Louis A. Scarcella, United States Bankruptcy Judge.
Defendant Michael W. Koper moves this Court under Rules 60(b)(3) and (6) of the Federal Rules of Civil Procedure ("Fed. R. Civ. P."), made applicable to these adversary proceedings by Rule 9024 of the Federal Rules of Bankruptcy Procedure (the "Rule 60(b) Motion") [Adv. Dkt. No. 272]
The matter has been fully briefed and the Court has considered carefully the parties' submissions, the relevant law and the record in this case. The Court held a hearing on March 3, 2016. Upon completion of the hearing, and for the reasons set forth on the record of the hearing, the Court denied the Rule 60(b) Motion. This Decision and Order memorializes and explains further the bases for the Court's ruling.
The Court has jurisdiction over this matter under 28 U.S.C. § 1334(b) and the Standing Order of Reference entered by the United States District Court for the Eastern District of New York pursuant to 28 U.S.C. § 157(a), dated August 28, 1986, as amended by Order dated December 5, 2012, effective nunc pro tunc as of June 23, 2011. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I). A bankruptcy judge may hear and finally determine any core proceeding. 28 U.S.C. § 157(b)(1). A proceeding to determine the dischargeability of a debt "stems from the bankruptcy itself," and may constitutionally be decided by a bankruptcy judge. Stern v. Marshall, 564 U.S. 462, 131 S.Ct. 2594, 2618, 180 L.Ed.2d 475 (2011). Accordingly, final judgment is within the scope of the Court's jurisdictional and constitutional authority.
The facts of this case and its procedural history are discussed in the Court's prior
Defendant is an attorney. He and his former spouse, Brittany Koper (n/k/a Brittany Davidson) ("Brittany"), were previously employed by plaintiffs. Their employment terminated in September of 2011. Since then, plaintiffs, defendant and Brittany have been engaged in long and contentious litigation in various jurisdictions both at the federal and state court level. On August 14, 2013, defendant filed for relief under chapter 7 of the Bankruptcy Code, thus staying all litigation pending against him pursuant to section 362(a) of the Bankruptcy Code.
On October 14, 2013, ICB filed Proof of Claim No. 1 in the amount of $6,900,000 and TCCSA filed Proof of Clam No. 2 in the amount of $800,000. By far, plaintiffs hold the largest unsecured claims lodged against defendant. On the same day they filed their proofs of claim, plaintiffs commenced the referenced adversary proceedings against defendant seeking a determination of dischargeability of debt under 11 U.S.C. §§ 523(a)(2), (a)(4) and (a)(6).
On April 1, 2015, plaintiffs filed a Motion for Sanctions Concerning Defendant's Fabrication of Evidence and Perpetration of Fraud on the Court (the "Sanctions Motion") [Adv. Dkt. No. 172]. The Sanctions Motion alleged, inter alia, that defendant (i) fabricated documents to make it appear that defendant and Brittany were authorized to expend plaintiffs' funds, (ii) scanned these documents onto his Sony VAIO computer and manually manipulated the VAIO's internal computer system clock time settings to make it appear that the documents had been created or modified on those artificial "roll back" dates, (iii) used the VAIO computer to gain access to an email account of TBN and illegally procured plaintiffs' confidential corporate and legal records, (iv) installed a Lotus Notes email program on the VAIO computer which was used to fabricate emails purporting to have been sent or received in years prior to 2012, (v) installed and operated a program known as CCleaner on the VAIO computer to overwrite information and render such information on the VAIO computer unrecoverable, (vi) intentionally destroyed material evidence that supported plaintiffs' claims against him regarding the nondischargeability of his debt to the plaintiffs, and (vii) acted willfully, maliciously and with intent to defraud the plaintiffs and the Court. The Sanctions Motion sought an order (a) striking defendant's answer and counterclaim in these
A hearing on the Sanctions Motion, with a trial to commence immediately thereafter, was scheduled for the week of October 26, 2015. A Joint Pretrial Statement on Non-Dischargeability Complaints and Sanctions Motion signed by plaintiffs' counsel and by defendant and his counsel, was filed with the Court on September 14, 2015. [Adv. Dkt. No. 235].
On the morning of October 26, 2015, prior to commencement of the hearing on the Sanctions Motion, the parties requested additional time to continue their discussions in an effort to resolve the pending dispute. The Court allowed the parties to use the courtroom and adjacent conference room to continue their negotiations. Later that morning, the parties presented the Court with a Stipulation of Resolution of Sanctions Motion and Stipulation to Judgment in Adversary Proceeding ("Stipulation"). [Adv. Dkt. No. 262-1]. The Stipulation was signed by plaintiffs and defendant, as well as by Michael J. King, Esq., counsel for plaintiffs, and by David R. Keesling, Esq., counsel for defendant. The Stipulation was read into the record by plaintiffs' counsel on October 26, 2015. The Stipulation provides in relevant part as follows:
Stipulation, at 2.
At the October 26, 2015 hearing, defendant testified that he had an opportunity to read and discuss the Stipulation with his counsel and that he understood the terms and conditions to which he had agreed. [Oct. 26, 2015 Hr'g Tr. 11:13-24; 12:1-3;
The parties spent the remainder of the day negotiating the language of the proposed order resolving the Sanctions Motion and the form of the consent judgment. These negotiations continued to the next day, October 27, 2015. In the afternoon of October 27, 2015, the parties submitted a proposed "Order Granting Sanctions Motion on Consent" and "Judgment on Consent" which contained the proposed findings of fact and conclusions of law agreed upon by the parties. The parties advised that they were continuing to discuss the amount of the monetary sanctions and the amount of the nondischargeable debt. [Oct. 27, 2015 Hr'g Tr. 47:19-48:2]. The Court stated that it would issue a briefing schedule and set a hearing date should the parties fail to reach agreement on those issues. [Oct. 27, 2015 Hr'g Tr. 48:3-12, 48:19-23].
On October 30, 2015, after careful review and consideration of the proposed findings of fact and conclusions of law submitted by the parties, the Court entered (i) the Order Approving Stipulation, (ii) the Order Granting Sanctions Motion on Consent (the "Sanctions Order"), and (iii) the Judgment on Consent ("Consent Judgment"), substantially unchanged from the version presented by the parties. In addition to defendant conceding in the Sanctions Order the factual allegations and conclusions of law set forth therein, the Sanctions Order also (a) directed that defendant's answer and counterclaim filed in each of the adversary proceedings be stricken, (b) directed plaintiffs to file with the Court and serve on defendant and his counsel supplemental pleadings in support of their request for monetary sanctions within 21 days of the entry of the Sanctions Order, and (c) directed defendant to file any reply to such supplemental pleadings within 14 days thereafter. Unable to resolve the issue on monetary damages, plaintiffs filed their supplemental memorandum of law in support of their request for attorneys' fees and costs relating to the Sanctions Motion on November 20, 2015. Defendant did not file a reply within the fourteen day time frame set forth in the Sanctions Order.
On January 19, 2016, defendant filed the Rule 60(b) Motion. In support of the Rule 60(b) Motion, defendant filed his declaration ("Koper Decl.") [Adv. Dkt. No. 272-1] and a memorandum of law ("Def. Mem.") [Adv. Dkt. No. 272-2]. Defendant makes two arguments. First is that the Order Approving Stipulation, Sanctions Order and Consent Judgment should be set aside under Fed.R.Civ.P. 60(b)(3) because plaintiffs "made misrepresentations and committed misconduct" to induce defendant to enter into the Stipulation and consent to the relief requested in the Sanctions Motion and to judgment in favor of plaintiffs on all counts. Def. Mem., at 3. In particular,
Second, defendant argues that the Stipulation, the Sanctions Order and the Consent Judgment should be set aside under Fed.R.Civ.P. 60(b)(6) based on the same false statements and conduct by plaintiffs that defendant asserts warrant relief under Fed.R.Civ.P. 60(b)(3), and because he, Brittany, and Brittany's sister, Carra Crouch
On February 24, 2016, plaintiffs filed a response in opposition to the Rule 60(b) Motion [Adv. Dkt. No. 273]. In support of their response, plaintiffs filed the Declaration of Michael J. King, Esq. ("King Decl.") [Adv. Dkt. No. 273-1] and the Declaration of Colby M. May. Esq. ("May Decl.") [Adv. Dkt. No. 273-2]. Mr. King is counsel to plaintiffs and Mr. May is a member of the Board of Directors of TCCSA. Plaintiffs contend the Stipulation was not conditioned on reaching a global settlement of other pending litigation with defendant and Brittany, nor did plaintiffs offer up a global settlement in return for defendant's entry into the Stipulation and consent to the Sanctions Motion and judgment on all counts in the nondischargeability complaints. Plaintiffs argue that while the parties did discuss additional settlement terms and agreed to continue those discussions, no agreement was reached regarding the terms of a global settlement nor was there a promise of such a global settlement as alleged by defendant in the Rule 60(b) Motion.
In reply to plaintiffs' response and in further support of the Rule 60(b) Motion, on February 29, 2016, defendant filed the Declaration of David R. Keesling, Esq. ("Keesling Reply Decl.") [Adv. Dkt. No. 275] and a memorandum of law [Adv. Dkt. No. 276]. In his reply, defendant principally contends that the Stipulation did not include the additional settlement terms because the parties had agreed that (i) the Stipulation would not contain such terms or make reference to them, and (ii) the terms would be subject to a confidentiality agreement. Keesling Reply Decl. ¶ 10.
Defendant did not appeal the Order Approving Stipulation or the Sanctions Order, nor did he appeal or move to alter or amend the Consent Judgment, and the time do so has long passed.
Rule 60(b) provides that the Court may relieve a party from a final judgment, order or proceeding due to:
Fed.R.Civ.P. 60(b)(1) — (6).
"A motion for relief from judgment is generally not favored and is properly granted only upon a showing of exceptional circumstances." United States v. Int'l Bhd. of Teamsters, 247 F.3d 370, 391 (2d Cir.2001); Nemaizer v. Baker, 793 F.2d 58, 61 (2d Cir.1986) (although Rule 60(b) "should be broadly construed to do substantial justice [,] ... final judgments should not be lightly reopened.... Since 60(b) allows extraordinary judicial relief, it is invoked only upon a showing of exceptional circumstances.").
"The burden of proof is on the party seeking relief from the judgment." Int'l Bhd. Teamsters, 247 F.3d at 391. Whether a motion for relief under Fed. R.Civ.P. 60(b) should be granted is subject
"When the parties submit to an agreed-upon disposition instead of seeking a resolution on the merits ... the burden to obtain Rule 60(b) relief is heavier than if one party proceeded to trial, lost, and failed to appeal." Nemaizer, 793 F.2d at 63. That is to say, "[w]hen a party makes a deliberate, strategic choice to settle, she cannot be relieved of such a choice merely because her assessment of the consequences was incorrect." United States v. Bank of New York, 14 F.3d 756, 759 (2d Cir.1994). See also Humbles v. Reuters Am., Inc., No. 05-CV-4895, 2006 WL 2547069, at *5 (E.D.N.Y. Aug. 31, 2006) ("In considering the finality of judgments, Rule 60(b) should not be employed simply to relieve a party from a voluntary and deliberate choice that later turns out to be unfortunate.").
In his Rule 60(b) Motion, defendant seeks relief from the Order Approving Stipulation, the Sanctions Order and the Consent Judgment pursuant to Rules 60(b)(3) and (b)(6). The Court addresses each in turn.
To prevail under Rule 60(b)(3), the movant must demonstrate by clear and convincing evidence that the order or judgment from which relief is sought was procured by fraud, misrepresentation or other misconduct. Fleming v. New York University, 865 F.2d 478, 484 (2d Cir.1989) ("[A] Rule 60(b)(3) motion cannot be granted absent clear and convincing evidence of material misrepresentations and cannot serve as an attempt to relitigate the merits."). "To meet this high burden, the [movant] must do more than make `conclusory allegations of fraud' and must show that the alleged fraud, misrepresentation, or other misconduct was `material to the outcome.'" In re Waugh, 367 B.R. 361, 367 (Bankr.E.D.N.Y.2007) (quoting In re St. Stephen's 350 E. 116th St., 313 B.R. 161, 174 (Bankr.S.D.N.Y.2004)).
In asking this Court to set aside the final orders and judgment negotiated by the parties, defendant's argument comes down to the following contention: plaintiffs' induced him to sign the Stipulation and consent to the entry of the Sanctions Order and the Consent Judgment by representing that plaintiffs would enter into a global settlement agreement that would resolve all pending litigation, bankruptcy and non-bankruptcy, among plaintiffs, defendant and Brittany, and that but for this promise, he would not have entered into the Stipulation and agreed to the Sanctions Order and Consent Judgment. Koper Decl. ¶¶ 4, 9. Defendant contends that he performed his part of the agreement by signing the Stipulation and by dismissing a lawsuit that he and Brittany had commenced against TCCSA in the United States District Court for the Central District of California, Case No. SACV 15-0139 ("Kopers' California Federal Court Action"). Koper Decl. ¶ 5. Defendant further contends that plaintiffs have sought to use the Stipulation, Sanctions Order and Consent Judgment in other pending litigation to gain an advantage and obtain "on the merits" rulings against him, Brittany and Brittany's sister, Carra Crouch. Koper Decl. ¶¶ 7, 8. This, defendant argues, justifies the relief he seeks, i.e., an order setting aside the Stipulation, Sanctions Order and Consent Judgment under Rule 60(b)(3) based upon plaintiffs' misrepresentation and misconduct.
Although plaintiffs dispute any allegation of misrepresentation or misconduct in negotiating the Stipulation and, in particular, that it was conditioned on reaching a global settlement, plaintiffs did agree to meet with defendant's counsel in Dallas, Texas on November 11, 2015 to discuss a resolution of pending litigation. May Decl. ¶ 22. However, no global settlement has been agreed to and discussions have ended. May Decl. ¶¶ 23-30.
Plaintiffs also take issue with defendant's claim that he kept his part of the "agreement" reached with plaintiffs by dismissing the Kopers' California Federal Court Action. According to plaintiffs, that action was dismissed in response to a Fed. R.Civ.P. 11 safe harbor letter and draft motion served by plaintiffs on defendant and Brittany. King Decl. ¶¶ 11-14.
Thus, with equal conviction, plaintiffs and defendant each insist that its recollection of what transpired, and what was agreed to, on the morning of October 26, 2015 is unquestionably correct. The central issue is this: did the parties have an agreement to resolve not only the Sanctions Motion and the adversary proceedings pending in this Court, but also all other pending litigation? That issue turns on the language of the operative documents negotiated and agreed to by the parties, i.e., the Stipulation, the Sanctions Order and the Consent Judgment, and the Court's assessment of whether each party's position is reasonable. The operative documents are unambiguous. There is nothing in any of those documents that conditions defendant's agreement to enter into the Stipulation on the occurrence of a future event, i.e., a global resolution of all pending non-bankruptcy litigation among plaintiffs, defendant and Brittany. At the October 26, 2015 hearing, the Court observed that the Stipulation does not contain any condition precedent nor does it provide that the terms and conditions are subject to the occurrence of any other event. [Oct. 26, 2015 Hr'g Tr. 21:12-13, 22-25; 22:1-13]. Neither defendant nor his counsel saw fit to inform the Court otherwise.
Keesling Reply Decl. ¶ 10.
Plaintiffs refute defendant's claim that the parties deliberately did not present or describe "additional settlement terms" and remain adamant that there was no pact between the parties to hide any settlement terms from the Court, and that counsel would not participate in any attempt to conceal such terms from the Court.
Defendant has presented no evidence to contradict in any way the representations he made on the record at the October 26, 2015 hearing at the time he asked the Court to approve the Stipulation. His testimony at the October 26, 2015 hearing overwhelmingly confirms the fact that he entered into the Stipulation knowingly, intelligently and voluntarily and that no condition to its effectiveness existed. Defendant did not say anything at all to the Court about any "confidential" agreement reached with plaintiffs or other condition of any kind to the effectiveness of the Stipulation. His testimony, coupled with the fact that he remained silent when the Court observed that the Stipulation was not subject to the occurrence of any future event, completely undermines the credibility of any assertion by defendant that Court approval of the Stipulation, the Sanctions Order and the Consent Judgment was somehow limited by an undisclosed agreement.
The record simply does not support defendant's argument. Instead, the evidence demonstrates that defendant, an attorney, represented by sophisticated counsel, reviewed and signed the Stipulation and carefully negotiated the terms of the Sanctions Order and Consent Judgment, all without revealing any terms of an undisclosed promise by plaintiffs to settle other pending litigation. On October 26, 2015, after the Stipulation was read into the record by plaintiffs' counsel, the Court asked defendant to take the witness stand and be sworn in by the Court. [Oct. 26, 205 Hr'g Tr. 10:23-25; 11:22-25; 12:1-2]. The Court informed defendant that "[t]he purpose of having you take the witness stand is to assure to the Court that you understand the terms and conditions and the provisions of the Stipulation of Settlement that you have signed this morning and are agreeing to this morning. And so the Court has some questions for you. First is do you understand that having been sworn now, your answers to my questions will be subject to the penalties of perjury or [o]f making a false statement if you do not answer them truthfully." [October 26, 2015 Hr'g Tr. 12:9-17]. Defendant, in response, answered "yes." [Oct. 26, 2015 Hr'g Tr. 12:18]. The Court then proceeded to question defendant. [Oct. 26, 2015 Hr'g Tr. 12:19-25; 13:1-25; 14:1-21]. Specifically, defendant testified that he had an opportunity to review and discuss the terms of the Stipulation with counsel, understood the terms and conditions and the provisions of the Stipulation, and that he was entering into the Stipulation voluntarily and of his own free will. [Oct. 26, 2015 Hr'g Tr. 13:10-24, 14:10-21]. In his testimony, defendant made no mention of any promise or representation by plaintiffs regarding a global settlement agreement. At the conclusion of the Court's inquiry, the Court asked, "Anyone else have anything further for Mr. Koper? "[Oct. 26, 2015 Hr'g Tr. 14:22-23]. Only one party did, that was the plaintiff; defense counsel
In addition, after the Court again asked defendant if he had an opportunity to review the terms and conditions of the Stipulation with his counsel, to which he responded yes [Oct. 26, 2015 Hr'g Tr. 18:21-25; 19:1-2], his counsel, upon questioning by the Court, stated that he had an opportunity to review the terms and conditions of the Stipulation and to discuss them with defendant. [Oct. 26, 2015 Hr'g Tr. 19:3-7]. It was at that point that defendant was excused from the witness stand. [Oct. 26, 2015 Hr'g Tr. 19:8]. Again, there was no mention by defendant or his counsel of any promise made by plaintiff as to a global resolution or that defendant was hesitant to enter into the Stipulation but for the promise of a global resolution.
As such, by the Rule 60(b) Motion, the Court is presented with a choice between two conflicting interpretations of what occurred on the morning of October 26, 2015 and to what the parties agreed to. Plaintiffs' position is reasonable. Defendant's is not. If an agreement on a global resolution had been reached, there was every incentive on the part of defendant to make that critical piece of the settlement known to the Court. He did not. Defendant could have insisted that the Stipulation contain such conditions and so advise the Court on the record, or ask that the "confidential agreement" remain under seal with in camera disclosure. It is unreasonable and illogical to conclude that defendant would concede as true the serious allegations of fraud and spoliation of evidence and the non-dischargeability of substantial debt to plaintiffs, and withdraw his counterclaims with prejudice, if his agreement to do so was contingent on the occurrence of a future event.
Defendant made a deliberate, strategic, decision to resolve the Sanctions Motion and the adversary proceedings. His agreement to do so is plainly set forth in the Stipulation, the Sanctions Motion and the Consent Judgment. Because defendant has failed to demonstrate a factual basis to justify the relief he seeks, the Court does not find that defendant has met his burden of proof by clear and convincing evidence that the Stipulation, Sanctions Order and Consent Judgment were obtained through fraud, misrepresentation, or other misconduct on the part of plaintiff. The Court therefore denies defendant's motion to set aside the Stipulation, Sanctions Order and Consent Judgment pursuant to Rule 60(b)(3).
Defendant also relies on Rule 60(b)(6) which is a catch-all provision that allows a court to set aside a final order or judgment for "any other reason that justifies relief." Fed. R. Civ. P. 60(b)(6). However, when a movant's Rule 60(b) claim falls within the ambit of any other section of Rule 60(b), relief under (b)(6) is not available. That is to say, Rule 60(b)(6) and the preceding five enumerated provisions under 60(b) are mutually exclusive. Liljeberg v. Health Services Acquisition Corp., 486 U.S. 847, 864, 108 S.Ct. 2194, 100 L.Ed.2d 855 (1988). "Controlling cases have held that if the reasons offered for relief from judgment can be considered in one of the more specific clauses of Rule 60(b), such reasons will not justify relief under Rule 60(b)(6)." Int'l Bhd. Teamsters, 247 F.3d at 391-92.
Where a party seeks relief under Rule 60(b)(6) for reasons not covered
Abdullah v. Immigration and Naturalization Service, No. 97 Civ. 5904, 2003 WL 22966290, at *2 (Bankr.S.D.N.Y.2003). See also Montco, Inc. v. Barr (In re Emergency Beacon Corp.), 666 F.2d 754, 759 (2d Cir.1981) (noting that relief under Rule 60(b)(6) is reserved for "when there are extraordinary circumstances, or where the judgment may work an extreme and undue hardship...."). With respect to relief from a judicially approved settlement, "[a] failure to properly estimate the loss or gain from entering a settlement agreement is not an extraordinary circumstance that justifies relief under Rule 60(b)(6)." Bank of New York, 14 F.3d at 760.
Here, defendant has framed his claim for relief in terms covered expressly by Rule 60(b)(3). His allegations of misrepresentation or other misconduct on the part of plaintiffs mirror his challenge under Rule 60(b)(3). Thus, relief under Rule 60(b)(6) is unavailable. Even if the legal barrier to invoking Rule 60(b)(6) could be surmounted, as noted above, defendant has failed to provide any evidence of such misrepresentation or other misconduct by plaintiffs, and has thus failed to demonstrate "extraordinary circumstances" sufficient to justify relief under Rule 60(b)(6). The Court therefore denies defendant's motion to set aside the Stipulation, Sanctions Order and Consent Judgment pursuant to Rule 60(b)(6).
For the foregoing reasons, defendant's Rule 60(b) Motion to set aside the Order Approving Stipulation, the Sanctions Order and the Consent Judgment, and to restore the evidentiary hearing on the sanctions motion and trial in this adversary proceeding to the Court's docket is denied.
So ordered.
[Oct. 26, 2015 Hr'g Tr. 7:17-25].
[Mar. 3, 2016 Hr'g Tr. 35:3-25; 36:1-18.]