by Dennis Crouch
The Supreme Court will soon consider whether to hear an important case about fraud on the court (and the USPTO) and the judiciary’s obligation to address it. Marco Destin, Inc. v. Levy, Case No. 24-787. The issue now before the Court asks whether it was proper for the lower court to overlook fraud that affects the judicial process itself in favor of finality of judgment. [Marco Destin Petition]
Fraud cases are typically interesting reads, and this one fits the bill. In 1993, L&L Wings entered into a trademark license agreement with Shepard Morrow for the use of the “WINGS” mark in retail store services — particularly for use on beach merchandise. L&L Wings made only the initial $10,000 royalty payment under the agreement, then defaulted on the remaining payments. Despite losing its rights to the mark, L&L Wings continued using the mark and even began sublicensing it to others, including Marco Destin (Alvin’s Island) in 1998.
In 2007 L&L Wings (owned by respondents Shaul Levy and Meir Levy) sued Marco Destin for trademark infringement in the Southern District of New York. According to the cert petition, L&L’s attorney Bennett Krasner knew at the time that L&L Wings had no rights to the mark, having personally negotiated the earlier failed licensing deal with Morrow. Yet the complaint omitted any mention of Morrow’s ownership or L&L Wings’ status as a former licensee.
During that litigation, Krasner allegedly deepened the deception by obtaining a federal trademark registration for “WINGS” through what the petition characterizes as fraudulent representations to the USPTO. The application claimed L&L Wings had been in “continuous high-profile use” of the mark for nearly 30 years and failed to disclose Morrow’s prior ownership. After obtaining the registration, Krasner introduced it as evidence in the New York case, leading to summary judgment against Marco Destin and ultimately a $3.5 million settlement.
The fraud only came to light years later through separate litigation in North Carolina between L&L Wings and Beach Mart. There, a jury found that L&L Wings had knowingly made false representations to the USPTO to obtain the WINGS registration. The court canceled the registration and awarded $12.5 million in punitive damages. This verdict drove L&L Wings into bankruptcy.
Armed with evidence of the fraud, Marco Destin sought to vacate the earlier $3.5 million settlement through an independent action authorized under Federal Rule of Civil Procedure 60(d)(3). As suggested above, all of this is part of the L&L Wings bankruptcy proceedings and and so Marco Destin is unlikely to obtain its full recovery even if it wins this case — instead it will form part of the queue with the other creditors.
Rule 60(d)(3) preserves a court’s inherent power to “set aside a judgment for fraud on the court” through an independent action. Unlike a typical motion to vacate under Rule 60(b), which must be brought within one year, an independent action can be filed at any time and even in a different court from the original proceeding. Rule 60 in general offers several ways to directly and collaterally attack a district court decision, and 60(d)(3) operates like a negative rule — saying that the old ways of attacking a judgment or order are still available (typically seated within the court’s equitable power). However, in general the bar for relief is high – the petitioner must prove by clear and convincing evidence that the fraud was deliberately aimed at corrupting the judicial process itself, not merely deceiving the opposing party. Although various equitable writs were available, the most common in American courts were termed “bills of review.” Today, however, most courts simply refer to these under the R. 60(b)(3) term “independent action.”
As mentioned above, Marco Destin filed an independent action attacking the prior judgment. But, both the district court and Second Circuit rejected the attempt, focusing on Marco Destin’s lack of diligence in uncovering the fraud during the original litigation.
The Second Circuit’s reasoning centered on the discretionary nature of relief from judgments. As the court explained, “Like the old bills of review, these independent actions require a more demanding showing of ‘fraud’ than a ‘timely motion,’ such as a fraud on the court itself.” The panel held that while courts can grant relief even absent diligence, they are not required to do so. In the process, the court also distinguished the 1944 Hazel-Atlas case: “[N]othing in Hazel-Atlas precludes a court from considering a party’s lack of diligence, nor does it compel vacatur of the prior judgment regardless of the plaintiff’s negligence in uncovering the asserted fraud.”
This interpretation sets up the core question now before the Supreme Court. The cert petition argues that the Second Circuit fundamentally misread Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238 (1944), a seminal Supreme Court case about fraud on the court. In Hazel-Atlas, the Court confronted a scheme where attorneys helped fabricate evidence used to obtain both a patent and favorable court rulings. The Court held that such fraud required vacating the judgment, even though the victim could have discovered the fraud earlier.
The petition contends that Hazel-Atlas established a mandatory duty to vacate judgments procured through fraud on the court, not a discretionary power. This duty exists, the argument goes, because such fraud harms not just private litigants but the integrity of judicial institutions themselves. The petition emphasizes that where fraud targets both courts and the USPTO, the public interest in maintaining institutional integrity outweighs any concern about a private party’s lack of diligence.
This framing highlights an important distinction in how courts treat different types of fraud. “Garden-variety” discovery abuse, for example, typically receives less severe treatment than schemes that directly undermine judicial processes. The Second Circuit acknowledged this distinction but treated it as merely affecting the court’s exercise of discretion rather than triggering a categorical duty to act.
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That brings be back to Hazel-Atlas — which is really the main reason why I wanted to write about this petition.
The facts of Hazel-Atlas presented what the Court called a “sordid story” of deliberately planned fraud that extended well beyond a single false statement. In 1926, facing “apparently insurmountable Patent Office opposition” to its application, Hartford-Empire’s attorneys ghostwrote an article praising their own invention as revolutionary and convinced William Clarke, a union president, to sign it as author. Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 240-41 (1944). The article’s fraudulent provenance remained concealed as Hartford successfully used it first to obtain the patent and then to reverse an adverse district court ruling in infringement litigation. This coordinated deception of both the Patent Office and the courts particularly troubled the Supreme Court.
The Court’s holding established that federal courts possess an inherent equity power to set aside judgments obtained through fraud, even after the case has fully ended. This power exists as a safety valve to the general rule favoring finality of judgments. The Court emphasized that this equitable authority was not a recent innovation but rather a long-established doctrine dating back to English practice “before the foundation of our Republic.” Importantly, the Court held this power extends beyond just trial courts – appellate courts can also grant relief from their own fraudulently obtained judgments and direct corresponding relief in lower courts.
The Court’s reasoning rested heavily on the institutional damage caused by fraud on the court, distinguishing it from mere private injury. Writing for the majority, Justice Black explained that tampering with the administration of justice “involves far more than an injury to a single litigant. It is a wrong against the institutions set up to protect and safeguard the public, institutions in which fraud cannot complacently be tolerated consistently with the good order of society.” This institutional focus led the Court to reject Hartford’s argument that Hazel’s lack of diligence in uncovering the fraud should bar relief. “Surely it cannot be that preservation of the integrity of the judicial process must always wait upon the diligence of litigants.”
Particularly significant for the current petition, Hazel-Atlas found the public interest demanded vacating the judgment regardless of the victim’s diligence. The Court flatly rejected the notion that a party’s negligence in uncovering fraud could excuse the perpetrator’s deliberate scheme to corrupt judicial processes. This reasoning suggests a categorical approach – where proven fraud has sufficiently compromised judicial integrity, courts have not just the power but the duty to remedy it. The Court reinforced this by ordering complete relief: vacating both the appellate and district court judgments and directing dismissal of Hartford’s infringement claims.
The decision also established important principles about the relationship between Patent Office fraud and litigation misconduct. The Court held that Hartford could not escape the consequences of attributing false authorship to Clarke by arguing the article’s substantive content was accurate. Truth, the Court declared, “needs no disguise.”
The Hartford-Empire saga continued with a 1945 decision by the Supreme Court built upon the Hazel-Atlas case, addressing antitrust remedies for the same underlying actions that had been exposed through the fraudulent Clarke article scheme. In Hartford-Empire Co. v. United States, 324 U.S. 570 (1945), the Court rejected the district court’s more severe remedies (including royalty-free licensing and potential dissolution of Hartford) in favor of a more moderate approach requiring “uniform reasonable royalties” and compulsory licensing. Significantly, the Court held that even though Hartford had violated antitrust laws through its patent practices, this did not justify completely stripping away its patent rights through royalty-free licensing or dissolution. Justice Rutledge dissented — arguing that the majority’s approach was too lenient given Hartford’s extensive violations that had been documented in Hazel-Atlas. As Prof. Jorge Contreras explains, the case is “the first contested patent licensing decree in the United States.” Jorge L. Contreras, A Brief History of Frand: Analyzing Current Debates in Standard Setting and Antitrust Through A Historical Lens, 80 Antitrust L.J. 39, 51 (2015). See also, U.S. v. Natl. Lead Co., 332 U.S. 319 (1947) (indicating that a royalty free license could be ordered as an antitrust remedy where “necessary and appropriate.”).
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Coming back to Marco Destin, I do not expect the case to get further action from the current Supreme Court who has repeatedly recognized the value of finality as a preeminent goal of the litigation process. But, as always, we’ll have to wait for the next chapter to develop.
Marco Destin’s petition here was filed by Gary Murphree of AM LAW, a bankruptcy focused attorney. Respondents brief in opposition is due February 24, 2025.