Petition for Writ of Certiorari — Peat Marwick Main & Co. v. Tew, 108 S. Ct. 2822 (1988) (No. 87-1727)

Y-1727 | Finer

No. APR 18 1968

inlet

| JOSE F SPAMAL.

IN THE CLERK

rt of the United States

OBER TERM, 1987

i

ARWICK MAIN & CO.,

Petitioner,

THOMAS TEW,

R ESM GROUP, INC.., ef al.,

Respondent.

. A WRIT OF CERTIORARI

STATES COURT OF APPEALS

ELEVENTH CIRCUIT

PHILIP A. LACOVARA

Counsel of Record

HUGHES HUBBARD & REED

1201 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

(202) 626-6200

VICTOR M. EARLE, III

CAHILL GORDON & REINDEI

2. 80 Pine Street

New York, New York 10005

) (212) 701-3000

“nter

ird

the court

sin as sf Br

ng clause of Rule

1 the court’’ where

“¢ ] : : J > } > ] >

falsifiea evidence

ment?

up, Inc., and its wholly-

Government Securities,

ial Group, Inc.

ill

TABLE OF CONTENTS

SPE SEEN oc ck cca cn castes enscccssseeces:

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BTA CeIn OF TRIG CASE... 2. esc cece sceccccce

REASONS FOR GRANTING THE WRIT .........

I. This Latest Circuit Conflict Over An Histor

cally Divisive Issue Requires Resolution By T}

Il. The Harsh Limitation Imposed by the Court |

Appeals on the Third Saving Clause of Ru

60(b) Conflicts with a Leading Decision of tk

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EE GS Naka Shen awnsncsencnaseencnsscnccss

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PAGE

Law Reviews

Comment, Rule 60(b): Survey and Proposal for General

Reform, 60 Calif. L. Rev. 531 (1972) .......-.-+..-. 9, 12

Note, Attacking Fraudulently Obtained Judgments in the

Federal Courts, 48 lowa L. Rev. 398 (1963)......... 11

Note, Federal Rule 60(b): Relief from Civil Judgments,

Gi Vale 1... 5. FO Cis ae ak nc cs tuc ace nntn canescens 8

Rules

ABA Model Code of Professional Responsibility

Cee 8 nce ede Ghee bese ee heee ees eae 14

de > acne Par err ery ey 14

ee a cca k bah ban 64S k wee 4A aE OEE 14

ED ooo ic cad CARRS ES O6AMSAD CORRES ORES ESSELTE: 14

oy er ere ee ann eye ery 14

Fe in ck cc cus0ncaeesscenesegu<eeeesess 14, 14n

ABA Model Rules of Professional Conduct

OS 2 Per errr mpm e rr ria Tuy ey 15n

SS PET Tee ETP TeeT ETT Terr ore TTT ert. 15n

Federal Rules of Civil Procedure

Rule BITIII ona cc cece nsnccenencesesscdsccens 4

he OD nck oon kc sdb oencaesastencsaek<sesnasens passim

Florida Rule of Appellate Procedure 9.030{a) .......-.- 3

Statute

ta

Judicial Code 28 U.S.C. § 1254(1) (1982) .......-----

lreatises

Other At

\dvisory

IN THI

me Court of the United States

OCTOBER TERM, 1987

No.

-

PEAT MARWICK MAIN & (¢

\

THOMAS TEW,

ECEIVER FOR ESM GROUP, INC., ef ¢

ry ,

cmnnmeaant

Kesponde

TION FOR A WRIT OF CERTIORARI

‘ UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

———___—_—_—_—_—_—_<#>_._—_—

‘wick Main & Co. (formerly Peat, Marwick, Mitch-

espectfully petitions for a writ of certiorari to review

nt and opinion of the United States Court of Ap-

e Eleventh Circuit in this case

OPINIONS BELOW

ion of the court of appeals (App. A, infra, 1a-Sa) 1s

835 F.2d 270. The opinion and order of the United

‘ict Court for the Southern District of Florida (Gon

) (App. B, infra, 9a-18a) is not reported

Mistakes: Inadve

covered Evidence: Frauc

upon which

iS no ions

lave prospective appilca

f from the operatior

1€ irom the Operatic

a % sthraonm re nm hile

WiLn1In reas¢ nat it

by 52 We

inan one yeal

was entered or take

tinal

hy rile > Tari

mis Truie Goes Nol

smAeananAant art

lnae penaent ar

proceeding, Or

;

;

‘

. re \ " .

eview ir¢ 2 0) » ~ \ i

rat tram jome } . .

it Tl a }UCKII el > , .

> 7 my 7 =)

es Oo ’ il naepenae! i

OF THE CASE

: government securities. ESM al

it loss, separate from its trading

Marwick’s accountants repo!

he financial statem

;

4

. \ ’

ents ol WW uv S,

ict in 1983 of approximately $4.5

nitive damages, was affirmed by

ourt of Appeal without opinion

*r appeal to the Supreme Court ol

ce without opinion by an interme

ia Rule of Appellate Procedut

984 Peat Marwick paid the judg

a total of nearly $$ million. App

= ‘a +} — . . theo

months after the jury veraict, tne

mission filed an injunction action

ust ESM and its affiliated compa

laced into receivership by order of

‘he respondent was appointed Re

issive 10 year-long fraud gradually

| story. ESM was never profitable,

roughout its existence. It received

ports on its financial statements

ors, Alexander Grant & Co., only

,

it firm’s audit engagement partner

. } 7 l ¢s -

sentenced to a substantial term u

]

*, > | jel , 1} ‘tor a 7 . ,

»ficiency when finally uncovered

million. The three ESM principals

4

are all presently incarcerated having received lengthy sentences.

App. 25a-26a.’

On December 23, 1985, Peat Marwick filed this independent

action under Ruie 60(b) by way of a proof of claim in the dis-

trict court below, which sought recovery of the amount paid in

satisfaction of the judgment along with the interest and costs.

App. 21la-29a. It alleged that one feature of the fraud later un-

covered by the SEC action had been the 1983 state court trial

and pre-trial proceedings. Specifically, it alleged that two of

ESM’s principals, with their attorney’s knowing involvement,

perjured themselves at trial when they asserted they had relied

on the Wuv’s audited financial statements (which included a

significant related-party transaction), and that ESM’s attorney

knowingly produced false financial statements in response to a

discovery demand and knowingly withheld other responsive

records. App. 26a-28a.

Treating the proof of claim as a complaint and respondent’s

objection to it as a motion under Fed. R. Civ. P. 12(b)(6), the

district court dismissed. The court found the allegations did

‘*not constitute extrinsic fraud or ‘fraud upon the court,’ which

is the only species of fraud that would entitle it’’ to relief from

the earlier judgment ‘‘more than one year after it was entered.’”’

App. 12a.

The court of appeals affirmed, concluding that ESM’s fraud

‘‘had nothing to do with the negligent audit for which Peat

Marwick was found liable’’ and that the trial attorney’s knowl-

edge and concealment of the fraud did not amount to ‘‘fraud

on the court.’’ App. Sa, 7a.

l ESM’s principals caused the ever-increasing losses of ESM Govern-

ment Securities, Inc. to be reflected on the books of an affiliate, ESM

Financial Group, Inc., while cash for operations of the former com-

pany was obtained from investors who were misled into believing that

the company was sound. An intercompany account was created to re-

flect a payable from ESM Financial Group, Inc. to ESM Group, Inc.

By accruals of interest on this ‘‘payable,’’ the latter company was

made to appear profitable until! the very end. In fact, all of the compa-

nies had been insolvent since 1980, if not before. App. 25a.

REASONS FOR GRANTING THE WRIT

'the past 14 months, the Third and Eleventh Circuits

ndered sharply conflicting answers to the first question

ed, one that has bedeviled the courts since 1948. The

Circuit permitted an independent action for relief from

ier judgment on grounds of ordinary fraud practiced by

rty upon the other. The Eleventh Circuit denied relief, ef-

ly limiting authority for the independent action to an ex-

nary degree of ‘‘fraud upon the court’’ beyond even that

orned perjury.

I.

atest Circuit Conflict Over An Historically Divisive Issue

Requires Resolution By The Court.

[The decision below—that only ‘‘extrinsic fraud’’ or

1 on the court’’ will justify an independent action under

0(b)—flatly contradicts a contemporaneous decision of

ird Circuit, Averbach v. Rival Manufacturing Co., 809

016 (1987), holding that an independent action will lie for

isic fraud’’ between the parties (a false answer to an in-

tory). While a current and palpable conflict between two

s is traditionally a ground for the Court’s review, what is

e here is more than that. It is the latest manifestation of a

t that has divided the federal and state courts for over

indred years, originating in United States v. Throckmor-

3 U.S. 61 (1878), which was apparently but not explicitly

led by Marshall v. Holmes, 141 U.S. 589 (1891).

1 the adoption of the Federal Rules of Civil Procedure,

specially the 1946 amendment to Rule 60(b), it was

it that the ‘‘extrinsic’’-‘‘intrinsic’’ distinction had been

1ed, at least for the federal courts. But because of a tex-

lirk, the distinction persists and has even divided the lead-

nolars on federal practice, with Professors Moore and

6

side and Professors Wright and Miller on the

n began in 1878, when the United States sought

ar-old decree which had been obtained by means

instrument and perjured testimony. The Court

on observed that equitable belief could only lie

trinsic or collateral,’’ to the matter tried by the

J.S. at 68. In 1891, the Court in Marshall osten-

with Throckmorton by stating precisely to the

_ forged instrument and false testimony would

cause of Marshall’s vague reference to Throck-

S. at 596, the intrinsic-extrinsic distinction and

parities of treatment continued. They continued

<ample, the Seventh Circuit’s unsuccessful at-

to certify the vexing question to the Court,

ot, 162 U.S. 435) until 1948 when amended Rule

ffective. And then they continued in the face of

» the Advisory Committee, the amendment to

1its, either by motion brought within one year of

or by independent action, relief from a prior

ounds of fraud. But, while that part of the Rule

2lief by motion defines fraud broadly, ‘‘whether

ominated intrinsic or extrinsic,’’ Rule 60(b)(3),

clause providing for an independent action after

of one year is otherwise silent. The Advisory

ed, however, that, in addition to its express au-

f by motion, fraud may also be urged as a basis

lependent action ‘‘insofar as established doctrine

R.D. 433, 479 (1946). The third and concluding

authorizes relief in cases of ‘‘fraud upon the

ey join in condemning the distinction; the former conclude

view engrafts it upon the Rule, the latter not. Compare 7

J. Lucas, Moore’s Federal Practice 4 60.37 (2d ed. 1987)

Vright & A. Miller, Federal Practice and Procedure § 2868

Thus, th

three categ

only proces

relief. Chie

opinion:

‘“Neit

perm

actior

distin

1021.

Nonethe

including

‘*extrinsic

has elapse

ally by e

court,’’ ev

is in the di

relief. Th

fraud in its various manifestations has

Rule 60(b), the first two distinguished

e third describing a distinct ground for

pons makes this clear in his Averbach

yf Rule 60(b) nor its legislative history

ion which would limit an independent

m a judgment to ‘fraud on the court’ as

fraud of some other sort.’’ 809 F.2d at

rity of courts over the ensuing 40 years,

the one below, has reintroduced the

rement whenever more than one year

e of judgment. They have done so usu-

insic fraud’’ with ‘‘fraud upon the

final saving clause embracing the latter

Jescribes an entirely discrete ground for

used on the so-called ‘‘fraud on the

ile 60(b) does not distinguish between motions

ns for fraud except that the former must be

yurt within one year and the latter are limited

es of limitations, Judge Gibbons added:

ably ask what was the purpose of the drafters in

(1), (2) and (3) motions to a one year time limit

stantive time bar. The answer, as is so often the

il Rules of Civil Procedure, lies in the former

ir adoption, there were terms of court, and cer-

ethods of obtaining relief from judgments were

ilable after the expiration of the term at which

itered. E.g., United States v. Mayer, 235 U.S.

nm both the terms of court and the common law

i, the time limit with respect to some motion

rmer common law writs was substituted. See 11

ler, Federal Practice and Procedure § 2866, at

der the old practice, however, the expiration of

id no effect upon the timeliness of an indepen-

f from judgment. The rule carries forward this

e¢ motion procedure is subject to a one year

ot apply to the independent action for fraud.’

Id.

in Hazel-Atlas Glass Co. v.

38 (1944), which held that a

r to set aside a judgment ob-

‘he presence of laches or lack

d to the attention of the court

Marshall v. Holmes.* Judge

presumably in light of Elev-

arlier Fifth Circuit decisions,

fanufacturing Co., 320 F.2d

he extrinsic-intrinsic dichot-

w relied on and quoted from

2, 761 F.2d 1549 (11th Cir.

d the independent action to

tt below purported to eschew

rinsic dilemma altogether, it

ning that has perpetuated the

hose bringing independent

>eat Marwick’s allegations of

in the fraud were effectively

2 type of fraud which the liti-

ot prevent a party from gain-

of justice.’’ App. 6a.

d forward a long and tortured

ced a host of unjust results.

>d how manipulative courts

See, e.g., Note, Federal Rule

nts, 61 Yale L.J. 76, 77 n.4

courts has been the desire for

iginally in Throckmorton, of

earlier Third Circuit opinion,

n rebuttal: ‘‘We believe truth

nsic’ distinction which is based on a

»ckmorton . . . was overruled, if it

Holmes. . . .’’ Averbach v. Rival

2d at 1022.

is more important than the tr

v. Shallcross, 106 F.2d 949, 9

U.S. 624 (1940). As Justice |

‘‘For these reasons we a

ity to attempt a distinct

matter.’. . . Plainly, tl

gation is the lesser evil

321, 330, 88 A.2d 20:

Moore).

Since 1948, the theoretical

quirement has been the text

text obliterates any differen

Court should grant certiora1

cuit’s explication of Rule 60

least to end this Sisyphean «

sion is enough.

B. ‘‘The perpetuation of

has led the federal courts i

cause the distinction is unnec

tially productive of injustice:

finality.” Comment, Rule 61

eral Reform, 60 Calif. L. Re

tion echoes what has been

commentators for nearly ac

the British courts, e.g., Cole

the Canadian, Johnston v. |

1905), along with the minori

ject the distinction. A simil

into amended Rule 60(b)(3)

now confined in the federal «

the saving clause.

Because fraud is inherent]

ten occur, if at all, more thé

why the independent action

dent action to ‘‘extrinsic fra

eral courts since 1948 has r

—— ————————

it.”’ Publicker

rt. denied, 308

rney into futil-

ic and intrinsic

f vexatious liti-

aimmas, 9 N.J.

ting Professor

rinsic fraud re-

ough that very

sic fraud. The

the Third Cir-

if not that, at

rears of confu-

sic distinction

onsistency, be-

nal, and poten-

the interests of

oposal for Gen-

hat condemna-

ble courts and

ng rationale led

2 Q.B. 36, and

724 (Ont. C.A.

al courts, to re-

ifically written

persists, albeit

t actions under

iscovery will of-

dgment. That is

ajority of fed-

the discredited

nts of

iple:

rwick

ust 15

id be-

ijunc-

intary

what

court.

yn un-

1s evi-

which

cipals

ancial

duced

he re-

know-

Ives at

‘orney

udited

aterial

ie per-

to the

tions,

Conley

1inst a

urities

de de-

r $300

aid to

g firm

result,

1]

The district court simply classified all of this a

fraud’’ and dismissed. App. 12a-18a. The court of a

a more elliptical tack. First, it pointed to the truism

fraud had nothing to do with Peat Marwick’s audit

issue in the state trial. Ignoring the Rule 60(b) alleg:

ing to reliance and lack of auditor independence,

that ESM’s fraud did not prevent Peat Marwick fro

ing a defense to the negligence claim, because the f

only have been introduced to attack the credibilit

witnesses. Despite this obvious impact on the inte

fact-finding process and on the core issue of relian

claim, the court of appeals concluded that fraud |

parties, for example, the perjury of ESM’s princ

nesses’) and its outside auditor (‘‘accountants’

raised within one year of judgment, and that the a!

attorney involvement, ‘‘even if true . . . do nc

fraud on the court.’’ App. 5a-7a.

The foregoing reasoning is illustrative of that exp

long line of opinions requiring proof of ‘‘extrinsic

Note, Attacking Fraudulently Obtained Judgment:

eral Courts, 48 lowa L. Rev. 398, 408-09 (1963). It

only a craving for finality, but insistence upon a dé

gence that is impossible to meet. For example, in P

91 Cal. 129, 134, 25 P. 970, 971 (1891), one of the |

cases, where the only (and thus crucial) witness to

tion in question had been paid for his perjury, th

that the losing party must somehow be prepared *'

expose perjury then and there,’’ that is, at the firs

trial is his opportunity for making the truth appear

guage is almost identical to what the court of appe«

‘‘This is the type of fraud which the litigants sho

.... App. 6a.

5 The court also alluded to Peat Marwick’s negligence

basis of the state court judgment. App. Sa, 7a. But th

subject matter of the trial with the post-judgment dilige

attempting to uncover the fraud. Cf. Hazel-Atlas

Hartford-Empire Co., supra, 322 U.S. at 246. Even

counting firm is entitled to an untainted trial.

\f

v

13

Hartford-Empire Co., supra, it disserves important interests of

the judiciary and the legal profession.

The most shocking aspect of the opinion below is its treat-

ment of the attorney’s role and its implicit view of the adversary

system. Its attempt to distinguish Hazel-Atlas is illustrative.

The attorney for Hartford in that case had written an article

that was published under the name of an expert and then relied

on in a patent application and later infringment suit. Justice

Biack, writing for the majority 12 years later, found that to be

‘fraud on the court” warranting relief. Although subornation

of perjury is presumably worse, the court of appeals stated

nonetheless that even if ESM’s attorney ‘‘knew of ESM’s secu-

rities fraud, [it] did not have the same impact [as the conduct of

the Hartford attorney] on the judicial system.’’ App. 7a. The

attorney’s knowledge in the present case, it must be remem-

bered, encompassed what was probably the largest securites

fraud in our history, and Peat Marwick’s allegations in any

event went beyond knowledge to participation by virtue of his

conduct during discovery and trial.

As for Peat Marwick’s other specific allegations, that the at-

torney knowingly produced false documents and knowingly

proffered the perjured testimony of his clients, the court of ap-

peals was equally cavalier:

‘‘They show that ESM’s attorney may have known of po-

tential defenses available to Peat Marwick, but this is not

fraud on the court. Kerwit Medical Prods., Inc. v. N& H

Instruments, Inc., 616 F.2d 833, 387 (Sth Cir. 1980). An

attorney is expected to present his client’s case in the light

most favorable to the client and he has no duty to inform

the opposing party of potential defenses. Id.’’ App. 6a-

Ta.’

7 Apparently the court believed that petitioner was only deprived of its

ability to impeach ESM’s principals. (Indeed, had the judge and jury

been able to discern by means of such impeachment that a massive

fraud was occurring before their very eyes, no doubt the trial would

have abruptly ended.) But much more than that was involved. Two of

FSM’s three principals testified falsely that they relied on the Wuv’s

that standard in the conduct of a case he perpetrates

ud upon the court.’’ 7 Moore’s Federal Practice, su-

q 60:33, at 60-359 (footnote omitted).°

\damental flaw in the approach taken by the court ol

as its willingness to disregard the universally recog-

fessional duty mot to mislead the court in representing

hat duty is a better guide to what constitutes ‘‘fraud

court’’ under Rule 60(b) than the indulgent charter

y the court of appeals.

inions below are reminiscent of Justice Roberts’s dis-

azel-Atlas, where relitigation was described with ab-

and United States v. Throckmorton with approval

at 261 n.18. Justice Black’s opinion for the majority,

st, emphasized ‘‘the integrity of the judicial process,”

at 246, in overriding the term rule whose modern

irt is the 12-month limitation on certain motions un

60(b):

Equitable relief . . . is a judicially devised remedy

ioned to relieve hardships which, from time to time,

. from a hard and fast adherence to another court-

e rule, the general rule that judgments should not be

irbed after the term of their entry has expired. Created

e new ABA Model Rules of Professional Conduct are equally in

1t that trial counsel has duties to the judicial process that tran

| his client’s interest in winning

e 3.3 Candor Toward the Tribunal

A lawyer shall not knowingly

(4) offer evidence that the lawyer knows to be false

le 3.4 Fairness to Opposing Party and Counsel

awver shall not

a) unlawfully obstruct another party's access lo evidence

yfully alter, destroy or conceal a document having

identiary value

bh) falsify evidence, counsel or assist a witness to testily faise:

to mee

intervention, an

* @¢h ~ oteh

_r

LLAX Palit ul

;

tro

Lh CAN

INCLUSION

eh » +<* + - + . +. .

S, this petion fOr a WT Ol certulorar§®l

> . 1) }

Respectfully submitted,

PHILIP A. LACOVARA

Counsel oj Record

HUGHES HUBBARD & REED

1201 Pennsylvania Avenue, N.W

Washington, D.C. 20004

(202) 626-6200

VicTOR M. EARLE, Ill

CAHILL GORDON & REINDEI

80 Pine Street

New York, New York 10005

(212) 701-3000

& Co.

[0055

VNS

al Center

ulevard

395

APPENDICES

Befo

;

Southerr

la

APPENDIX A

TES COURT OF APPEALS,

LEVENTH CIRCUIT.

Jan. 7, 1988.

No. 86-5958.

ae

& EXCHANGE COMMISSION,

Plaintiff,

VS.

I GROUP, INC., et al.,

Defendant-Appellee,

RWICK, MITCHELL AND CoO.,

Claimant-A ppellant.

- >

‘United States District Court for the

ern District of Florida.

i

id ANDERSON, Circuit Judges,

NS*, Senior District Judge.

>

de Atkins, Senior U.S. District Judge for the

a, sitting by designation.

district court’s dismissal of a

ck, Mitchell and Co. (‘‘Peat

up, Inc. (‘‘ESM’’). ESM has

on the request of the Securities

“SEC’’). In its claim, Peat

strict court set aside a Florida

1inst it on the grounds that the

ined. The district court denied

dgment and dismissed its claim

f action under Fed.R.Civ.P.

ed Peat Marwick in a Florida

»at Marwick had been ‘‘grossly

yf audited financial statements

‘Wuv’s’’), a company in which

yn. ESM asserted that it had in-

wick’s ‘‘unqualified’’ audit re-

ise Wuv’s was not a ‘“‘going

d have rendered a ‘‘qualified’’

‘ial statements.

it was awarded approximately

mpensatory damages, punitive

- was entered on January 18,

rt of Appeal affirmed without

|. Therefore, no appeal to the

ssible. Peat Marwick paid the

vember 29, 1984.

n months after the judgment

ed States District Court for the

ced the ESM companies into re-

ered a massive securities fraud

ppearances to the contrary, the

fitable and, at the time that the

fraud was discovered, the

deficit in excess of $300 mi

Following revelation of |

its claim against ESM, req

judgment ESM had obtain

state court. Peat Marwick

conduct of the 1984 trial.

that ESM’s attorney helpe«

Peat Marwick argued that,

had nothing to do with Pez

a fair trial because of ESN

The district court deniec

state court judgment. Th

‘Proof of Claim’”’ and its

constitute fraud on the cor

a basis for relief from a jt

prior to the motion for re

Peat Marwick contend:

missing its claim for failur

ble relief from the state

treated Peat Marwick’s ¢

standard. When reviewing

12(b)(6), we take all alles

proof of claim to be well-

testing the sufficiency of

Food Machinery & Chem

S.Ct. 347, 348-49, 15 L.E

preme Court has stated th

the sufficiency of a comp

be dismissed for failure tc

doubt that the plaintiff c:

his claim which would en

355 U.S. 41, 45-46, 78 S.

Shopper, Inc. v. Georgia

(11th Cir. 1986) (quoting

ad a cumulative

at Marwick filed

the $4.9 million

urwick in Florida

fraud in ESM’s

Marwick alleged

‘tuate that fraud.

s securities fraud

it did not receive

ef from the 1984

Peat Marwick’s

proven, did not

ould not provide

re nan one year

llowed.

ourt erred in dis-

action for equita-

he district court

R.Civ.P. 12(b)(6)

} pursuant to Rule

at Marwick in its

r the purposes of

rocess Equip. Vv.

}. 172, 174-75, 86

addition, the Su-

e’’ for appraising

plaint should not

it appears beyond

acts in support of

onley v. Gibson,

0 (1957); Tiftarea

.2d 1115, 1117-18

<r

dught to

irt judg-

P. 60(b).

relieve a

the fol-

denomi-

or other

shall be

(1), (2),

t, order,

a federal

rty from

1e court.

itil more

seek re-

ends that

‘ithin the

does not

i that the

90d con-

e alleged

ded; (3)

ied Fla.R.

1e issues in

; “savings

irt’s power

irty’s inde-

no conse-

ie. Because

ate a claim

cide which

d.R.Civ.P.

well.

Sa

fraud, accident, or mistake which prevented

in the judgment from obtaining the benefit

(4) the absence of fault or negligence on the

dant; and (5) the absence of any adequate 1

Bankers Mortgage Co. v. United States, 423 F.

Cir.), cert. denied, 399 U.S. 927, 90 S.Ct. 2242, 2

(1970) (quoting National Surety Co. v. State Bar

599 (8th Cir. 1903)).

In the case at bar, Peat Marwick cannot est

ments necessary to maintain an independent act!

which it asserts tainted the outcome of the state

nothing to do with the negligent audit for which

was found liable. Peat Marwick did not have

ESM’s cause of action for negligence which it

from establishing because of ESM’s fraud. Rathe

rities fraud would have been introduced only to é

ibility of ESM’s witnesses. Thus, the second and

of an independent action do not exist here. N

Marwick cannot establish the fourth element c

dent action, which requires the claimant to be fre

negligence, because it was negligent in the prepal

dit report. This negligence was the basis of the st

ment. Therefore, because Peat Marwick has no

that it can maintain an independent action,’ it r

there was fraud on the court in order to obtain r¢

ment. See Fed.R.Civ.P. 60(b).

Traveler’s Indemnity Co. v. Gore, 761 F.2d

1985) (per curiam) (affirmed on opinion of dist

fines ‘‘fraud on the court’’ as:

embrac[ing] only that species of fraud wh

tempts to, defile the court itself, or is a fri

by officers of the court so that the judicial

not perform in the usual manner its impal

2 Because Peat Marwick has not set forth the elem

dent action, we do not decide whether its claim establis

‘intrinsic’ fraud, nor do we discuss the type of fraud af

obtain relief from judgment.

Ta

have known of potential defenses available to Peat Marwick,

but this is not fraud on the court. Kerwit Medical Prods., Inc.

vy. N& H Instruments, Inc., 616 F.2d 833, 837 (Sth Cir. 1980).

An attorney is expected to present his client’s case in the light

most favorable to the client and he has no duty to inform the

opposing party of potential defenses. Jd.

Under certain circumstances, attorney misconduct may con-

stitute fraud on the court. See Hazel-Atlas, 322 U.S. 238, 64

S.Ct. 997. However, Hazel-Atlas is distinguishable from the in-

stant case because the attorney in that case was a direct partici-

pant in a deliberate plan conceived for the purpose of

defrauding the opposing party, the patent office and the Court

of Appeals.

In Hazel-Atlas, an attorney had written an article extolling

the virtues of a patented process for ‘‘glass pouring’’ and he

had convinced a supposedly unbiased expert in the field to sign

the article as the author. The attorney then relied on the article

as authority in his arguments to the Third Circuit in a patent in-

fringement action. Jd. at 240-41, 64 S.Ct. at 998-99. The Su-

preme Court concluded that this conduct amounted to a

‘‘wrong against the institutions set up to protect and safeguard

the public.” Jd. at 246, 64 S.Ct. at 1001.

By comparison, ESM’s attorney, even if he knew of ESM’s

securities fraud, did not have the same impact on the judicial

system. Peat Marwick does not allege that ESM’s counsel aided

in the securities fraud which is the underlying reason Peat

Marwick seeks relief from judgment. Moreover, the securities

fraud was a separate issue from Peat Marwick’s ‘‘grossly negli-

gent’’ audit which was the focus of the state trial. At best, Peat

Marwick’s allegations against ESM’s attorney amount to a fail-

ure to disclose information which would have been helpful in

Peat Marwick’s defense. This does not constitute fraud on the

court. The fraud alleged here went strictly to the credibility of

witnesses, not to any miscarriage of justice.

In sum, the district court examined Peat Marwick’s claim and

allegations closely and, after oral argument, determined that

Peat Marwick’s claim against the Receiver should be dismissed

for failure to state a cause of action upon which relief could be

9a

APPENDIX B

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF FLORIDA

Case No. 85-6190-Civ-Gonzalez

Oe

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

—_—VS —

SROUP. INC., ESM GOVERNMENT SECURITIES, INC.,

‘ECURITIES, INC., and ESM FINANCIAL GROUP, INC.,

Defendants.

ORDER DISMISSING CLAIM OF

EAT. MARWICK, MITCHELL AND COMPANY

s MATTER came before the Court on the Equity Receiv-

bjection to Peat, Marwick, Mitchell and Company’s

t. Marwick’’) Proof of Claim. Peat, Marwick had filed its

against ESM Group, Inc. (**Group’’), one of the defen-

which has been placed into receivership upon request of

Inited States Securities and Exchange Commission.

as Tew is the duly appointed, qualified and acting Equity

ver for Group.

t, Marwick had filed a proof of claim pursuant to an or-

‘this Court fixing the last date for creditors to file their

; against Group. The claim was based upon Peat,

ick’s payment to Group of a Florida Circuit Court judg-

rendered in favor of Group and against Peat, Marwick in

nount of $4,477,355.33, plus interest in the amount of

352.83. for a total payment of $4,942,708. 16. The judg-

was entered on January 18, 1984, after a jury found Peat,

grossly I

the financia

(“WUV’s’’). a now

into receivership o1

Ihe Receiver, in

claim was an im]

judgment vacated <

try of the judgmer!

committed a fraud

thus giving this Co

the judgment more

suant to its Order «

Marwick to Establ

Receiver treated th

as a motion to dism

Rules of Civil Proc

by Peat, Marwick 1

ceiver’s Objection,

deemed | he Co

of testing t

Peat, Marwic

elr officers and di

which they defraud

was committed

statements and opi

the ESM companie

mez, a partner at

auditor for the ES

involved the passin

ties, Inc. (““Govert

tion, ESM Financ

thus deceived into

sound.

Peat, Marwick fi

ation of a false ‘‘r

company account re

the parent of

payable

lla

ther ESM companies had likely been

30. At the time of the institution of the

+5, the ESM companies had a cumula-

f $300 million.

alleged that the fraud was done with

cipation of certain shareholders and

panies during the relevant periods o!

fied at the Circuit Court tnal. Because

he fraud and the participation in the

es in the Circuit Court action, Peat,

it did not receive a fair trial, and that

fraud upon the court, which would en-

quitable relief from the judgment en-

rior to the filing of Peat, Marwick’s

lip action. More specifically, Peat,

pes of fraudulent conduct on the part

id attorneys: (1) perjury by several of

.d on behalf of Group; (2) the turnover

ig discovery of documents which re-

status of Group and the other ESM

ledge and concealment of ESM’s bleak

jroup’s attorney. For the reasons dis-

holds that the fraud alleged by Peat,

is not extrinsic fraud and not ‘“‘fraud

Peat, Marwick’s claim must be dis-

‘LUSIONS OF LAW

ed to be an issue of whether Florida

1.540(b) or Federal Rule of Civil Proce-

1 the issues raised by the Receiver’s ob-

sued that the Florida rule should apply,

mmpkins, 304 U.S. 64, 58 S.Ct. 817, 82

Marwick argued that the Federal Rule

Plumer, 380 U.S. 460, 85 S.Ct. 1136,

‘he Court holds that Peat, Marwick’s

i regardless of which rule is applied.

12a

Peat, Marwick’s allegations do not constitute extrinsic fraud

or ‘‘fraud upon the court,’’ which is the only species of fraud

that would entitle it to vacate the state court judgment more

than one year after it was entered. Federal Rule 60(b) states:

On motion and upon such terms as are just, the court may

relieve a party or his legal representative from a final judg-

ment, order, or proceeding for the following reasons: (1)

mistake, inadvertence, surprise, or excusable neglect; (2)

newly discovered evidence which by due diligence could

not have been discovered in time to move for a new trial

under Rule 59(b); (3) fraud (whether heretofore denomi-

nated intrinsic or extrinsic), misrepresentation, or other

misconduct of an adverse party; (4) the judgment is void;

(5) the judgment has been satisfied, released, or dis-

charged, or a prior judgment upon which it is based has

been reversed or otherwise vacated, or it is no longer equi-

table that the judgment should have prospective applica-

tion; or (6) any other reason justifying relief from the

operation of the judgment. The judgment shall be made

within a reasonable time, and for reasons (1), (2), and (3)

not more than oue year after the judgment, order, or pro-

ceeding was entered or taken. . . . This rule does not

limit the power of the court to entertain an independent

action to relieve a party from a judgment, order, or pro-

ceeding, . . . or to set aside a judgment for fraud upon

the court. . . . [T]he procedure for obtaining any relief

from a judgment shall be by motion as prescribed in these

rules or by an independent action.

Fed. R. Civ. P. 60(b).

The comparable Florida Rule 1.540(b) is nearly identical;

however, it lacks clause (b)(6). The Florida Rule in fact was pat-

terned after Federal Rule 60(b). DeClaire v. Yohanan, 453

So.2d 375, 377 (Fla. 1984).

The long-sianding policy of favoring an end to litigation un-

derlies the one-year limitation imposed by both rules. Because

public policy favors an end to litigation, the grounds for setting

aside a judgment more than one year after entry are extremely

l3a

mited. In very rare circumstances, involving a ‘‘fraud upon

ie court,’’ a litigant’s misconduct may deprive his opponent of

scess to a fair and impartial system of justice. In these circum-

ances, the opposing party is rendered totally unable to present

s case to a fair and impartial trier of fact. When a party’s

fraud upon the court’’ has so infected the system that the op-

osing party literally is deprived of its access to a fair and im-

artial system of justice, a judgment may be set aside after the

ne-year period has expired. See, e.g., Rule 1.540, Fla. R. Civ.

.; Rule 60(b), Fed. R. Civ. P.

As articulated by most courts, fraud upon the court relates to

n impairment of the judicial process; it has no relation to

‘aud between the parties. Moore’s, for example, defines

fraud upon the court’’ as follows:

‘*Fraud upon the court’”’ should, we believe, embrace only

that species of fraud which does or attempts to, subvert

the integrity of the court itself, or is a fraud perpetrated by

officers of the court so that the judicial machinery cannot

perform in the usual manner its impartial task of adjudg-

ing cases that are presented for adjudication, and relief

should be denied in the absence of such conduct.

J. Moore & J. Lucas, Moore’s Federal Practice, 4 60.33 at 60-

60 (2d Ed. 1983).

Both the United States and Florida Supreme Courts have rec-

gnized the distinction between fraud among parties and fraud

volving the court, both of which are grounds for vacating a

idgment. Fraud between parties must be brought to a court’s

ttention within one year after judgment is entered; fraud that

revents the functioning of the judicial process may be brought

> a court’s attention at any time. See, e.g., United States v.

"hrockmorton, 98 U.S. 61, 25 L.Ed. 93 (1878); DeClaire v.

/ohanan, 453 So.2d 375 (Fla. 1984). Misconduct among parties

o litigation is most often defined as ‘‘intrinsic’’ fraud, while

nisconduct that impairs the system is defined as ‘‘fraud upon

he court’’ or ‘‘extrinsic’’ fraud.

The United States Supreme Court long has held that ‘‘extrin-

ic’? fraud contemplates an impairment of the judicial machin-

:

l4a

Oo pervasive as to prevent a party from having the

‘to present its case. In United States v. Throckmor-

. 61, 65-66, 25 L.Ed. 93 (1878), the court stated:

the unsuccessful party has been prevented from ex-

g fully his case, by fraud or deception practiced

im by his opponent, as by keeping him away from

a false promise of a compromise; or where the de-

t never had knowledge of the suit, being kept in ig-

e by the acts of the plaintiff; or where an attorney

lently or without authority assumes to represent a

nd connives at his defeat; or where the attorney reg-

employed corruptly sells out his client’s interest to

1er side—these, and similar cases which show that

as never been a real contest in the trial or hearing of

e, are reasons for which a new suit may be sustained

iside and annul the former judgment or decree, and

he case for a new and a fair hearing.

nsic fraud includes misconduct that infects the

or lawyers, and not solely the parties to the lawsuit.

ed States Supreme Court’s definition of extrinsic

een adopted by the Florida Supreme Court in De-

ohanan, 453 So.2d 375 (Fla. 1984). In that case a

ted to set aside a final judgment of dissolution three

its entry on the ground that the husband had filed a

ial statement, but the trial court refused to set aside

nt. The intermediate appellate court reversed the

ind vacated the judgment, holding that the filing of

nancial statement constituted a ‘‘fraud upon the

> Florida Supreme Court disagreed, holding that the

fraud was not the kind of extrinsic fraud that under

morton analysis would enable a court to set aside a

nore then one year after it was entered. Rather, the

hat the husband’s act constituted intrinsic fraud that

asserted within one year under Fla. R. Civ. P.

53 So.2d at 380.

enth Circuit has also followed the Throckmorton

1 Travelers Indemnity Company v. Gore, 761 F.2d

1549 (1

plaintif

60(b)(3;

of the j

not be.

clause ¢

vacate j

‘fraud

Id. at

Team.

Pea

its the

ceiver

of the

upon

or D

Grou

tion t

finan

lSa

, the Court granted a motion to dismiss the

r relief from a judgment pursuant to Rule

e than one year had elapsed since the entry

e Court further held that the action could

-an independent action within the savings

Id. Holding that an independent action to

ore then one year old must be grounded on

rt,’’ the court stated:

trinsic fraud which will not support relief

through an independent action. See United

kmorton. . . . Under the Throckmorton

ud to lay a foundation for an independent

Ye such that it was not in issue in the former

| it have been put in issue by the reasonable

opposing party. . . . Perjury by a party

he standard because the opposing party is

rom fully presenting his case and raising

jury in the original action.

d fabricated evidence are evils that can and

exposed at trial, and the legal system en-

ind expects litigants to root them out as

»ssible. . . . Fraud on the court is there-

d to the more egregious forms of subver-

egal processes, ... Those we cannot

‘expect to be exposed to by the normal ad-

ocess.

Great Coastal Express v. Brotherhood of

1349, 1357 (4th Cir. 1982).

s had an adequate opportunity to express

y in its proof of claim, its reply to the Re-

id in oral argument before the Court. None

however, would constitute extrinsic fraud

n the meaning of Throckmorton, Travelers

itially, Peat, Marwick’s description of

id upon the Court boils down to its asser-

subsidiary, Government, had issued false

, Group could not have reasonably relied

6a

jinancial statement prepared for

arwick, had it known of Govern-

tial statements, it could have im-

roup’s witnesses relating to its

jal statement. However, as was

in Travelers:

Gore obtained his judgment in

»f perjured testimony to support

s action is an attempt to relitigate

SS, an issue that was necessarily

ial.

hat Group, through its witnesses,

t. As pointed out in Traveler’s,

id that should be rooted out early

ild not have prevented Peat,

tial system of justice. At best, it

ited States and Florida Supreme

it have expressly held to be insuf-

ral allegations concerning pur-

s attorney in the Broward Circuit

ns include that the attorney was

ndition and of the fraud allegedly

customers and creditors. Even if

owever, it is not the sort of mis-

would constitute fraud upon the

wledge by Group’s attorney of a

» Peat, Marwick. This does not

rt, for a plaintiff is not obligated

ntial defenses that the defendant

laims. Kerwit Medical Products,

Inc., 616 F.2d 833 (Sth Cir. 1980);

of the University of Georgia, 90

1y v. Hartford Empire Co., 322

.Ed. 1250 (1944), relied upon by

Peat, Marwick, is not c

distinguishable here for

by the Eleventh Circuit i

The court finds Ha

stant case in that he

volvement in Gore’

that the normal, in

heard the insurance

any manner by the

761 F.2d at 1551, 1552.

relating to Group’s attor

terference with the imy

Court presiding over the

Finally, Peat, Marwi

grants a court authority |

more than one year afte

clause is illogical as a

stated in Moore’s:

Further, the maxim

plies to clause (1) a

after the year perio

relief under clause

(2), and (3).

7 Moore’s Federal Pract

most unanimous on tha

States, 335 U.S. 601, 33¢

(1949); William Skilling:

tion Ltd., 594 F.2d 107

The facts asserted in |

sponse to the Receiver’:

the hearing on the Rece

constitute fraud upon tl

sufficient to grant relie

after its entry. As cow)

persuasive. That case is

ons it was distinguished

upra:

nguishable from the in-

llegation of attorney in-

no evidence to suggest

tion of the court which

was interfered with in

ated by Gore.

t, Marwick’s allegations

, would not show any in-

on of the state Circuit

it Federal Rule 60(b)(6)

gment for intrinsic fraud

vever, this reading of the

tutory construction. As

ition of one year that ap-

would be meaningless, if

movant could be granted

s covered by clauses (1),

0-266. The case law is al-

.2., Klapprott v. United

. 384, 93 L.Ed. 266, 1099

es v. Cunard Transporta-

’s Proof of Claim, its re-

id its arguments made at

, even if proven, do not

is the only kind of fraud

ent more than one year

at oral argument, Peat,

eo

s order to

allegations

at oral ar-

ot hear re-

, Proof of

1issed with

on this 3rd

SZ, JR.

+

ourt Judge

19a

APPENDIX C

IN THE UNITED STATES COURT OF A

FOR THE ELEVENTH CIRCUIT

No. 86-5958

—_<>—_—

SECURITIES & EXCHANGE COMMISS:

—vs.—

ESM GROUP, INC., et al.,

Defer

PEAT, MARWICK, MITCHELL AND (

Clair

—»—

Appeal from the United States Distric

for the Southern District of Flori

—_+»—

ON PETITION(S) FOR REHEARIN'

SUGGESTION(S) OF REHEARII

(Opinion January 7, 1988, 11 Cir., 1988, —

February 10, 1988)

$< >—_—

Before:

JOHNSON and ANDERSON, Circuit J

and ATKINS*, Senior District Juc

- _—_+4>—

. Honorable C. Clyde Atkins, Senior U.S. Di

Southern District of Florida, sitting by designation.

2la

APPENDIX D

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF FLORIDA

FORT LAUDERDALE DIVISION

Case No: 85-6190-Civ-Gonzalez

—

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

—vs.—

ESM Group, INC., ESM SECURITIES INC., and

ESM FINANCIAL GROUP, INC.,

Defendants.

—$—

AMENDED PROOF OF CLAIM

1. [If claimant is an individual claiming for himself] The un-

dersigned, who is the claimant herein, resides at*

(If claimant is a partnership claiming through a member] The

undersigned, whose offices are located at Beasley, Olle, Downs

& Keihner, 2700 Southeast Financial Center, 200 South Bis-

cayne Boulevard, Miami, Florida, is counsel for the claimant

Peat, Marwick, Mitchell & Co., a partnership composed of cer-

tified public accountants, doing business at *One Corporate

Plaza, 100 E. Broward Blvd., Ft. Lauderdale, Florida and is

authorized to make this proof of claim on behalf of the partner-

ship.

[If claimant is a corporation claiming through an authorized

officer] The undersigned, who resides at*

is the

of , a

corporation organized under the laws of :

* State mailing address.

23a

This claim is not subject to any setoff or counterclaim.

No security interest is held for this claim. —_—

f a security interest in the property of the debtor is claimed]

undersigned claims the security under the writing referred

1 paragraph 4 hereof [or under a separate writing (or dupli-

of which) is attached hereto, or under a separate writing

~h cannot be attached hereto for the reason set forth in the

ement attached hereto]. Evidence of perfection of such se-

ty interest is also attached hereto.

). This claim is a general unsecured claim, except to the ex-

that the security interest, if any, described in paragraph 9 is

‘icient to satisfy the claim.

plus interest from

$4,942,708.16 November 29, 1984

Total Amount Claimed

TED:

im Number ___

r Office Use Only)

Name of Creditor: Peat, Marwick, Mitchell & Co. _

(Print or Type Full Name of Creditor)

Or

Address of Creditor: One Corporate Plaza

100 East Broward Boulevard

Fort Lauderdale, Florida

/s/ James W. Beasley, Sr. ae

Signature of Authorized Representative (Also Type)

Beasley, Olle, Downs & Keihner

2700 Southeast Financial Center

200 South Biscayne Boulevard

Miami, Florida 33131-2395 / (305) 371-5400

Its: Attorney phe

Title or Position (If Applicable)

On Marc

& Co.

style o

Marwick, :

lawsuit, Grouy

amounting to

nancial statem«

in which Gro

during the per

[hat case wa

On January

]

i

verdict for $

compensatory

and $10,000.¢

Florida Fourt!

84-293. The co

PMM paid the

for a total of

The esse

that PMM was

opinion, datec

statements of

December 31,

Inc. was in fa

ments should

PMM. One ke

financial pro

was a receiva

was allegedly

claim against

March 14, 19%

yd from April 29, 1980 to August 27

85, the Securities and Exchange Com-

n for injunctive and other relief against

rnment Securities, Inc., E.S.M. Finan-

.M. Securities, Inc., and E.S.M. Avia-

ne day, the defendant corporations,

e placed in receivership by order of this

at order, attorney Thomas Tew was ap-

1e assets of E.S.M. Group, Inc. One of

s, E.S.M. Government Securities, Inc.,

nkruptcy. The other E.S.M. companies

hip.

,

35, the receiver for E.S.M. Group, Inc.

he Condition of the E.S.M. companies

lent conduct of the E.S.M. companies,

volved the maintenance in business of

er their actual insolvency, by causing the

asing losses of E.S.M Government Secu-

scted on the books of a related corpora-

ncial Group, Inc., while cash for

{. Government Securities, Inc. was ob-

-s who were fraudulently led to believe

as financially sound. An intercompany

to reflect a payable from E.S.M. Finan-

:.S.M. Group, Inc. By accruals of inter-

le’’, Group was thus made to appear

1e discovery of this fraud in March 1985.

companies had been insolvent since at

ir inception during the years 1975-77, the

mpanies had never been profitable, and

scovery of the fraud in March 1985, the

had a cumulative deficit in excess of

aud was perpetrated with the knowledge

f Ronnie R. Ewton, who was majority

ed as chairman of the board or as presi-

26a

dent of all the E.S.M. companies during the period of the

Wuv’s transaction up until March 1985 when the fraud was

made public. Jose Gomez, the Alexander Grant & Co. part-

ner who served as partner in charge of audits for the E.S.M.

companies during the same period, was also a participant in

the fraud. The receiver for the E.S.M. companies has filed an

action in this Court against Mr. Gomez and Alexander Grant

& Co., alleging that Mr. Gomez and Alexander Grant & Co.

were grossly negligent in their preparation of the audited fi-

nancial statements of E.S.M. Government Securities, Inc.,

and in issuing a ‘‘clean’’ opinion as to the financial condition

of those companies. The Securities and Exchange Commis-

sion has also filed an action before this Court alleging that

Mr. Gomez was bribed by E.S.M. to issue a ‘‘clean’’ opinion

on the financial statements of the E.S.M. companies’ finan-

cial statements, at least for the year ended December 31,

1984, and that the financial statements and audit reports at

least as far back as 1980 had been prepared in violation of the

anti-fraud provisions of the federal securities laws. Mr. Go-

mez has pleaded guilty to criminal charges of larceny and

grand theft brought against him by the State of Ohio for his

role in the E.S.M. fraud.

6. Because of the fraudulent manipulation of the E.S.M.

companies’ accounting records, and the further concealment

of that fraud by Jose Gomez, the E.S.M. companies’ sup-

posed ‘‘independent’’ auditor, this massive fraud was suc-

cessfully hidden from numerous state and federal

governmental regulatory agencies, as well as from the public,

for nearly a decade. The Securities and Exchange Commis-

sion had itself failed, in spite of investigation and litigation

spanning the years 1977 to 1981 concerning alleged violations

by the E.S.M. companies of the federal securities laws, to un-

cover the massive fraud then being perpetrated.

7. By successfully concealing the fraud in which it was

then actively engaged, Group prevented PMM from defend-

ing the suit brought against it by Group.

27a

8. In light of the facts disclosed since March 1985 concern-

ing the E.S.M. fraud, Group could not possibly have relied

upon the PMM audit report in making the Wuv’s invest-

ments. Group, by and through its directors, officers, and ac-

countant, had initiated its practice of concealment and fraud

by transferring substantial losses to a related company, be-

fore it began transferring any funds to Wuv’s International.

Group was not only insolvent when the so-called investments

in Wuv’s were made, but its directors, officers, and account-

ants had specific, particular knowledge of how this fact could

be and was fraudulently concealed from the public, Group’s

investors, and governmental agencies. The alleged financial

problems of Wuv’s International were trivial when compared

to those being concealed in the E.S.M. companies. With this

experience in fraud and concealment, neither Group nor its

directors, officers, or accountant could have relied upon the

portion of the PMM audit of Wuv’s that reflected a receiv-

able from its sole shareholder.

9. Had the E.S.M. fraud been known to PMM at the time

of trial, PMM would have been able to impeach Group’s wit-

nesses, including Mr. Ewton (who was referred to at trial as a

‘‘man of his word’’), Mr. George Mead (who testified at trial

about E.S.M.’s ‘‘moral obligations’) and Mr. Gomez.

Group and its affiliates and executives were held out to the

jury and to the court as reputable investment bankers, when

in fact they were engaged in perpetrating a massive fraud.

The perjured testimony of Group’s witnesses was wilfully

and purposely falsely given, was material to the issues tried,

and controlled the result in the case.

10. The concealmeut by Group of the fraudulent conduct

by Jose Gomez, and his lack of independence as auditor of

the related E.S.M. companies, was essential to Group’s ob-

taining a judgment against PMM. Mr. Gomez himself was

deposed by PMM’s counsel prior to trial, and he and his tes-

timony were repeatedly referred to at trial.

11. The fraud perpetrated by Group against PMM and the

Circuit Court included the participation of Group’s attorney,

28a

the Court. Group’s attorney knew of the

because he became intimately familiar with the

ition of these [E.S.M.] persons and entities, in-

solvency of E.S.M., and their extensive illicit

d business dealings, and assisted Group in pre-

blic from detecting the E.S.M. fraud. Group’s

ng knowledge of E.S.M.’s false financial state-

fraud E.S.M. was perpetrating on the public,

Group’s scheme to defraud PMM and the Cir-

he misconduct of Group’s attorney includes,

ted to, the following:

ly providing to PMM (in response to PMM’s

ests) false financial statements about E.S.M.

1 E.S.M.’s true condition. This affirmative

denied PMM the ability to defend itself in the

‘ly vouching to the court and jury for the credi-

srity of E.S.M.’s principals, when he well knew

n which E.S.M. was engaged.

ly tendering perjured testimony to the court

h testimony was material to the outcome of the

concealed its fraud from PMM by failing to

mation during pretrial discovery that would

PMM to detect E.S.M.’s fraud. The fraud per-

the E.S.M. companies’ accounting and finan-

as well as the testimony of the companies’

d made all of Group’s compliance with discov-

kewise fraudulent. Group’s case against PMM

itely planned and carefully executed scheme to

| and the Circuit Court, in which Group’s attor-

participated.

ud perpetrated by Group constituted fraud on

extrinsic fraud, entitling PMM to relief from

rendered against it. PMM is also entitled to re-

yund of newly discovered evidence, which evi-

14. Be

facts of

could no

ered the

Wuv’s li

15. P!

that the

fraudule

invalid.

entitled

amount

1984.

29a ;

up’s fraudulent concealment of the

ompanies’ financial condition, PMM

se of reasonable diligence have discov-

p and its affiliates in the course of the

d to, and demands, a determination

ered against it in favor of Group was

and should be set aside or considered

as already satisfied the judgment, it is

this proceeding against Group in the

.16, plus interest from November 29,