Amicus Curiae Brief — US Bancorp Mortgage Co. v. Bonner Mall Partnership

Court, U.S. |

p FILED

E

No. 93-714 MAY 1 2 1994

PORE OF THE CLERK

In the Supreme Court of the United States

OCTOBER TERM, 1993

U.S. BANCORP MORTGAGE COMPANY, PETITIONER

LD.

BONNER MALL PARTNERSHIP

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

SUPPORTING PETITIONER

Drew S. Days, III

Solicitor General

FRANK W. HUNGER

Assistant Attorney General

EDWIN S. KNEEDLER

Deputy Solicitor General

RONALD J. MANN

Assistant to the Solicitor General

LEONARD SCHAITMAN

JOHN P. SCHNITKER

Attorneys

Department of Justice

Washington, D.C. 20530

(202) 514-2217

* 0 2 * — ond i ung

QUESTION PRESENTED

Whether the rule of vacatur announced in United States v.

Munsingwear, Inc., 340 U.S. 36 (1950), should apply to cases

that become moot in this Court because of voluntary set-

tlement by the parties after the Court has granted a petition

for a writ of certiorari.

(I)

re. 0 9 = * * 3 - - - *

5 1 f g wa

TABLE OF CONTENTS

Page

Interest of the United States ...........ccccccscscocscsccesssscsssssseseees l

rr 2

Summary of argument . . .... . .. eesveeeseeweseeeeeeeeeeseese. 4

Argument:

I. This Court should vacate the judgment of a court

of appeals if the case becomes moot as a result of

settlement while the case is pending in this Court on

W r 6

A. This Court's precedents mandate a general rule

of vacatur when a case that is pending on appeal

or certiorari becomes moo! as a result of settle-

. — ] 10

B. Considerations of fairness and public policy

support a general rule of vacatur in cases that

become moot as a result of settlement while

pending on appeal or certiorari ..............6000 17

1. A rule of vacatur furthers the judicial sys-

tem's important interest in voluntary settle-

. 17

2. The public interest in the judicial system

and its decisions does not override the in-

terests favoring settlement that are further-

ed by a rule of vacatuerttr 22

II. If the Court adopts a rule calling for case-by-case

consideration, vacatur is appropriate in this case ... 26

11 . 30

LE OF AUTHORITIES

Cases:

A.L. Mechling Barge Lines, Inc. v. United States, 368

rr 17

Allen & Co. v. Pacific Dunlop Holdings, Inc., 114

e 12

(II

IV

Cases Continue“

Alliance To End Repression v. City of Chicago, 820 F. 2d

II.... .

Anderson, In re, 913 F.2d 530 (8th Cir. 1990) ..

Arthur v. Manch, 12 F.3d 377 (2d Cir. 1993) ............

Bates v. Union Oil Co,, 944 F.2d 647 (th Cir. 1991), cert.

denied, 112 8. Ct. 1761 (1992) .......ccccccccereseneeennreenennens

Baxter Healthcare Corp. v. Healthdyne, Inc, 956 F.2d

I. w

Bethune Plaza, Inc. v. Lumpkin, 863 F.2d 525 (7th Cir.

6 ů ů — —— — ———

Black v. Amen, 355 U.S. 600 (1958) . . .tv

Black v. Cutter Laboratories, 351 U.S. 292 (1956)

Board of Governors of Federal Reserve System v.

Security Bancorp, 454 U.S. 1118 (1981) ............

Board of Regents v. New Left Education Project, 414

III. ß

Bowen v. Kizer, 485 U.S. 386 (1988) ...... . . .

Buck's Stove & Range Co. v. American Federation of

Raber, GBD UE. GER CIBER) ccccscccccccscsesesesecscessscescsccceseces

California v. Rooney, 483 U.S. 307 (1987) . .

Chemetron Corp. v. Business Funds, Inc., 682 F.2d

1149 (5th Cir. 1982), vacated and remanded, 460 U.S.

of, — ͤ — —-— ͤ ͤ

Church of Scientology v. United States, 113 S. Ct. 447

. K 0

City Gas Co. v. Consolidated Gas Co., 499 U.S. 915

6 Z

Clarendon Ltd. v. Nu-West Industries, Inc., 986 F. 2d 127

0 lo —— — — —¼4

Clarke v. United States, 915 F.2d 699 (D.C. Cir. 1990)

Commercial Cable Co. v. Burleson, 250 U.S. 360 (1919) ..

Continental Casualty Co. v. Fibreboard Corp,, 113 S. Ct.

00 — ——

County of Los Angeles v. Davis, 440 U.S. 625 (1979)

DHL Corp. v. CAB, 659 F.2d 941 (9th Cir. 1981)...........

Cases—Continued: Page

Dakota County v. Glidden, 113 U.S, 222 (1885) 11

DeFunis v. Odegaard, 416 U.S. 312 (1974) ......cccccce 15

Deakins v. Monaghan, 484 U.S. 193 (1988) 0.0.0.0 7, 15

Dodrill v. Ludt, 764 F.2d 442 (6th Cir. 1985) 19

Duke Power Co. v. Greenwood County, 299 U.S. 259

. —— ——— 10

Federal Data Corp. v. SHS Data Products Group, Inc.

Inc., 819 F.2d 277 (Fed. Cir, 1987) . . 7, 18

Frank v. Minnesota Newspaper Ass'n, 490 U.S. 225

9 15

Gray v. Board of Trustees, 342 U.S. 517 (1962) ............ 15

Great Western Sugar Co. v. Nelson, 442 U.S. 92 (1979) . 10

Hammond Clock Co. v. Schiff, 293 U.S. 529 (1934) 7, 11

Hendrickson v. Secretary of Health & Human Services,

774 F.2d 1355 (8th Cir. 1985) ...... .. ... . . . . . , 8

Hewitt v. Helms, 482 U.S. 755 (1987) . 24

Honig v. Doe, 484 U.S. 305 (1988) ..... . . 7

Honig v. Students of California School for the Blind,

0e... 16

Iron Arrow Honor Society v. Heckler, 464 U.S. 67

— . ͤ — . 6-7

J. Aron & Co. v. Mississippi Shipping Co., 361 U.S. 115

— — — — 10

Kaisha v. U.S. Philips Corp, 114 8. Ct. 425 (1993) 8

Karcher v. May, 484 U.S. 72 (1987) . . . 12, 14

Kennedy v. Block, 784 F.2d 1220 (4th Cir. 1986) 8

Key Enterprises, Inc. v. Venice Hospital, 9 F.3d 893

(11th Cir. 1993), petition for cert. pending, No. 93-

3 —ůů— 9

Lake Coal Co. v. Roberts & Schaefer Co., 474 U.S. 120

a 7, 10, 11

Lewis v. Continental Bank Corp., 494 U.S. 472 (19990) .. 7

Long Island Lighting Co. v. Cuomo, 888 F.2d 230 (2d

. 92999 ——————————— 14, 19

Vi

Cases —Continued: Page

Manufacturers Hanover Trust Co. v. Yanakaa, 11

PBS SBI (BS Cle. 6. . eee eee 7-8, 9, 16

Mare Development, Inc. v. FDIC, 12 F.3d 948 (0th Cir.

—K ä . 9

Marek v. Cheany, 473 US. 14966 „% 18

Marshall v. Whittaker Corp, 610 F.2d 1141 (cd Cir.

—— 19

Martinez v. Winner, 800 F.2d 230 (10th Cir, 1986) ....... 19

Memorial Hospital, Inc, In re, 862 F.2d 1299 (7th Cir.

A RE Rane ene 8, 13, 20, 21, 22, 24

Mills v. Green, 159 US, 651 (1895 . e 7

Montana v. United States, 440 U.S, 147 (1979) ........... 23

National Union Fire Insurance Co. v. Seafiret Corp,

891 F.2d 762 (9th Cir, 1989) ...... . . . vv 8. 13

Nestle Co. v. Chester's Market, Inc., 756 F.2d 280 (2d

. 9 ———— 7, 19, 24

No East-West Highway Committee, Inc. v. Chandler,

767 F.2d 21 (Ist Cir, 1985) . . . .. . . . . eee. 19

Norwest Bank Worthington v. Ahlers, 485 U.S, 197

8 ———————————j———— 29

Oklahoma Radio Associates v. FDIC, 3 F.3d 1436 (10th

RR PT 2 A A Pen 8, 9

Pontarelli Limousine, Inc. v. City of Chicago, 929 F.2d

I nccccoccccccccccssssccsecscccsscscscccscccososesscccccce 19

Preiser v. Newkirk, 422 U.S. 396 (1975) 16

Quarles v. Sager, 687 F.2d 344 (11th Cir. 1982) ............ 19

Radiofone, Inc. v. FCC, 759 F.2d 936 (D.C. Cir, 1985) . 17

Ringsby Truck Lines, Inc. v. Western Conference of

Teamsters, 686 F.2d 720 (9th Cir, 1982) 8, 13, 26

Savidge v. Fincannon, 836 F.2d 898 (5th Cir. 1988) ...... 19

Silvey v. Soler, 113 8. Ct. 454 (1992 5 9

Sosna v. Iowa, 419 U.S. 398 (1975) . . eee 7

Steffel v. Thompson, 415 U.S. 452 (1974) 7

Stewart v. Southern Railway, 315 U.S. 784 (1942) ....... 11

VII

Cases—Continued: Page

Studio 1712, Inc. v. Etna Producta Co., 968 F.2d 10 (0th

ee ae ee EEE ~

US. Truck Co, In re, 800 F.2d 581 (6th Cir, 1986) ... a0

United States, In re, 927 F.2d 626 (D.C. Cir. 1991) .. 8, 13, 22, 27

United States v. Alaska Steamship Co., 263 U.S. 113

— —˙rr — — 7

United States v. Articles of Drug Consisting of 203 Paper

Bags, 818 F.2d 569 (7th Cir, 1% ooo cccccccceeeeceenees 19

United States v. Mendoza, 464 U.S. 154 (1984) ......... * 1

United States v. Munsingwear, Inc., 340 US. 36

— ——-— ——— 4, 10, 12, 13, 19

Velsicol Chemical Corp. v. United States, cert. denied,

. 9

Webster v. Reproductive Health Services, 492 U.S. 490

— dd! Ä —— 15

Weinstein v. Bradford, 423 U.S. 147 (1975) 16

Williams v. First National Bank, 216 U.S. 582 (1910) . 18

Constitution, statutes and rules:

.. 5, 6, 17, 23, 26

Bankruptcy Code (11 U.S.C_):

Ch, 3:

CE 2

. 2,3

OS re 3

|) 8 EES 3

L . 3

oo — 3

Sup. Ct. R.

— ͤ w — 4. 12

. ...r eee eee 12

Miscellaneous:

Jill E. Fisch, Rewriting History: The Propriety of Eradi-

cating Prior Decisional Law Through Settlement and

Vacatur, 76 Cornell L. Rev. 589 (1991) .....cccccccceccees 20

Vill

Miscellaneous—Continued: Page

Arthur F. Greenbaum, Mootness on Appeal in Federal

Courts: A Reexamination of the Consequences of

Appellate Disposition, 17 U.C, Davis L. Rev. 7 (1983)... 9, 11,

17, 19, 20, 21

1B James Wm. Moore et al., Moore's Federal Practice

LE ͤ ¶ — 19

Note, Avoiding Issue Preclusion by Settlement Condition-

ed upon the Vacatur of Entered Judgments, 96 Yale

200000 18

Note, Collateral Estoppel and Supreme Court Disposit.

ion of Moot Cases, 78 Mich. L. Rev, 946 (1980) ............. 90

Note, Collateral Estoppel Effects of Judgments Vacated

Pursuant to Settlement, 1987 U. III. L. Rev. 781 .......... 11

Note, Settlement Pending Appeal: An Argument for Vac

atur, 58 Fordham L. Rev. 233 (1989) oo... 18, 19

George L. Priest & Benjamin Klein, The Selection of Dis-

putes for Litigation, 13 J. Legal Stud. 1 (1984) ............. 20

Peter H. Schuck, The Role of Judges in Settling Complex

Cases: The Agent Orange Example, 53 U. Chi. I. Rev.

1... —K . 20

Robert L. Stern et al., Supreme Court Practice (7th

ü 3⸗%ü²]ö7.9“?«? i)

The Supreme Court—Leading Cases, 107 Harv. L. Rev.

I...K— . .

Hubert L. Will et al., The Role of the Judge in the Settle.

ment Process, 75 F. R. D. 208 (1976) . . 18

Charles Alan Wright et al., Federal Practice and Proced-

ure:

III E... 2 9, 16, 25

Vol. 13A (Supp. 1994) . . ... eee 9, 21, 24-25

1 0 19

In the Supreme Court ol the United States

OcTOBER TERM, 1993

No. 93-714

U.S. BANCORP MORTGAGE COMPANY, PETITIONER

.

BONNER MALL PARTNERSHIP

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

SUPPORTING PETITIONER

INTEREST OF THE UNITED STATES

The federal government “is a party to a far greater number

of cases on a nationwide basis than even the most litigious

private entity.” United States v. Mendoza, 464 U.S. 154, 159

(1984). As a party to numerous cases in the federal judicial

system that involve recurring issues of public importance (id.

at 159-163), the federal government is vitally interested in the

question of whether vacatur is appropriate when parties settle

cases on appeal.

(1)

STATEMENT

1. In 1984 and 1985, an entity named Northtown Invest-

ments built the Bonner Mall in Bonner County, Idaho. North-

town financed construction of the mall with a loan from First

National Bank of North Idaho; petitioner now holds that loan.

In October of 1986, Northtown sold the mall to respondent,

subject to the mortgage that secures repayment of the loan

held by petitioner. When respondent failed to comply with its

obligations under the mortgage, petitioner exercised its right

to schedule the property for a foreclosure sale. See Pet. App.

A4-A5, A91-A92.

2. On the day before the sale, respondent filed a petition in

the United States Bankruptcy Court for the District of Idaho,

seeking relief under Chapter 11 of the Bankruptcy Code.

Petitioner sought relief from the automatic stay imposed by

11 U.S.C. 362(a) so that it could proceed with its foreclosure.

The bankruptcy court eventually granted relief, based on its

conclusion that there was not a reasonable possibility of a

successful reorganization within a reasonable time. That

conclusion rested on the court’s legal determination that

Chapter 11 of the Bankruptcy Code does not permit approval of

a plan under which the owners of the failed enterprise retain

an ownership interest in the reorganized business over the

objection of unpaid creditors, even if the ownership share

rests on “new value” contributed by the owners. J.A. 29-33;

see Pet. App. A5-A8, A92-A97.

3. The district court reversed. Pet. App. A90-A117. It con-

cluded that Chapter 11 of the Bankruptcy Code permits own-

ers to participate in reorganizations if they contribute new

A more detailed statement of the facts and procedural history of the

case appears in the amicus brief on the merits that the United States filed

in support of petitioner in February 1994. For convenience, this brief refers

to that earlier brief as “U.S. Br.”

3

value, even if the creditors object (a rule generally referred to

as the new-value exception to the absolute priority rule’). Pet.

App. A98-A116.

4. The court of appeals affirmed. That court agreed with

the district court’s conclusion that Chapter 11 of the Bank-

ruptcy Code includes the new-value exception. Pet. App. Al-

A84.

5. On January 10, 1994, this Court granted a petition for a

writ of certiorari to review the propriety of the court of

appeals’ acceptance of the new-value exception. 114 S. Ct. 681.

6. On March 2, 1994, petitioner and respondent stipulated

to the confirmation of a consensual plan of reorganization.“

On March 10, 1994, the bankruptcy court entered an order

confirming that plan. Because petitioner consented to the

plan, it was confirmed by the bankruptcy court under

11 U.S.C. 112906). Accordingly, the court had no occasion to

consider the propriety of a new-value exception, which is at

issue only in cases in which the court is asked to confirm a

plan over the objection of creditors, under 11 U.S.C. 1129(b).

The agreement of the parties did not address the question

whether the judgment of the court of appeals should be

vacated. See Memorandum of Respondent Suggesting that the

Case Is Moot at 2-3 & Exhs. A, B [hereinafter Resp. Mem.].

2 The absolute priority rule is the rule set forth in 11 U.S.C.

1129(b\(2)(B)ii) & (C)ii), which generally gives creditors absolute priority

over equity holders in the assets of a bankruptcy estate. See U.S. Br. 12 &

n. 16.

That settlement occurred pursuant to a January 7, 1994, agreement of

the parties that was subject to certain conditions to be performed by

respondent and its partners. See Memorandum of Respondent Suggesting

that the Case Is Moot at 2. Neither the papers filed at the petition stage nor

petitioner’s brief informed the Court of that agreement. The United States

was not aware of the agreement until after it had filed its brief in support of

petitioner.

4

7. Respondent filed a memorandum in this Court suggest-

ing that the case is moot and moving the Court for dismissal

of the petition under Rule 46 of the Rules of this Court. Resp.

Mem. 3. Petitioner responded, agreeing that the case is moot,

but asking the Court to vacate the judgment of the court of

appeals in accordance with United States v. Munsingwear,

Inc., 340 U.S. 36 (1950). Response of Petitioner to Memoran-

dum of Respondent Suggesting that the Case Is Moot. The

parties filed another round of pleadings reiterating their

views. See Respondent's Reply to Response of Petitioner

[hereinafter Resp. Reply]; Petitioner’s Reply in Support of

Request To Vacate Decision Below. On March 28, 1994, the

Court removed the case from the calendar for the April 1994

argument session and asked for briefing and oral argument on

the question whether Munsingwear makes it appropriate for

the Court to vacate the decision of the court of appeals.

SUMMARY OF ARGUMENT

I. Under United States v. Munsingwear, Inc., 340 U.S. 36

(1950), federal courts generally are required to grant a motion

to vacate the judgment below when a case becomes moot while

the process of appellate review is ongoing. That practice

should apply whether the case becomes moot because of

“happenstance”—i.e., for reasons external to the case—or

because of settlement.

A. This Court consistently has followed the Munsingwear

procedure in cases that have become moot by reason of the

parties’ settlement while the case is pending in this Court.

To be sure, Munsingwear itself involved mootness that arose

from “happenstance” rather than agreement of the parties,

but Munsingwear announces a categorical rule of vacatur

upon mootness, and this Court’s cases have not limited Mun-

singwear to cases of mootness by happenstance. Rather, va-

catur is appropriate whenever a case in which appellate review

is ongoing becomes moot as a result of external events, the

5

mutual agreement of the parties, or the unilateral conduct of

the party that prevailed below. In either of the latter two sit-

uations, the decision of the party that prevailed in the lower

court to forgo reliance on the lower court’s judgment as a

proper resolution of the underlying dispute justifies vacatur

of the judgment, which has become unreviewable as a result of

the action of the prevailing party.

B. The Court's established practice of vacating a lower

court judgment when a pending case becomes moot as a result

of the parties’ settlement is consistent with considerations of

fairness and public policy. The law strongly favors voluntary

settlement of disputes because it fosters judicial economy,

economic efficiency, and the public and private interests in the

just resolution of disputes. A general rule of vacatur upon

settlement furthers those interests by removing disincen-

tives to settlement in cases that are pending on appeal.

Absent vacatur, settlement will be impossible to achieve in

cases in which the losing party regards the preclusive or

precedential effects of the judgment below as unacceptable.

That concern is particularly strong in cases involving the

government and other institutional litigants, for whom the

preclusive and precedential e’-ects of an adverse judgment

may be more significant than its more immediate impact or

the cost of settlement.

Although some courts have identified a number of counter -

vailing considerations, particularly the public’s interest in

the judicial system and its decisions, those considerations do

not outweigh the interests furthered by a rule of vacatur. In

most cases, it is speculative to conclude that preservation of

the precedent would foster judicial economy by significantly

limiting the need for future litigation of the issues. Because

settlement in each case offers an immediate and certain bene-

fit by ending the controversy before the court—the only con-

troversy adequate to justify an exercise of the court’s Article

6

III powers—the interest in a rule encouraging settlement

should prevail.

Nor should the rule be limited to cases in which both par-

ties seek vacatur of the lower court’s decision. A rule limit-

ing vacatur to such cases would prevent settlements where

the parties can resolve their existing dispute, solely because

of the inability of the parties to agree on how to resolve hypo-

thetical future disputes. The interest in encouraging settle-

ment, coupled with the attenuated significance to an Article

III court of future hypothetical disputes, counsels in favor of

applying the rule of vacatur in such cases.

II. If the Court rejects a general rule of vacatur in favor of

an ad hoc approach, we submit that a proper balancing of the

relevant interests would lead to the conclusion that vacatur is

appropriate in this case. This is not a situation in which the

party that lost below has rendered the case moot by relin-

quishing its efforts to overturn the lower court’s decision.

Rather, the settlement agreed to by the parties reflects

respondent’s unwillingness to insist on the rights accruing to

it under the judgment of the lower court. Furthermore,

vacatur of that judgment would alleviate the conflict in the

circuits that created the need for review by this Court.

Accordingly, the interests of the public would not be served by

leaving in place the precedential effects of the decision of the

court of appeals.

ARGUMENT

I. THIS COURT SHOULD VACATE THE JUDG-

MENT OF A COURT OF APPEALS IF THE CASE

BECOMES MOOT AS A RESULT OF SETTLE-

MENT WHILE THE CASE IS PENDING IN THIS

COURT ON WRIT OF CERTIORARI

“Federal courts lack jurisdiction to decide moot cases be-

cause their constitutional authority extends only to actual

cases or controversies.” Iron Arrow Honor Society v. Heck-

7

ler, 464 U.S. 67, 70 (1983) (per curiam); see Church of Scien-

tology v. United States, 113 S. Ct. 447, 449 (1992); Deakins v.

Monaghan, 484 U.S. 193, 199 (1988). A corollary to that basic

principle is that the parties’ dispute must exist at every stage

of the litigation. “It is not enough that a controversy existed

at the time the complaint was filed.” Deakins, 484 U.S. at 199;

Sosna v. Iowa, 419 U.S. 393, 402 (1975); Steffel v. Thompson,

415 U.S. 452, 459 n.10 (1974); see also Honig v. Doe, 484 U.S.

305, 329 (1988) (Rehnquist, C. J., concurring). “[A]Jn actual

controversy must exist at all stages of appellate review.”

Honig, 484 U.S. at 329 (Rehnquist, C.J., concurring); see

Lewis v. Continental Bank Corp., 494 U.S. 472, 477-478 (1990).

In accordance with the foregoing principles, this Court

repeatedly has held that a settlement agreement that fully

resolves the dispute between the parties renders the case

moot and thereby deprives the Court of jurisdiction to decide

the case on the merits.‘ If the settlement occurs while

appellate review is ongoing, however, a further question

arises: What effect should the settlement-induced mootness

have on the judgment already entered by the lower court?° In

4 See Lake Coal Co. v. Roberts & Schaefer Co., 474 U.S. 120, 120 (1985)

(per curiam); Hammond Clock Co. v. Schiff, 293 U.S. 529, 530 (1934) (per

curiam); United States v. Alaska Steamship Co., 253 U.S. 113, 116 (1920)

(“Where by an act of the parties * * * the existing controversy has come

to an end, the case becomes moot and should be treated accordingly.”);

Bucks Stove & Range Co. v. American Federation of Labor, 219 U.S. 581,

581 (1911) (per curiam); Mills v. Green, 159 U.S. 651, 654 (1895); see also

Honig, 484 U.S. at 341 (Scalia, J., dissenting) (discussing constitutional

underpinnings of that rule).

5 The courts of appeals faced with cases that become moot by settlement

while pending before them have resolved that question in different ways.

The Second and Federal Circuits have adopted a general rule in favor of

vacating a judgment under review when a case is settled on appeal. See,

e.g., Nestle Co. v. Chester's Market, Inc., 756 F.2d 280, 283-284 (2d Cir.

1985); Federal Data Corp. v. SMS Data Products Group, Inc., 819 F.2d 277,

279-280 (Fed. Cir. 1987). But ef. Manufacturers Hanover Trust Co. v.

8

our view, both this Court’s precedents and considerations of

fairness and public policy support a general rule of vacatur of

lower-court judgments when settlement renders a case moot

while appellate review of the case is ongoing.“

Yanakas, 11 F.3d 381, 384-385 (2d Cir. 1993) (different rule if case settles

after issuance of judgment by court of appeals) (discussed at note 6, infra).

Similarly, the Fourth, Eighth, Tenth, and Eleventh Circuits appear to

grant vacatur when settlement renders a case moot while on appeal,

although those courts have not addressed the question at length. See, ¢.g.,

Kennedy v. Block, 784 F.2d 1220, 1225 (4th Cir. 1986); Hendrickson v.

Secretary of Health & Human Services, 774 F.2d 1355, 1355 (8th Cir. 1985)

(vacating own judgment); Studio 1712, Inc. v. Etna Products Co., 968 F. 2d

10 (10th Cir. 1992); Baxter Healthcare Corp. v. Healthdyne, Inc., 956 F.2d

226, 227 (11th Cir. 1992) (vacating own judgment). But cf. Oklahoma Radio

Associates v. FDIC, 3 F.3d 1436, 1444-1445 (10th Cir. 1993) (different rule if

case settles after issuance of judgment by court of appeals) (discussed at

note 6, infra). The Third, Seventh, and District of Columbia Circuits, on the

other hand, uniformly decline to grant vacatur upon settlement. See, e. g.,

Clarendon Ltd. v. Nu-West Industries, Inc., 936 F.2d 127, 128-130 (3d Cir.

1991); In re Memorial Hospital, Inc., 862 F.2d 1299, 1301-1303 (7th Cir.

1988); In re United States, 927 F.2d 626, 627-628 (D.C. Cir. 1991). Finally,

the Ninth Circuit employs a balancing approach, under which the propriety

of vacatur depends upon the relative weight of the public and private inter-

ests at stake in a particular case. National Union Fire Insurance Co. v.

Seafirst Corp., 891 F.2d 762, 765-769 (9th Cir. 1989); Ringsby Truck Lines,

Inc. v. Western Conference of Teamsters, 686 F.2d 720, 721-722 (9th Cir.

1982).

The Court granted certiorari to resolve that issue in Kaisha v. U.S.

Philips Corp., 113 S. Ct. 1249 (1993), but the Court dismissed the writ

without reaching the vacatur issue because the petitioner, which was

objecting to vacatur, was not a party to the case. 114 S. Ct. 425 (1993) (per

curiam). The United States supported a general rule of vacatur upon settle-

ment in its amicus brief in Kaisha.

6 In this brief we refer to the process of appellate review as ongoing in

this Court only after the Court has granted plenary review. We consis-

tently have argued that different considerations should apply when a case

becomes moot while a petition for certiorari is pending before this Court but

has not yet been granted, because the decision whether to grant review on

any issue (including mootness) is discretionary with the Court. See, e.g.,

6 nme.

U.S. Br. in Opp. at 5-8, Velsicol Chemical Corp.v. United States, cert.

denied, 435 U.S, 942 (1978) (No. 77-900) (arguing that Court should deny

certiorari in moot cases that would not have warranted review on the

merits); see Clarke v. United States, 915 F.2d 699, 713-715 (D.C. Cir. 1990)

(en bane) (Edwards, J., dissenting); Robert L. Stern et al., Supreme Court

Practice & 18.5, at 724 n.29 (7th ed. 1993) (discussing Velsicol doctrine and

stating that the Court appears to follow the argument advanced in the U.S.

brief in that case); Note, Collateral Estoppel and Supreme Court

Disposition of Moot Cases, 78 Mich. L. Rev. 946, 953-958 (1980); see also,

„%, Petition for a Writ of Certiorari at 7-13, Sivley v. Soler, 113 8. Ct. 454

(1992) (No. 92-86) (petition seeking Munsingwear order where case creating

circuit conflict became moot before government could seek review in this

Court). But see 13A Charles Alan Wright et al., Federal Practice and

Procedure § 3533.10, at 432-435 (2d ed. 1984 & Supp. 1994) (disapproving

Velsicol doctrine and stating that vacatur under Munsingwear is always

appropriate when case becomes moot before Court grants certiorari),

Arthur F. Greenbaum, Mootness on Appeal in Federal Courts: A

Reexamination of the Consequences of Appellate Disposition, 17 U.C. Davis

I. Rev. 7, 43-48 (1983) (same),

At least one court of appeals has relied on the discretionary nature of

review by certiorari as one of a number of considerations that would

support a court of appeals’ decision not to vacate its own judgment if the

parties settle after entry of judgment by the court of appeals. Manufac

turers Hanover Trust Co., 11 F.3d at 384-385 (2d Cir, 1993); see also

Oklahoma Radio Associates, 3 F.3d at 1444-1445 (10th Cir, 1993) (applying

multi-factored test and declining to vacate its own judgment in case in

which parties settled after entry of judgment by court of appeals, but while

petition for rehearing was pending). Whatever the merits of those rulings,

we believe that vacatur is appropriate in cases in which the parties settle

after the court of appeals decides to review a case en banc. See Key

Enterprises, Inc. v. Venice Hospital, 9 F.3d 893, 896-900 (Lith Cir. 1993) (en

bane), petition for cert. pending, No. 93-1365; Mare Development, Inc. v.

FDIC, 12 F.3d 948 (10th Cir. 1993) (en banc). That situation closely

resembles a case in which this Court already has granted certiorari, thus

transforming the possibility of discretionary review into an active process

of ongoing review. Hence, under the analysis in this brief, vacatur is

appropriate.

10

A. This Court's Precedents Mandate A General Rule

Of Vacatur When A Case That Is Pending On

Appeal Or Certiorari Becomes Moot Ase A Result

Of Settlement

In United States v. Munsingwear, Inc., 340 U.S. 26 (1960),

this Court stated that At e established practice of the Court

in dealing with a civil case from a court in the federal system

which has become moot while on its way here or pending our

decision on the merits is to reverse or vacate the judgment

below and remand with a direction to dismiss.” Id. at 39. In

keeping with that established practice, the Court repeatedly

has emphasized that where it appears upon appeal that the

controversy has become entirely moot, it is the duty of the

appellate court to set aside the decree below and to remand the

cause with directions to dismiss.” Great Western Sugar Co. v.

Nelson, 442 U.S. 92, 93 (1979) (per curiam) (quoting Duke

Power Co. v. Greenwood County, 299 U.S. 269, 267 (1936) (per

curiam)) (emphasis supplied by Nelson Court).

Since Munsingwear was decided in 1950, and for some

years earlier, this Court appears to have followed the

Munsingwear procedure consistently in cases that became

moot as a result of settlement while pending before the Court.

E.g., Continental Casualty Co. v. Fibreboard Corp, 113 8. Ct.

399 (1992);" City Gas Co. v. Consolidated Gas Co., 499 U.S. 915

(1991);" Lake Coal Co. v. Roberts & Schaefer Co., 474 U.S. 120

(1985) (per curiam); J. Aron & Co. v. Mississippi Shipping

Co., 361 U.S. 115 (1959) (per curiam);” Black v. Amen, 365 U.S.

7 See Motion to Grant, Vacate and Remand on Grounds of Mootness at

1-2, No. 91-1993 (O.T. 1992).

See Joint Motion To Grant Certiorari, Vacate Judgment of Court of

Appeals, and Remand with Directions To Vacate Judgment of District

Court on Grounds of Mootness, No. 90-953.

The petitioner in that case suggested to the Court that the case was

moot, without requesting any particular disposition. See Memorandum of

600 (1958) (per curiam); Stewart v. Southern Railway, 316

U.S. 784 (1942) (per curiam);"" Hammond Clock Co. v. Schiff,

293 U.S. 629, 630 (1934) (per curiam).“ Although most of those

cases involved joint requests for vacatur, some, like this one,

involved situations in which the prevailing party in the lower

court did not agree to vacatur, although a settlement had

rendered the case unreviewable. See Continental Casualty

Co., supra (despite opposition by respondent indemnitee,

gurt remanded for mootness determination requested by

petitioner indemnitor after petitioner settled the underlying

dispute pending in a lower court); Lake Coal Co., 474 US. at

120 (parties asked Court to decide questions presented in

petition “despite complete settlement of the underlying

causes of action”). Whenever the dispute becomes

unreviewable because of settlement, the decision of the party

that prevailed in the lower court to forgo reliance on the

judgment as a proper resolution of the underlying dispute

justifies vacatur of that judgment, because it has become

Petitioner, No. 450 (0. T. 1959). Counsel for the respondent informed the

Clerk of the Court in a November 3, 1969, telegram that it would not oppose

petitioner's suggestion of mootness and “respectfully suggest{(ed| that the

Court must dismiss the] petition as [a] matter of routine.” The memoran.

dum and telegram are in the case file in the National Archives.

% See Motion by Petitioner and Respondent To Diapose of This Cause as

Moot, No. 161 (O.T. 1941).

„ Commentators have noted the consistency of the Court's recent

practice with respect to settled cases. See, ¢.g., Greenbaum, supra note 6,

17 U.C. Davia L. Rev. at 39 & n.144; Note, Collateral Estoppel Effects of

Judgments Vacated Pursuant to Settlement, 1987 U. In. L. Rev. 731, 749.

For older decisions taking a different approach, see Buck's Stove & Range

Co. v. American Federation of Labor, 219 U.S. 581 (1911) (per curiam)

(dismissing appeal in response to settlement); Dakota County v. Glidden,

113 U.S. 222 (1885) (dismissing writ of error after settlement).

12

unreviewable as a result of the action of that party in entering

into the settlement agreement.”

Munsingwear itself, of course, did not involve mootness re-

sulting from settlement. In Munsingwear, the government

previously had brought suit to enjoin violations of certain

price control regulations. The district court entered judg-

ment against the government. While the government's appeal

was pending, the commodity at issue was decontrolled. The

defendant then moved to dismiss the government’s appeal as

moot, and the court of appeals granted that motion. 340 US.

at 37. In rejecting the government's subsequent attempt to

avoid the res judicata effects of the district court’s prior

judgment, the Court observed that the government, through

“orderly procedure,” could have “prevent[ed] [the] judgment,

unreviewable because of mootness, from spawning any legal

'2 Vacatur is not required when the parties’ settlement agreement

merely contemplates dismissal of the writ of certiorari pursuant to this

Court's Rule 46. In that circumstance, the parties effectively have decided

to be bound by the judgment below, and thus the case is no different from

one in which the losing party simply decides not to seek review in this

Court. See, %, Allen & Co. v. Pacific Dunlop Holdings, Inc, 114 8. Ct.

1146 (1994) (dismissing writ of certiorari pursuant to Rule 46). Rule 46, of

course, does not apply here, because this is not a case in which “all parties

* * *(have) agreed)“ * * that a case be dismissed,” Rule 46.1.

For similar reasons, as we explain below (at pages 14-16, infra) in our

discussion of Karcher v. May, 484 U.S. 72, 82-83 (1987), vacatur is not

appropriate when the losing party simply declines to appeal or unilaterally

withdraws its appeal. In such instances, the case may be over, but it is not

“moot.” To the contrary, the losing party has decided to accept the

judgment as defining its legal obligations with respect to the subject

matter of the lawsuit. By contrast, when the parties jointly adopt a

resolution of their dispute that differs from the resolution reached by the

existing judgment (and that resolution is implemented by the trial court if

necessary, as in this case), the losing party has persuaded the prevailing

party to forgo relying on the existing judgment as a proper resolution of

their underlying dispute. Accordingly, the principle of Munsingwear calls

for vacatur of that judgment.

13

consequences” merely by asking that the district court's

judgment be vacated as moot, rather than acquiescing in the

dismissal of its appeal. /d. at 41. The Court explained:

That procedure clears the path for future relitigation of

the issues between the parties and eliminates a judgment,

review of which was prevented through happenstance.

When that procedure is followed, the rights of all parties

are preserved; none is prejudiced by a decision which in

the statutory scheme was only preliminary.

Id. at 40.

Because Munsingwear itself involved mootness by what

the Court labeled “happenstance,” 340 U.S. at 40, some courts

of appeals have concluded that Munsingwear should be um-

ited to that context, refusing to apply it in cases in which

mootness results from the actions of the parties them-

selves.“ Nothing in the rationale of Munsingwear, however,

supports limiting vacatur to cases in which mootness occurs

by “happenstance.” The Court used that term only as a

description of the way in which the judgment in

Munsingwear itself became unreviewable. The rule of

vacatur the Court announced for cases that have become moot

was stated in categorical terms. 340 U.S. at 39. In a case such

as Munsingwear, the fact that the case was rendered moot by

“happenstance”—i.e., by factors extrinsic to the case or be-

yond the control of the parties—explains why the lower-court

judgment should be vacated on the motion of just one of the

parties (the losing party below, which has been prevented from

obtaining appellate review), even if the prevailing party does

not join in seeking (or indeed opposes) vacatur. A case

rendered moot by settlement is another such situation. The

See, ¢.g., In re United States, 927 F.2d at 627-628; National Union

Fire Insurance Co., 891 F.2d at 766; In re Memorial Hospital, 862 F.2d at

1301; Ringsby Truck Lines, 686 F.2d at 721.

14

agreement of the prevailing party below is necessary for the

settlement to be effective. Vacatur accordingly is a suitable

and natural consequence of the decision by the prevailing

party both to join in the action that has rendered the case

moot and to forgo the benefits of the judgment below, even if,

as here, the prevailing party opposes vacatur.

In seeking to confine Munsingwear to instances of moot-

ness by “happenstance,” respondent relies (Resp. Reply 1-2)

on Karcher v. May, 484 U.S. 72, 82-83 (1987). In that case,

former state legislative officials, purporting to act on behalf of

the legislature, attempted to take an appeal to this Court from

a lower court's judgment invalidating a state statute. While

the case was pending in this Court, the appellants’ successors

in office withdrew the appeal. The Court rejected the appel-

lants’ request to vacate the judgment below under Munsing-

wear, explaining (484 U.S. at 83):

This controversy did not become moot due to circum-

stances unattributable to any of the parties. The contro-

versy ended when the losing party—the New Jersey Leg-

islature—declined to pursue its appeal. Accordingly, the

Munsingwear procedure is inapplicable to this case.

Jontrary to petitioner’s contention, Karcher does not render

Munsingwear inapplicable when mootness results from the

mutual agreement of the parties. Withdrawal of the appeal in

Karcher did not render the dispute moot, any more than any

losing party’s decision to forgo further review of a judgment

has that effect; rather, the case simply ended when the

judgment of the lower court was rendered final and

unreviewable by withdrawal of the only appeal any party had

filed from that judgment. See Long Island Lighting Co. v.

Cuomo, 888 F.2d 230, 233, 234 n.4 (2d Cir. 1989). In this case,

by contrast, petitioner, which lost in the lower court, has not

withdrawn its petition for a writ of certiorari, and it continues

to seek to have the judgment of the court of appeals set aside.

15

Our understanding of Karcher is confirmed by a series of

decisions, both before and after Karcher, in which this Court

has applied Munsingwear to cases that became moot based on

the conduct of the parties. Those cases have included not only

the situation discussed above—in which the parties agreed to

a settlement—but also a number of cases in which the party

that prevailed in the lower court rendered the case moot by

receding from its position. For example, in Deakins, 484 U.S.

at 199-200, the respondents (plaintiffs in the district court)

chose to withdraw their claims while the case was pending

before this Court. Applying Munsingwear, the Court vacated

the judgment below and remanded with directions to dismiss.

484 U.S. at 200-201. Similarly, in Frank v. Minnesota

Newspaper Ass'n, 490 U.S. 225 (1989) (per curiam), in light of

a concession by the appellant government officials, the

plaintiff—appellee in this Court—“state{d] its willingness to

forgo any further claim to the * * * relief sought in its

complaint.” Id. at 227. Concluding that the case was moot, the

Court vacated the judgment below and remanded with

directions to dismiss. /bid. (citing Munsingwear). See also

Webster v. Reproductive Health Services, 492 U.S. 490, 512

513 (1989) (Munsingwear treatment in response to

withdrawal by plaintiffs/appellees of request for relief in light

of appellant’s legal position); Gray v. Board of Trustees, 342

U.S. 517, 518 (1952) (per curiam) (similar treatment where

action of appellee mooted controversy); Commercial Cable

Co.v. Burleson, 250 U.S. 360, 362 (1919) (same); see also Board

of Governors of Federal Reserve System v. Security

Bancorp, 454 U.S. 1118 (1981) (Munsingwear treatment

where respondent's actions mooted application for permission

to acquire bank) (see 81-176 Pet. at 10-12); DeFunis v.

Odegaard, 416 U.S, 312 (1974) (per curiam) (vacating judgment

16

of state supreme court after case was rendered moot by action

of respondent).“

In sum, this Court’s decisions do not support respondent's

contention that Munsingwear is inapplicable when mootness

is caused by a mutual agreement of the parties. Rather, those

decisions strongly support the conclusion that a court of ap-

peals’ judgment should be vacated if the case is rendered moot

by settlement after this Court grants a petition for a writ of

certiorari, but before it decides the case.”

In the cases cited in the text, a case before the Court became moot

because of unilateral action by the party that prevailed in the lower court.

On occasion, however, the Court appears to have followed a similar ap-

proach when a case became moot because of unilateral action by the party

that lost below. See, e.g., Weinstein v. Bradford, 423 U.S. 147, 148-149

(1975) (per curiam); Preiser v. Newkirk, 422 U.S. 395, 399, 402-404 (1975);

Board of Regents v. New Left Education Project, 414 U.S. 807 (1973). The

propriety of vacatur in those cases is not clear. Compare 13A Charles Alan

Wright et al., Federal Practice and Procedure § 3533.10, at 430-431 (2d ed.

1984) (discussing Board of Regents and arguing that Munsingwear treat-

ment is appropriate in such cases), with, e.g., Arthur v. Manch, 12 F.3d 377,

381 d Cir. 1993) ([The appellate court should not vacate the judgment be-

low if the case has become moot due to the voluntary act of the losing

party.“) (quoting Manufacturers Hanover Trust Co., 11 F.3d at 383).

In our view, the losing party below should not be able to obtain vacatur

of an unfavorable judgment through unilateral action, at least in the

absence of unusual circumstances, such as when the losing party complies

involuntarily with a preliminary injunction, Honig v. Students of Cali-

fornia School for the Blind, 471 U.S. 148, 148-149 (1985) (per curiam), or

when a legislative enactment resolves the immediate controversy, Bowen

v. Kizer, 485 U.S. 386, 387 (1988) (per curiam). Where such unusual

circumstances are not present, the losing party’s unilateral action

functionally resembles a failure to appeal or a decision to withdraw an

appeal. Such a determination to forgo a challenge to the judgment justifies

leaving it in place as a binding determination of the rights of the parties.

Because this case became moot through a mutual agreement of settlement,

that problem is not present here.

15 This case, of course, involves only the propriety of vacating judicial

judgments when appeals of those judgments are rendered moot by

17

B. Considerations Of Fairness And Public Policy

Support A General Rule Of Vacatur In Cases That

Become Moot As A Result Of Settlement While

Pending On Appeal Or Certiorari

Respondent contends (Resp. Reply 2) that considerations of

judicial economy counsel against vacatur when a pending case

is rendered moot by voluntary settlement. In our view, how-

ever, the established practice of vacatur in that context

strikes the proper balance between the interests in judicial

economy and the strong considerations of policy and fairness

that support the Court’s consistent approach in this area.

1. A rule of vacatur furthers the judicial system’s

important interest in voluntary settlement of

disputes

Our legal system strongly favors voluntary resolution of

disputes, which serves not only the private interests of the

settlement. Vacating an administrative decision presents considerably

different considerations. Thus, although the Court has applied Mun-

singwear to an agency adjudication that became moot through the

withdrawal of a request for administrative action while judicial review

was pending, see A.L. Mechling Barge Lines, Inc. v. United States, 368 U.S.

324, 329 (1961), we believe that a different result is called for when the

private parties affected by an agency ruling settle their differences and

seek to have the agency’s ruling vacated without the consent of the agency.

In that setting, the agency itself is generally a party to the litigation as

well, and its absence from the settlement agreement therefore ordinarily

would prevent the case from being moot. The agency has an independent

regulatory interest in its order, both with respect to the immediate parties

and with respect to third parties who are not before the court but might be

guided by the reasoning in the agency’s order. Moreover, agencies are not

constrained by the case-or-controversy requirement of Article III, so the

mootness concerns underlying the Munsingwear doctrine have less force in

that context. See generally Radiofone, Inc. v. FCC, 759 F.2d 936, 940-941

(D.C. Cir. 1985) (opinion of Scalia, J.); Greenbaum, supra note 6, 17 U.C.

Davis L. Rev. at 54-64.

18

parties themselves, but also important public interests.

Marek v. Chesny, 473 U.S. 1, 10 (1985); Williams v. First

National Bank, 216 U.S. 582, 595 (1910); Note, Avoiding Issue

Preclusion by Settlement Conditioned upon the Vacatur of

Entered Judgments, 96 Yale L. J. 860, 866 n.41 (1987)

(hereinafter Note, Avoiding Issue Preclusion]; Note, Settle-

ment Pending Appeal: An Argument for Vacatur, 58 Ford-

ham L. Rev. 233, 236 & nn.18 & 21, 242 (1989) [hereinafter

Note, Settlement Pending Appeal] (collecting authorities).

First, settlement serves the interests of judicial economy and

efficiency by eliminating the necessity for further judicial

consideration of the merits of the settled case. See, e.g., Fed-

eral Data Corp. v. SMS Data Products Group, Inc., 819 F.2d

277, 280 (Fed. Cir. 1987) (to the extent that it prevents

settlement, precluding vacatur “is wasteful of the resources

of the judiciary”); Note, Avoiding Issue Preclusion, 96 Yale

L. J. at 866-867. That interest has as much force when cases

settle in this Court as it does when they settle in a trial court

before judgment. Settlement eliminates the need for this

Court to expend its scarce resources to resolve the questions

raised by the case, as well as the need for the lower courts to

conduct any further proceedings (including, in many cases, a

trial) that could be necessary on remand.

Second, settlement promotes economic efficiency by cap-

ping litigation costs and permitting the parties to devote their

resources and attention to more productive endeavors. See

Note, Avoiding Issue Preclusion, 96 Yale L.J. at 867; Note,

Settlement Pending Appeal, 58 Fordham L. Rev. at 239. In

addition, settlement serves both public and private interests

in the just resolution of disputes: “One of the fundamental

principles of judicial administration is that, in most cases, the

absolute result of a trial is not as high a quality of justice as

is the freely negotiated, give a little, take a little settlement.”

Hubert L. Will et al., The Role of the Judge in the Settlement

Process, 75 F.R.D. 203, 203 (1976); see Chemetron Corp. v.

19

Business Funds, Inc., 682 F.2d 1149, 1202 n.5 (5th Cir. 1982)

(Reavley, J., dissenting), vacated and remanded, 460 U.S. 1007

(1983); Note, Settlement Pending Appeal, 58 Fordham L. Rev.

at 236.

A general rule of vacatur upon settlement furthers those

important interests by eliminating significant disincentives

to settlement while a case is pending on appellate review

(including review on writ of certiorari in this Court). Often

it would be difficult or impossible to achieve a settlement if

the judgment of the lower court would not thereafter be va-

cated. In cases in which the losing party has a strong interest

in avoiding the preclusive effect of the judgment below" or in

eliminating its precedential foree, that party might be

'© See Nestle Co., 756 F. 2d at 282; Long Island Lighting Co., 888 F.2d at

234 n.4; Note, Settlement Pending Appeal, 58 Fordham L. Rev. at 242-243:

Greenbaum, supra note 6, 17 U.C. Davis L. Rev. at 36-37.

'7 We agree with the prevailing view that a judgment that has been

vacated generally has no res judicata or collateral estoppel effect. See

Munsingwear, 340 U.S. at 39-40; Pontarelli Limousine, Inc. v. City of

Chicago, 929 F. 2d 339, 340 (7th Cir. 1991); Savidge v. Fincannon, 836 F. 2d

898, 906 & n.33 (5th Cir. 1988); No East-West Highway Committee, Inc. v.

Chandler, 767 F.2d 21, 24 (Ist Cir. 1985); Dodrill v. Ludt, 764 F.2d 442, 444

(6th Cir. 1985); Quarles v. Sager, 687 F.2d 344, 346 (11th Cir. 1982).

18 Charles Alan Wright et al., Federal Practice and Procedure 5 4432, at

302 & n.18 (1981); 1B James Wm. Moore et al., Moores Federal Practice

{ 0.416[2], at III- 314 (2d ed. 1993). But see Bates v. Union Oil Co., 944 F.2d

647 (9th Cir. 1991), cert. denied, 112 S. Ct. 1761 (1992); Chemetron Corp., 682

F. 2d at 1187-1192.

Most courts that have considered the question have concluded that

vacatur also deprives the lower court’s judgment of its precedential effect.

See, e. g., County of Los Angeles v. Davis, 440 U.S. 625, 634 n.6 (1979);

Martinez v. Winner, 800 F.2d 230, 231 (10th Cir. 1986); DHL Corp. v. CAB,

659 F.2d 941, 944 n.4 (9th Cir. 1981); Marshall v. Whittaker Corp, 610 F.2d

1141, 1145 (3d Cir. 1979); Greenbaum, supra note 6, 17 U.C. Davis L. Rev. at

95 & n.399 (collecting authorities). But see United States v. Articles of

Drug Consisting of 203 Paper Bags, 818 F.2d 569, 572 (7th Cir. 1987). Of

course, a decision that has been vacated still may have persuasive value

20

unwilling to forgo further appellate review if vacatur is

unavailable (especially if the party believes it would prevail on

such review). That concern is particularly strong in cases

involving the government and other institutional litigants,

which often are more interested in the precedential effect of a

decision than in the details of the particular case. See

Greenbaum, supra note 6, 17 U.C. Davis L. Rev. at 35 n.130.

Thus, a general rule of vacatur when cases become moot

through settlement encourages the voluntary resolution of

disputes.

based on the force of its legal analysis. See County of Los Angeles, 440 U.S.

at 646 n.10 (Powell, J., dissenting); Greenbaum, supra note 6, 17 U.C. Davis

L. Rev. at 100 & n.417.

19 At least one court has suggested that the practice of granting vacatur

when cases settle on appeal will encourage parties to delay settlement until

after trial, secure in the knowledge that vacatur will be available if the

court enters an unfavorable judgment. In re Memorial Hospital, 862 F. 2d

at 1302; see Jill E. Fisch, Rewriting History The Propriety of Eradicating

Prior Decisional Law Through Settlement and Vacatur, 76 Cornell L. Rev.

589, 632-642 (1991) (economic model discussing impact on settlement

decisions of possibility of vacatur). In our view, that concern is greatly

overstated. The cases in which parties are most likely to view vacatur as

potentially valuable are those “in which the legal or factual issues are

sufficiently complex that it is difficult to predict the outcome of the

litigation.” Id. at 637 n.239. It is in precisely such cases, however, that Ja]

pretrial settlement at a value that both parties view as reasonable may be

impossible to achieve, given the substantial differences in the parties’

expectations of the litigation outcome.” Jbid.; see also Peter H. Schuck, The

Role of Judges in Settling Complex Cases: The Agent Orange Example,

53 U. Chi. L. Rev. 337, 338-340 (1986) (summarizing literature suggesting

that it is difficult to settle close cases); George L. Priest & Benjamin Klein,

The Selection of Disputes for Litigation, 13 J. Legal Stud. 1, 14-16 (1984)

(economic model suggesting that it is difficult for parties to settle close

cases).

Moreover, any concern about the effect that a rule of vacatur might have

on pre-trial settlement would be overshadowed in most cases by the very

real costs imposed on parties that choose to litigate unsuccessfully rather

21

By contrast, denying vacatur when parties settle cases that

are pending on appeal undoubtedly would lead to additional

litigation: Some parties, even if they could reach mutually

agreeable settlement terms, would not be able to resolve their

dispute voluntarily because of continuing concerns about the

effects of the outstanding lower-court judgment. Indeed, as

Judge Easterbrook has acknowledged, in a court that refuses

to permit vacatur upon settlement, there is simply “no answer

that will satisfy” a litigant that is unable to consummate an

otherwise satisfactory settlement because of the unavailabil-

ity of vacatur. See In re Memorial Hospital, Inc., 862 F.2d

1299, 1303 (7th Cir. 1988).” In short, denying vacatur upon

than settle before judgment is entered by the district court. Litigation is

expensive, and unfavorable judgments often result in damaging publicity

that cannot be eliminated by subsequent vacatur. Also, the entry of an

unfavorable judgment tends to increase dramatically the price of

settlement for the losing party, because it significantly lessens that party’s

chance of eventual success in the courts. In the great run of cases, those

incentives to settle are likely to be much more significant than any

consideration arising from the possibility that the party later might be able

to secure vacatur of any adverse judgment in connection with a settlement

of the dispute. See also Greenbaum, supra note 6, 17 U.C. Davis L. Rev. at

37 (In all probability few litigants would appeal solely to make [vacatur]

a portion of the settlement agenda.”).

20 As one leading treatise observes, “[iJt is particularly daunting to

contemplate that even after the parties have preferred to surrender the

opportunity for appellate review as a matter of right in order to achieve the

certainty and economy of settlement, they can do so only if they are willing

to submit to nonmutual issue preclusion in litigation with nonparties.” 13A

Charles Alan Wright et al., Federal Practice and Procedure § 3533.10, at

307 n.22 (Supp. 1994). In an attempt to respond to that concern, the Seventh

Circuit has suggested that “[i]f parties want to avoid stare decisis and

preclusive effects, they need only settle before the district court renders a

decision, an outcome our approach encourages.” In re Memorial Hospital,

862 F.2d at 1302. As explained above (see note 19, supra), however, it

frequently is impracticable for the parties to settle at such an early stage,

r

22

settlement would frustrate important interests in fairness

and judicial economy.

2. The public interest in the judicial system and its

decisions does not override the interests favoring

settlement that are furthered by a rule of vacatur

Respondent argues that a rule favoring vacatur of a judg-

ment that is rendered moot by a settlement “would constitute

a waste of judicial resources and serve no benefit.” Resp.

Reply 2.“ We disagree.

a. First, it is an exercise in speculation to ground a rule

that predicates denial of vacatur on the possibility that the

precedential value of the decision below will benefit the public

in the future. On the one hand, the benefits of leaving the

decision in place are dubious. Because the vacatur issue

before the Court here arises only in a case in which the Court

has already granted a petition for a writ of certiorari but has

not yet decided the case on the merits, there ordinarily will be

especially in complex litigation in which it may be difficult to evaluate the

legal and factual issues at an early stage.

21 Several of the courts that have rejected vacatur when a case becomes

moot by settlement have relied on the same point. Clarendon Ltd., 936 F 2d

at 129: In re United States, 927 F.2d at 628; In re Memorial Hospital, 862

F.2d at 1302-1303. Although the Seventh Circuit in particular also has

relied on the interest in preserving the preclusive effects of the judgment,

id. at 1303, respondent does not rely heavily on that point, perhaps because

of the limited likelihood that the judgment of the court of appeals in this

case will have significant preclusive effect. In any event, for the reasons

set forth at pages 19-25 of our amicus brief in Kaisha (No. 92-1123), we do

not think that the possible preclusive effects of a judgment in future cases

offer a sufficient basis to deny vacatur following settlement of a pending

dispute. We have provided a copy of our Kaisha brief to counsel for the

parties.

23

a significant possibility that the decision below is incorrect;”

the public gains little or no benefit from a rule that gives such

a decision continuing precedential force.“ Furthermore, even

if the decision below is correct, it will rarely be clear that its

precedential value will be significant as a practical matter; it

is notoriously difficult to evaluate the extent to which any

particular judicial opinion will provide significant guidance in

the resolution of future disputes even within the jurisdiction

of the court that issued it. By contrast, for the reasons

discussed above, the benefits of vacating a lower-court

judgment following settlement are immediate and certain:

Vacatur lessens the burden on the Court and promotes

resolution of disputes in a manner more likely to be acceptable

to both parties.

More fundamentally, a rule that elevates the possible effect

of a lower-court opinion on hypothetical future cases over the

interest that vacatur serves in promoting the voluntary reso-

lution of a live dispute actually pending before the Court ig

nores the central role of an Article III court: resolving con-

crete cases and controversies between parties. [The pur -

pose for which civil courts have been established” is “the

conclusive resolution of disputes within their jurisdictions,”

Montana v. United States, 440 U.S. 147, 153 (1979), and Ain

all civil litigation, the judicial decree is not the end but the

= See, ¢.g., The Supreme Court—Leading Cases, 107 Harv. I. Rev. 144,

376 (1993) (Court affirmed only 36.8% of cases reviewed on certiorari during

1992 Term in which Court issued full opinions).

For several reasons, the interests in stability that precedents usually

further are not likely to be enhanced significantly by precedents as to which

this Court has granted review. First, when those precedents are in-

— — —— — —ä—

problems associated with a lack of geographical uniformity. Second,

even when there is not a conflict in the circuits, this Court's willingness to

grant plenary review is likely to cast sufficient doubt on the correctness of

the decision to encourage litigation challenging the precedent.

24

means,” Hewitt v. Helms, 482 U.S. 755, 761 (1987). Thus,

“litigation exists to resolve the parties’ genuine grievances;

opinions are byproducts.” Bethune Plaza, Inc. v. Lumpkin,

863 F.2d 525, 531 (7th Cir. 1988); see Alliance To End Repres-

sion v. City of Chicago, 820 F.2d 873, 876 (7th Cir. 1987); ef.

California v. Rooney, 483 U.S, 307, 311 (1987) (per curiam)

(“This Court ‘reviews judgments, not statements in opin-

ions.’ ) (quoting Black v. Cutter Laboratories, 351 U.S. 292,

297 (1956)). As Judge Winter has explained, it is inappropriate

to rely on “the plight of hypothetical future defendants facing

hypothetical future lawsuits” to justify „foreling] [the

appellees in an existing case] to bear the costs and risks of

further litigation.” Nestle Co., 756 F.2d at 284. In sum, it is

not appropriate to give controlling weight to the abstract and

secondary public interest in the opinions of the lower federal

courts.”

b. Nor should the rule be limited to cases in which both

parties seek vacatur of the lower court’s decision pursuant to

the settlement agreement. To be sure, it is especially

perverse for a court to rely on the interests of persons who

are not presently involved in the dispute within the court’s

jurisdiction as a basis for refusing to accept the terms of a

settlement (including vacatur) agreed to by all the parties

before the court. 13A Charles Alan Wright et al., Federal

* Vacatur upon settlement may be inappropriate when the judicial

system itself has a distinct and legitimate interest in preserving the judg-

ment below, as when the judgment involves contempt of court or otherwise

implicates the authority of the courts, rather than the more generalized

public interest in the precedential or preclusive value of judicial decisions in

cases involving other parties. See In re Memorial Hospital, 862 F.2d at

1302-1303. In the contempt situation, for example, the court may be in a po-

sition analogous to that of a party to a case that has not joined in a settle-

ment entered into by the other parties. Cf. note 15, supra (arguing that con-

siderations favoring vacatur are diminished when private parties attempt

to resolve a dispute regarding the decision of an administrative agency).

25

Practice and Procedure § 3533.10, at 307 n.22 (Supp. 1994).

But the interests favoring settlement that support the rule of

vacatur suggest that the same result should follow even if the

party that prevailed in the lower court does not agree to

vacatur.

The situation will arise most pointedly in a case in which

the parties can agree upon a settlement of their underlying

dispute, so that no live dispute would remain for decision, but

the party that lost in the lower court is unwilling to agree to

the settlement if it leaves the judgment of the lower court in

effect. Absent a rule of vacatur, the parties would not settle

and the court would be called upon to expend its resources to

resolve the dispute. The sole interest furthered by the failure

of the settlement in that scenario is the posited interest of

persons not before the court in the precedential or preclusive

effects of the judgment.” But that interest is of relatively

attenuated significance to an Article III court, whose juris-

diction is limited to “Cases” and “Controversies.” Where the

parties can terminate the dispute that justified the exercise of

Article III jurisdiction, the system disserves the parties if it

protracts the case by leaving in place the judgment that the

parties have decided to abandon as the basis for resolving their

If the settlement would have rendered the case truly moot, in the

sense that it would have removed any likelihood that the dispute would

recur between the parties, the party that prevailed in the lower court would

not have any direct interest in the continuing force of the judgment. If a

cognizable likelihood of a recurring dispute remains—and if it is likely to

evade review—then of course the case would not be moot and vacatur

therefore would be inappropriate. See 13A Charles Alan Wright et al.,

Federal Practice and Procedure § 3533.10, at 431 (2d ed. 1984) (“Any

justified fear that the appellee may still need the protection of a judgment

ean be met by finding the case is not moot; that is the purpose of the

elaborate rules governing voluntary discontinuance.”).

26

dispute.” Accordingly, mootness occasioned by settlement

justifies vacatur even if both of the parties do not seek that

disposition.

a G FOR

ll. IF THE COURT ADOPTS A RULE CALLIN

CASE-BY-CASE CONSIDERATION, VACATUR IS

APPROPRIATE IN THIS CASE

At least one court of appeals has adopted a rule under which

the court considers on an ad hoc basis whether vacatur is ap-

propriate, based on a balancing of “the competing values of fi-

nality of judgment and right to relitigation of unreviewed dis-

putes.” Ringsby Truck Lines, Inc. v. Western Conference of

Teamsters, 686 F.2d 720, 722 (9th Cir. 1982). If the Court

adopts such an ad hoe approach, we believe that two circum -

stances indicate that vacatur would be appropriate in this

case.

* Logically, it is ible that a rule of vacatur would hinder settlement

in cases in we —— that prevailed below is unwilling to 1

settlement that brings about vacatur of the judgment. As a general rule,

however, vacatur is less likely to be of great concern to the party that

prevailed than a denial of vacatur will be to the party that lost, gem

vacatur simply returns the parties to the status quo — — —

judgment and no judicial opinion on the legal questions—while a den —

vacatur leaves one party burdened with a legal decision the precedent

(and preclusive) import of which may be quite significant.

* Our amicus brief in Kaisha suggested (at 27-28) that if the —

rejected the general ruie of wanttnr we — — O08

under which a court presented with a joint request for vacatur wou —

sider the request in a manner similar to the way in which courts review

irectly helpful to

proposed consent decrees. That approach would not be d

the Court's resolution of the vacatur issue in this case, because the parties

have not submitted to the Court a joint request for action. We note,

| plan for re-

however, that the parties did submit their consensua

organization to the bankruptcy court, which approved the plan. Vacatur is

especially appropriate in light of that disposition of the underlying dispute.

27

A. This is not a case in which “litigants who [wel]re dissat-

isfied with the decision of the [lower] court [attempted] to

have [it] wiped from the books by merely filing an appeal, then

complying with the order or judgment below and petitioning

for a vacatur,” In re United States, 927 F.2d 626, 628 (D.C. Cir.

1991) (internal quotation marks omitted). When parties settle

after this Court has granted a petition for a writ of certiorari,

there can be little doubt that the petitioner's challenge to the

judgment of the lower court was a substantial one that raised

important questions of federal law. It is unlikely that parties

frequently will adopt—or succeed in pursuing—a tactic of at-

tempting to cause this Court to grant certiorari, solely with a

view to settling th» case and thereby removing the adverse

precedential effect of the decision of a court of appeals.

Moreover, the terms of the settlement at issue here make it

clear that this is not a case in which the party that lost below

has rendered the case moot by relinquishing its efforts to

overturn the lower court’s decision. Petitioner responsibly

accepted an offer of settlement in which respondent retreated

dramatically from the position upheld by the lower courts—an

offer that as a practical matter afforded petitioner treatment

similar to that which it would have obtained if it had prevailed

in this Court. Under the terms of the plan initially approved

by the lower courts, petitioner had a secured claim for

$3,200,000, representing the fair market value of the collateral

as determined by the bankruptcy court. Although the plan

technically provided that the secured claim would be paid in

full, the plan for repayment was not favorable: it provided for

monthly payments of interest only, and then a balloon pay-

ment of the principal balance 32 months after implementation

of the plan. J.A. 11. Furthermore, because the obligations of

the reorganized debtor to make those payments were secured

only by the preexisting collateral, any decrease in the value of

the collateral during the 32-month period would have

diminished considerably the likelihood of petitioner's

28

receiving full payment of its claim. If petitioner had prevailed

in this Court, the courts could not have approved that plan.

Petitioner then would have been entitled to insist on an order

lifting the automatic bankruptcy stay, which would have

allowed petitioner to foreclose on the collateral and receive its

full value at that time.

In contrast, the Third Amended Plan of Reorganization im-

plemented pursuant to the parties’ settlement gives petitioner

substantial assurances that its secured claim will be paid in

full.“ To induce petitioner's voluntary agreement to refrain

from foreclosing at this time, respondent and its owners

agreed to contribute substantial additional collateral, effec-

tively ensuring that petitioner in fact will be paid in full even

if the reorganization is unsuccessful. Specifically, Paragraph

5.3.1.1 of the plan grants petitioner an express personal guar -

anty for the entire amount of the secured claim from both H. F.

Magnuson and Lloyd Andrews (two of the principals of re-

spondent). Third Amended Plan of Reorganization at 11. That

Paragraph also provides that petitioner is to receive a first

lien on Lloyd Andrews's personal residence and a second lien

on a parcel of land adjacent to the existing shopping center.

Id. at 10-11. Finally, respondent's principals are obligated to

provide still more collateral if appraisals performed by

persons selected by petitioner do not provide “evidence to

petit ioner's] satisfaction” that the total value of the collat-

eral exceeds the outstanding balance of the secured claim by a

significant amount. Id. at 12-13.”

* The Third Amended Plan of Reorganization appears as Exhibit B to

the Memorandum of Respondent Suggesting that the Case Is Moot.

” Specifically, the ratio of the outstanding secured claim to the total

value of the collateral must be no greater than 65%. Third Amended Plan

of Reorganization at 12.

Two other features of the Third Amended Plan also improved petitioner's

position considerably. First, although the plan initially approved by the

lower courts provided for petitioner to receive interest at a rate capped at

29

In sum, the significant concessions by respondent reflected

in the settlement suggest that it is inappropriate to view this

as n case in which a petitioner retreated from its opposition to

the lower court's judgment and seeks vacatur from this ( burt,

even though the petitioner was unable to persuade the respon -

dent to retreat frust its position. As a practical matter, it is

more accurate to view this as a case in which the respondent

was unwilling to defend the judgment of the court of appeals

and therefore entered into a settlement that gives up the

greater part of the benefits it would have received under that

judgment. Those circumstances suggest that vacatur would

be especially appropriate. Cf. pages 15-16, supra (discussing

this Court's practice of vacating lower-court judgments when

a case becomes moot because of unilateral action by the party

that prevailed in the lower court).

B. The importance of resolving a conflict among appellate

decisions also counsels in favor of vacating the unreviewable

judgment below. It appears that the decision in this case is

the only court of appeals ruling that has expressly affirmed

the new-value exception to the absolute priority rule since

this Court's decision in Norwest Bank Worthington v.

Ahlers, 485 U.S. 197 (108. Accordingly, an order vacating

7% per annum (J. A. 11), the Third Amended Plan provides (at 9-10) for an

interest rate of 8.75% per annum. Second, although the plan initially

approved by the lower courts provided for monthly payments of interest

only (J. A. 11), the Third Amended Plan provides (at 10) for monthly

payments in an amount that would amortize the entire debt over a 25-year

period. The amortizing payments increase the security of the lender by

decreasing the outstanding balance of the loan over time, and by increasing

the debtor's equity in the property, which increases the debtor's incentive to

care for the property.

™ See Pet. 13-16 (discussing the decisions of the lower courts). Neither

of the court of appeals decisions on which respondent relies (Br. in Opp. 17

18) as supporting the new-value exception included a square holding that

the exception survives this Court's decision in Ahlers. In re Anderson, 913

30

the decision of the court of appeals would remove the circuit

conflict that called for immediate action by this Court and

leave the questions open for further consideration by all of the

courts of appeals, including the Ninth Circuit. If another

court of appeals hereafter should decide this issue in a way

that creates a circuit conflict, the Court can review the mat-

ter at that time. The benefits of further consideration by the

lower courts, unconstrained by the unreviewable decision in

this case, counsel in favor of vacating the judgment below.

CONCLUSION

The judgment of the court of appeals should be vacated and

the case should be remanded with directions to dismiss

petitioner’s motion for relief from the automatic stay.

Respectfully submitted.

DREW S. Days, III

Solicitor General

FRANK W. HUNGER

Assistant Attorney General

EDWIN S. KNEEDLER

Deputy Solicitor General

RONALD J. MANN

Assistant to the Solicitor General

LEONARD SCHAITMAN

JOHN P. SCHNITKER

Attorneys

MAY 1994

F.2d 530 (8th Cir. 1990), in fact affirmed a bankruptcy court order rejecting

a debtor’s reliance on the new-value exception; the court merely stated in

dictum that “(t]he district court recognized the continuing validity of the

‘new value’ exception to the absolute priority rule.” Id. at 532. In re U.S.

Truck Co., 800 F.2d 581 (6th Cir. 1986), predated Ahlers by more than a

year.