517 B.R. 72
6th Cir. BAP2014Background
- Schwab Industries filed Chapter 11; its board (David, Jerry, Donna Schwab) served as directors/shareholders and HLP was debtor’s bankruptcy counsel.
- Appellants (the Schwabs) sued HLP and Attorney Oscar in an adversary malpractice action alleging undisclosed conflicts with Bank of America (and later Huntington).
- On Sept. 20, 2012 the bankruptcy court dismissed the adversary: Appellants lacked standing (no derivative standing or assignment) and the claim was barred by res judicata; Appellants did not appeal that dismissal.
- One year later Appellants moved under Fed. R. Civ. P. 60(b) (via Rule 9024) claiming mistake/newly discovered evidence, fraud, and other grounds to reopen the case based on an alleged Huntington conflict.
- The bankruptcy court denied relief, finding Appellants remained without standing, the new evidence was neither new nor timely, and the prior standing ruling bound them; Appellants appealed the denial of Rule 60(b) relief.
- The Panel affirmed, holding lack of standing dispositive and that Rule 60(b) cannot be used to relitigate an unappealed final ruling.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to bring malpractice claim | Schwab: court erred in holding they lacked standing to pursue claims | Appellees: Schwabs lacked standing; only estate rep or assignee may sue absent derivative standing | Held: Schwabs lacked standing; prior final order unappealed; law-of-the-case precludes relitigation |
| Use of Rule 60(b) to reopen judgment | Schwab: newly discovered Huntington conflict warrants vacatur and amendment | Appellees: Rule 60(b) cannot cure standing defect or substitute for appeal; evidence not new/timely | Held: Rule 60(b) relief denied — standing defect fatal and evidence not newly discovered/timely |
| Whether Rule 60(b) motion may relitigate prior rulings | Schwab: sought reconsideration of standing via 60(b) | Appellees: 60(b) is not a substitute for appeal; earlier ruling final | Held: Law-of-the-case bars re-argument of unappealed final ruling; 60(b) cannot be used to relitigate |
| Timeliness/diligence for newly discovered evidence | Schwab: learned of Huntington conflict later, justifying 60(b)(2) relief | Appellees: Schwabs had earlier knowledge or could have discovered it sooner | Held: Court found evidence was not newly discovered and motion untimely; due diligence lacking |
Key Cases Cited
- Midland Asphalt Corp. v. United States, 489 U.S. 794 (U.S. 1989) (definition of a final order for purposes of appeal)
- Blue Diamond Coal Co. v. Trustees of UMWA Combined Ben. Fund, 249 F.3d 519 (6th Cir. 2001) (abuse-of-discretion review for Rule 60(b) decisions)
- Huey v. Stine, 230 F.3d 226 (6th Cir. 2000) (standard for abuse of discretion review)
- In re Behlke, 358 F.3d 429 (6th Cir. 2004) (deference where reasonable persons could differ on Rule 60(b) matters)
- GenCorp, Inc. v. Olin Corp., 477 F.3d 368 (6th Cir. 2007) (Rule 60(b) is not a substitute for an appeal)
- Browder v. Director, Dept. of Corrections of Illinois, 434 U.S. 257 (U.S. 1978) (appeal of denial of Rule 60(b) does not review underlying judgment)
- Bridgeport Music, Inc. v. Smith, 714 F.3d 932 (6th Cir. 2013) (Rule 60(b) relief is available only to a party to the litigation)