Bedrock Financial, Inc., a California Corporation v. The Internal Revenue Service

Filing 155

ORDER GRANTING 151 Motion to Vacate Orders and Judgments 99 , 104 , 135 , 140 and 141 , pursuant to FRCP 60, signed by Magistrate Judge Michael J. Seng on 04/29/2015. (Martin-Gill, S)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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1:10-cv-01055 MJS HC
BEDROCK FINANCIAL, INC.,

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v.

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ORDER GRANTING MOTION TO VACATE
Plaintiff, ORDERS AND JUDGMENTS PURSUANT
TO FED. R. CIV. P. 60.
(Doc. 151.)

UNITED STATES OF AMERICA,
Defendant,

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v.

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FIRST AMERICAN TITLE COMPANY,
et al.,

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Third-Party-Defendant,

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I.

INTRODUCTION

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This action was filed by Bedrock Financial, Inc. ("Bedrock"), against the United

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States Internal Revenue Service ("IRS") in Merced County California Superior Court.

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Bedrock, holder of a deed of trust to real property sought to be subrogated to an earlier

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mortgage so as to establish priority over a federal tax lien attached to the property. The

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United States ("Government") removed the suit to this Court. The Court granted

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Bedrock's motion for summary judgment, awarding it equitable subrogation and an

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equitable lien in the amount of $171,106.85. The Court also granted the Government
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judgment against First American Title Company and First American Title Insurance

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Company (collectively, "First American") on its conversion and waste claims in the

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amount of $24,648.76 plus interest.

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First American appealed and the Government cross-appealed. Through the Ninth

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Circuit Mediation Program, the parties agreed to terms of settlement which included

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vacation of the summary judgments issued by this Court. The parties have so moved.

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Having carefully considered the papers submitted, the Court grants the motion to vacate.

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II.

BACKGROUND

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This case originated with an action filed May 3, 2010, by Bedrock Financial, Inc.,

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a California corporation ("Bedrock"), against the United States Internal Revenue Service

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("IRS") in Merced County California Superior Court (Case No. CV001026). Bedrock,

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holder of a deed of trust to real property in Atwater, Merced County, California (APN

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004-110-005) (the "property"), sought to be subrogated to an earlier mortgage so as to

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establish priority over a federal tax lien (Merced County Doc. No. 2007-057520) which

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attached to the property after the earlier mortgage but before Bedrock's deed of trust.

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The United States ("Government") removed the suit to this Court. The IRS was later

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dismissed, leaving the Government as the only Defendant. The Government answered

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Bedrock's suit, and filed a counterclaim against Bedrock and a third-party complaint

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against First American. The parties consented to the jurisdiction of a United States

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Magistrate Judge for all purposes, pursuant to 28 U.S.C. § 636 (c)(1).

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On November 12, 2012, the Court granted Bedrock's motion for summary

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judgment, awarding it equitable subrogation and an equitable lien in the amount of

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$171,106.85. Next, on April 17, 2014, the Court granted the Government's motion for

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judgement against First American on conversion and waste claims. The Court found that

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First American wrongfully diverted $42,458.12 in loan proceeds that were subject to the

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tax lien, but that the Government had subsequently recovered a portion of the

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outstanding debt, leaving an approximate unrecovered balance of $24,354.75.

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On June 6, 2014, the Court entered judgment in favor of the third-party plaintiff,
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the Government, and against the third-party defendants, First American, in the amount of

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$24,648.76 plus interest, and closed the case.

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First American appealed the judgment on June 27, 2014, and on July 31, 2014,

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the United States cross-appealed the judgment in favor of Bedrock. The parties engaged

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in informal settlement negotiations, with assistance from a mediator from the Ninth

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Circuit Court of Appeals, and reached a settlement. The terms of the settlement required

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judgments ordered by this Court to be vacated. On March 25, 2015, Bedrock and First

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American filed a motion to vacate orders pursuant to Federal Rule of Civil Procedure 60.

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(ECF No. 151.) The Government filed a statement of non-opposition on April 3, 2015.

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(ECF No. 153.) On April 22, 2015 the Court issued a minute order deeming the matter

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suitable for decision without oral argument. (ECF No. 154.) The matter stands ready for

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adjudication.

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III.

LEGAL STANDARD

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Pursuant to Fed. R. Civ. P. 60(b), a district court may "relieve a party or a party's

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legal representative from a final judgment, order, or proceeding" for a number of

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reasons.

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In U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, 513 U.S. 18, 29, 115

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S. Ct. 386, 130 L. Ed. 2d 233 (1994) ("Bonner Mall"), the Supreme Court held that

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appellate court vacatur of district court judgments in the context of settlement

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agreements should be granted only in "exceptional circumstances." Those exceptional

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circumstances "do not include the mere fact that the settlement agreement provides for

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vacatur." Id. The Court emphasized the importance of considering the public interest

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when contemplating the equitable remedy of vacatur: "Judicial precedents are

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presumptively correct and valuable to the legal community as a whole. They are not

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merely the property of private litigants and should stand unless a court concludes that

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the public interest would be served by a vacatur." Id. at 26 (quoting Izumi Seimitsu

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Kogyo Kabushiki Kaisha v. U.S. Philips Corp., 510 U.S. 27, 40, 114 S. Ct. 425, 126 L.

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Ed. 2d 396 (1993) (Stevens, J., dissenting)). Thus, "quite apart from any considerations
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of fairness to the parties," vacatur disturbs the "orderly operation of the federal judicial

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system" by deviating from the primary route Congress has prescribed for parties who

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seek relief from the legal consequences of judicial judgments: appeal as of right and

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certiorari. Id. at 27.

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However, in American Games, Inc. v. Trade Products, Inc., the Ninth Circuit

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distinguished Bonner Mall by holding that district courts, due to the "fact-intensive nature

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of the inquiry required," enjoy "greater equitable discretion when reviewing [their] own

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judgments than do appellate courts operating at a distance." 142 F.3d 1164, 1170 (9th

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Cir. 1998). Therefore, a district court in this circuit may vacate one of its own judgments

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absent exceptional circumstances. See id. at 1168-69.

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In determining whether to vacate a judgment, district courts must take into

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account "the consequences and attendant hardships of dismissal or refusal to dismiss"

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and "the competing values of finality of judgment and right to relitigation of unreviewed

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disputes." American Games, 142 F.3d at 1168 (quoting Dilley v. Gunn, 64 F.3d 1365,

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1370-71 (9th Cir. 1995)). This analysis is appropriate where, as here, the parties seek to

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vacate a judgment following settlement. See Am. Games, 142 F.3d at 1169 ("[T]he

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district court below could have vacated its own judgment using [the] equitable balancing

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test even if [the parties] had mooted their case by settlement."). "The purpose of this

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balancing process is to enable a district court to consider fully the consequences of

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vacatur." Bates, 944 F.2d at 650; see Allard v. De Lorean, 884 F.2d 464, 467 (9th Cir.

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1989) ("[T]he district court should balance the competing interests of the parties in order

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to determine whether the judgment below should be vacated."); see also Dilley, 64 F.3d

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at 1370 ("[T]he touchstone of vacatur is equity.").

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Courts are not obliged to vacate a prior order at the behest of the parties in order

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to facilitate settlement. See Bates v. Union Oil Co., 944 F.2d 647, 650 (9th Cir. 1991).

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The Ninth Circuit has recognized that if courts were required to vacate prior rulings after

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settlement "any litigant dissatisfied with a trial court's findings would be able to have

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them wiped from the books." Ringsby Truck Lines, Inc. v. Western Conference of
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Teamsters, 686 F.2d 720, 721 (9th Cir. 1982).

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IV.

ANALYSIS

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The parties argue that vacatur will promote mediation and settlement. The Ninth

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Circuit and judicial policy have long-favored mediation and settlements. See Pilkington v.

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Cardinal Health, Inc. (In re Syncor ERISA Litig.), 516 F.3d 1095, 1101 (9th Cir. Cal.

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2008); citing Officers for Justice v. Civil Serv. Comm'n of City & County of San

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Francisco, 688 F.2d 615, 625 (9th Cir. 1982) (finding that "voluntary conciliation and

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settlement are the preferred means of dispute resolution"). The Ninth Circuit has

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developed a special mediation program that the parties utilized to resolve their

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differences in a global settlement.

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As explained above, the Court is guided by equitable considerations in resolving

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whether vacatur is proper. In this case, several equitable principles favor vacatur. These

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include the general judicial policy favoring settlement, the Ninth Circuit's specific efforts

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to assist the parties to obtain settlement in this case, the parties' desire to conserve

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resources in continuing to litigate the matter on appeal, the judicial resources that further

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litigation would consume, and the fact-specific nature of the orders under consideration.

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As Bedrock and First American explain, the tax lien in dispute in this case will be

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released with the execution of the settlement, and there is no danger that a third party

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could challenge the validity of the lien, or otherwise re-litigate the issues presented in the

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case. (Mot. to Vacate at 4.) It is clear that the current dispute involves specific real

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property and a tax lien which would not be subject to other litigation.

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Although under Bonner Mall "exceptional circumstances do not include the mere

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fact that the settlement agreement provides for vacatur," 513 U.S. at 29, in making its

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equitable determination, this Court should give some weight to the fact that the

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settlement is conditioned upon vacatur. Major League Baseball Props., Inc. v. Pac.

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Trading Cards, Inc., 150 F.3d 149, 152 (2d Cir. 1998) (relying in part on the fact that "the

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victor in the district court wanted a settlement as much as, or more than, the loser did");

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De La O v. Arnold-Williams, Nos. CV-04-0192 EFS, CV-05-0280 EFS, 2008 U.S. Dist.
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LEXIS 68334, 2008 WL 4192033, at *1 (E.D. Wash. Aug. 27, 2008).

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Balanced against these considerations in favor of vacatur is the impact of

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vacating the orders on the orderly progress of litigation. Although a district court's order

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is not precedential, "there is a 'systemic' interest in preserving district court judgments

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because 'they play a significant role in the development of decisional law by providing

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guidance to private parties with respect to the availability of remedies and to litigation

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strategy,' and they 'can also be useful to the courts of appeals in rendering decisions."

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Philip Servs. Corp. v. City of Seattle, Civil Action No. H-06-2518, 2007 U.S. Dist. LEXIS

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84237, 2007 WL 3396436 (S.D. Tex. Nov. 14, 2007) (quoting Cater v. Rosenberg &

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Estis, No. 95 CIV. 10439(DLC), 1999 U.S. Dist. LEXIS 131, 1999 WL 13036, at *3

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(S.D.N.Y. 1999)). While the Court is not fully persuaded that the request is not a

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disguised attack by First American on the resolution of issues contrary to its position, the

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request is tempered by the fact that vacatur will not cause the orders to disappear: they

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will remain in electronic research databases, albeit flagged, but otherwise available for

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whatever guidance they may give to parties and other courts. NASD Dispute Resolution,

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Inc. v. Judicial Council, 488 F.3d 1065, 1069 (9th Cir. 2007) (citing United States v.

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Joelson, 7 F.3d 174, 178 n. 1 (9th Cir. 1993)).

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The Court must also consider the public interest. Courts generally characterize

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this interest as "protecting district court precedents from 'a refined form of collateral

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attack . . . .'" NASD Dispute Resolution, Inc., 488 F.3d at 1068-69 (quoting Bonner Mall,

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513 U.S. at 26). As this dispute is germane to the parties involved and facts and legal

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decisions relate to the specific real property in question and encumbrances thereupon,

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the Court is unaware of other public interests or third parties that would be negatively

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impacted by vacatur.

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Considering all of the relevant factors, the Court finds the parties' desire to

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conserve their resources, the potential to conserve judicial resources, and the lack of

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harm to any public interests favor granting the vacatur.

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///
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VI.

ORDER

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It is therefore ORDERED:

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1.

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First American's Motion to Vacate Orders and Judgments (ECF No. 151) is
GRANTED;

2.

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The Court vacates the following orders and judgments:
a.

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The November 13, 2012 order granting Bedrock Financial Inc.'s
motion for summary judgment (ECF No. 99);

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b.

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The December 3, 2012 judgment in favor of Bedrock Financial Inc.
(ECF No. 104);

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c.

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The April 17, 2014 order granting the United States' motion for
summary judgment (ECF No. 135);

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d.

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The June 6, 2014 order awarding damages and entering judgment
(ECF No. 140); and

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e.

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The June 6, 2014 judgment in favor of the United States (ECF No.
141).

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IT IS SO ORDERED.
Dated:

April 29, 2015

/s/

Michael J. Seng

UNITED STATES MAGISTRATE JUDGE

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