Commercial Litigation

Settlement vs. Precedent: Court Weighs Importance of Interests

This article was originally published in the November 2, 2016 edition of Daily Business Review Board of Contributors Section.

On July 12, 2016, the Eleventh Circuit Court of Appeals reversed the District Court’s denial of a joint motion to vacate orders pursuant to Rule 60(b) of the Federal Rules of Civil Procedure where a settlement agreement was made contingent on the vacatur being granted. This decision may afford parties an opportunity to reach a settlement agreement in federal court where one did not seem feasible.

In Hartford Casualty Ins. Co., et al. v. Crum & Forster Specialty Ins. Co. et al., the Eleventh Circuit held that the United States District Court for the Southern District of Florida abused its discretion in denying the motion to vacate because it misapplied the United States Supreme Court’s seminal decision — U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership.

The plaintiff filed suit against the defendant regarding the scope of an insurance policy under Florida law. During the litigation, the District Court entered orders granting summary judgment and assessing attorney’s fees and costs in favor of the defendant. The plaintiff appealed and the Eleventh Circuit ordered the parties to take part in mediation. The mediation failed.

After oral argument was heard, the parties were ordered to take part in a second mediation. The parties executed a conditional settlement agreement, which provided that the settlement was “expressly contingent” upon a final order by the District Court vacating the summary judgment and fees and costs judgments. The Eleventh Circuit stayed the appeal pending resolution of the parties’ motion to vacate those orders pursuant to Rule 60(b).

The District Court denied the motion by relying on the Bancorp decision and finding that there were no “exceptional circumstances” warranting vacatur of the orders. The parties then jointly challenged the ruling. The Eleventh Circuit acknowledged Bancorp generally provides that this type of vacatur should only be permitted in “exceptional circumstances,” but also stated that this determination requires the courts to weigh the benefits of settlement to the parties and the judicial system against the potential harm to the public in the way of lost precedent — an equitable inquiry that will vary case by case.

The Eleventh Circuit held that exceptional circumstances existed to grant the motion to vacate based on two “unusual” features of the settlement agreement. First, the plaintiff did not voluntarily forfeit its right to appeal the judgments by reaching a settlement with the defendant because the negotiations were prompted and encouraged by the Court multiple times and the agreement was “expressly conditioned” on the orders being vacated. And second, a resolution would have been “impossible” without the vacatur taking place. Taken together, these factors “weighed heavily” against the public interest in preserving the District Court’s precedent on questions of state contract law, which only provided “slight” value to the public.

Hartford Casualty recognizes that the public interest is not only served by the preservation of precedent, but also by settlements that allow previously committed federal judicial resources to be reallocated to other more pressing matters. Parties litigating in federal court should consider this type of contingent settlement arrangement when it appears the sides have reached an insurmountable impasse. It may lead to a resolution where one seemed impossible.

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