In re R & R Associates of Hampton
| Citation | 248 BR 1 |
| Decision Date | 18 April 2000 |
| Docket Number | 98-1090-MWV.,Bankruptcy No. 91-10983-MWV. Adversary No. 98-1174-MWV |
| Court | United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of New Hampshire |
| Parties | In re R & R ASSOCIATES OF HAMPTON, Debtor. Dennis Bezanson, Trustee, Plaintiff, v. Riginald L. Gaudette; Gaudette Family Limited Partnership I; Gaudette Family Limited Partnership II; J & L Family Limited Partnership III; Thomas J. Thomas, Jr.; Mitchell P. Utell; Marc L. Van De Water; Glenn C. Raiche; Thomas & Utell; Thomas, Utell, Van De Water & Raiche; Thomas, Utell, Van De Water & Raiche, P.A., Defendants. Dennis Bezanson, Trustee, Plaintiff, v. Richard V. Choate RCC Family Limited Partnership I, RCC Family Limited Partnership II, Thomas J. Thomas, Jr.; Mitchell P. Utell; Marc Van De Water; Glenn C. Raiche; Thomas & Utell; Thomas, Utell, Van De Water & Raiche; Thomas, Utell, Van De Water & Raiche, P.A., Defendants. |
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William S. Gannon, Manchester, NH, for the Trustee, Dennis G. Bezanson.
Robert M. Daniszewski, for Thomas J. Thomas, Jr., Mark L. Van De Water, Mitchell P. Utell, Glenn C. Raiche, Thomas & Utell, Thomas, Utell, Van De Water & Raiche, and Thomas, Utell, Van De Water & Raiche, P.A.
The Trustee initiated the two above captioned adversary proceedings by filing complaints against R & R Associates of Hampton ("Debtor"), its general partners, Reginald Gaudette and Richard Choate ("general partners"), various limited partnerships created by the general partners ("limited partnerships"), and the law firm of Thomas, Utell, Van De Water & Raiche, P.A., it's predecessors and its individual partners ("Law Firm Defendants"). All discovery has been stayed pending the outcome of all dispositive motions filed in both adversaries. This opinion constitutes the Court's findings regarding the motion to dismiss filed by the Law Firm Defendants in each action. The arguments and issues are precisely the same in both actions, therefore this opinion deals with the matters jointly. For reasons set forth below, the Court denies the motions to dismiss.
This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and the "Standing Order of Referral of Title 11 Proceedings to the United States Bankruptcy Court for the District of New Hampshire," dated January 18, 1994 (DiClerico, C.J.). This is a core proceeding in accordance with 28 U.S.C. § 157(b).
The complaints were brought seeking to determine and recover the amount of the Debtor's deficiency from the Debtor's general partners,1 to avoid fraudulent transfers from the Debtor to the limited partnerships, and to recover damages in the amount of the deficiency from the Law Firm Defendants for fraud on the court. This Court dismissed the complaint against Defendants Reginald Gaudette and the limited partnerships in Adversary Number 98-1174. This Court also granted summary judgment for Defendant Richard Choate in Adversary Number 98-1090, declining to decide what effect dismissal of the Choate claim would have on the limited partnership defendants.
The targets of the instant motions to dismiss are the single counts in each complaint alleging fraud on the court by the Law Firm Defendants, purportedly pursuant to Rule 60(b)(3) of the Federal Rules of Civil Procedure. In each count the Trustee makes the following assertions: the Law Firm Defendants assisted the general partners in various transactions involving the creation of the limited partnerships and the transfer of assets to the limited partnerships prior to the Debtor's petition in bankruptcy; the Law Firm Defendants sought approval from the Court to serve as counsel to the Debtor after assisting its general partners in the effort to divert funds away from Debtor; and, on the application for retention, the Law Firm Defendants failed to disclose the previous relationship with the Debtor's general partners, but rather, declared that the firm and its partners were disinterested and had no connection with the Debtor, its creditors or any interested parties. The Trustee claims that the Law Firm Defendants' failure to disclose the previous activities on behalf of the Debtor and its general partners set in motion a fraudulent scheme designed to interfere with the Bankruptcy Court's ability to adjudicate this bankruptcy case. The Trustee seeks damages in the amount of the Debtor's deficiency.
The Law Firm Defendants assert that Rule 60(b) does not provide the Trustee an independent cause of action for damages based upon fraud on the court, and therefore the complaint fails to state a claim upon which relief can be granted.
Rule 7012 of the Federal Rules of Bankruptcy Procedure makes applicable Rule 12(b)(6) of the Federal Rules of Civil Procedure. On a motion to dismiss pursuant to Rule 12(b)(6), the court must accept as true the well-pleaded allegations of the complaint, draw all reasonable inferences therefrom in the plaintiff's favor, and determine if the complaint contains facts sufficient to justify recovery on any cognizable theory. LaChapelle v. Berkshire Life Insurance Company, 142 F.3d 507, 508 (1st Cir.1998). Thus, the Court's role is not to weigh the merits of the Trustee's allegations, but rather to simply determine if sufficient facts are plead showing that the Trustee is entitled to relief.
The Court will first discuss the application of Rule 60(b)(3) of the Federal Rules of Civil Procedure.2 Each count against the Law Firm Defendants seeks relief for "fraud on the court" pursuant to Rule 60(b)(3) as made applicable by Rule 9024 of the Federal Rules of Bankruptcy Procedure. Rule 60(b)(3) allows a party to obtain relief from a final judgment or order where there has been "fraud . . . misrepresentation, or other misconduct of an adverse party." Fed.R.Civ.P. 60(b)(3).
The clear language of Rule 60(b) precludes the Trustee from obtaining the relief he seeks through an independent action based on Rule 60(b)(3). Rule 60(b) delineates six distinct bases for obtaining relief from a final judgment, order, or proceeding and the procedure for obtaining such relief. The rule states that relief based upon Rule 60(b)(3) may not be sought "more than one year after the judgment, order, or proceeding was entered or taken." Fed.R.Civ.P. 60(b). A thorough reading of the complaints reveals that the only order or judgment that the Trustee alleges was procured by fraud was the order approving the application for retention of the Law Firm Defendants as counsel to the Debtor. Even if the order could be characterized as a final order, the application was approved at the outset of the bankruptcy case, in 1991, while this action was not commenced until 1998, well beyond the one year time limit of Rule 60(b)(3). Furthermore, even the Trustee's argument in his memorandums of law that the order awarding final fees to the Law Firm Defendants was also the product of this fraud does not support a Rule 60(b)(3) motion as that order was issued in March of 1997, also more than one year prior to the commencement of this action. Therefore, any relief pursuant to Rule 60(b)(3) is clearly time-barred.
The Court will not conclude its review with an analysis of Rule 60(b)(3), however. A complaint will not be dismissed if it "limns facts sufficient to justify recovery on any cognizable theory." LaChapelle, 142 F.3d at 508 (emphasis added). Thus, even though the Trustee cannot maintain an action under Rule 60(b)(3), the Court will look to the complaints to determine whether they have stated any proper theory of relief.
Although inartistically drafted, when read as a whole, the complaints allege that the Law Firm Defendants engaged in fraud on the court by failing to disclose their prepetition activities on behalf of the general partners and by failing to disclose a potential fraudulent transfer claim that the Debtor held against the general partners and the limited partnerships. Unlike a motion brought pursuant to Rule 60(b)(3), relief for fraud on the court is not limited by a one year time limitation. In fact, Rule 60(b) specifically states that "this rule does not limit the power of a court to entertain an independent action to relieve a party from a judgment, order, or proceeding . . . or to set aside a judgment for fraud upon the court." Fed.R.Civ.P. 60(b).
The First Circuit has adopted a definition of fraud on the court applied by many other courts: "A `fraud on the court' occurs where it can be demonstrated, clearly and convincingly, that a party has sentiently set in motion some unconscionable scheme calculated to interfere with the judicial system's ability impartially to adjudicate a matter by improperly influencing the trier or unfairly hampering the presentation of the opposing party's claim or defense." Aoude v. Mobil Oil Corporation, 892 F.2d 1115, 1118 (1st Cir.1989) (citations omitted).
In order not to render meaningless the one year limitation for motions pursuant to Rule 60(b)(3), fraud on the court must be distinguished from the fraud or misrepresentation that is the subject of Rule 60(b)(3). Instead, this "subcategory" of fraud refers to fraud, misrepresentation, or other misconduct committed by the court, its personnel, or its officers. Tri-Cran, Inc. v. Fallon (In re Tri-Cran, Inc.), 98 B.R. 609, 614 (Bankr.D.Mass. 1989). In Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 64 S.Ct. 997, 88 L.Ed. 1250 (1944), the Supreme Court noted that fraud on the court does not involve fraud between the parties, but rather fraud that is aimed at the judicial process itself:
Tampering with the administration of justice in the manner indisputably shown here involves far more than an injury to a single litigant. It is a wrong against the institutions set up to protect and safeguard the public, institutions in which fraud cannot complacently be tolerated consistently with the...
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