Cleveland Demolition Co. v. Azcon Scrap Corp.
827 F. 2d 984 (1987)
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Rule of Law:
An evidentiary conflict alone is insufficient to prove fraud on the court under Fed. R. Civ. P. 60(b); relief requires clear evidence of an egregious scheme, such as an attorney's active participation in suborning perjury. Furthermore, attorneys must conduct an objectively reasonable inquiry into the factual and legal basis of a claim before filing, or they will face sanctions under Fed. R. Civ. P. 11.
Facts:
- In 1983, Cleveland Demolition Co. (Cleveland) possessed tons of scrap material from a demolished power plant.
- Paul Haddad, representing himself as Cleveland's president, contacted Richard Spine, a vice-president of Azcon Scrap Corp. (Azcon), to arrange the sale of the scrap.
- Spine claimed that before signing the contract, he requested a verbal Dun & Bradstreet report on July 5, 1983, which allegedly confirmed Haddad was listed as Cleveland's president.
- On July 14, 1983, Spine and Haddad signed a contract for the sale of the scrap.
- When an Azcon crew arrived to collect the scrap, Cleveland employees prevented them, stating that Haddad was not the president and lacked authority to make the contract.
- In a subsequent lawsuit against Dun & Bradstreet, Cleveland learned that the company had no internal record of Azcon's purported July 5th request for information.
Procedural Posture:
- Azcon sued Cleveland in federal district court for breach of contract.
- A jury found for Azcon and awarded a $500,000 verdict, based in part on Spine's testimony about Haddad's apparent authority.
- The U.S. Court of Appeals for the Fourth Circuit affirmed the judgment in an unpublished opinion.
- Cleveland then filed a new, independent action in equity in the U.S. District Court, seeking to set aside the prior judgment for fraud on the court under Fed. R. Civ. P. 60(b).
- The district court granted summary judgment for Azcon and imposed Rule 11 sanctions on Cleveland and its attorneys.
- Cleveland (appellant) appealed the grant of summary judgment and the imposition of sanctions to the U.S. Court of Appeals for the Fourth Circuit, with Azcon as the appellee.
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Issue:
Does an evidentiary conflict between a witness's trial testimony and another party's records, without more, constitute 'fraud on the court' sufficient to set aside a judgment under Fed. R. Civ. P. 60(b), and does filing such a claim without adequate investigation warrant sanctions under Fed. R. Civ. P. 11?
Opinions:
Majority - Wilkinson, Circuit Judge
No. An evidentiary conflict is not fraud on the court, and filing such a claim without a reasonable inquiry warrants sanctions. Fraud on the court requires egregious conduct that corrupts the judicial process, such as an attorney's involvement in a scheme to present perjured testimony, not merely a routine evidentiary dispute that should have been addressed in the initial trial. Here, Cleveland's only evidence was a conflict between Spine's testimony and Dun & Bradstreet's records, with no proof of perjury or any involvement by Azcon's attorney, Demase. Allowing such a claim would undermine the finality of judgments. Furthermore, Cleveland's attorneys violated Rule 11 by failing to conduct a reasonable factual investigation into Demase's involvement and a reasonable legal investigation into the high standard for a 'fraud on the court' claim. This failure to investigate the claim's basis, which had 'absolutely no chance of success,' properly subjected them to sanctions.
Analysis:
This decision strongly reinforces the principle of finality in litigation by setting an extremely high bar for what constitutes 'fraud on the court.' It clarifies that simple perjury or routine evidentiary conflicts are insufficient; there must be evidence of a deliberate and corrupt scheme involving an officer of the court. The ruling also solidifies the objective standard for Rule 11, holding that an attorney's subjective good faith is irrelevant. This precedent serves as a significant deterrent against using Rule 60(b) actions to re-litigate lost cases and underscores the professional duty to investigate claims thoroughly before filing, especially when making severe allegations of attorney misconduct.
