New Jersey Law Journal: Asking a Federal Court to Retain Jurisdiction to Enforce a Settlement Agreement
Litigants have different reasons for wanting to try their cases in federal court. But a wise band of non-lawyers (although litigants) once sang, “You can’t always get what you want.” (Written by Mick Jagger & Keith Richards in The Rolling Stones’ 1969 album, Let It Bleed.) A party does not have a right to litigate in federal court simply because it files its case there, even if the other parties agree, because federal courts are courts of limited jurisdiction. Federal subject matter jurisdiction cannot be conferred by consent nor its requirement waived. A U.S. district court must have either federal question jurisdiction or diversity jurisdiction. This much is taught in basic civil procedure classes in law school and generally understood by practitioners.
But a less understood practice pointer is trying to ensure that a party who gets through the door to the district courthouse can come knocking again if the case settles and a party later needs the district court’s intervention to enforce the settlement’s terms. The party that wanted to litigate in federal court in the first place may have an even greater desire to be able to resort to the same court and the same District and Magistrate Judges to enforce a settlement if necessary. For example, a party anticipating problems from the other side may want to benefit from the knowledge that the judges have concerning the case and the parties. It may even be that the settlement itself was brokered with the assistance of the court, which then has all the more important familiarity with the relevant issues. For these or other reasons, the parties may want the district court to retain jurisdiction to enforce the settlement.
But you can’t always get what you want. The fact that the underlying lawsuit was properly before the federal court does not mean that the parties have the right to enforce their settlement before the same court – even if they all agree. Without the appropriate order from the court, a litigant will need to file a new lawsuit for breach of contract (i.e., breach of the settlement agreement). This process will involve the preparation, filing and service of a complaint and, in all likelihood, a more expensive and time-consuming process than simply filing a motion to enforce a settlement agreement under an existing docket number.
Moreover, for that new lawsuit to even proceed in federal court, the party will need to establish federal subject matter jurisdiction, even if the underlying lawsuit involved diversity or federal question jurisdiction. For example, a party may establish subject matter jurisdiction in a lawsuit by suing a diverse party for $100,000. The lawsuit may settle for $50,000. If the other side does not comply, the plaintiff may be out of luck trying to enforce the settlement in federal court because it is suing on a contract for an amount less than the $75,000 threshold for diversity actions. As another example, if the plaintiff got into federal court through federal question subject matter jurisdiction and seeks to enforce a settlement requiring the payment of $50,000, the fact that the underlying lawsuit involved federal question jurisdiction will be of no moment in the new lawsuit to enforce the settlement. The party will then have to bring a separate action in state court before a new judge.
A party wanting the federal court that heard its case to retain jurisdiction to enforce a settlement must obtain an order from the court retaining jurisdiction to do so – a procedure based on ancillary jurisdiction. A stipulation of dismissal between the parties agreeing that the court shall retain jurisdiction is of no value without the court’s blessing. While a court may deny the request, here are some ways to increase your client’s chances of success in having the request granted.
First, if the retention of jurisdiction by the federal court is important to your client, make it a material condition in your settlement offer, verbal agreement and/or term sheet, rather than raising the issue when the parties begin drafting the formal written document. Or, consider at least requiring the other side to join in your request to the Court that it retain jurisdiction (or agree not to object).
Second, if you are at a settlement conference before a District or Magistrate Judge and wish to include the court’s retention of jurisdiction (or the parties’ agreement to request that it retain jurisdiction) as a settlement term or condition, make that request at the conference. Include it when you memorialize the principal terms during the conference and raise the point with the judge so that you may perhaps be able to later present the request with the imprimatur of Chambers. That may be a good opportunity to ask the judge what, if anything, she requires or prefers such a request include.
Third, consider whether you and/or your adversary want the settlement to be confidential and whether the particular court you are before will retain jurisdiction to enforce a confidential settlement agreement. A judge may require that a copy of the agreement be filed with the court or that the terms be summarized in a proposed order retaining jurisdiction. New York courts appear stricter on this requirement, with some judges expressly stating in their individual rules that they will not retain jurisdiction over confidential settlement agreements and requiring that a copy be filed with the court; but a federal judge in New Jersey may well impose such a condition because the ultimate decision to retain jurisdiction is discretionary. A court that requires the parties to file a copy of the agreement may allow them to redact certain terms (at least unless/until a party actually seeks to enforce it).
In any event, the parties will need to consider in their negotiations and drafting the relative importance of confidentiality and retaining federal jurisdiction over the agreement. For example, many confidentiality provisions in settlement agreements have exceptions, such as when parties are required by court order to produce the agreement or when they need to provide it to their accountants for tax or reporting purposes. One may consider adding an exception to the confidentiality provisions in the event the court requires disclosure of the full agreement as a condition to enforcing the settlement. Or, a party may include such an exception that further indicates the parties will endeavor to redact whatever information the court may permit while still retaining jurisdiction – but that if the court ultimately requires its full disclosure, confidentiality is waived.
Parties seeking to preserve the confidentiality of their settlement should note that placing the terms of the settlement on the record in open court will make the settlement public, as may providing the court with a copy of a formal or informal term sheet. See Jackson v. Del. River & Bay Auth., 224 F. Supp. 2d 834 (D.N.J. 2002)
Fourth, the request for the court to retain jurisdiction should be brought to the Court’s attention as early as possible and by way of a consent order or so-ordered stipulation expressly providing that the court will retain jurisdiction. Federal courts have certain procedures in which cases where settlements have been reached in principal may be administratively terminated and then automatically dismissed after a certain amount of time absent further indication from the parties. In the District of New Jersey, upon being advised of a settlement, the Court will typically issue a “60-day” order terminating all proceedings in the case and advising that the case will be dismissed with prejudice and without costs within 60 days absent extension based on good cause or the filing of a dismissal providing otherwise. (See Local Civil Rule 4.1.(b)). Thus, the parties should make their request to retain jurisdiction upon advising the Court of a settlement, or at least indicate it is forthcoming. If the Court issues the 60-day order shortly following a settlement conference before you have made the formal request, then be sure to make that request and submit the proposed consent order or so-ordered stipulation as soon as possible – and absolutely before the with-prejudice dismissal takes effect.
Fifth, consider any additional requirements the court may have. As for the District of New Jersey, practitioners should review Judge Hillman’s thoughtful opinion in Brass Smith, LLC v. RPI Industries, Inc., 827 F. Supp. 2d 377 (D.N.J. 2011), which thoroughly lays out the Court’s expectations from parties. The parties should either incorporate the terms of the settlement agreement within the proposed order of dismissal or include a separate provision in which the court specifically retains jurisdiction to enforce the settlement agreement. Moreover, a reasonable time limit should be placed on the court’s retention of jurisdiction, as Judge Hillman notes the lack of authority for a court to exercise jurisdiction indefinitely. The parties should, where possible, set forth precisely what type(s) of dispute(s) they wish the court to retain jurisdiction over to resolve rather than a cursory reference to “any dispute pertaining” to the agreement. Based on Judge Hillman’s Opinion, the diligent approach would be to also explain in a letter or motion accompanying the proposed consent order the basis for the request, particularly if a lengthy time period is sought.
The retention by a federal court of jurisdiction to enforce a settlement agreement is not subject to a particularly arduous standard. Counsel, however, should never presume the court will retain jurisdiction. They should be mindful of the procedural requirements and should consider employing some of the safeguards described above – because while you can’t always get what you want, “if you try sometime you find you get what you need.”
Reprinted with permission from the May 30, 2019 issue of the New Jersey Law Journal. © 2019. ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.