                NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 12a0389n.06

                                       Nos. 10-1315, 10-1397
                                                                                              FILED
                           UNITED STATES COURT OF APPEALS
                                FOR THE SIXTH CIRCUIT                                    Apr 10, 2012
                                                                                   LEONARD GREEN, Clerk
GENERAL MEDICINE, P.C.,                            )
                                                   )
        Plaintiff-Appellant/Cross-Appellee,        )
                                                   )
v.                                                 )    ON APPEAL FROM THE UNITED
                                                   )    STATES DISTRICT COURT FOR THE
HORIZON/CMS HEALTH CARE                            )    EASTERN DISTRICT OF MICHIGAN
CORPORATION,                                       )
                                                   )
        Defendant-Appellee,                        )
                                                   )
HEALTHSOUTH CORPORATION,                           )
                                                   )
        Intervenor-Appellee/Cross-Appellant.       )



        Before: BATCHELDER, Chief Judge; COLE and COOK, Circuit Judges


        COOK, Circuit Judge. General Medicine, P.C. (“General”), a Michigan-based medical

services provider, appeals the district court’s fraud-on-the-court finding, which set aside a five-year-

old $376-million consent judgment between General and Defendant Horizon/CMS Health Care

Corporation (“Horizon”). Intervenor HealthSouth Corporation (“HealthSouth”) cross-appeals the

district court’s adverse judgment on the timeliness of its motion for relief under Federal Rule of Civil

Procedure 60(b), and seeks an order closing the case. For the following reasons, we reverse in part,

affirm in part, and reinstate the consent judgment.
Nos. 10-1315, 10-1397
Gen. Med. v. Horizon/CMS Health Care Corp.


                                                  I.


       This matter began as a contract dispute between General and Horizon in the Eastern District

of Michigan. Under the parties’ contract, General provided “medical director” services to certain

nursing homes managed by Horizon. Horizon terminated the agreement in 1996 before the end of

the contract term, and General sued. HealthSouth acquired Horizon in 1997 during the pendency

of this suit, but never became a party. In 1999, the district court stayed and administratively closed

the case to facilitate a criminal investigation of the two Horizon facilities. In 2001, while the case

remained closed, HealthSouth sold all of Horizon’s stock to Meadowbrook Healthcare Corporation

(“Meadowbrook”), and Meadowbrook assumed responsibility for defending Horizon in the contract

dispute with General. For reasons not germane to this appeal, General believes that the sale of

Horizon to Meadowbrook constituted a fraudulent conveyance that enabled Healthsouth to shed

Horizon’s liabilities while keeping most of its assets.


       The district court reopened the case in April 2003 following the conclusion of the criminal

investigation. Thereafter Meadowbrook replaced Horizon’s defense counsel and began settlement

negotiations with General. According to the parties’ representations, Meadowbrook had limited

funds (approximately $25 million) with which to settle a number of claims against Horizon,

including the case brought by General. General and Horizon entered into a settlement agreement a

year later in April 2004 (R. 244, Ex. R (“Settlement Agreement”)), whereby Horizon/Meadowbrook

agreed: (1) to enter into a consent judgment with Horizon “in an amount to be determined prior to

entry” (id. ¶ 2); (2) to pay General $300,000 (id. ¶ 6(i)); and (3) to transfer to General “any assets


                                                -2-
Nos. 10-1315, 10-1397
Gen. Med. v. Horizon/CMS Health Care Corp.


or property . . . awarded or returned to Horizon or Meadowbrook, as a result of any action brought

by [General] against HealthSouth” (id. ¶ 6(ii)). In return, General promised not to enforce the

anticipated consent judgment against Horizon or Meadowbrook beyond the $300,000 payment

specified in paragraph 6(i), but the settlement agreement stipulated that it did “not releas[e] Horizon

and/or Meadowbrook from liability to [General] arising out of the [l]awsuit or the [c]onsent

[j]udgment.” (Id. ¶¶ 4–5.)


       Counsel for both General and Horizon presented a $376-million draft consent judgment to

the district court on May 3, 2004, and the district court endorsed it. (R. 232.) The consent judgment

ordered Horizon to pay General $376 million plus 10% annual interest.1 Notably, the consent

judgment did not reference the parties’ confidential settlement agreement, and thus did not reveal

that General sought to recover all but $300,000 of the $376-million judgment from non-party

HealthSouth. Shortly after entry of the consent judgment, General (now a judgment-creditor of

Horizon) filed a fraudulent conveyance action against HealthSouth in Alabama. HealthSouth




       1
           The consent judgment states in pertinent part:

               This matter having come before the Court on Plaintiff’s Complaint for breach
       of contract, and the parties through their respective attorneys, having stipulated to the
       entry of this Judgment, and the Court being more fully advised in the premises:

               NOW, THEREFORE, IT IS HEREBY ORDERED AND ADJUDGED that
       Defendant [HORIZON] shall pay to Plaintiff [GENERAL] the sum of [$376 million],
       plus interest on the judgment from the date of entry until paid at the rate of [10%]
       per annum.


                                                 -3-
Nos. 10-1315, 10-1397
Gen. Med. v. Horizon/CMS Health Care Corp.


eventually learned of the consent judgment in the Michigan action, moved to intervene in that case,

and filed a Rule 60 motion to set aside the 2004 consent judgment in October 2008.


       The district court received evidence, heard oral argument, and granted HealthSouth’s motion

by Opinion and Order of May 21, 2009. See Gen. Med., P.C. v. Horizon/CMS Health Care Corp.,

No. 96-72624, 2009 WL 1447346 (E.D. Mich. May 21, 2009) (“May 2009 Order”). The district

court denied relief under Rule 60(b)(3), finding HealthSouth’s claim untimely, but set aside the

consent judgment pursuant to subsection (d)(3), finding that counsel for General and Horizon had

committed fraud on the court. Id. at *4–6. Although the district court recognized that “corporations

do not generally present their settlement agreements to the court for approval,” id. at *4, the court

reasoned that the non-adversarial nature of the consent judgment’s damages assessment deserved

heightened scrutiny, id. at *5 (citing Continental Cas. Co. v. Westerfield, 961 F. Supp. 1502, 1505

(D.N.M. 1997)), and the court held that counsel defrauded the court by failing to disclose the

Horizon-friendly payment terms of the settlement agreement when they presented the consent

judgment, id. at *5–6. Citing a Virginia district court case that applied a constructive-fraud theory

of fraud on the court, see Spence-Parker v. Md. Ins. Grp., 937 F. Supp. 551, 563 (E.D. Va. 1996)

(setting aside a consent judgment as collusive), the district court stated that the parties’

non-disclosure “resulted in th[e] court placing its imprimatur on a consent judgment, the primary

purpose of which was to ambush a non-party, HealthSouth,” and found that this conduct “impugned”

the “integrity of the court and the judicial process.” May 2009 Order at *5. Having set aside the

consent judgment, the district court instructed General and Horizon to “consult each other and th[e]

court’s case manager to determine what further proceedings are appropriate.” Id. at *6.

                                                -4-
Nos. 10-1315, 10-1397
Gen. Med. v. Horizon/CMS Health Care Corp.


       After the May 2009 Order, Horizon moved for clarification and instruction, General moved

to enforce the settlement agreement via entry of a new consent judgment, and HealthSouth moved

to dismiss on the grounds that Horizon had satisfied its obligations under the settlement agreement

by paying General $300,000. By Opinion and Order of February 25, 2010, the district court held that

the settlement agreement between General and Horizon remained in effect, but resolved that the

settlement agreement’s severance clause precluded entry of another consent judgment. Applying the

remaining terms of the settlement agreement, the district court concluded that Horizon’s payment

of $300,000 to General satisfied its obligations under the settlement agreement, and thus “no further

action is required.” Gen. Med., P.C. v. Horizon/CMS Health Care Corp., No. 96-72624, 2010 WL

726963, at *1–2 (E.D. Mich. Feb. 25, 2010) (“February 2010 Order”).


       General appealed both the May 2009 and February 2010 Orders on March 9, 2010, and

HealthSouth cross-appealed. The parties report that the Alabama courts have stayed the fraudulent

conveyance action pending the outcome of these proceedings.


                                                 II.


       As a threshold matter, HealthSouth renews its challenge to the timeliness of General’s appeal

under Federal Rule of Appellate Procedure 4(a)(1)(A). The Rule’s 30-day limit for filing appeals

in civil cases “is mandatory and jurisdictional.” Intera Corp. v. Henderson, 428 F.3d 605, 611 (6th

Cir. 2005) (internal quotations marks and citation omitted). As before, HealthSouth argues that the

May 2009 Order constituted a final judgment for purposes of appeal, and thus reasons that this court

has no jurisdiction to review General’s appeal filed nine months later, after the issuance of the

                                                -5-
Nos. 10-1315, 10-1397
Gen. Med. v. Horizon/CMS Health Care Corp.


February 2010 Order. A motions panel of this court previously denied HealthSouth’s motion to

dismiss, finding that “the appealability of the May 2009 order is inextricably intertwined with the

overall validity of the orders challenged on appeal, resolution of [which] . . . requires a merits

determination.” (Order of July 9, 2010.) Having reviewed the May 2009 and February 2010 Orders

and related proceedings, we find that General properly and timely appealed the February 2010 Order.


        Under 28 U.S.C. § 1291, federal appeals courts have jurisdiction “of appeals from all final

decisions of the district courts of the United States.” A final, appealable decision “ends the litigation

on the merits and leaves nothing for the court to do but execute the judgment.” Coopers & Lybrand

v. Livesay, 437 U.S. 463, 467 (1978) (quoting Catlin v. United States, 324 U.S. 229, 233 (1945));

see also In re Saffady, 524 F.3d 799, 802 (6th Cir. 2008). Here, the May 2009 Order did not end the

litigation leaving nothing but execution, as required for a final judgment. Rather, it expressly left

the door open for further proceedings on the issue it decided, instructing the parties to consult with

the case manager to determine how to proceed after the vacatur of the consent judgment. Indicative

of the matter’s unresolved status, all three parties, including intervenor HealthSouth, filed responsive

motions to the May 2009 Order. The district court’s February 2010 Order viewed these motions as

consistent with the instructions of the May 2009 Order and granted clarification, explaining that the

prior order left the settlement agreement intact, and that the settlement agreement’s terms precluded

the entry of a new consent judgment. February 2010 Order at *1–2.


        Nevertheless, HealthSouth argues the finality of the May 2009 Order because the underlying

judgment—the consent judgment it vacated—constituted a final judgment. For support, HealthSouth


                                                  -6-
Nos. 10-1315, 10-1397
Gen. Med. v. Horizon/CMS Health Care Corp.


relies on this court’s decision in Mallory v. Eyrich, which deemed final and appealable a Rule 60(b)

order setting aside a Rule 68 judgment. 922 F.2d 1273, 1277 (6th Cir. 1991); see also Browder v.

Dir., Dep’t of Corr. of Ill., 434 U.S. 257, 263 n.7 (1978) (suggesting that parties may timely appeal

a Rule 60(b) order under Federal Rule of Appellate Procedure 4(a)). But Mallory does not speak to

the type of order issued in this case—a fraud-on-the-court judgment issued under the court’s inherent

powers—and it does not stand for the proposition that any Rule 60 order starts the limitations period

for filing an appeal, regardless of whether that order satisfies the Coopers finality standard. Indeed,

Mallory purported to apply the Coopers finality standard, 922 F.2d at 1276–77, and on other

occasions we have rejected claims that Rule 60 orders constitute final judgments, e.g., In re Saffady,

524 F.3d at 802; Fuller v. Quire, 916 F.2d 358, 360 (6th Cir. 1990). Cf. 12 James W. Moore et al.,

Moore’s Federal Practice § 60.68[2] (3d ed. 2011) (explaining that a grant of Rule 60 relief “is rarely

[an] appealable order,” but noting that appeal will lie if the court “enters a corrected judgment so that

there is nothing further to be decided by the district court”).


        Regardless of the finality of the 2004 consent judgment, the May 2009 Order lacked finality

because it did not address its own impact on the parties’ settlement agreement—an agreement that

expressly required the entry of a consent judgment between General and Horizon. Accordingly, the

district court asked the parties to consult on further proceedings, the parties filed responsive motions,

and the district court ruled on these unresolved issues in a clarification order.                 Under

the circumstances, General properly appealed the February 2010 Order, and this court may review

it.



                                                  -7-
Nos. 10-1315, 10-1397
Gen. Med. v. Horizon/CMS Health Care Corp.


                                                 III.


A. Standard of Review


       We generally review district court rulings on Rule 60 motions for post-judgment relief for

abuse of discretion. E.g., Jones v. Ill. Cent. R.R. Co., 617 F.3d 843, 850 (6th Cir. 2010); United

States v. Pauley, 321 F.3d 578, 581 (6th Cir. 2003). General contends that we should review the

district court’s fraud-on-the-court ruling de novo because the district court exercised its inherent

powers under Rule 60’s “savings clause,” section (d), instead of the post-judgment remedies

identified in section (b). For support, General cites the Third Circuit’s decision in Herring v. United

States, which reviewed de novo a district court’s 12(b)(6) dismissal of an independent fraud-on-the-

court action instituted under Rule 60’s savings clause. See 424 F.3d 384, 389–90 (3d Cir. 2005).

But Herring conflicts with this Circuit’s only panel decision reviewing a fraud-on-the-court ruling

under Rule 60(d)(3), as well as this Circuit’s cases reviewing other decisions rendered under the

Rule’s savings clause, all of which apply the abuse-of-discretion standard. Maloof v. Level Propane,

Inc., 429 F. App’x 462, 467 (6th Cir. 2011) (fraud-on-the-court finding under Rule 60(d)(3));

Mitchell v. Rees, 651 F.3d 593, 595 (6th Cir. 2011) (independent action under Rule 60(d)(1));

Barrett v. Sec’y of Health & Human Servs., 840 F.2d 1259, 1263 (6th Cir. 1987) (independent action

under Rule’s prior savings clause in section (b)).


       The procedural posture of this case and our Circuit’s cases reviewing other forms of post-

judgment relief persuade us to follow Maloof and apply the abuse-of-discretion standard. Unlike

Herring, which considered a district court’s 12(b)(6) dismissal of an independent action, the instant

                                                 -8-
Nos. 10-1315, 10-1397
Gen. Med. v. Horizon/CMS Health Care Corp.


case concerns an intervening party’s post-judgment motion to set aside a four-year-old consent

judgment, which the district court decided after receiving evidence and hearing argument. Sixth

Circuit law permits the district court to treat such motions, procedurally, as either an independent

action or a post-judgment motion, so long as the classification does not prejudice the adverse party.

Mitchell, 651 F.3d at 595 (citing Bankers Mortg. Co. v. United States, 423 F.2d 73, 81 n.7 (5th Cir.

1970); 11 Wright, Miller & Kane, Federal Practice & Procedure § 2868 n.30, at 405 (1995)). We

find the district court’s treatment of HealthSouth’s filing as a post-judgment motion appropriate

under the circumstances.


        We also find instructive that this Circuit reviews sanctions rulings deriving from district

courts’ “inherent powers” under the abuse-of-discretion standard. E.g., Metz v. Unizan Bank, 655

F.3d 485, 489 (6th Cir. 2011); BDT Prods., Inc. v. Lexmark Int’l, Inc., 602 F.3d 742, 751 (6th Cir.

2010). Because Rule 60’s savings clause refers to a court’s existing powers, the “inherent powers”

cases seem particularly apt. See Fed. R. Civ. P. 60(d) (“This rule does not limit a court’s power to

. . . (3) set aside a judgment for fraud on the court.”); see also Mitchell, 651 F.3d at 595 (noting that

the savings clause speaks to district courts’ longstanding ability to hear independent equitable actions

challenging a judgment).


        Applying the abuse-of-discretion standard, we will reverse only if the court “‘commits a clear

error of judgment, such as applying the incorrect legal standard, misapplying the correct legal

standard, or relying upon clearly erroneous findings of fact.’” Jones, 617 F.3d at 850 (quoting In re

Ferro Corp. Derivative Litig., 511 F.3d 611, 623 (6th Cir. 2008)). Post-judgment relief “is


                                                  -9-
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Gen. Med. v. Horizon/CMS Health Care Corp.


circumscribed by public policy favoring finality of judgments and termination of litigation.” See

Blue Diamond Coal Co. v. Trs. of UMWA Combined Benefit Fund, 249 F.3d 519, 524 (6th Cir.

2001); see also Superior Seafoods, Inc. v. Tyson Foods, Inc., 620 F.3d 873, 878 (8th Cir. 2010)

(distinguishing fraud on the court under the savings clause from Rule 60(b) motions and other fraud

claims, noting that “[r]elief through an independent equitable action alleging fraud on the court, then,

is a truly extraordinary form of relief”); Moore’s Federal Practice § 60.21[4][c] (emphasizing narrow

reach of fraud-on-the-court doctrine under Rule 60(d)(3), cautioning that broad application would

render meaningless the remedies and time limitations prescribed by Rule 60(b)).


B. Fraud on the Court


        Fraud on the court refers to “the most egregious conduct involving a corruption of the judicial

process itself.” 11 Charles Alan Wright et al., Federal Practice & Procedure § 2870 (West 2011)

(collecting cases). Treatises speak of such flagrant abuses as bribing a judge, employing counsel to

exert improper influence on the court, and jury tampering. Id. § 2870; Moore’s Federal Practice

§ 60.21[4][a]. Although not doctrinally limited to such criminal acts, courts recognize the

extraordinary nature of the remedy and cautioned against expansive use of the doctrine. In

Demjanjuk v. Petrovsky, we observed that


        [f]raud upon the court should . . . 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 adjudging cases that are presented for adjudication, and
        relief should be denied in the absence of such conduct.



                                                 - 10 -
Nos. 10-1315, 10-1397
Gen. Med. v. Horizon/CMS Health Care Corp.


10 F.3d 338, 352–53 (6th Cir. 1993) (quoting Moore’s Federal Practice § 60.33, omission in

Demjanjuk) (setting aside an extradition order for fraud on the court because government attorneys

failed to disclose exculpatory evidence in violation of the duty recognized in Brady v. Maryland, 373

U.S. 83 (1963)). Accordingly, cases require a party seeking to show fraud on the court to present

clear and convincing evidence of the following elements: “1) [conduct] on the part of an officer of

the court; that 2) is directed to the judicial machinery itself; 3) is intentionally false, willfully blind

to the truth, or is in reckless disregard of the truth; 4) is a positive averment or a concealment when

one is under a duty to disclose; and 5) deceives the court.” Johnson v. Bell, 605 F.3d 333, 339 (6th

Cir. 2010); (quoting Carter v. Anderson, 585 F.3d 1007, 1011–12 (6th Cir. 2009)). “In practice, this

means that even fairly despicable conduct will not qualify as fraud on the court.” Moore’s Federal

Practice § 60.21[4][c] (collecting cases for the proposition that perjury and non-disclosure by a single

litigant did not rise to the level of fraud on the court).


        The district court in this case cited Demjanjuk and the above factors, without detailing

findings to support them, focusing instead on the non-adversarial nature of the consent judgment and

counsel’s non-disclosure of the terms of the settlement agreement as “distort[ing] . . . the judicial

process.” May 2009 Order at *5–6. Because the district court misapplied the above standard and

HealthSouth has not shown the requisite clear and convincing evidence of the third and fourth factors

for fraud on the court—scienter and violation of a duty to disclose—we determine that the district

court abused its discretion and reverse.




                                                  - 11 -
Nos. 10-1315, 10-1397
Gen. Med. v. Horizon/CMS Health Care Corp.


        1. Scienter


         With regard to the scienter element, the district court conspicuously failed to find the

attorneys’ conduct intentionally false, wilfully blind to the truth, or in reckless disregard for the truth.

Instead, the court cited with approval a Virginia case finding post-judgment relief available to cancel

a collusive consent judgment, despite the absence of deceitful intent.                Id. at *5 (quoting

Spence-Parker, 937 F. Supp. at 563). At oral argument, HealthSouth conceded the absence of circuit

precedent recognizing the constructive-fraud doctrine applied in Spence-Parker. Rather, under our

fraud-on-the-court precedents, the alleged misconduct must demonstrate, at a minimum, a reckless

disregard for the truth. See, e.g., Carter, 585 F.3d at 1011–12; Demjanjuk, 10 F.3d at 348–49.

Demjanjuk defined reckless disregard in this context as referring to situations where “the actor has

. . . knowledge, or reason to know, of the facts, but does not realize or appreciate the high degree of

risk involved, although a reasonable man in his position would do so.” 10 F.3d at 349 (omission in

Demjanjuk) (quoting Restatement (Second) of Torts § 500, cmt. (a)). Viewed through the lens of

this objective standard, the record lacks support for conclusion that counsel for General and Horizon

acted in reckless disregard for the truth.


        Counsel for General and Horizon both appeared in person and jointly presented the district

judge with a proposed consent judgment. Though the confidential settlement agreement went

undiscussed, counsel brought a copy of it to chambers in case the judge asked to see it. Such

behavior belies HealthSouth’s claim that counsel intended to deceive the court; if they had such ill

intentions, why appear in person and bring the settlement agreement with them?


                                                   - 12 -
Nos. 10-1315, 10-1397
Gen. Med. v. Horizon/CMS Health Care Corp.


        Notwithstanding this reasonable conduct, HealthSouth contends that the consent judgment’s

damages figure affirmatively misstates the true damages set forth in the parties’ separate settlement

agreement. The district court’s fraud-on-the-court judgment did not adopt this view, and the record

does not support such a finding. The draft order presented to the district court—the consent

judgment—does not speak of the parties’ settlement agreement or its terms. HealthSouth makes

much of the consent judgment’s language stating that the district court “[had been] fully advised in

the premises,” but this boilerplate language does not suggest that counsel attempted to dupe the

district court.


        The settlement agreement, meanwhile, does not purport to establish Horizon’s liability for

General’s contract claims; it sets forth only General’s plans for collecting the consent judgment from

Horizon. Thus, while the settlement agreement includes Horizon’s promises to pay only $300,000

and funds returned from HealthSouth (Settlement Agreement ¶ 6(i), (ii))—in effect, General’s

covenant of limited enforcement—the settlement agreement in no way undermines the

damages amount set forth in the consent judgment. Indeed, the settlement agreement, by its

own terms, maintained Horizon’s or Meadowbrook’s liability under the consent judgment. (Id. ¶ 5.)2

        HealthSouth also failed to show anything inherently dishonest about the consent judgment’s

damages figure. While HealthSouth challenges the methodology employed by General’s damages

expert and the total amount of damages, the district court’s fraud-on-the-court ruling included no


        2
        We note that this non-release provision prompted the Alabama Supreme Court, applying
Michigan law to the fraudulent conveyance proceedings now-stayed, to conclude that General’s
covenants of limited collection did not operate as a release of liability. Ex parte HealthSouth Corp.,
974 So. 2d 288, 296 (Ala. 2007).

                                                - 13 -
Nos. 10-1315, 10-1397
Gen. Med. v. Horizon/CMS Health Care Corp.


findings regarding the accuracy or reasonableness of the damages, and HealthSouth has not

suggested that improper motives affected General’s damages expert’s estimate. Ultimately, neither

the consent judgment’s damages figure nor the settlement agreement’s covenants of limited

enforcement bespeak the reckless disregard for truth necessary for fraud on the court.


       2. Duty to Disclose


       In addition to the absence of scienter, the district court failed to identify a duty of disclosure

violated by counsel. Spence-Parker, the only authority cited by the district court for the existence

of a duty to disclose, purported to apply a doctrine of “constructive fraud” under Virginia’s Rules

of Professional Responsibility. See 937 F. Supp. at 562 (noting that EC 7-17, Va. Code Prof’l Resp.

required “competent, adverse presentation of evidence and issues”). As noted above, HealthSouth

concedes that this standard does not govern the present appeal. HealthSouth makes passing

reference to Sixth Circuit cases acknowledging counsel’s duty of candor, but General correctly points

out that these cases concerned affirmative misrepresentations to the court and do not address

counsel’s obligations in presenting a consent judgment to the court. See Holloway v. Brush, 220

F.3d 767, 780 (6th Cir. 2000) (en banc) (criticizing a state agency for reneging on its earlier

statement to the court that it would renew child custody proceedings); Thompson v. Paasche, 950

F.2d 306, 315 n.7 (6th Cir. 1991) (recognizing that lawyers’ general duty of candor forbids

“misrepresent[ing] the law when it clearly goes against the client”); Cunningham v. Sears, Roebuck

& Co., 854 F.2d 914, 916 (6th Cir. 1988) (reporting attorney for disciplinary investigation where

attorney violated Circuit rules by concealing and misrepresenting material facts, namely his client’s


                                                 - 14 -
Nos. 10-1315, 10-1397
Gen. Med. v. Horizon/CMS Health Care Corp.


knowledge of a witness-juror association and the district court’s bench ruling on the post-trial

motion).


       Given the opportunity to supplement the district court’s reasoning, HealthSouth presents no

authority—under the Federal Rules of Civil Procedure, the Michigan Rules of Professional Conduct,

or this Circuit’s case law—for the proposition that counsel must disclose the terms of a confidential

settlement agreement prior to seeking entry of a consent judgment. We note that the Michigan

Rules’ general duty of candor does not require such disclosure,3 and Michigan


       3
         As of the time of the entry of the consent judgment, the applicable Michigan Rule provided
in pertinent part:

       Rule: 3.3 Candor Toward the Tribunal

       (a) A lawyer shall not knowingly:

               (1) make a false statement of material fact or law to a tribunal;

               (2) fail to disclose a material fact to a tribunal when disclosure is necessary
               to avoid assisting a criminal or fraudulent act by the client;

               (3) fail to disclose to a tribunal controlling legal authority in the jurisdiction
               known to the lawyer to be directly adverse to the position of the client and not
               disclosed by opposing counsel; or

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

               If a lawyer has offered material evidence and comes to know of its falsity, the
               lawyer shall take reasonable remedial measures.

Mich. R. Prof’l Conduct 3.3 (2004). Later amendments reorganized and modified the rule to
preclude attorneys from, inter alia, knowingly

               (a)(1) mak[ing] a false statement of material fact or law to a tribunal or
               fail[ing] to correct a false statement of material fact or law previously made

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Gen. Med. v. Horizon/CMS Health Care Corp.


courts have even permitted parties to insurance disputes to enter side agreements without impairing

their consent judgments. See, e.g., Alyas v. Gillard, 446 N.W.2d 610, 613–14 (Mich. Ct. App. 1989)

(explaining that a covenant to collect only from insurance proceeds did not release the insured from

liability under the consent judgment, and thus did not relieve the insurance company from liability

to the insured); Action Auto Stores, Inc. v. United Capitol Ins. Co., 845 F. Supp. 417, 420–21 (W.D.

Mich. 1993) (same).


       As the district court itself recognized, “corporations do not generally present their settlement

agreements to the court for approval.” May 2009 Order at *4. Neither the district court nor

HealthSouth on appeal have identified a specific duty of candor violated by counsel’s non-disclosure,

further underscoring that counsel did not act recklessly, as contemplated by the objective Demjanjuk

standard.


               to the tribunal by the lawyer;

               (2) fail[ing] to disclose to a tribunal controlling legal authority in the
               jurisdiction known to the lawyer to be directly adverse to the position of the
               client and not disclosed by opposing counsel; or

               (3) offer[ing] evidence that the lawyer knows to be false. If a lawyer has
               offered material evidence and comes to know of its falsity, the lawyer shall
               take reasonable remedial measures, including, if necessary, disclosure to the
               tribunal[.]

       (b) If a lawyer knows that the lawyer’s client or other person intends to engage, is
       engaging, or has engaged in criminal or fraudulent conduct related to an adjudicative
       proceeding involving the client, the lawyer shall take reasonable remedial measures,
       including, if necessary, disclosure to the tribunal.

Mich. R. Prof’l Conduct 3.3 (2011). None of these restrictions address the non-disclosure at issue
in this appeal.

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Gen. Med. v. Horizon/CMS Health Care Corp.


       HealthSouth faults General’s counsel for concealing and misrepresenting the consent

judgment and settlement agreement to the Alabama courts in the fraudulent conveyance action.

Assuming the truth of these allegations, this post-settlement conduct in Alabama court cannot

demonstrate that counsel defrauded the Michigan district court that entered the consent judgment.

Though we do not endorse the litigation tactics allegedly employed by General’s counsel in the

Alabama proceedings, that conduct has no bearing on whether counsel defrauded the Michigan court

with their presentation of the consent judgment.


       The district court’s concern that General employed “ambush” tactics against HealthSouth

overstates the case. The consent judgment did nothing more than establish Horizon’s liability to

General, which under Alabama law enabled General to sue HealthSouth for assets fraudulently

transferred from Horizon. See Ala. Code § 8-9A-7(b); Ex parte HealthSouth Corp., 974 So. 2d 288,

293–98 (Ala. 2007). Stipulated orders generally do not have preclusive effect on third parties, see,

e.g., In re Kane, 254 F.3d 325, 329–30 (1st Cir. 2001) (collecting authority); Benoay v. Decker, 517

F. Supp. 490, 496 (E.D. Mich. 1981), aff’d 735 F.2d 1363 (6th Cir. 1984) (unpublished table

decision), and the consent judgment’s damages figure does not establish the merits of General’s

separate fraudulent conveyance action against HealthSouth, see Ala. Code §§ 8-9A-4–5 (setting forth

the substantive requirements for a fraudulent conveyance action); Thompson Props. 119 AA 370, Ltd.

v. Birmingham Hide & Tallow Co., 897 So. 2d 248, 262–63 (Ala. 2004). Cf. Ala. Code § 8-9A-

7(a)(1) (authorizing creditor remedy of “[a]voidance of the transfer to the extent necessary to satisfy

the creditor’s claim” (emphasis added)).



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Gen. Med. v. Horizon/CMS Health Care Corp.


        To the extent that the consent judgment’s damages figure bears on the merits of the Alabama

fraudulent conveyance action, the Alabama courts will evaluate the circumstances leading to the

entry of the consent judgment in determining whether to credit the damages figure. Continental

Casualty, the New Mexico decision cited by the district court, did exactly that. As a non-issuing

court asked to enforce a consent judgment, it considered the circumstances leading to the entry of

the consent judgment, deemed them collusive, and declined to give the consent judgment preclusive

effect. Cont’l Cas., 961 F. Supp. at 1509. HealthSouth will suffer no unfair prejudice from

reinstatement of the consent judgment because it retains the ability to challenge the damages figure

in defending the Alabama fraudulent conveyance action. Cf. Mitchell, 651 F.3d at 595 (listing

inability to present a defense as an “indisputable element[]” of an independent action to set aside a

judgment under Rule 60(d)(1)).


C. Contingent Cross-Appeal: Timeliness of Relief Under Rule 60(b)


        As a fall-back position, HealthSouth cross-appeals the district court’s denial of relief under

Rule 60(b)(3). HealthSouth does not contest the district court’s conclusion that the (b)(3) limitations

period had expired, but instead asserts that it presented a separate collusion claim subject to the more

lenient limitations period applicable to Rule 60’s “catchall provision,” subsection (b)(6). See Fed.

R. Civ. P. 60(b)(3) (authorizing post-judgment relief for fraud, misrepresentation, or misconduct by

an adversary), (b)(6) (permitting remedy for “any other reason that justifies relief”), (c)(1) (providing

one-year limitations period for (b)(3) claims and a “reasonable time” limitations period for (b)(6)




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Nos. 10-1315, 10-1397
Gen. Med. v. Horizon/CMS Health Care Corp.


claims). HealthSouth argues that its claim qualifies under (b)(6) because subsection (b)(3) does not

expressly apply to claims of collusion.


        We question how the allegations underpinning HealthSouth’s purported collusion claim

differ from those underlying its fraud-on-the-court claim. HealthSouth itself repeatedly characterizes

the actions of General’s and Horizon’s counsel in subsection (b)(3) terms: fraud, misrepresentation,

and misconduct. (See HealthSouth Br. at 2 (referring to the parties’ “egregious fraud”), 33

(“misrepresentations”), 39–54 (describing opposing counsel’s failure to diseclose as misconduct).)

We “adhere[] to the view that courts should apply Rule 60(b)(6) only in exceptional or extraordinary

circumstances which are not addressed by the first five numbered clauses of the Rule.” Hopper v.

Euclid Manor Nursing Home, Inc., 867 F.2d 291, 294 (6th Cir. 1989); see also East Brooks Books,

Inc. v. City of Memphis, 633 F.3d 459, 465 (6th Cir. 2011). In short, a party cannot escape the time

limitations applicable to certain Rule 60 provisions by dressing its claim in subsection (b)(6) clothes.

See Hopper, 867 F.2d at 294 (“[D]istrict courts may employ subsection (b)(6) as a means to achieve

substantial justice when ‘something more’ than one of the grounds contained in Rule 60(b)’s first

five clauses is present.”); Lyle v. Brazil, 168 F.3d 490 (6th Cir. 1998) (unpublished table decision)

(citing Ackermann v. United States, 340 U.S. 193, 198 (1950)). Accepting HealthSouth’s own

characterization of the alleged misconduct, its claim fits under the auspices of subsection (b)(3), and

HealthSouth has not shown extraordinary circumstances qualifying its claim for (b)(6) treatment.

We therefore agree with the district court that HealthSouth cannot bypass subsection (b)(3)’s

one-year limitations period under the guise of a (b)(6) claim.



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Gen. Med. v. Horizon/CMS Health Care Corp.


       In any event, HealthSouth has not shown that it filed its motion within a “reasonable time,”

as required for a 60(b)(6) claim. See Fed. R. Civ. P. 60(c)(1). HealthSouth filed its Rule 60 motion

in the Michigan proceedings in October 2008, more than four years after entry of the consent

judgment. HealthSouth blames General for the delay, claiming that General actively concealed the

terms of the consent judgment and settlement agreement in the Alabama proceedings. But the record

reflects that General notified HealthSouth of the consent judgment in its November 2004

interrogatory responses for the Alabama proceedings (R. 236, Ex. 16 at 2–4), and HealthSouth does

not dispute that it had access to the settlement agreement in January 2006 when it filed a motion for

summary judgment in the Alabama proceedings (see HealthSouth Br. at 51 (asserting that General

concealed the settlement agreement for a year after instituting the Alabama proceedings); General

Reply Br. at 48). HealthSouth offers no explanation why, given such notice of General’s and

Horizon’s agreement, it waited nearly two years to file its Rule 60 motion in the Michigan

proceedings. Though courts permit longer delays in other cases, the reasonableness of the delay

“depends on the facts of a given case including the length and circumstances of the delay, the

prejudice to the opposing party by reason of the delay, and the circumstances compelling equitable

relief.” See Olle v. Henry & Wright Corp., 910 F.2d 357, 365 (6th Cir. 1990) (citing cases deeming

two-year delay reasonable). Assessing these factors, HealthSouth filed too late. See Blachy v.

Butcher, 129 F. App’x 173, 179 (6th Cir. 2005) (finding that a three-year delay did not satisfy the

Rule’s “reasonable time” limitation); Suttles v. City of Chattanooga, Tenn., 886 F.2d 1316 (6th Cir.

1989) (unpublished table decision) (same, two-and-a-half-year delay).




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Gen. Med. v. Horizon/CMS Health Care Corp.


                                             IV.


      For the foregoing reasons, we REVERSE the district court’s fraud-on-the-court judgment,

AFFIRM the Rule 60(b) judgment, and REINSTATE the May 3, 2004 consent judgment.




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Nos. 10-1315, 10-1397
Gen. Med. v. Horizon/CMS Health Care Corp.


        ALICE M. BATCHELDER, Chief Judge, dissenting. I concur in section III.C of the

majority opinion affirming the district court’s Rule 60(b) order, but I respectfully dissent from the

majority’s decision to reverse the district court’s fraud-on-the-court ruling. The record contains

evidence indicating that, at the least, counsel acted in reckless disregard for the truth and that they

had a duty to disclose to the court the information that was in the settlement agreement. Reviewing

the district court’s determination for abuse of discretion with such evidence in the record, I do not

have a “definite and firm conviction that the court below committed a clear error in judgment in the

conclusion it reached.” Paschal v. Flagstar Bank, 295 F.3d 565, 576–77 (6th Cir. 2002).


        First, although the district court did not make explicit findings regarding counsels’ intent, the

record supports the district court’s conclusion that counsel, on some level, intended to deceive the

court. The majority places significant weight on counsels’ choice to bring the settlement agreement

to the judge’s chambers, concluding that they must not have had any intent to deceive if they were

willing to show it to the court upon its request. However, it is just as reasonable to draw the

conclusion that the parties knowingly concealed information they knew the judge would consider

material. They brought the settlement agreement with them because they knew the judge might ask

to see it, but they obviously preferred that he execute the consent judgment without knowledge of

the settlement agreement’s collection-limitation. Where there are two reasonable interpretations of

a single act, we cannot say that the district court’s conclusion based on one of the interpretations was

a clear error in judgment. United States v. Aguwa, 123 F.3d 418, 423 (6th Cir. 1997) (“[I]nasmuch

as other interpretation[s] might be reasonable, we cannot conclude that the district court committed

clear error.”).

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Nos. 10-1315, 10-1397
Gen. Med. v. Horizon/CMS Health Care Corp.


        The majority also believes that counsel lacked any deceptive intent because the consent

judgment and the settlement agreement were neither false nor deceptive. This conclusion, however,

requires a reading of the documents in isolation. When the settlement agreement and consent

judgment are read together (something counsel deprived the district court of the opportunity to do),

it is clear that the consent judgment takes on a different meaning. In isolation, the consent judgment

says that Horizon will pay $376 million to General Medicine. Indeed, this is what the court believed

the consent judgment meant. However, when read in light of the settlement agreement, the consent

judgment takes on a completely different meaning: Horizon will pay only $300,000—a mere 0.08%

of the judgment—and a third party will pay the remaining 99.92%. Because the court read only the

consent judgment, it believed that Horizon would be obligated to pay the full amount of the

judgment to General Medicine. From the entire record, it is evident that counsel acted with reckless

disregard for the truth when they gave the court the consent judgment without the settlement

agreement, indicating at best that they failed to “appreciate the high degree of risk” that the district

court would believe the consent judgment meant one thing when it in fact meant another. Demjanjuk

v. Petrovsky, 10 F.3d 338, 349 (6th Cir. 1993).


        The majority also reasons that counsel could not have been deceptive because there is nothing

dishonest about the $376 million figure. This conclusion, however, misses the critical point. It is

immaterial whether the figure is an accurate representation of damages because counsels’ deception

does not lie in the substance of the consent judgment but rather in their representation of the

judgment to the court. By failing to disclose the substance of the settlement agreement, or any other

indication that the consent judgment was limited, counsel led the court to believe that the consent

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Nos. 10-1315, 10-1397
Gen. Med. v. Horizon/CMS Health Care Corp.


judgment was something it was not—a fairly negotiated figure. Protected by the settlement

agreement, Horizon knew it would never be obligated to pay the judgment figure, and, therefore, it

had no interest in negotiating that amount. Indeed, General Medicine admits that it refused to

negotiate the judgment figure, a fact the majority completely ignores. Had counsel made the district

court aware of the settlement agreement’s collection limitation, the court would at least have had the

opportunity to determine whether—prior to approving the judgment—the parties had engaged in

arm’s length negotiations in reaching that figure. And even if the amount of damages accounted for

in the judgment is accurate, counsel still misrepresented the nature of the consent judgment to the

court.


         Finally, the majority concludes that counsel were not dishonest because Horizon is still “on

the hook” for the remaining amount of the settlement agreement. This conclusion requires ignoring

the plain language of the settlement agreement, which expressly states, “Gen[eral] agrees and

covenants that it[] will not enforce, execute against, or attempt to collect in any fashion from

Horizon and/or Meadowbrook as a result of or under the consent judgment beyond the amounts

identified in paragraph 6(i) below [providing for the $300,000 payment].” The majority reasons that

Horizon is still on the hook because the settlement agreement goes on to require Horizon to return

any assets it receives as a result of the Alabama action. This clause, however, is not at all dependent

on the amount of the consent judgment. The parties intended Horizon to be on the hook for only two

things: the $300,000 payment and the return of any and all assets it receives from the Alabama

action. The latter obligation requires Horizon to return all assets it may receive from the Alabama

action, even if the value of those assets exceeds $376 million. They never intended Horizon to pay

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Nos. 10-1315, 10-1397
Gen. Med. v. Horizon/CMS Health Care Corp.


“in any fashion . . . as a result of or under the consent judgment” more than $300,000. Any other

reading is inconsistent with the express language of the settlement agreement.


        Second, I cannot agree with the majority’s conclusion that counsel did not have a duty to

disclose. The majority’s conclusion that counsel did not breach a duty to the court because attorneys

do not have a duty to disclose settlement agreements is in my view much too narrow a concept of

counsels’ duties. It is not the settlement agreement generally that counsel had a duty to disclose, but

rather its specific limitation on the collection of the judgment—a material fact that would have

affected the court’s adjudication of the issue. Indeed, the district court stated that had it known about

the limitation, it would have more thoroughly scrutinized the judgment figure because it would have

suspected that the figure was not negotiated at arm’s length, a suspicion that would have been

confirmed. The majority’s discussion of counsels’ duties fails to recognize this Court’s explicit

statement in Demjanjuk that “[a]s an officer of the court, every attorney has a duty to be completely

honest in conducting litigation.” 10 F.3d at 352. Counsel led the court to believe that Horizon

would be responsible for paying $376 million, but counsel knew this was not the case. Counsel

allowed the court to believe that the judgment figure fairly represented the interests of both parties,

but counsel knew that, in reality, the parties did not negotiate the figure and General simply wanted

a large judgment so that it could qualify as a creditor in the Alabama action. By withholding this

information from the court, counsel breached their duties to be completely honest in conducting

litigation. This is even more true in light of the consent judgment’s inclusion of the language “and

the court being more fully advised in the premises.” The majority dismisses this language as

boilerplate; but because this phrase is so common in consent judgments, it only further indicates that

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Gen. Med. v. Horizon/CMS Health Care Corp.


counsel allowed the court to believe that this was a typical consent judgment between two parties

who had fairly negotiated the damages figure, when in fact it was not.


       In this case, where counsel failed to disclose specific elements of a settlement agreement that

radically changed the meaning and effect of a consent judgment presented to the court, the district

court was within its discretion to find that counsel violated their duties to be completely honest with

the court, regardless of whether there is a specific duty to disclose a settlement agreement.


       I respectfully dissent.




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