## Facts

- ATSI Communications, Inc. filed a federal securities-fraud action against Knight Capital Markets, LLC and others, alleging market manipulation and related claims under § 10(b), Rule 10b-5, and § 20(a).
- The district court dismissed ATSI’s complaints; the Second Circuit previously affirmed the dismissal on the merits.
- After prevailing, Knight sought sanctions under the Private Securities Litigation Reform Act (PSLRA), requesting fees and costs on the ground that the claims against it lacked a factual basis.
- The district court denied sanctions against ATSI but sanctioned ATSI’s counsel personally, awarding Knight $64,656.69 in fees and costs.
- The sanctioned attorneys appealed the sanctions order.
- Before appellate briefing, the sanctioned attorneys and Knight reached a settlement conditioned on the Second Circuit vacating the sanctions judgment and related district court orders.
- The parties jointly moved in the Second Circuit for vacatur; the appeal addressed only whether vacatur should be granted.

## Issues

1. Whether an appellate court should vacate a district court sanctions judgment and related orders when the parties’ private settlement is conditioned on vacatur.
2. Whether settlement-induced mootness (or threatened mootness) supplies “exceptional circumstances” sufficient to overcome the presumption against vacatur under U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership.

## Decision

- The Second Circuit denied the joint motion to vacate the district court’s sanctions judgment and related orders.
- The court applied Bancorp’s equitable framework and the presumption against vacatur when vacatur is sought as a term of settlement.
- The court held that the parties’ settlement interests did not justify erasing a judicial decision, particularly one imposing sanctions on attorneys practicing before a federal court.
- The sanctions judgment and related orders remained in effect; the court did not reach the merits of the sanctions determination in this decision.

## Legal Principles

- Vacatur is an extraordinary equitable remedy; the movant must show equitable entitlement, not merely mutual party consent.
- When mootness results from settlement rather than happenstance, there is a presumption against vacatur because the losing party has voluntarily relinquished appellate review.
- Courts must weigh private settlement interests against the public interest in the integrity of the judicial process and the continued availability of judicial decisions.
- Judicial decisions are public acts; they are not bargaining terms that parties may eliminate to avoid adverse consequences.
- Even though district court decisions are not binding precedent, they retain institutional and informational value, including as persuasive authority and as part of the public record—especially in attorney-sanctions matters.

## Conclusion

The Second Circuit refused to vacate a district court PSLRA sanctions judgment as a condition of settlement, concluding that the parties’ private interests did not amount to exceptional circumstances overcoming Bancorp’s presumption against vacatur and that the public interest favored preserving sanctions rulings in the judicial record.


ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 547 F.3d 109 (2d Cir. 2008)