Can a party who loses in federal court condition a settlement on appeal on the district court vacating its ruling? That was the issue presented in Welch v. Unum Life Ins.Co. of America, 2009 U.S.Dist.LEXIS 34018 (D.Kan. April 22, 2009).

The plaintiff initially won this case, but the court of appeals reversed and remanded. Welch v. Unum Life Insur.Co. of America, 382 F.3d 1078 (10th Cir. 2004). On remand, the district court again ruled in the plaintiff’s favor, finding the insurer improperly applied a policy limitation applicable to ”self-reported” illnesses. Welch v. Unum Life Ins.Co. of America, 2007 U.S.Dist.LEXIS 91796 (D.Kansas 12/13/2007). The insurer again appealed; but in mediation before the 10th U.S. Circuit Court of Appeals, the parties reached a settlement conditioned on the plaintiff’s agreement to a motion to vacate the district court’s summary judgment ruling. Even though Unum’s motion was unopposed, the court presented a lengthy discussion of the propriety of vacating a final judgment issued by a U.S. district court.

The court first explained the 10th Circuit’s law on the issue, which holds that on remand, a district court may consider a request for vacatur, but such relief ”is extraordinary and may only be granted in exceptional circumstances.” Amoco Oil Co. v. U.S. E.P.A., 231 F.3d 694, 697 (10th Cir. 2000) (citing U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, 513 U.S. 18, 29, 115 S.Ct. 386, 130 L.Ed.2 233 (1994)). In U.S. Bancorp, the Supreme Court discussed the propriety of vacatur of district-court judgments and ruled:

”We hold that mootness by reason of settlement does not justify vacatur of a judgment under review. This is not to say that vacatur can never be granted when mootness is produced in that fashion. As we have described, the determination is an equitable one, and exceptional circumstances may conceivably counsel in favor of such a course. It should be clear from our discussion, however, that those exceptional circumstances do not include the mere fact that the settlement agreement provides for vacatur – which neither diminishes the voluntariness of the abandonment of review nor alters any of the policy considerations we have discussed.” 513 U.S. at 28.

The court added: ”’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.’ Izumi Seimitsu Kogyo Kabushiki Kaisha v. U.S. Phillips Corp., 510 U.S. 27, 40, 114 S.Ct. 425, 428, 126 L.Ed.2d 396 (1993) (STEVENS, J., dissenting)…. To allow a party who steps off the statutory path to employ the secondary remedy of vacatur as a refined form of collateral attack on the judgment would – quite apart from any considerations of fairness to the parties – disturb the orderly operation of the federal judicial system….”

There was also a discussion in the opinion as to whether vacatur could be justified by the public policy in favor of settlement; and the court remarked:

”But while the availability of vacatur may facilitate settlement after the judgment under review has been rendered and certiorari granted [or appeal filed], it may deter settlement at an earlier stage. Some litigants, at least, may think it worthwhile to roll the dice rather than settle in the district court, or in the court of appeals, if, but only if, an unfavorable outcome can be washed away by a settlement-related vacatur. And the judicial economies achieved by settlement at the district-court level are ordinarily much more extensive than those achieved by settlement on appeal. We find it quite impossible to assess the effect of our holding, either way, upon the frequency or systemic value of settlement.”

Within that framework, the district court inWelch considered five reasons why vacatur could potentially be granted in this case:

1. The opinion is an unpublished district court opinion that has limited precedential value;

2. The parties agree that vacatur is appropriate in this case;

3. The decision is largely limited to the facts presented in this case;

4. The settlement came about through the assistance of the 10th Circuit Office of Mediation, which is an important program that should be encouraged; and

5. There is potentially superseding case law from the U.S. Supreme Court in the case of Metropolitan Life Ins. Co., v. Glenn, 128 S.Ct. 2343, L.Ed.2d (2008).

The court immediately rejected the second reason that had been proffered because the Supreme Court also found in U.S. Bancorp that the parties desire to settle does not constitute an exceptional circumstance. Nor was the court persuaded by reason number four. While the court acknowledged the value of the appellate mediation program, it found U.S. Bancorp would not consider encouragement of settlement to constitute an exceptional circumstance.

Nor did the court consider the district court opinion’s non-publication a significant factor since the ruling was available on computerized legal research databases. Likewise, the court remarked that while the ruling was certainly limited to the facts presented, nonetheless, ”If, as UNUM argues, the opinion in this case is of little precedential value, then UNUM would have no reason to seek vacatur as part of any settlement.” The court noted that Unum had other policies in effect in which the same issue could be presented, and pointed out that another court had already cited the district court’s opinion and was persuaded by theWelch court’s analysis in ruling on a similar issue: Godden v. Long Term Disability Plan for Employees of Huntington Banc Shares, 2008 WL 687124 (S.D. Ohio, Mar. 10, 2008).

Finally, the court was unimpressed with the argument that Metro.Life v. Glenn, 128 S.Ct. 2343 (2008) would supersede the standard of review that had been applied by the district court since the court had followed a similar ruling issued by the 10th Circuit which, like Glenn, took into consideration the insurer’s conflict of interest. Thus, the court concluded that its analysis would remain the same hadGlenn been issued at the time of the court’s ruling.

Hence, while the court concluded that its decision would not be automatically overturned in light of Glenn, the district court acknowledged the matter could be remanded again. That possibility, along with the pendency of the litigation for nearly ten years, was, according to the court, sufficient grounds to constitute exceptional circumstances to justify vacatur. Nonetheless, in a footnote, the court pointed out: ”Whether the vacatur gives UNUM what it really desires – to have the court’s opinion disappear entirely – remains to be seen, depending upon whether, or to what extent the opinion is removed from the Westlaw database.”

Faced with the identical issue, a district court in Virginia came to the opposite conclusion several years ago. Neumann v. Prudential Insur. Co. of America, 398 F.Supp.2d 489 (E.D.Va. 2005)(See, M. DeBofsky, ”Court: Judgment Stays on Books,” Lawyers’ Forum, Chicago Daily Law Bulletin, Dec. 27, 2005). The judge in Neumann vehemently rejected the insurer’s argument that settlement would conserve judicial resources, and remarked that if the practice of vacatur became routine, ”litigants might thereby be encouraged to forego settlement early in the litigation process, hoping either to prevail at trial or, failing that, to bargain away any adverse decision with a settlement conditioned on vacatur.” 398 F.Supp.2d at 493. The court added, ”where … the parties have litigated their dispute in the trial court and a decision and judgment has issued elucidating and applying the governing law to resolve the parties’ dispute, courts play an important role that goes well beyond merely resolving private disputes.” Thus, the court in Neumann adamantly refused to vacate its earlier judgment.

Here, while the court was appropriately sympathetic to the plaintiff’s plight of having to litigate an ongoing dispute that deprived her of benefits for 10 years, it is hard to reconcile the court’s ultimate conclusion with its findings on each of the five points raised Unum’s motion. After rejecting each of the defendant’s rationales, the decision does not clearly articulate a persuasive rationale for finding exceptional circumstances that would justify vacating the earlier ruling.

There is another reason why the court in Welch should have rejected the motion to vacate. By vacating a judgment merely to achieve a settlement, the court transformed its final judgment into what arguably became a constitutionally impermissible advisory opinion barred by Article III of the U.S. Constitution. As the Supreme Court pointed out in Preiser v. Newkirk, 422 U.S. 395, 401-402, 95 S.Ct. 2330, 45 L.Ed.2d 272 (1975), a federal court has no authority to render advisory opinions. Thus, if the practice of vacatur were to become widespread, judicial opinions would become advisory and those principles would be eviscerated.

Finally, as the court pointed out, the genie is out of the bottle. Not only was the court’s ruling issued online and will remain forever available on the Internet; it had already been relied on by another court. Hence, the ruling here cannot make the court’s order disappear, so the value of vacating the judgment remains questionable and likely purposeless.

This article was initially published in the Chicago Daily Law Bulletin.

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