Dye v. Sachs (In re Flashcom, Inc.)

• Decision Date: 24 June 2013
• Docket Number: Bankruptcy No. 2:12–bk–16351–RK.,Adversary No. 2:12–ap–01339–RK.
• Citation: 495 B.R. 490
• Court: U.S. Bankruptcy Court — Central District of California
• Parties: In re FLASHCOM, INC., Debtor. Carolyn A. Dye, Liquidating Trustee, Plaintiff, v. Andra Sachs; Communications Ventures III, L.P.; Communications Ventures III CEO & Entrepreneurs Funds L.P.; Mayfield IX, a Delaware Limited Partnership; Mayfield Associates Funds IV, a Delaware Limited Partnership; David Helfich; Todd Brooks; Bradford Sachs; Richard Rasmus; and Kevin Fong, Defendants.

495 B.R. 490

In re FLASHCOM, INC., Debtor.Carolyn A. Dye, Liquidating Trustee, Plaintiff,

v.Andra Sachs; Communications Ventures III, L.P.; Communications Ventures III CEO & Entrepreneurs Funds L.P.; Mayfield IX, a Delaware Limited Partnership; Mayfield Associates Funds IV, a Delaware Limited Partnership; David Helfich; Todd Brooks; Bradford Sachs; Richard Rasmus; and Kevin Fong, Defendants.

Bankruptcy No. 2:12–bk–16351–RK.

Adversary No. 2:12–ap–01339–RK.

United States Bankruptcy Court,

C.D. California,

Los Angeles Division.

June 24, 2013.

Natalie C. Boyajian, Holme Roberts & Owen LLP, Jacquelyn H. Choi, Steckbauer Weinhart LLP, Andy Kong, Arent Fox LLP, Elan S. Levey, Shelly Rothschild, Los Angeles, CA, David R. Weinstein, Bryan Cave LLP, Santa Monica, CA, for Plaintiff.

Allen Chiu, Kimberly A. Posin, Amy Quartarolo, Daniel Scott Schecter Esq., Latham & Watkins LLP, K. John Shaffer Esq., Stutman Treister & G, Los Angeles, CA, Robert A. Franklin, Palo Alto, CA, Ronald E. Michelman, Michelman & Michelman LLP, Woodland Hills, CA, Mohamed A. Malik, Jackson DeMarco Tidus & Peckenpaugh, Irvine, CA, for Defendants.

AMENDED SUPPLEMENTAL MEMORANDUM DECISION RE: PLAINTIFF'S MOTION FOR ENTRY OF JUDGMENT AND ANDRA SACHS DEFENDANTS' MOTION FOR RELIEF FROM ORDERS PURSUANT TO FED. R. CIV. P. 60

ROBERT KWAN, Bankruptcy Judge.

In the original Memorandum Decision re: Plaintiff's Motion for Entry of Judgment and Andra Sachs Defendants' Motion Pursuant to Fed.R.Civ.P. 60, filed and entered on March 5, 2013 as Docket No. 634, the court ruled that it would grant the motion of defendants Andra Sachs, Ashby Enterprises and Max–Singer Partnership (collectively known as the “Andra Sachs Defendants”) for relief under Rule 60 of the Federal Rules of Civil Procedure. (In this amended supplement, the Andra Sachs Defendants are also referred to as “Defendants,” and Andra Sachs is sometimes referred to as “Andra”.) However, in its original memorandum decision, the court did not address the argument of plaintiff Carolyn Dye, Liquidating Trustee (“Trustee”) that such relief is precluded by the United States Supreme Court's decision in United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010). By this Amended Supplemental Memorandum Decision, the court addresses and rejects the Trustee's argument. This amended supplemental memorandum decision amends the court's supplemental memorandum decision filed and entered on March 4, 2013 to correct factual inaccuracies in that decision referring to debtor as a California corporation and to discuss the applicable interest rate on the judgment to be entered on the Trustee's motion after consideration of the supplemental briefing on that issue ordered after the supplemental memorandum decision was filed and entered on March 4, 2013.

The court concludes that this case is not controlled by Espinosa because there are extraordinary circumstances that warrant relief under Rule 60(b)(6), which the court enumerates here. In her papers, Trustee argues that, pursuant to Espinosa, the Global Settlement Agreement is res judicata because the Andra Sachs Defendants never appealed two settlement orders approving the Global Settlement Agreement: the Order Authorizing Compromise of Controversies with Andra Sachs and Estate of Bradford H. Sachs, entered by this court on November 1, 2005 (the “California Settlement Order”), and the Order Ruling on Motion to Compromise Controversy and Allowing Claims # 1 and # 5 as Filed and Allowing Claim # 3 in Reduced Amount of $6,000,000, entered by the United States Bankruptcy Court for the Southern District of Florida on June 14, 2006 (the “Florida Settlement Order”). Plaintiff's Opposition to Motion of Defendants Andra Sachs, Ashby Enterprises and Max–Singer Partnership for Relief from Orders and Judgments Pursuant to Rule 60 of the Federal Rules of Civil Procedure (“Trustee's Rule 60 Opposition”), filed on December 4, 2012, at 5–6, 11–13; see also, Plaintiff's Reply Memorandum in Support of Motion for Entry of JudgmentEstablishing Liability of Andra Sachs, Ashby Enterprises and Max–Singer Partnership; Declaration of David R. Weinstein (“Trustee's Reply Memorandum”), filed on May 23, 2012, at 4–8. Trustee argues that, even if the Global Settlement Agreement violates California law—which the Trustee disputes—nevertheless, these settlement orders are res judicata and bind the parties, precluding a Rule 60 challenge. Id.

In Espinosa, the Supreme Court considered a debtor's chapter 13 plan in which he proposed to repay only the principal of his student loan debt—held by United Student Aid Funds, Inc. (“United”)—over the life of the plan. 130 S.Ct. at 1373–1374. The plan provided that, upon completion of plan payments, the accrued interest on the student loans would be discharged. Id. United received notice of the plan, but did not object to the proposed discharge of the accrued interest. Id. at 1374. The bankruptcy court confirmed the plan without holding an adversary proceeding or making a finding of undue hardship, which is required under 11 U.S.C. §§ 523(a)(8) and 1328(a). Id. Subsequently, after completing plan payments, the debtor received his Chapter 13 bankruptcy discharge and filed a motion requesting that the bankruptcy court direct United to cease making collection attempts on the accrued interest. United filed a cross-motion pursuant to Federal Rule of Civil Procedure 60(b)(4), seeking to set aside as void the confirmation order because the plan authorizing discharge of the student loan interest violated 11 U.S.C. § 523(a)(8) and 1328(a). Id. The bankruptcy court denied the Rule 60 motion, and the Ninth Circuit held that the bankruptcy court had at most made a legal error in the Chapter 13 plan confirmation order that United could have successfully appealed; however, such a challenge to a legal error was not grounds for reconsideration pursuant to Rule 60(b)(4), and the Ninth Circuit ultimately ruled in favor of debtor that the plan confirmation order was res judicata. Id. at 1375. The Supreme Court affirmed. Id. at 1382.

In Espinosa, the Supreme Court explained that “[f]ederal courts considering Rule 60(b)(4) motions that assert a judgment is void because of a jurisdictional defect generally have reserved relief only for the exceptional case in which the court that rendered judgment lacked even an ‘arguable basis' for jurisdiction.” Id. at 1377,citing, Nemaizer v. Baker, 793 F.2d 58, 65 (2nd Cir.1986). A judgment is thus not void “ ‘simply because it is or may have been erroneous.’ ” Espinosa, 130 S.Ct. at 1377,quoting, Hoult v. Hoult, 57 F.3d 1, 6 (1st Cir.1995) and 12 J. Moore, et al., Moore's Federal Practice, § 60.44[1][a], at 60–150 to 60–151 (3d ed. 2007). The Supreme Court in Espinosa noted the balance struck by Rule 60(b)(4) between “the need for finality of judgments and the importance of ensuring that litigants have a full and fair opportunity to litigate a dispute.” Espinosa, 130 S.Ct. at 1380. Thus, to some degree, Trustee's reliance on Espinosa is not misplaced to argue in opposition to Defendants' Rule 60 motion that relief from judgment is not appropriate under Rule 60(b)(4) on grounds that the judgment is void simply because it may have been erroneous. Id. at 1377;see also, Notice of Motion and Motion of Defendants Andra Sachs, Ashby Enterprises and Max–Singer Partnership for Relief from Order and Judgments Pursuant to Rule 60 of the Federal Rules of Evidence (“Defendants' Rule 60 Motion”), filed on November 21, 2012, at 9; Trustee's Rule 60 Opposition at 5–6.

This court is of the view that Espinosa is not dispositive of the instant case, because this case involves the application of Rule 60(b)(6) of the Federal Rules of Civil Procedure. Rule 60(b)(6) states in pertinent part: “On motion and just terms, the court may relieve a party ... from a final judgment, order, or proceeding for the following reasons: ... (6) any other reason that justifies relief.” Fed.R.Civ.P. 60(b)(6); see also,Fed. R. Bankr.P. 9024 (Fed.R.Civ.P. 60 generally applies to bankruptcy cases with specific exceptions not applicable here); 3 Jones & Rosen, Rutter Group Practice Guide: Federal Civil Trials and Evidence, ¶ 20:400 at 20–76 (2012). This provision “gives the district court power to vacate judgments ‘whenever such action is appropriate to accomplish justice.’ ” United States v. Sparks, 685 F.2d 1128, 1130 (9th Cir.1982), quoting, Klapprott v. United States, 335 U.S. 601, 615, 69 S.Ct. 384, 93 L.Ed. 266 (1949). “In order to obtain such relief from a judgment, however, ‘extraordinary circumstances' must exist.” United States v. Sparks, 685 F.2d at 1130,citing inter alia, Ackermann v. United States, 340 U.S. 193, 199, 71 S.Ct. 209, 95 L.Ed. 207 (1950). Rule 60(b)(6) is to be “used sparingly” in order to “prevent manifest injustice” when “extraordinary circumstances [prevent] a party from taking timely action to prevent or correct an erroneous judgment.” United States v. Alpine Land & Reservoir Co., 984 F.2d 1047, 1049 (9th Cir.1993), citing, Klapprott v. United States, supra;Ackermann v. United States, supra; and Liljeberg v. Health Services Acquisition Corp., 486 U.S. 847, 864, 108 S.Ct. 2194, 100 L.Ed.2d 855 (1988); see also, Delay v. Gordon, 475 F.3d 1039, 1044 (9th Cir.2007).

In determining whether such extraordinary circumstances exist, the court must balance the public policy favoring the finality of judgments against the “incessant command of the court's conscience that justice be done in light of all the facts.” 3 Jones & Rosen, Rutter Group Practice Guide: Federal Civil Trials and Evidence, ¶ 20:402 at 20–77, citing, Blue Diamond Coal Co. v. Trustees of UMWA Combined Benefit Fund, 249 F.3d 519, 529 (6th Cir.2001); see also, 11 Wright, Miller, Kane and Marcus, Federal Practice & Procedure, § 2860 (3rd ed. 2012) (“[Rule 60] attempts to strike a proper balance between the conflicting principles that litigation must be...