Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-00103/USCOURTS-cand-3_04-cv-00103-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition For Removal--Other Contract

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

MICHAEL YOUNG, et al,

Plaintiffs,

v

MICHAEL FUCHS, et al,

Defendants.

 /

No C 04-0103 VRW

ORDER

Plaintiffs move pursuant to FRCP Rule 60(b) for relief

from the court’s February 25, 2005, order dismissing defendant

Michael Fuchs (Fuchs) with prejudice. Doc #103 (Relief Mot); Doc

#101 (Dismiss Order). Defendant Zurich American Insurance Company

(Zurich) opposes. Doc #111 (Opp). For the reasons stated herein,

the court concludes that it lacks jurisdiction to entertain

plaintiffs’ motion for Rule 60(b) relief and thus DENIES the

motion.

//

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United States District Court

For the Northern District of California

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I

On January 9, 2004, plaintiffs brought suit against

Fuchs, former CEO of MyTurn.com (MyTurn), asserting claims for (1)

fraud, (2) tortious interference with employment relationship, (3)

breach of oral contract and (4) breach of fiduciary duty. Doc #1

(Compl). Plaintiffs also brought suit against defendant Zurich

seeking a declaratory judgment that the Directors & Officers policy

(the policy) issued by Zurich to MyTurn covered all of plaintiffs’

claims asserted against Fuchs. Id. On December 9, 2004,

plaintiffs filed a motion for summary judgment asserting that, as a

matter of law, (1) Fuchs was liable for fraud and (2) the policy

covered Fuchs’ fraud liability. Doc #56. That same day, Zurich

filed a cross-motion for summary judgment asserting that the policy

did not cover the alleged employment wrongs perpetrated on

plaintiffs by Fuchs. Doc #59. 

On February 2, 2005, the court granted Zurich’s motion,

finding as a matter of law that there was no coverage under the

policy for the employment wrongs allegedly committed by Fuchs. Doc

#94 at 11-12. Moreover, the court denied plaintiffs’ motion for

summary judgment against Fuchs, finding genuine issues of material

fact whether Fuchs (1) made misrepresentations to plaintiffs and

(2) possessed the required fraudulent scienter. Id at 14-16. The

court entered judgment for Zurich on February 7, 2005. Doc #95. 

Plaintiffs did not request that the judgment in favor of Zurich be

entered pursuant to FRCP 54(b). 

Despite the fact that their claims against Fuchs were

ongoing, on February 8, 2005, plaintiffs filed a notice of appeal

to the United States Court of Appeals for the Ninth Circuit
United States District Court

For the Northern District of California

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appealing the court’s February 2, 2005, order granting summary

judgment for Zurich. Doc #96. Apparently realizing that they

could not appeal the February 2, 2005, order because it was not a

“final decision” pursuant to 28 USC § 1291, on February 16, 2005,

plaintiffs and Fuchs submitted to the court a stipulation of

dismissal with prejudice of the remaining claims against Fuchs. 

Doc #97. Plaintiffs’ attorney, Michael Guta (Guta) claims that he

told Fuchs that plaintiffs “would be willing to stipulate to

dismissal of all of the FUCHS claims as long as [Guta] could be

sure that Plaintiffs were not waiving [their] rights to appeal the

Order granting summary judgment or the ability to prove FUCHS’

liability if the appeal was successful.” Doc #105 (Guta Decl) at

2. The stipulation, however, did not contain any such language. 

Pursuant to the parties’ stipulation, the court dismissed the

remaining claims against Fuchs with prejudice on February 22, 2005. 

Doc #101. That same day the case was closed.

On March 17, 2005, Zurich filed a motion to dismiss

plaintiffs’ appeal in the Ninth Circuit “on the ground that

plaintiffs, after filing notice of appeal, dismissed the underlying

action against the insured [i e, Fuchs] and thereby rendered the

appeal moot.” Opp at 1; Guta Decl, Ex F. According to Zurich,

because Fuchs can never be found liable for his alleged employment

torts, Zurich can never be liable under the policy to compensate

for Fuchs’ alleged torts. 

Zurich’s motion to dismiss plaintiffs’ appeal caused Guta

to realize that he had made an egregious mistake in stipulating to

dismiss with prejudice plaintiffs’ claims against Fuchs. 

Accordingly, on April 13, 2005, Guta filed a “motion to vacate
United States District Court

For the Northern District of California

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[the] order dismissing defendant Michael Fuchs” pursuant to FRCP

60(b)(1). Doc #104. 

Rule 60(b)(1) grants district courts the power to

“relieve a party or a party’s legal representative from a final

judgment, order, or proceeding for the following reason[]: 

mistake, inadvertence, surprise, or excusable neglect * * *.” In

his declaration accompanying the motion for Rule 60(b)(1) relief,

Guta states: 

I agreed to the Stipulation without realizing its

implications upon the appeal and the assertion of claims

against FUCHS if the appeal was successful. I should

have given the matter additional time for consideration

regardless of the short time frame. FUCHS’ counsel had

threatened to file a motion seeking sanctions under Rule

11. However, I take responsibility for the mistake and

neglect. 

 Guta Decl at 3 ¶6.

Accordingly, Guta “request[s] the Court use its discretion to

vacate the dismissal on grounds of Plaintiffs’ counsel’s mistake,

surprise, or excusable neglect.” Relief Mot at 5.

Zurich opposes the motion for Rule 60(b)(1) relief. Doc

#111. Zurich makes two arguments why the court should not grant

plaintiffs’ motion for Rule 60(b) relief: (1) the court has no

jurisdiction to rule on the motion and (2) even if the court has

jurisdiction, plaintiffs are not entitled to Rule 60(b) relief

based on Guta’s failure to evaluate the implications of the

stipulation to dismiss Fuchs with prejudice. Opp at 2. 

III

Zurich asserts that the court is without jurisdiction to

rule on plaintiffs’ Rule 60(b)(1) motion because plaintiffs’
United States District Court

For the Northern District of California

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February 8, 2005, appeal divested the court of jurisdiction over

this case. Opp at 2 (stating that “[t]he filing of a notice of

appeal divests the District Court of jurisdiction to enter an order

granting a motion to vacate a judgment under Rule 60(b) (citing

Gould v Mutual Life Insurance Co of New York, 790 F2d 769, 772 (9th

cir 1986)).

Plaintiffs counter that “if the Stipulation divested this

Court of jurisdiction to hear Plaintiffs’ Rule 60(b) motion, it

also divested the Court of jurisdiction to enter the Order that

Plaintiffs seek to vacate.” Doc #113 (Reply) at 2. And “assuming

this Court was divested of jurisdiction by the Notice Of Appeal, it

can correct [its] extra-jurisdictional act in dismissing [the

claims against Fuchs with prejudice].” Id.

The court disagrees with both parties. The order

granting summary judgment for Zurich and denying summary judgment

for plaintiffs was not a final, appealable order under 28 USC §

1291. “A final judgment under § 1291 is ‘a decision by the

District Court that ends the litigation on the merits and leaves

nothing for the court to do but execute the judgment.’” Dannenberg

v Software Toolworks, Inc, 16 F3d 1073, 1074 (9th Cir 1994)

(quoting Cooper & Lybrand v Livesay, 437 US 463, 467 (1978)). “It

is axiomatic that orders granting partial summary judgment, because

they do not dispose of all claims, are not final appealable orders

under section 1291.” Id (citation and internal quotation marks

omitted). “As a result, parties ordinarily must obtain Rule 54(b) 

certification in order to appeal partial summary judgments.” Id at

1075 (citing Sierra Club v DOT, 948 F2d 568, 571-72 (9th Cir

1991)).
United States District Court

For the Northern District of California

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The court’s February 2, 2005, order did not end this

litigation on the merits; it simply removed Zurich from the

litigation. Because the February 2, 2005, order was not a final

judgment, it could not be appealed pursuant to § 1291 and thus

plaintiffs’ improper notice of appeal filed on February 8, 2005,

did not divest the court of jurisdiction over this action. Ruby v

Secretary of the United States Navy, 365 F2d 385, 389 (9th Cir

1966) (“Where the deficiency in a notice of appeal, by reason of *

* * reference to a non-appealable order, is clear to the district

court, it may disregard the purported notice of appeal and proceed

with the case, knowing that it has not been deprived of

jurisdiction.”). Accord Bensalem Township v Int’l Surplus Lines

Ins Co, 38 F3d 1303, 1314 (3d Cir 1994) (“[A] premature notice of

appeal does not divest the district court of jurisdiction. * * *

[D]istrict courts should continue to exercise their jurisdiction

when faced with clearly premature notices of appeal.” (emphasis in 

original) (citation and internal quotation marks omitted)). 

Accordingly, this court did not commit an extrajurisdictional act in dismissing Fuchs with prejudice pursuant to

the February 16, 2005, stipulation. 

But this fact does not mean that the court currently has

jurisdiction over this action. The Ninth Circuit “take[s] a

pragmatic approach to finality in situations where events

subsequent to a nonfinal order fulfill the purposes of the final

judgment rule.” Dannenberg, 16 F3d at 1075. Specifically,

“‘judgments whose finality would normally depend upon a Rule 54(b)

certificate may be treated as final [and appealable under § 1291]

if remaining claims subsequently have []been finalized.’” Id
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(quoting Baker v Limber, 647 F2d 912, 916 (9th Cir 1981)

(alterations in original)). 

In Unioil, Inc v E F Hutton & Co, Inc, 809 F2d 548

(1986), the Ninth Circuit found that it had appellate jurisdiction

on virtually indistinguishable facts from the facts at bar. In

Unioil, an article in the Wall Street Journal reported that

defendants, professional investing brokerage houses, were selling

Unioil, Inc (Unioil) stock “short” (i e, selling for future

delivery stock that they did not yet own) in the belief that the

stock was overvalued. Id at 552. The article also disclosed that

Unioil’s chairman of the board, Richards, had twice been cited by

the SEC for making false and misleading statements. Id. Following

the publication of the article, the price of Unioil stock

plummeted. Id. On March 21, 1984, Unioil and Richards, along with

Unioil shareholders Mark Zelezny (Zelezny) and Heck & Heck, Inc

(H&H) filed suit alleging defendants had schemed to sell Unioil

stock “short” in violation of federal and state law. Additionally,

Unioil and Richards alleged that defendants had defamed them. Id. 

Zelezny and H&H purported to bring suit on behalf of a class of all

other Unioil shareholders. Id. The putative class of shareholders

were represented by Joseph L Alioto of the law firm of Alioto &

Alioto and Donald Barton of Donaldson & Barton. Id at 551. 

After revelations about the way Alioto and Barton

initiated the class action, Alioto and Barton announced that

Zelezny and H&H would voluntarily dismiss the class action without

prejudice. Id at 533. In a June 1985 order, the district court

dismissed H&H’s and Zelezny’s individual and class claims without

prejudice under FRCP 41(a)(2) on the condition that H&H and Zelezny
United States District Court

For the Northern District of California

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or their counsel – Alioto and Barton-- reimburse defendants

$165,774.84 for their costs and expenses, including attorneys fees. 

Id. The court also imposed $294,141.10 in Rule 11 sanctions

against Alioto. Id. Zelezny and H&H, along with Alioto and Barton

appealed the court’s June 1985 order conditioning voluntary

dismissal on the payment of defendants’ fees. Id. Alioto appealed

the imposition of Rule 11 sanctions. Id. It is important to note,

however, that at the time of this appeal in 1985, Unioil and

Richards’ claims against defendants were still pending. In an

order entered in March 1986, the district court dismissed Unioil’s

and Richard’s individual claims with prejudice for failure to

prosecute. Id.

Before addressing the merits of the appeal by Zelezny,

H&H, Alioto and Barton of the court’s June 1985 order, the Unioil

panel stated: “We must address sua sponte whether we have

jurisdiction over this appeal.” Id. The panel began by noting

that, absent a Rule 54(b) judgment, the June 1985 interlocutory

order would not be appealable. Id (stating that the June 1985

order was non-appealable because “it was entered at a time when the

claims of Unioil and Richards remained to be decided by the

district court.”). The panel went on to state:

In Anderson v Allstate Insurance Co, 630 F2d 677 (9th

Cir 1980), however, we described an exception to the

finality rule: [W]e held that we may treat an

interlocutory order as a final order when that portion

of the case that remained in the district court has

subsequently been terminated. [citation omitted].

Because Unioil’s and Richard’s claims have since been

dismissed with prejudice, we may, under Allstate, disregard the fact that they previously rendered the

district court’s order interlocutory.” 

 Id (emphasis added). 
United States District Court

For the Northern District of California

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As in Unioil, the remaining claims against Fuchs have since been

dismissed with prejudice, and thus it appears that the Ninth

Circuit, in its discretion, could exercise appellate jurisdiction

over plaintiffs’ appeal of the court’s February 2, 2005,

interlocutory order granting summary judgment in favor of Zurich.

Accordingly, because the Ninth Circuit has exercised

appellate jurisdiction on facts virtually indistinguishable from the

facts of this case, the court concludes that the February 22, 2005,

dismissal of Fuchs with prejudice perfected plaintiffs’ February 8,

2005, appeal and thus this court is without jurisdiction to

entertain plaintiffs’ Rule 60(b) motion for relief. 

IV

Plaintiffs state that “if this Court finds it does not

have jurisdiction [over the Rule 60(b) motion], Plaintiffs ask the

[]court to indicate whether it wishes to entertain or grant the

motion.” Reply at 9. This is the correct procedure in the Ninth

Circuit. See Gould, 790 F2d at 772 (“The proper procedure, once an

appeal has been taken, is to ‘ask the district court whether it

wishes to entertain the [Rule 60(b)] motion, or to grant it, and

then move this court, if appropriate, for remand of the case.’”)

(quoting Scott v Younger, 739 F2d 1464, 1466 (9th Cir 1984)). 

Moreover, the Ninth Circuit has stayed plaintiffs’ appeal

pending an order by this court regarding the present motion, and

thus it appears the Ninth Circuit is likewise interested whether

this court wishes to entertain or grant plaintiffs’ Rule 60(b)

motion. 

// 
United States District Court

For the Northern District of California

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The court will end the suspense and inform plaintiff and

the Ninth Circuit that it does not wish to entertain or grant

plaintiffs’ Rule 60(b) motion. See Engleson v Burlington Northern

Railroad Co, 972 F2d 1038, 1043 (9th Cir 1992) (“Neither ignorance

nor carelessness on the part of the litigant or his attorney provide

grounds for relief under Rule 60(b)(1).”). To characterize Guta’s

actions in agreeing to dismiss Fuchs with prejudice as “careless”

would be an understatement.

The Second Circuit’s decision in Nemaizer v Baker, 793 F2d

58 (2d Cir 1986) is directly on point. In Nemaizer, plaintiff’s

counsel agreed to a stipulation dismissing with prejudice

plaintiff’s entire cause of action against defendant. Id at 60

(noting that the stipulation agreed to dismiss “the action” with

prejudice; no limitations were contained in the stipulation). 

Plaintiff’s counsel then moved the district court for Rule 60(b)

relief arguing that he intended only to stipulate to dismiss with

prejudice plaintiff’s state law claims, not plaintiff’s potential

federal claims under ERISA. Id at 60. The district court granted

the motion, concluding that a “genuine misunderstanding had occurred

concerning the stipulation’s scope.” Id. 

The Second Circuit reversed, holding that the district

court had abused its discretion in granting Rule 60(b) relief. The

Second Circuit explained: “[A]n attorney’s failure to evaluate

carefully the legal consequences of a chosen course of action

provides no basis for relief from a judgment.” Id at 62. 

Accordingly, “[t]he legal consequences of a stipulation incorporated

in a court order may not be undone simply because, with the benefit

of hindsight, stipulating turns out to have been an unfortunate
United States District Court

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tactic.” Id at 59-60.

It is clear that Guta hastily agreed to dismiss Fuchs with

prejudice to avoid a Rule 11 motion from Fuchs’ counsel. Moreover,

such a stipulation made sense, for Guta made clear at oral argument

that plaintiffs are only interested in (indeed are limited to)

recovering from Zurich. Guta, however, did not evaluate carefully

the legal consequences this stipulation would have on plaintiffs’

appeal in the Ninth Circuit. Now, with the benefit of hindsight and

thoughtful reflection, Guta wishes to undo his deliberate -- and

ultimately unfortunate -- actions. This is not the purpose of Rule

60(b). 

V

In sum, the court DENIES plaintiffs’ motion for Rule 60(b)

relief on the ground that the court does not have jurisdiction to

entertain the motion. Moreover, pursuant to Gould, the court does

not wish to entertain or grant such a motion.

SO ORDERED.

 

VAUGHN R WALKER

United States District Chief Judge