ROBERT H. JACOBVITZ, Bankruptcy Judge.
THIS MATTER is before the Court on cross-motions for summary judgment. See Plaintiffs' Motion for Summary Judgment on Defendant Mucci's 2nd Amended Motion to Set Aside Settlement ("Plaintiffs' Motion for Summary Judgment") (Docket No. 87) and Defendant's Motion for Partial Summary Judgment and Response to Plaintiffs' Motion for Summary Judgment ("Defendant's Motion for Partial Summary Judgment") (Docket No. 88).
Summary judgment, governed by Rule 56, Fed.R.Civ.P., will be granted when the movant demonstrates that there is no genuine dispute as to a material fact and that the movant is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(a), made applicable to adversary proceedings by Rule 7056, Fed.R.Bankr.P. "[A] party seeking summary judgment always bears the initial responsibility of informing the... court of the basis for its motion, and... [must] demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Cross motions for summary judgment raise an inference that summary judgment may be appropriate. In re Baines, 337 B.R. 392, 396 (Bankr.D.N.M.2006). Nevertheless, before a Court may grant summary judgment, the Court must satisfy itself that the requesting party has independently satisfied the requirements of Rule 56(c). See Harris v. Beneficial Oklahoma, Inc., (In re Harris), 209 B.R. 990, 998 (10th Cir. BAP); see also, Renfro v. City of Emporia, 948 F.2d 1529, 1534 (10th Cir.1991) (stating that a cross motion for summary judgment does not relieve the court of its obligation to determine if a genuine issue of material fact exists).
The following facts necessary to resolve the pending motions are not subject to genuine material dispute:
1. Defendant is an attorney.
2. Plaintiffs filed this adversary proceeding against Defendant in June of 2009, seeking a determination that certain debt arising from an alleged contingency fee agreement and the Defendant's alleged failure to provide Plaintiffs with an accounting is nondischargeable in the Chapter 7 Case under 11 U.S.C. § 523(a)(4).
3. Daymon Ely is an attorney.
4. Mr. Ely served as co-counsel with Defendant on behalf of Plaintiffs in connection with certain litigation filed in state court by the Plaintiffs against a third party (the "State Court Litigation").
6. Defendant paid Mr. Ely $12,500 for his legal services on behalf of Plaintiffs in the State Court Litigation.
7. Mr. Ely returned $889.76 to Plaintiffs on February 28, 2008.
8. The complaint filed in this adversary proceeding alleges that the State Court Litigation settled for $225,000.
9. Had the settlement of the State Court Litigation been for $225,000, Mr. Ely's contingency fee for representing Plaintiffs in the State Court Litigation would have been $12,500.
10. Plaintiffs have admitted that there was no written contingency fee agreement between them and the Defendant.
11. Defendant has denied that any contingency fee agreement was ever reached between himself and the Plaintiffs.
12. On November 9, 2009, attorney Roger Eaton filed in this adversary proceeding a document entitled Expert Witness Report, to which there is attached a letter prepared by Daymon Ely (the "Ely Letter").
13. On March 24, 2010, Defendant filed a Motion for Summary Judgment and Memorandum in Support Thereof ("Defendant's Motion for Summary Judgment") seeking summary judgment on Plaintiffs' nondischargeability claim. See Docket No. 37.
14. On May 13, 2010 Plaintiffs filed affidavits in this adversary proceeding in response to Defendant's Motion for Summary Judgment stating that Mr. Ely was party to an oral contingency fee agreement between the Plaintiffs and Defendant.
15. On July 2, 2010, the Court issued a Memorandum Opinion denying Defendant's Motion for Summary Judgment, finding genuine issues of material fact with respect to whether an hourly fee arrangement between the Plaintiffs and Defendant was converted to a contingent fee agreement when Mr. Ely was engaged as co-counsel with Defendant in the Plaintiffs' State Court Litigation. See Docket No. 58.
16. The parties entered into a Stipulated Judgment Declaring Debt Non-Dischargeable ("Stipulated Judgment"). See Docket No. 67. The Stipulated Judgment was entered in this adversary proceeding on February 17, 2011 pursuant to a Settlement Agreement between Plaintiffs and Defendant dated October 27, 2010 (the "Settlement Agreement").
17. The Stipulated Judgment refers to the Settlement Agreement as a Mediation Agreement.
19. Defendant was represented by counsel in this adversary proceeding at the time that the parties entered into the Settlement Agreement and the Stipulated Judgment.
20. The Settlement Agreement includes the following provision:
See Second Amended Motion, Exhibit 9.
The Second Amended Motion seeks an order 1) vacating the Stipulated Judgment entered in this adversary proceeding on February 17, 2011 pursuant to the Settlement Agreement between Plaintiffs and Defendant dated October 27, 2010; and 2) rendering the Settlement Agreement unenforceable. The Second Amended Motion also alleges a breach of two provisions in the Settlement Agreement: a waiver of the attorney client privilege in connection with Defendant's state law claims against Mr. Ely (the "Mucci v. Ely Action"), and breach of an alleged "implicit promise" to "assist in the introduction at trial of evidence critical to Defendant's state court claims in the Mucci v. Ely Action. Second Amended Motion, ¶¶, 41-46.
Defendant's Motion for Partial Summary Judgment seeks judgment only on the Defendant's claims to grant relief from the Stipulated Order and Settlement Agreement. Plaintiffs' Motion for Summary Judgment does not address Defendant's claim for breach of the Settlement Agreement. The Court, therefore, will make no decision in ruling on the pending cross-motions for summary judgment on Defendant's claim for breach of the Settlement Agreement.
The Stipulated Judgment was entered more than a year before the Defendant filed his motion on June 4, 2012 to reopen this adversary proceeding for the purpose of filing a motion to rescind the Settlement Agreement, and more than a year before Defendant filed his original motion for relief from the Stipulated Judgment and Settlement Agreement. As grounds for his request that the Court grant relief from the Stipulated Judgment and Settlement Agreement, and to avoid the one-year time bar for seeking relief under clause (b)(3) of Fed.R. Civ.P. 60
Defendant's ground for relief under the various subsections of Rule 60 is premised on what Defendant describes as fraudulent, collusive conduct by Plaintiffs, Daymon Ely, and Roger Eaton, that occurred more than a year ago. The evidence upon which Defendant relies in support of his Motion for Partial Summary Judgment dates from 2007 through May of 2010, which is before the date of the Stipulated Judgment and the Settlement Agreement. To seek relief from the Stipulated Judgment on the ground of fraud contained in subsection (b)(3), Defendant was required to seek such relief from the Stipulated Judgment within the one year period provided under Rule 60(c)(1). Defendant cannot use Rule 60(b)(6) to circumvent the one-year limitation for filing motions for relief from a judgment based on fraud otherwise covered under Fed. R.Civ.P. 60(b)(3). In United States v. Buck, 281 F.3d 1336 (10th Cir.2002) the Tenth Circuit explained that "[b]ecause fraud is one of the reasons for relief appearing in clause (3), it is not available as `any other reason' under clause (6). Appellants cannot so easily escape the time restrictions on Rule 60(b)(3) motions." Buck, 281 F.3d at 1341.
Defendant has also failed to meet the requirements for seeking relief from the Stipulated Judgment under Fed. R.Civ.P. 60(d)(3) based on the alleged fraud relating to the fee arrangement between the Plaintiffs and Mr. Ely. The grant of relief from an order or judgment under Rule 60(d)(3) based on fraud on the court ordinarily requires that: 1) the fraud "`is directed to the judicial machinery itself and is not fraud between the parties or fraudulent documents, false statements or perjury'" Thomas v. Parker, 609 F.3d 1114, 1120 (10th Cir.2010) (quoting Buck, 281 F.3d at 1342) (alteration and quotation omitted); 2) the fraud involves "`the most egregious conduct, such as bribery of a judge ... or the fabrication of evidence by a party in which an attorney is implicated'" Zurich North America v. Matrix Service, Inc., 426 F.3d 1281, 1291 (10th Cir. 2005) (quoting Weese v. Schukman, 98 F.3d 542, 552-53 (10th Cir.1996)(internal quotation omitted); and 3) the party perpetrating the fraud "acted with an intent to deceive or defraud the court" Robinson v. Audi Aktiengesellschaft, 56 F.3d 1259, 1267 (10th Cir.1995).
Defendant's claim of fraud on the Court in relating to the fee arrangement between the Plaintiffs and Mr. Ely is misplaced. The alleged fraud consists of statements in the Ely Letter and Plaintiffs' affidavits regarding the contingency fee arrangement in the State Court Litigation.
Any fraud between the parties resulting in their stipulating to the Stipulated Judgment may have been grounds for relief from the Stipulated Judgment under Rule 60(b)(3) if a motion seeking such relief had been filed with one year of entry of the Stipulated Judgment, but it is not a ground for relief from the Stipulated Judgment under Rule 60(d)(3).
Defendant also asserts that a fraud on the Court resulted in the Court's issuance of its Memorandum Opinion and order denying summary judgment on the merits of Plaintiffs' claims against Defendant. Defendant alleges that the Ely Letter filed by Roger Eaton in this Adversary Proceeding on November 19, 2009 and again on March 4, 2010, and the Plaintiffs' affidavits Mr. Eaton filed on May 13, 2010, committed a fraud upon this Court because they contained information regarding a contingency fee agreement between Mr. Ely and Defendant that Mr. Ely, Mr. Eaton, and the Plaintiffs knew to be false. See Second Amended Motion p. 2, ¶¶ 3 and 4.a. However, the Defendant is not seeking relief from the order denying summary judgment. Defendant does not explain how the Court's alleged reliance on Mr. Ely's representation that Plaintiffs paid him pursuant to a contingency fee agreement
In any event, the Court did not rely on the Ely Letter in connection with issuance of its Memorandum Opinion and order denying summary judgment.
Additionally, the Court would have denied summary judgment regardless of whether that fact was in dispute. In its Memorandum Opinion, the Court held that Defendant was acting in a fiduciary capacity within the meaning of 11 U.S.C. § 523(a)(4) regardless of whether there existed an hourly fee or contingent fee agreement between the parties, and that the genuine issue of material fact related to the accounting of monies Plaintiffs advanced Defendant for costs. See Memorandum Opinion, p. 6 — Docket No. 58.
Defendant's effort to obtain relief from the Stipulated Judgment based on an "independent action" theory is also unavailing. Parties seeking relief from a judgment through an independent action generally must satisfy the following three elements: "(1) show that they have no other available or adequate remedy; (2)
"Independent actions must, if Rule 60(b) is to be interpreted as a coherent whole, be reserved for those cases of `injustices which, in certain instances, are deemed sufficiently gross to demand a departure' from rigid adherence to the doctrine of res judicata." United States v. Beggerly, 524 U.S. 38, 46, 118 S.Ct. 1862, 1867, 141 L.Ed.2d 32 (1998) (quoting Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 244, 64 S.Ct. 997, 1000, 88 L.Ed. 1250 (1944)). See also, Buck, 281 F.3d at 1341 (relief from a judgment based on an independent action "`should be available only to prevent a grave miscarriage of justice.'") (quoting Beggerly, 524 U.S. at 47, 118 S.Ct. 1862). "[A] `grave miscarriage of justice' is a `stringent' and `demanding' standard." Mitchell v. Rees, 651 F.3d 593, 596 (6th Cir.2011) (quoting Gottlieb v. S.E.C., 310 Fed.Appx. 424, 425 (2nd Cir.2009) (remaining citation omitted)). Further, it must appear that the party seeking relief based upon an independent equitable action could not have, by exercising proper diligence, had an adequate remedy at law, or have proceeded in the original action to otherwise obtain relief from the judgment. Stonecipher, 429 F.2d at 1090 (citations omitted).
Here, Defendant's grounds for asserting an independent action fall well short of the mark. As discussed above, the grounds are predicated upon allegedly fraudulent representations contained in the Ely Letter and the Plaintiffs' affidavits. Such alleged fraud could have been discovered by Defendant well prior to expiration on February 16, 2012 the one year period provided under Rule 60(b)(3). Plaintiffs first filed the Ely Letter of record on November 9, 2009. Plaintiffs filed their affidavits on May 13, 2010. The period to take discovery in the adversary proceeding did not expire until August 2, 2010. See Scheduling Orders, Docket Nos. 8 and 53. Defendant had ample time to seek redress within the time constraints of Fed.R.Civ.P. 60(c). Consequently, Defendant has failed to meet the requirements for asserting an independent action in equity necessary for obtaining relief under Rule 60(d)(1).
In addition to seeking relief from the Stipulated Judgment, Defendant asks the Court to set aside the Settlement Agreement approved by the Stipulated Judgment. However, Defendant cannot be relieved from the Settlement Agreement without also being relieved from the Stipulated Judgment. Material terms of the Settlement Agreement are made part of the Stipulated Judgment itself, including the amount of debt Defendant owed Plaintiffs, the nondischargeable character of the debt, and payment terms. The Stipulated Judgment also included a judgment on the agreed amount of the debt. If follows that because Defendant cannot be relieved from the Stipulated Judgment pursuant to Fed.R.Civ.P. 60, Defendant likewise cannot be relieved from the Settlement Agreement. Cf. Hillman v. Webley, 98 F.3d 1349 (10th Cir.1996) (Table) (affirming district court's refusal to grant relief from a settlement agreement pursuant to Fed.R.Civ.P. 60(b)(4), (5) and (6) where the court's order approving the settlement
In support of Plaintiffs' Motion for Summary Judgment, Plaintiffs attach deposition testimony of Defendant taken in connection with the Mucci v. Ely Action wherein Defendant acknowledges that Mr. Ely was to be paid on a contingency fee basis.
Plaintiffs also assert that Defendant asserted similar or identical arguments in the Second Amended Motion as were raised in the Mucci v. Ely Action, and that, because the Mucci v. Ely Action was dismissed, Defendant is barred under the doctrine of collateral estoppel from asserting those claims in the Second Amended Motion. When applying collateral estoppel to a judgment entered by a state court, the Court must look to the law of the state in which the judgment was entered.
If all of these elements are present, the Court must also determine "whether the party against whom estoppel is asserted had a full and fair opportunity to litigate the issue in the prior litigation." Id. Because Plaintiffs were not parties to the Mucci v. Ely Action, they rely on defensive non-mutual collateral estoppel. "A party attempting to use non-mutual defensive collateral estoppel ... must establish that the issue to be estopped has been actually litigated and necessarily determined, or actually and necessarily decided." Deflon v. Sawyers, 139 N.M. 637, 643, 137 P.3d 577, 583 (2006) (citations omitted).
In support of their collateral estoppel argument, Plaintiffs point to the transcript of Defendant's argument and testimony in the Mucci v. Ely Action regarding the contingency fee agreement and Defendant's allegations that Mr. Ely acted in collusion with Plaintiffs or otherwise misrepresented the terms of Defendant's fee arrangement with Mr. Ely.
Even if the complaint filed in the Mucci v. Ely Action were before the Court, the stipulated dismissal of the Mucci v. Ely Action cannot establish that the issues raised in the Second Amended Motion were actually litigated and necessarily decided as a result Defendant's voluntary dismissal of the Mucci v. Ely Action.
The Second Amended Motion includes allegations of fraud regarding the auction of the Mucci v. Ely Action in Defendant's bankruptcy case, but neither Plaintiffs nor Defendant address this issue in the cross-motions for summary judgment. The Court fails to discern a connection between any alleged fraud relating to the auction of the Mucci v. Ely Action and any alleged fraud in connection with entry of the Stipulated Judgment. But because neither party addressed this issue, it is not appropriate to grant summary judgment at this time.
Defendant's Second Amended Motion includes a claim that Plaintiffs breached the Settlement Agreement by "resisting any and all attempts to secure their trial testimony" in the Mucci v. Ely Action, and by producing "incomplete, false, and misleading evidence" in connection with the Mucci v. Ely Action. See Second Amended Motion, ¶¶ 45 and 46. The Settlement Agreement obligated Plaintiffs to "waive all attorney-client and work product privilege with Mucci and Ely." See Exhibit 9 to Second Amended Motion — Docket No. 86. The Second Amended Motion alleges that implicit in this obligation was an obligation on the part of Plaintiffs to assist Defendant in connection with the Mucci v. Ely Action. Based on the waiver of privilege provisions in the Settlement Agreement, it does not appear that Defendant's allegations concerning the alleged breach of the Settlement Agreement can establish that Plaintiffs breached the Settlement Agreement. But because Plaintiffs' request for summary judgment fails to directly address Defendant's assertion that they breached the Settlement Agreement, the Court is unable to grant summary judgment on this claim.
Based on the foregoing, the Court will grant, in part, and deny, in part, Plaintiffs' Motion for Summary Judgment, and deny Defendant's Partial Motion for Summary Judgment. Defendant cannot set aside the Stipulated Judgment or the Settlement Agreement based on the Ely Letter or the affidavits of the Plaintiffs whether premised on a fraud upon the Court under Fed.R.Civ.P. 60(d)(1), or through an independent action under Fed.R.Civ.P. 60(b)(6) and (d)(3). Because neither Plaintiffs nor Defendant addressed the auction of the Ely v. Mucci Action in the cross-motions for summary judgment, the Court will deny Plaintiffs' Motion for Summary Judgment with respect to whether any alleged fraud in connection with the auction of the Ely v. Mucci claim in Defendant's bankruptcy case can serve as grounds for relief from the Stipulated Judgment or the Settlement Agreement under Fed.R.Civ.P. 60(b)(6), (d)(1), or (d)(3). Plaintiffs' request for summary judgment will be denied with respect to Defendant's claim for breach of the Settlement Agreement. Defendant's request for partial summary judgment will be denied. Plaintiffs' request for an award of costs incurred in connection with the cross-motions for summary judgment will also be denied.
Separate orders consistent with this Memorandum Opinion will be entered.
