Antitrust plaintiff denied 60(b) relief from prior judgment

The 1st U.S. Circuit Court of Appeals has ruled that a tech company asserting it was fraudulently induced into settling a claim it had brought against a company for allegedly anticompetitive behavior was not entitled to Rule 60(b)(6) relief enabling it to bring a new action in light of the alleged fraud.

Plaintiff U-Nest Holdings, a tech startup that makes an app for families to invest in 529 college savings plans, initially brought an action against defendant Ascensus College Savings Recordkeeping Services in Providence Superior Court. The suit alleged anticompetitive behavior designed to drive the plaintiff out of business while paving the way for the defendant to market a similar app. A settlement agreement in that case was incorporated into a federal court judgment the following year.

A year later, when Ascensus marketed its own app, the plaintiff, seeking to proceed with a new federal action, moved for relief from the prior judgment under Rule 60(b)(6) of the Federal Rules of Civil Procedure, which provides for such relief in cases of fraud or misrepresentation by an opposing party.

According to U-Nest, in agreeing to settle the prior federal suit, it relied on in-court statements by Ascensus’ counsel in which he denied that the defendant was developing an app or conspiring to drive U-Nest out of business.

A U.S. District Court judge in Rhode Island denied the 60(b)(6) motion, citing lack of evidence of fraud or misrepresentation.

The 1st Circuit affirmed, rejecting U-Nest’s argument that the District Court abused its discretion.

“U-Nest argues … that the district court erred by denying its motion solely on the basis that U-Nest had failed to request an evidentiary hearing,” Senior Judge Sandra L. Lynch wrote. “The district court denied U-Nest’s motion not because it had failed to request an evidentiary hearing, but rather because U-Nest had not adequately substantiated its allegations of fraud.”

The seven-page decision is U-Nest Holdings, Inc. v. Ascensus College Savings Recordkeeping Services, LLC, Lawyers Weekly No. 01-188-23.

Marc DeSisto of Providence, who represented Ascensus before the 1st Circuit, could not be reached for comment prior to deadline.

Plaintiff’s counsel, Joseph A. Farside Jr. of Providence, declined to comment.

Alleged inducement

U-Nest filed its state court suit in 2019 alleging that Ascensus, a 529 plan management company, waged an anticompetitive campaign to kick U-Nest out of all plan programs it managed and block its further growth.

The plaintiff suspected that Ascensus had its own app in development that would eventually compete with the app that U-Nest had already launched, and brought the state court suit to preserve access to Ascensus’ client portal.

The state court case settled that same year. The settlement agreement included a release of claims.

Late that year, U-Nest sued Ascensus in U.S. District Court alleging additional anticompetitive conduct in violation of the state court settlement and seeking damages and injunctive relief.

During a hearing on U-Nest’s motion for a preliminary injunction, U-Nest’s counsel asserted a theory that Ascensus’ conduct was motivated by a desire to eliminate competition in the app-based market while developing its own app.

Ascensus’ counsel apparently stated in response: “We’re not developing [an app]; this isn’t some conspiracy to knock U-Nest out.” The lawyer went on to describe U-Nest’s concern as a “wild theory” while asking rhetorically, “Well, where’s the evidence?”

After the court denied the motion for a preliminary injunction based on a failure of U-Nest to establish irreparable harm, the parties settled the antitrust claims with an agreement that embodied the prior state court agreement, leading to a judgment of dismissal.

U-Nest claimed it relied on the in-court statements of Ascensus’ counsel in agreeing to settle.

Thirteen months later, Ascensus unveiled its own app which, according to U-Nest, had several features that were materially similar to the U-Nest app.

In response, U-Nest brought another federal court action against Ascensus, alleging that development of the Ascensus app would have required a multi-phase approach requiring at least 24 months from conception to launch, meaning that the app would have been in development at the time of the in-court statements U-Nest relied on.

Finding that U-Nest had not sought the appropriate relief from final judgment in the prior suit, U.S. District Court Judge Mary S. McElroy denied Ascensus’ motion to dismiss without prejudice and stayed the case for U-Nest to seek relief under Rule 60(b).

U.S. District Court Judge William E. Smith went on to deny the motion, finding that U-Nest presented no evidence to support its claim that Ascensus made misrepresentations for the specific purpose of tricking U-Nest into entering a settlement agreement.

In so ruling, Smith emphasized that in support of U-Nest’s allegations, it submitted a copy of the preliminary injunction hearing transcript, a comparison of the U-Nest app and the Ascensus app, a transcript of the motion-to-dismiss hearing, and its complaint from the second case.

Meanwhile, Smith noted, the only support U-Nest provided for its claim that Ascensus’ counsel made a false statement during the hearing was an argument that such an app could not have been developed in the 13 months between the hearing and the release of Ascensus’ app.

Smith further noted that U-Nest had multiple opportunities to present the necessary evidence but never affirmatively requested an evidentiary hearing, only stating to the court that it would not object to one.

U-Nest appealed.

No abuse of discretion

The 1st Circuit rejected U-Nest’s argument that Smith abused his discretion in denying the 60(b)(6) motion.

First, Lynch said, the District Court did not deny the motion solely on the basis that U-Nest failed to request an evidentiary hearing, as U-Nest, asserted, but because it had not adequately substantiated its fraud allegations.

The panel was also unmoved by U-Nest’s argument that the District Court should have conducted an evidentiary hearing even in the absence of such a request by the plaintiff.

“There is no such requirement and U-Nest has not cited any case law which says that there is,” Lynch said, quoting the 1st Circuit’s 1990 Gen. Contracting & Trading Co., LLC v. Interpole, Inc. decision. “To the contrary, the burden is on the Rule 60 movant to demonstrate the existence of exceptional circumstances justifying relief from judgment. It therefore falls upon the movant to request an evidentiary hearing and thereafter to ‘convince the court of its desirability.’”

As for the District Court’s ruling on the substance of U-Turn’s claim, Lynch said the lower court “reviewed the ‘evidence’ U-Nest had filed and stated why it was inadequate” and “amply supported its finding that U-Nest did not support its claim of fraud and/or misrepresentation.”

Accordingly, the 1st Circuit concluded that Smith’s Rule 60(b) ruling should be affirmed with costs awarded to Ascensus.