When settling a case after a judgment, parties sometimes explore the possibility of a stipulated reversal of the judgment. This may be an attractive option to the losing party because it essentially takes a negative judgment off the books. Unfortunately, the burden to obtain a stipulated reversal is very difficult to meet, because Code of Civil Procedure section 128(a)(8) requires a showing that a stipulated reversal would not adversely affect nonparties, the public, or the public's trust resulting from judgment nullification by consent. (Hardesty v. Hinton & Affert (2004) 124 Cal.App.4th 999.
Ok, so the burden is high at the Court of Appeal if you want a stipulated reversal. What about getting a stipulated vacatur of the judgment at the trial court? Section 128(a)(8) only applies to the "appellate court." So the parties in Meridian Financial Services, Inc. v. Phan (D4d3 Aug. 10, 2021) 67 Cal.App.5th 657 [282 Cal.Rptr.3d 457, 67 Cal.App.5th 657], review filed (Sept. 17, 2021) stipulated for vacatur of large portions of the statement of decision and judgment as a condition of their settlement. The trial court went along with it.
But the judgment that was left over still had preclusive effect. So the exercise was largely pointless.
The facts involved a Ponzi scheme with enough complexity to dupe the appellant, a Stanford-educated economist, into falling for it. The appellant purportedly got two others to invest, secured by deeds of trust on their homes. The trial court voided these deeds as the product of unclean hands.
That created a problem for the appellant, who had another suit pending against Chicago Title. Unclean hands would give Chicago Title a righteous defense against the appellant's claims in the second suit. That's where the stipulation for vacatur came in: the appellant settled the first suit and got a stipulation to gut the unclean hands findings, hoping to neutralize Chicago Title's defense on that ground.
But Chicago Title still obtained summary judgment in the second suit, with the trial court finding the unclean hands established by issue preclusion. And the Court of Appeal affirmed, citing Sandoval v. Superior Court (1983) 140 Cal.App.3d 932, 936, and other cases supporting that the conclusion that "a judgment entered after trial and later vacated or subsumed by a dismissal as a condition of settlement remains “sufficiently firm” and thus final for purposes of issue preclusion."
True, the general rule is that rulings vacated on appeal are a “ ‘nullity.' ” But the cases the appellant cited for this proposition (Regents of University of California v. Public Employment Relations Bd. (1990) 220 Cal.App.3d 346, 356 and Grain Dealers Mutual Ins. Co. v. Marino (1988) 200 Cal.App.3d 1083, 1088-1089) involved reversal on the merits. These cases do not address the circumstance where the vacatur is entered pursuant to a settlement.
The court also noted a distinction between vacating the judgment, and vacating the decision on which the judgment was based. Importantly, the court noted that the trial judge was not informed about the appellant's other claims, and thus "the potential collateral consequences of vacating the decision's adverse findings." The court suggested it would have been improper for the trial court to vacate the judgment rather than merely the statement of decision without considering “ ‘the competing values of finality of judgment and right to relitigation of unreviewed disputes,' ” ... “because, otherwise, ‘any litigant dissatisfied with a trial court's findings would be able to have them wiped from the books.' ” (Ringsby Truck Lines, Inc. v. Western Conference of Teamsters (9th Cir. 1982) 686 F.2d 720, 721.)
The Upshot: Do not put a lot of stock in a stipulated reversal or vacatur of a judgment. It is very difficult to achieve in the Court of Appeal. And even if you can achieve it in the trial court, the effect may be less than you think.
