NYLJ “Settlement Agreements as a Basis to Vacate Federal District Court Judgments”

By Thomas E.L. Dewey

The Federal Rules of Civil Procedure provide for a few, carefully prescribed circumstances in which a court may vacate its own judgment or order. Courts are empowered to correct clerical mistakes, oversights and omissions, (i.e., scrivener’s errors) under FRCP 60(a). FRCP 60(b), in turn, allows a court to “relieve a party or its legal representative from a final judgment, order or proceeding” for five specific reasons: “(1) mistake inadvertence, surprise, or excusable neglect; (2) newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud . . ., misrepresentation, or misconduct by an opposing party; (4) the judgment is void;” or (5) “the judgment has been satisfied, released or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable.”

A settlement agreement is not an explicit basis for vacating a court’s order or judgment. However, FRCP 60(b)(6) contains a catch all provision for “any other reason that justifies relief,” which courts only apply if the party seeking relief demonstrates “extraordinary circumstances.” BLOM Bank SAL v. Honickman, 605 U.S. 204, 210-11 (2025) (quoting Kemp v. United States, 596 U.S. 528, 533 (2022)). Courts in the Second Circuit have applied this provision to vacate judgments and orders to facilitate settlements between parties, as Judge Rochon did last month. But cf. United States Bancorp Mortg. Co. v. Bonner Mall Partnership, 513 U.S. 16, 28 (1994) (“exceptional circumstances do not include the mere fact that [a] settlement agreement provides for vacatur.”)

Dr. Habeeb Ahmad is an ophthalmologist and associate professor at New York University (“NYU”) and served as Chief of Service in NYU Langone’s Ophthalmology Department.^[1] In February 2022, he sued NYU and two individual defendants for alleged violations of the Americans with Disabilities Act, the New York Human Rights Law and the New York City Human Rights Law stemming from NYU’s termination of his employment after his medical leave had expired. The Court held a jury trial in July 2025, and the jury found NYU liable for discrimination under the New York State and New York City Human Rights laws and all three defendants liable for failure to engage in a cooperative dialogue under the New York City Human Rights Law.^[2] The jury awarded Plaintiff $2 million in emotional distress damages, $1.4 million in backpay, $375,000 in front pay and punitive damages against NYU alone for $250,000.^[3]

Judge Rochon, who presided over the trial, granted Defendants’ post-trial motion for judgment notwithstanding the verdict in part by striking punitive damages against NYU,^[4] and remitting the front pay award to $250,000 and the emotional distress award to $1 million.^[5] On November 10, 2025, the Court entered judgment after Plaintiff accepted remittitur of the jury award.^[6] On December 10, 2025, Defendants filed a Notice of Appeal.^[7]

On January 15, 2026, the parties informed the Court that they had reached a settlement in principle on December 17, 2025, contingent upon vacatur of the judgment. The parties filed a joint request to vacate the judgment pursuant to FRCP 60(b).^[8] The parties cited Defendants’ previous arguments about the conflicting nature of the jury verdict (i.e. finding Plaintiff’s disability was a motivating factor in the decision to terminate him despite finding Defendants did not fail to accommodate his disability), noting also that Plaintiff has a significant interest in resolving the litigation because he had found a new job across the country.^[9] The parties highlighted the private interest in vacating the judgment by the nature of their joint request and contended the public interest in preserving the judgment was relatively small.^[10] Finally, the parties argued that vacating the judgment in deference to the settlement would conserve judicial resources because it would preclude any appeals as of right by both parties and a remand if any part of the jury verdict was reversed, as well as motion practice for attorney’s fees.^[11]

Judge Rochon began her analysis by observing that a private settlement may constitute an “exceptional circumstance” if the public interest in the to-be-vacated decision is de minimis and vacatur of the judgment or order clears the way for settlement. Ahmad v. New York Univ., No. 1:22-CV-01248 (JLR), 2026 WL 234594, at *2 (S.D.N.Y. Jan. 29, 2026). She found that such circumstances existed in this case, since both parties sought partial vacatur of the judgment entered just three months earlier because “Plaintiff has secured a new job across the country and . . . has a significant interest in vacating the judgment against the individual defendants to obtain peace, certainty and finality” and to avoid Defendants’ appeal. Id. The Court concluded that nonparties would not be impacted by vacatur in this case and the Court had already modified the jury award. Id. The Court relied on decisions from the Eastern and Southern Districts of New York that had granted vacatur in similar circumstances. Id. Judge Rochon concluded by noting that “[v]acatur would facilitate settlement and bring this nearly four-year litigation to an end, providing much-needed closure to all parties.” Id.

The Second Circuit has also found exceptional circumstances supporting vacatur of an order as part of a settlement, but in a different factual setting than in Ahmad. In Major League Baseball Properties, Inc. v. Pacific Trading Cards, Inc., the parties’ settlement presented “exceptional circumstances” where both parties made a joint request for vacatur, and where Defendant had agreed to a settlement to avoid the financial consequences of posting a bond or not shipping the disputed baseball cards, which would have been “financially ruinous.” 150 F.3d 149, 150, 152 (2d Cir. 1998). Plaintiffs, who had lost the preliminary injunction ruling that the parties sought to vacate, asked for vacatur to avoid the effect of the district court’s decision in future litigation defending its mark against alleged future infringers. Id. at 152. In Microsoft Corp. v. Bristol Technology, Inc., the Second Circuit found exceptional circumstances to vacate a punitive damages award where there was doubt about whether the district court (rather than a jury) could make factual findings to support a punitive damages award and a federal court opinion interpreting a Connecticut state statute was “perhaps dispensable.” 250 F.3d. 152, 155 (2d Cir. 2001).

Another court in the Southern District relied on virtually identical reasoning as the Ahmad decision. The court noted, as a threshold issue, that the opinion did not involve a novel issue of law or address an issue to be revisited with any regularity. American Home Assur. Co. v. Kuehne & Nagel (AG & Co.) KG, No. 06 Civ. 6839, 2010 WL 1946718, at *2 (S.D.N.Y. May 7, 2010). It made the same observation that other courts in the circuit had shown more flexibility where vacatur would bring an end to the tortured history of litigation, nonparties are not affected by vacatur and both parties stipulated to the request for vacatur. Id.

Here, the factors that Judge Rochon did not rely on to grant vacatur under FRCP 60(b) are just as interesting as those she cited. For instance, Judge Rochon did not rely on the parties’ arguments that deference to the settlement would conserve judicial resources because it would preclude any appeals as of right by both parties or any additional motion practice. As another district court observed, “[a] settlement agreement will virtually always spare the parties future litigation costs and future uncertainty” and “[i]f the Supreme Court felt these were sufficient justifications for granting vacatur, it would not have held in Bancorp that ‘exceptional circumstances do not include the mere fact that a settlement agreement provides for vacatur.’”^[12]Lucy v. Bay Area Credit Serv., LLC, No. 3:10-CV-1024, 2011 WL 13344168, at 2 (D. Conn. Dec. 27, 2011). Similarly, another court rejected the rationale that separate lawsuits could materialize in the future if vacatur were not granted as “unfounded speculation.” Easter Unlimited, Inc. v. Rozier, No. 18-CV-6637, 2022 WL 4468613, at 3 (E.D.N.Y. Apr. 20, 2022).

^[1] Ahmad v. New York University, Case No. 22-cv-01248, Dkt. No. 172 at 1.

^[2] Id. at 2.

^[3] Id.

^[4] Id. at 42.

^[5] Id. at 59, 63, 71.

^[6] Dkt. No.174.

^[7] Dkt. No. 177.

^[8] Dkt. No. 194.

^[9] Id. at 2.

^[10] Id. at 2-3.

^[11] Id. at 3.

^[12] Nevertheless, the American Home Assur. court cited the avoidance of the expenditure of scarce judicial resources, both in the Court of Appeals and at the district court. If the opinion were reversed, as yet another basis for the totality of exceptional circumstances for vacatur. 2010 WL 1946718, at *2.

This article first appeared in the New York Law Journal on February 20, 2026. Thomas E.L. Dewey is a partner at Dewey Pegno & Kramarsky. Daniel Shternfeld, a counsel of the firm, assisted in the preparation of the article.