JCCHO Hawaii LLC v. Cuzco Development U.S.A., LLC

Filing 27

ORDER DENYING JOINT MOTION TO VACATE ORDER AND JUDGMENT (ECF NO. 25 ). Signed by CHIEF JUDGE J. MICHAEL SEABRIGHT on 3/27/2018. (afc)CERTIFICATE OF SERVICEParticipants registered to receive electronic notifica tions received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
IN RE

Civ. No. 16-00632 JMS-KSC

CUZCO DEVELOPMENT U.S.A., LLC,

ORDER DENYING JOINT
MOTION TO VACATE ORDER
AND JUDGMENT (ECF NO. 25)

Reorganized Debtor.
__________________________________
CUZCO DEVELOPMENT U.S.A., LLC,
Plaintiff,
vs.
JCCJO HAWAII, LLC,
Defendant.

ORDER DENYING JOINT MOTION TO VACATE ORDER AND
JUDGMENT (ECF NO. 25)
I. BACKGROUND
On May 3, 2017, this court reversed an order of the Bankruptcy Court
in an adversary proceeding involving the avoidance of a lease between Cuzco
Development U.S.A., LLC (“Cuzco”) and JCCHO Hawaii, LLC (the “May 3
Order”). ECF No. 14; In re Cuzco Dev. U.S.A., LLC, 2017 WL 3000024 (D. Haw.
May 3, 2017).

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Cuzco appealed this court’s May 3 Order to the Ninth Circuit. With
the assistance of the Ninth Circuit mediator, the parties settled. And as part of that
settlement, the parties dismissed the appeal and agreed jointly to request this court
to vacate the May 3 Order and subsequent judgment. Joint Motion to Vacate Order
and Judgment (“Joint Motion”) at 3, ECF No. 25. That Joint Motion is now
before the court.1
For the reasons set forth below, the motion is DENIED.
II. ANALYSIS
The Joint Motion appears to make two arguments. First, it claims that
the settlement requires the parties to seek vacatur as part of the negotiated
resolution of the case. Joint Motion at 3. Second, it states that the issue addressed
in the May 3 Order — the avoidance of a lease — “will not be re-litigated by
anyone else.” Id. at 6. After balancing the equities involved, the court finds that
the parties have failed to provide a sufficient basis to vacate the May 3 Order.
The first justification, that the parties seek a vacatur based on their
settlement, was rejected by the Supreme Court’s holding in U.S. Bancorp
Mortgage Co. v. Bonner Mall Partnership, 513 U.S. 18 (1994). The Court first
drew a clear distinction between a party unable to seek appellate review based on
“mootness by happenstance” and mootness by settlement:
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The factual background to the controversy and the court’s full analysis are set forth in
the May 3 Order and are not repeated here.
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A party who seeks review of the merits of an adverse
ruling, but is frustrated by the vagaries of circumstance,
ought not in fairness be forced to acquiesce in the
judgment. The same is true when mootness results from
unilateral action of the party who prevailed below.
Where mootness results from settlement, however, the
losing party has voluntarily forfeited his legal remedy by
the ordinary processes of appeal or certiorari, thereby
surrendering his claim to the equitable remedy of vacatur.
The judgment is not unreviewable, but simply
unreviewed by his own choice.
Id. at 25 (internal footnote and citations omitted). In reaching its decision, the
Court specifically considered and largely rejected the policy argument that a
vacatur encourages settlement:
A final policy justification urged by petitioner is the
facilitation of settlement, with the resulting economies
for the federal courts. But while the availability of
vacatur may facilitate settlement after the judgment under
review has been rendered and certiorari granted (or
appeal filed), it may deter settlement at an earlier stage.
Some litigants, at least, may think it worthwhile to roll
the dice rather than settle in the district court, or in the
court of appeals, if, but only if, an unfavorable outcome
can be washed away by a settlement-related vacatur.
And the judicial economies achieved by settlement at the
district-court level are ordinarily much more extensive
than those achieved by settlement on appeal. We find it
quite impossible to assess the effect of our holding, either
way, upon the frequency or systemic value of settlement.
Id. at 27-28 (emphasis in original). In fact, the Court concluded that the
exceptional circumstances that may call for vacatur at the appellate level “do not

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include the mere fact that the settlement agreement provides for vacatur. . . .” Id.
at 29.
The court recognizes, however, that in the Ninth Circuit Bonner Mall
applies only to motions to vacate before appellate courts — that is, a different rule
applies to a Rule 60(b) motion to vacate before a district court. American Games,
Inc. v. Trade Products, Inc., 142 F.3d 1164 (9th Cir. 1998), held that district courts
should continue to employ the pre-Bonner Mall test articulated in Ringsby Truck
Lines, Inc. v. Western Conference of Teamsters, 686 F.2d 720, 722 (9th Cir. 1992).
This test requires a district court to balance equities, including “the consequences
and attendant hardships of dismissal or refusal to dismiss,” the “competing values
of finality of judgment and right to relitigation of unreviewed disputes,” the
“motives of the party whose voluntary action mooted the case,” and the public
policy against allowing a losing party to “buy an eraser for the public record.”
American Games, 142 F.3d at 1168, 1170.
And in applying this test, “the distinction between mootness caused
by happenstance versus that caused by voluntary legal action taken by the party
seeking vacatur remains as the pivotal threshold question in determining the
propriety of vacatur by the district court.” Visto Corp. v. Sproqit Techs., Inc. 2006
WL 3741946, at *5 (N.D. Cal. Dec. 19, 2006). The Ninth Circuit has recognized
this principle, stating that “a district court is not required to vacate a judgment
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pursuant to settlement because, otherwise, any litigant dissatisfied with a trial
court’s findings would be able to have them wiped from the books.” Bates v.
Union Oil Co. of Cal., 944 F.2d 647, 650 (9th Cir. 1991) (internal quotation marks
omitted).
The Joint Motion’s second rationale, that the avoidance issue
addressed in the May 3 Order “will not be re-litigated by anyone else,” fares no
better. Although the avoidance issue will not be re-litigated as to this specific
property and these specific parties, it may well be litigated in other proceedings
regarding other properties and other parties. The court’s May 3 Order will, at a
minimum, provide guidance to future litigants. See, e.g., Reynolds v. Allstate Ins.
Co., 2012 WL 4753499, at *2 (N.D. Cal. Oct. 4, 2012) (denying motion for vacatur
in part because “[t]he interpretation of the exclusion in Allstate’s insurance policy
may arise again with different litigants”); Chartis Specialty Ins. Co. v. Queen Anne
HS, LLC, 2012 WL 3780345, at *3 (W.D. Wash. Aug. 31, 2012) (denying motion
for vacatur in part because “[o]nly Chartis has an interest in vacating the April 4
order, whereas the public has an interest in it as persuasive authority”).
The court determines that vacatur of the May 3 Order is not
warranted under the equitable balancing test.
///
///
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III. CONCLUSION
For the reasons stated herein, the Joint Motion is DENIED.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, March 27, 2018.

/s/ J. Michael Seabright
J. Michael Seabright
Chief United States District Judge

In re Cuzco Development U.S.A. LLC, Civ. No. 16-00632 JMS/KSC, Order Denying Joint
Motion to Vacate Order and Judgment (ECF No. 25)

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