by Andrew L. Adler and Brian W. Toth
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) 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
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
Second, and more importantly, the Court acknowledged that a court could exercise ancillary jurisdiction “to enable [it] to function successfully, that is, to manage its proceedings, vindicate its authority, and effectuate its decrees.”11 However, the Court determined that no such jurisdictional basis existed under the facts before it because the alleged breach of the settlement agreement did not disregard or flout a court order.12 The district court in Kokkonen, rather, had simply entered an order acknowledging the joint stipulation, but did not embody the terms of the settlement agreement in its order or purport to retain jurisdiction over the settlement.13 Had the district court done so, the Court explained, “[t]he situation would [have] be[en] quite different” because then “a breach of the agreement would [have also] be[en] a violation of the order, and ancillary jurisdiction to enforce the agreement would [have] therefore exist[ed].”14
Thus, although the parties in Kokkonen failed to do so, the Court recognized that parties could seek to have the district court retain jurisdiction over a settlement agreement by requesting that the district court enter an order to that effect.15 Significantly, the Court suggested that parties could seek to do so not merely in the context of Rule 41(a)(2), when a court order is required, but also in the context of joint stipulations filed under Rule 41(a)(1)(A)(ii):
Even when, as occurred here, the dismissal is pursuant to Rule 41(a)(1)(A)(ii) (which does not by its terms empower a district court to attach conditions to the parties’ stipulation of dismissal) we think the court is authorized to embody the settlement contract in its dismissal order (or, what has the same effect, retain jurisdiction over the settlement contract) if the parties agree. Absent such action, however, enforcement of the settlement agreement is for state courts, unless there is some independent basis for federal jurisdiction.16
However, in making this statement, the Court notably did not address the self-executing nature of joint stipulations filed under Rule 41(a)(1)(A)(ii). Thus, the question arose: If such stipulations are self-executing and operate to automatically dismiss a case, then how could the district court subsequently exercise jurisdiction to enter an order embodying the terms of the settlement agreement or retaining jurisdiction over it? The 11th Circuit addressed that question in Shaz.
As in Kokkonen, the 11th Circuit in Shaz was faced with the issue 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). The court began by observing that the Seventh Circuit appeared to interpret the above language from Kokkonen as an “exception” to the general rule that Rule 41(a)(1)(A)(ii) stipulations are self-executing.17 The Fifth Circuit, on the other hand, “resolved this issue by focusing on the mechanics of Rule 41 and allowing parties to make the effectiveness of their stipulation contingent on action by the district court,” namely, the entry an order retaining jurisdiction or embodying the terms of the settlement agreement.18
The 11th Circuit agreed with the Fifth Circuit’s approach.19 It emphasized that, because “[a] district court loses all power over determinations of the merits of a case when it is voluntarily dismissed” under Rule 41(a)(1)(A)(ii), it “cannot retain jurisdiction by issuing a postdismissal order to that effect.”20 Thus, rather than treating Kokkonen as an exception to the self-executing nature of stipulations filed under Rule 41(a)(1)(A)(ii), the 11th Circuit interpreted its language “to mean that the parties must agree to the district court’s order retaining jurisdiction, not that the district court may enter a dismissal order when it would otherwise lack jurisdiction to do so.”21
At the same time, the Supreme Court in Kokkonen did indicate that a district court could retain jurisdiction to enforce a settlement agreement following a Rule 41(a)(1)(A)(ii) stipulation. Thus, in order to effectuate that aspect of Kokkonen, the 11th Circuit held that a district court could retain jurisdiction in two ways: “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.”22 Put more simply, the Court held that a district court can retain jurisdiction to enforce a settlement agreement by entering an order before a joint stipulation becomes effective.
As for the settlement agreement at issue in Shaz, because the district court failed to enter an order retaining jurisdiction before the joint stipulation was filed, the first method of retaining jurisdiction did not exist. Nor did the second method, because the joint stipulation was not contingent on a subsequent order by the district court, and the stipulation was, therefore, effective when filed. In their joint stipulation, the parties stated, “the Court shall reserve jurisdiction to enforce the settlement between the parties pursuant to the terms contained therein.”23 But the 11th Circuit held that this language did not render the stipulation’s effectiveness contingent on a subsequent court order.24
Notably, the Court found that its determination in that regard was “not inconsistent” with its earlier interpretation of Kokkonen in American Disability Association, Inc. v. Chmielarz, 289 F.3d 1315 (11th Cir. 2002).25 The issue in Chmielarz was not whether the district court had jurisdiction to enter a post-stipulation order (which it did), but rather whether the plaintiff was a “prevailing party” under the Americans with Disabilities Act. Resolving that issue required the court to determine whether there was a “judicially sanctioned change in the legal relationship between the parties.”26 In addressing that issue, the court relied on Kokkonen for the proposition that a district court had the authority to enforce a settlement agreement by entering an order incorporating the terms of a settlement or retaining jurisdiction over it.27 From that premise, the court reasoned that “the district court’s approval of the terms of the settlement coupled with its explicit retention of jurisdiction [we]re the functional equivalent of a consent decree,” thus, reflecting a judicially sanctioned change in the legal relationship between the parties.28
Because the Chmielarz court did not question whether the district court had jurisdiction to enter its order following a Rule 41(a)(1)(A)(ii) stipulation, the Shaz court sought to reconcile its decision with that case. To do so, the court noted that the language of the joint stipulation filed in Chmielarz “requested” the district court to enter an order retaining jurisdiction over the settlement.29 Thus, according to the Shaz court, “the [district] court issued its order because the stipulation requested it and by its nature required it.”30 By contrast, the court determined that the joint stipulation filed in Shaz “ma[d]e no request of the district court,” but rather sought “to extend jurisdiction by agreement only” by stating simply that the district court “shall reserve jurisdiction to enforce the settlement.”31
The court in Shaz concluded by emphasizing the need to adhere strictly to the procedural and jurisdictional principles it outlined. The court remarked that “Rule 41(a)(1)(A) is a useful tool in settling cases because it allows parties to dismiss an action without a court order. However, it must be used precisely to reach the desired result; ancillary jurisdiction does not allow a court to enforce a filed stipulation in the same way it allows a court to enforce its orders.”32 Thus, the court made clear that if the parties want the district court to retain jurisdiction over a settlement agreement, they must obtain an appropriate order before their joint stipulation of dismissal takes effect. Otherwise, as occurred in Shaz, the district court will lack jurisdiction to enforce the settlement agreement, and any unauthorized, post-stipulation order or action taken by the district court may be vacated on appeal.
To summarize, the 11th Circuit in Shaz prescribed two specific ways in which parties can seek for the district court to retain jurisdiction to enforce a settlement agreement. First, before filing a joint stipulation, the parties can seek a court order retaining jurisdiction over their settlement agreement or embodying the terms of the settlement. Second, the parties can file a joint stipulation, the effectiveness of which is contingent on a court order retaining jurisdiction. The authors recommend the first method over the second.
Under the first method, the parties must obtain a prestipulation order retaining jurisdiction over the settlement. To obtain such an order, the authors suggest that the parties file a joint motion requesting such relief. If the court enters such an order, then it will retain jurisdiction over the settlement, and the parties can then file a standard (i.e., unconditional) joint stipulation dismissing the case.33
This method has practical advantages over the second method. A motion will prompt action by the court. The same cannot be said for filing a conditional joint stipulation, which, as an administrative matter, does not show up on a court’s pending work-list. Moreover, stipulations — which, by their nature, are self-executing — typically do not seek affirmative relief from the court, and so courts may not timely review them.
While parties can seek a court order retaining jurisdiction, the court is under no obligation to enter such an order.34 Courts, however, are generally reluctant to deny motions that seek relief that the parties agree on. Moreover, courts are accustomed to receiving, reviewing, and sometimes even adopting proposed orders that accompany motions. Submitting a proposed order allows the parties to illustrate exactly what order they are seeking, thus eliminating potential confusion and reducing the workload of the court. In addition, filing a joint motion, unlike a joint stipulation, will not run the risk that the court will simply close the case without retaining jurisdiction. Nor will it require a legal determination by the court regarding whether the stipulation is sufficiently conditional under Shaz.
In that regard, not only is a motion more likely to elicit court action than a stipulation, but it avoids any uncertainty regarding the language that must be used to render a joint stipulation conditional on a court order. Nonetheless, if practitioners elect to use the second method in seeking to retain jurisdiction, they must be deliberate in the language included in the stipulation. Indeed, Shaz makes clear that the language contained in a joint stipulation matters a great deal. Thus, the stipulation should state that it is neither immediately effective nor self-executing. It should also state that it will take effect only upon the entry of an order retaining jurisdiction to enforce the settlement agreement or embodying the terms of the settlement. And the stipuation should also state that if no such order is entered, then the stipulation will not take effect and the case will not be dismissed. Including such explicit language in the stipulation will minimize potential confusion.
Conversely, the one thing that practitioners should not do if they want the court to retain jurisdiction is to file a standard, unconditional joint stipulation of dismissal. Such stipulations will be effective immediately upon filing, and the district court will be powerless to resolve any later settlement dispute. The authors also recommend avoiding the “request” language used in Chmielarz. While Shaz suggested that such language rendered the stipulation conditional (and, thus, not immediately effective), that portion of Shaz is arguably dicta.35 The very Fifth Circuit decision on which Shaz relied, moreover, contrarily, but persuasively, held that such language was insufficient because it did not expressly condition the effectiveness of the stipulation on a subsequent order by the court.36 Thus, practitioners should avoid the language used in Chmielarz37 in favor of the expressly conditional language suggested above.
This article does not purport to resolve all the issues related to a federal court’s ability to retain jurisdiction over settlement agreements. For one thing, not all parties will necessarily want the federal court to retain jurisdiction over their settlement agreement. For another, Rule 41(a)(1), by its plain language, is “subject to” federal statutes and the special rules governing, among other things, class actions.38 For example, because settlements in both class actions and actions brought under the Fair Labor Standards Act must be approved by the court,39 the parties may not be able to dismiss such cases by filing a joint stipulation under Rule 41(a)(1)(A)(ii). As a result, in those cases, there is little danger that the district court will be divested of jurisdiction to enforce a judicially approved settlement agreement.
In addition, district courts retain substantial discretion in this area. Some courts may decide to routinely enter orders retaining jurisdiction upon the parties’ request. Other courts, however, may decide to do so only in certain cases, such as, for example, where there has been a great deal of litigation in the principal suit. Other courts may require the parties to file their settlement agreement with the court as a prerequisite and may rebuff any efforts to file the agreement under seal, thus, requiring the parties to weigh the attendant costs and benefits. And some courts, especially those concerned with the size of their docket, may adopt a policy against retaining jurisdiction absent extraordinary circumstances. In short, the district courts have wide latitude regarding whether to retain jurisdiction over settlement agreements, and their approach after Shaz remains to be seen.
While the court’s decision whether to retain such jurisdiction is ultimately beyond the control of the parties, there are nonetheless steps that the parties must take in order to ensure that the district court is at least presented with that decision. However, without understanding these steps and the jurisdictional principles on which they are based, parties may find themselves compelled to file a new action in state court seeking to enforce the settlement. To avoid that costly and time-consuming result, it is essential that federal practitioners review the 11th Circuit’s opinion in Shaz and determine which of its two methods for retaining federal jurisdiction is appropriate for their case.
1 See Marc Galanter & Mia Cahill, “Most Cases Settle”: Judicial Promotion and Regulation of Settlements, 46 Stan. L. Rev. 1339 (1994) (“settlement is the most frequent disposition of civil cases in the United States”).
2 Fed. R. Civ. P. 41(a)(1)-(2).
3 Fed. R. Civ. P. 41(a)(1)(A).
4 Anago Franchising, Inc. v. Shaz, LLC, 677 F.3d 1272, 1277-78 (11th Cir. 2012).
5 Fed. R. Civ. P. 41(a)(2).
6 Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 378 (1994).
8 Id. at 379.
9 Id. at 381; see also id. at 379 (“It is to the holdings of our cases, rather than their dicta, that we must attend, and we find none of them that has, for purposes of asserting otherwise nonexistent federal jurisdiction, relied upon a relationship so tenuous as the breach of an agreement that produced the dismissal of an earlier federal suit.”); id. at 380 (stating that the facts underlying the claim for breach of a settlement agreement “have nothing to do” with the facts underlying the principal suit).
10 Id. at 380.
13 Id. at 377, 381.
14 Id. at 381.
16 Id. at 381-82.
17 Shaz, 677 F.3d at 1279 (citing Bond v. Utreras, 585 F.3d 1061, 1078 (7th Cir. 2009)).
18 Id. (citing SmallBizPros, Inc. v. MacDonald, 618 F.3d 458, 463 (5th Cir. 2010)).
21 Id. at 1280.
23 Id. at 1274.
24 Id. at 1280-81.
25 Id. at 1280.
26 Am. Disability Assoc., Inc. v. Chmielarz, 289 F.3d 1315, 1317, 1319-21 (11th Cir. 2002).
27 Id. at 1320.
28 Id. at 1317; see also id. at 1320-21.
29 Shaz, 677 F.3d at 1280; see also Chmielarz, 289 F.3d at 1318.
30 Shaz, 677 F.3d at 1280.
31 Id. at 1274, 1280-81.
32 Id. at 1281.
33 If the court enters an order both retaining jurisdiction over the settlement and dismissing the case, then a stipulation would be unnecessary.
34 See Shaz, 677 F.3d at 1280 n.4 (recognizing that the district court need not enter an order retaining jurisdiction); Brass Smith, LLC v. RPI Indus., Inc., 827 F. Supp. 2d 377, 381 (D.N.J. 2011) (“Whether or not a court decides to retain ancillary jurisdiction over the settlement agreement is discretionary.”).
35 See Shaz, 677 F.3d at 1280.
36 SmallBizPros, Inc. v. MacDonald, 618 F.3d 458, 463 (5th Cir. 2010) (“While the Stipulation stated that the parties ‘request that the Court sign and enter the attached Stipulated Settlement Order,’ the effectiveness of the Stipulation was not expressly contingent upon the district court’s signature and entry of the Order because the precise language used did not provide for such conditional effectiveness. Rather, the Stipulation stated that the parties had already ‘settled and compromised the matters in dispute in this action,’ and failed to indicate that further action was necessary by either of the parties or the district court in order to make the Stipulation effective. If the parties intended to make the Stipulation’s effectiveness contingent upon the district court’s entry of a subsequent dismissal order, they should have used language that expressly manifested such intent.”).
37 One of the authors argues that the document purporting to be a joint stipulation in Chmielarz wasn’t a joint stipulation at all, but rather a motion requesting that the court enter an order of dismissal retaining jurisdiction to enforce the settlement agreement — which is what the district court ultimately did. See Chmielarz, 289 F.3d at 1320-21. This suggests a third method for retaining jurisdiction not discussed in Shaz: a motion requesting the entry of an order both a) retaining jurisdiction to enforce the settlement, and b) dismissing the case. Because the court in Shaz did not address this possible third method, however, practitioners should use caution if they choose to use it.
38 SmallBizPros, 618 F.3d at 463.
39 Fed. R. Civ. P. 23(e); Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350, 1352-55 (11th Cir. 1982).
Andrew L. Adler is a litigation associate at Boies, Schiller & Flexner, LLP, in Ft. Lauderdale. He is a former law clerk to Judge Rosemary Barkett and Judge Peter T. Fay of the U.S. Court of Appeals for the 11th Circuit, and to Judge Kathleen M. Williams of the U.S. District Court for the Southern District of Florida.
Brian W. Toth is a litigation associate at Holland & Knight, LLP, in Miami. He is a former law clerk to Judge Cecilia M. Altonaga of the U.S. District Court for the Southern District of Florida.