United States District Court, S.D. New York
May 24, 2004.
EUROPEAN AMERICAN RESOURCES, INC., Plaintiff, -against- GERMAN AMERICAN INVESTORS, INC., MARTIN SPORTSHUETZ, WALTRAUD WOLFER, DIETER FALKE, CHARLOTTE WEZEL, WERNER WOLFER, ROEMER BLUM, MELANIE WOLFER, and WOLGANG RUOFF, Defendants
The opinion of the court was delivered by: RICHARD CASEY, District Judge
MEMORANDUM OPINION & ORDER
Plaintiff, European American Resources, Inc. ("EPAR"), commenced this
action by filing suit against its former CEO and President, Martin
Sportschuetz ("Defendant") and others, alleging fraud and unjust
enrichment related to a settlement agreement. Defendant Sportscheutz
moves to dismiss the complaint pursuant to Federal Rule of Civil
Procedure 12(b)(6) for failure to state a legally-cognizable claim.*fn1 I. Background
In evaluating a motion to dismiss, a court takes as true the facts
stated in the complaint. Those facts are briefly set forth below.
In or about 1990, through a fund known as Trent, Ltd., a group of
German investors purchased shares in plaintiff EPAR which was then
incorporated under the name Merlin Mining, Inc. ("Merlin"). Trent
purchased 7 million shares of Merlin for a total investment of $2.4
In or about 1993, defendants Roemer Blum and Wolfgang Ruof purchased
EPAR shares from Trent. Blum purchased 363,196 shares, for a total value
of $726,392.25. For the convenience of the parties, Blum became the
beneficial owner of the shares and Trent remained the owner of record.
Also in or about 1993, defendant Ruof purchased 151,331 shares at a total
price of $302,663.43. For this transaction, Trent similarly remained the
owner of record.
In or about 1997, the German shareholders that had invested in Trent
allegedly tendered their holdings in EPAR back to the corporation. In
exchange, these investors would receive a percentage of the profits
obtained from the exploitation of mining leases which EPAR believed it
controlled. In 1998, EPAR and Sportschuetz discovered that there were
significant defects in EPAR's claims to the leases.
Defendant Sportscheutz, who at the time was a member of EPAR's Board of
Directors, informed EPAR that he represented a group of EPAR's original
German investors from whom EPAR had repurchased their shares.
Sportschuetz further informed EPAR that this group of investors had formed
defendant German American Investment, Ltd., ("GAT) for the purpose of rescinding the exchange agreement
and recovering their shares from plaintiff.
On August 5, 1998, GAI initiated a securities fraud lawsuit in this
court entitled German American Investments, Ltd. v. European American
Resources, 98 Civ. 5557. This case was settled before the Honorable
Harold Baer on November 5, 1998. Pursuant to the terms of the
settlement, GAI was to receive 1.3125 million shares of common stock
tendered by the individual defendants, plus an additional 2.8435 million
shares of restricted stock. These shares were issued and held in trust by
the Royal Bank of Canada. The settlement was fully consummated and the
shares issued to GAI in August of 1999.
Defendant Sportscheutz moves to dismiss the complaint pursuant to
Federal Rule of Civil Procedure 12(b)(6) for failure to state a
legally-cognizable claim. A complaint should be dismissed for failure to
state a claim only "if it appears beyond doubt that the plaintiff can
prove no set of facts in support of his claim which would entitle him to
relief." Valmonte v. Bane, 18 F.3d 992, 998 (2d Cir. 1994) (internal
quotation marks and citations omitted).
Federal Rule of Civil Procedure 60(b) allows a party to file a motion
in the original action to set aside a judgment for certain reasons,
including "fraud . . . misrepresentation, or other misconduct of an
adverse party." Fed.R.Civ.P. 60(b). When proceeding under this
provision, a party must file the motion within one year after the judgment
was issued. See id. Rule 60(b) also notes, however, that it doesnot
prevent a court from setting aside a judgment for "fraud upon the court." Here, EPAR filed this action more than one year after the entry of
judgment. It argues, however, that the complaint alleges fraud upon the
court under the second part of Rule 60(b), and that the one year statute
of limitations therefore does not apply.
Because an independent action pursuant to Rule 60(b) serves as an
indefinite exception to the rule of finality, "the type of fraud
necessary to sustain [such an action] is narrower in scope than that
which is sufficient for relief by timely motion." Hazel-Atlas Glass Co.
v. Hartford Empire Co., 322 U.S. 238, 244-46 (1944); Hadges v. Yorkers
Racing Corp., 48 F.3d 1320, 1325 (2d Cir. 1995). Accordingly, the Second
Circuit has held that fraud upon the court is limited to fraud that
"seriously affects the normal process of adjudication" and that "does or
attempts to, defile the court itself, or is a fraud perpetrated by
officers of the court so that the judicial machinery cannot perform in
the usual manner its impartial task of adjudging cases." Hadges, 48 F.3d
at 1325 (internal citations and quotation marks omitted).
The complaint in this case alleges that GAI was created by defendant
Sportschuetz to fraudulently represent shareholders of plaintiff EPAR,
Sportschuetz allegedly convinced counsel for both GAI and EPAR that he
represented the interests of old EPAR shareholders, who had invested in
EPAR through Trent, Ltd. Relying on Sportschuetz's representations, EPAR
agreed to settle the case and entered a Stipulation of Discontinuance
before Judge Baer.
The facts in the complaint specifically allege a scheme by Sportschuetz
to defraud EPAR of stocks to which he was not entitled. While allegations
of fraud upon an adverse party may properly constitute a claim for fraud
under Rule 60(b)(3), the Second Circuit has consistently held that such
fraud does not rise to the level of fraud upon the court pursuant to Rule 60(b)'s "savings clause". See, e.g., Weldon, 70 F.3d 1, 5
(2d Cir. 1995); Sieck v. Russo, 869 F.2d 131, 135 (2d Cir. 1989);
Pfotzer, 548 F.2d 51, 52 (2d Cir. 1977). Rather, an independent action
for fraud upon the court requires an element of fraud directed at and
involving the court itself. Hadges, 48 F.3d at 1325 ("[f]raud upon the
court as distinguished from fraud on an adverse party is limited to fraud
which seriously affects the integrity of the normal process of
adjudication") (quoting Gleason, 860 F.2d 556, 559 (2d Cir. 1998);
Transaero, Inc. v. La Fuerza Area Boliviana, 24 F.3d 457, 460 (2d Cir.
Furthermore, relief under Rule 60(b) is generally unavailable to a
party that settled the original action or otherwise had an opportunity to
litigate the underlying claim, but declined to do so. See, e.g. Gleason,
860 F.2d at 559 (dismissing action to set aside judgment where plaintiff
discovered witnesses committed perjury at depositions because plaintiff
voluntarily chose to settle action rather than pursue his opportunity to
uncover the alleged fraud); Pfotzer, 548 F.2d at 52 ("it sufficed for the
court to know the parties had decided to settle without inquiring why")
(internal citations and quotation marks omitted).
Although EPAR had the opportunity to litigate the issue of whether GAI
represented the original shareholders, it chose to settle the action
instead. Because the issue of fraud could have been litigated in the
underlying action, EPAR cannot now challenge the settlement that it
voluntarily entered into. III. Conclusion
For the foregoing reasons, Defendant's motion to dismiss is GRANTED.