Retaining federal jurisdiction over settlement agreements after Shaz.

• Author: Adler, Andrew L.

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Many federal civil cases are resolved by way of settlement. (1) Settlement may occur shortly after a lawsuit begins or it may occur after years of contentious litigation and negotiation. Regardless of when it occurs, the ubiquitous role of settlement in federal civil practice is undeniable.

But the signing of a settlement agreement does not always mark the end of the case. It is a dispiriting reality that disagreements occasionally ensue over the implementation of a settlement agreement. When such disagreements prove intractable, judicial intervention may become necessary to enforce the agreement or to interpret its terms. Thus, counsel must understand how to ensure the availability of such judicial enforcement if needed.

The U.S. Court of Appeals for the 11th Circuit recently issued an important decision on that subject. In Anago Franchising, Inc. v. Shaz, LLC, 677 F.3d 1272 (11th Cir. 2012), the 11th Circuit laid out specific procedures that must be followed in order for a federal district court to retain jurisdiction to enforce a settlement agreement. The practical implications of Shaz are significant. If the procedures are not followed, then parties may be forced to file a new breach-of-contract action--in state court if an independent basis for federal subject-matter jurisdiction does not exist--in order to enforce their settlement agreement. The time and expense associated with doing so, in some instances, may be more trouble than it is worth. At the very least, starting anew--whether in state or in federal court--will be more difficult and costly than simply asking the federal court that presided over the underlying litigation to enforce or clarify the settlement.

In this article, the authors endeavor to summarize Shaz--a fairly technical decision--and to explain the steps that practitioners should take if they want a federal district court to retain jurisdiction to enforce a settlement agreement. Before turning to Shaz itself, however, it is necessary first to discuss the two pillars on which the decision is based: Federal Rule of Civil Procedure 41(a) and the Supreme Court's decision Kokkonen v. Guardian Life Insurance Co. of America, 511 U.S. 375 (1994).

Rule 41(a)

Rule 41(a) allows a plaintiff to voluntarily dismiss a case either with or without a court order. (2) A plaintiff may voluntarily dismiss a case without a court order in two circumstances. (3) First, under Rule 41(a)(1)(A)(i), a plaintiff may file "a notice of dismissal before the opposing party serves either an answer or a motion for summary judgment." Thus, in certain situations, a plaintiff may voluntarily (and unilaterally) dismiss a case. Once the defendant files an answer or motion for summary judgment, however, the parties may dismiss a case without a court order only in accordance with Rule 41(a)(1)(A)(ii). That provision permits the filing of "a stipulation of dismissal signed by all parties who have appeared." Filing such a joint stipulation of dismissal is frequently used because it allows parties that have reached a settlement to dismiss their case without a court order. Because no such order is required, a notice of dismissal under Rule 41(a)(1)(A) (i) and a stipulation of dismissal under Rule 41(a)(1)(A) (ii) are generally considered self-executing documents that operate to automatically dismiss the case. (4) When the parties do not avail themselves of either of these two mechanisms, Rule 41(a)(2) comes into play, which provides that "an action may be dismissed at the plaintiff's request only by court order, on terms that the court considers proper." (5)

Kokkonen

In Kokkonen, the Supreme Court addressed whether a district court had retained jurisdiction to enforce a settlement agreement after a joint stipulation of dismissal had been filed under Rule 41(a)(1)(A)(ii). Writing for a unanimous Court, Justice Scalia held that it did not.

As a threshold matter, the Court first determined that the "[e]nforcement of [a] settlement agreement ... is more than just a continuation or renewal of the dismissed suit, and hence requires its own basis for [federal] jurisdiction." (6) Thus, the Court proceeded to address (and reject) the argument that the district court could exercise jurisdiction under the "doctrine of ancillary jurisdiction, which recognizes federal courts' jurisdiction over some matters (otherwise beyond their competence) that are incidental to other matters properly before them." (7)

The Court acknowledged two general bases for ancillary jurisdiction, but found neither applicable. First, it recognized that courts have exercised ancillary jurisdiction "to permit disposition by a single court of claims that are ... factually interdependent." (8) But, the Court stated, "the facts to be determined with regard to such alleged breaches of [a settlement agreement] are quite separate from the facts to be determined in the principal suit, and automatic jurisdiction over such [agreements] is in no way essential to the conduct of federal-court business." (9) Thus, the Court held that the "concept of limited federal jurisdiction" did not permit the assertion of ancillary jurisdiction merely "over any agreement that has as part of its consideration the dismissal of a case before a federal court." (10)

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Second, and more importantly, the Court acknowledged that a court...