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Sixth Circuit Scrutinizes Fraud on the Court Standard

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In an interesting unpublished decision issued yesterday, General Medicine, P.C. v. Horizon/CMS Health Care Corporation, the Sixth Circuit, in a divided 2-1 decision, considered a fraud on the court challenge to a consent judgment.  In the underlying case, two parties entered into a $376 million consent judgment that was approved by the district court while at the same time entering into a side confidential settlement agreement limiting the collection of the plaintiff to $300,000, in anticipation that the defendant would then seek to collect proceeds against a third party.  The parties allegedly never revealed the side agreement to the district court, and when the third party learned of the existence of the agreement, it intervened in the case after the fact and sought to set aside the consent judgment based on the fraud allegedly perpetrated on the court.  The district court agreed, and found that counsel had perpetrated a fraud on the court.  The Sixth Circuit, however, reversed.  The majority opinion delineates the extremely high standard for showing fraud on the court, which encompasses only “the most egregious conduct involving a corruption of the judicial process itself.”  After the majority established the difficult standard, it concluded that the simple failure to disclose the side settlement agreement did not rise to the level of fraud on the court.  The court found no duty to disclose, nor did it find any intent to deceive by counsel. 

In dissent, Chief Judge Batchelder disagreed.  She notes that “the record supports the district court’s conclusion that counsel, on some level, intended to deceive the court.”  Chief Judge Batchelder rejected the majority’s ascribing benign intentions to the actions of counsel, and would have placed greater weight on the district court’s exercise of discretion. This case illustrates pitfalls and risks associated with consent judgments that both sides agree to without revealing the full scope of the settlement to the court.