Court Opinion

ID: 9964790
Source: CourtListenerOpinion
Date Created: 2024-04-30 20:01:15.633667+00
Date Added: 2024-06-11T08:25:42.204159
License: Public Domain

FILED
                                                                                APR 30 2024
                          NOT FOR PUBLICATION                              SUSAN M. SPRAUL, CLERK
                                                                              U.S. BKCY. APP. PANEL
                                                                              OF THE NINTH CIRCUIT
          UNITED STATES BANKRUPTCY APPELLATE PANEL
                    OF THE NINTH CIRCUIT

 In re:                                             BAP No. WW-23-1158-LBS
 YING LIU and ZHIWEN YANG,
               Debtors.                             Bk. No. 2:22-bk-10855-TWD
 YING LIU; ZHIWEN YANG,
               Appellants,
 v.                                                 MEMORANDUM∗
 YUN ZHANG,
               Appellee.

               Appeal from the United States Bankruptcy Court
                   for the Western District of Washington
               Timothy W. Dore, Bankruptcy Judge, Presiding

Before: LAFFERTY, BRAND, and SPRAKER, Bankruptcy Judges.

                                 INTRODUCTION

      Ying Liu and Zhiwen Yang (“Debtors”) appeal the bankruptcy

court’s order denying their motion for relief under Civil Rule 60(b) 1 from

an order approving a settlement agreement. Prepetition, one of Debtors’

      ∗ This disposition is not appropriate for publication. Although it may be cited for

whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
       1 Unless specified otherwise, all chapter and section references are to the

Bankruptcy Code, 11 U.S.C. §§ 101–1532, “Rule” references are to the Federal Rules of
Bankruptcy Procedure, “Civil Rule” references are to the Federal Rules of Civil
Procedure, and “FRE” references are to the Federal Rules of Evidence.
                                            1
creditors obtained a judgment against Debtors in China, followed by a

judgment from a Washington state court recognizing the Chinese

judgment. Upon Debtors’ filing of a bankruptcy case, the creditor asserted

a substantial claim against Debtors’ estate based on that litigation.

      Debtors repeatedly asserted, before and after their bankruptcy filing,

that this creditor fraudulently obtained the Chinese judgment.

Nevertheless, after months of settlement negotiations between Debtors and

the creditor, Debtors voluntarily entered into a settlement agreement with

the creditor, through which Debtors settled not just the validity and

amount of the creditor’s claim, receiving a $2 million reduction of that

claim, but also the creditor’s threatened objections to Debtors’ subchapter

V election, Debtors’ discharge, and confirmation of Debtors’ plan.

      Debtors then filed a motion for approval of that settlement

agreement, arguing that the settlement was “fair and equitable” and would

benefit creditors of the estate, mainly because the estate would otherwise

expend considerable resources litigating the multiple disputes between the

parties in multiple courts. The bankruptcy court approved the settlement

agreement. Debtors proposed a chapter 11 plan of reorganization

incorporating the terms of the agreement, and the bankruptcy court

confirmed that plan.

      Several months after plan confirmation, the Chinese court vacated

the Chinese judgment. Debtors, contending that this absolved them of all

obligations to the creditor under the settlement agreement, moved to

                                       2
vacate the bankruptcy court’s order approving the agreement. The crux of

Debtors’ argument was, once again, that the creditor had fraudulently

obtained the Chinese judgment, i.e., the same argument Debtors repeatedly

asserted for years preceding their settlement. Debtors asserted that, in light

of the vacation of the Chinese judgment, they were now entitled to relief

from the settlement order under Civil Rule 60(b)(3), (b)(5), and (b)(6). The

bankruptcy court denied the motion, holding that Debtors knew all

pertinent facts before entering into the settlement agreement and that it

would not be inequitable to hold Debtors to the bargain they voluntarily

made for the benefit of the estate.

       We AFFIRM.

                                         FACTS2

A.     Prepetition Events

       In 2017, Yun Zhang obtained a money judgment against Debtors in

China (the “Chinese Judgment”) based on a breach of Debtors’ commercial

obligations to her. Subsequently, Ms. Zhang filed a petition in the Superior

Court for King County in Washington for recognition of the Chinese

       2
         In their reply brief, Debtors request that the Panel strike certain documents
from Ms. Zhang’s Supplemental Excerpts of Record, on the basis that the documents
were not properly designated under Rule 8009. Reply Brief, pp. 1-2. Although the Panel
may take judicial notice of the bankruptcy court docket and various documents filed
through the electronic docketing system, see O’Rourke v. Seaboard Sur. Co. (In re E.R.
Fegert, Inc.), 887 F.2d 955, 957-58 (9th Cir. 1989), in this case, the Panel did not rely on
any of the documents to which Debtors object. As such, the Panel overrules Debtors’
objection as moot.
                                             3
Judgment. In response to this petition, Debtors asserted that Ms. Zhang

had fraudulently obtained the Chinese Judgment. Notwithstanding

Debtors’ objection, the Superior Court entered a judgment against Debtors

in the amount of $4,698,122 (the “Washington Judgment”).

     Debtor Ying Liu later filed an action in China to set aside the Chinese

Judgment, again asserting that Ms. Zhang committed fraud in obtaining

the Chinese Judgment. Debtors also advised Hao Lu, an individual

residing in China to whom Debtors owed money, that Ms. Zhang had

fraudulently obtained the Chinese Judgment which threatened Hao Lu’s

recovery against Ms. Liu. As a result, Hao Lu filed a separate lawsuit to

revoke the Chinese Judgment (the “Hao Lu Action”).

B.   Debtors’ Bankruptcy Filing and the Parties’ Settlement

     Shortly after Hao Lu initiated the Hao Lu Action, Debtors filed their

chapter 11 case. In their schedules, Debtors identified the secured and

unsecured claims held by Ms. Zhang, indicating that both claims were

disputed. Ms. Zhang also filed a proof of claim, asserting a secured claim

against the estate in the amount of $5,020,131.68.

     At virtually every stage of Debtors’ bankruptcy case, Debtors argued

that Ms. Zhang did not have a valid claim and that Ms. Zhang obtained the

Chinese Judgment by inappropriate means. And, as evidenced by an email

from Debtors’ lawyer, Debtors knew about the Hao Lu Action, which

sought to vacate the Chinese Judgment on the basis of fraud.

                                      4
      Nevertheless, from July through August 2022, Debtors and Ms.

Zhang engaged in settlement negotiations. Both parties were represented

by counsel. As part of the settlement negotiations, Debtors requested

inclusion of a clause in the final agreement that would nullify the

settlement agreement if the Chinese Judgment was vacated (the

“Nullification Clause”). Ms. Zhang did not accept Debtors’ proposed

Nullification Clause. Nevertheless, the parties reached a consensus and

finalized a settlement agreement (the “Settlement Agreement”).

      In August 2022, Debtors filed a motion for approval of the Settlement

Agreement in accordance with Rule 9019 (the “Settlement Motion”). The

Settlement Agreement submitted to the bankruptcy court did not include

the Nullification Clause. But it did include a requirement that the plan

contain provisions consistent with the Settlement Agreement and that the

plan be confirmed.

      In the Settlement Motion, Debtors argued that their agreement with

Ms. Zhang was fair and equitable, and that it satisfied the four-part test for

compromises of controversies. Specifically, Debtors asserted that the

benefits the estate would receive from the Settlement Agreement

“outweigh[ed] the likely rewards of litigation because of the economic

benefits of reducing [Ms.] Zhang’s claim while forgoing lengthy and

extremely costly litigation.” Debtors stressed:

      Consider first the complexity, cost and delay of litigation. Yun
      Zhang has agreed to forgo objections to the Debtors’ subchapter

                                      5
      V election, the discharge of debt, and plan confirmation,
      meaning the estate will likely not be burdened with the time
      and expense of defending against such objections, regardless of
      whether any has merit.
      The administrative costs that would otherwise be expended on
      such litigation can instead be used to pay holders of allowed
      claims. Further, the delay and expense of litigation must
      include the real possibility of a lengthy appeals process.
      Accordingly, the Debtors believe the Agreement is fair in
      relation to the costs and benefits of pursuing litigation.
      Debtors also argued that the Settlement Agreement was in the

interest of all creditors of the estate. Debtors noted that, although Ms.

Zhang’s “claim may be reduced further through successful litigation,” the

Settlement Agreement was based on “a sound economic decision[] to

preserve current and future estate funds in order to make meaningful

distributions to unsecured creditors.”

      The bankruptcy court approved the settlement agreement (the

“Settlement Order”). In the Settlement Order, the bankruptcy court found

that the terms of the Settlement Agreement were “fair and equitable, in the

interest of all parties, and satisf[ied] the standard for compromises and

settlements pursuant to [Rule] 9019….”

      Subsequently, Debtors filed a chapter 11 plan of reorganization (the

“Plan”). In the Plan, Debtors proposed treatment of Ms. Zhang’s claim in

accordance with the Settlement Agreement. The bankruptcy court entered

an order confirming the Plan.

                                       6
C.    The Vacation of the Chinese Judgment and Debtors’ Motion for
      Relief from the Settlement Order
      Approximately nine months after entry of the Settlement Order and

eight months after confirmation of the Plan, the Chinese court presiding

over the Hao Lu Action vacated the Chinese Judgment. Debtors then filed a

motion for relief from the Settlement Order under Civil Rule 60(b)(3),

(b)(5), and (b)(6) (the “Motion for Relief”). In the Motion for Relief, Debtors

argued that: (i) Ms. Zhang fraudulently obtained the Chinese Judgment by

serving Debtors at the wrong address and making misrepresentations

before the Chinese court; (ii) continued enforcement of the Settlement

Order was no longer equitable; (iii) the Chinese Judgment was the sole

basis for the Settlement Order, and vacation of the Chinese Judgment

should similarly result in vacation of the Settlement Order; and (iv)

extraordinary circumstances warranted relief from the Settlement Order.

      At the hearing on the Motion for Relief, the bankruptcy court ruled

that relief under Civil Rule 60(b)(3) was not warranted. The bankruptcy

court found that any “fraud, misrepresentation, or opposing party

misconduct” would relate to entry of the Chinese Judgment and not the

Settlement Order, and that Debtors were aware of the alleged bad acts

before voluntarily entering into the Settlement Agreement.

      As to Civil Rule 60(b)(5), the bankruptcy court held that it was “not

inequitable to hold the debtors to the terms of a settlement agreement they

entered into while knowing all the relevant facts that have allowed them to

                                       7
successfully challenge [Ms.] Zhang’s claim.” The court also stated that the

existence of the Chinese Judgment was just one factor in Debtors’ decision

to settle.

      With respect to Civil Rule 60(b)(6), the bankruptcy court held that

there was no manifest injustice because Debtors knew all the relevant facts

before settling. Finally, the court noted that the terms of the Settlement

Agreement were incorporated into the Plan. Therefore, vacating the

Settlement Order would not accomplish much because the parties were still

bound by the confirmed Plan. As a result, the bankruptcy court entered an

order denying the Motion for Relief. Debtors timely appealed.

                                 JURISDICTION

      The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(A) and (O). We have jurisdiction under 28 U.S.C. § 158.

                                     ISSUES

      1. Did the bankruptcy court err in holding that Civil Rule 60(b) is

             generally not available to avoid binding settlement agreements?

      2. Did the bankruptcy court err in relying on certain settlement

             communications for its ruling?

      3. Did the bankruptcy court err in denying Debtors’ motion for relief

             from the Settlement Order under Civil Rule 60(b)(3)?

      4. Did the bankruptcy court err in denying Debtors’ motion for relief

             from the Settlement Order under Civil Rule 60(b)(5)?

                                         8
      5. Did the bankruptcy court err in denying Debtors’ motion for relief

         from the Settlement Order under Civil Rule 60(b)(6)?

      6. Did the bankruptcy court err by commenting on the futility of

         vacating the Settlement Order in light of the confirmed Plan?

                          STANDARD OF REVIEW

      The Panel reviews a trial court’s decision to deny a Civil Rule 60(b)

motion for abuse of discretion. Cmty. Dental Servs. v. Tani, 282 F.3d 1164,

1167 n.7 (9th Cir. 2002), as amended on denial of reh'g and reh'g en banc, (April

24, 2002). In applying an abuse of discretion test, we first “determine de

novo whether the [bankruptcy] court identified the correct legal rule to

apply to the relief requested.” United States v. Hinkson, 585 F.3d 1247, 1262

(9th Cir.2009) (en banc). If the bankruptcy court identified the correct legal

rule, we then determine whether its “application of the correct legal

standard [to the facts] was (1) illogical, (2) implausible, or (3) without

support in inferences that may be drawn from the facts in the record.” Id.

(internal quotation marks omitted).

                                DISCUSSION

      At the core of Debtors’ appeal is their argument that vacation of the

Chinese Judgment should translate into vacation of the Settlement Order.

However, Debtors have not established that Civil Rule 60(b) provides an

avenue for such relief. Consequently, the bankruptcy court did not abuse

its discretion in denying Debtors’ request to vacate the Settlement Order

under Civil Rule 60(b)(3), (b)(5), and (b)(6), as discussed in Sections C., D.,

                                        9
and E., respectively. Nor did the bankruptcy court err in noting that Civil

Rule 60(b) generally does not allow for voiding of settlement agreements,

as discussed in Section A., relying on certain settlement communications,

as discussed in Section B., or noting that Debtors’ confirmed Plan presented

an additional obstacle to the relief sought by Debtors, as discussed in

Section F.

A.    The bankruptcy court did not err in noting that Civil Rule 60(b) is
      generally not available to avoid binding settlement agreements.
      Debtors contend that the bankruptcy court erred by holding that the

Settlement Agreement remains binding despite vacation of the Chinese

Judgment, and by referencing Pilkington v. Cardinal Health, Inc. (In re Syncor

ERISA Litigation), 516 F.3d 1095 (9th Cir. 2008), in support of its holding.

However, Debtors mischaracterize the bankruptcy court’s ruling. The

bankruptcy court did not hold that the Settlement Agreement remains

binding under every theory available to Debtors. Rather, the bankruptcy

court simply commented that Civil Rule 60(b) is usually not the right tool

to attack settlement agreements.

      Specifically, the bankruptcy court relied on Syncor to note that

“[g]enerally, [Civil] Rule 60(b) is not available to avoid a binding

settlement agreement.” Thus, the bankruptcy court employed Syncor to

articulate a general rule for application of Civil Rule 60(b) to settlement

agreements. Nevertheless, Debtors argue that the bankruptcy court’s

reliance was a mistake because Syncor involved a different context, i.e., a

                                      10
class action lawsuit. This argument is unpersuasive: Syncor did not limit

application of the rule quoted by the bankruptcy court to a specific context,

and a review of the case makes clear that the rule would apply in other

cases.

         In Syncor, prior to the court’s ruling on a motion for summary

judgment filed by defendants, the parties entered into a class action

settlement agreement that required court approval under the Civil Rules.

Id. at 1097-99. The parties notified the district court of their settlement, but

the district court entered an order granting the motion for summary

judgment anyway. Id. Subsequently, the class filed a motion under Civil

Rule 60(b) requesting that the court set aside the judgment. Id. The district

court denied this motion. Id.

         On appeal, the Ninth Circuit Court of Appeals reversed the district

court’s decision. Id. at 1103. The Court of Appeals first noted that “the

requirement that the district court approve a class action settlement does

not affect the binding nature of the parties’ agreement.” Id. at 1100. The

Court of Appeals reasoned:

         At the time of the settlement, Defendants knew they had
         dispositive motions pending and chose the certainty of
         settlement rather than the gamble of a ruling on their motions.
         Thus, Defendants chose to forego the chance that the district
         court would grant summary judgment in their favor. Because
         the parties bound themselves to a settlement agreement subject
         only to court approval (which they had agreed to seek) and
         gave the required notice of the agreement, the district court

                                        11
      should not have (1) filed its order granting the motions for
      summary judgment and (2) entered final judgments against the
      Class.
Id.; see also Sheng v. Starkey Lab’ys, Inc., 117 F.3d 1081, 1083 (8th Cir. 1997)

(“[Civil] Rule 60(b) does not allow district courts to indulge a party’s

discontent over the effects of the party’s bargain.”) (citation and

international quotation marks omitted).

      Debtors’ attempt to distinguish Syncor by arguing that Syncor

involved a complex class action lawsuit presents a distinction without a

difference. Syncor acknowledged and adopted the holding of Sheng, which

set forth the general principal that district courts lack the discretion to

allow parties to nullify a fully executed settlement agreement by

employing Civil Rule 60(b). This statement of general application is not

dependent on the size or type of litigation. Debtors have not articulated

why the Court of Appeals’ reasoning does not equally apply to the

Settlement Agreement.

      Debtors place great weight on the Court of Appeals’ statement that

the strong judicial policy favoring settlement is particularly important

“where complex class action litigation is concerned.” Syncor, 516 F.3d at

1101. However, as discussed above, the complexity of the case in Syncor

does not make this policy inapplicable to less complex cases.

      Moreover, in support of Syncor’s policy conclusion, the Court of

Appeals referenced local rules that set forth policies and procedures for

                                        12
settlement to encourage disposition of civil litigation by settlement. Id. The

local rules cited by the Court of Appeals make clear that, notwithstanding

the complexity of a matter, the policy regarding settlement is important in

any case. Id.

      The very same policies are reflected in the Local Bankruptcy Rules for

the Western District of Washington (the “Local Bankruptcy Rules”),

through which the bankruptcy courts in that district offer a specialized

mediation program to streamline settlement of disputes arising from

bankruptcy cases. Local Bankruptcy Rules 9040-1 – 9054-1. As stated in the

Local Bankruptcy Rules:

      The court recognizes that formal litigation of disputes in
      bankruptcy cases and adversary proceedings frequently
      imposes significant economic burdens on parties and often
      delays resolution of those disputes. The procedures established
      by these Local Bankruptcy Rules are intended primarily to
      provide litigants with the means to resolve their disputes more
      quickly, at less cost, and often without the stress and pressure
      of litigation.

      The court also notes that the volume of cases, contested matters
      and adversary proceedings filed in the Western District of
      Washington has placed substantial burdens upon counsel,
      litigants and the court, all of which contribute to the delay in
      the resolution of disputed matters. A court authorized
      mediation program, in which litigants and counsel meet with a
      Mediator, offers an opportunity to parties to settle legal
      disputes promptly and less expensively, to their mutual
      satisfaction. Local Bankruptcy Rule 9040-2.

                                      13
Thus, the “strong judicial policy favoring settlement” is equally present in

bankruptcy cases and proceedings.

      The bankruptcy court did not err in relying on Syncor or noting that

Civil Rule 60(b) generally does not provide an avenue for avoidance of

settlement agreements.

B.    The bankruptcy court did not err in relying on communications
      regarding settlement negotiations.
      Debtors assert that the bankruptcy court’s ruling impermissibly

relied on settlement communications in violation of FRE 408. 3 FRE 408

provides that certain settlement communications are not admissible “either

to prove or disprove the validity or amount of a disputed claim or to

impeach by a prior inconsistent statement or a contradiction.” FRE 408(a).

Nevertheless, “[t]he court may admit this evidence for another purpose….”

FRE 408(b).

      Here, the bankruptcy court did not admit the settlement

communications for the purpose of proving or disproving the validity or

amount of a claim, or to impeach prior inconsistent statements. Rather, the

bankruptcy court used the settlement communications merely to establish

that Debtors were aware of the possibility that the Chinese Judgment might

be vacated, and attempted to include a clause that would nullify the

Settlement Agreement if such a contingency occurred. These were not

      3
         Debtors raise this objection despite furnishing all of the subject communications
as part of their excerpts of record.
                                            14
prohibited uses of the communications for purposes of FRE 408(a). 4 As

such, the bankruptcy court did not err in referencing these communications

in its ruling.

C.    The bankruptcy court did not abuse its discretion in denying
      Debtors’ request for relief under Civil Rule 60(b)(3).
      Pursuant to Civil Rule 60(b)(3), “the court may relieve a party or its

legal representative from a final judgment, order, or proceeding” based on

“fraud (whether previously called intrinsic or extrinsic), misrepresentation,

or misconduct by an opposing party.” “To prevail, the moving party must

prove by clear and convincing evidence that the [order] was obtained

      4
         Notwithstanding their objection to the use of these settlement communications,
Debtors rely on one such communication to argue that both parties believed that the
Settlement Agreement would be nullified upon vacation of the Chinese Judgment.
Specifically, Debtors reference an email by Ms. Zhang’s counsel, in which counsel stated
that inclusion of such a nullification clause would be “redundant.”
        The parties dispute the meaning of the word “redundant” as used in this
communication. However, this issue was irrelevant to the bankruptcy court’s ruling
and is similarly irrelevant for purposes of this appeal. The issue of interpreting a
settlement agreement is different from the issue of whether to vacate an order
approving the settlement agreement. See Satellite Cap., LLC v. Emaciation Cap., LLC (In re
Sawtelle Partners, LLC), No. 2:16-BK-21234-BR, 2019 WL 2855786, at *6 (9th Cir. BAP Jul.
1, 2019).
        The bankruptcy court was not presented with an issue of contract interpretation
in response to a Civil Rule 60(b) motion. See id. The bankruptcy court merely assessed
whether Debtors had stated grounds for relief under Civil Rule 60(b). For that narrow
purpose, the bankruptcy court only used the subject email communications to note that
Debtors were aware of the possibility that the Chinese Judgment might be vacated, as
evidenced by their attempt to include an explicit nullification clause in the Settlement
Agreement, and that, eventually, they were unsuccessful in including any such explicit
clause. Debtors’ additional argument that the Settlement Agreement actually included
an implicit nullification clause is beyond the scope of this appeal, and would require
initiation of a different action for contract interpretation.
                                           15
through fraud, misrepresentation, or other misconduct and the conduct

complained of prevented the losing party from fully and fairly presenting

the defense.” De Saracho v. Custom Food Mach., Inc., 206 F.3d 874, 880 (9th

Cir. 2000).

        Debtors first contend that the bankruptcy court abused its discretion

by relying on Pacific & Arctic Railway and Navigation Co. v. United

Transportation Union, 952 F.2d 1144 (9th Cir. 1991), for the proposition that

bad conduct warranting relief under Civil Rule 60(b)(3) must have been

unknown and not discoverable prior to entry of the order from which relief

is sought. In Pacific, the Ninth Circuit reviewed whether an arbitrator had

committed fraud prior to entering an award against a railroad company. Id.

at 1146-47. The Court of Appeals held that both the Federal Arbitration Act

and Civil Rule 60(b)(3) “require that fraud be proven by clear and

convincing evidence, not be discoverable by due diligence before or during

the proceeding, and be materially related to the submitted issue.” Id. at

1148.

        The bankruptcy court’s reliance on Pacific was limited to a reference

to this quote. The court did not otherwise analogize the facts of Pacific to

the current dispute between Debtors and Ms. Zhang, or otherwise “rely”

on that decision. Nevertheless, Debtors assert that this holding in Pacific

applies only to arbitration awards under the Railway Labor Act, and that

the statement was dicta.

                                       16
      Casey v. Albertson’s Inc., 362 F.3d 1254, 1260 (9th Cir. 2004), refutes

Debtors’ contention. Casey did not involve the Railway Labor Act or the

Federal Arbitration Act. Rather, the plaintiff in Casey sought vacation of a

judgment entered in favor of defendant in a civil lawsuit involving

discrimination and sexual harassment claims. Casey, 362 F.3d at 1256.

Despite the completely different causes of action, the Court of Appeals

quoted the same language from Pacific, stating that, for purposes of Civil

Rule 60(b)(3), the fraud must “not be discoverable by due diligence before

or during the proceedings.” Id. at 1260 (quoting Pacific, 952 F.2d at 1148).

      Because the Court of Appeals in Casey was assessing whether the

plaintiff had a valid request for relief under Civil Rule 60(b)(3), Debtors

cannot contend that the quoted law was dicta. Nor can Debtors seriously

contend that the principle articulated in Casey is limited to any particular

area of law. See also Del Toro v. 360 P’Ship LP, No. 22-55078, 2022 WL

17223042, at *1 (9th Cir. Nov. 25, 2022) (quoting same language in an action

arising out of a foreclosure); Smith v. Waggener, No. 20-15891, 2022 WL

213376 (9th Cir. Jan. 24, 2022) (quoting same language in action alleging

constitutional violations under 42 U.S.C. § 1983); Coulon v. Fairbank, 812

Fed. App’x. 699, 700 (quoting same language in an action under the

Americans with Disabilities Act and the Fair Housing Act). Accordingly,

there is no reason why the bankruptcy court should not have applied this

principle to this case.

                                       17
     Debtors also have not identified any findings of fact by the

bankruptcy court that were illogical, implausible or without support in the

record. The bankruptcy court’s finding that Debtors were aware of all the

alleged acts of fraud prior to entry of the Settlement Order is amply

supported by the record. Debtors themselves have repeatedly detailed their

efforts to vacate both the Washington Judgment and the Chinese Judgment

on much the same allegations of fraud, long before Debtors negotiated the

terms of the Settlement Agreement. Thus, the bankruptcy court did not

abuse its discretion in finding that Debtors were aware of all the pertinent

facts of fraud or misconduct prior to entry of the Settlement Order.

     The bankruptcy court also correctly identified a causation issue in

Debtors’ argument under Civil Rule 60(b)(3). Specifically, the bankruptcy

court noted that Debtors’ arguments regarding fraud focused on fraud in

the procurement of the Chinese Judgment, not fraud in the entry of the

Settlement Order.

     The record supports this conclusion. In their Motion for Relief before

the bankruptcy court, Debtors mainly asserted that Ms. Zhang fraudulently

obtained the Chinese Judgment, as they repeatedly had alleged before and

after the filing of their bankruptcy case. Other than a conclusory statement

that Ms. Zhang “induce[d] the Debtors into a settlement agreement”

despite “know[ing] that the Debtors did not actually owe [Ms.] Zhang

anything,” Debtors did not provide any facts that would lead the

bankruptcy court to believe that Ms. Zhang had procured the Settlement

                                     18
Order by fraud, misrepresentation, or misconduct. And, even if Ms. Zhang

knew that Debtors did not owe her anything, by the time the parties

entered into the Settlement Agreement, Debtors also knew as much; again,

Debtors had repeatedly taken this stance prior to engaging in settlement

discussions with Ms. Zhang.

      On appeal, Debtors now assert that “[d]uring negotiations of the

settlement, [Ms.] Zhang made false representations of material fact,

intended to induce [Debtors] to agree to an allowed claim, the

representations were made with knowledge of their falsity, and [Debtors]

justifiably relied upon those false representations to their detriment.”

Appellants’ Opening Brief, p. 18. But Debtors do not reference any facts in

the record supporting this blanket recounting of the elements of fraud.

Consequently, the bankruptcy court did not abuse its discretion in finding

that Debtors failed to provide “clear and convincing” evidence of fraud or

misconduct related to the Settlement Order.

D.    The bankruptcy court did not abuse its discretion in denying
      Debtors’ request for relief under Civil Rule 60(b)(5).
      Civil Rule 60(b)(5) permits a court to relieve a party from a final

judgment if “the judgment has been satisfied, released, or discharged; it is

based on an earlier judgment that has been reversed or vacated; or

applying it prospectively is no longer equitable.” Civil Rule 60(b)(5).

Debtors mainly argue that prospective application of the Settlement Order

                                      19
is no longer equitable, but also contend that the Settlement Order was

based on a now vacated judgment, i.e., the Chinese Judgment.

         1. The bankruptcy court did not err in holding that prospective
            application of the Settlement Order would not be
            inequitable.
      Prospective application of an order is no longer equitable if “a

significant change either in factual conditions or in law” renders continued

enforcement “detrimental to the public interest.” Horne v. Flores, 557 U.S.

433, 447 (2009) (citing Rufo v. Inmates of Suffolk Cnty. Jail, 502 U.S. 367, 384

(1992)). “Relief from a court order should not be granted, however, simply

because a party finds ‘it is no longer convenient to live with the terms’ of

the order.” SEC v. Coldicutt, 258 F.3d 939, 942 (9th Cir. 2001) (quoting Rufo,

502 U.S. at 383).

      In addition, “[t]he equitable considerations applicable to [Civil] Rule

60(b)(5) cannot merely involve private interests.” In re Brown, 547 B.R. 846,

855 (Bankr. S.D. Cal. 2016). The public interest in finality of judgments and

upholding settlement agreements outweighs “considerable injury” a party

to private litigation may suffer based on changed circumstances. Id.

      Here, the bankruptcy court did not abuse its discretion in holding

that it would not be inequitable, for purposes of Civil Rule 60(b)(5), to

uphold the Settlement Order. As discussed by the bankruptcy court,

Debtors knew all the pertinent facts before voluntarily entering into the

Settlement Agreement. Although the Chinese Judgment was vacated after

                                        20
entry of the Settlement Order, the parties were well aware of the possibility

that it could be vacated when they entered into the Settlement Agreement. 5

      In addition, as noted by the bankruptcy court, the Settlement

Agreement was not based solely on the Chinese Judgment. Debtors

themselves argued that the Settlement Agreement was beneficial because

of the “complexity, cost and delay of litigation” which likely would involve

a “lengthy appeals process.” This prospect of litigation would not

disappear simply because the Chinese Judgment was vacated; among other

things, Debtors would still have to: (i) wait for resolution of an appeal of

the Chinese court’s decision to vacate the Chinese Judgment; (ii) move to

vacate the Washington Judgment; and (iii) object to Ms. Zhang’s claim

against the estate. Moreover, the record does not reflect that Debtors did

not owe Ms. Zhang any amount of money; rather, the record demonstrates

only that Ms. Zhang no longer held one of the judgments on the debt.

      The estate also received benefits beyond the reduction of the amount

of Ms. Zhang’s claim. As noted by Debtors in their Settlement Motion, Ms.

      5
         Debtors also generally argue throughout their appellate brief that they had no
choice but to settle. According to Debtors, it would have been very unlikely that any
court would sustain an objection to Ms. Zhang’s claim because of the existence of the
Chinese Judgment. First, as noted by the bankruptcy court, Debtors must have
contemplated the possibility that the Chinese Judgment would be vacated because they
attempted to include the Nullification Clause in the Settlement Agreement. As such,
Debtors could have made a number of other choices, such as objecting to Ms. Zhang’s
claim or proposing alternative treatments to Ms. Zhang’s claim in the Plan. Second,
even if the Panel were to take Debtors’ comments as true, whether or not Debtors felt
they had alternatives is not a relevant consideration for any of the subsections of Civil
Rule 60(b).
                                           21
Zhang agreed to forego her objections to: (i) Debtors’ subchapter V

election; (ii) Debtors’ discharge; and (iii) confirmation of the Plan. As such,

Debtors themselves acknowledged that the bargain they received from the

Settlement Agreement included saving resources from litigating not just

the validity or amount of Ms. Zhang’s claim, but several other contested

matters on the horizon. All of these facts supported entry of the Settlement

Order under the Ninth Circuit’s “fair and equitable” standard in Martin v.

Kane (In re A & C Properties), 784 F.2d 1377, 1381 (9th Cir. 1986). As such,

the vacation of the Chinese Judgment did not qualify as a “significant

change in factual conditions.” See Horne, 557 U.S. at 447 (emphasis added).

      In addition, even if the vacation of the Chinese Judgment qualified as

a significant change in factual conditions, the equitable considerations set

forth by Debtors “merely involve private interests.”6 Brown, 547 B.R. at 855.

And, to the extent the public interest is implicated, it would support the

bankruptcy court’s conclusion:

      There is a deeply embedded judicial and legislative policy in
      favor of keeping final judgments final. That is especially true
      for settlement agreements. A settlor's remorse cannot alone
      justify abandoning such judgments. Else, the key virtue of
      settling cases—letting the parties move on after they each get
      some of what they want—would be lost.

      6 The order vacating the Chinese Judgment also suggests that debtor Liu Ying
may have colluded with Ms. Zhang in executing certain false IOUs. To the extent
private equitable concerns are implicated, such concerns would militate against
allowing Debtors to benefit from their own misconduct.
                                         22
Cummings v. Greater Cleveland Reg'l Transit Auth., 865 F.3d 844, 846 (6th Cir.

2017) (citing, inter alia, Ackermann v. United States, 340 U.S. 193, 198 (1950)).

This interest in finality is especially prevalent in chapter 11 cases, where

plans of reorganization often rely on final orders approving settlement

agreements between the estate and creditors. In such cases, it is not only

the parties to the settlement agreements that have an interest in finality, but

all creditors of the estate.

       Consequently, the bankruptcy court did not abuse its discretion in

denying Debtors’ request for relief under this prong of Civil Rule 60(b)(5).7

           2. The bankruptcy court did not err in holding that the
              Settlement Order was not based exclusively on the Chinese
              Judgment.
       Although Debtors focus on their argument that enforcement of the

Settlement Order is no longer equitable, Debtors also argue that the

Settlement Order may be vacated because it is based on a prior judgment

that has been reversed or vacated. However, “application of this clause has

been limited to cases in which the present judgment is based on the prior

judgment in the sense of res judicata or collateral estoppel.” Schwartz v.

       7
         In their brief on appeal, Debtors mention, in passing, that the doctrines of in pari
delicto and unclean hands support Debtors’ request for relief. Debtors did not present
these arguments to the bankruptcy court and, as a result, may not present them
belatedly on appeal. See Fegert, 887 F.2d at 957 (“The rule in this circuit is that appellate
courts will not consider arguments that are not properly raised in the trial courts.”)
(internal quotation marks omitted).
                                             23
United States, 976 F.2d 213, 217 (4th Cir. 1992) (internal quotation marks

omitted).

      Here, the Settlement Order was not based on the Chinese Judgment

under theories of res judicata or collateral estoppel – indeed, the Chinese

Judgment was being challenged through a number of mechanisms at the

same time Debtors were settling with Ms. Zhang. Rather, as noted by the

bankruptcy court, the existence of the Chinese Judgment was just one

factor Debtors considered when voluntarily entering into the Settlement

Agreement. 8 As such, the bankruptcy court also did not abuse its discretion

in denying relief under this prong of Civil Rule 60(b)(5).

E.    The bankruptcy court did not abuse its discretion in denying
      Debtors’ request for relief under Civil Rule 60(b)(6).
      Under Civil Rule 60(b)(6), a court may relieve a party from a final

order for “any other reason that justifies relief.” A party seeking relief

under Civil Rule 60(b)(6) must show extraordinary circumstances that

demonstrate it is faultless in the delay. Pioneer Inv. Servs. Co. v. Brunswick

Assocs. Ltd. P'ship, 507 U.S. 380, 393 (1993).

      As to Civil Rule 60(b)(6), Debtors first contend that the bankruptcy

court committed “clear error” by relying on Harvest v. Castro, 531 F.3d 737

(9th Cir. 2008). Debtors assert that Harvest involved a writ of habeas corpus,

and that the facts in that case are distinguishable from the facts of this case.

      8
       The record before the Panel also is devoid of the status of the Washington
Judgment. As such, despite the vacation of the Chinese Judgment, it appears that Ms.
Zhang still holds a judgment against Debtors.
                                          24
However, the bankruptcy court relied on Harvest for the unremarkable

proposition that Civil Rule 60(b)(6) is “to be used sparingly” and “to

prevent manifest injustice” in “extraordinary circumstances.” Harvest, 531

F.3d at 749. This language in Harvest referenced another Ninth Circuit

Court of Appeals decision. See Latshaw v. Trainer Wortham & Co., 452 F.3d

1097, 1103 (9th Cir. 2006). Latshaw, in turn, involved a motion for relief

from a judgment based on a settlement under, among other subsections,

Civil Rule 60(b)(6). Id. at 1102-04. As such, Debtors position is without

merit.

      Debtors also contend that the bankruptcy court abused its discretion

by finding a lack of “extraordinary circumstances” warranting relief under

Civil Rule 60(b)(6). However, the bankruptcy court’s conclusion was not

illogical, implausible, or without support from the record.

      Schwartz, referenced above, is squarely on point. In Schwartz, the

appellant settled a civil forfeiture action, but moved for relief from the

settlement after the underlying convictions that led to the forfeiture action

were vacated. Schwartz, 976 F.2d at 214. Relying on a Supreme Court

decision, the Fourth Circuit Court of Appeals stated that “strategic

decisions made during the course of litigation provide no basis for relief

under [Civil Rule] 60(b)(6), even though with hindsight they appear

wrong.” Id. at 218 (citing Ackermann, 340 U.S. 193). Although Ackermann

involved relief from a decision not to appeal, the Schwartz court explained:

                                      25
      We find no meaningful distinction between a motion asking for relief
      from a decision not to appeal, as in Ackermann, and one that asks for
      relief from a decision to settle, as in this case. The decision to settle a
      case is made in the same manner as any other decision with respect
      to the course of litigation, including a decision not to appeal. A
      litigant weighs the chance of success against the probable cost of
      achieving that success through further litigation, all based on
      whatever limited information is available at the time. [The appellant]
      necessarily undertook such a cost-benefit weighing in 1984 when he
      decided to settle his challenge to the forfeiture. His was as calculated,
      free, and deliberate a choice as that of [the appellants in Ackermann],
      and as their’s was not, he should not be relieved from it.
Id. at 218-19; see also Brandon v. Bodeker (In re Bodeker), 525 B.R. 770, 774 (D.

Mont. 2015), aff’d, 689 F. App’x 879 (9th Cir. 2017) (collecting cases and

holding that a “party’s failure to properly estimate the loss or gain from

entering a settlement agreement is not an extraordinary circumstance” and

that Civil Rule 60(b)(6) “was not intended to relieve a party from a

settlement agreement entered voluntarily with the advice of counsel”).

      As in Schwartz and Ackermann, Debtors made a strategic decision to

settle with Ms. Zhang. Such a decision does not come within the purview

of Civil Rule 60(b)(6).9

      9
         Debtors also argue that the circumstances here are “extraordinary” because
they are attempting to protect other creditors of the estate. However, as far as the Panel
can tell from the record, Debtors appropriately served parties in interest with the
Settlement Motion and no such parties in interest objected to the terms of the Settlement
Agreement. As such, creditors consented to entry of the Settlement Order, and Debtors’
contention that other parties will now be prejudiced is unpersuasive.
                                           26
        Finally, clause (6) and clauses (1) through (5) of Civil Rule 60 are

mutually exclusive. Liljeberg v. Health Servs. Acquisition Corp., 486 U.S. 847,

863 n.11 (1988). Thus, Civil Rule 60(b)(6) applies “only when the reason for

granting relief is not covered by any of the other reasons set forth in [Civil]

Rule 60.” Delay v. Gordon, 475 F.3d 1039, 1044 (9th Cir. 2007). Here, the

main crux of Debtors’ argument is that Ms. Zhang fraudulently obtained

the Settlement Order, which is directly covered by Civil Rule 60(b)(3). As

such, the “catch-all” provision of Civil Rule 60(b)(6) is inapplicable to this

case.

F.      The bankruptcy court did not err by commenting on the futility of
        vacating the Settlement Order.
        Debtors assert that the bankruptcy court erred by noting that

vacating the Settlement Order would “accomplish little, as [Debtors] and

other parties would remain bound by the terms of the confirmed plan.” In

their brief on appeal, Debtors acknowledge that any ruling on the Motion

for Relief, alone, would not accomplish Debtors’ goal, i.e., disallowance of

Ms. Zhang’s claim against the estate. Appellants’ Brief, p. 23. Nevertheless,

Debtors assert that the bankruptcy court should not have held that “the

plan must be modified to accomplish those ends.” Id.

        Debtors misconstrue the bankruptcy court’s statement. The

bankruptcy court simply noted that the Plan incorporated the terms of the

Settlement Agreement and observed that vacating the Settlement Order

would not be the last step in Debtors’ plan to disallow Ms. Zhang’s claim

                                        27
against the estate. The bankruptcy court did not state that the Plan must be

modified and did not make any findings regarding whether Debtors could

or could not object to Ms. Zhang’s claim pursuant to the terms of the Plan.

That issue was not before the bankruptcy court. As such, the parties’

arguments regarding the terms of the Plan are not properly before the

Panel, and Debtors have not otherwise identified an error in the

bankruptcy court’s comment regarding the Plan.

                               CONCLUSION

      The bankruptcy court did not err in denying Debtors’ request for

relief from the Settlement Order under Civil Rule 60(b)(3), (b)(5), and (b)(6).

We therefore AFFIRM.

                                      28