In State ex rel. First State Bank v. Hustead, 2015 LEXIS 974 (Oct. 8, 2015), the Supreme Court of Appeals of West Virginia found that a bank was not entitled to a writ of prohibition as to the trial court’s grant of a customer’s motion for relief of judgment under Rule 60(b)(6) of the West Virginia Rules of Civil Procedure because substantial equitable considerations balanced the scales for the customer, including (1) a lack of discovery, (2) a loan officer’s bank fraud, (3) fraudulent inducement claims, and (4) newly-discovered loan documents.

In June 2013, First State Bank filed a lawsuit against its customer, Jeffrey B. Powers, for payment of an outstanding balance remaining on a $15,000 loan it made to him the previous year. Rather than litigating the matter, Powers, who was represented by an attorney, entered into an “Agreed Order Confessing Judgment” in which he agreed to pay the full amount due according to a payment plan. The circuit court entered the Agreed Order on August 16, 2013, and dismissed the case.

In September 2013, Jackie Cantley, the loan officer who had arranged Power’s loan on behalf of the bank, was indicted on six counts of bank fraud and related charges. According to the indictment, Cantley allegedly made loans in violation of bank policies, did not appropriately underwrite loans, misapplied funds, moved loan funds between different persons’ accounts without authorization, forged signatures, made multiple disbursements from closed-end loans, and failed to keep appropriate or accurate records. The indictment did not specifically reference the loan made to Powers. In February 2014, Cantley pled guilty to the charge of theft and embezzlement.

In April 2014, after learning of Cantley’s guilty plea, Powers requested the bank produce documentation that supported the allegations made in the complaint in the civil action that had been previously dismissed. The bank did not respond to Cantley’s request for production.

In May 2014, Powers moved the trial court for relief from the confessed judgment pursuant to Rule 60(b) of the West Virginia Rules of Civil Procedure. In support of the motion, Powers submitted an affidavit in which he stated that he had wanted to borrow a smaller amount of money but was talked into accepting the $15,000 bank loan by Cantley, that he made all of the payments as required under the loan agreement, that the bank accused him of bank fraud and stated that he could “go to jail for a long time,” and that the bank stated it was going to seize the collateral for the loan. The affidavit also stated that Powers never received any loan documentation, that he was not aware of the interest rate or terms of the loan agreement, and that, if a loan agreement even did exist, he did not sign the document.

In addition to the motion for relief from the confessed judgment, Powers requested leave to file an Answer to the Complaint, assert affirmative defenses, and file a counterclaim against the bank for violations of the West Virginia Consumer Credit and Protection Act, fraud, breach of contract, abuse of process, and malicious prosecution. The trial court granted the relief requested by Powers and the bank sought a writ of prohibition from the West Virginia Supreme Court citing legal error on the part of the trial court for setting aside the Agreed Order Confessing Judgment in the “absence of a finding by the [c]ourt of extraordinary circumstances justifying relief.” More specifically, the bank urged that the trial court abused its legitimate powers by granting Power’s motion in that it failed to define the extraordinary circumstances supporting the relief granted and that it failed to provide any finding of fault with regard to the Agreed Order Confessing Judgment. In sum, the bank suggested that the relief sought was improper and that Powers simply changed his mind after choosing to settle the case.

In support of its writ, the bank argued that the relief granted by the trial court would re-litigate an issue that had already been resolved and that the actions of the bank of which Powers was now complaining was known to him (and his legal counsel) at the time he agreed to sign the Agreed Order Confessing Judgment. In response, Powers contended that the matter had not been litigated at all given the short case history, which only included the filing of the complaint and the entry of the confessed judgment. Further, Powers argued that the issues would be litigated nonetheless given his counterclaims which could also be asserted independently in a separate legal action.

The Supreme Court began its analysis by reviewing the standards governing a writ of prohibition and discussing the law which controls the granting of relief under Rule 60(b)(6). In this regard, the court noted that prohibitory relief is available only where the trial court has no jurisdiction or, having such jurisdiction, exceeds its legitimate powers. Such relief is not available to prevent a trial court’s simple abuse of discretion. And, when it comes to the granting of relief under Rule 60(b)(6), the discretion afforded a trial court is “especially broad” since it is the “forum best equipped for determining the appropriate use of Rule 60(b).” Further, in determining whether a Rule 60(b) motion should be granted, a trial court must carefully interpret the provisions of the rule to “preserve the delicate balance between the sanctity of final judgments, expressed in the doctrine of res judicata, and the incessant command of the court’s conscience that justice be done in light of all the facts.” (emphasis original) (citations omitted). In considering motions under Rule 60(b)(6), there are no specific factors that are applied rigidly. Rather, the trial court may examine a variety of factors on a case-by-case basis in order to balance the competing policies of finality of judgments and resolving litigation on the merits. Still, absent extraordinary circumstances, a collateral attack under Rule 60(b) is an inappropriate means for attempting to defeat a final judgment in a civil action.

In accordance with these statements of law, the Supreme Court stated that it refused to substitute its judgment for that of the circuit court’s based on the record before it. While the Supreme Court recognized that the trial court did not use the phrase “extraordinary circumstances” in its ruling, the Supreme Court was satisfied that the trial court appropriately balanced the substantial equitable considerations that supported a ruling in favor of Powers. More specifically, the Supreme Court found that the trial court cited the following factors in support of its decision: the lack of discovery in the case; the fact that the loan officer at issue later pleaded guilty to bank fraud; allegations of fraudulent inducement in the loan; and newly-discovered evidence of the loan documentation that the bank had previously refused to provide to Powers. As such, the Supreme Court concluded that the trial court did not abuse its discretion in recognizing the need to jointly resolve the merits of the bank’s claims against Powers and Powers’ claims against the bank. Accordingly, the Supreme Court declined to grant the extraordinary relief requested by the bank.

What It Means to You

The Supreme Court’s decision in this case brings a great amount of uncertainty as to the true “finality” of final judgments in West Virginia. It is significant to note that, throughout the duration of the underlying litigation—albeit as short-lived as it was—Powers was, at all times, represented by counsel and that all of the facts, claims, and defenses asserted in support of the motion for relief from the Agreed Order Confessing Judgment was known to Powers and his counsel at the time that they consented to the entry of the final order (save, of course, the allegations of criminal misconduct of Cantley in relation to loans other than the one involving Powers).

As noted in the opinion, Powers became “suspicious” of his own loan documentation after learning of Cantley’s guilty plea. This fact lends credence to the bank’s argument that Powers simply changed his mind after agreeing to settle the case. After all, if the facts asserted in Powers’ affidavit are true, would suspicion not be raised in the first instance if you are being sued for breach of a loan agreement for which you have no documentation, denied ever signing, and upon which you consistently made timely payments?