It’s hard to get a Court to Change an Already Entered Order: Tevis v. Burkart, et al. (In re Tevis)
It’s hard to get a Court to Change an Already Entered Order: Tevis v. Burkart, et al. (In re Tevis), Case No. EC-13-1211-KiKuJu (9th Cir. BAP Jan. 30, 2014), the Ninth Circuit Bankruptcy Appellate Panel affirmed an order of the bankruptcy court denying a chapter 13 debtor’s motion for relief from a prior order under Fed. R. Civ. P. 60(d)(3), demonstrating the high burden to satisfy the grounds of Rule 60(d)(3) and holding that the bankruptcy court did not abuse its discretion in denying the motion. The decision is “not for publication”, meaning it has no precedential value, only persuasive value, if other judges agree with the decision’s reasoning. “Not for publication” cases can be cited, but must be cited stating “not for publication” decision, to alert reader to the “not for publication” status.
Factual Background
Before filing their chapter 7 bankruptcy case on June 21, 2004, Larry and Nancy Tevis (“Tevises”) were entrenched in three legal battles. First, Tevises had initiated state court construction defect litigation regarding a modular home they had purchased with a loan from the State of California Department of Veteran Affairs (“Cal Vet”), secured by Tevises’ real property (the “Modular Home Litigation”). After the state court approved a $65,000 settlement that Mr. Tevis agreed to in open court, Tevises later reneged and refused to sign the settlement. The state court granted an order enforcing the settlement order over Tevises’ objections, and later dismissed the case. Second, Tevises initiated a malpractice suit against the attorneys who represented them in the Modular Home Litigation, who then filed attorney’s liens against the settlement proceeds from the Modular Home Litigation (the “Malpractice Litigation”). Third, Cal Vet initiated an unlawful detainer action against Tevises after they defaulted on their loan.
The chapter 7 trustee and his counsel, Daniel Egan (“Egan”), negotiated a settlement between the trustee, the Modular Home Litigation defendants, and the Malpractice Litigation defendants (the “Settlement Agreement”). During a hearing to approve the Settlement Agreement, Egan represented to the bankruptcy court that: (i) Cal Vet was not a party to the Settlement Agreement; (ii) the trustee was separately negotiating a settlement with Cal Vet (the “Cal Vet Proposal”); and (iii) the trustee anticipated seeking the court’s approval of the Cal Vet Proposal. Over Tevises’ objection, the bankruptcy court entered an order approving the Settlement Agreement.
The bankruptcy court’s approval of the Cal Vet Proposal by November 30, 2004 was a condition precedent to the effectiveness of the Settlement Agreement. On November 16, 2004, the trustee filed a motion to approve the Cal Vet Proposal. The court never heard the motion, however, because Tevises moved to convert their case to chapter 13, and the case was converted on December 1, 2004. The Tevises’ chapter 13 plan, which assumed the Settlement Agreement as part of the plan, was confirmed on July 18, 2005.
On March 26, 2013, Tevises filed a motion seeking relief under Fed. R. Civ. P. 60(d)(3) (the (“Civil Rule 60(d) Motion”) for fraud on the court with respect to the bankruptcy court’s approval of the Settlement Agreement, asserting that the Settlement Agreement was invalid because the court never approved the Cal Vet Proposal. Tevises claimed that Egan’s false statement that Cal Vet was not a party to the Settlement Agreement misled the court into approving the Settlement Agreement. The bankruptcy court denied the Civil Rule 60(d) Motion, specifically finding that Tevises had failed to show any fraud on the court because Egan’s statements were accurate when made, and further, that it would not have arrived at a different conclusion even if Egan’s statements had been false.
Holding and Analysis
The Ninth Circuit Bankruptcy Appellate Panel affirmed the bankruptcy court’s order, holding that the court did not abuse its discretion in denying the Civil Rule 60(d) Motion.
Fed. R. Civ. P. 60(d)(3), incorporated by Fed. R. Bankr. P. 9024, permits a court to “set aside a judgment for fraud on the court.” To prevail in the Ninth Circuit, the BAP noted that a plaintiff must establish to a clear and convincing standard, egregious conduct aimed to defile or improperly influence the court—perjury alone does not normally constitute fraud on the court. Further, the denial of a motion for relief under Rule 60(d)(3) is reviewed only for abuse of discretion. This standard can only be satisfied if the bankruptcy court applied the wrong legal standard or its findings of fact were illogical, implausible or without support in the record.
The BAP determined Egan accurately stated that Cal Vet was not a party to the Settlement Agreement and that the Cal Vet Proposal was being negotiated separately. Egan’s statements were later confirmed when the chapter 7 trustee filed a motion for approval of the Cal Vet Proposal. The Panel held that the bankruptcy court’s finding that Egan’s statements were accurate was supported by the record. The Panel further noted that the bankruptcy court was not given the opportunity to consider the Cal Vet Proposal prior to the November 30, 2004 deadline because Tevises’ motion to convert was granted a day after the deadline. Finally, the Panel noted that Tevises assumed the Settlement Agreement in their confirmed chapter 13 plan.
Commentary
This decision illustrates the high bar set for parties seeking to set aside an order for fraud on the court under Fed. R. Civ. P. 60(d)(3). The bar is not only difficult to meet in the lower court where the standard is "clear and convincing," but the decision to overturn the lower court’s ruling is viewed for an abuse of discretion.
Note: the foregoing analysis appeared on the California State Bar Insolvency Committee e-newsletter of 4/16/14.