United States District Court, D. Utah
MEMORANDUM DECISION AND ORDER UPHOLDING THE BANKRUPCY
COURT'S ORDER DENYING RULE 60(b) RELIEF
N. Parrish United States District Court Judge
Saggiani appeals from the bankruptcy court's denial of
his Rule 60(b)(1) and (6) motion for relief from a final
settlement order. He argues that the bankruptcy court abused
its discretion when it determined that the requirements of
Rule 60(b) had not been satisfied. Mr. Saggiani further
argues that if relief from the final order is granted, he has
a meritorious defense that he neglected to assert before the
order was entered.
court concludes that the bankruptcy court did not abuse its
discretion when it determined that Mr. Saggiani had not
satisfied the requirements of Rule 60(b). The court,
therefore, affirms the bankruptcy court's denial of his
Rule 60(b) motion.
Arch Real Estate Investment Company, LLC (Castle Arch
Investment) and two affiliated companies-Castle Arch
Opportunity Partners I, LLC (Castle Arch Partners I) and
Castle Arch Opportunity Partners II, LLC (Castle Arch
Partners II)-filed for Chapter 11 bankruptcy. Each of these
three companies was assigned to a separate liquidating trust
and D. Ray Strong was appointed as the trustee of all three
liquidating trusts. Mr. Saggiani was an equity holder in
Castle Arch Partners I and became a beneficiary of the Castle
Arch Partners I Trust.
number of claims existed between Castle Arch Investment and
Castle Arch Partners I and Castle Arch Partners II. Because
Mr. Strong was the trustee of all three of the liquidating
trusts that administered the assets of these companies, he
had a conflict of interest regarding these intercompany
claims. The bankruptcy court, therefore, entered an order
that set forth formal Conflict Resolution Procedures (CRPs)
for the intercompany claims. The CRPs created special
alternative procedures for resolving these intercompany
claims. Under these procedures, the attorneys hired to
represent each of the three trusts would advocate for each
trust's rights and a neutral conflicts referee would
resolve the intercompany claims.
intercompany claim at the heart of this appeal was the
transfer of real property and water rights (with an
approximate value of $5 million) from Castle Arch Investment
to Castle Arch Partners I that was completed less than one
year before the filing of the bankruptcy case. Pursuant to
CRPs, counsel for the Castle Arch Investment Trust and
counsel for the Castle Arch Partners I Trust presented a
proposal to resolve the preferential transfer claim related
to this real estate transaction. The conflicts referee then
mediated a settlement agreement between counsel for the
Castle Arch Investment Trust and counsel for the Castle Arch
Partners I Trust that returned the real property to Castle
Arch Investment as a preferential transfer. In exchange, the
Castle Arch Partners I Trust became an unsecured creditor
with a claim to nearly $3 million from the future sale of the
November 12, 2014, Mr. Strong filed a motion in the
bankruptcy court to confirm the settlement agreement. Notice
of the settlement motion was provided to Mr. Saggiani, and he
was afforded an opportunity to object. But he decided not to
conduct an independent investigation into the propriety of
the settlement agreement, and he did not object to it.
Indeed, no party objected to the settlement agreement. The
bankruptcy court, having independently reviewed the
settlement agreement and finding it appropriate, entered a
final order affirming it on December 4, 2014.
November 3, 2015, Mr. Saggiani filed a motion to set aside
this final order under Rule 60(b)(1) and (6) of the Federal
Rules of Civil Procedure. He argued that because the CRPs did
not assign a specific deadline for asserting a preferential
transfer claim, the CRPs must be read to incorporate the
deadline for declaring such a claim under the rules that
govern a bankruptcy court proceeding. He argued that because
Mr. Strong did not make a formal claim in the bankruptcy
court or make a similar claim under the CRPs by this
deadline, the Castle Arch Investment Trust lost its right to
assert such a claim well before the settlement agreement was
entered or approved.
Saggiani further asserted that Rule 60(b) permitted the court
to reopen the final bankruptcy order because he did not
investigate whether he had a legal basis to object to the
settlement agreement, and he did not “discover”
this argument until sometime in September, 2015, when his
Tennessee attorney alerted him to the fact that the Castle
Arch Investment's former Chapter 11 counsel had raised
this argument as a defense to a malpractice action brought by
Mr. Strong. From September through mid-October, 2015, Mr.
Saggiani and his attorney further investigated this legal
argument. In mid-October, 2015 he found local counsel to
pursue the matter, and on November 3, 2015-approximately 11
months after the bankruptcy court entered a final order
setting aside the property transfer-he filed a Rule 60(b)
motion to set aside the order. He contended that the final
settlement order should be set aside for either
“mistake, inadvertence, surprise, or excusable
neglect” under Rule 60(b)(1) or “any other reason
that justifies relief” under Rule 60(b)(6).
bankruptcy court denied Mr. Saggiani's motion. For
several reasons, the court determined that the order setting
aside the real property transfer was not procedurally barred
as Mr. Saggiani had argued. The bankruptcy court also ruled
that he had not satisfied the requirements of Rule 60(b).
First, the court found that Mr. Saggiani had not brought his
motion “within the reasonable time contemplated by Rule
60(c)(1).” [Docket 16');">16, p. 410]. Second, the bankruptcy
court ruled that relief was not warranted under either
subsection (1) or (6) because all of the facts relevant to
Mr. Saggiani's newly asserted arguments were either known
or easily discoverable before the court entered the final
order approving the settlement agreement. [Docket 16');">16, p.
409]. Thus, Mr. Saggiani's failure to assert his argument
in a timely matter did not constitute excusable neglect.
[Docket 16');">16, p. 409-10].
Saggiani appeals from the denial of his Rule 60(b) motion.
prevail on a Rule 60(b) motion, the movant must show both
“justification for relief” under the rule and
“a meritorious defense.” Olson v. Stone
(In re Stone), 16');">16');">588 F.2d 1316');">16, 1319 (10th Cir. 1978).
Thus, the first order of business is to determine whether
Rule 60(b) may be applied to reopen the final order entered