United States District Court, D. Colorado
ORDER
Philip
A. Brimmer, Chief United States District Judge
This
matter comes before the Court on the Motion to Set Aside
Dismissal and Reopen Case [Docket No. 157] filed by plaintiff
Jeffrey A. Weinman in his capacity as trustee of plaintiff
Centrix Financial Liquidating Trust (the
“Trust”).
I.
BACKGROUND
The
Trust initiated an adversary proceeding against defendants in
the bankruptcy court on September 3, 2008. See
Docket No. 1 (Bankruptcy No. 08-01593-EEB). Broadly speaking,
the Trust alleged that Robert Sutton induced credit unions to
provide funds to the debtors and used those funds for his
personal expenses. See Id. This Court subsequently
withdrew the reference to the bankruptcy court and set the
case for trial. Docket Nos. 20, 23. On April 11, 2014, four
days before the trial was set to begin, the parties executed
a settlement agreement and sought dismissal of this case.
See Docket No. 145 at 2-3. The Court dismissed the
case, but retained jurisdiction to enforce the terms of the
settlement agreement. Docket No. 146.
The
Trust now seeks to reopen the case in order to enforce the
settlement agreement pursuant to Fed.R.Civ.P. 60(b)(6), which
provides that the Court may “[o]n motion and just terms
. . . relieve a party or its legal representative from a
final judgment, order, or proceeding for . . . any . . .
reason that justifies relief.” According to the
trustee, defendants submitted materially false financial
statements in order to induce settlement of this case in
2014. Docket No. 157 at 3-5. Under the terms of the
settlement agreement,
If Plaintiffs establish to the satisfaction of the District
Court . . . that the Financial Disclosure is materially false
in any respect . . . then (a) Sutton, and (b) any other
individual or entity who made one or more materially false
statements, as the case may be, consents, at the option of
Plaintiffs (or their assignee), to vacate the dismissal order
. . . and entry by the District Court . . . of a
non-dischargeable judgment in favor of Plaintiffs (or their
assignee), in the amount of Fifteen Million Dollars and Zero
Cents ($15, 000, 000.00), and waives all defenses or
objections that might otherwise be interposed to entry of
such judgment except for the truth and materiality of the
matter claimed to be false . . . .
Docket
No. 160-1 at 3, ¶ 4. The trustee seeks to reopen the
case “for the Court to consider the Trust's claims
that [defendants'] financial disclosures were materially
false, and to enforce the provisions of the [settlement
agreement] triggered by that showing.” Docket No. 157
at 6. The trustee alleges that defendants' financial
statements were materially false, as they misrepresented
their (a) family holdings, (b) available funds, (c) trust
assets, (d) income, (e) controlling interest in an entity
called Nanosphere Health Sciences, LLC
(“Nanosphere”), (f) funding of Nanosphere, (g)
non-family transfers, and (h) employment status. Id.
at 3-5.
One day
before filing this motion, the Trust filed a new civil action
against Robert Sutton, his family members, and related
entities. See Centrix Fin. Liquidating Trust v.
Sutton, No. 18-cv-02769-RBJ (“Sutton
II”); Docket No. 157-1 (copy of complaint in
Sutton II). The Sutton II complaint alleges
that, in July 2018, “the Trust learned that the
financial disclosures the Suttons submitted” at the
time of the settlement agreement “were materially false
in virtually every respect.” Docket No. 157-1 at 7,
¶ 62. Plaintiffs further allege that plaintiffs
“created an entirely new network of entities to shield
their assets.” Id. at 2. Plaintiffs represent
that at least one purpose of the claims in Sutton II
is “to ensure that all the Sutton entities are within
the Court's jurisdiction to locate assets wrongfully
transferred to avoid judgment.” Id. at 8,
¶ 64. Consequently, in Sutton II, plaintiffs
name as defendants some parties who are not defendants in
Sutton I. Id. at 1.[1]
II.
LEGAL STANDARD
Relief
under Fed.R.Civ.P. 60(b) is “extraordinary and may only
be granted in exceptional circumstances.” Servants
of the Paraclete v. Does, 204 F.3d 1005, 1009 (10th Cir.
2000). Under Rule 60(b)(6), the Court may relieve a party or
its legal representative from a final judgment for “any
other reason that justifies relief.” Fed.R.Civ.P.
60(b)(6). Rule 60(b)(6) has been described as a “grand
reservoir of equitable power to do justice in a particular
case.” Pierce v. Cook & Co., Inc., 518
F.2d 720, 722 (10th Cir. 1975) (en banc) (citation omitted).
Relief under Rule 60(b)(6) is appropriate when circumstances
are so “unusual or compelling” that extraordinary
relief is warranted or when it “offends justice”
to deny such relief. Cashner v. Freedom Stores,
Inc., 98 F.3d 572, 580 (10th Cir. 1996). Courts have
granted relief under Rule 60(b)(6) “when, after entry
of judgment, events not contemplated by the moving party
render enforcement of the judgment inequitable, ” where
a party is indigent, or when it offends justice to deny such
relief. Id. at 579; Yapp v. Excel Corp.,
186 F.3d 1222, 1231-32 (10th Cir. 1999). As relevant here,
courts have used Rule 60(b)(6) to undo or enforce a
settlement agreement between the parties. See Chief
Freight Lines Co. v. Local Union No. 886, 514 F.2d 572
(10th Cir. 1975); see also 11 Charles Alan Wright
& Arthur R. Miller, Federal Practice &
Procedure § 2864 (3d ed.) (noting that courts rely
on Rule 60(b)(6) particularly “when the court in
dismissing the original case has incorporated the settlement
terms in its order or otherwise retained continuing
jurisdiction”).[2]
III.
ANALYSIS
The
Court finds that plaintiffs (the Trust and the trustee) are
entitled to relief under Rule 60(b)(6). As the trustee
represents - and defendants do not challenge - plaintiffs
settled this suit “based on [defendants']
representations that they had no appreciable assets for
[p]laintiff[s] to pursue.” See Docket No. 157
at 2. In the settlement agreement, the parties agreed that
the Court would retain jurisdiction to set aside the
dismissal and enforce a liquidated damages judgment in favor
of plaintiffs if the Court found that defendants'
financial disclosures were “materially false in any
respect.” See Docket No. 160-1 at 3, ¶ 4.
Plaintiffs have alleged facts that, if proven, would
demonstrate that defendants' financial disclosures were
“materially false.” See Docket No. 157
at 3-5, Docket No. 157-1 at 7-8, ¶¶ 57-64.
Defendants
argue that two legal doctrines compel the Court to deny
plaintiffs' motion: the doctrine of election of remedies
and the first-to-file rule. Docket No. 160. Neither argument
is persuasive.
First,
defendants argue that recovery for plaintiffs in this action
would implicate the election of remedies doctrine. Docket No.
160 at 4-5. Defendants contend that, by filing a suit against
similar defendants in Sutton II, plaintiffs have
“elected actual damages” and are ...