Hartford Accident and Indemnity Company v. Crum & Forster Specialty Insurance Company , 828 F.3d 1331 ( 2016 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 15-12781; 12-13728
________________________
D.C. Docket No. 1:10-cv-24590-JLK
HARTFORD CASUALTY INSURANCE COMPANY,
a foreign corporation,
Plaintiff -
Counter Defendant,
HARTFORD ACCIDENT AND INDEMNITY COMPANY,
a foreign corporation, as equitable subrogee and real party in
interest on behalf of Miller & Solomon General Contractors, Inc.,
Plaintiff -
Counter Defendant -
Appellant,
versus
CRUM & FORSTER SPECIALTY INSURANCE COMPANY,
a foreign corporation, as equitable subrogee and real party in
interest on behalf of Miller & Solomon General Contractors, Inc.,
Defendant -
Counter Claimant -
Counter Defendant -
Appellant,
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WESTCHESTER SURPLUS LINES INSURANCE COMPANY,
a foreign corporation,
Defendant - Appellant.
________________________
Appeals from the United States District Court
for the Southern District of Florida
________________________
(July 12, 2016)
Before TJOFLAT and WILSON, Circuit Judges, and COOGLER, ∗ District Judge.
TJOFLAT, Circuit Judge:
This appeal concerns a settlement agreement made contingent on vacating
certain orders of the District Court. After being moved to do so under Rule 60(b)
of the Federal Rules of Civil Procedure, the District Court declined to vacate those
orders. We conclude that the District Court thereby abused its discretion because it
misapplied the Supreme Court’s seminal decision in this area of the law, U.S.
Bancorp Mortgage Company v. Bonner Mall Partnership, 513 U.S. 18, 115 S. Ct.
386, 130 L. Ed. 2d 233 (1994), which sets out an equitable approach that generally
counsels against granting requests for vacatur made after the parties settle. The
∗
Honorable L. Scott Coogler, United States District Judge for the Northern District of
Alabama, sitting by designation.
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Bancorp Court, however, provided an exception to this general rule for
“exceptional circumstances.” Here, there are such exceptional circumstances.
I.
Between June 15, 2012, 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 Specialty Insurance Company and Westchester
Surplus Lines Insurance Company (collectively, “Crum & Forster”) in a suit about
the scope of an insurance policy under Florida law brought by Hartford Accident
and Indemnity Company (“Hartford”). Hartford appealed the District Court’s
grant of summary judgment to Crum & Forster on July 11, 2012. On August 31,
2012, we ordered the parties to take part in a mediation conference. That
mediation failed to resolve Hartford’s appeal.
After hearing oral argument, we ordered the parties to take part in a second
mediation. This second mediation resulted in a conditional settlement agreement,
which was executed by the parties on January 26, 2015. Crum & Forster and
Hartford agreed to settle the case, but the agreement provided that the settlement
“is 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 Judgment . . . in their entirety.” If the District
Court’s orders were not vacated, the conditional settlement agreement provided
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that “the Parties’ controversy, as it existed before this Conditional Agreement was
executed, shall remain live, and the remainder of this Conditional Agreement shall
become null and void and otherwise unenforceable by any Party.” We granted the
parties’ joint motion to stay Hartford’s initial appeal on February 26, 2015, so the
parties could file their motion to vacate those orders in the District Court pursuant
to Rule 60(b). See Fed. R. Civ. P. 60(b)(6) (“On motion and just terms, the court
may relieve a party or its legal representative from a final judgment, order, or
proceeding for . . . any other reason that justifies relief.”).
On May 27, 2015, the District Court, invoking the Supreme Court’s Bancorp
decision, concluded that there are not “exceptional circumstances” warranting
vacatur of the contested orders. Specifically, the District Court rejected the
grounds advanced by Crum & Forster and Hartford (1) that the conditional
settlement agreement was reached only after we had ordered the parties to
mediation, and (2) that the orders in question turned on a federal district court’s
interpretation of state law and are thus of limited precedential value. The Court
reasoned that, even though we had ordered the parties to mediation, the resulting
settlement evinced a “voluntary forfeiture of review,” which counsels against
vacatur, because the decision to settle was “entirely [the parties’] own
prerogative.” The Court further reasoned that whether or not its orders were of
limited precedential value was beside the point; “vacatur should be granted only
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where the public interest would affirmatively ‘be served’” by doing so. In
reaching these conclusions, the District Court rejected the contrary reasoning of
two of our sister circuits, whose understanding of the Supreme Court’s Bancorp
decision the District Court described as “flaw[ed].” See Major League Baseball
Props., Inc. v. Pac. Trading Cards, Inc., 150 F.3d 149 (2d Cir. 1998); Motta v.
Dist. Dir. of INS, 61 F.3d 117 (1st Cir. 1995) (per curiam). This appeal timely
followed.
II.
Both Crum & Forster and Hartford jointly challenge the District Court’s
denial of their Rule 60(b) motion to vacate. We review the District Court’s denial
of a Rule 60(b) motion for abuse of discretion. Stansell v. Revolutionary Armed
Forces of Colombia, 771 F.3d 713, 734 (11th Cir. 2014). “‘A district court abuses
its discretion if it applies an incorrect legal standard, applies the law in an
unreasonable or incorrect manner, follows improper procedures in making a
determination, or makes findings of fact that are clearly erroneous.’” United States
v. Toll, 804 F.3d 1344, 1353–54 (11th Cir. 2015) (quoting Citizens for Police
Accountability Political Comm. v. Browning, 572 F.3d 1213, 1216–17 (11th Cir.
2009)).
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III.
Although the District Court identified the correct legal standard for assessing
whether vacatur is appropriate after a case settles—the Supreme Court’s decision
in U.S. Bancorp Mortgage Company v. Bonner Mall Partnership, 513 U.S. 18, 115
S. Ct. 386, 130 L. Ed. 2d 233 (1994)—it applied that standard incorrectly. At issue
in Bancorp was a settlement entered into by a debtor and creditor after the
Supreme Court had granted certiorari to decide whether there was a “new value
exception” to the absolute-priority rule of Chapter 11, a substantive issue of
bankruptcy law. See 513 U.S. at 19–20, 115 S. Ct. at 389. Although the settlement
mooted the question over which certiorari had originally been granted, the Court
decided to hear the debtor’s request that the Court vacate the Ninth Circuit’s
decision below, which the creditor opposed. Id.; see also 28 U.S.C. § 2106 (“The
Supreme Court or any other court of appellate jurisdiction may . . . vacate . . . any
judgment, decree, or order of a court lawfully brought before it for review . . . .”).
The Court thus had to determine the effect of a settlement on the normal practice of
vacating lower courts’ decisions once an appeal has become moot. See Bancorp,
513 U.S. at 22–23, 115 S. Ct. at 390 (confirming this “‘established practice’” and
explaining “that vacatur ‘clears the path for future relitigation of the issues
between the parties and eliminates a judgment, review of which was prevented
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through happenstance.’” (quoting United States v. Musingwear, Inc., 340 U.S. 36,
39–40, 71 S. Ct. 104, 106–07, 95 L. Ed. 36 (1950))).
Concluding that the Ninth Circuit’s decision should stand, the Court laid out
a balancing approach in the “equitable tradition of vacatur.” Id. at 24–25, 115 S.
Ct. at 391–92. The “principal condition” that must be determined “is whether the
party seeking relief from the judgment below caused the mootness by voluntary
action.” Id. at 24, 115 S. Ct. at 391. If so, that party should not be entitled to relief
because “the losing party has voluntarily forfeited his legal remedy by the ordinary
processes of appeal or certiorari,” as “the case stands no differently than it would if
jurisdiction were lacking because the losing party failed to appeal at all.” Id. at
25–26, 115 S. Ct. at 392. Even if granting a request for vacatur would be fair to
the party opposing it because “the parties are jointly responsible for settling” and
thus “may in some sense” be thought to be “on even footing,” the required
balancing “must also take account of the public interest,” as is true of any equitable
remedy. Id. at 26, 115 S. Ct. at 392. By “disturb[ing] the orderly operation of the
federal judicial system” and using vacatur “as a refined form of collateral attack
on” unfavorable judgments, the public interest would be disserved because
“[j]udicial precedents are presumptively correct and valuable to the legal
community as a whole.” Id. at 27, 115 S. Ct. at 392 (quotation marks and citation
omitted). The Court concluded its analysis by reiterating the equitable nature of its
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adopted approach and declined to impose a bright-line rule against vacatur in all
cases mooted by settlement because there may be “exceptional circumstances” that
would warrant vacatur. Id. at 29, 115 S. Ct. at 393. The Court cautioned that
“those exceptional circumstances do not include the mere fact that the settlement
agreement provides for vacatur.” Id.
To date, two of our sister circuits have held that there are such “exceptional
circumstances” justifying vacatur in published opinions.1 In Motta v. District
Director of INS, the First Circuit concluded that vacatur was warranted when the
parties to an immigration suit agreed to enter into a settlement after a panel of that
Court suggested they do so during oral argument. 2 The Immigration and
Nationalization Service (“the INS”) agreed to settle on the condition that the
district court order under review, which the INS viewed as “dangerous and
erroneous precedent,” be vacated. See Motta, 61 F.3d at 118. Distinguishing
Bancorp, the First Circuit observed that “[t]he INS did not by its own initiative
relinquish its right to vacatur” as it had “at all times sought to pursue its appeal,”
with the INS’s consideration of settling coming “only at the suggestion of th[e]
1
Other circuits, including this one, have also vacated district courts’ precedential rulings
based on the presence of exceptional circumstances in unpublished opinions. See Blue Cross
and Blue Shield Ass’n v. Cox, 403 F. App’x 417 (11th Cir. 2010); In re Gen. Motors Corp., No.
94-2435, 1995 WL 940063 (4th Cir. Feb. 17, 1995).
2
The underlying issue at stake in Motta involved the propriety of a district court order
staying deportation and allowing the Board of Immigration Appeals to decide whether to reopen
proceedings. Motta, 61 F.3d at 117–18.
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Court.” Id. As such, there would be “no appreciable harm to the orderly
functioning of the federal judicial system” because the parties were not granted
“undue control over judicial precedents.” Id. Although the First Circuit
recognized that vacating district court precedent “works a kind of harm,” the Court
reasoned that “such a species of harm” does not outweigh the settling parties’
interests and the efficiency benefits of settlement. Id. Unlike “the usual appeal”
when “vacatur is only one consideration among others in a settlement,” as was the
posture in Bancorp, the Motta Court reasoned that the INS “is primarily concerned
with the precedential effect of the decision below” because the INS is “a repeat
player before the courts.” Id. Weighing the concrete and individualized harm that
would occur to the parties if their settlement efforts went for naught against the
diffuse and slight harm to the public interest in preserving precedent, the First
Circuit concluded that “the equities plainly favor vacatur.” Id.
The Second Circuit reached a similar conclusion in Major League Baseball
Properties, Inc. v. Pacific Trading Cards, Inc., which involved an appeal of a
district court order denying a preliminary injunction in a trademark dispute. 3
3
Specifically at issue in Major League Baseball was the District Court’s decision to deny
the preliminary injunction requested by Major League Baseball Properties, Inc. in its trademark
dispute with Pacific Trading Cards, Inc., which concerned the production of unauthorized trading
cards with images depicting Major League Baseball players wearing allegedly trademark-
protected uniforms. See 150 F.3d at 150.
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Because an injunction pending appeal “would be financially ruinous” to the
defendant-appellee and because it would take several months to make a
determination “even on an expedited basis,” the Court ordered the parties to
mediate their dispute with the help of staff counsel. Major League Baseball, 150
F.3d at 150–51. The parties returned with a settlement agreement contingent on
the district court order being vacated and jointly requested that the Court grant
vacatur. Id. at 151. Relying on the First Circuit’s reading of Bancorp’s
“exceptional circumstances” language, the Second Circuit reasoned that vacating
the district court order was appropriate because doing so “was a necessary
condition of settlement.” Id. at 152. Leaving adverse precedent on the books
could subject the markholder to a defense of acquiescence “in future litigation with
alleged infringers.” See id. Because the settlement benefitted both parties and
“[t]he only damage to the public interest . . . would be that the validity of [the
disputed trademarks] would be left to future litigation,” the Court concluded that
the balance of the equities favored vacatur. Id.
We follow the approach taken by the First and Second Circuits, which
embraces the equitable nature of the Supreme Court’s Bancorp inquiry. Under this
approach, courts 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. The
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precise application of this approach will vary case by case. Here, two unusual
features of the settlement agreement entered into by Crum & Forster and Hartford
tip the scales decisively in favor of vacating the District Court’s orders in dispute.
First, we observe that Crum & Forster and Hartford did not begin their
negotiations leading to settlement unprompted. It was only after the second time
we referred their dispute to mediation that Crum & Forster and Hartford agreed to
settle. As that agreement is expressly conditioned on the District Court’s orders
being vacated, this is not the case of an appellant “voluntarily forfeit[ing] his legal
remedy by the ordinary processes of appeal or certiorari.” Cf. Bancorp, 513 U.S.
at 25–26, 115 S. Ct. at 392. Second and relatedly, this is an instance where both
parties to the settlement desire vacatur because settlement would otherwise be
impossible. Taken together, these considerations weigh heavily in favor of
vacating the District Court’s orders. The parties’ interests are best served through
the voluntary disposition of this case, and further proceedings are curtailed,
conserving judicial resources. On the other side of the balance is the public
interest in preserving a district court ruling on questions of state contract law that
has been appealed to this Court. The slight value of preserving that precedent to
the public interest generally, however, is outweighed by the direct and substantial
benefit of settling this case to Crum & Forster and Hartford and to the judicial
system (and thus to the public as well).
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The District Court’s contrary conclusion and reasoning below rest on two
faulty premises that we expressly disavow. First, the District Court concluded that,
although we had ordered the parties to mediation, the resulting settlement
nonetheless evinced a “voluntary forfeiture of [appellate] review” that was
“entirely [the parties’] own prerogative.” As a result, Crum & Forster and Hartford
should not be entitled to avail themselves of the equitable remedy of vacatur. The
District Court’s rationale, however, proves too much. Although any valid
settlement will, of course, be “voluntary” and in some sense put an end to the
dispute at hand, to conclude that a settlement conditioned on vacatur indicates a
voluntary forfeiture of appellate review would eliminate the possibility that any
settlement would ever warrant vacatur. Adopting such a reading of “exceptional
circumstances”—that is, categorically denying that any such “exceptional
circumstances” exist—would be inconsistent with the Supreme Court’s express
language in Bancorp and the equitable nature of that decision.
Second, the District Court’s approach to determining the nature of the public
interest in vacatur is too narrow. Relying on the following statement in Bancorp—
“‘Judicial precedents are presumptively correct and valuable to the legal
community as a whole. They are not merely the property of private litigants and
should stand unless a court concludes that the public interest would be served by a
vacatur,’” Bancorp, 513 U.S. at 26–27, 115 S. Ct. at 392 (quoting Isumi Seimitsu
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Kogyo Kabushiki Kaisha v. U.S. Philips Corp., 510 U.S. 27, 40, 114 S. Ct. 425,
428, 126 L. Ed. 2d 396 (1993) (Stevens, J., dissenting))—the District Court
understood its discretion to grant vacatur to be limited to those circumstances in
which doing so would affirmatively advance the public interest. That is, the
District Court read the quoted language from Bancorp to adopt a bright-line rule
whereby vacatur could not be granted if there were only slight harm likely to befall
the public interest, or even no harm at all, regardless of the magnitude of the
countervailing benefits of settlement. Apart from being plainly contrary to the
equitable nature of the inquiry called for by Bancorp, the District Court’s
erroneous bright-line approach also fails to recognize that the public interest is not
served only by the preservation of precedent. Rather, the public interest is also
served by settlements when previously committed judicial resources are made
available to deal with other matters, advancing the efficiency of the federal courts.
When proper consideration is given to the interests of the parties, the judicial
system, and the public taken together, vacatur may still prove an appropriate
remedy even if the public’s interest in the preservation of precedent is not
affirmatively advanced when considered in isolation.
IV.
Accordingly, the District Court’s denial of Crum & Forster and Hartford’s
Rule 60(b) motion is REVERSED. The District Court’s orders of June 15, 2012;
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June 21, 2012; October 30, 2012; and November 15, 2012, awarding Crum &
Forster summary judgment, costs, and attorneys’ fees are hereby VACATED.
REVERSED AND VACATED
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