A Comparison of Recent Opinions Related to Dismissal for Fraud on the Court

An allegation of fraud on the court is a serious accusation, and, if established, can result in sanctions up to, and including, the dismissal of a plaintiff’s claim.

Fraud on the court occurs when clear and convincing evidence demonstrates a party has sentiently set in motion some unconscionable scheme calculated to interfere with the judicial system’s ability to adjudicate a matter impartially by improperly influencing the trier of fact or unfairly hampering the presentation of the opposing party’s claim or defense.  Hutchinson v. Plantation Bay Apartments, LLC, 931 So. 2d 957, 960 (quoting Cox v. Burke, 706 So. 2d 43, 46 (Fla. 5^th DCA 1998).

Recently, two Florida Appellate Courts had the opportunity to issue opinions related to dismissals based on allegations of fraud on the court, and the substantive requirements for trial court findings and orders regarding those dismissals.  In the first case, the Court reversed an order dismissing a case because the order did not make express written findings.  In the second case, the Court did not specifically comment on the order, but instead focused on the sufficiency of the evidence of fraud and the procedure with which the court came to its decision, including the holding of an evidentiary hearing, the making of oral and written findings, and the trial court’s comments at the hearing reflecting consideration of the competing policy interests.

Jack Stein v. Burton J, Defren et al.

43 Fla. L. Weekly D1525a, Florida Fourth DCA, July 5, 2018.

In this case, the underlying facts and alleged offending conduct are not presented.  Here, the trial court granted the defendants’ motion to dismiss for fraud on the court.  The plaintiff appealed, and the appellate court reversed the trial court’s final order granting dismissal as a sanction, because the trial court failed to make findings of fact in its order. The Court cited to its prior opinion in Chaca v. Transportation USA, Inc., 78 So. 3d 727 (Fla. 4th DCA 2012), where it held an order granting dismissal or default for fraud on the court must include express written findings of fact demonstrating the trial court has carefully balanced the equities and supporting the conclusion the moving party has proven, clearly and convincingly, that the non-moving party implemented a deliberate scheme calculated to subvert the judicial process.  The Court remanded the case back to the trial court to make express written findings and made no comment on whether reconsideration of the ultimate ruling is warranted or not.

Edward Wallace v. Tina Keldie

43 Fla L Weekly D1358a, Florida First DCA, June 13, 2018

On two separate occasions in May 2014, the plaintiff was riding in a car owned by his girlfriend when the car was allegedly rammed by a white pickup truck.  Both times the pickup truck fled the scene after hitting the car.  In June 2016, the plaintiff filed a complaint alleging his girlfriend, the defendant, was negligent with respect to the second accident, and he suffered permanent injuries to his back as a result of that accident.

During discovery, the plaintiff disclosed he injured his low back in the early 1980s but testified in his deposition the injury “healed,” and he had not had any problems with his low back in the 30 years since.  The plaintiff also denied having been to see a doctor for low back pain since 2000.

Contrary to his deposition testimony, medical records from seven months prior to the accident showed the plaintiff hurt his low back by slipping off a stepladder, resulting in pain he described as “aching and crushing” at a level of 10 out of 10 and radiating to his left leg.  The medical records also stated the plaintiff had a chronic history of similar episodes and of a herniated disc.  Additionally, a record from an emergency room visit in May 2014, nine days after the second accident, stated the plaintiff reported his back pain started “a long time ago” but was made worse by the first accident.

In light of the plaintiff’s contradictory statements and the discrepancies between the plaintiff’s testimony and the medical records, the defendant filed a motion to dismiss for fraud on the court.  The trial court held an evidentiary hearing on the motion, at which time the plaintiff admitted his history of low back pain as reflected in the medical records but claimed his contrary deposition testimony was not due to an intent to deceive but rather was attributable to his “poor memory” caused by mental health issues, heavy drinking, and his medications.  The trial court granted the motion to dismiss, finding the plaintiff’s deposition testimony was “patently false” and he had “fraudulently concealed … his prior personal injuries.”  The plaintiff then appealed the trial court’s order.

In reviewing the record below, the First District Court of Appeal (DCA) noted the trial court 1) held an evidentiary hearing, 2) made oral and written findings that clearly provided the basis for the dismissal, 3) and made comments at the evidentiary hearing reflecting consideration of the competing policy interests.  The opinion does not contain any details regarding the contents of the trial court’s order.

The First DCA also addressed the sufficiency of the evidence of fraud, including the “stark contrast” between the plaintiff’s deposition testimony. The testimony included claims of not seeing a doctor for back pain in over a decade as well as testimony his back was healed and had no problems from a prior accident, and the medical records which demonstrated the plaintiff’s multiple emergency room visits within two years of the subject accident and a history of chronic low back pain that was intensified after the first accident.

The Court also held the trial court had plenty of reason to discount the plaintiff’s testimony at the evidentiary that his contradictory statements were the product of “poor memory” rather than an intent to deceive, citing to the plaintiff’s extensive criminal history including crimes of dishonesty.

The First DCA held the plaintiff’s false testimony concerned his injury history, which was at the very heart of the case, and, based on the records below, it was not abuse of discretion to dismiss the plaintiff’s case.

Takeaway

Attempts to subvert the judicial process are unfortunate realities in today’s high-stakes litigation arena.  In scenarios where you have filed a motion for dismissal for fraud on the court, a best practice is to request an order from the court which demonstrates the trial court has carefully balanced the equities and supporting the conclusion the moving party has proven, clearly and convincingly, that the non-moving party implemented a deliberate scheme calculated to subvert the judicial process.  However, even if the order falls short of meeting this requirement, oral and written findings made by a court during an evidentiary hearing reflecting the court’s consideration and balancing of the equities, can be sufficient to survive a challenge to the ultimate ruling.

Appellate Upholds Trial Court’s Order Denying Defendants’ Attempt to Enforce Arbitration Agreement Against Non-Party to Contract

Beck Auto Sales, Inc. v. Ashbury Jax Ford, LLC and Lisa Marasco

43 Fla. L Weekly D1380a, Florida 1^st DCA, June 20, 2018

A car dealership sued its former employee and a competing dealership, alleging the two conspired to steal business worth millions of dollars.  The complaint included two counts against the employee, one count against the defendant dealership, and four counts against both the employee and defendant dealership.  The thrust of the complaint was the employee and the defendant dealership acted in concert to harm the plaintiff dealership.

An arbitration agreement existed between the plaintiff dealership and the employee.  The agreement provided that “disputes subject to arbitration” would be “all disputes between the parties” as well as “disputes involving any person or entity who liability or right of recovery derives from a dispute” covered by the agreement.  In response to the complaint, the employee moved to compel arbitration of all claims against her and the defendant dealership, even though the defendant dealership was not a party to the agreement.  The defendant dealership separately moved to compel arbitration, adopting the employee’s arguments.  The trial court granted the employee’s motion to arbitrate her claims but denied her motion and defendant dealership’s motion to compel arbitration of the claims against the defendant dealership.

Ordinarily a party cannot compel arbitration under an arbitration agreement to which it was not a party.  Koechli v. BIP Int’l, Inc., 870 So. 2d 940, 943 (Fla. 1^st DCA 2004).  However, Florida and federal courts have recognized that principles of equitable estoppel sometimes allow a non-signator to compel arbitration against someone who had signed an arbitration agreement. Perdido Key Island resort Dev., LLP v. Regions Bank, 102 So. 1, 5 (Fla. 1^st DCA 2012); see also Bailey v. ERG Enters, LP, 705 F.3d 1311, 1320 (11^th Cir. 2013).  Courts have recognized this can be appropriate 1) were the signatory’s claims allege “substantially interdependent and concerted misconduct” by the signatory and the non-signatory or 2) when the claims relate directly to the contract and the signatory is relying on the contract to assert its claims against the non-signatory.  Koechli, 870 So. 2d at 944 (citations omitted).  In this case, the defendants relied exclusively on the first circumstance in seeking to have the claims against the defendant dealership sent to arbitration.

On appeal, the Court recognized it could conclude the claims were interdependent, and application of equitable estoppel could address the defendant dealership’s non-signatory status – effectively counting it as a signatory.  However, the Court also recognized that equitable estoppel does not expand the scope of disputes subject to arbitration.  The Court noted Florida law favors arbitration, but “no party may be forced to submit a dispute to arbitration that the party did not intend and agree to arbitrate,” Perdido Key, 102 So 3d at 3 (quoting Seifert v. U.S. Home Corp., 750 So. 2d 633, 636 (Fla. 1999)).  Therefore, even when a non-signatory can rely on equitable estoppel to access the arbitration clause, the non-signatory can compel arbitration only if the dispute at issue falls within the scope of the arbitration clause, and the scope of the arbitration clause is a pure matter of contractual interpretation. See Kroma Makeup EU, LLC v. Boldface Licensing + Branding, Inc., 845 F.3d 1351, 1355 (11^th Cir. 2017) (applying Florida law).

In its analysis of the contract, the Court noted the arbitration provision generally limited its applicability to disputes “between the parties” to the arbitration agreement, meaning it would not reach disputes involving defendant dealership (a nonparty), and the Court held it could conceive of no basis to conclude the defendant dealership was a party to the agreement between the employee and the plaintiff dealership.  Said succinctly, the defendant dealership was not a party to the arbitration agreement, so disputes with it fall outside of the agreement’s general scope.

In its analysis the Court also considered another provision of the agreement which broadened the general scope.  It stated:

“Also subject to arbitration are disputes involving any person or entity whose liability or right of recovery derives from a Dispute that is covered by this Agreement (e.g., partner, agent, subsidiary of parent corporation, affiliate, shareholder, successor or assign of a party).”

The Court determined this provision expands the scope of the agreement to include disputes involving others, but only to the extent the other parties’ liability “derives from” a covered dispute.  Derivative liability is similar to vicarious liability in that (1) there is no cause of action unless the directly liable tortfeasor commits a tort and (2) the derivatively liable party is liable for all of the harm that such a tortfeasor has caused.” Peltz v. Tr. Hosp. Int’l, LLC, No. 3D17-428 *2 n.6 (Fla. 3d DCA Apr. 11, 2018) (quoting Grobman v. Posey, 863 So. 2d 1230, 1236 (Fla. 4th DCA 2003)); cf. also Derivative Liability, Black’s Law Dictionary (10th ed. 2014) (defining term as “[l]iability for a wrong that a person other than the one wronged has a right to redress”); Grobman, 863 So. 2d at 1235-36 (noting that cases of derivative liability “involve wrongful conduct both by the person who is derivatively liable and the actor whose wrongful conduct was the direct cause of injury to another” (citation omitted)).

The Court concluded the defendant dealership’s liability (if any) does not “derive from” the remaining disputes as that phrase is used in the agreement.  The Court reasoning that although the claims are unquestionably related, and they may well ultimately rise or fall together, it could not ignore the fact the arbitration provision used the specific phrase “derives from,” rather than a more general term, like, say, “relates to.” Cf. Kroma, 845 F.3d at 1356.  Nor could the Court ignore the fact that the agreement includes specific examples of liability that could derive from other disputes: “(e.g., partner, agent, subsidiary of parent corporation, affiliate, shareholder, successor or assign of a party).”  Therefore, the Court held the trial court correctly denied the motion to compel.

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