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Saggiani v. Strong

United States District Court, D. Utah

March 17, 2017

JOHN SAGGIANI, Appellant,
v.
D. RAY STRONG, as the trustee of the Consolidated Legacy Debtors Liquidating Trust and D. RAY STRONG, as the trustee of the Castle Arch Opportunity Partners I Liquidating Trust, Appellees.

          MEMORANDUM DECISION AND ORDER UPHOLDING THE BANKRUPCY COURT'S ORDER DENYING RULE 60(B) RELIEF

          JILL N. PARRISH, UNITED STATES DISTRICT COURT JUDGE

         John 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.

         This 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.

         BACKGROUND

         Castle Arch Real Estate Investment Company, LLC (Castle Arch Investment)[1] 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.

         A 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.

         The 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 property.

         On 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.

         On 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.

         Mr. 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).

         The 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].

         Mr. Saggiani appeals from the denial of his Rule 60(b) motion.

         ANALYSIS

         To 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 ...


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