Coleman (Parent) Holdings v. Morgan Stanley & Co., Inc.

• Decision Date: 07 October 2009
• Docket Number: No. 4D08-4022.,4D08-4022.
• Citation: 20 So.3d 952
• Parties: COLEMAN (PARENT) HOLDINGS, INC., Appellant, v. MORGAN STANLEY & CO. INC., Appellee.
• Court: Florida District Court of Appeals

20 So.3d 952

COLEMAN (PARENT) HOLDINGS, INC., Appellant, v. MORGAN STANLEY & CO. INC., Appellee.

No. 4D08-4022.

District Court of Appeal of Florida, Fourth District.

October 7, 2009.

Rehearing Denied December 2, 2009.

Jerold S. Solovy, Ronald L. Marmer and Barry Sullivan of Jenner & Blocker LLP, Chicago, Jack Scarola of Searcy Denny Scarola Barnhart & Shipley, P.A., West Palm Beach, and Joel D. Eaton of Podhurst Orseck, P.A., Miami, for appellant.

Sylvia H. Walbolt and Joseph Ianno of Carlton Fields, P.A., West Palm Beach, and Bruce S. Rogow and Cynthia E. Gunther of Bruce S. Rogow, P.A., Fort Lauderdale, for appellee.

TAYLOR, J.

Coleman (Parent) Holdings, Inc. (CPH) appeals the trial court's order denying its motion to set aside judgment under Florida Rule of Civil Procedure 1.540(b). The judgment that CPH sought to set aside was entered in favor of Morgan Stanley, pursuant to our mandate in Morgan Stanley & Co., Inc. v. Coleman (Parent) Holdings, Inc., 955 So.2d 1124 (Fla. 4th DCA 2007). In that appeal, we reversed compensatory and punitive damage awards for CPH because CPH had failed to present legally sufficient proof of damages at trial. In its Rule 1.540(b) motion, CPH sought a new trial based upon its claim that Morgan Stanley committed a fraud upon the court in discovery sanction hearings held before trial. We affirm the order denying the motion.

This case arose from an alleged conspiracy between defendant Morgan Stanley and the now-defunct Sunbeam Corp. CPH purchased Sunbeam, allegedly in reliance on misrepresentations of Sunbeam's investment banker, Morgan Stanley. Sunbeam went bankrupt within about two years and CPH sued Morgan Stanley for fraudulent conspiracy to misrepresent Sunbeam's financial health at the time of sale. See Morgan Stanley, 955 So.2d at 1125-26.

Before trial, the trial court entered a partial default against Morgan Stanley as a sanction for discovery misconduct in responding to requests for e-mails about the transaction.¹ Morgan Stanley kept old e-mails on certain backup tapes stored at various locations. The trial court held extensive hearings regarding Morgan Stanley's non-compliance with discovery orders for e-mail production, as well as misrepresentations by Morgan Stanley's in-house counsel concerning when they learned that e-mails existed on certain back-up tapes. Ultimately, the court entered a partial default against Morgan Stanley on all elements of CPH's claim except reliance and damages. It also ordered that portions of CPH's Amended Complaints be read into evidence and deemed established facts. Thus, CPH needed to prove only that it relied on the established misrepresentations and to prove its damages. The jury awarded CPH nearly $1.5 billion in compensatory and punitive damages.

We reversed the award solely because CPH failed to prove its damages. CPH failed to establish the actual fraud-free value of Sunbeam on the date of purchase, in accordance with settled Florida law. We further held that CPH's failure to establish actual damage, which is an essential element of fraud, rendered the punitive damage award invalid. Because the law in our district does not allow a "second bite at the apple" to prove damages, we reversed and ordered judgment for the defendant. Morgan Stanley, 955 So.2d at 1131. The Florida Supreme Court denied review. Coleman (Parent) Holdings, Inc. v. Morgan Stanley Co. Inc., 973 So.2d 1120 (Fla.2007) (Table).

In its motion brought under Rule 1.540(b), CPH requested the trial court to set aside the judgment and grant a new trial on damages. It alleged that Morgan Stanley perpetrated a fraud upon the court, which was revealed during post-verdict notices filed by Morgan Stanley. The notices purported to correct earlier representations made by Morgan Stanley during discovery sanction hearings regarding when its in-house lawyers first knew about the existence of e-mails stored on backup tapes. CPH asserted that this discovery misconduct constituted a fraud on the court, entitling it to have the judgment set aside without having to show any prejudice.

The trial court denied the Rule 1.540(b) motion. In a thorough, detailed, and well-reasoned order, the trial court ruled that an evidentiary hearing was not required because the motion failed to show colorable entitlement to relief under Rule 1.540(b). We agree with the trial court and quote extensively from its order below:

Rule 1.540(b) governs post-judgment relief from a final judgment and lists five categories of substantive grounds that can be used to support an order vacating a final judgment. One such ground is based upon a showing of "fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party." Fla. R. Civ. P. 1.540(b)(3).

...

A trial court has broad discretion in evaluating a Rule 1.540(b) motion seeking relief from final judgment. Crowley v. Crowley, 678 So.2d 435, 438 (Fla. 4th DCA 1996). Such motion should not be summarily dismissed without an evidentiary hearing unless its allegations and accompanying affidavits fail to allege a colorable entitlement to relief. Schlegar [Schleger] v. Stebelsky, 957 So.2d 71, 73 (Fla. 4th DCA 2007); Dynasty Exp Corp. v. Weiss, 675 So.2d 235, 239 (Fla. 4th DCA 1996); Crowley, 678 So.2d at 437-38.

To warrant an evidentiary hearing, a Rule 1.540(b) motion must ... 2) plead fraud with particularity, and 3) explain why the fraud, if it exists, would entitle the movant to have the judgment set aside. Fla. R. Civ. P. 1.540(b); Flemenbaum v. Flemenbaum, 636 So.2d 579 (Fla. 4th DCA 1994). The purpose of requiring such motion to plead fraud with specificity is to permit the court to determine if the movant "has made a prima facie showing which would justify relief from judgment," and is not merely rehashing matters explored at trial. Id. at 580. If a motion does not set forth a basis for relief on its face, then an evidentiary hearing is unnecessary, the time and expense of needless litigation is avoided, and the policy of preserving the finality of judgments is enhanced. Id. at 579.

...

Since CPH timely filed its Motion and pled fraud with particularity, the only remaining issue is whether CPH clearly explained why MS's alleged conduct, if true, entitles it to have the final judgment set aside, which is the final threshold requirement to obtaining an evidentiary hearing. Flemenbaum, 636 So.2d at 580. An evidentiary hearing is unnecessary if a Rule 1.540(b) motion merely undertakes to rehash matters previously litigated at trial or raises inconsequential "de minimis" matters. Id.; cf. Crowley, 678 So.2d at 438.

Flemenbaum involved an ex-husband's "pro se motion for new trial based upon fraud upon the court under Rule 1.540," which alleged that his ex-wife lied about cohabitating with another man at trial. Id. The trial court did not afford the husband an evidentiary hearing. Id. On appeal, the Fourth District affirmed after finding that the husband's motion did not state facts that constituted fraud and, instead, sought to rehash matters fully explored at trial and "raised de minimis matters which had no effect on the final judgment." Id. The court cited examples of sufficiently pled Rule 1.540(b) motions that invoked the evidentiary hearing requirement. See, e.g., Stella v. Stella, 418 So.2d 1029 (Fla. 4th DCA 1982) (if proven, wife's assertions that husband had testified that a statue was worth $100, while knowing that its true value was $35,000, would have changed the court's equitable distribution and, thus, entitled wife to an evidentiary hearing); Ross v. Bandi, 566 So.2d 55 (Fla. 4th DCA 1990) (evidentiary hearing required where husband alleged that he learned of an IRS tax lien after the final hearing, which rendered his interest in a corporation worthless).

In Crowley, a husband was entitled to an evidentiary hearing on his Rule 1.540(b) motion seeking relief from a dissolution judgment. Crowley, 678 So.2d at 438. The husband's motion, filed one week after the entry of the dissolution judgment, claimed entitlement to relief based upon "fraud ... committed by [his] wife and her counsel on the Court;" specifically, the motion claimed that the wife and her counsel had lied by omission about the fact that, unknown to the husband, he would soon be terminated from his job, which would dramatically change his financial condition and, in turn, the final judgment. Id. at 437-38. The Fourth District noted that, in contrast to Flemenbaum, the husband's motion was not "a mere undertaking to `rehash' matters previously litigated at trial or an effort to raise inconsequential `de minimis' matters." Id. at 438. Instead, "the core of the husband's motion, if true, would undermine the very foundation upon which the dissolution judgment and order were built." Id.

In this case, CPH's motion delves into MS's discovery misconduct, a topic that was extensively explored and affirmatively, unambiguously addressed by the Court at trial. For example and as noted in the Court's March 23, 2005 order granting partial default, the Court expressly considered MS's failure to timely notify CPH and the Court that its Certificate of Compliance was false. The only additional revelation raised in the post-verdict notices is the date on which MS's in-house counsel knew that certain backup tapes contained e-mails that may have been responsive to CPH's discovery requests. While the Court does not consider the discovery abuses and misconduct by MS, up to and including the alleged misconduct perpetrated by its legal team as de minimis when viewed through the lens of attorney professionalism, when viewed through the lens of a Rule 1.540(h) motion, it cannot be said that the additional attorney conduct revealed by the notices affected the new final judgment, especially considering the rationale behind the Fourth District's mandate, i.e. CPH's failure to prove damages at trial. In this strict sense, the conduct revealed by the...