WASHINGTON -- The Supreme Court yesterday unanimously refused to strike down a lower court ruling in a bankruptcy case, even though the parties had settled after a federal appeals court issued a judgment.

The high court's ruling in U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership establishes that, while parties can settle the case that gave rise to a particular ruling, they cannot use the settlement to undo any precedent that the ruling creates, lawyers said.

Writing for the court, Justice Antonin Scalia said the public interest requires that "orderly procedure" be followed. "It seems to us inappropriate ... to vacate mooted cases, in which we have no constitutional power to decide on the merits," when all the high court has to go on is "assumptions about the merits," Scalia said.

If litigants think they can wash away an unfavorable court ruling by obtaining a settlement-related court order to vacate it, they "may think it worthwhile to roll the dice rather than settle" at an early stage, Scalia wrote. However, he said it was "quite impossible to assess the effect" of the high court ruling on the frequency or value of settlement.

The case involved a request by U.S. Bancorp Mortgage Co. that the Supreme Court vacate a decision by the U.S. Court of Appeals for the Ninth Circuit, which upheld a controversial bankruptcy principle called the "new-value exception." U.S. Bancorp held the mortgage on an Idaho shopping mall whose owner filed for bankruptcy under Chapter 11.

The new-value principle allows old equity owners to retain an ownership interest in the reorganized company in exchange for new capital contributions, even if a class of creditors objects to the plan because their claims would not he fully paid. Since the high court let the federal appeals court ruling stand, a conflict now exists among the circuit courts over the new-value principle.

Also yesterday, the high court heard oral argument in a case that raises the issue of whether the Constitution's commerce clause allows Congress to regulate activity within a state. The clause prohibits states from erecting barriers to interstate trade unless expressly authorized to do so by Congress.

The case, U.S. v. Lopez, asks whether Congress can make possession of firearms

near local schools a federal offense when state and local governments oversee education and law enforcement as part of their general police powers.

A 12th-grade Texas student, Antonio Lopez Jr., was arrested and charged in 1992 under both state law and the federal Gun-Free Schools Act of 1990 for carrying a concealed gun. The state charge was dismissed, but the case proceeded in federal court.

The U.S. Court of Appeals for the Fifth Circuit overturned the ensuing conviction of Lopez, saying the federal act is unconstitutional under the commerce clause because Congress did not identify a specific link between interstate commerce and the possession of firearms at local schools.

The State and Local Legal Center, on behalf of a group of State and local governmental interests led by the National Conference of State Legislatures, filed a friend-of-the-court brief opposing federal involvement in what they said is the state and local problem of school violence.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.