Neary v. Regents of University of California

KENNARD, J.

I dissent.

More than just a dispute resolution service, the judiciary is an integral part of our government. Working in the context of actual disputes, courts interpret and enforce the policies adopted by the legislative process, striving always to give those policies coherence and vitality. Thus, when a trial court renders judgment in a particular case, it is not just deciding who wins and who loses, who pays and who recovers. Rather, the ultimate purpose of a judgment is to administer the laws of this state, and thereby to do substantial justice.

Because a judgment embodies an act of government, its annulment must be reconciled with public as well as private interests. And because stipulated reversals tend to diminish public respect for the judiciary and to discourage prejudgment settlements, appellate courts should carefully examine the parties’ reasons for seeking stipulated reversal and should attempt to determine *287 whether the judgment sought to be annulled has value for third parties or for the public at large.

In this case, the parties have presented no legitimate reason for seeking reversal other than facilitation of postjudgment settlement. A judgment duly rendered by a court of this state is a matter of some gravity, not a trifle to be annulled for no better reason than that one party wishes it and has purchased the other party’s acquiescence by a substantial cash settlement. Moreover, the judgment that the parties would annul, which was entered on a jury verdict after a full trial of the merits, has public value because it provides a carefully considered assessment of the performance of a public institution.

Nonetheless, the majority directs the Court of Appeal to grant the motion for stipulated reversal. The majority adopts a rule requiring appellate courts to grant motions for stipulated reversal unless grounds for denial clearly appear. I disagree. The presumption should be against stipulated reversal, not in favor of it.

I. Stipulated Reversals Erode Public Confidence in the Judiciary

In this case, the Court of Appeal explained its denial of the parties’ application for stipulated reversal in part by stating that “the reversal of a judgment not thought to be legally erroneous simply to effectuate settlement would trivialize the work of the trial courts and undermine the integrity of the entire judicial process.” I agree.

Public respect for the courts is eroded when this court decides that a party who has litigated and lost in the trial court can, by paying a sum of money sufficient to secure settlement conditioned on reversal, purchase the nullification of the adverse judgment. (See Fisch, Rewriting History: The Propriety of Eradicating Prior Decisional Law Through Settlement and Vacatur (1991) 76 Cornell L.Rev. 589, 631 [hereafter Rewriting History].) Thus, this court’s adoption of a rule establishing a “strong presumption” in favor of stipulated reversal will reinforce an already too common perception that the quality of justice a litigant can expect is proportional to the financial means at the litigant’s disposal.

The potential damage to public confidence in the judiciary can be readily appreciated by contemplating an extension of the majority’s holding in this case—that is, that parties are entitled to a stipulated reversal absent extraordinary circumstances—to the judgments and decisions of appellate courts. The majority’s reasoning would readily permit such an extension. Yet I doubt *288 that the majority would be as receptive to the parties’ arguments about the benefits of settlement if the parties were seeking to annul by stipulation a decision of this court.

For example, suppose that the Regents of the University of California had been displeased by this court’s opinion in Moore v. Regents of University of California (1990) 51 Cal.3d 120 [ 271 Cal.Rptr. 146 , 793 P.2d 479 , A.L.R.4th 3659], believing it afforded inadequate protection to socially valuable medical research, and had made plaintiff Moore a settlement offer on condition that this court vacate its opinion. If Moore had accepted the offer, the parties could have joined in a stipulation that rehearing be granted and review be dismissed as improvidently granted. Granting the parties’ request in such a case might avoid a costly trial and possibly result in a savings of tax dollars. Even so, I suspect the majority would never consider these to be sufficient grounds to obliterate its own work product.

But the work product of our trial courts deserves respect too. Trial courts are the focal point of the judicial system, providing the final resolution for the vast majority of the lawsuits filed each year. On an appeal, a trial court’s judgment on the merits is presumed to be correct. (Denham v. Superior Court (1970) 2 Cal.3d 557, 564 [ 86 Cal.Rptr. 65 , 468 P.2d 193 ].) To casually discard a presumptively correct trial court judgment, without any showing of legal error, cannot help but demoralize trial judges and jurors. If this court by its actions shows little regard for the work of trial courts, we can hardly expect the public to hold them in high esteem.

II. Stipulated Reversals Discourage Pretrial Settlements

The majority devotes most of its opinion to making the point that public policy encourages settlements, at both the trial and appellate levels, because they conserve judicial resources, relieve parties of the emotional and financial burdens and risks of further litigation, and permit them to reconcile. I agree entirely that settlements are beneficial, that it is never too late to settle, and that the judiciary should actively encourage settlement at every stage of litigation. But I disagree with the conclusions the majority seeks to draw from these noncontroversial propositions. I question whether the rule the majority adopts, which requires appellate courts to grant requests for stipulated reversal in the absence of extraordinary circumstances, will significantly increase the overall rate of settlements on appeal. Moreover, I am persuaded that the majority’s decision will reduce the incentive for pretrial settlements.

During the pendency of an appeal, the parties can always end the litigation by settlement. When notified of a settlement, an appellate court will ordinarily dismiss an appeal as moot, and the parties may then file a satisfaction *289 of judgment in the trial court, formally bringing the lawsuit to a close. This is the normal manner in which appellate settlements occur. Appellate courts should and will continue to encourage parties to reach this kind of settlement, which leaves the trial court’s judgment intact.

Another form of settlement is commonly used in cases on appeal when the decision to settle reflects an agreement that the appeal is meritorious. In this situation, the parties may obtain reversal of the judgment by presenting their agreement to the appellate court in the form of a “confession of error.” (See San Franciscans for Reasonable Growth v. City and County of San Francisco (1989) 209 Cal.App.3d 1502, 1509 [ 258 Cal.Rptr. 267 ]; Barton v. Maal (1936) 12 Cal.App.2d 353, 354 [ 55 P.2d 529 ]; see generally, 9 Witkin, Cal. Procedure (3d ed. 1985) Appeal, § 366, pp. 367-369.) A reversal under these circumstances is for legal error and is not a stipulated reversal as that term is used in this case.

There is no empirical evidence that these two forms of settlement are inadequate, and that a significant number of cases can be settled on appeal only by granting a stipulated reversal of the judgment. Although the majority asserts that the Courts of Appeal have routinely granted motions for stipulated reversal, this assertion is based on documents submitted to this court by the defendants in support of their petition for review. Those documents, evidently the result of defendants’ exhaustive search of appellate court records, reveal just 12 stipulated reversals by the Courts of Appeal in a 4-year period, during which the Courts of Appeal resolved many thousands of appeals by written opinion. Thus, stipulated reversal appears to be a rare occurrence in our appellate courts.

Many parties who would prefer a stipulated reversal would settle even without it to avoid the uncertainties of further litigation. Indeed, that may well be true of the parties to this case. We will never know whether these parties would have settled anyway, without stipulated reversal, if this court had upheld the decision of the Court of Appeal.

Even if one assumes that liberal exercise of the authority to grant stipulated reversal will appreciably increase the number of cases settled on appeal, there will be a significant cost for that benefit. If an adverse judgment can be deleted by a postjudgment settlement with stipulated reversal, parties concerned about the collateral consequences of an adverse judgment will have less incentive to settle their cases before trial and judgment. Cases that would have settled pretrial, with minimal judicial involvement, will be tried before a court or jury, perhaps for days or even months, only to have the court or jury’s considered decision erased by a stipulated reversal.

*290 The most thorough treatment of this question appears in a recent law review article by Professor Fisch of Fordham University School of Law. (Rewriting History, supra, 16 Cornell L.Rev. 589.) Professor Fisch states her conclusion in these terms: “[A] rule of law which routinely permits post-settlement vacatur of judgments actually distorts the settlement process. Such a rule may encourage litigants to delay settlement until a later stage in the litigation. This delay results in a waste of judicial resources.” (Id. at pp. 592-593.)

Professor Fisch observes that judgments have a variety of collateral costs to the losing party. Perhaps the most significant of these collateral costs is the judgment’s preclusive effect in future litigation under the doctrines of res judicata and collateral estoppel. 1 Other important collateral costs are adverse publicity engendered by the decision and damage to reputation. (Rewriting History, supra, 16 Cornell L.Rev. at pp. 593, 624-629.) In some cases, “[t]he collateral costs of a judgment may be substantially greater for the losing party than the immediate costs of complying with the judgment.” (Id. at p. 594.)

When the collateral costs are significant, as they often are, the prospect of incurring these costs provides a powerful incentive for settlement. Yet, as Professor Fisch explains, the availability of stipulated reversal essentially eliminates this factor as an incentive for pretrial settlement. As she writes: “In effect, if a litigant is certain that the court will subsequently vacate an adverse judgment, the availability of vacatur makes going to trial cost-free, apart from litigation costs. A litigant may roll the dice, gamble on a favorable judgment and, if unsuccessful at trial, settle the case after judgment and move for vacatur. After settlement and vacatur of the trial court decision, the litigant will be no worse off than if he or she had avoided a final judgment by entering into a pretrial settlement.” (Rewriting History, supra, 16 Cornell L.Rev. at p. 596, fns. omitted.)

The majority makes much of the incentives for pretrial settlement that remain even under a regime in which stipulated reversals are freely available on appeal. As Professor Fisch acknowledges, failure to settle before trial will still require the parties to incur litigation costs, and it will increase the settlement demands of the party who prevails at trial. Nevertheless, by converting a judgment from a solemn public pronouncement—irrevocable *291 absent demonstrated legal error—into little more than a bargaining chip in ongoing settlement negotiations, a rule favoring stipulated reversals diminishes one very significant incentive for pretrial settlement.

The Seventh Circuit, in an influential opinion by Judge Easterbrook, has recognized that its practice of always denying requests for stipulated reversal has the salutary effect of encouraging settlements before trial and judgment. (Matter of Memorial Hosp. of Iowa County, Inc. (7th Cir. 1988) 862 F.2d 1299 ,1302.) The District of Columbia Circuit has adopted the same rule and has expressly endorsed Judge Easterbrook’s reasoning (In re U.S. (D.C. Cir. 1991) 927 F.2d 626, 628 [ 288 App.D.C. 354 ]), as has the Third Circuit (Clarendon Ltd. v. Nu-West Industries, Inc. (3d Cir. 1991) 936 F.2d 127, 129 .)

Thus, I am not persuaded that the public policy favoring settlements will be well served overall by the rule mandating stipulated reversal absent extraordinary circumstances. The modest immediate gain in increased appellate settlements will, I fear, be more than offset by the long-term cost in terms of fewer pretrial settlements.

III. The Judgment Should Be Preserved for Its Public Value

An appellate court should deny an application to reverse a judgment on stipulation to effectuate settlement if the judgment has value to one not a party to the action. A published decision illustrates this principle. The parties to an appeal sought reversal of an interlocutory judgment dissolving a marriage and dividing the community property. The husband had died after judgment, and the executor appointed to administer his estate had been substituted in his place (see Code Civ. Proc., § 385). The executor and the widow entered into a settlement agreement that was conditioned on reversal of the judgment. The parties maintained that reversal was necessary because a division of the community property under the judgment, as compared to a distribution through probate proceedings, would cause the widow to “ ‘suffer substantial and unnecessary tax burdens.’ ” (In re Marriage of Shapiro (1974) 39 Cal.App.3d 460, 462 [ 114 Cal.Rptr. 277 ], italics omitted.) The Court of Appeal denied the application. Writing for the court, Presiding Justice Kaus explained that the parties’ settlement did not moot the case, that the court knew nothing of the merits of the community property division, and that reversing the judgment would be improper because it would “have consequences affecting interests not directly involved in this proceeding, that is, those of the taxing authorities.” (Id. at p. 464.)

There are some cases in which a judgment has value for society at large, even though it has no particular value for any identifiable nonparty. In this *292 category fall cases to which a public official or public agency is a party, and in which the propriety of that party’s official acts is placed in issue. Certainly the public has an interest in an evaluation of the performance of public employees and public institutions. When that evaluation is made through litigation in state courts, and therefore obtained through the expenditure of public resources, the parties’ preference for settlement is not a sufficient reason to nullify the judicial product. (See Matter of Memorial Hosp. of Iowa County, Inc., supra, 862 F.2d 1299, 1302 [“When the parties’ bargain calls for judicial action ... the benefits of settlement to the parties are not the only desiderata.”].)

Here, the majority has determined that the trial court’s judgment has no value worth preserving. To show the error of this conclusion, it is necessary to briefly review the facts of the case.

To avoid a scabies mite infestation, state and federal agricultural agencies treated George Neary’s herd of pregnant heifers with the insecticide Toxaphene. At least 95 of the heifers died after the treatment, as did more than 400 calves. Neary believed that the treatment had caused these losses, and he was not shy about saying so. Eventually, Neary and state agricultural officials agreed to have the matter investigated by veterinarians employed by the University of California at Davis in its School of Veterinary Medicine. Three of the university veterinarians visited the ranch where the cattle had been treated.

A few months later, over Neary’s objections, the university published a report of the investigation, having concluded that publication was required under the California Public Records Act (Gov. Code, § 6250 et seq.). The report, which was written by two of the three veterinarians who had visited Neary’s ranch, was discussed widely in the print and broadcast media. It concluded that the heifer and calf losses were not caused by pesticide poisoning, but instead by mismanagement at Neary’s ranch. Neary sued the university and the veterinarians for libel. After a four-month jury trial, Neary obtained a verdict and judgment against all defendants for $7 million.

As this account reveals, the judgment that Neary obtained is undoubtedly a matter of significant and legitimate public interest. The defendants in this lawsuit are a public university and three professionals who are its employees. The subject of the dispute is a report written by these professionals in the course of their employment for the university and published as a public record. Both the employees’ salaries and the publication of the report were funded with public tax moneys. The jury determined that the report contained false statements and that the report’s authors had made these statements with malice. It further concluded that these false statements had *293 damaged the reputation of plaintiff, a locally prominent cattle rancher. Because the judgment embodies the jury’s carefully considered assessment of the performance of a public institution in one not insignificant incident, it should not be set aside merely because some of the defendants insist on the judgment’s destruction as a condition of settlement.

IV. The Parties Have Offered No Legitimate Reason for Stipulated Reversal

The majority does not probe the legitimacy of the parties’ reasons for requesting stipulated reversal in this case. For the majority, it is enough that the reversal will permit the parties to finalize a settlement that is apparently beneficial for them and that relieves the judiciary of any further burdens in this case. Taking as its motto “courts exist for litigants,” the majority concludes that an appellate court should be willing to perform an act that the parties have requested as a condition of postjudgment settlement unless the act can be shown to be harmful.

But this reasoning, which allows parties to dictate an appellate court’s actions, could lead to absurd results. Suppose, for example, that the parties conditioned settlement on the appellate justices wearing green robes on Saint Patrick’s Day, or singing “California Here I Come” before court proceedings. Would the majority weigh the benefits of settlement against the slight inconvenience of performing the requested act, or would it instead ask whether the act itself was proper, whether it would be demeaning for courts to humor the parties’ whimsical demands in this fashion?

Moreover, the parties here have requested the appellate court to perform the inherently judicial act of reversing a judgment. Thus, to bring the example a little closer to the facts of this case, we may suppose that the action had been tried to the court without a jury and that after entry of judgment, and while the case was on appeal, the parties had agreed to a settlement conditioned on an order of the appellate court reversing the judgment and remanding to the trial court with directions to redraft the findings in rhyming couplets or using only words of Anglo-Saxon origin, or to include in the findings a totally irrelevant summary of the nutritional benefits of sunflower seeds. In such a case, should an appellate court exercise its judicial power, should it make an order that may well be within its authority to make, for no better reason than to effectuate settlement? I submit it should not. Even when it clearly appears that the requested judicial act will do no injury to any identifiable third party or to the public, the dignity and purpose of the judiciary must be considered. Courts must look beyond the benefits of settlement to determine whether there is a substantial *294 and legitimate reason for the judicial act upon which the parties have conditioned their settlement.

Thus, it is necessary to inquire why the parties in this case have conditioned settlement on reversal of the judgment. If there is no substantial and legitimate reason for their request, then the Court of Appeal properly declined to annul the presumptively valid judgment of the trial court.

The parties assert that reversal is necessary because the defendant veterinarians insist upon it to protect their professional reputations. At the same time, they assert (and the majority agrees) that a stipulated reversal would not imply that the judgment is defective on the merits but would merely add an additional document to the case file establishing that the judgment never received appellate review and that the action terminated by compromise and settlement.

The parties may not have it both ways. Either the stipulated reversal reflects on the judgment’s validity or it does not. If, as both the parties and the majority insist, a judgment’s validity is unaffected by stipulated reversal, then logically a stipulated reversal cannot restore the veterinarians’ tarnished reputations. To grant stipulated reversal in this situation would, at best, encourage the veterinarians’ self-delusion or, at worst, actively assist the veterinarians in practicing a deception on their professional colleagues. If all the parties need is a document showing that the judgment never received appellate review, and that the action terminated by compromise and settlement, they should be satisfied with an order dismissing the appeal as moot by virtue of settlement.

V. Conclusion

The rule the majority adopts, which mandates reversals of judgments on direct appeal simply to permit settlements, undermines judicial efficiency by encouraging parties to try cases rather than settle them. It also erodes public confidence in the judiciary by fostering the perception that litigants having sufficient wealth may buy their way out of the ordinary collateral consequences of public adjudications.

Although I agree with the majority that appellate courts have discretion to grant stipulated reversals in appropriate cases, I would adopt a different rule to guide the exercise of that discretion. When parties request that a trial court’s judgment be reversed to effectuate settlement, appellate courts should deny the request if there is a reasonable possibility that the interests of nonparties or the public could be adversely affected by reversal. If there is *295 no reasonable possibility of adverse impact on third parties or the public, then the court should weigh the parties’ reasons for requesting stipulated reversal against the other institutional concerns I have mentioned—the erosion of public trust likely to result from an appearance that the nullification of a judgment can be purchased, and the risk that the availability of stipulated reversal will reduce the incentive for pretrial settlements.

This does not mean that I am against postjudgment settlements or in favor of forcing parties to litigate against their will. Parties are free at any time to settle their private dispute on terms mutually agreeable, and should be encouraged to do so. What they should not be free to do is to include within those terms of settlement the destruction of a judgment, a public product fashioned at the cost of public resources, and to require an appellate court to accomplish that destruction merely to facilitate resolution of their private dispute.

Here, as I have explained, the judgment possesses significant public value and the parties have offered no substantial and legitimate reason for reversing it. In my view, the Court of Appeal acted correctly when it denied the motion for stipulated reversal.

The majority expressly reserves the question whether a judgment’s potential use for purposes of res judicata or collateral estoppel would provide a proper ground for denying stipulated reversal. Although concern about this particular collateral consequence is perhaps the most common basis for requesting stipulated reversal (see, e.g., Ringsby Truck Lines v. Western Conf. of Teamsters (9th Cir. 1982) 686 F.2d 720 ), I agree that the question need not be decided in this case.