Trendsettah USA, Inc. v. Swisher Int'l, Inc.

• Decision Date: 15 April 2022
• Docket Number: 20-56016
• Citation: 31 F.4th 1124
• Parties: TRENDSETTAH USA, INC.; Trendsettah, Inc., Plaintiffs-Appellants, v. SWISHER INTERNATIONAL, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

31 F.4th 1124

TRENDSETTAH USA, INC.; Trendsettah, Inc., Plaintiffs-Appellants,

v.SWISHER INTERNATIONAL, INC., Defendant-Appellee.

No. 20-56016

United States Court of Appeals, Ninth Circuit.

Argued and Submitted January 14, 2022 Pasadena, California

Filed April 15, 2022

Thomas C. Goldstein (argued), Eric F. Citron, and Erica Oleszczuk Evans, Goldstein & Russell PC, Bethesda, Maryland; Mark Poe and Randolph Gaw, Gaw Poe LLP, San Francisco, California; for Plaintiffs-Appellants.

Theodore J. Boutrous Jr. (argued), Daniel Glen Swanson, and Samuel Eckman, Gibson Dunn & Crutcher LLP, Los Angeles, California; Cynthia E. Richman, Gibson Dunn & Crutcher LLP, Washington, D.C.; Joshua R. Mandell, Akerman LLP, Los Angeles, California; Michael C. Marsh and Ryan Alan Roman, Akerman LLP, Miami, Florida; for Defendants-Appellees.

Before: Johnnie B. Rawlinson and Paul J. Watford, Circuit Judges, and Jed S. Rakoff,^** District Judge.

RAWLINSON, Circuit Judge:

Trendsettah USA, Inc. (Trendsettah) appeals the district court's order granting relief from judgment pursuant to Federal Rule of Civil Procedure 60 (Rule 60 ) in favor of Swisher International, Inc. (Swisher). After a jury trial, Trendsettah was awarded $14,815,494 on its Sherman Act claim, and $9,062,679 on its breach of contract claim. The district court entered judgment in favor of Trendsettah, trebling the antitrust damages to $44,446,482.00 and reducing the contract damages to zero by stipulation. After trial, the district court reconsidered Swisher's motion for summary judgment and granted partial summary judgment in favor of Swisher on the antitrust claims. We reversed the district court's grant of summary judgment, and instructed the district court to reinstate the jury's verdict. See Trendsettah USA, Inc. v. Swisher Int'l, Inc. , 761 F. App'x 714, 718 (9th Cir. 2019).

Following the remand, Swisher filed a Rule 60 motion for relief from judgment based on its discovery that Akrum Alrahib (Alrahib), Trendsettah's chief executive officer, engaged in a scheme to fraudulently avoid payment of federal excise taxes. The district court granted Swisher's motion after concluding that Trendsettah's failure to disclose Alrahib's tax fraud constituted fraud on the court under Rule 60(d), and newly discovered evidence and fraud warranting a new trial pursuant to Rule 60(b)(2) and (b)(3).

Trendsettah contends that the district court abused its discretion in granting Swisher's Rule 60 motion because: (1) the district court failed to apply the correct standards to determine that there was fraud on the court, (2) Swisher's Rule 60(b) motion was untimely,(3) Swisher failed to exercise reasonable diligence in discovering Alrahib's fraud; and (4) any fraud committed by Alrahib did not impact the ultimate damages calculation presented by Trendsettah's expert.

We have jurisdiction under 28 U.S.C. § 1291, and we hold that the district court abused its discretion in granting Swisher's Rule 60(d) motion based on fraud on the court. However, the district court did not abuse its discretion in granting Swisher's motion for relief from judgment premised on newly discovered evidence and fraud under Rule 60(b)(2) and (b)(3), with respect to Trendsettah's antitrust claims. Accordingly, we reverse the district court's dismissal of Trendsettah's breach of contract claims and remand with instructions to reinstate the jury's verdict on those claims. We affirm the district court's grant of Rule 60(b) relief as to Trendsettah's antitrust claims.

I. BACKGROUND

In this protracted litigation, Trendsettah alleged that Swisher "maintain[ed] its monopoly of the market for the small cigars known as cigarillos, through taking anti-competitive actions targeting [Trendsettah,] a competitor in the cigarillo market." According to Trendsettah, it "entered the cigarillo market by contracting with Swisher to have Swisher exclusively manufacture [Trendsettah's] cigarillos, which [Trendsettah] marketed and sold under the brand name Splitarillo." Trendsettah alleged that "Swisher decided that rather than compete in the open market with the Splitarillo brand, it could best protect its monopoly by restricting the supply of Splitarillos," and that "Swisher began refusing to fulfill the orders for Splitarillos that [Trendsettah] placed, or sabotaged such orders, in violation of the contract that it had agreed to, which contained no limit as to the number of cigarillos Swisher would manufacture." Trendsettah alleged various antitrust and contract claims against Swisher.

A jury found in favor of Trendsettah, awarding $14,815,494 on its antitrust claim and $9,062,679 on its contract claim. The district court entered judgment in favor of Trendsettah, trebling the antitrust damages to $44,446,482.00 and reducing the contract damages to zero by stipulation. Following the verdict, the district court granted summary judgment in favor of Swisher on the antitrust claims, and entered judgment in favor of Trendsettah on the contract claims.

On appeal, we affirmed in part and reversed in part the district court's judgment. See Trendsettah , 761 F. App'x at 718. We held that, although the district court properly reconsidered its prior summary judgment ruling, reversal was warranted because the district court "failed to draw all reasonable inferences in favor of" Trendsettah, and "cited evidence that Swisher had introduced at trial [that] the jury clearly had rejected." Id. at 717 (citation omitted). We "directed [the district court] to reinstate the jury's verdict in its entirety." Id. at 718.

On remand, Swisher filed a motion for relief from judgment pursuant to Rule 60 on the basis that Alrahib "conspired with [Trendsettah's] importer [Havana 59] to evade millions of dollars in federal excise taxes due on [Trendsettah's] cigarillos. The criminal tax evasion scheme entailed creating fake invoices and using [Trendsettah's] bank accounts to covertly transfer funds to [Trendsettah's] Dominican Republic manufacturer so that the Customs and Border Protection ... could not detect the actual first sales price of [Trendsettah's] cigarillos and collect the full amount of taxes due on them."¹

Swisher maintained that it "learned of [Trendsettah's] tax avoidance and illegal kickbacks when a grand jury indictment in Mr. Alrahib's criminal case became publicly available." Swisher also asserted that during the discovery phase of the case between Swisher and Trendsettah, Trendsettah "refused to produce its federal excise tax filings, claiming irrelevance and undue burden," and "falsely represented" that federal excise tax information was reflected "in [Trendsettah's] sales records." Swisher maintained that it was "now apparent that the financial records [Trendsettah] passed off as accurate did not account for its illegal tax avoidance."

Swisher contended that it was entitled to relief from judgment because Trendsettah's conduct constituted fraud on the court. Swisher also asserted that relief from judgment was warranted under Rule 60(b) due to newly discovered evidence and fraud.

In support of its motion, Swisher submitted the declaration of Dr. Alan Cox, who provided expert testimony on behalf of Swisher during the trial. Dr. Cox observed that Alrahib's fraud scheme "overlapped with most of the current injury and damages period claimed by [Trendsettah]" at trial. The fraud scheme affected the damages presentation by artificially inflating profits through fraudulent evasion of excise taxes. Dr. Cox opined that "[i]f one account[ed] for the excise taxes [Trendsettah] should have paid, [the damages] model—which the jury accepted in rendering its award—would have estimated no damages." "In addition, [Trendsettah's] tax evasion allowed [Trendsettah] to sell product at a price that was artificially low." Dr. Cox concluded that "had [Trendsettah] paid its excise taxes, it would have gone out of business by early 2014. Selling for three years at a loss was possible because [Trendsettah] had, in effect, taken an unlawful and unsanctioned subsidy from the government through its excise tax fraud scheme." "Absent such fraud, [Trendsettah] would have had to increase prices (and sell fewer products) or shut down. Its demonstrated inability to compete effectively in the relevant markets also indicate[d] that Swisher's alleged actions could not have harmed competition as [Trendsettah] alleged."

The district court granted Swisher's motion for relief from judgment under Rule 60. The district court reasoned that, prior to trial, Swisher sought discovery of Trendsettah's payment of federal excise taxes, but Trendsettah objected to the requested discovery on the grounds of undue burden and irrelevance. Trendsettah also informed Swisher that the information was available in Trendsettah's "financial records, sales orders, and invoices." Trendsettah's "general counsel subsequently testified that [Trendsettah] ... produced all documents responsive to Swisher's discovery requests."

The district court noted that, of course, Trendsettah never disclosed Alrahib's involvement in the scheme to evade federal excise taxes. The district court emphasized that Trendsettah did not "disclose documents which demonstrated what Alrahib admits were falsified invoices." The district court determined that "the documents produced did not reflect the true cost of manufacturing and importing [Trendsettah's] cigarillos, even though they were presented to Swisher as an accurate reflection of [Trendsettah's] costs and profits."

The district court determined the "misleading financial records" were used by Trendsettah's damages expert, Dr. Deforest McDuff. The damages calculations were predicated on the 2013–14 profit margins that "were artificially inflated by the underpayment of federal excise taxes, infecting Dr. McDuff's entire analysis."

The district court concluded that Trendsettah "presented to the jury and to the Court a theory of lost profits premised on inaccurate data which was a product of a fraudulent...