The Expanded Reach of Rule 60(b)(3) in Delaware: “Erste Asset Management v. Hees” and the Rejection of a Fraud-on-the-Court Limitation

1. Introduction

In Erste Asset Management GMBH v. Hees, the Supreme Court of Delaware overturned a Court of Chancery ruling that had narrowly cabined Court of Chancery Rule 60(b)(3) relief to instances of “fraud on the court.” By holding that subsection (3) also embraces fraud between the parties when it stymies a litigant’s ability to present its case, the Supreme Court clarified—indeed, reset—the landscape of post-judgment relief in Delaware.

The dispute grew out of derivative litigation against The Kraft Heinz Company and its 3G-affiliated insiders. Key to the dismissal of the initial derivative action was the Court of Chancery’s finding that director John Cahill was independent because his lucrative consulting relationship with Kraft Heinz had terminated on July 1, 2019. Years later, the company conceded that representation was false: Cahill remained a consultant and had simply exchanged annual cash fees for 500,000 stock options that vested over three years.

Armed with this revelation, Erste sought to reopen the earlier judgment under Rule 60(b). The Court of Chancery denied relief, but the Supreme Court has now reversed, remanding the case so that the derivative demand-futility issue may be re-litigated with the correct factual record and ordering renewed consideration of a related fiduciary-duty disclosure claim.

2. Summary of the Judgment

Holding. Rule 60(b)(3) relief is not limited to classic “fraud on the court.” A party may obtain relief when fraud, misrepresentation, or misconduct by an adversary—even if “intrinsic” to the litigation record—prevented the movant from fairly and adequately presenting its case.
Result. The Supreme Court reversed the Court of Chancery’s dismissal of Erste’s Rule 60(b) claim and remanded for further proceedings, including renewed Rule 23.1 demand-futility analysis. The related fiduciary-duty disclosure claim (Count II) was likewise remanded for reassessment in light of the ruling.
Key Rationale. The plain text of Rule 60(b)(3)—which covers “fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party”—and prior Delaware precedent (e.g., MCA v. Matsushita) recognize relief for fraud between the parties. The Court of Chancery therefore applied the wrong legal standard.

3. Detailed Analysis

3.1 Precedents Cited and Their Significance

MCA, Inc. v. Matsushita Electric Industrial Co., 785 A.2d 625 (Del. 2001) – Established that Rule 60(b)(3) applies where fraud or misrepresentation prevents the moving party from fairly and adequately presenting his or her case. The Supreme Court relied heavily on this articulation to reject the narrower view adopted below.
Franklin v. Glenhill Advisors LLC, 2023 WL 569192 (Del. Ch.) – Distinguished “fraud on the court” from ordinary Rule 60(b)(3) fraud; cited by the Supreme Court as persuasive confirmation that the Vice Chancellor had collapsed two separate doctrines.
Smith v. Williams, 2007 WL 2193748 (Del. Super.) – Demonstrates that even serious perjured testimony may qualify for Rule 60(b)(3) relief without satisfying the elevated “fraud on the court” standard.
Federal commentators (Wright & Miller § 2861) – Discussed by the Court to show that Rule 60(b)(3) intentionally abolished the intrinsic/extrinsic dichotomy when the fraud undermines the adversary process.
The dismissed derivative decision, In re Kraft Heinz Co. Derivative Litigation, 2021 WL 6012632, and its affirmance – Central because the now-discredited finding of Cahill’s independence lay at its core.

3.2 The Court’s Legal Reasoning

The Supreme Court employed a three-step framework drawn from federal practice for Rule 60(b)(3):

Burden on the movant. The party seeking relief must prove fraud by clear and convincing evidence.
Nature of the fraud. The fraud may be intrinsic or extrinsic; what matters is whether it was carried out by the adverse party and materially affected the litigation.
Prejudice to presentation. The fraud must have prevented the movant from fully and fairly presenting its case.

Applying that test, the Court found (i) Kraft Heinz conceded falsity of the proxy disclosures, satisfying element one; (ii) because Rule 60 expressly covers intrinsic fraud, the false statements fit element two; and (iii) the misstatements directly impaired Erste’s ability to plead demand futility, satisfying element three. The Court also rejected the defendants’ argument that the misstatements occurred “outside” the litigation, noting that they were incorporated by reference in the operative complaint and reiterated by defense counsel.

3.3 Impact on Delaware Law and Litigation Strategy

Broader Safety Valve. Litigants now have a clarified path to reopen judgments where traditional discovery-blocking or misrepresentation tactics skewed the record—even if the court itself was not duped.
No Intrinsic/Extrinsic Barrier. Parties can no longer defeat Rule 60(b)(3) motions by labeling challenged conduct as “intrinsic” to the merits.
Heightened Disclosure Risk for Boards. False or incomplete disclosures that bleed into litigation can now imperil final judgments, raising the stakes for accurate director-independence reporting.
Procedural Sequencing. The decision suggests that where Rule 60(b)(3) is granted, the underlying merits (e.g., demand futility) will be re-tested, not summarily decided in the fraud proceeding.
Derivative Demand Futility. The ruling underscores that independence determinations are fact-sensitive; companies should anticipate that concealed or evolving relationships (like side consulting deals) may unravel prior dismissals.

4. Complex Concepts Simplified

Rule 60(b)(3). A procedural rule allowing courts to set aside final judgments when an adversary’s fraud, misrepresentation, or misconduct deprived the movant of a fair chance.
Fraud on the Court vs. Fraud Between the Parties. The former is egregious wrongdoing that corrupts the judicial machinery (e.g., bribing a judge). The latter is serious but operates within the adversarial battle (e.g., lying documents). Erste holds that the latter can suffice.
Intrinsic vs. Extrinsic Fraud. Historically, intrinsic fraud related to issues actually litigated; extrinsic kept a party from participating. Rule 60(b)(3) and this decision render the distinction obsolete for Delaware practice.
Derivative Action & Demand Futility. A shareholder sues on the company’s behalf. To bypass the board’s authority, the plaintiff must show it would be “futile” to demand that the board act, often by alleging a majority of directors are not disinterested or independent.
Consulting Options vs. Cash Fees. Re-packaging compensation as stock options can mask ongoing dependence if the vesting is contingent on continued services controlled by insider-directors.

5. Conclusion

Erste Asset Management v. Hees decisively broadens the availability of post-judgment relief under Rule 60(b)(3) in Delaware. By rejecting a rigid “fraud on the court” prerequisite and the archaic intrinsic/extrinsic divide, the Supreme Court protected the integrity of the adversarial process without undermining the finality of judgments. Boards, litigators, and trial courts must now account for a revitalized remedial avenue—one that can reopen seemingly settled cases if litigants’ misstatements materially handicap the opposing party’s presentation. Going forward, accurate disclosure of director relationships and scrupulous honesty in pleadings are not merely ethical imperatives; they are strategic necessities to preserve the durability of Delaware judgments.