Baxter v. Bressman (In Re Bressman)
2017 U.S. App. LEXIS 20340
| 3rd Cir. | 2017Background
- Plaintiffs (represented by attorney Max Folkenflik) sued Andrew Bressman in a bankruptcy adversary proceeding for securities fraud and RICO damages; related suits against co-defendants settled in 1998 for $6.25 million under a confidentiality order.
- In March 1999 Folkenflik submitted an ex parte affidavit seeking a default judgment against Bressman that detailed damages but omitted any mention of the $6.25 million recovery from co-defendants.
- The Bankruptcy Court entered a default judgment for $5,195,081 in 2000 and later trebled RICO damages to $15,585,243 plus attorneys’ fees, unaware of the prior settlement payment.
- Folkenflik did not attempt to enforce the judgment for over a decade; in 2013 he sought ex parte receivership relief in NY and NJ claiming post-judgment value of ~$30.9 million and affirmatively represented Plaintiffs had received nothing.
- Bressman’s counsel then inquired and Folkenflik admitted the earlier settlement; courts vacated the ex parte enforcement orders, and Bressman moved in bankruptcy court to vacate the default/RICO judgments as obtained by fraud on the court.
- The Bankruptcy Court found intentional fraud by Folkenflik, vacated the judgments and dismissed the adversary complaint with prejudice; the District Court affirmed, and this appeal followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Bressman’s motion to vacate was time-barred | Rule 60(b)’s 1-year limit or laches bars relief | Independent action for fraud on the court is not time-barred; laches inapplicable | Not time-barred; Rule 60 limits don't apply to fraud-on-the-court independent actions; laches not shown |
| Whether Folkenflik’s omissions constitute intentional fraud on the court | Omission was not intentional; confidentiality order prevented disclosure | Conduct was intentional, material, and calculated to deceive the court | Intentional fraud proved by clear, convincing evidence; confidentiality excuse rejected |
| Whether the misconduct meets the egregiousness required for fraud on the court | Misconduct not as severe as bribery/fabrication; insufficient to disturb final judgment | Scheme to obtain double recovery and fees was deliberately planned and egregious | Misconduct was egregious (deliberate scheme); fraud-on-the-court standard met |
| Whether dismissal with prejudice was an abuse of discretion (Poulis factors) | Court failed to apply Poulis balancing before dismissing | Fraud on the court warrants dismissal; Poulis not controlling in this context | No abuse of discretion; Poulis factors not required for fraud-on-the-court dismissal; sanction appropriate |
Key Cases Cited
- Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238 (1944) (courts may vacate judgments obtained by after-discovered fraud to preserve integrity of judicial process)
- Herring v. United States, 424 F.3d 384 (3d Cir. 2005) (fraud-on-the-court requires clear, convincing evidence of egregious misconduct by an officer of the court)
- Averbach v. Rival Mfg. Co., 809 F.2d 1016 (3d Cir. 1987) (one-year Rule 60(b) limit does not apply to independent actions for fraud on the court)
- Beggerly v. United States, 524 U.S. 38 (1998) (fraud-on-the-court relief is reserved for sufficiently gross injustices warranting departure from res judicata)
- Poulis v. State Farm Fire & Casualty Co., 747 F.2d 863 (3d Cir. 1984) (factors to consider before dismissing an action as a sanction)