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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1994
- **Citation:** 513 U.S. 18

## Text

No. 93-714 /

Court, U.S.

FILED

MAY 1 2 1994

'

UiTice OF THE CLERK

In the Supreme Court of the Giuted States

OCTOBER TERM, 1993

U.S. BANCORP MORTGAGE COMPANY, PETITIONER

Vv.

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

‘of

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)

TABLE OF CONTENTS

EE a aT
SIE, Git CEPI ucnccnsecunisstendsancenvenssbesnscazecsccecouscszeseet
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
ee Oe ain rrriccrciicennsnsanntstibeandesnmacisanncsseces 6
A. This Court’s precedents mandate a general rule

of vacatur when a case that is pending on appeal
or certiorari becomes moot as a result of settle-
St eteteenetieiinadibesecce:--cccccensunsngnbvaninecsensgescesecesce 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 ......................... 17
1. A rule of vacatur furthers the judicial sys-
tem’s important interest in voluntary settle-
Rg 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 vacatur ...................ccccceeeeeees 22
HL. If the Court adopts a rule calling for case-by-case
consideration, vacatur is appropriate in this case ... 26
EE 30
TABLE OF AUTHORITIES
Cases:
A.L. Mechi.»g Barge Lines, Inc. v. United States, 368
EE 17
Allen & Co. v. Pacific Dunlop Holdings, Inc., 114
ES 12

(IID)

{ IV

Cases—Continued:

Alliance To End Repression v. City of Chicago, 820 F.2d
Tf . Le eseeee
Anderson, In re, 913 F.2d 530 (8th Cir. 1990) ..............
Arthur v. Manch, 12 F.3d 377 (2d Cir. 19938) ............
Bates v. Union Oil Co., 944 F.2d 647 (9th Cir. 1991), cert.
OEE
Baxter Healthcare Corp. v. "'«lthdyne, Inc., 956 F.2d
A GEE en
Bethune Plaza, Inc. v. Lumpkin, 863 F.2d 525 (7th Cir.
BRED ecccecesccccsesccececsonsescsecisessonstiosncsnsciuttidsessiedetsiiateubesases
Black v. Amen, 355 U.S. G00 (1958) .00........ccccccceeeeeeees
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
CE, GF GERD censescennssesstuesinnessntenasmeniipeee
Bowen v. Kizer, 485 U.S. 386 (1988) ................ccecceeeeeeee
Buck's Stove & Range Co. v. American Federation of
Laden, GED UE, GEE GRGGED cccnsssssrsesccsstrnsvapsenmocssennccces
California v. Rooney, 483 U.S. 307 (1987) ...........cc0cccceeee
Chemetron Corp. v. Business Funds, Inc., 682 F.2d
1149 (5th Cir. 1982), vacated and remanded, 460 U.S.
of) a er
Church of Scientclogy v. United States, 113 S. Ct. 447
CRD cesnccceccnscsenscssvscssastitinaniinttintanpiacimmiitaiadigiiiaiagnids

GD ccruscancunsuscerntencitntmenenmentisnanininsnientediainiideetns
Clarendon Ltd. v. Nu-West Industries, Inc., 936 F.2d 127
eee aE ere
Clarke v. United States, 915 F.2d 699 (D.C. Cir. 19990) ....
Commercial Cable Co. v. Burleson, 250 U.S. 360 (1919) ..
Continenta! Casualty Co. v. Fibreboard Corp., 113 8. Ct.
BD Ge cxcoccnesenteneenainiataaraiteaninataitndinittadaitiiivitchins
County of Los Angeles v. Davis, 440 U.S. 625 (1979) .....
DHL Corp. v. CAB, 659 F.2d 941 (9th Cir. 1981)...........

Vv
Cases—Continued: Page
Dakota County v. Glidden, 113 U.S. 222 (1885) ............. 11
DeFunis v. Odegaard, 416 U.S. 312 (1974) 15
Deakins v. Monaghan, 484 U.S. 193 (1988) _ 7, 15
Dodrill v. Ludt, 764 F.2d 442 (6th Cir. 1985) ................ 19
Duke Power Co. v. Greenwood County, 299 U.S. 259

RED cicentadentlhiincecstisntsngeinhtinseciitibitebaiitanitinniteiniemegivcaiua 10
Federal Data Corp. v.SMS Data Products Group, Inc.

Inc., 819 F.2d 277 (Fed. Cir. 1987) ............cccccccccceeeeeeees 7, 18
Frank v. Minnesota Newspaper Ass'n, 490 U.S. 225

ea ee aa 15
Gray v. Board of Trustees, 342 U.S. 517 (1952) ............ 16
Great Western Sugar Co. v. Nelson, 442 U.S. 92 (1979) . 10
Hammond Clock Co. v. Schiff, 293 U.S. 529 (1934) ....... 7, ll
Hendrickson v. Secretary of Health & Human Services,

TOO ae Be ree Ge GD ceccecnectvesecescetecsvcsccvcsccseszens 8
Hewitt v. Helms, 482 U.S. 755 (1987) ..............2.cccecceeeeee 24
Honig v. Doe, 484 U.S. 305 (1988) ............cccccccceeeeeeeeeees 7
Honig v. Students of California School for the Blind,

oe Bf Fe ee ee 16
Iron Arrow Honor Society v. Heckler, 464 U.S. 67

GOURD ‘cdoteictth bnsccinitnnstechimnetuecteactnitigteatincintanctntinendeedinttitins 6-7
J. Aron & Co. v. Mississippi Shipping Co., 361 U.S. 115

CRD cstensestnitittitpeersianitainttnestesstilianvetemnaitiaitinnianesitiione 10
Kaisha v. U.S. Philips Corp., 114 S. 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
(llth Cir. 1993), petition for cert. pending, No. 93-

ID ccitetacecencsenattncinncendinstetinintcerinmmemmnrmtinabiavatennneiits vf)
Lake Coal Co. v. Roberts & Schaefer Co., 474 U.S. 120

COED ccnetcnscacicccsesstncsitiitienanitithneriasretindithinenbinnicimntentta 7, 10, 11
Lewis v. Continental Bank Corp., 494 U.S. 472 (1990) .. 7
Long Island Lighting Co. v. Cuomo, 888 F.2d 230 (2d

CED. SEED cccenctsenpsscmssevecessssesvanssvsnsacquesenestactanueneventenseness 14, 19

—

\
Vi
Cases—Continued: Page
Manufacturers Hanover Trust Co. v. Yanakas, 11

F.3d 381 (2d Cir, 1998) 2.0.0... ccccseceeeeeseeeeeeeeneseneeens 7-8, 9, 16
Marc Development, Inc. v. FDIC, 12 F.3d 948 (10th Cir.

BOD ccccccccecesecsasenesocsssesectusnbensnimbensinsabeebotnoncenttapehenenaathes 9
Marek v. Chesny, 473 U.S. 1 (1985) ..........cccccccccecseeeeeees te
Marshall v. Whittaker Corp., 610 F.2d 1141 (3d Cir.

BOTO) cccoccececcecsccccseccccscsoccscsscesnsosssesoonocssconssenocvesosoonencease 19
Martinez v. Winner, 800 F.2d 230 (10th Cir. 1986) ....... 19
Memorial Hospital, Inc., In re, 862 F.2d 1299 (7th Cir.

SEED xecepcescesematesscicgnnateclemniaimaauateaieannvetia 8, 13, 20, 21, 22, 24
Mills v. Green, 159 U.S. 651 (1895) .0.............cccccceceeeeeees 7
Montana v. United States, 440 U.S. 147 (1979) ............ 23
National Union Fire Insurance Co. v. Seafirst Corp.,

891 F.2d 762 (9th Cir. 1989) .........ccccccccceeeceeeeeeeeeeeneeees 8, 13
Nestle Co. v. Chester's Market, Inc., 756 F.2d 280 (2d

Clr. 19GB) .........-cccoscccrcessscccesescoccoserccsosonsssssossososseooosseoees 7, 19, 24
No East-West Highway Committee, Inc. v. Chandler,

FET PBS SE Chat Cle. BBBB) nccccccccsctecccs seccccscscsesccccccsccscces 19
Norwest Bank Worthington v. Ahlers, 485 U.S. 197

CRBTD cccccccnccssecscassscsstsctansoccnncctessosesvencsntedsnasbinecemessnebors 29
Oklahoma Radio Associates v. FDIC, 3 F.3d 1436 (10th

0: 8,9
Pontarelli Limousine, Inc. v. City of Chicago, 929 F.2d

Ty Le 8 | ee 19
Preiser v. Newkirk, 422 U.S. 395 (1975) .........2ccccceeeeeees - 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) ve 8, 13, 26
Savidge v. Fincannon, 836 F.2d 898 (5th Cir. 1988) ...... 19
Silvey v. Soler, 113 S. Ct. 454 (1992) ..........cccccececeeeeeeeeees 9
Sosna v. Iowa, 419 U.S. 393 (1975) ..........ccccccececeeeereeees 7
Steffel v. Thompson, 415 U.S. 452 (1974) 7
Stewart v. Southern Railway, 315 U.S. 784 (1942) ....... 11

Vil

Cases—Continued: Page

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

CE, TRU shoccandischensccchenetbdshenalibiabaibiddindiessidectessthbctedizeccots x
U.S. Truck Co., In re, 800 F.2d 581 (6th Cir. 1986) ... 30
United States, In re, 927 F.2d 626 (D.C. Cir. 1991) .. 8, 18, 22, 27
United States v. Alaska Steamship Co., 253 US. 113

CIUMEUD accssescenstssansapionetepecassanansabeatensenssedpiueciecansocstanseeniees 7
United States v. Articles of Drug Consisting of 203 Paper
Bags, 818 F.2d 569 (7th Cir. 1987) 20.00......ccccccccceeeeeeeeees 19
United States v. Mendoza, 464 U.S. 154 (1984) ............ 1
United States v. Munsingwear, Inc., 340 US. 36
CODED cinsetnictesinininicsiiticinsbicecatedsinctiititecsinsapaiaitiiantes 4, 10, 12, 13, 19
Velsicol Chemical Corp. v. United States, cert. denied,
GED DE War GOD tcctcccctnscinitaateiniccampsisitinegnctnesidtespetees i)
Webster v. Reproductive Health Services, 492 US. 490
EO Te = 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:
8 8 Ee 5, 6, 17, 23, 25
Bankruptcy Code (11 U.S.C.):
Ch. 3:
ee 2
Ge TD airbeteteteeietidtenettnercanininnrenentsntaciuhivnpentmbiieeteantianes 2,3
ee eee 3
FE ERE IS SEA Sr Oe 3
11 U.S.C. 1129(b)(2)(B)(ii) ................ tliat liiiatommeta 3
oo 4 3
Sup. Ct. R.:
ED UD secitiitiatinitnncinisinatcsinsteasencinintvencinisavititeendtiicodedasiaandts 4, 12
EE eae a 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) -_ 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
GBB GG, TOG cecncsvecseccsscceccessscsecensgicnnatiahoostactepesseninitinens 19

Note, Avoiding Issue Preclusion by Settlement Condition-

ed upon the Vacatur of Entered Judgments, 96 Yale

eee GP CEBIIED ccvncecosceneccecosssocsocasesncettoniecsinmeeabbinateniietes 18
Note, Collateral Estoppel and Supreme Court Disposit-

ion of Moot Cases, 78 Mich. L. Rev. 946 (1980) ............. 9
Note, Collateral Estoppel Effects of Judgments Vacated

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

Note, Settlement Pending Appeal: An Argument for Vac-

atur, 568 Fordham L. Rev. 233 (1989) ......ccccccccceeeeereees 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. L. Rev.

fl ee Tae 20
Robert L. Stern et al., Supreme Court Practice (7th
Gi, Pei ccontnscencscccctocdctctnssdéssanniaaditiiiinteintnntntineninatatneimaitins 9

The ‘Supreme Court—Leading Cases, 107 Harv. L. Rev.
BOG QEIIID esccncccaccerscccasanssnsesesceanesincsengnentnonenaimmmeienpabees
Hubert L. Will et al., The Role of the Judge in the Settle-

ment Process, 75 F.R.D. 208 (1976) ...........ccccecceeceeeeeeees 18
Charles Alan Wright et al., Federal Practice and Proced-
ure:
GF RR a ee 9, 16, 25
Vol. 183A (Supp. 1994) ............sccccccccsersseessereeceees 9, 21, 24-25
Wee, BD Ge cecttesiecvtnisbtrceptntnststmnecteptintamenamonrnene 19

In the Supreme Court of the United States

OCTOBER TERM, 1993

No. 93-714
U.S. BANCORP MORTGAGE COMPANY, PETITIONER
Vv.

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 US. 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. 1129%a). 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.

3 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. ;

c 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 effects 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 publie’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

Ill 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.

Il. 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.” Jron 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]n 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.”);
Buck’s 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 cf. 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, e.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, ¢.,

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 banc) (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,
e.g., Petition for a Writ of Certiorari at 7-13, Sivley v. Soler, 113 S. 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
L. 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
banc), petition for cert. pending, No. 93-1365; Mare Development, Inc. v.
FDIC, 12 F.3d 948 (10th Cir. 1993) (en bane). 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 As A Result
Of Settlement

In United States v. Munsingwear, Inc., 340 U.S. 36 (1950),
this Court stated that “[t}he 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.” /d. at 39. In
keeping with that established practice, the Court repeatedly
has emphasized that “[wJhere 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. 259, 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, 355 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

P|

600 (1958) (per curiam); Stewart v. Southern Railway, 315
U.S. 784 (1942) (per curiam);"" Hammond Clock Co. v. Schiff,
293 U.S. 629, 530 (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,
Court 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,-1959, 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 Dispose of This Cause as
Moot, No. 161 (O.T. 1941).

1! 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. Davis L. Rev. at 39 & n.144; Note, Collateral Estoppel Effects of
Judgments Vacated Pursuant to Settlement, 1987 U. Ill. 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).

s

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 U.S.
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, e.g., 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] agree[d) * * * 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. Jd. 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 lim-
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

13 See, e.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, 82-88 (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.

Contrary 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.” Jd. at 227. Concluding that the case was moot, the
Court vacated the judgment below and remanded with
directions to dismiss. Jbid. (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.”

14 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 oceasion, 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 (2d Cir. 1993) (“[T}he 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
( pn 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 force,’ that party might be

16 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 (1st 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 § 4432, at
302 & n.18 (1981); 1B James Wm. Moore et al., Moore’s Federal Practice
{ 0.416[2], at I11-314 (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, ¢.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); DHi 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 US.
at 646 n.10 (Powell, J., dissenting); Greenbaum, supra note 6, 17 U.C. Davis
L. Rev. at 100 & n.417.

1? 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. Jn 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.” Jd. at 637 n.239. It is in precisely such cases, however, that “[a]
pretrial settiement 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 (“[I)n all probability few litigants would appeal solely to make [vacatur]
a portion of the settlement agenda.”).

” 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
Cireuit 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.” Jn 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,

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.

2! 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:
rvor od ow the burden on the Court and promotes
resolution of disputes in a manner more li
pe likely to be acceptable
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. “(T)he 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 “[iJn
all civil litigation, the judicial decree is not the end but the

= See, e.g., The Supreme Court—Leading Cases, 107 Harv. L. 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 usuall

: y

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

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

consistent with the decisions of other courts of appeals, they will exacerbate

the 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 “fore[ing) [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

24 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
can 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.
ll. IF THE COURT ADOPTS A RULE CALLING FOR
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.”"

26 Logically, it is possible that a rule of vacatur would hinder settlement
in cases in which the party that prevailed below is unwilling to accept a
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, because
vacatur simply returns the parties to the status quo ante—with no
judgment and no judicial opinion on the legal questions—while a denial of
vacatur leaves one party burdened with a legal decision the precedential
(and preclusive) import of which may be quite significant.

27 Our amicus brief in Kaisha suggested (at 27-28) that if the Court
rejected the general rule of vacatur we urged, the Court should adopt a rule
under which a court presented with a joint request for vacatur would con-
sider the request in a manner similar to the way in which courts review
proposed consent decrees. That approach would not be directly helpful to
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,
however, that the parties did submit their consensual plan for re-
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 lit] 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 the 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
[petitioner’s] satisfaction” that the total value of the collat-
eral exceeds the outstanding balance of the secured claim by a
significant amount. /d. at 12-13.” :

* The Third Amended Plan of Reorganization appears as Exhibit B to
the Memorandum of Respondent Suggesting that the Case Is Moot.

2 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 a case in which a petitioner retreated from its opposition to
the lower court’s judgment and seeks vacatur from this Court,
even though the petitioner was unable to persuade the respon -
dent to retreat om 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 (1988). 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.” Jd. at 532. In re U.S.
Truck Co., 800 F.2d 581 (6th Cir. 1986), predated Ahlers by more than a
year.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0469%3A12. Public record. Not legal advice.