An Eleventh Circuit panel recently vacated two district court orders after sending the parties to mediation, and after the parties’ conditioned settlement on vacatur of the orders. In Hartford Casualty Insurance Company v. Crum & Forster Specialty Insurance Company, after being ordered to mediation a second time by the appellate panel, the parties reached a settlement contingent on the district court’s vacating its orders on summary judgment and attorney’s fees. On remand, the district court, declined to vacate the orders, holding that “exceptional circumstances” justifying vacatur did not exist under the Supreme Court’s decision in U.S. Bancorp Mortgage Company v. Bonner Mall Partnership. The Eleventh Circuit, however, determined that the district court abused its discretion by incorrectly applying Bonner Mall and vacated the orders.

In Bonner Mall, a debtor and creditor settled a bankruptcy dispute after the Supreme Court granted certiorari. Although the settlement mooted the question over which certiorari had been granted, the Court adjudicated the debtor’s request to vacate a Ninth Circuit order on a substantive issue of bankruptcy law, but decided not to order vacatur. The Court held that the “principal condition” to consider in determining whether to grant vacatur is whether the party seeking relief from an order below “caused the mootness by voluntary action.” Further, the public interest should be taken into account, the Court held, because vacatur might disturb “the orderly operation of the federal judicial system” by permitting a type of “refined form of collateral attack” on judicial precedents. The Court held, nevertheless, that there might be “exceptional circumstances” that warrant vacatur in cases mooted by settlement, but stated that “those exceptional circumstances do not include the mere fact that the settlement agreement provides for vacatur.”

In ordering vacatur, the Eleventh Circuit panel cited two decisions by federal appellate courts holding that “exceptional circumstances” existed warranting vacatur under Bonner Mall.  In Motta v. District Director of INS, the First Circuit suggested that the parties settle during oral argument. As a condition of settlement, the INS required that a district court order, which it viewed as a “dangerous and erroneous precedent”, be vacated. The First Circuit determined that the “equities favor vacatur” because the court had suggested settlement, and because the INS’s principal concern in appealing was the vacatur of the district court’s order that it considered dangerous precedent. In Major League Baseball Properties, Inc. v. Pacific Trading Cards, Inc., the Second Circuit vacated a district court order after the parties settled a trademark issue, where an injunction pending appeal would have been ruinous to one party and the Court had ordered the parties to mediate their dispute with staff counsel’s assistance. The Second Circuit ordered vacatur, reasoning that it was a necessary condition of settlement and, further, that leaving the precedent in place would subject one party to a defense of acquiescence in future litigation with alleged trademark infringers.

The Eleventh Circuit panel held that it would follow the “approach taken by the First and Second Circuits,” which it stated “embraces the equitable nature of the Supreme Court’s [Bonner Mall] inquiry” by determining “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.” The panel determined that this balancing standard was met because the parties had settled only after twice being ordered to mediation (once at the outset of the appeal and once after oral argument). Further, the panel held that the public interest in preserving the precedential effect of a federal district court’s summary judgment order on a matter of state contract law was “outweighed by the direct and substantial benefits of settling the case” to the parties.

A liberalization of the Supreme Court’s holding in Bonner Mall could dramatically change the dynamics surrounding all settlements, and perhaps class action settlements in particular. This is because appeals are routinely ordered to mediation, including class action objectors’ appeals, and many district court class action decisions involve interpretations of state law, which the Eleventh Circuit panel deemed of limited precedential value. Such an expansion of Bonner Mall would increase the appellate courts’ power to shape class action settlements. Further, it might make the parties more comfortable litigating through summary judgment if a realistic possibility exists that adverse orders could be vacated after settlement during an appeal.

Hartford Cas. Ins. Co. v. Crum & Forster Specialty Ins. Co., No. 15-12781 (11th Cir. July 12, 2016)