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Ninth Circuit:
New Evidence, Fraud Justify Dumping $44 Million Judgment
By a MetNews Staff Writer
A company that at one point had a judgment for more than $44 million against a manufacturer of cigarillos based on anticompetitive conduct will wind up with nothing under a decision yesterday by the Ninth U.S. Circuit Court of Appeals which held that a District Court judge properly granted relief from the judgment based on newly discovered evidence of fraud.
The plaintiff, Trendsettah USA, Inc., had contracted with defendant Swisher International, Inc., to manufacture cigarillos for it, which is marketed under the brand name “Splitarillo.” But Swisher, which itself markets cigars under its own name, limited the number of cigarillos it supplied Trendsettah, cutting down on its profits, and giving rise to that company’s antitrust and breach-of-contract action.
A jury awarded $14,815,494 on the antitrust claim and $9,062,679 on the contract claim; by stipulation, the contract damages were eliminated; District Court Judge James V. Selna (now a senior judge) ordered a trebling of damages and a judgment was entered for $44,446,482. Selna later granted summary judgment to Swisher on the antitrust claim, and the Ninth Circuit on Feb. 8, 2019, reversed, directing that the judgment pursuant to the jury’s verdict be reinstated.
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Depicted above are boxes of Splitarillos-brand cigarillos. The Ninth U.S. Circuit Court of Appeals in 2019 ordered that a $44 million judgment in favor of the marketers of the cigarillos, which the judge upset in response to a post-trial motion, be reinstated. However, on remand, based on new evidence and fraud, relief from the judgment was granted. The Ninth Circuit yesterday affirmed. |
CEO Cheated
Swisher then learned something it had not realized earlier: Trendsettah was only able to make a profit on the cigarillos it sold by virtue of its owner/chief executive officer, Akrum Alrahib of Los Angeles, engaging in a fraudulent scheme under which payment of federal excise taxes was avoided.
It gained that realization when Alrahib was indicted.
(Last Dec. 2, he was sentenced to five years in prison and ordered to pay restitution in an amount in excess of $7 million.)
Selna granted Swisher’s motion for relief from the judgment and ordered a new trial. Trendsettah was allowed to dismiss its claims with prejudice in order to take an immediate appeal.
That was a proper means of getting an appeal before the Circuit Court, Judge Johnnie B. Rawlinson said, writing for a three-judge panel. She observed that “however we decide this appeal, the case will be over—either the jury’s prior verdict will be reinstated or the district court’s dismissal of Trendsettah’s claims with prejudice will stand.”
Under yesterday’s decision, the dismissal stands.
Fraud on Court
The court rejected one of Selna’s bases—a perception that a fraud had been perpetrated on the court—because, Rawlinson explained, there had been no perjury, no willful deception, merely a nondisclosure of evidence which, she said, does not amount to fraud on the court.
But, she added, relief was properly granted under Rule 60(b)(2) of the Federal Rules of Civil Procedure (“newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial…”) and (b)(3) “fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party.”
Rejecting Trendsettah’s contention that its nonpayment of excise taxes would have been inadmissible at trial based on irrelevancy, Rawlinson wrote:
“…Trendsettah’s tax evasion allowed it to set artificially low prices and continue to compete effectively in the relevant markets, thereby incurring its asserted damages.
“Moreover, Alrahib stated in his interview with an internal revenue agent that he was aware of the tax evasion and ‘that’s how we could compete in the marketplace.’ Alrahib explained that ‘there’s no way [they] could compete’ without the benefits bestowed by the fraudulent evasion of federal excise taxes….Tellingly, Trendsettah does not advance any contention that the jury would have reached the same verdict for antitrust liability and damages if it were fully apprised of Alrahib’s fraudulent evasion of federal excise taxes.”
Trendsettah argued that Swisher did not act with reasonable diligence in pointing to the non-payment of excise taxes because the non-payment could have been detected from documents produced in discovery. Rawlinson responded:
“According to Trendsettah, Swisher was compelled to wade through these documents and piece together the fraudulent tax evasion scheme concealed by Alrahib. But Swisher was not required to engage in a fishing expedition to establish reasonable diligence. Indeed, it bears noting that Trendsettah’s own expert did not detect the fraud that Trendsettah posits was hidden in plain sight.”
Rule 60(c)(1) provides that “[a] motion under Rule 60(b) must be made within a reasonable time” which, if based on new evidence or fraud, is “no more than a year after the entry of the judgment or order or the date of the proceeding.” Swisher’s motion came too late, Trendsettah contended.
It was timely, Rawlinson said, because the motion was made within one year of the Ninth Circuit’s issuance of its Feb. 8, 2019 opinion which substantially altered the District Court’s judgment, thus causing the limitations period to be restarted.
“We are not extending the time for filing a Rule 60(b) motion, but recognizing the beginning of a new limitations period,” the jurist noted.
The case is Trendsettah USA v. Swisher International, 2022 S.O.S.
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