Centrix Financial, LLC et al v. Sutton et al

Filing 163

ORDER by Chief Judge Philip A. Brimmer on 9/6/2019, re: 157 Motion to Set Aside Dismissal and Reopen Case filed by plaintiff Jeffrey A. Weinman, as trustee of plaintiff Centrix Financial Liquidating Trust is GRANTED. ORDERED that, pursuant to Fed. R. Civ. P. 60(b)(6), the Court' order dismissing the case [Docket No. 146] is vacated and this case is reopened. ORDERED that plaintiffs shall, no later than October 21, 2019, file a motion to enforce the settlement agreement, or the Court's order dismissing the case will be reinstated and the case will be administratively closed. (sphil, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Chief Judge Philip A. Brimmer
Civil Action No. 09-cv-00088-PAB-CBS
In re: CENTRIX FINANCIAL, LLC, et al.,
Debtors,
CENTRIX FINANCIAL LIQUIDATING TRUST, et al.,
Plaintiffs,
v.
ROBERT E. SUTTON, et al.,
Defendants.
_____________________________________________________________________
ORDER
_____________________________________________________________________
This matter comes before the Court on the Motion to Set Aside Dismissal and
Reopen Case [Docket No. 157] filed by plaintiff Jeffrey A. Weinman in his capacity as
trustee of plaintiff Centrix Financial Liquidating Trust (the “Trust”).
I.

BACKGROUND
The Trust initiated an adversary proceeding against defendants in the

bankruptcy court on September 3, 2008. See Docket No. 1 (Bankruptcy Case No. 0801593-EEB). Broadly speaking, the Trust alleged that Robert Sutton induced credit
unions to provide funds to the debtors and used those f unds for his personal expenses.
See id. This Court subsequently withdrew the reference to the bankruptcy court and set
the case for trial. Docket Nos. 20, 23. On April 11, 2014, f our days before the trial was
set to begin, the parties executed a settlement agreement and sought dismissal of this

case. See Docket No. 145 at 2-3. The Court dismissed the case, but retained
jurisdiction to enforce the terms of the settlement agreement. Docket No. 146.
The Trust now seeks to reopen the case in order to enf orce the settlement
agreement pursuant to Fed. R. Civ. P. 60(b)(6), which provides that the Court may “[o]n
motion and just terms . . . relieve a party or its legal representative from a final
judgment, order, or proceeding for . . . any . . . reason that justifies relief.” According to
the trustee, defendants submitted materially false financial statements in order to
induce settlement of this case in 2014. Docket No. 157 at 3-5. Under the terms of the
settlement agreement,
If Plaintiffs establish to the satisfaction of the District Court . . . that the
Financial Disclosure is materially false in any respect . . . then (a) Sutton,
and (b) any other individual or entity who made one or more materially
false statements, as the case may be, consents, at the option of Plaintiffs
(or their assignee), to vacate the dismissal order . . . and entry by the
District Court . . . of a non-dischargeable judgment in favor of Plaintiffs (or
their assignee), in the amount of Fifteen Million Dollars and Zero Cents
($15,000,000.00), and waives all defenses or objections that might
otherwise be interposed to entry of such judgment except for the truth and
materiality of the matter claimed to be false . . . .
Docket No. 160-1 at 3, ¶ 4. The trustee seeks to reopen the case “for the Court to
consider the Trust’s claims that [defendants’] financial disclosures were materially false,
and to enforce the provisions of the [settlement agreement] triggered by that showing.”
Docket No. 157 at 6. The trustee alleges that defendants’ financial statements were
materially false, as they misrepresented their (a) family holdings, (b) available funds, (c)
trust assets, (d) income, (e) controlling interest in an entity called Nanosphere Health
Sciences, LLC (“Nanosphere”), (f) funding of Nanosphere, (g) non-family transfers, and
(h) employment status. Id. at 3-5.
2

One day before filing this motion, the Trust filed a new civil action against Robert
Sutton, his family members, and related entities. See Centrix Fin. Liquidating Trust v.
Sutton, No. 18-cv-02769-RBJ (“Sutton II”); Docket No. 157-1 (copy of complaint in
Sutton II). The Sutton II complaint alleges that, in July 2018, “the Trust learned that the
financial disclosures the Suttons submitted” at the time of the settlement agreement
“were materially false in virtually every respect.” Docket No. 157-1 at 7, ¶ 62. Plaintif fs
further allege that plaintiffs “created an entirely new network of entities to shield their
assets.” Id. at 2. Plaintiffs represent that at least one purpose of the claims in Sutton II
is “to ensure that all the Sutton entities are within the Court’s jurisdiction to locate
assets wrongfully transferred to avoid judgment.” Id. at 8, ¶ 64. Consequently, in
Sutton II, plaintiffs name as defendants some parties who are not defendants in Sutton
I. Id. at 1.1
II.

LEGAL STANDARD
Relief under Fed. R. Civ. P. 60(b) is “extraordinary and may only be granted in

exceptional circumstances.” Servants of the Paraclete v. Does, 204 F.3d 1005, 1009
(10th Cir. 2000). Under Rule 60(b)(6), the Court may relieve a party or its legal
representative from a final judgment for “any other reason that justifies relief.” Fed. R.
Civ. P. 60(b)(6). Rule 60(b)(6) has been described as a “grand reservoir of equitable
power to do justice in a particular case.” Pierce v. Cook & Co., Inc., 518 F.2d 720, 722
1

The overlapping defendants in both this action and Sutton II are Robert, Julie,
David, and Kate Sutton, the Julie L. Sutton Revocable Trust, and Willison Holdings, Ltd.
There are twenty-one new defendants in Sutton II, based on the initial complaint. See
Docket No. 157-1 at 1. The new defendants are eighteen entities along with three
individuals who plaintiffs allege assist the Suttons in their asset transfers. See id. at 34, ¶¶ 3-27.
3

(10th Cir. 1975) (en banc) (citation omitted). Relief under Rule 60(b)(6) is appropriate
when circumstances are so “unusual or compelling” that extraordinary relief is
warranted or when it “offends justice” to deny such relief. Cashner v. Freedom Stores,
Inc., 98 F.3d 572, 580 (10th Cir. 1996). Courts have granted relief under Rule 60(b)(6)
“when, after entry of judgment, events not contemplated by the moving party render
enforcement of the judgment inequitable,” where a party is indigent, or when it offends
justice to deny such relief. Id. at 579; Yapp v. Excel Corp., 186 F.3d 1222, 1231-32
(10th Cir. 1999). As relevant here, courts have used Rule 60(b)(6) to undo or enforce a
settlement agreement between the parties. See Chief Freight Lines Co. v. Local Union
No. 886, 514 F.2d 572 (10th Cir. 1975); see also 11 Charles Alan Wright & Arthur R.
Miller, Federal Practice & Procedure § 2864 (3d ed.) (noting that courts rely on Rule
60(b)(6) particularly “when the court in dismissing the original case has incorporated the
settlement terms in its order or otherwise retained continuing jurisdiction”).2
III.

ANALYSIS
The Court finds that plaintiffs (the Trust and the trustee) are entitled to relief

under Rule 60(b)(6). As the trustee represents – and def endants do not challenge –
plaintiffs settled this suit “based on [defendants’] representations that they had no
appreciable assets for [p]laintiff[s] to pursue.” See Docket No. 157 at 2. In the
settlement agreement, the parties agreed that the Court would retain jurisdiction to set
2

In Chief Freight Lines, the district court dismissed the action without prejudice
when the parties filed a stipulated withdrawal of the action and agreed to proceed to
arbitration. 514 F.2d at 575. After a dispute arose in the arbitration proceeding, the
district court reopened the action, relying on Fed. R. Civ. P. 60(b)(6). Id. at 576. The
Tenth Circuit affirmed, rejecting appellants’ argument that “the [c]ourt could not reopen
a case that had been previously dismissed without prejudice.” Id.
4

aside the dismissal and enforce a liquidated damages judgment in favor of plaintiffs if
the Court found that defendants’ financial disclosures were “materially false in any
respect.” See Docket No. 160-1 at 3, ¶ 4. Plaintiffs have alleged facts that, if proven,
would demonstrate that defendants’ financial disclosures were “materially false.” See
Docket No. 157 at 3-5, Docket No. 157-1 at 7-8, ¶¶ 57-64.
Defendants argue that two legal doctrines compel the Court to deny plaintiffs’
motion: the doctrine of election of remedies and the first-to-file rule. Docket No. 160.
Neither argument is persuasive.
First, defendants argue that recovery for plaintiffs in this action would implicate
the election of remedies doctrine. Docket No. 160 at 4-5. Defendants contend that, by
filing a suit against similar defendants in Sutton II, plaintiffs have “elected actual
damages” and are consequently “estopped from seeking to reopen this case.” Id. at 5.
The election of remedies doctrine exists in Colorado to prevent a plaintiff from
recovering twice for the same wrong, Stewart v. Blanning, 677 P.2d 1382, 1383-84
(Colo. App. 1984), to prevent jury confusion and promote judicial efficiency, Kline Hotel
Partners v. Aircoa Equity Interests, Inc., 729 F.Supp. 740, 743 (D. Colo. 1990), and to
preclude the assertion of mutually inconsistent remedial theories on the same set of
facts, Kalish v. Brice, 315 P.2d 829, 831 (Colo. 1957). 3 “Election of remedies is a harsh
doctrine which should not be unduly extended.” Stewart, 677 P.2d at 1383.
3

Colorado law governs the settlement agreement through a choice-of-law
clause. Docket No. 160-1 at 5, ¶ 10. As both parties assum e that Colorado’s election
of remedies doctrine applies, the Court proceeds under the sam e assumption. Cf.
Grynberg v. Total S.A., 538 F.3d 1336, 1346 (10th Cir. 2008) (“Because the parties’
arguments assume that Colorado law applies, we will proceed under the same
assumption.”).
5

The Court finds that defendants have failed to show that the doctrine of election
of remedies should be invoked. See Donner v. Nicklaus, 778 F.3d 857, 876 (10th Cir.
2015) (“An election of remedies is an affirmative defense.” (citing Kuhl v. Hayes, 212
F.2d 37, 39 (10th Cir. 1954)). The Court is not convinced that plaintiffs filing a parallel
lawsuit is equivalent to an immediate election of remedies that would bar plaintiffs from
seeking liquidated damages in this action. Cf. Kline Hotel, 729 F. Supp at 743 (trial
judge has discretion as to when to require plaintiff to elect a remedy). Moreover,
defendants have not shown that “the remedies sought [by plaintiff] are inconsistent and
contradictory.” See Lakeside Ventures, LLC v. Lakeside Dev. Co., 68 P.3d 516, 519
(Colo. App. 2002). Plaintiffs’ theory in this motion is that defendants hid their assets in
order to appear judgment-proof, inducing plaintiffs to settle their claims. In their initial
complaint in Sutton II, plaintiffs represent that the case is brought “to untangle the
[asset-shielding] scheme and to name [new] [d]efendants who conspired . . . to hide
tens of millions of dollars in assets.” Docket No. 157-1 at 2. Sutton II implicates neither
the same set of defendants nor the same claims as this case – in other words, plaintiffs
seek a remedy for a different wrong in each case.
Defendants cite Ravenstar, LLC v. One Ski Hill Place, LLC, 401 P.3d 552, 556
(Colo. 2017), for the proposition that “a party with an option to pursue liquidated
damages or actual damages must elect between the two remedies.” Docket No. 160 at
5. In Ravenstar, the contract between the parties gave the non-breaching party the
option to pursue either liquidated or actual damages, consistent with the principle that a
party may not both accept the benefit of and renounce a contract. See Ravenstar, 401

6

P.3d at 556 n.3 (citing 24 Richard A. Lord, Williston on Contracts § 65:32 (4th ed.
2002)). In contrast, the settlement agreement contains only a liquidated damages
provision. See Docket No. 160-1 at 3. Ravenstar did not involve a situation where, as
here, the non-breaching party sought actual damages against non-parties to the
contract. Defendants offer no explanation why filing a lawsuit in pursuit of actual
damages from non-parties to the settlement agreement in Sutton II would bar plaintiffs
from seeking liquidated damages from the settlement agreement in this case.
Therefore, at this stage, defendants have not shown that there is a basis for invoking
election of remedies to bar plaintiffs from proceeding in this action.4
Second, defendants argue that the “first-to-file” rule bars the Court from
reopening this case. Docket No. 160 at 6-7. The first-to-file rule applies “when two
district courts have jurisdiction over the same controversy, affording deference to the
first filed lawsuit.” Lipari v. U.S. Bancorp NA, 345 F. App’x 315, 317 (10th Cir. 2009)
(unpublished); see also Hospah Coal Co. v. Chaco Energy Co., 673 F.2d 1161, 1163
(10th Cir. 1982) (recognizing general rule that “when two courts have concurrent
jurisdiction, the first court in which jurisdiction attaches has priority to consider the
case”). The rule is a discretionary doctrine, resting on “principles of comity and sound
judicial administration” and is concerned with avoiding duplicative litigation, rulings
which impinge on the authority of sister courts, and piecemeal litigation. Cadle Co v.
4

By this ruling, the Court does not foreclose defendants from asserting election
of remedies at a later date, when this case and Sutton II are more thoroughly
developed and the possibility of duplicative recovery is clearer. The Court notes that
election of remedies does not apply “when an offset in the amount of the final judgment
will prevent a double recovery.” See Singer v. Strauss, 851 P.2d 256, 258 (Colo. App.
1993).
7

Whataburger of Alice, Inc., 174 F.3d 599, 603 (5th Cir. 1999). As a result, “when
related cases are pending before two federal courts, the court in which the case was
last filed may refuse to hear it if the issues raised by the cases substantially overlap.”
Id.; accord Cherokee Nation v. Nash, 724 F. Supp. 2d 1159, 1165 (N.D. Okla. 2010).
Courts generally hold that the threshold determination under the first-to-file rule requires
analysis of three considerations: “(1) the chronology of events; (2) the similarity of the
parties involved; and (3) the similarity of the issues or claims at stake.” Wakaya
Perfection, LLC v. Youngevity Int’l, Inc., 910 F.3d 1118, 1124 (10th Cir. 2018) (citing
Baatz v. Columbia Gas Transmission, LLC, 814 F.3d 785, 789 (6th Cir. 2016)).
The Tenth Circuit does not appear to have directly considered the appropriate
roles of the first-filed and second-filed courts in applying the first-to-file rule. Courts
confronted with the issue have suggested that the proper course is for the second-filed
court to make the initial determination of whether the two actions substantially overlap.
See Nash, 724 F. Supp. 2d at 1166 (citing Cadle, 174 F.3d at 605). If a second-filed
court decides that question in the affirmative, it may stay the case, transfer it to the firstfiled court, or, in rare cases, dismiss the case entirely; it then falls to the first-filed court
“to determine whether subsequently filed cases involving substantially similar issues
should proceed.” Cadle, 174 F.3d at 606 (quotations omitted); see also Nash, 724 F.
Supp. 2d at 1167 (“This general rule of deference includes deferring to first-filed courts
for the application of any equitable exceptions to the first-to-file rule, once the
second-filed court has determined that there is sufficient overlap between the two
cases.”). The Court finds this approach prudent and consistent with the principles of

8

comity and proper judicial administration. See Crocs, Inc. v. Cheng’s Enters., Inc., No.
06-cv-00605-PAB-KMT, 2015 WL 5547389 at * 3 (D. Colo. Sept. 21, 2015) (adopting
this approach and collecting cases).
Defendants argue for the application of the first-to-file bar here based on the
novel argument that this case is the second-filed action and Sutton II is, in fact, the firstfiled action. See Docket No. 160 at 7. Defendants arrive at this conclusion by using
October 30, 2018 – the date the instant m otion was filed – as the date this litigation was
“filed.” See id. For purposes of the first-to-file rule, jurisdiction “relates back to the filing
of the complaint.” See Hospah Coal, 673 F.2d at 1163; Wakaya Perfection, 910 F.3d at
1126 (analyzing Hospah Coal and affirming that the comparison for concurrent cases is
“the date that the complaint was filed”). This action was filed on January 16, 2009,
more than ten years before Sutton II. See Docket No. 1. Accordingly, this is the firstfiled action, and the Court will not apply the first-to-file rule to bar the trustee from
reopening this case.
IV.

CONCLUSION
The trustee has shown good cause to reopen this matter for the purpose

described in the Trust’s motion.5 Therefore, it is
ORDERED that the Motion to Set Aside Dismissal and Reopen Case [Docket

5

Defendants seek attorneys’ fees pursuant to 28 U.S.C. § 1927 on the grounds
that plaintiffs “willfully, recklessly, unreasonably, vexatiously, and in bad faith multiplied
the proceedings.” Docket No. 160 at 8. Defendants’ motion is not compliant with the
Local Rules. See D.C.COLO.LCivR 7.1(d) (“A motion shall not be included in a
response . . . to the original motion.”). Even if the motion were properly made,
defendants have failed to show that plaintiffs’ conduct “multiplie[d] the proceedings . . .
unreasonably and vexatiously,” as § 1927 requires.
9

No. 157] filed by plaintiff Jeffrey A. Weinman, as trustee of plaintiff Centrix Financial
Liquidating Trust, is GRANTED. It is further
ORDERED that, pursuant to Fed. R. Civ. P. 60(b)(6), the Court’s order
dismissing the case [Docket No. 146] is vacated and this case is reopened. It is further
ORDERED that plaintiffs shall, no later than October 21, 2019, f ile a motion to
enforce the settlement agreement, or the Court’s order dismissing the case will be
reinstated and the case will be administratively closed.

DATED September 6, 2019.
BY THE COURT:

s/Philip A. Brimmer
PHILIP A. BRIMMER
Chief United States District Judge

10