In re M.T.G., Inc.

Decision Date10 April 2003
Docket NumberNo. CIV. 02-70486.,Bankruptcy No. 95-48268-G.,CIV. 02-70486.
Citation291 B.R. 694
PartiesIn re M.T.G., INC. d/b/a/ Matrix Technologies Group, Debtor. Todd M. Halbert, Appellant, v. Charles J. Taunt, Plunkett & Cooney, P.C., Comerica Bank, and the U.S. Trustee, Appellees.
CourtU.S. District Court — Eastern District of Michigan

Todd M. Halbert, In Pro Per, Southfield, MI, for plaintiff.

Ernest Bazzana, Plunkett & Cooney, Jonathan Green, Miller, Canfield, Paddock

& Stone, Sheldon Toll, Honigman, Miller, Detroit, MI, for defendant.

MEMORANDUM OPINION AND ORDER

ANN DIGGS TAYLOR, District Judge.

I.

In August of 1995, the Debtor in this suit filed a chapter 11 bankruptcy petition, which was converted to a chapter 7 bankruptcy on February 8, 1996. In November of 1997, the Trustee filed the Disbursement Motion.

The Appellant, Todd Halbert, objected to the Disbursement Motion and filed a Motion to Disqualify the Trustee and Trustee's Counsel, Vacate the Comerica Bank Settlement Order, Deny the Trustee's Disbursement Motion and Disallow the Bank's Alleged Superiority Claim on March 3, 1998. In this motion and in subsequent briefs, Mr. Halbert argued that the failure to disclose a surcharge agreement was fraud upon the court.

On February 4, 1999, after holding a hearing on Halbert's fraud upon the court allegations, Judge Graves issued his Opinion and Order rejecting the fraud upon the court claim. Mr. Halbert appealed the February 4, 1999 Opinion and Order (the "First Appealed Order") and argued that the Bankruptcy Court erred in not vacating the Settlement Order because of fraud upon the court.

Hearing on the First Appealed Order was held in this Court on September 7, 2000. In October 2000, this Court reversed in part, remanded in part and affirmed in part the First Appealed Order. A Motion to Reconsider the October 2000 Order of this Court was heard on December 11, 2000.

Appellees assert that this Court affirmed the U.S. Bankruptcy Court's decision not to vacate the settlement order, rejected Halbert's fraud on the court arguments, and remanded to the Bankruptcy Court one issue — whether Comerica had a valid § 507(b) superiority claim.

Appellant subsequently filed pleadings with the Bankruptcy Court requesting that the Comerica Bank Orders be vacated for fraud on the court, that Comerica's secured claim be disallowed because of such fraud, that Comerica be compelled to return monies acquired as a result of its fraud to the estate and that attorneys' fees be awarded for undoing the fraud upon the court. In January 2002, the Bankruptcy Court entered its Order denying the Appellant's request for relief based on fraud upon the court. This is an appeal from the Bankruptcy Court's Second Fraud on the court Order.

II.

Resolution of the core matter at issue flows through two closely-related concepts, the "law of the case" doctrine and the "mandate rule." See United States v. Campbell, 168 F.3d 263, 265 (6th Cir.1999) ("In essence, the mandate rule is a specific application of the law-of-the-case doctrine."); United States v. Bartsh, 69 F.3d 864, 866 (8th Cir.1995); 18 Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice & Procedure § 4478 (1981 & Supp.1995).1

The law of the case doctrine mandates that "[i]ssues decided at an early stage of the litigation, either explicitly or by necessary inference from the disposition, constitute the law of the case." EEOC v. United Ass'n of Journeymen and Apprentices of the Plumbing & Pipefitting Indus. of the United States and Canada, Local No. 120, 235 F.3d 244, 249 (6th Cir.2000) (quoting Hanover Ins. Co. v. Am. Eng'g Co., 105 F.3d 306, 312 (6th Cir.1997)). The doctrine has "developed to maintain consistency and avoid reconsideration of matters once decided during the course of a single continuing lawsuit." 18B Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 4478 (2d ed.2002).

Before applying the law of the case doctrine to an issue, a two-step procedure must be followed. First, it must be decided whether earlier statements established the law of the case as to the particular issue in question. See Morris v. Schilling (In re Kenneth Allen Knight Trust), 303 F.3d 671, 676 (6th Cir.2002). In the instant case, that issue is the timeliness of the fraud upon the court claim.

During the September 7, 2000 Hearing this Court stated that: "[T]he settlement order is not being vacated because the appeal from it here — the request for vacation is untimely."2 The basis for the "request for vacation" was, apparently, that the settlement order had been attained through fraud upon the court. The initial statement of this Court, that the "request ... is untimely," did not end the matter. The issue of timeliness was reinvigorated by the Appellant's Motion for Reconsideration filed on November 11, 2000.

While it is possible to infer that this Court's initial statement concerning "the request for vacation" established the law of the case as to the timeliness of a fraud upon the court claim, that does not make such an inference "necessary." More specifically, or explicitly, this Court's subsequent pronouncement, that "[the issue of whether there is a time limit for bringing a motion to vacate a judgment for fraud upon the court] ... is taken under advisement,"3 militates against a finding that the law of the case as it applies to the issue of the timeliness of the fraud upon the court claim was constituted, if ever, prior to a written opinion addressing that issue.4

Concluding that earlier statements actually established the law of the case does not end the matter. If the first query is answered in the affirmative, the analysis shifts to determine whether an exception to the law of the case doctrine applies. In re Kenneth Allen Knight Trust, 303 F.3d at 676.5

The doctrine is elective, and not mandatory: "`law of the case,' as applied to the effect of previous orders on the later action of the court rendering them in the same case, merely expresses the practice of courts generally to refuse to reopen what has been decided, not a limit to their power." In re Kenneth Allen Knight Trust, 303 F.3d at 677. Thus, while "a court's power to reach a result inconsistent with a prior decision reached in the same case is `to be exercised very sparingly, and only under extraordinary conditions,'" Id., the power itself is substantial.

To diverge from a previous statement, "we must find some cogent reason to show the prior ruling is no longer applicable, such as if our prior opinion was a clearly erroneous decision which would work a manifest injustice." In re Kenneth Allen Knight Trust, 303 F.3d at 677-678 (quotations omitted).6

This Court does not hold that its initial statement concerning the timeliness of the "motion to vacate" materialized into the law of the case as it applies to the timeliness of a claim of fraud upon the court. However, if such a pronouncement had been made in the first instance and it did become the law of the case, it would have been clearly erroneous. In either event, all fraud upon the court claims — including the instant one — are, by operation, timely.7

Fed.R.Civ.P. 60(b) states in relevant part that:

On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding ... [T]he motion shall be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken. A motion under this subdivision (b) does not affect the finality of a judgment or suspend its operation. This rule does not limit the power of a court to ... set aside a judgment for fraud upon the court .... (emphasis added).

Rule 60(b) contains two provisions for fraud. The first, for "plain" fraud, mandates that a motion be made within a year of the entry of judgment or order. The second, for fraud upon the court, is contained in the savings clause and has no time limitation. See Chambers v. NASCO, Inc., 501 U.S. 32, 111 S.Ct. 2123, 2132, 115 L.Ed.2d 27 (1991); Demjanjuk v. Petrovsky, 10 F.3d 338, 352 (6th Cir.1993) ("The Supreme Court has recognized a court's inherent power to grant relief, for `after-discovered fraud,' from an earlier judgment `regardless of the term of [its] entry.'") (quoting Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 244, 64 S.Ct. 997, 88 L.Ed. 1250 (1944)); King v. First Am. Investigations, Inc., 287 F.3d 91, 95 (2d Cir.2002) ("motion to vacate for fraud committed upon the court is not subject to the one year limitation period.").

Not all fraud is fraud upon the court. The type of fraud necessary to sustain an independent action attacking the finality of a judgment is narrower in scope than that which is sufficient for relief by timely motion under Rule 60(b)(3) for fraud on an adverse party. Gleason v. Jandrucko, 860 F.2d 556, 558 (2d Cir.1988). Fraud upon the court should embrace "only that species of fraud which does or attempts to, defile the court itself, or is a fraud perpetrated by officers of the court so that the judicial machinery cannot perform in the usual manner its impartial task of adjudging cases." Hadges v. Yonkers Racing Corp., 48 F.3d 1320, 1325 (2d Cir.1995) (quoting Kupferman v. Consolidated Research & Mfg. Corp., 459 F.2d 1072, 1078 (2d Cir.1972)).

As shown above, a claim of fraud upon the court is not subject to the time limitations of Rule 60(b). To the extent that this Court may have previously ruled that the issue of fraud upon the court was time-barred under Rule 60(b), that contention would rely on "an incorrect legal standard, or appl[y] the law incorrectly."8

The final determination that this Court must make is one of justice or injustice. If, by way of misapplication of the law, this Court's action in granting impunity to alleged perpetrators of a fraud upon the court would result in a...

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