Universitas Education, LLC v. Nova Group, Inc.

Background

A judgment confirming a $30 million arbitration award against Nova Group, Inc. was entered in 2012. The judgment followed a dispute over life-insurance proceeds connected to the Charter Oak Trust Welfare Benefit Plan. After Nova did not pay the arbitration award, Universitas Education, LLC pursued collection efforts.

In 2014, the court entered a separate turnover judgment against Nova’s former principal, Daniel E. Carpenter, Grist Mill Capital, LLC, and other affiliated entities. A turnover judgment requires parties to surrender money or property that is found to belong to the judgment creditor or to have been improperly transferred. The court found that funds had been fraudulently transferred from the Charter Oak Trust through Grist Mill and other entities controlled by Carpenter, as part of a scheme designed to make the arbitration award and resulting judgment unrecoverable.

Carpenter and Grist Mill later moved under Federal Rule of Civil Procedure 60(b)(4) and 60(b)(6) to vacate, meaning cancel, the turnover judgment. They principally argued that the court lacked personal jurisdiction over them. Carpenter also argued that the court lacked subject-matter jurisdiction and that the judgment was invalid because it was entered as a clerk’s judgment rather than signed by a district judge. Grist Mill separately argued that its due-process rights were violated after its attorney told the court that Grist Mill had discharged her but did not formally withdraw from the case.

Motions to vacate

The court denied Carpenter’s motion to vacate and denied Grist Mill’s motion to vacate.

Personal jurisdiction

The court held that both Carpenter and Grist Mill had forfeited any objection to personal jurisdiction. Carpenter had expressly waived such an objection in open court and had litigated related collection proceedings for more than a year without raising it. Grist Mill had joined an opposition brief but did not argue there that the court lacked jurisdiction over Grist Mill, even though other parties raised that argument. The court also found that Grist Mill’s conduct in the litigation, including its counsel’s participation and its failure to raise the objection while the turnover motion was pending, amounted to forfeiture.

The court further held that, even without the forfeiture, Carpenter and Grist Mill had not shown that the court lacked specific personal jurisdiction. The court relied on its earlier finding that they participated in fraudulent transfers aimed at preventing recovery of a New York arbitration award and judgment. Because the conduct was directed at New York and the New York judgment, the court concluded that Carpenter and Grist Mill should reasonably have expected to be brought into court there.

Service of process

The court denied the motions to vacate to the extent they relied on inadequate service. It had previously found that the turnover respondents agreed to accept service by email. Carpenter and Grist Mill did not show that service had not occurred, was unauthorized, or had not been waived. The court also noted that Carpenter received the turnover materials through electronic notice to his attorney.

Subject-matter jurisdiction

The court denied Carpenter’s challenge based on subject-matter jurisdiction. It had previously considered and rejected his argument that the turnover judgment exceeded the court’s authority, and Carpenter offered no basis for revisiting that determination.

Grist Mill’s due-process argument

The court denied Grist Mill’s due-process argument. Due process required notice and an opportunity to be heard, and Grist Mill received notice of the turnover motion and had an opportunity to respond by joining the opposition filed in the case. The court held that Grist Mill’s later decision to discharge its attorney did not create a due-process violation. The attorney’s failure to formally withdraw also did not justify relief from a judgment that Grist Mill had notice of and an opportunity to oppose.

Rule 58 argument

The court rejected Carpenter’s argument that the turnover judgment was void because the clerk, rather than a district judge, signed it. The court held that the judgment was entered as a separate document with the court’s approval and direction. It also held that, even if a judge’s signature had been required, that procedural defect would not make the judgment void.

The court rejected Carpenter’s remaining arguments as untimely, barred by claim or issue preclusion, or meritless. Claim preclusion and issue preclusion are rules that prevent parties from relitigating matters already resolved in earlier proceedings.

Judicial-notice motion

The court granted in part and denied in part Carpenter’s motion asking it to take judicial notice of certain matters. The court granted the unopposed request concerning a letter from a Universitas attorney and an earlier decision in a case involving Universitas and T.D. Bank, and considered those materials. The court denied Carpenter’s request for an injunction barring Universitas’s attorneys from communicating with him or his family.

Rule 11 sanctions

Universitas moved under Federal Rule of Civil Procedure 11 for sanctions against Carpenter based on his motion to vacate. Rule 11 requires that court filings have legal and factual support and not be filed for an improper purpose. The court found that some of Carpenter’s arguments—particularly his renewed arguments about service, subject-matter jurisdiction, and the lack of a district judge’s signature—warranted sanctions because the court had previously rejected them or Carpenter offered no nonfrivolous basis for them.

The court did not impose all of the extensive sanctions Universitas requested. Instead, the sanctions motion was granted in part and denied in part. The court ordered that Carpenter must obtain permission before filing any further motions in these cases. He may seek permission through a letter-motion of no more than three pages that identifies the proposed motion’s basis and confirms that he consulted the opposing parties as required by the court’s practices.

The opinion did not resolve Universitas’s separate sanctions motion against the attorneys who filed Grist Mill’s motion to vacate; that motion remained under advisement.

Disposition

Carpenter’s motion to vacate was denied. Grist Mill’s motion to vacate was denied. Carpenter’s motion for judicial notice was granted in part and denied in part. Universitas’s motion for Rule 11 sanctions was granted in part and denied in part. Carpenter was prohibited from filing further motions in these cases without prior court permission.