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Jurisdiction to Enforce a Settlement

By Stephen Sather

When parties settle a case, there are good feelings all around and relief that the dispute is over. However, parties who have been disagreeable prior to settlement often remain that way after they have compromised their dispute. A recent Fifth Circuit case makes the point that it is important to think about how the settlement will be enforced should the parties go back to feuding. SmallBiz Pros, Inc. v. MacDonald, No. 09-50879 (5th Cir. 9/1/10). The opinion can be found here.

In SmallBiz Pros, the parties settled a dispute which required turnover of documents among other things. They entered a Stipulation of Dismissal pursuant to Rule 41(a)(1)(A)(ii). This was a non-bankruptcy case. However, the same provision would apply under Bankruptcy Rule 7041. The Stipulation referenced a "Stipulated Settlement Order." The Court signed the Stipulated Settlement Order. However, the order did not contain "so ordered" language and did not provide for the Court to retain jurisdiction to enforce the order.

Disagreements arose and SmallBiz Pros returned to court to have MacDonald held in contempt. The District Court obliged and MacDonald appealed. The Fifth Circuit reversed, finding that the District Court lacked jurisdiction to enforce the settlement.

In its conclusion, the Court stated:

Each of the parties and the district court likely intended for the district court to retain ancillary jurisdiction to enforce the terms of the settlement agreement, but jurisdiction is a strict master and inexact compliance is no compliance. The Stipulation effectively dismissed the case when it was filed on August 7, 2009 pursuant to Rule 41(a)(1)(A)(ii). It did not expressly provide for ancillary jurisdiction. It referenced and attached the terms of the settlement in a document styled an ?Order,? but did not make the dismissal expressly contingent upon the district court?s signing the Order or upon any other act. Moreover, the ?Order? was not a proper dismissal order. The parties could have filed a joint ?stipulation and order of dismissal,? expressly provided for ancillary jurisdiction or embodied the terms of the settlement in the order, and made the filing contingent upon the district court?s entry of the order, but they chose not to do so. Because the district court lacked jurisdiction to enforce the terms of the settlement agreement, we hereby VACATE the contempt order and REMAND to the district court with instructions to dismiss for lack of jurisdiction.

Slip Op. at 8-9.

I like the language that "jurisdiction is a strict master and inexact compliance is no compliance." As a matter of practice, I don't like using a Stipulation of Dismissal under Rule 41(a)(1)(A)(ii) because it does not result in a court order. However, I had not thought about including language in the order that the court retains jurisdiction to enforce it. I think I will now.

Full post as published by A Texas Bankruptcy Lawyer's Blog on September 02, 2010 (boomark / email).