When a Settlement Contingent on Vacatur is Grounds for Rule 60(b) Relief from Judgment

On July 12, the Eleventh Circuit reversed the district court’s denial of a Rule 60(b) motion in Hartford Accident & Indemnity Co. v. Crum & Forster Specialty Insurance Co., 2016 WL 3741972 (11th Cir. July 12, 2016), and vacated the underlying summary judgment orders that the parties had jointly sought relief from in the motion.  The parties based their motion for relief from judgment on the grounds that (1) their settlement was both conditioned on the relief from judgment motion being granted and had been reached only after mediation under the Eleventh Circuit’s program, and (2) the district court orders at issue related to state law and thus were of limited precedential value.  The district court, applying the standard set forth in U.S. Bancorp Mortgage Co. v. Bonner Mall P’ship, 513 U.S. 18 (1994), held that these grounds did not establish the “exceptional circumstances” required by Bancorp.  This, the Eleventh Circuit held, was an abuse of the district court’s discretion because it applied the Bancorp rule incorrectly.

Hartford Accident & Indemnity Company (“Hartford”) brought the underlying action against Crum & Forster Specialty Insurance Company and Westchester Surplus Lines Insurance Company (collectively, “Crum & Forster”) relating to the scope of an insurance policy under Florida law. Between June 15 and November 15, 2012, the district court entered a series of orders granting summary judgment and assessing attorneys’ fees and costs in favor of Crum & Forster.  Hartford appealed the initial order, and the Eleventh Circuit ordered the parties to take part in mediation shortly thereafter.  That mediation failed, and the court held oral argument, but thereafter ordered the parties to take part in a second mediation.  At the second mediation, the parties reached a conditional settlement agreement, executed in January 2015.  The parties agreed to settle the case, but made the settlement “expressly contingent upon the issuance of a valid, final, written order by a court of competent jurisdiction vacating the Summary Judgments and related Cost Orders and Crum & Forster Fee Judgments . . . in their entirety.”  Without an order of vacatur, the settlement would become null and void.  The Eleventh Circuit granted the parties’ joint motion to stay Hartford’s initial appeal so that the parties could file a motion to vacate the district court’s orders pursuant to Rule 60(b).

The denial of a Rule 60(b) motion is reviewed by the appellate court for an abuse of discretion, which will be found if the district court applies the incorrect legal standard, applies the law in an unreasonable or incorrect manner, follows improper procedures, or makes findings of fact that are clearly erroneous. Although the district court identified the correct legal standard, the Eleventh Circuit found that it abused its discretion under the second prong by incorrectly applying the legal standard.

Bancorp concerned a settlement between a debtor and creditor, reached after the Supreme Court had granted cert. to consider a substantive issue of bankruptcy law. Although the settlement mooted that question, the Court decided to hear the debtor’s request that the Court vacate the circuit court’s decision.  The Court held that the circuit court’s decision should stand based on an equitable balancing approach.  The Court indicated that the “principal condition” was “whether the party seeking relief from the judgment below caused the mootness by voluntary action.”  If so, then the losing party would not be entitled to relief because it had voluntarily forfeited the legal remedy.  Other factors the Supreme Court identified that weigh in favor of denying the remedy of vacatur are the public interest in established legal precedents and the orderly operation of the federal judicial system.  As the Eleventh Circuit pointed out, though, the Bancorp Court expressly declined to establish a bright-line rule and left open room for exceptional circumstances that would warrant vacatur.  Prior to Bancorp, settlement agreements that provided for vacatur of an adverse decision in the case were relatively common.

In reaching its decision to reverse the district court, the Eleventh Circuit panel discussed two cases in sister circuits that had found such exceptional circumstances in similar cases to the one at bar. The district court had discussed and rejected the other approach of these other circuit courts.  The common circumstances between those two prior cases and this case were that the parties’ settlements were encouraged by the Courts of Appeal and all parties to the settlement jointly sought vacatur.  The First Circuit found, in Motta v. District Director of INS, 61 F.3d 117, 118 (1st Cir. 1995), that under such circumstances, “the equities plainly favor[ed] vacatur” where the harm to the parties would be concrete and individualized whereas the harm to the public interest would be diffuse and slight.  The Second Circuit, in Major League Baseball Properties, Inc. v. Pacific Trading Cards, Inc., 150 F.3d 149, 152 (2d Cir. 1998), likewise held that vacating such a district court order was appropriate because the parties made it “a necessary condition of settlement.”  The Eleventh Circuit expressly adopted the reasoning of these cases, indicating it viewed doing so as “embrac[ing] the equitable nature of the Supreme Court’s Bancorp inquiry.”

The Eleventh Circuit counseled that courts should “determine the propriety of granting vacatur by weighing the benefits of settlement to the parties and to the judicial system (and thus to the public as well) against the harm to the public in the form of lost precedent.” In this case, the court focused in particular on the fact that the parties “did not begin their negotiations leading to settlement unprompted” and that the parties jointly sought vacatur.  The court even mentioned that it twice referred the parties to mediation before they ultimately reached a settlement.  The court expressly disavowed the district court’s finding that under such circumstances the parties had voluntarily forfeited appellate review, and it also found that the district court’s approach to determining what was in the public’s interest was too narrow.  The panel indicated that precedent is not the only factor that weighed in the public interest, rather settlements themselves, by improving the efficiency of the courts by making available previously committed judicial resources, also serve the public interest.  The only weight on the side of denying vacatur in this case that the panel identified was “the slight value of preserving” a district court ruling on questions of state contract law.

Posted by Danny Wells.

 

Back to top