Breach insufficient to set aside consent judgment, court rules

In Ford Motor Co v Mustangs Unlimited Inc (Case 06-1567, May 24 2007), the US Court of Appeals for the Sixth Circuit has held that breach of a settlement agreement which is the basis for a consent judgment is not sufficient grounds by itself to set aside the judgment.

Ford Motor Co and Mustangs Unlimited Inc had settled a case that Ford brought against Mustangs for trademark counterfeiting, infringement, dilution and unfair competition. Their settlement agreement was the basis for a consent judgment entered by the district court. Ford believed Mustangs had breached the settlement agreement and moved the district court to set aside the consent judgment under Rule 60(b)(6) of the Federal Rules of Civil Procedure, which allows a judgment to be set aside for "any other reason justifying relief from the operation of the judgment". The district court vacated the consent judgment and Mustangs appealed, arguing that Ford had not shown that extraordinary or exceptional circumstances warranted setting aside the judgment.

In its decision, the US Court of Appeals for the Sixth Circuit noted the public policy arguments in favour of finality of judgments on the one hand and settlement agreements on the other. The court began by citing its precedents holding that "exceptional or extraordinary circumstances" are required to justify relief under Rule 60(b)(6), circumstances not covered by Rules 60(b)(1) to (5). The question therefore was whether breach of a settlement agreement alone constitutes "exceptional or extraordinary circumstances". The court observed that a circuit split existed on the issue of whether breach of a settlement agreement entitles the non-breaching party to relief. The Third and Fourth Circuits have held that breach of a settlement agreement does not, without more, warrant setting aside a consent judgment under Rule 60(b)(6). Both circuits noted that the non-breaching party has the option of bringing a suit to enforce the settlement agreement. The First and Ninth Circuits, on the other hand, have held that breach of a settlement agreement incorporated into a court judgment entitles the non-breaching party to relief from the judgment.

The Sixth Circuit agreed with the former group, holding that breach of a settlement agreement does not per se justify relief from a court judgment under Rule 60(b)(6). Adopting the Fourth Circuit's interpretation, the Sixth Circuit court said such relief is only to be granted when required in the interests of justice. The court found that the district court's opinion offered no reasoning supporting a finding of exceptional or extraordinary circumstances that would justify setting aside the consent judgment. However, the Sixth Circuit did not rule out the possibility that a more thorough evaluation of the facts in the case might in the end justify the relief Ford requested. The court remanded the case for a determination of whether exceptional circumstances existed.

Sarah Brown, McDermott Will & Emery LLP, Washington DC