants-Appellees.

LOUIS G. NAVELLIER, an individual

and Trustee and Shareholder of

the Navellier Series Fund (recently

renamed the MFS Series Trust);

ROSEMARY J. MCLACHLAN; MARTIN

BILLETT; WILLIAM RAUTENBERG;

FAITH C. RAUTENBERG; MARK

SCHULZ; GAIL SULLIVAN; THOMAS

SULLIVAN,

Plaintiffs-Appellants,

No. 99-17061 v.

D.C. No.

KENNETH SLETTEN, an individual CV-97-01258-WHO

and Trustee of the Navellier Series

Fund (recently renamed the MFS

Series Trust); DONALD SIMON, et

al.,

Defendants,

and

ARNOLD SCOTT; ROY ADAMS;

MASSACHUSETTS FINANCIAL

SERVICES,

Defendants-Appellees.

11504

ROSEMARY J. MCLACHLAN, et al.;

LOUIS G. NAVELLIER, an individual

and Trustee and Shareholder of

the Navellier Series Fund (recently

renamed the MFS Series Trust);

MARTIN BILLETT; WILLIAM

RAUTENBERG; FAITH C.

RAUTENBERG; MARK SCHULZ; GAIL

No. 99-17388

SULLIVAN; THOMAS SULLIVAN,

Plaintiffs-Appellees,

D.C. No.

CV-97-01258-WHO

v.

OPINION

KENNETH SLETTEN, an individual

and Trustee of the Navellier Series

Fund (recently renamed the MFS

Series Trust),

Defendant-Appellant,

and

DONALD SIMON,

Defendant.

Appeal from the United States District Court

for the Northern District of California

William H. Orrick, Jr., District Judge, Presiding

Argued and Submitted

July 10, 2001--San Francisco, California

Filed August 27, 2001

Before: William C. Canby, Jr., Michael Daly Hawkins, and

Ronald M. Gould, Circuit Judges.

Opinion by Judge Gould

Samuel Kornhauser, San Francisco, California, for the

plaintiffs-appellants.

Ralph C. Alldredge, Emeryville, California, Jonathan C.

Dickey, Gibson, Dunn & Crutcher, Palo Alto, California, Jac-

quelyn J. Garman, San Francisco, California, Vincent P. Fini-

gan, Jr., Brobeck, Phleger, & Harrison, San Francisco,

California, for the defendants-appellees.

Christopher Paik, Securities and Exchange Commission,

Washington, D.C., for the amicus curiae.

_________________________________________________________________

OPINION

GOULD, Circuit Judge:

This appeal follows an Investment Company Act of 1940

("ICA") action seeking to impose personal liability on the

independent trustees of a mutual fund for the non-renewal of

an investment advisory contract. After a fourteen-day trial, the

jury determined that the independent trustees acted within

their discretion under the business judgment rule in replacing

the investment adviser.

Plaintiffs-Appellants are: (1) shareholders and former

shareholders of the Navellier Series Fund ("Fund"); (2) the

original investment adviser of the Fund, Navellier Manage-

ment, Inc. ("NMI"); and (3) Louis Navellier, an interested

trustee of the Fund (collectively, "appellants"). Defendants-

Appellees are: (1) three former independent trustees of the

Fund -- Donald Simon, Kenneth Sletten, and Lawrence

Bianchi (collectively, "independent trustees"); (2) Roy

Adams, counsel for the independent trustees; (3) Massachu-

setts Financial Services ("MFS"), former investment adviser

of the Fund; and (4) Arnold Scott, former trustee of the MFS

Series Trust (collectively, "appellees").

Appellants challenge the district court proceedings on

numerous grounds, complaining about pre-trial, trial, and

post-trial rulings. Sletten cross-appeals both an imposition of

sanctions against him and his counsel, and the dismissal of his

counterclaim for breach of contract. We reject all of appel-

lants' many claims, uphold the jury verdict exonerating the

independent trustees, and affirm the judgment of the district

court against appellants. On Sletten's cross-appeal, we affirm

dismissal of his counterclaim but grant limited relief, holding

that the district court abused its discretion in affirming the

imposition of sanctions against cross-appellant Sletten and his

counsel.

FACTS AND PROCEDURAL BACKGROUND

On May 15, 1993, Navellier organized the Fund as a Dela-

ware business trust that would invest in an open-ended invest-

ment company or mutual fund. Navellier and one of his

employees, Jack Drinkwater, 1 served as interested trustees,

while Simon, Sletten, and Bianchi served as independent trust-

ees. 2 Sam Kornhauser, Navellier's attorney, was hired as Fund

_________________________________________________________________

1 In July 1995, Drinkwater resigned as an interested trustee and was

replaced by Alan Alpers, another employee of Navellier's.

2 The ICA provides that boards of directors of investment companies

must be composed of "interested" and "non-interested" or "independent"

persons. An "interested" person is generally defined as any person having

a direct or indirect financial interest in an investment company. 15 U.S.C.

§§ 80a-2(a)(19), 80a-2(a)(3). No registered investment company shall

have a board of directors more than sixty percent of the members of which

are persons who are interested persons of such registered company. 15

U.S.C. § 80a-10(a).

11510

counsel. 3

On the day the Fund was organized, the Fund entered into

an investment advisory agreement with NMI. Under this

agreement, NMI provided investment advice and managed the

Fund's assets. The initial term of the investment advisory con-

tract was two years, annually renewable if approved by a

majority of the independent trustees.

In January 1995, the independent trustees sought indepen-

dent counsel. In October 1995, they hired Adams, an experi-

enced mutual fund attorney, as independent counsel. Adams

advised the independent trustees that, to fulfill their fiduciary

obligations to the shareholders of the Fund, it was necessary

to obtain certain financial information about NMI in order to

conduct their annual review of the investment advisory agree-

ment. Adams also told the independent trustees that he had

concern about Kornhauser's abilities. Adams expressed the

opinion that Kornhauser should not continue as counsel for

the Fund while he remained counsel for NMI, Navellier, and

Navellier's other businesses.

At a board of trustees' meeting on April 26, 1996, Navellier

presented a motion to the trustees of the Fund to merge the

Fund into the Navellier Performance Funds. This merger

would have been a tax-free reorganization. The assets of the

Fund would have been transferred to a portfolio of the Navel-

lier Performance Funds in exchange for the shares of the

Navellier Performance Funds. The merger would have termi-

nated the independent trustees' positions.

The independent trustees deferred consideration of Navel-

lier's merger proposal because they concluded that"further

consideration would be premature given that the disinterested

_________________________________________________________________

3 We note that Samuel Kornhauser, counsel for Navellier, NMI, and for-

mer counsel for the Fund, represented appellants at trial and on this

appeal.

Trustees did not have any advance notice or information as to

the relative merits of the proposal." The next order of busi-

ness for the meeting was the annual review of the investment

advisory agreement. The independent trustees expressed frus-

tration at being asked to review and approve the investment

advisory agreement without having received requested infor-

mation from Kornhauser or NMI. The independent trustees

then voiced their concern as to whether Kornhauser should

continue as counsel to the Fund. A contentious discussion

ensued, after which Navellier threatened to terminate his rela-

tionship with the Fund and left the meeting. The independent

trustees then voted to remove Kornhauser as counsel to the

Fund.

The independent trustees conditioned their future consider-

ation of the merger proposal on review of certain information

concerning the finances of Navellier and his companies. After

Navellier refused to provide this information, the independent

trustees contacted the Securities and Exchange Commission

("SEC") in an effort to compel Navellier to produce the infor-

mation. This effort to obtain the SEC's assistance in compel-

ling this information did not succeed. Thereafter, the

independent trustees decided to put Navellier's proposed

merger to a shareholder vote by way of a proxy prepared by

NMI.

Pending resolution of the merger proposal, the independent

trustees held a board of trustees meeting on March 13, 1997,

and voted not to renew NMI's investment advisory contract,

which was scheduled to expire by its terms on March 15,

1997. The independent trustees also voted to hire MFS as the

Fund's investment adviser. MFS conditioned its agreement to

become investment administrator on assurances that the cur-

rent trustees would not continue as trustees after the vote of

the Fund's shareholders.

Navellier and Alpers filed a complaint on April 9, 1997,

seeking to enjoin the independent trustees from removing

them as interested trustees. Navellier also requested injunctive

relief to block the investment advisory agreement with MFS

so NMI could regain its former position as investment

adviser.

On April 10, 1997, the independent trustees voted to

remove Navellier and Alpers from their positions as interested

trustees. According to appellants, the independent trustees

undertook this allegedly wrongful act to entrench themselves

more completely, to neutralize opposition to their upcoming

proxy, and to ratify their decision to hire MFS. The indepen-

dent trustees then eliminated the two positions formerly held

by Navellier and Alpers, reducing the trustees of the Fund.

On May 23, 1997, after the reorganization of the board of

trustees, a shareholder vote was held to determine whether

MFS should continue as investment adviser to the Fund. The

proposal to retain MFS failed, receiving less than the required

two-thirds vote of shareholders. Navellier refused to return to

the Fund unless the independent trustees released him from

liability and agreed to resign as trustees. The independent

trustees signed a release, returned management of the Fund to

NMI, and resigned.

On February 24, 1998, appellants filed a first amended

class action complaint. The amended complaint alleged the

following claims: (1) breach of fiduciary duty under the ICA

and Delaware law against the independent trustees, MFS, and

Scott; (2) breach of fiduciary duty and negligence under Cali-

fornia law against Adams; and (3) waste and intentional inter-

ference with prospective economic advantage against all

defendants. The independent trustees answered and filed a

counterclaim for indemnity. Sletten also filed a separate coun-

terclaim for breach of contract and bad faith. The district

court made several pre-trial rulings, which left for trial only

appellants' claims for breach of fiduciary duty and waste

against the independent trustees and the independent trustees'

counterclaims for indemnification. The district court later dis-

missed appellees' indemnity counterclaims without prejudice

on appellees' motion.

Jury trial commenced on June 21, 1999. After a fourteen-

day trial, the jury returned a unanimous verdict for the inde-

pendent trustees on all claims. The district court entered judg-

ment on August 24, 1999. On September 8, 1999, appellants

filed motions for judgment as a matter of law and for a new

trial. The district court denied both motions. This appeal and

cross-appeal followed.

DISCUSSION

I. Pre-Trial Rulings

A. Dismissal of claims against Adams

Appellants contend that the district court erroneously dis-

missed the claims against Adams for breach of fiduciary duty

and negligence pursuant to Federal Rule of Civil Procedure

12(b)(6). We disagree.

We review de novo a district court's dismissal of a com-

plaint for failure to state a claim upon which relief can be

granted. Wyler Summit P'ship v. Turner Broad. Sys., Inc., 135

F.3d 658, 661 (9th Cir. 1998). "A key element of any action

for professional malpractice is the establishment of a duty by

the professional to the claimant. Absent duty there can be no

breach and no negligence." Goldberg v. Frye , 217 Cal. App.

3d 1258, 1267 (1990). See also Skarbrevik v. Cohen, England

& Whitfield, 231 Cal. App. 3d. 692, 701 (1991) ("An attorney

generally will not be held liable to a third person not in privity

of contract with him since he owes no duty to anyone other

than his client.").

Applying California law, which the parties agree is control-

ling here, the California Supreme Court has explained that the

determination of whether the duty undertaken by an attorney

extends to a third person not in privity involves the balancing

of various factors. These factors include: (1) "the extent to

which the transaction was intended to affect the plaintiff," (2)

"the foreseeability of harm to him," (3) "the degree of cer-

tainty that the plaintiff suffered injury," (4)"the closeness of

the connection between the defendant's conduct and the

injury suffered," (5) "the moral blame attached to the defen-

dant's conduct," and (6) "the policy of preventing future

harm." Goodman v. Kennedy, 556 P.2d 737, 742 (Cal. 1976)

(internal quotation marks and citation omitted).

Applying these factors here, the district court correctly held

that Adams, by advising the independent trustees, did not

assume a duty of care to the Fund's shareholders. The district

court reasoned that the shareholders were not the intended

beneficiaries of Adams' counsel to the independent trustees;

the harm alleged by the appellants (i.e., capital gains taxes)

was not a foreseeable result of Adams' conduct; the connec-

tion between Adams' advice to the independent trustees and

the alleged injury was remote and tenuous; no moral blame

could be attached to Adams' conduct in advising the indepen-

dent trustees of their obligations under the law; and strong

public policy reasons militated against finding any duty owed

by Adams to the shareholders.

We see no sound basis for disagreement with this analysis.

Adams was representing the independent trustees. Nothing in

that relationship suggested that he owed a duty to the share-

holders of the Fund. To imply such a duty would be contrary

to the sound policy requiring his undivided loyalty to his cli-

ents. We hold that the district court properly dismissed appel-

lants' claims against Adams for breach of fiduciary duty and

negligence.

B. Dismissal of ICA claims against MFS and Scott

Appellants contend that the district court erroneously dis-

missed their claims against MFS and Scott for breach of fidu-

ciary duty under the ICA pursuant to Federal Rule of Civil

Procedure 12(b)(6). The district court addressed three theories

in dismissing appellants' claims against MFS and Scott for

breach of fiduciary duty under the ICA. We address each the-

ory in turn.

1. Fiduciary Duty

The ICA expressly provides that decisions regarding the

renewal of investment advisory contracts are within the sole

discretion of a fund's independent trustees.

[I]t shall be unlawful for any registered investment company having a board of directors to . . . renew . . . any contract or agreement . . . whereby a person undertakes regularly to serve or act as investment adviser . . . for such company, unless the terms of such contract or agreement and any renewal thereof have been approved by the vote of a majority of directors, who are not parties to such contract or agreement or interested persons of any such party . . . .

15 U.S.C. § 80a-15(c) (emphasis added).

MFS is not alleged to have been, and never was, a trustee

of the Fund. In fact, MFS did not become the Fund's invest-

ment adviser until March 15, 1997, two days after the inde-

pendent trustees decided not to renew NMI's contract.

Further, according to the Declaration of Trust, a trustee must

be a natural person. Similarly, the independent trustees did

not appoint Scott as a trustee of the Fund until April 13, 1997,

nearly one month after the independent trustees voted not to

renew NMI's contract. Additionally, because Scott was an

officer and director of MFS, he served as an interested trustee

of the Fund. By the plain terms of the ICA, interested persons

are prohibited from participating in the vote to retain or

replace an investment adviser. See 15 U.S.C.§ 80a-15(c).

The district court properly concluded that neither MFS nor

Scott were trustees to the Fund -- and therefore did not owe

a fiduciary duty to the shareholders -- when the independent

trustees decided to change investment advisers.

2. De Facto Investment Adviser

Appellants argue that MFS and Scott owed a fiduciary duty

because they "were, in substance, acting as Trustee and

Investment Adviser prior to March 15, 1997, irrespective of

a formal agreement." The contention that MFS and Scott were

"de facto" investment advisers has no basis in law and is con-

trary to the plain language of the ICA.

Appellants rely on Lutz v. Boas, 171 A.2d 381 (Del. Ch.

1961). Lutz, however, does not support the argument that a

party becomes a trustee or investment adviser to fund share-

holders simply by advocating its investment advisory services

to the trustees. Rather, Lutz provides that where the agent of

an investment advisory company enters into an explicit agree-

ment with and receives compensation from a fund for advi-

sory services, with the knowledge of the investment advisory

company, the company cannot avoid ICA regulation by refus-

ing to enter into a formal Investment Advisory Services

agreement. Id. at 389-90.

Here, appellants failed to allege that MFS or Scott entered

into any agreements -- even informal ones -- or that they

received compensation for any purported advisory services.

Lutz does not support appellants' theory that MFS and Scott

were de facto trustees or investment advisers under the ICA.

Appellants also contend that they are helped by the terms

"Advisory Board" and "Director" under the ICA, arguing that

MFS became an "Advisory Board" and Scott a"Director"

because they urged the independent trustees to replace NMI.

This argument fails under the plain language of the ICA.

The ICA defines "Advisory Board" as an " elected or

appointed" board with "advisory functions as to investments."

15 U.S.C. § 80a-2(a)(1) (emphasis added)."Director" is

defined as "any director of a corporation or any person per-

forming similar functions with respect to any organization."

15 U.S.C. § 80a-2(a)(12). Appellants have not alleged that

MFS was elected or appointed in any capacity prior to the

independent trustees' non-renewal of NMI's contract. Nor

have appellants alleged that Scott was performing the func-

tions of a director before the non-renewal of NMI's contract.

The district court properly concluded that MFS and Scott

were not "de facto" investment advisers owing a fiduciary

duty to the shareholders of the Fund.

3. Control

The district court also properly concluded that MFS and

Scott cannot be held liable for breach of fiduciary duty under

the ICA on the theory that they "controlled" the independent

trustees.

The ICA defines "control" as "the power to exercise a con-

trolling influence over the management or policies of a com-

pany, unless such power is solely the result of an official

position with such company." 15 U.S.C. § 80a-2(a)(9). MFS

and Scott could not have been "control persons " under the

ICA, however, because the independent trustees do not fall

within the definition of "controlled persons" under the ICA.

"A natural person shall be presumed not to be a controlled

person within the meaning of this subchapter." 15 U.S.C.

§ 80a-2(a)(9). This presumption can only be overcome by "a

determination to the contrary made by the Commission." Id.

No such determination has been made by the SEC here. MFS

and Scott cannot be held liable for breach of fiduciary duty

under a theory of control.

[2] We hold that the district court properly dismissed appel-

lants' claims against MFS and Scott for breach of fiduciary

duty under the ICA. 4

C. Dismissal of Delaware claims against MFS and Scott

Appellants also contend that the district court erroneously

dismissed its claims against MFS and Scott for breach of fidu-

ciary duty under Delaware common law. The district court

addressed two theories in dismissing appellants' claims

against MFS and Scott for breach of fiduciary duty under Del-

aware law.

1. Fiduciary Duty

As discussed above, neither MFS nor Scott owed a fidu-

ciary duty to the Fund when the independent trustees decided

not to renew NMI's contract to provide investment advisory

services. Appellants cite no authority for the proposition that

a third party with no contractual or legal relationship to the

Fund can become subject to a fiduciary duty merely because

it provided information about its services to the independent

trustees. Delaware law is to the contrary. See Gilbert v. El

Paso Co. 490 A.2d 1050, 1056 (Del. Ch. 1984) ("State law

claims of . . . breach of fiduciary relationship must subsist on

the actuality of a specific legal relationship, not in its poten-

tial.").

The district court properly determined that because nei-

ther MFS nor Scott owed a fiduciary duty to the shareholders

of the Fund when the independent trustees decided not to

renew NMI's contract, neither can be liable for breach of

fiduciary duty under Delaware law.

_________________________________________________________________

4 Because of our disposition of this issue, we do not decide the alternate

argument advanced by MFS and Scott -- namely, whether the ICA pro-

vides a private right of action.

2. Control

The district court also correctly held that neither MFS nor

Scott "controlled" the independent trustees under Delaware

law. See Harriman v. E.I. DuPont De Nemours & Co., 372 F.

Supp. 101, 106 (D. Del. 1974) ("[i]t is only when a person

affirmatively undertakes to dictate the destiny of the corpora-

tion that he assumes such a fiduciary duty"); Gilbert, 490

A.2d at 1055 (outsiders do not become fiduciaries simply

because they have a "superior bargaining position " with man-

agement; there must be "domination . . . through actual exer-

cise of direction over corporate conduct").

Here, appellants failed to offer -- and do not offer on

appeal -- any facts to establish that MFS and Scott affirma-

tively dictated the destiny of the Fund or dominated through

actual exercise of direction over the independent trustees.

We hold that the district court properly dismissed appel-

lants' claims against MFS and Scott for breach of fiduciary

duty under Delaware common law. 5

D. Dismissal of waste and interference with prospective

economic advantage claims against MFS and Scott Appellants contend that the district court erroneously dis- missed Navellier's claims against MFS and Scott for waste and for intentional interference with prospective economic advantage pursuant to Federal Rule of Civil Procedure 12(b)(6). Appellants' arguments are without merit.

1. Waste

The parties agree that Delaware law is controlling on this

_________________________________________________________________

5 Because we hold that the district court properly dismissed appellants'

state law claims, we do not determine whether the ICA preempts these

claims.

issue. Delaware courts have explained that the legal test for

waste is "severe." Glazer v. Zapata Corp. , 658 A.2d 176, 183

(Del. Ch. 1993). "Directors are guilty of corporate waste, only

when they authorize an exchange that is so one sided that no

business person of ordinary, sound judgment could conclude

that the corporation has received adequate consideration." Id.

We hold that the district court properly dismissed the

waste claims asserted against MFS and Scott. Under Dela-

ware law, there is no basis for a waste claim against these par-

ties who were not directors. Moreover, appellants' first

amended complaint itself established that a shareholder proxy

vote was legally required pursuant to Rule 15a-4 of the ICA,

which also shows there could have been no waste.

2. Interference with prospective economic advantage California recognizes a "competition privilege," which protects one from liability for inducing a third person not to enter into a prospective contractual relation with a business competitor.

The privilege applies where (a) the relation [between the competitor and third person] concerns a matter involved in the competition between the actor and the competitor, and (b) the actor does not employ improper means, and (c) the actor does not intend thereby to create or continue an illegal restraint of competition, and (d) the actor's purpose is at least in part to advance his interest in his competition with the other.

Bed, Bath & Beyond of La Jolla, Inc. v. La Jolla Vill. Square Venture Partners, 52 Cal. App. 4th. 867, 880 (1997) (internal quotation marks and citations omitted). See also Penna v. Toyota Motor Sales, U.S.A., Inc., 902 P.2d 740, 751 (Cal. 1995) (holding that plaintiff who seeks to recover for an alleged interference with prospective economic relations must prove that the defendant "engaged in conduct that was wrong- ful by some legal measure other than the fact of interference itself."). The competition privilege clearly applies to MFS' and Scotts' actions as alleged in the amended complaint, and nothing about their competitive conduct was wrongful. We hold that the district court properly dismissed the claims against MFS and Scott for intentional interference with a prospective economic advantage.

E. Dismissal of counterclaims without prejudice

Appellants allege -- in one paragraph without citation to

the record or authority -- that the district court abused its dis-

cretion in dismissing appellees' indemnity counterclaims

without prejudice. Appellants contend that "[t]he jury should

have been informed that those claims had not merely vanished

but that Defendants might refile and seek $3.5 million in

attorneys fees . . . ."

Appellants' argument is frivolous. The decision to grant a

voluntary dismissal under Federal Rule of Civil Procedure

41(a)(2) is addressed to the sound discretion of the district

court. Sams v. Beech Aircraft Corp., 625 F.2d 273, 277 (9th

Cir. 1980). A dismissal without prejudice pursuant to Rule

41(a)(2) leaves the parties where they would have stood had

the lawsuit never been brought. In re Corey, 892 F.2d 829,

835 (9th Cir. 1989) (citation omitted).

Appellants' bare allegation of error does not demonstrate

that the district court abused its discretion in dismissing

appellees' indemnity counterclaims without prejudice. See

Hamilton v. Firestone Tire & Rubber Co., 679 F.2d 143, 145

(9th Cir. 1982) (possibility of later suit does not rise to the

level of legal prejudice that would allow the court to deny a

dismissal without prejudice).

F. Summary judgment on intentional interference with

prospective economic advantage claim

Appellants allege that the district court erroneously granted

summary judgment on NMI's claim against the independent

trustees for intentional interference with prospective eco-

nomic advantage. The district court correctly held that there

were no triable issues of fact as to two essential elements of

this claim.

We review de novo the district court's order granting sum-

mary judgment. Covey v. Hollydale Mobilehome Estates, 116

F.3d 830, 834 (9th Cir. 1997). Viewing the evidence in the

light most favorable to appellants, we must determine whether

there are genuine issues of material fact and whether the dis-

trict court properly applied the law. Forsyth v. Humana, Inc.,

114 F.3d 1467, 1474 (9th Cir. 1997).

To state a claim for intentional interference with prospec-

tive economic advantage, a plaintiff must prove: (1)"the rea-

sonable probability of a business opportunity," (2) "the

intentional interference by defendant with that opportunity,"

(3) "proximate causation," and (4) "damages, all of which

must be considered in light of a defendant's privilege to com-

pete or protect his business interests in a fair and lawful man-

ner." DeBonaventura v. Nationwide Mut. Ins. Co., 419 A.2d

942, 947 (Del. Ch. 1980) (internal citations omitted). See also

Crosstalk Prods., Inc., v. Jacobson, 65 Cal. App. 4th 631, 646

(1998) (stating elements of tort of intentional interference

with prospective economic advantage under California law).

First, appellants failed to present evidence demonstrating a

reasonable probability that NMI would continue as the invest-

ment adviser to the Fund. Appellants point to no evidence in

the record which, when viewed in a light most favorable to

their position, demonstrates that NMI had a reasonable expec-

tation of continuing as the Fund's investment adviser. Rather,

appellants simply assert that "a Board that was acting with

proper motives" would have renewed NMI's contract. This is

not, however, evidence of a "reasonable" expectation of a

continuing business relationship. The district court properly

concluded that NMI did not have a reasonable expectation of

continuing as the Fund's investment adviser. 6

Appellants also failed to point to evidence demonstrating

damages. As the district court noted, "the claim must still fail

because the damages flowing from defendants' interference

with this prospective business relationship are too speculative.

`It is black-letter law that damages which are speculative,

remote, imaginary, contingent or merely possible cannot serve

as a legal basis for recovery.' " (Quoting Mozzetti v. City of

Brisbane, 67 Cal. App. 3d 565, 577 (1977)).

Because appellants failed to present evidence demon-

strating that NMI had a reasonable expectation of continuing

as the Fund's investment adviser and did not establish actual

damages, we hold that the district court properly granted sum-

mary judgment on NMI's claim for intentional interference

with prospective economic advantage.

G. Summary judgment on Sletten's counterclaims

On cross-appeal, Sletten contends that the district court

erroneously granted summary judgment on the breach of con-

tract counterclaims that he asserted against Navellier and

NMI. We disagree.

Before returning the Fund to Navellier, Sletten and the

independent trustees executed the following release:

In consideration of the covenants, promises and _________________________________________________________________ 6 Moreover, so long as the independent trustees were exercising a rea- sonable business judgment, which was decided by the jury, the indepen- dent trustees would be entitled to decline to extend the relationship with NMI. For this reason as well, the claim of interference fails.

agreements contained herein, Donald Simon, Ken- neth Sletten and Lawrence Bianchi (collectively "Trustees") . . . release and fully discharge Louis Navellier, Navellier Management, Inc., and their pre- decessors, successors and related entities . . . from all rights, claims and causes of action of any kind or any nature whatsoever, known or unknown, in law or at equity, which the Trustees have or may have against them except for any claim for contribution or indem- nity in the event that any third party asserts claims and recovers against the Trustees.

Sletten concedes that, if valid and enforceable, this release bars his counterclaims. Sletten contends, however, that there are genuine issues of fact as to whether the release is unen- forceable on grounds of unconscionability or duress.

1. Unconscionability

Under California law, 7 a court may refuse to enforce a

facially valid contract that is unconscionable. See Graham v.

Scissor-Tail, Inc., 623 P.2d 165, 173-74 (Cal. 1981). Uncon-

scionability has both a "procedural" and a"substantive"

aspect. The procedural aspect is manifested by (1)"oppres-

sion," which refers to an inequality of bargaining power

resulting in no meaningful choice for the weaker party, or (2)

"surprise," which occurs when the supposedly agreed-upon

terms are hidden in a document. A & M Produce Co. v. FMC

Corp., 135 Cal. App. 3d 473, 486 (1982). Substantive uncon-

scionability, on the other hand, refers to an overly harsh allo-

cation of risks or costs which is not justified by the circum-

stances under which the contract was made. Id. at 487; see

also Stirlen v. Supercuts, Inc., 51 Cal. App. 4th 1519, 1532

_________________________________________________________________

7 The release was executed in California and includes waiver language

referring to California Civil Code section 1542. As a result, we look to

California law to determine its validity. See Kaufman & Broad-South Bay

v. Unisys Corp., 822 F. Supp. 1468, 1473-74 (N.D. Cal. 1993).

(1997) (substantive unconscionability is indicated by contract

terms so one-sided as to "shock the conscience"). Both proce-

dural and substantive unconscionability must be present

before a contract or clause will be held unenforceable. Car-

boni v. Arrospide, 2 Cal. App. 4th 76, 83 (1991).

Here, the record indicates that there are no genuine

issues of material fact indicating that the challenged release

was either procedurally or substantively unconscionable. As

the district court noted, Sletten freely chose to waive his legal

rights in order to preserve the stability of the Fund, he was

well-represented by counsel, and he had adequate time to pur-

sue other alternatives. And, as the district court properly

found, the release "is also not unconscionable because it was

`one-sided,' nor does it shock the conscience."

2. Duress

A release may be invalidated on the ground of economic

duress when a party is subject to a wrongful act such as a

threat and must succumb to the wrongdoers or face financial

ruin. Sheehan v. Atlanta Int'l Ins. Co., 812 F.2d 465, 469 (9th

Cir. 1987). The wrongful act must be " `sufficiently coercive

to cause a reasonably prudent person faced with no reasonable

alternative to succumb to the perpetrator's pressure.' " Id.

(quoting Rich & Whillock, Inc. v. Ashton Dev., Inc., 157 Cal.

App. 3d 1154, 1158 (1984)).

There are no genuine issues of material fact indicating that

the challenged release was procured though economic duress.

Sletten had more than one alternative to signing the release

and accepting NMI's return as investment adviser. Sletten

might have hired a company named Neuberger and Berman

as investment adviser, liquidated the Fund, appointed a

receiver, or found another investment adviser. While Sletten

may have found these choices unattractive, the district court

properly found that "there was no economic duress, as none

of these choices would have caused Sletten . . . to face eco-

nomic ruin."

Because there were no material issues of fact as to the

validity or enforceability of the release, we hold that the dis-

trict court properly granted summary judgment on Sletten's

counterclaims.

H. Class certification

Appellants contend that the district court abused its discre-

tion by denying class certification pursuant to Federal Rule of

Civil Procedure 23(b)(3). We review the denial of class certi-

fication for abuse of discretion, Zinser v. Accufix Research

Inst., Inc., 253 F.3d 1180, 1186 (9th Cir. 2001), and must

determine whether the district court applied the proper legal

criteria. "While the trial court has broad discretion to certify

a class, its discretion must be exercised within the framework

of Rule 23." Id.

The district court gave five grounds for denying class certi-

fication pursuant to Rule 23(b)(3), each of which sustains the

denial. The district court held that: (1) individual questions

predominate over common questions; (2) intra-class conflicts

preclude certification; (3) Kornhauser, as class counsel, "can-

not adequately represent the class;" (4) Navellier was neither

a typical nor adequate class representative and was subject to

unique defenses; and (5) the remaining class members were

not appropriate class representatives.

Appellants' challenge to the district court's denial of class

certification is supported by virtually no citations to authority

and no citations to the record. For example, as to three of the

district court's independent grounds justifying denial of certi-

fication, appellants simply argue: "[T]here are no intra or

interclass conflicts, there are no unique defenses as to Mr.

Navellier which would preclude him or any of the other Plain-

tiffs from acting as class representatives." These bald asser-

tions do not establish that the district court abused its

discretion in denying class certification.

The district court correctly applied Rule 23 and each

ground advanced is independently sufficient to support the

denial of certification. See, e.g., Valentino v. Carter-Wallace,

97 F.3d 1227, 1230 (9th Cir. 1996) (failure to show predomi-

nance of individual questions); Georgine v. Amchem Prods.,

Inc., 83 F.3d 610, 630 (9th Cir. 1997) (intra-class conflicts);

Hatch v. Reliance Ins. Co., 758 F.2d 409, 416 (9th Cir. 1985)

(class counsel's inadequacy); Moore v. Hughes Helicopters,

Inc., 708 F.2d 475, 480 (9th Cir. 1983) (inadequate class rep-

resentative).

We hold that the district court did not abuse its discretion

in denying class certification.

II. Trial Management

A. Time limitations

Appellants contend that the district court's imposition of a

time limit within which to present their case "was prejudicial

and deprived them of due process." This argument is without

merit.

We review such challenges to trial court management for

abuse of discretion. Amarel v. Connell, 102 F.3d 1494, 1513

(9th Cir. 1997). Trial courts have broad authority to impose

reasonable time limits. Id. Such limits are useful to "prevent

undue delay, waste of time, or needless presentation of cumu-

lative evidence." Id. (internal quotation marks and citation

omitted). While trial courts have discretion to expedite the

completion of trials, "they must not adhere so rigidly to time

limits as to sacrifice justice in the name of efficiency." Gen.

Signal Corp. v. MCI Telecomm. Corp., 66 F.3d 1500, 1509

(9th Cir. 1995).

The district court exercised a normal role in establishing

time limits at trial and did not abuse its discretion. At the pre-

trial conference, the court informed the parties that they

would have eleven days, to be divided between them, for trial.

Appellants insisted they needed at least ten to twelve days to

present their case. 8 In response, the district court extended the

time allotted for trial to fourteen days, giving appellants eight

days and appellees six days. These pretrial limits were

adjusted during trial and appellants ultimately received a total

of eleven days within which to present their case -- an

amount entirely consistent with appellants' original request.

The time limits imposed here were reasonably based on the

parties' estimates and were adjusted as appropriate during

trial. Amarel, 102 F.3d at 1513. The district court appears to

have been fair and balanced in allocating the reasonably avail-

able time to all parties. There was no abuse of the broad dis-

cretion that the district court had to manage the trial.

B. Evidentiary rulings

Appellants challenge evidentiary rulings made by the dis-

trict court throughout the trial. We review the district court's

evidentiary rulings for abuse of discretion and"will not

reverse in such a case, unless the ruling is manifestly errone-

ous." Gen. Elec. Co. v. Joiner, 522 U.S. 136, 142 (1997)

(internal quotation marks and citation omitted).

None of these challenges has merit and none requires our

detailed discussion. As to each of the challenged rulings,

appellants do not demonstrate that the district court's action

_________________________________________________________________

8 At the pretrial conference, the court acknowledged that appellants orig-

inally claimed to need twenty-five days. However, this estimate was made

before the court ruled on the cross-motions for summary judgment. The

grant of partial summary judgment eliminated NMI's interference claim as

well as Sletten's contract-based counterclaims. The dismissal of these

claims streamlined the issues and eliminated the need for expert testi-

mony.

was "manifestly erroneous." Id. We hold that the district court

did not abuse its discretion in making the challenged evidenti-

ary rulings.

C. Comment on accusations of perjury

Appellants argue that the district court improperly influ-

enced the jury by accusing Navellier of perjury. This argu-

ment is without merit.

During cross-examination, Navellier claimed that the inde-

pendent trustees had perjured themselves at trial by testifying

to the substance of a conference call between Navellier and

the independent trustees. In response to this accusation, the

court admonished Navellier: "All right. This is enough. That's

a very, very serious charge that he's made under oath, and it

could be perjurious. This could be a criminal proceeding."

Appellants' counsel objected, and the court then immediately

instructed the jury to disregard his prior comment:

All right. I think his objection is good, ladies and gentlemen of the jury, and the jury will disregard that statement of the court. And I will, again, admonish you that nothing that the court says or does during the course of this trial should be taken in any way as indicating how your verdict should come out. You, and you alone, are the sole judges of the facts in this case, and it's your judgment that counts on the facts, it's not the court's.

Trial courts have broad discretion to comment upon the evidence, including the credibility of a witness. See Quercia v. United States, 289 U.S. 466, 469 (1933) (noting that in a jury trial in federal court, judge may "express his opinion upon the facts, provided he makes it clear to the jury that all matters of fact are submitted to their determination") (cita- tions omitted). The essential question is whether the court made clear to the jury that all matters of fact are for its deter- mination. Id.; see also United States v. James, 576 F.2d 223, 228 (9th Cir. 1978) (affirming conviction where court com- mented that the elements of the offense had been established, but also instructed the jury that it was the final arbiter of ques- tions of fact).

We hold that the court here did not abuse its discretion by

commenting on Navellier's testimony. The court did not dis-

tort the evidence and the court's comment was not so one-

sided as to amount to an abuse of discretion. See Quercia, 289

U.S. at 469. Further, even if the comment could be considered

prejudicial, any prejudice was cured by the court's contempo-

raneous curative instruction and the final jury instructions,

which stressed that the jurors were the sole judge of the facts.

Cf. Maheu v. Hughes Tool Co., 569 F.2d 459, 472 (9th Cir.

1978).

D. Imposition of sanctions against Sletten

On cross-appeal, Sletten argues that the district court

abused its discretion in affirming the special master's imposi-

tion of sanctions against Sletten and his counsel for "abusive

and oppressive" discovery requests. Sletten contends that the

sanctions violated his right to due process because he and his

counsel were not given notice or opportunity to be heard

before the special master imposed sanctions. We agree.

We review the imposition of sanctions for abuse of

discretion. Primus Auto. Fin. Servs. v. Batarse , 115 F.3d 644,

648 (9th Cir. 1997). When a court imposes sanctions sua

sponte, the general rule is that it must first issue an order to

show cause why sanctions should not be imposed to give the

lawyer or party an opportunity to explain his or her conduct.

See, e.g., Tom Growney Equip., Inc. v. Shelley Irrigation

Dev., Inc., 834 F.2d 833, 836 (9th Cir. 1987) (district court

abused its discretion where "[n]o notice was given of the

court's intention to impose sanctions and no opportunity was

offered to explain the allegedly improper filings"); Miranda

v. S. Pac. Transp. Co., 710 F.2d 516, 523 (9th Cir. 1983) (dis-

trict court abused its discretion where it "did not provide the

attorneys with an opportunity to show cause to the contrary

before imposing the sanctions").

Here, Sletten and his counsel first received notice of

the sanctions when they received a copy of the special mas-

ter's order imposing sanctions. This order was summarily

approved by the district court. The special master abused its

discretion by failing to give Sletten and his counsel notice of

his intent to impose sanctions before imposing sanctions.

Miranda, 710 F.2d at 522-23. The further review by the dis-

trict court that affirmed the sanctions provided no procedural

relief. We therefore vacate the judgment of sanctions and

remand to the district court with instructions that it provide an

appropriate procedure to afford Sletten and his counsel an

opportunity to present a defense and explain why they should

not be sanctioned. In so holding, we express no view on the

merits whether sanctions may be sustainable after proper

notice and opportunity to be heard.

III. Jury Instructions

Appellants contend that two of the instructions given to the

jury were erroneous. The standard of review on appeal for an

alleged error in jury instructions depends on the nature of the

claimed error. Oglesby v. S. Pac. Transp. Co., 6 F.3d 603, 606

(9th Cir. 1993). If jury instructions are challenged as a mis-

statement of the law, we review the challenged instructions de

novo. Mockler v. Multnomah County, 140 F.3d 808, 812 (9th

Cir. 1998). Otherwise, we afford a district court"substantial

latitude in tailoring jury instructions, [and ] we review the for-

mulation of those instructions for abuse of discretion." Gil-

brook v. City of Westminster, 177 F.3d 839, 860 (9th Cir.

A. ICA instruction

Appellants argue that the district court "committed prejudi-

cial error" by refusing to instruct the jury that, absent an

emergency or unforseen event, section 15 of the ICA requires

prior shareholder approval before an investment adviser may

be replaced. 9 We disagree with appellants' construction of the

ICA and we hold that the district court properly refused to

give appellants' requested instruction.

Section 15(a) of the ICA makes it unlawful to serve as an

investment adviser except under a contract approved by the

shareholders. See 15 U.S.C. § 80a-15(a). Recognizing that an

unavoidable lapse of time may occur between the end of one

contract and the date on which a new contract is approved by

a majority of shareholders, the SEC promulgated Rule 15a-4,

which provides in pertinent part:

Notwithstanding section 15(a) of the Act, a person may act as investment adviser for [a fund] pursuant to a written contract which has not been approved by a majority of the outstanding voting securities of such company during the one hundred and twenty day period after the termination of an investment advisory contract by an event (other than an assign- ment by an investment adviser in connection with which such investment adviser, or a controlling per- son thereof, directly or indirectly receives money or other benefit) described in paragraphs (3) or (4) of section 15(a) of the Act or by the failure to renew such contract . . . .

_________________________________________________________________ 9 As a preliminary matter, appellees argue that appellants are precluded from raising this issue on appeal. Specifically, appellees contend that "[a]ppellants did not object when the Court declined to give the proposed instruction and did not object when the Court finished instructing the jury and gave the parties another opportunity to object. " We assume, without deciding, that appellants properly preserved this issue for appeal. 17 C.F.R. § 270.15a-4. 10 Under the plain language of Rule 15a-4, this exemption is not limited to unforeseeable non- renewals or terminations. As amicus curiae, the SEC explains:

The availability of [Rule 15a-4] is not conditioned on a finding that either of the first two events -- the non-renewal or termination of an advisory contract by the fund -- was unforeseeable. Rather, under the rule's plain language, the only conditions are that: the interim contract may not last more than 120 days; it must be approved by the directors, including a majority of the independent directors; and the com- pensation under the contract may not exceed what would have been paid under the most recent contract that was approved by the shareholders.

See § 17 C.F.R. 270.15a-4(a) and (b).

Appellants argue that appellees' "reliance on Rule 15a-4 as

legal grounds for their actions is legally wrong . .. . Rule 15a-

4 is an SEC rule and is not necessarily the law if it does not

carry out the intent of the statute (§ 15(a) of the `40 Act)." We

disagree with appellants' analysis. As we see it, Rule 15a-4 is

fully consistent with Congressional intent, and indeed is rea-

sonably necessary to implement the purposes of the ICA. We

see no reason here not to defer to the sensible and informed

judgment of the SEC, the agency charged with administering

the statute.

Section 6(c) of the ICA grants the SEC broad authority to

exempt certain actions from the requirements of the ICA. Sec-

tion 6(c) of the ICA provides:

_________________________________________________________________

10 This regulation has since been amended, but we quote the version that

governs this case.

The Commission, by rules and regulations upon its own motion, or by order upon application, may con- ditionally or unconditionally exempt any person . . . or transaction, or any class or classes of persons .. . or transactions, from any provisions . . . of this sub- chapter or of any rule or regulation thereunder, if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of this title.

15 U.S.C. § 80a-6(c). The authorization to exempt any person or transaction from the provisions of the ICA when"neces- sary or appropriate in the public interest and consistent with the protection of investors" reflects the Congressional intent to entrust certain policy decisions to the SEC.

In determining the appropriate scope of the exemption

embodied by Rule 15a-4, the SEC was required to balance

two important investor protections in Section 15(a). On the

one hand, the shareholder approval requirement ensures that

fund investors have the authority to decide whether a particu-

lar investment adviser is retained by the fund. On the other

hand, granting the trustees the authority to terminate or not

renew an existing contract gives them critical oversight.

Deciding how to reconcile these provisions when their poli-

cies conflict is precisely the sort of judgment entrusted to the

SEC by Congress.

Appellants do not demonstrate that the SEC's promulgation

of Rule 15a-4 is inconsistent "with the protection of investors

or the purposes fairly intended by the policy and provisions"

of the ICA. See 15 U.S.C. § 80a-6(c). While Rule 15a-4 per-

mits a brief postponement of the shareholders' right to vote on

an advisory contract, it includes additional investor safe-

guards, such as the requirement that a majority of the inde-

pendent trustees approve the interim contract and

compensation limitations for the interim period. 11

Also, the SEC's reasonable interpretation of a statute that

it administers, including its promulgation of rules and regula-

tions interpreting or implementing the statute, is entitled to

deference. Chevron USA, Inc. v. NRDC, 467 U.S. 837 (1984).

An agency's interpretation of one of its own rules, including

an interpretation expressed in an amicus brief, is controlling

unless plainly erroneous or inconsistent with the rule. Auer v.

Robbins, 519 U.S. 452, 461-63 (1997). Appellants have not

demonstrated that the SEC's interpretation of Rule 15a-4 is

plainly erroneous or inconsistent with that rule. To the con-

trary, we view Rule 15a-4 as a sensible and necessary provi-

sion that bridges a potential gap or conflict in the ICA.

Because appellants' proposed jury instruction is contrary to

the plain language of Rule 15a-4, we hold that the district

court properly refused to give the proposed instruction.

B. Business judgment rule instruction

Appellants advance two arguments in support of their con-

tention that the district court erroneously instructed the jury

on the business judgment rule. 12 First, appellants contend that

_________________________________________________________________

11 Further, contrary to appellants' claim, the independent trustees do not

have unbridled discretion for 120 days. In deciding whether to enter into

an interim contract, just as in deciding whether to renew or terminate an

existing contract, the independent trustees must satisfy their duties as fidu-

ciaries of the fund. These duties are enforceable under the ICA, and

include the obligation to inform themselves of material facts and exercise

their judgment for the benefit of the fund. See 15 U.S.C. § 80a-15(c).

12 The business judgment rule is a presumption that in making a business

decision the directors of a corporation "acted on an informed basis, in

good faith and in the honest belief that the action taken was in the best

interests of the company." Smith v. Van Gorkom , 488 A.2d 858, 872 (Del.

1985) (internal quotation marks and citation omitted). The presumption,

however, attaches only to the decisions of directors who are fully indepen-

the duty of care jury instructions imposed a "subjective"

rather than an "objective" test for assessing whether the inde-

pendent trustees acted properly in terminating NMI. Second,

appellants maintain that the district court erroneously

instructed that, to rebut the presumption of good faith, appel-

lants were required to prove that bad faith "was the sole or

primary motivating factor" for the trustees' decision.

As to the independent trustees' duty of care, the court

instructed:

[A] trustee, to fulfill the requisite duty of care under the business judgment rule must, One: Not have an undisclosed personal financial interest in the transaction that is the subject of the trustee's business judgment. Two: Be informed about the subject of the busi- ness judgment to the extent that the trustee reason- ably believes to be appropriate under the circumstances, and such belief must be rational. And Three: Rationally believe that the trustee's business judgment is in the best interest of the corpo- ration. The Plaintiff, who is challenging the conduct of the trustees of a mutual fund, must prove that the trustees did not exercise the proper business judg-

_________________________________________________________________ dent and wholly disinterested. When the business judgment rule applies, it insulates directors from liability, and imposes upon the party challeng- ing the decision the burden of rebutting the presumption. Id. "A hallmark of the business judgment rule is that a court will not substitute its judg- ment for that of the board if the latter's decision can be attributed to any rational business purpose." Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 954 (Del. 1985) (internal quotation marks and citation omitted).

ment. And, consequently, you must find that defen- dants fulfilled their duty of care unless plaintiff proves (a) that the defendants have an undisclosed per- sonal financial interest in the transaction that is the subject of their business judgment, or (b) that defendants were not informed about the subject of the business judgment to the extent that they reasonably believed to be appropriate under the circumstances, or (c) that they did not rationally believe that such business judgment was in the best interest of the cor- poration, or (d) that no business judgment was, in fact, exer- cised.

(Emphasis added to challenged portion of instruction). The duty of care instruction given here properly stated con- trolling Delaware law. In Brehm v. Eisner, 746 A.2d 244 (Del. 2000), the Delaware Supreme Court addressed the pre- cise language challenged here:

Compare the American Law Institute test, which requires that a director must be "informed . . . to the extent the director reasonably believes to be appro- priate under the circumstances." Because this test also is based on the objective test of reasonableness, it could be argued that it is essentially synonymous with the Delaware test . . . . In the end, the debate may be mostly semantic.

Id. at 259 n.47 (internal citations omitted) (emphasis added). Thus, Delaware courts have rejected appellants' contention that the duty of care instruction given here erroneously cre- ated a subjective -- rather than objective -- test. Even if there are "semantic" differences between Delaware law and the instruction given here, the district court did not err in giving an instruction that "is essentially synonymous with the Dela- ware test." Id.

Appellants next contend that the district court erroneously

instructed that they were required to prove that bad faith "was

the sole or primary motivating factor" for the independent

trustees' decision.

The district court's instruction here complied with Dela-

ware law. In In re Anderson, Clayton Shareholders Litigation,

519 A.2d 680, 688 (Del. Ch. 1986), the court held that to

overcome the protection afforded directors by the business

judgment rule, plaintiffs must point to facts indicating that

"the board's action [was] motivated solely or principally for

the impermissible purpose of retaining office for personal rea-

sons and not for reasons relating to the corporations's wel-

fare." Id. (citing Bennett v. Propp , 187 A.2d 405 (Del. 1962))

(emphasis added). And in Pogostin v. Rice, 480 A.2d 619,

627 (Del. 1984), overruled on other grounds by Brehm, 746

A.2d at 253, the Delaware Supreme Court stated that:"It is

the plaintiff's burden to allege with particularity that the

improper motive in a given set of circumstances, i.e., perpetu-

ation of self in office or otherwise in control, was the sole or

primary purpose of the wrongdoer's conduct." (Emphasis

added.). See also Cheff v. Mathes, 199 A.2d 548, 554 (Del.

1964); Mesa Petroleum, 493 A.2d at 954.

We hold that the business judgment rule instructions given

by the district court here properly stated controlling Delaware

law.

C. Federal Rule of Civil Procedure 37(b)(2) sanction

Appellants contend that the district court erred when, as a

sanction for discovery abuse, it instructed the jury that Navel-

lier had breached his duty to procure liability insurance for the

Fund. We review the imposition of discovery sanctions for

abuse of discretion. The Stars' Desert Inn Hotel & Country

Club, Inc. v. Hwang, 105 F.3d 521, 524 (9th Cir. 1997).

"Rule 37(b)(2) contains two standards -- one general and

one specific -- that limit a district court's discretion. First,

any sanction must be `just'; second, the sanction must be spe-

cifically related to the particular `claim' which was at issue in

the order to provide discovery." Ins. Corp. of Ireland, Ltd., v.

Compagnie des Bauxites de Guinee, 456 U.S. 694, 707

(1982). Sanctions may be warranted under Federal Rule of

Civil Procedure 37(b)(2) for failure to obey a discovery order

as long as the established issue bears a reasonable relationship

to the subject of discovery that was frustrated by sanctionable

conduct. Id. at 707-09.

Here, the district court found that Kornhauser, as counsel

for Navellier and NMI, willfully refused to answer questions

at his deposition concerning the circumstances under which

insurance was procured for the Fund -- even after the special

master ordered Kornhauser to answer the questions. This con-

duct warranted sanction, and we cannot say that the sanction

imposed was not commensurate with the offensive conduct.

We hold that appellants have failed to demonstrate that the

district court abused its discretion in issuing the sanction.

IV. Post-Trial Rulings

A. Motions for judgment as a matter of law and new trial

Appellants argue that the district court erroneously denied

their motions for judgment as a matter of law and for new

trial. This court reviews de novo the denial of a motion for

judgment as a matter of law. United States ex rel. Hopper v.

Anton, 91 F.3d 1261, 1268 (9th Cir. 1996). A district court's

denial of a motion for new trial is reviewed for abuse of dis-

cretion. Desrosiers v. Flight Int'l of Florida, Inc., 156 F.3d

952, 957 (9th Cir. 1998).

Appellants erroneously contend that the district court

denied their motions on the grounds that they were"untime-

ly." But that is not what the court did. The district court

denied appellants' self-styled "renewed" motions for judg-

ment as a matter of law and new trial because appellants in

fact had failed to make such motions at the close of evidence.

There was nothing that could be renewed following the entry

of judgment.

Federal Rule of Civil Procedure 50(b) provides, in pertinent

part:

If, for any reason, the court does not grant a motion for judgment as a matter of law made at the close of all the evidence, the court is considered to have sub- mitted the action to the jury subject to the court's later deciding the legal questions raised by the motion. The movant may renew its request for judg- ment as a matter of law by filing a motion no later than 10 days after entry of judgment -- and may alternatively request a new trial or join a motion for a new trial under Rule 59.

(Emphasis added.). We have held that "failure to comply with Rule 50(b) precludes a challenge to the sufficiency of the evi- dence on appeal and that the requirement that the motion be made at the close of all the evidence is to be strictly observed." Patel v. Penman, 103 F.3d 868, 878 (9th Cir. 1996) (internal quotation marks and citations omitted). The district court properly denied the motions for judgment as a matter of law and new trial. See id. at 879.

B. Motion to amend the complaint

Appellants argue that the district court "committed revers-

ible error" in denying their motion to amend the complaint to

conform to the evidence.

11541

We need not consider this argument because appellants

have waived their challenge to this issue on appeal.¹³ See Fed.

R. App. P. 28(a)(9) (appellants' brief must contain"appel-

lants' contentions and the reasons for them, with citations to

the authorities and parts of the record on which the appellant

relies"). See also Leer v. Murphy, 844 F.2d 628, 634 (9th Cir.

1988) (issues raised in the appellate brief, but not supported

by argument, are deemed abandoned); United States v. Loya,

807 F.2d 1483, 1486-87 (9th Cir. 1987) (same). Appellants'

failure to provide citations to supportive documents in the

record on appeal precludes this argument.

CONCLUSION

We will not disturb the jury's verdict and we affirm the

judgment of the district court challenged by appellants. We

further hold for Kenneth Sletten on the cross appeal that the

district court erred in affirming the special master's imposi-

tion of sanctions against Sletten and his counsel. We vacate

the imposition of sanctions and remand with instructions to

afford Sletten and his counsel an opportunity to present a

defense and explain why they should not be sanctioned.

Appellees are entitled to their costs on appeal.

AFFIRMED in part, VACATED in part, and

REMANDED.

_________________________________________________________________

13 Further, appellants failed to include the district court's denial of this

motion in their excerpts of record or supplemental excerpts of record. See

Fed. R. App. P. 10(b)(2) ("If the appellant intends to urge on appeal that

a finding or conclusion is unsupported by the evidence or is contrary to

the evidence, the appellant must include in the record a transcript of all

evidence relevant to that finding or conclusion.").