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In re Centrix Financial, LLC

United States District Court, D. Colorado

September 6, 2019

In re CENTRIX FINANCIAL, LLC, et al., Debtors,
v.
ROBERT E. SUTTON, et al., Defendants. CENTRIX FINANCIAL LIQUIDATING TRUST, et al., Plaintiffs,

          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 ...


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