Court won’t vacate prior rulings despite settlement

Where a former shareholder agreed with the trustee for a defunct law firm, as part of a settlement, to move the bankruptcy court and district court to vacate prior rulings that were favorable to the trustee, but they failed to demonstrate there were any exceptional circumstances furthering public interest that would justify the relief they sought, their motion was denied.

Background

This case arises out of the bankruptcy case voluntarily commenced by LeClairRyan PLLC on Sept. 3, 2019. Two weeks later, LeClairRyan filed its list of equity security holders, or ESH. Immediately after her appointment, the trustee began using the ESH list to file taxation documents for the estate. Due to the tax burdens imposed by membership on the list, Gary LeClair and other list-members sought amendment of the list by the trustee.

The bankruptcy court granted the trustee’s reliance on the ESH list. On appeal, this court found that the bankruptcy court acted properly in granting the trustee’s motion to authorize and denying the appellants’ motion to amend. LeClair appealed to the Fourth Circuit where a settlement in principle was reached. One of the provisions was that the parties would file joint motions in the bankruptcy court and this court requesting that both courts vacate their opinions and orders regarding the trustee’s use of the ESH list.

On June 27, 2023, the bankruptcy court held a hearing on the pending motion. Judge Huennekens voiced concerns that he and the undersigned shared regarding the requests for vacatur in the settlement agreement, and continued the hearing until July 27, 2023.

On July 27, 2023, the undersigned ruled from the bench, striking all provisions regarding requests or processes to vacate the court and the bankruptcy court’s prior rulings and voided proposed factual stipulations that run contrary to the court’s opinion.

An order followed, wherein the court withdrew the reference of this case to the bankruptcy court regarding LeClair’s settlement and any other claims implicated in the settlement agreement and the motion and struck the provisions as ruled upon from the bench. This memorandum opinion details the court’s rationale for that ruling.

Analysis

In US. Bancorp Mortgage Co. v. Bonner Mall Partnership, 513 U.S. 18 (1994), the Supreme Court analyzed what constitutes extraordinary circumstances that may warrant an appellate court’s vacatur of a lower court’s judgment, after the parties reached a settlement that provided for the vacatur of a judgment. In words that resonate here, it explicitly stated that “exceptional circumstances do not include the mere fact that the settlement agreement provides for vacatur.”

In their motion for settlement approval, the parties make no mention about these bedrock principles nor even attempt to offer an exceptional circumstance furthering public interest that would justify the extraordinary relief that they seek, stating only to prevail that they “will have to demonstrate exceptional circumstances (among other things).” Neither do the parties counter the fact that “the relative fault and the public interest” considerations point against vacatur. Instead, the parties merely state that the settlement is “fair and equitable,” and that it ends the litigation. But expediency fails to constitute an extraordinary basis.

Moreover, no alternate exceptional circumstance nor public interest in vacatur could ever be found here, as this agreement simply endeavors to relieve LeClair of his tax responsibilities that flowed from the bungled dissolution of his law firm. LeClair’s personal avarice does not translate into a circumstance worthy of vacating this court’s opinion. LeClair merely pursues avoidance of the precedential and preclusive effects that this court’s and the bankruptcy court’s decisions may have on his personal taxes; yet greed and avoidance of personal tax consequences constitute the antithesis of the extraordinary circumstances contemplated by the Supreme Court in Bancorp.

Indeed, were the court to approve such an unseemly agreement, it would become a full partner in LeClair’s tax avoidance efforts. The court declines LeClair’s invitation to do so. If LeClair is unhappy with this court’s decision, he has a remedy: litigate his appeal.

The trustee should have recognized the impropriety of this flawed agreement. At a minimum, the trustee should have engaged in research on the correctness of the agreement before moving forward, particularly when this area of law has been well established by both the Supreme Court and Fourth Circuit. While the court understands that the trustee has been presented with an extremely difficult job in the dissolution of this embattled law firm, she cannot ignore her unique position or its attendant responsibilities.

So ordered.

Adams v. Tavenner, Case No. 3:22-cv-237, Aug. 22, 2023. EDVA at Richmond (Novak). VLW 023-3-500. 11 pp.