Imagine this scenario: after years of litigation in federal court, your client reaches a settlement agreement with the opposing party. The lawsuit is dismissed pursuant to the settlement agreement and Federal Rule of Civil Procedure 41(a)(1). When the opposing party breaches the settlement agreement, you promptly file a motion to compel enforcement – only to have your motion denied for lack of jurisdiction. Where did you go wrong?
Anago Franchising, Inc. v. Shaz, LLC answers this question, at least for litigants within the Eleventh Circuit. In Shaz, the parties entered into a settlement agreement, and filed a stipulation for dismissal with prejudice. The stipulation simply asserted that “the Court shall reserve jurisdiction to enforce the settlement between the parties” – but it was not conditioned on the entry of an order retaining jurisdiction.
When the plaintiff breached the settlement agreement, the defendants filed a motion to compel enforcement. Notwithstanding the parties’ stipulated agreement providing for retention of jurisdiction and the court’s subsequent entry of a consent final judgment pursuant to the settlement agreement (enjoining defendant Shaz), the Eleventh Circuit concluded that the district court lacked jurisdiction to consider the motion to enforce the settlement agreement.
The Eleventh Circuit emphasized that “jurisdiction cannot exist by mere consent of the parties.” Consent is required, but the district court must also issue an order specifically retaining jurisdiction to enforce a settlement agreement. And no effective court order retaining jurisdiction had been entered in Shaz.
The crux of the Eleventh Circuit’s decision lies in the difference between a dismissal under Rule 41(a)(1) versus Rule 41(a)(2):
A stipulation filed pursuant to Rule 41(a)(1) is self-executing and dismisses the case upon its filing unless it explicitly conditions its effectiveness on a subsequent occurrence. A district court need not and may not take action after the stipulation becomes effective because the stipulation dismisses the case and divests the district court of jurisdiction. In contrast, dismissal pursuant to Rule 41(a)(2) expressly requires the approval of the district court and is not effective unless and until the court takes appropriate action. First Classics, Inc. v. Jack Lake Productions, Inc.
The Shaz court found that, although the parties mistakenly cited both Rule 41(a)(1) and 41(a)(2) in their stipulation, their stipulation was entered pursuant to Rule 41(a)(1). Furthermore, the stipulation did not condition its effectiveness upon any subsequent occurrence. The stipulation thus dismissed the case upon filing, and immediately divested the district court of jurisdiction. Because the district court had not entered an order retaining jurisdiction to enforce the settlement agreement prior to dismissal of the action, the district court lacked jurisdiction to consider the motion to enforce the settlement agreement.
As the Shaz court recognized, the parties were not without a remedy. A breach of a settlement agreement – like a breach of any other contract – can still be enforced through a new lawsuit. (The defendants did, in fact, commence a new lawsuit to enforce the settlement agreement and prevailed, see Anago Franchising, Inc. v. Shaz, LLC). But, of course, the reason that parties consent to the district court’s retention of jurisdiction is to avoid the cost and time of pursuing compliance with a settlement agreement in a new case.
Thus, more importantly, the Eleventh Circuit provided guidance to litigants who seek to have the district court retain jurisdiction to enforce their settlement agreement:
We therefore find that for a district court to retain jurisdiction over a settlement agreement where the parties dismiss the case by filing a stipulation of dismissal pursuant to Rule 41(a)(1)(A)(ii), either (1) the district court must issue the order retaining jurisdiction… prior to the filing of the stipulation, or (2) the parties must condition the effectiveness of the stipulation on the district court’s entry of an order retaining jurisdiction.
Litigants in the Eleventh Circuit would be wise to heed to the Shaz court’s proposed work-around for the self-executing nature of Rule 41(a)(1): explicitly condition the effectiveness of the stipulation of dismissal on a subsequent occurrence, i.e., the district court’s entry of an order retaining jurisdiction.
And litigants in other jurisdictions should pay particular attention to any specific requirements that may apply in such courts. Some states, for example, California, have passed specific statutes to guide litigants who seek to have the court retain jurisdiction to enforce a settlement agreement. See, e.g., California Code of Civil Procedure Section 664.6