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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1988

## Text

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

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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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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_._—_—

‘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
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 » + . 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

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,

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385019_1635%3A1. Public record. Not legal advice.