Seychelles Organics Incorporated v. Rose

Filing 60

ORDER denying 53 Motion to Set Aside Judgment. See order for details. Signed by Senior Judge Frederick J Martone on 7/8/2014.(LMR)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Seychelles Organics, Inc.,

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Plaintiff,
vs.

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John R. Rose,
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Defendant.
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No. CV-11-1746-PHX-FJM
ORDER

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The court has before it defendant’s motion to set aside judgment (doc. 53), and
plaintiff’s response (doc. 58).
I.

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In November 2006, Seychelles paid in excess of $7 million to acquire assets of entities

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owned and operated by defendant John Rose (“Acquired Business”)1. In connection with the

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purchase agreement, Rose executed a non-compete agreement (“NCA”), agreeing not to

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participate in any business in competition with the Acquired Business. He also entered into

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an Independent Contractor Agreement under which Rose would continue to provide services

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to Seychelles and the Acquired Business.

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International, LLC, (“AnuMed”) which sells health and nutritional supplements, arguably

Rose later became manager of AnuMed

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Rose asserts that he received approximately $1.5 million from the sale. Motion at 1.

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in competition with Seychelles.2

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When Rose violated the terms of the NCA, Seychelles filed a complaint in Utah state

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court seeking injunctive relief. Rose stipulated to the entry of a preliminary injunction,

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ordering Rose to stop violating the terms of the NCA (“Utah Injunction”). Nevertheless Rose

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continued to violate the agreement. One day before Rose was scheduled to appear before the

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Utah court to show cause why he should not be held in contempt for violating the Utah

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Injunction, Rose filed for Chapter 13 bankruptcy protection in the United States Bankruptcy

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Court for the District of Arizona. Seychelles then filed an adversary proceeding and a $1.7

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million proof of claim in Rose’s bankruptcy case, and a trade dress infringement and unfair

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competition action against AnuMed in the United States District Court for the District of

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Utah (“Utah Litigation”).

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After a trial to the court in the adversary action, the Bankruptcy Court concluded that

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Rose had violated the NCA and damaged Seychelles in “an as yet undetermined amount.”

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The parties were ordered to mediation to determine the amount of Seychelles’ damages. In

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re Rose, Adv. No. 2:10-ap-1006-RTB (“Adversary Action”) (doc. 96).

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Rose and Seychelles, each represented by counsel, participated in a private mediation

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and ultimately agreed to settle all claims. Seychelles agreed to dismiss the Utah Litigation

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and withdraw its proof of claim in exchange for Rose’s agreement to the immediate entry of

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judgment against him in the amount of $1 million, and the entry of a permanent injunction,

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prohibiting him from participating in any business in competition with the Acquired Business

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(“Settlement Agreement”). Motion, ex. 4. As part of the Settlement Agreement, Seychelles

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agreed to forbear taking any action to collect upon the $1 million judgment as long as Rose

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timely complied with his obligation to pay $180,000 over a 60-month period and “remain in

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compliance with the terms of the injunction.” Id. at 2.

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The Bankruptcy Court approved the Settlement Agreement and issued proposed

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AnuMed was registered with the Arizona Corporation Commission on November 11,
2009 as a limited liability company. Rose and Kanokphor Alcantar are listed as the only
managers. Alcantar is listed as the only member.
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findings of fact and conclusions of law. We adopted the Bankruptcy Court’s findings and

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conclusions and granted the parties’ stipulated motion for entry of final judgment and

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permanent injunction (“Judgment”) (doc. 6), and this case was closed. When Rose defaulted

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on his payment obligations under the Settlement Agreement, and failed to comply with the

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terms of the injunction, Seychelles sent notice of termination of its forbearance obligation

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and began efforts to enforce the $1 million Judgment.3

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In the meantime, on January 15, 2013, AnuMed filed a complaint in this court against

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Seychelles seeking a declaration that AnuMed was not a party to the Settlement Agreement

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and therefore not bound by its terms. AnuMed Int’l, LLC v. Seychelles Organics, Inc., No.

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CV-13-0098-PHX-MHB (D. Ariz. Jan. 15, 2013). The parties stipulated to assignment of

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the case to a Magistrate Judge and the case was assigned to Judge Michelle Burns (“Burns

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Case”).

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AnuMed thereafter amended its complaint to add Rose as a plaintiff to seek a

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declaratory judgment that neither AnuMed nor Rose is bound by the Settlement Agreement

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or the Judgment, because the Judgment “is so grossly excessive” that it constitutes an

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“unenforceable penalty.” Burns Case, Amended Compl. ¶ 41 (doc. 13).

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subsequently voluntarily dismissed its complaint against Seychelles without prejudice,

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leaving only Rose’s claims pending.

AnuMed

II.

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Rose now seeks relief from Judgment under Rule 60(b)(4), (5), and (6), Fed. R. Civ.

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P., arguing that the Judgment is void, that applying it prospectively is no longer equitable,

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and for any other reasons that justify relief. A motion brought pursuant to Rule 60(b)(4), (5)

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or (6) must be brought within a “reasonable time.” Fed. R. Civ. P. 60(c)(1). “What qualifies

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as a reasonable time depends on the facts of each case,” In re Int’l Fibercom, Inc., 503 F.3d

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933, 945 (9th Cir. 2007) (citation omitted), but in all events, relief should be granted only

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On May 9, 2012, the Bankruptcy Court granted Rose’s motion to voluntarily dismiss
his bankruptcy case. In re Rose, No. 2:10-bk-4373-RTC (doc. 152). No plan of
reorganization was ever approved, nor was Seychelles’ claim paid.
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when the movant demonstrates that “circumstances beyond [his] control prevented timely

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action to protect [his] interests.” Id.
A.

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Rose did not oppose entry of the Judgment in this case. Instead he waited more than

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two years after Judgment was entered, and almost two years after Seychelles began its

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collection efforts, to bring this Motion.

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circumstances beyond his control prevented him from bringing the Motion sooner. See id.

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Without more, two years is not a reasonable amount of time, and his claim fails on this basis

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alone. Nevertheless, we also consider the Rule 60(b) motion on its merits.

He makes no attempt to demonstrate that

B.

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Rose first argues that, pursuant to Rule 60(b)(4), the Judgment is void because the

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Utah court lacked subject matter jurisdiction. But the Judgment from which Rose now seeks

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relief resulted not from a Utah court judgment, but from the parties’ settlement of the

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Adversary Action filed in Rose’s Arizona Bankruptcy Case. There is no challenge to our

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jurisdiction.

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Rose contends that the Utah court lacked subject matter jurisdiction because of choice

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of law provisions in the Asset Purchase Agreement, the NCA, and the Independent

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Contractor Agreement, and an Arizona forum selection clause in the Independent Contractor

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Agreement. But neither choice of law nor forum selection clauses deprive a court of subject

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matter jurisdiction. The Utah court of general jurisdiction had subject matter jurisdiction.

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Moreover, Rose stipulated to the Utah judgment and cannot now be heard to raise a forum

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selection or choice of law challenge.

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Rose’s motion to set aside the Judgment as void pursuant to Rule 60(b)(4) is denied.
C.

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Rose also argues that, pursuant to Rule 60(b)(5), enforcement of the $1 million

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Judgment is no longer equitable because that amount far exceeds Seychelles’ actual damages,

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and therefore the Judgment constitutes an unenforceable penalty or punitive damages and

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must be set aside.
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To prevail under Rule 60(b)(5), the movant has a “heavy burden” to show a

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“significant change in facts or law [that] warrants revision of the decree,” and “the proposed

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modification [must be] suitably tailored to the changed circumstance.” Bellevue Manor

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Assocs. v. U.S., 165 F.3d 1249, 1255 (9th Cir. 1999) (quoting Rufo v. Inmates of Suffolk

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County Jail, 502 U.S. 367, 393 (1992)).

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Rose does not argue that there has been a significant change in facts or law that

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warrants revision of the Judgment, nor does he suggest a narrowly tailored modification.

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Instead, he simply argues that the $1 million Judgment amount (which he agreed to) is too

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much and therefore it should be set aside.

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The Settlement Agreement and Judgment were based on a negotiated amount of

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Seychelles’ damages due to Rose’s repeated violations of the NCA and the Utah Injunction,

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both before and after the filing of the Bankruptcy Case. The issue at the mediation, which

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led to the Settlement Agreement, was the total damages for all of Rose’s violations of the

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NCA and Utah Injunction. Seychelles had filed a $1.7 million proof of claim in the

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Bankruptcy Case based only on pre-petition violations of the Utah Injunction and NCA.

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Seychelles argues that the $1 million Judgment was based on a compromise of not only its

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original $1.7 million proof of claim, but also subsequent violations of the NCA and Utah

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Injunction.

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Unlike a motion to modify a court-imposed judgment, Rose seeks to modify a

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stipulated Judgment to which all the parties have agreed. He has failed to show significant

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changes in facts or law that would now warrant revision of the Judgment. Rose’s motion to

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set aside the Judgment pursuant to Rule 60(b)(5) is denied.

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D.

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We also reject Rose’s argument that because the Judgment is unconscionable it must

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be set aside under the catch-all provision of Rule 60(b)(6). “Judgments are not often set

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aside under Rule 60(b)(6).” Latshaw v. Trainer Wortham & Co., 452 F.3d 1097, 1103 (9th

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Cir. 2006). Rather Rule 60(b)(6) should be “used sparingly as an equitable remedy to

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prevent manifest injustice” and “is to be utilized only where extraordinary circumstances
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prevented a party from taking timely action to prevent or correct an erroneous judgment.”

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United States v. Washington, 394 F.3d 1152, 1157 (9th Cir. 2005).

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Rose contends that any agreement should reflect what the parties actually negotiated

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and should not be so one-sided as to “shock the conscience.” He contends that “in hindsight”

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he did not understand the exact terms of the Settlement Agreement. He argues that his filing

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of the Burns Case alone demonstrates that there was no meeting of the minds with regard to

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the Settlement Agreement. Notwithstanding that he was represented by counsel, he argues

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that there was a disparity in bargaining power at the time the Settlement Agreement was

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executed.

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Rose has failed to establish the “extraordinary circumstances” that would support a

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motion to set aside the Judgment. Rose and his lawyer’s affidavits with regard to their

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current understanding of the Settlement Agreement are self-serving and insufficient to

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overcome the plain language of the Settlement Agreement.

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The Settlement Agreement is not so one-sided as to shock the conscience. Instead,

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the Agreement was entered into after repeated violations by Rose of the NCA and the Utah

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Injunction. The Settlement Agreement was intended to resolve a $1.7 million proof of claim

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filed in Rose’s Bankruptcy Case and to resolve claims of unfair competition and trademark

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infringement filed in the Utah Litigation. Seychelles moved to enforce the $1 million

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Judgment only after Rose failed to comply with the terms of the Settlement Agreement and

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permanent injunction. Rose has failed to carry his heavy burden of demonstrating that the

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Settlement Agreement is unconscionable and should be set aside.
III.

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IT IS ORDERED DENYING Rose’s motion to set aside the Judgment (doc. 53).

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DATED this 8th day of July, 2014.

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