Opinion
Civil Action No. 3:00-CV-1518-P
March 7, 2002
MEMORANDUM OPINION AND ORDER
Now before the Court for consideration are:
1. Pro se Defendant Ed Hill's ("Hill") Motion to Set Aside Judgment and Compromise Settlement Agreement, filed October 6, 2000;
2. Pro Se Defendants Kelli Cashion's ("Cashion") and DKE Entertainment, Inc.'s ("DKE") Motion to Set Aside Judgment and Compromise Settlement, filed March 12, 2001.
Plaintiff Natural State Resorts, Inc. and Defendant Kelli S. Cashion filed a joint response brief on October 26, 2000. Defendant Hill did not file a reply brief.
Natural State Resorts, Inc. filed its Response brief on March 15, 2001. Defendants Cashion and DICE did not file a reply brief.
Upon due consideration, Hill's Motion to Set Aside Judgment and Compromise Settlement Agreement is DENIED, and Cashion and DKE's Motion to Set Aside Judgment and Compromise Settlement is also DENIED. The Judgment is hereby VACATED and an amended judgment entered. Further, the Court hereby gives Cashion thirty (30) days to show cause in writing why she should not be sanctioned.
FACTS
Plaintiff Natural State Resorts, Inc. ("NSR" or "Plaintiff") is a company based in Little Rock, Arkansas, whose only business activity is managing the ballot questionnaire committee promoting and supporting a proposed constitutional amendment to legalize gambling in Arkansas. (Dodson Aff. ¶ 5) In June 1999, Standard and Poor's rating agency dropped NSR from its Corporation Records because it submitted false information to the agency. (Id. ¶ 10.) As a result of this misrepresentation, on July 20, 1999, the Arkansas Securities Commissioner directed NSR to cease and desist from any further offers or sales of securities. (Id. ¶ 11.)
NSR was formerly known as Arkansas Casino Corporation, which was formerly known as North Star, Inc. (Dodson Aff. ¶ 5.)
Defendants Cashion and DKE have failed to comply with Local Rule 7.1(i)(4) which requires parties to number the pages of the appendix that accompanies their briefing.
Defendant DKE is a company that organizes, promotes and stages live concerts and entertainment venues. (See Pl.'s Second Am. Original Compl. ("Compl.") ¶ 9.) Defendant Cashion is the President and one of the three stockholders of DKE. (Id.) Defendants Hill and Donnie Frizzell are the two other stockholders. (Id.)
In March 2000, DKE approached NSR seeking short-term financing to enable it to pay deposits on its acts for the 2000 concert season. (Id. ¶ 10.) After a series of negotiations, on April 6, 2000 NSR and DKE entered into an agreement (the "Acquisition Agreement") whereby NSR would acquire 100% of the outstanding stock of DKE from stockholders Cashion, Hill, and Frizzell in exchange for $250,000 worth of shares of NSE common stock, despite the cease and desist order. (See Acquisition Agreement at 2.) In addition, NSR agreed to provide DKE with a $100,000.00 line of credit and a $10,000.00 cash advance to cover immediate expenses. (See id. at 3.) NSR promised to comply with the terms of the Acquisition Agreement "in accordance . . . with prior agreements between NSR and the Arkansas Securities Department wherein NSR agreed not to issue further stock until resolution of issues between the company and the Arkansas Securities Department." (Id. at 2.) According to an affidavit of the Arkansas Securities Commissioner, "although the Acquisition Agreement refers to a prior agreement with the Arkansas Securities Department, the Cease and Desist Order was not disclosed, and it was represented that [NSR] had reason to believe that the stock of [NSR] would begin publicly trading again soon." (Dodson Aff ¶ 12.)
Cashion contends that during the summer of 2000, she learned "that the stock referenced in the acquisition agreement was subject to a cease and desist order and that NSR enter[ed] into the Acquisition Agreement [in] violation of the order." (Cashion Mot. ¶ 5.)
On July 17, 2000, NSR filed Plaintiff's Original Complaint alleging causes of action against Defendants DKE and Cashion for acts and omissions in connection with the Acquisition Agreement. (See generally Pl.'s Original Compl.) Cashion contends that NSR filed this lawsuit against Cashion and DKE to try to intimidate Cashion from talking to the Arkansas Securities Department about NSR's violations of the order. (Cashion Mot. ¶ 6.) Cashion contends that she met with the Arkansas Securities Department in spite of the lawsuit and the threats. (Id. ¶ 7.)
On August 1, 2000 NSR filed Plaintiff's Second Amended Original Complaint and added Hill and Frizzell as parties to the action. (See generally Compl.) In its Second Amended Original Complaint, NSR contended that "Defendants were expressly informed and advised that Plaintiff's stock was not then trading due to various problems with the Arkansas Securities Department. However, because of Defendants [sic] desire for immediate funding, provisions were made in the final acquisition agreement that the exchange of stock was expressly subject to prior agreements between Plaintiff and the Arkansas Securities Department wherein Plaintiff agreed not to issue further stock until resolution of issues between the company and the Arkansas Securities Department." (Id. ¶ 13.)
Neither Defendants Hill nor Frizzell were ever served with Plaintiff's August 1, 2000 Second Amended Original Complaint. (Pl.'s Resp. to Hill Mot. at 2.) Thus, neither Hill nor Frizzell answered the Complaint. On August 2, 2000, Defendants DKE and Cashion filed their Answer to the Complaint and a Motion to Dismiss.
Cashion contends that during this time, several unrelated lawsuits were filed against DKE for money validly owed for work performed during the summer concert tour. (Cashion Mot. ¶ 9.) In an attempt to repay DKE's creditors, Cashion sought to settle the lawsuit with NSR, whereby NSR would pay DKE $250,000.00 on or before March 1, 2001. (Id. ¶ 10.)
Although Defendant Hill had attended an earlier settlement discussion, Hill did not attend the September 19, 2000 settlement discussion. (Cashion Aff ¶ 2.) At the September 19, 2000 settlement meeting, Cashion purported to represent herself in her individual capacity and as the authorized agent and representative of DKE and its three stockholders, Cashion, Hill, and Frizzell. (Id. ¶ 3.)
On September 19, 2000, Cashion and the attorneys for NSR met in Little Rock, Arkansas where they entered into a settlement agreement with respect to this lawsuit. (Cashion Mot. ¶ 2.) The Compromise Settlement Agreement of September 19, 2000 ("Settlement Agreement") stated that both parties would forego any further litigation — Defendants would waive and release all potential future claims, and Plaintiff would nonsuit any remaining claims against Defendants. (See generally Settlement Agreement.) In return for the mutual promises, Plaintiff NSR, the party that instituted the action in the first place, agreed to pay $250,000.00 to Defendant DKE on or before March 1, 2001. (Id. at 2.)
That same day, September 19, 2000, Plaintiff filed an agreed Motion for Entry of Agreed Judgment and a Notice of Dismissal seeking the dismissal of Defendants Cashion, Hill and Frizzell. NSR and DKE also presented an agreed final judgment to the Court for entry that contained four pages of fact findings. The proposed final judgment also contained payment terms that differed from those contained in the Compromise Settlement Agreement. Specifically, it instructed DKE, the Defendant, to tender $135,000.00 to Plaintiff (return of the $100,000.00 credit line, the $10,000.00 in additional cash, and $25,000.00 in attorneys' fees as well as pre-judgment interest). (The Compromise Settlement Agreement required Plaintiff to pay Defendant DKE $250,000.00) The proposed judgment concluded that Defendant DKE made misrepresentations to Plaintiff about the status of its debts to induce Plaintiff to enter into the Acquisition Agreement. (J'ment at 2.) It also found that DKE failed to use the $100,000.00 line of credit as promised — for deposits for talents for various concerts. (J'ment at 2.) The proposed judgment further noted that "[during negotiations of the Acquisition Agreement], NSR expressly informed and advised DKE and the DKE Stockholders that Plaintiff's stock was not then trading due to various problems with the Arkansas Securities Department and certain orders issued by the same entity." (J'ment at 3.) Finally, the proposed judgment read that the Acquisition Agreement "cannot be considered, nor is, the sale or promotion of sale of security by NSR or any of its subsidiaries . . . [and that] . . . no violation of any rule, order, or regulation of the Arkansas Securities Department occurred; nor was there any violation of any law, rule, or regulations of the State of Arkansas by NSR." (J'ment at 3.) On September 20, 2000, the Court signed and entered the Parties' agreed proposed judgment ("Judgment") and an agreed order dismissing Defendants Cashion, Hill, and Frizzell.
In her motion, Cashion alleges that she learned that Plaintiff NSR "attempt[ed] to use the Judgment to try to stop the investigation by the Arkansas Securities Department by stating that a Judge in Texas had entered a judgment and that he found no fraud or illegality in their actions. They even made these statements at a press conference." (Cashion Mot. ¶ 12.)
On October 6, 2000, Hill filed a Motion to Set Aside Judgment and Compromise Settlement Agreement. Hill contends that Cashion did not have authority to represent him when she entered into the Compromise Settlement Agreement with NSR. (Hill Mot. at 1-2.) On October 26, 2000, Plaintiff; joined by Cashion, filed a Response to Hill's Motion.
On October 18, 2000, the Arkansas Securities Commissioner issued an affidavit for the warrant of the arrest of Robert Buchholz, the owner of three million shares of NSE stock and the Secretary and General Counsel of NSR. (Dodson Aff. ¶ 2.) The Commissioner alleged that NSR made certain material misrepresentations to DKE about the value of its stock and failed to disclose certain material facts to DKE about NSR. (Id. ¶¶ 12-18.) The Commissioner further stated that the misrepresentations and omissions induced DKE and its shareholders to agree to the purchase of the stock of NSR. (Id. ¶ 19.)
On March 12, 2001, Cashion filed a Motion to Set Aside Judgment and Compromise Settlement Agreement. Cashion contends that the Judgment should be set-aside because she was fraudulently induced into entering into the Settlement Agreement. (Cashion Mot. ¶ 17.) Cashion contends that the only reason she agreed to the language contained in the proposed final judgment was that NSR promised DKE $250,000.00 before March 1, 2001 under the Settlement Agreement. (Cashion Mot. ¶ 3.) Cashion asserts that at the time NSR entered into the Settlement Agreement, it had no intention of honoring the agreement. (Id. ¶¶ 17-18.)
Cashion also contends that at the time the Parties entered into the Compromise Settlement Agreement, she had disclosed to NSE that DKE had incurred debts as a result of the summer concert series. (Cashion Mot. ¶ 4.) However, the Judgment, the language of which was agreed to by Cashion, expressly states that DKE misrepresented to NSR that DKE was "completely debt-free." (J'ment at 2.)
Cashion alleges that NSR has not, and will not pay her the $250,000.00 she is owed pursuant to the Settlement Agreement. Accordingly, Cashion requests that the Judgment be set aside based upon the fraud used to induce the Settlement Agreement, and also that she be awarded damages.
DISCUSSION
I. HILL'S MOTION TO SET ASIDE JUDGMENT AND COMPROMISE SETTLEMENT AGREEMENT.
Defendant Hill moves to have the Judgment and the Settlement Agreement set aside because, he contends, Defendant Cashion was not his attorney and was not authorized to enter into any legally binding agreements on his behalf. He contends that he did not and does not agree to the terms of the Settlement Agreement or the language contained in the agreed Judgment and therefore, the motion should be set aside pursuant to Rule 60 on the basis of fraud. (Mot. at 1.) NSR and Defendant Cashion filed a joint response brief to Hill's motion.
A. Standing
In response, NSR and Cashion contend that Defendant Hill does not have standing to bring the motion to set aside the Judgment because he was dismissed from the action by the Judgment. (Resp. at 3.) Yet NSR and Cashion have not cited any legal authority or presented any evidence to support their position. Because NSR and Cashion have failed to present any legal argument or evidence to support their argument that Hill lacks standing to bring this motion, the Court declines to deny the motion on this basis.
B. Motion to Set Aside Judgment Based on Fraud.
In his motion, Hill, a pro se movant, contends that the Judgment and the Settlement Agreement should be set aside pursuant to Rule 60 of the Federal Rules of Civil Procedure. (Mot. at 1.) As a threshold matter, Rule 60 provides that a court may set aside a final judgment or a court order, however it may not be used as a mechanism for rescinding or voiding an agreement such as the Settlement Agreement. See Fed.R.Civ.P. 60(b).
Hill alleges that he was out of the state when Cashion met with NSR, and that he had no knowledge of the Settlement Agreement or the Judgment until after the documents were filed with the Court. Furthermore, Hill states that Cashion was not his attorney and was at no time authorized to enter into any legally binding agreement on Hill's behalf. (Mot. at 1-2.) In response, NSR and Cashion contend that Hill's motion fails because Hill failed to prove misconduct or fraud on the part of NSR and/or Cashion when entering into the Settlement Agreement.
Rule 60(b)(3) allows a party to seek relief from a judgment that was obtained by fraud, misrepresentation, or other misconduct of an adverse party. See Fed.R.Civ.P. 60(b)(3). The burden of proof of establishing fraud is on the moving party and that fraud must be established by clear and convincing evidence. See Diaz v. Methodist Hospital, 46 F.3d 492, 496 (5th Cir. 1995).
Presumably, the fraud to which Hill refers is based on the allegedly false representations contained in the agreed judgment that "the parties . . . have reached an agreement," and that Kelli S. Cashion, Esq. was "attorney for Defendant DKE and the DKE Stockholders." (J'ment at 1, 6 (emphasis added).) Hill has not established by clear and convincing evidence that Cashion entered into the Settlement Agreement without Hill's knowledge or authority. Hill has failed to provide any information about the relationship between Cashion and Hill, or why Cashion may have believed that she did have authority to represent all of the stockholders of DKE, as stated in her affidavit. (See Cashion Aff. ¶¶ 2-4.) Without any evidence, the Court cannot rule in Hill's favor. Therefore Hill's motion to set aside the Judgment is DENIED.
C. Motion to Set Aside Compromise Settlement Agreement.
Rule 60(b)(3) cannot be used as the vehicle for setting aside the Settlement Agreement, only the Court's judgment. See Fed.R.Civ.P. 60(b). Because Hill has neither sought a ruling that he is not bound by the terms of the Settlement Agreement nor has he asserted a claim to void the agreement, the Court cannot rule in Hill's favor. Therefore Hill's motion to set aside the Settlement Agreement is DENIED.
II. CASHION'S MOTION TO SET ASIDE JUDGMENT AND COMPROMISE SETTLEMENT AGREEMENT.
In an unusual twist, Cashion has retreated from her earlier position and filed her own Motion to Set Aside Judgment and Compromise Settlement, arguing that she, too, was fraudulently induced to enter the Settlement Agreement. Again, Cashion has failed to cite to a single case in her brief.
A. Standing
In response to Cashion's motion, NSR reiterates the arguments it made in its earlier response. NSR contends that Cashion does not have standing to bring the motion to set aside the Judgment because she was dismissed from the action by the Judgment. (Resp. at 3.) Yet NSR has not cited any legal authority or presented any evidence to support its position. Because Plaintiff has failed to present any legal argument or evidence to support its argument that Cashion lacks standing to bring this motion, the Court declines to deny the motion on this basis.
B. Motion to Set Aside Judgment.
Rule 60 of the Federal Rules of Civil Procedure provides a mechanism by which Cashion may request relief from a judgment or order of a court. Fed.R.Civ.P. 60(b). Under Rule 60(b)(3), a court may relieve a party from a final judgment on the basis of evidence of fraud, misrepresentation, or misconduct on the part of an adverse party. Fed.R.Civ.P. 60(b)(3). Before a court may set-aside a judgment, the party making the motion must establish by clear and convincing evidence that the adverse party engaged in fraud or other misconduct, and that this misconduct prevented the moving party from fully and fairly representing the case. Gov't Fin. Servs. v. Peyton Place, Inc., 62 F.3d 767, 772 (5th Cir. 1995).
Cashion argues that she was fraudulently induced to enter the settlement agreement by NSR's misrepresentation that it would pay $250,000 to DKE on or before March 1, 2001. (Mot. ¶ 10.) Cashion states that she now believes that NSR had no intention of honoring the agreement when they entered into it. (Id. ¶ 17.) The only factual allegation she has in support of her claim is "[t]hat information has been relayed to Kelli S. Cashion that during the week of February 26, 2001 [five months after the Settlement Agreement was signed] Robert Buchholz [majority shareholder of NSR] was asked if NSR was going to pay pursuant to the compromise settlement agreement and he informed them that nobody was getting any money." (Id. ¶ 16.) Yet, this allegation is not supported by any evidentiary documentation or legal authority, and thus, Cashion has not sustained her burden of proving fraud in the inducement by clear and convincing evidence.
B. Motion to Set Aside Compromise Settlement Agreement.
Rule 60(b)(3) cannot be used as the vehicle for setting aside the Settlement Agreement, only the Court's judgment. See Fed.R.Civ.P. 60(b). Cashion requests that the Court set aside the settlement agreement because the "basis of the agreement was stock and the issuance of the stock was fraudulent on the part of Plaintiff's." (Mot. ¶ 19.) Cashion has not presented any legal authority to establish that this constitutes a basis for setting aside the agreement. Therefore Cashion's motion to set aside the Settlement Agreement is DENIED.
III. RULE 11 OF THE FEDERAL RULES OF CIVIL PROCEDURE
Rule 11 of the Federal Rules of Civil Procedure provides:
[b]y presenting to the court [in] a pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief; formed after an inquiry reasonable under the circumstances,
(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;
(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a non-frivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;
(3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and
(4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.
A violation of this section may result in the imposition of sanctions on the attorney. See Fed.R.Civ.P. 11(c). By signing and filing a document with the Court, the attorney is implicitly certifying that he has complied with three affirmative duties: (1) that the attorney has conducted a reasonable inquiry into the facts that support the document; (2) that the attorney has conducted a reasonable inquiry into the law such that the document embodies existing legal principles or a good faith argument for the extension, modification, or reversal of existing law; and (3) that the modification is not interposed for purposes of delay, harassment, or increasing the costs of litigation. See Childs v. State Farm Mut. Auto. Ins. Co., 29 F.3d 1018, 1023-24 (5th Cir. 1994).
After careful review of the Parties' briefing, the Court believes that Ms. Cashion may not have been entirely forthright with the Court. The Court is skeptical of Cashion's motivations with respect to the agreed judgment. Cashion is an attorney. She agreed to the terms of the agreed judgment, several of which contradict the statements she now makes in her motion. There are several discrepancies in Cashion's briefing that bear mention. For example, she states in her motion that she "made . . . NSR aware of the fact that DKE Entertainment has incurred debts as a result of the summer concert series" (Cashion Mot. ¶ 4), yet she agreed to a finding by the Court that DKE represented that it was completely debt-free when it was not. (J'ment at 2.) She also maintains in her motion that she learned of the cease and desist order in the summer of 2000 (Cashion Mot. ¶ 5.), but she agreed in September of 2000 to a finding that she had been "expressly informed and advised that . . . Plaintiff's stock was not then trading due to various problems with the Arkansas Security Department." (J'ment at 2-3.)
According to Cashion, she learned of the cease and desist order against DICE in the summer of 2000. (Cashion Mot. ¶ 5.) Yet she entered into the Settlement Agreement and the agreed judgment in September 2000. (See Settlement Agreement at 1.)
Most striking however is that Cashion agreed to the language contained in the agreed judgment at all. The terms of the settlement agreement are in no way consistent with the language contained in the agreed judgment. In the Settlement Agreement, NSE agrees to pay DKE $250,000 (Settlement Agreement ¶ 2), however, in the Judgment, NSR is ordered to recover $135,000 from DKE. Moreover, in the Settlement Agreement, the Parties expressly state that neither party admits to liability (Settlement Agreement ¶ 6), however, in the agreed judgment, Cashion essentially agrees to a finding that her client committed fraud in the inducement of the Acquisition Agreement. (J'ment at 2.) Finally, the Court cannot imagine how, when Cashion knew of the criminal investigation into NSR at the time the agreed judgment was filed with the Court, Cashion would not have known that NSE was attempting to use the agreed-to language in the judgment to try to exculpate itself with the Arkansas Securities Department. What other reason would there have been for seeking those findings?
Needless to say, the Court did not know anything about an investigation at the time the judgment was entered, nor was it aware of the existence of the Settlement Agreement dated September 19, 2000 between Cashion (DKE) and NSR.
Because the Court believes the Judgment may have been procured through the collusive and fraudulent conduct of the Parties who intended to use the Judgment to affect the outcome of a criminal investigation, the Court hereby VACATES the Judgment and issues an amended judgment. Further, the Court hereby gives Cashion thirty (30) days to show cause in writing why she should not be sanctioned.
III. CONCLUSION
For the reasons stated above, Hill's Motion to Set Aside Judgment and Settlement Agreement is DENIED, and Cashion's Motion to Set Aside Judgment and Settlement Agreement is also DENIED. The Judgment is hereby VACATED and an amended judgment entered. Further, the Court hereby gives Cashion thirty (30) days to show cause in writing why she should not be sanctioned.