California Mediation and Arbitration

CCP 664.6 AND FRCP 41(a): Retention Of Jurisdiction To Enforce Settlement Agreement In Federal And California State Courts

Because Federal Courts Are Courts Of Limited Jurisdiction, The Procedures Differ.

        We posted on December 4, 2017, about Sayta v. Chu, A148823 (1/5 11/29/17) (published), an opinion that "offers an object lesson on the requirements to invoke [Cal. Code of Civ. Proc.] section 664.6 and the consequences of failure to comply with those requirements."  Section 664.6 enables a California state court to enforce a settlement agreement in a case that it has dismissed, by retaining jurisdiction to do so.  The obvious advantage for the party seeking to enforce a settlement is that it need not file a new lawsuit to enforce the settlement.  

        In order to rely on 664.6, the parties to a stipulated settlement need to request the court to retain jurisdiction over the parties to enforce the settlement, if the parties have requested the court for this specific retention of jurisdiction prior to dismissal.   In Sayta, enforcement went sideways because the parties failed to request the court to retain jurisdiction to enforce the settlement before dismissal, and thus the court lost jurisdiction.

        Federal court is somewhat different.  The key case is Kokkonen v. Guardian Life Insurance Company of America, 511 U.S. 377 (1994) (Scalia, author).   Because a federal court is one of limited jurisdiction, meaning there must be a basis for federal jurisdiction, bare enforcement of most settlement agreements, which after all are merely contracts, will very likely not create a basis for federal jurisdiction.

        However, there are two or three ways to skin this cat.  Federal Rule of Civil Procedure 41(a) allows the parties to voluntarily dismiss by a stipulation of dismissal signed by all parties who have appeared, and it also allows for dismissal by court order by plaintiff on terms the court considers proper.  If the parties wish to provide for the court's jurisdiction to enforce a dismissal-producing settlement via the stipulation route, they can do so, if the district court embodies the settlement contract in its dismissal order as a condition to dismissal, or the court retains jurisdiction to enforce the settlement agreement, and the parties so agree.  And if the dismissal is, pursuant to plaintiff's instance, by court order, it must be done "upon order of the court and upon such terms and conditions as the court deems proper," which means the court can require the parties' compliance with the terms of the settlement contract or provide for the court's "retention of jurisdiction" over the settlement contract.

            PRACTICE TIP:  In federal court, the Stipulation and proposed Order language should indicate that the parties request that the district court retain jurisdiction to enforce the settlement -- and the Order will recite that the district court retains jurisdiction to enforce the settlement agreement.  But the settlement agreement itself need not be put before the Court.  This is our conclusion, based on the alternative language in Kokkonen, that "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." (Italics added).

        HAT TIP to Gail Killefer, the director of the ADR program for the USDC, Central District, for bringing to the attention of panel mediators the distinction between federal and state retention of jurisdiction to enforce a settlement agreement.

           NOTE:  This post has been revised, and the Practice Tip added, after comment from Gail Killefer.  Any mistakes are entirely my own.

Settlement Agreements: Party Seeking To Invoke CCP 664 To Enforce Settlement Did Not Preserve Court's Jurisdiction Simply By Putting The Request In A Confidential Settlement Agreement

If You Want The Court To Retain Jurisdiction, Ask The Court.

     "This case offers an object lesson on the requirements to invoke section 664.6 and the consequences of failure to comply with those requirements."  Sayta v. Chu, A148823 (1/5  11/29/17) (Bruiniers, Jones, Simons).

    Plaintiff/Apppellant Sayta settled a tenant dispute with the landlord Chu, entering into an agreement with a confidentiality provision, and a liquidated damages clause.  The settlement agreement specifically stated:  "[T]he Court may nevertheless retain jurisdiction to enforce the terms of the settlement, until such time as all of its terms have been performed by the parties, as the parties requested this specific retention of jurisdiction."  Following the execution of the settlement agreement, the case was dismissed.

    Sayta sought to invoke section 664.6 to enforce the liquidated damages clause after he believed Chu had breached the agreement.  He was unsuccessful, for lack of jurisdiction.  As the Court of Appeal explained, the parties to a settlement agreement are unable to confer jurisdiction on trial courts by including language in a settlement agreement, "but not asking the court to retain jurisdiction."

        Best line:  "Sayta fails to explain how the court could have fathomed a 'request' for retained jurisdiction, much less granted it sub silentio from a secret handshake of the parties."

Settlement: Court Of Appeal Gives Plaintiff, Who Lost $250K Settlement With City Of San Francisco, A Second Chance

Trial Judge's Refusal To Continue Hearing On Motion For Summary Judgment Was An Abuse Of Discretion.

        You know that plaintiff/appellant Richard A. Denton had a very bad day in the trial court when the trial judge says:  "Now, what can I do for you?" and the Court of Appeal comments, "And it was downhill for Denton from there."  Denton v. City and County of San Francisco et al., A147384 (1/2  10/30/17) (Richman, Kline, Miller).

        Denton filed employment-related claims against the City, the City filed a motion for summary judgment, and with his opposition about to be due, the City and Denton mediated and settled.  Denton's attorney then filed a notice of conditional settlement with the court.  

        Then things started going sideways.  Denton discharged his attorney for refusing to withdraw certain 998 offers (notably, however, not saying that all settlement offers were withdrawn), and Denton proceeded in pro per.  The City attorney then emailed ex parte notice entitled, "Application for an Order Vacating Notice of Settlement Filed by Plaintiff."   As the Court of Appeal explained, the ex parte notice was misleading, because the application also asked the court to maintain the previously scheduled date for the hearing on the City's motion for summary judgment.  The trial judge granted the ex parte motion, vacating the notice of conditional settlement, and maintaining the hearing the date for the MSJ, without taking the bench.

        You can see what's coming.  Denton did not file an opposition to the  MSJ.  He showed up at the MSJ hearing and asked for a continuance.  The trial judge told him there was no basis for a continuance, and entered judgment.   Denton moved in pro per for a new trial, and the City attorney argued that Denton failed to oppose the motion for summary judgment and the parties did not have a settlement agreement.  The trial judge was unmoved.  Denton lost his $250K settlement with the City (which still required approval by the Board of Supervisors).

        So it truly was all downhill for Denton, until he appealed, and clawed his way uphill.  The Court of Appeal agreed the trial court abused its discretion in refusing to continue the summary judgment hearing and denying the motion for a new trial:  "Denton should have been granted the continuance in the circumstances he found himself, circumstances that were not his fault."  The order denying the motion for new trial and the summary judgment were both reversed.

        COMMENT:  The opinion makes for interesting reading, because without actually accusing anyone of a breach of ethics, it suggests displeasure with sharp  practice.  Item:  Remarking on defendants' argument that "'Because No Settlement Was Ever Reached, Denton Had No Reasonable Expectation' that the hearing would be vacated", Justice Richman writes, "In light of the facts set forth above, we wonder how defendants can even assert such a position."  Item:  "[W]e are troubled by defendants' argument of technical noncompliance with the rules, particularly in light of their position that their own noncompliance with the ex parte notice rules -- noncompliance they implicitly acknowledged -- be overlooked."  Ouch.

Settlement Agreements/Pending Cases: CCA 4/3 Vitatech Opinion Is Now Certified For Publication

An Unenforceable Settlement: Vitatech Held Stipulation To Enter Judgment For $300K After Defendant Defaults On One-Time Payment of $75K Is An Unenforceable Penalty.   

        On October 3, 2017, I posted about Vitatech International, Inc. v. Sporn,  G053477, a Fourth District, Division Three opinion.  Unpublished at the time, the case was certified for publication on October 30, 2017.

Settlements: Stipulation To Enter Judgment For $300K After Defendant Defaults On One-Time Payment of $75K Is An Unenforceable Penalty

Admission Of Liability For Underlying Claims Or For Damages Alleged Might Have Made A Difference.

        Stipulations to enter judgment upon default for an amount that is larger than an agreed-upon settlement payment continue to confound judges, attorneys, and parties.  In Vitatech International, Inc. v. Sporn, G053477 (4/3  9/29/17) (Aronson, Bedsworth, Ikola) (unpublished), the trial court entered judgment against defendants for more than $300,000, based upon a stipulation for entry of judgment, after defendants failed to pay the agreed-upon settlement amount of $75,000.   Plaintiff Vitatech contended that the $75,000 settlement amount was merely a discount of the agreed-upon liability to encourage prompt and timely payment, and the trial court agreed.

        Defendants did well to appeal.  The Court of Appeal applied "well-established precedent", including Greentree Financial Group, Inc. v. Execute Sports, Inc., 163 Cal.App.4th 495 (2008), to explain that the stipulated judgment for more than four times the amount Vitatech agreed to accept as full settlement "is an unenforceable penalty because it bears no reasonable relationship to the range of damages the parties could have anticipated would result from Defendants' failure timely to pay the settlement amount."

        COMMENTS:  My colleague Mike Hensley represented the successful appellant in Greentree.  Mike and I are co-contributors to another blawg, California Attorney's Fees.

        An interesting aspect of the Vitatech International, Inc. case is whether appellants properly sought to vacate the judgment under section 473(d), which allows for the vacation of void judgments.  A judgment can be void when the court lacks fundamental authority over the subject matter, question presented, or party, which does not seem to be the case here.  But the Court of Appeal found another example of a void judgment here:  viewed as an unreasonable liquidated damages provision, the judgment was "void as against public policy."

        Finally, what might have saved the stipulated judgment?  The Court of Appeal analyzes other cases in which a stipulated judgment has been found to be valid, and suggests that the stipulated judgment could have survived if the appellants had admitted their liability for the underlying claims or for the damages Vitatech alleged in the complaint.  Apparently merely agreeing to stipulate to the amount of damages alleged in the complaint was not the same as expressly admitting liability for those damages.

Settlement Agreements: Order Granting Motion To Enforce Settlement Agreement Is Affirmed Where Appellant Dwells On Merits Of Underlying Action

In Pro Per Appellant Struggled With Appeals Process.

        Plainitff Denardo, in propria persona, sued Defendant Givens for damages in a dispute arising from a real estate transaction.  With the assistance of counsel, Givens and Denardo mediated their dispute and entered into a written settlement agreement.  Denardo received an initial settlement payment, but did not dismiss the lawsuit.  Having second thoughts about completing the settlement, she filed a "Notice of Motion and Motion to Set Aside the Conditional Settlement."  Givens filed a motion to enforce the settlement under Code of Civ. Proc., section 664.6.  The trial court granted Givens' motion and awarded him attorney fees.  Denardo appeared pro se at a hearing on her motion, but neither party informed the court of an intent to appear or contest a tentative ruling.  The court ordered the case dismissed, and entered judgment, from which Denardo appealed, again in pro se.  Denardo v. Givens, A147537 (1/5  9/25/17) (Bruiniers, Simons, Needham) (unpublished).

        Affirmed.  

        COMMENT:   It is  a real uphill battle to set aside a signed settlement agreement entered into by competent parties represented by counsel in a mediation.   I infer from the fact that Denardo filed a supplemental complaint for Elder Abuse that she was old.  Except for the mediation, she appears to have been in pro per during most of the trial court proceedings, and the appeal.  The Court signals that Denardo may have a poor grasp of what she is doing:  "We begin by reiterating settled rules of appellate review, often unfamiliar to pro se litigants," Justice Bruiniers explains.  According to the Court, Denardo made mistakes typical of pro per parties:  she made "minimal reference to the trial record," she incorporated "extended recitals of 'facts' without any apparent basis in the record," and she dwelled on the merits of her underlying action, though she should have focused on the flaws in the settlement.  The Court of Appeal struggled to understand her contentions, which the Court enumerated, "as best we can discern."  

        Woe betide the in pro per appellant, especially one trying to set aside a signed settlement agreement.

        I note in passing that, according to legal reporter Adam Liptak's "exit interview" with Judge Richard Posner, the immediate reason for  the judge's abrupt announcement of his retirement from the 7th Circuit Court of Appeals was his frustration with the plight of in pro per litigants in the legal system.

        

 

Consumers/Fees/Settlement Agreements: Defendants Contesting Fee Award Lose On Appeal Because In Settlement Agreement, They Agreed To Fee Entitlement

Reasonableness Of Award Did Not Need To Be Addressed, Because Entitlement, Which Parties Agreed To, Was The Real Issue.

        Once a case is settled, some issues need not be litigated, even though the parties may want to do so.  Such was the case in Medina v. South Coast Car Company, Inc., D069820 (4/1  9/19/17) (Benke, Nares, Aaron) (unpublished).

        Medina sued South Coast Car Company, Inc. (SCCC) and Veros Credit, LLC (Veros) in connection with the sale to him of an Audi.  The seller, SCCC, assigned the retail installment sales contract to Veros.  As part of a settlement, defendants agreed they would not dispute the basis for fee entitlement, that Medina would be deemed the prevailing party, and that the defendants could dispute the reasonableness of the attorneys' fees, costs, and prejudgment interest claimed to have been incurred by Medina.

        On appeal, SCCC argued that Medina was not entitled to attorney's fees, and Veros was not liable to pay any fees and costs, "as it was merely the 'holder' of the RISC . . . "

        "Because defendants' myriad challenges on appeal to the award of attorney fees, costs and prejudgment interest are limited to the issue of entitlement, as opposed to their amount, explained Justice Benke, "we have no reason to review the reasonableness of such an award."

        COMMENT:  It is not unusual for a settlement agreement to resolve all issues, reserving the determination of fees to the Court.  However, if fee entitlement and reasonableness of the fees are both contested, then the settlement agreement must be drafted with care, so as to reserve the genuinely contested issues to the Court, instead of stipulating away a genuinely contested issue.  An additional consideration is that reserving the issue of fee entitlement for the court to decide could make it more difficult to settle the case.

Settlement Agreements: 4/2 CCA Holds Trial Court Can Grant Equitable Remedies In Motion Brought Under CCP Section 664.6 To Enforce Settlement Agreement

Trial Court Erred By Ruling It Could Not Grant Equitable Remedies In Motion Under Section 664.6.

        Plaintiff Mathis settled with defendants by agreeing to purchase property from defendants for $1M, with escrow to close in 120 days.  The trial court dismissed the underlying case, while retaining jurisdiction under that convenient device, Cal. Code of Civ. Proc., section 664.6, to enforce the settlement.  Mathis moved to enforce the settlement agreement asking the trial court to grant equitable relief modifying escrow terms by extending the date of closing, and by assigning the property to a nominee.  The trial judge denied the motion, ruling it had no jurisdiction to modify the settlement agreement, and Mathis appealed.  Mathis v. Pacific Mortgage Exchange, Inc., et al., E063868 (4/2  9/7/17) (Ramirez, Miller, Slough) (unpublished).

       "While this was not an unreasonable reading of the statutory language, it was incorrect under established case law. On a motion to enforce a settlement under section 664.6, a trial court has jurisdiction 'to provide any appropriate equitable remedy,'" explained the Court, relying on Lofton v. Wells Fargo Home Mortgage, 230 Cal.App.4th 1050, 1061-1062 (2014).

        Because the trial court has the power to grant equitable relief when enforcing a motion brought under section 664.6, upon remand, the trial judge will have to consider whether it is appropriate to provide the requested relief. 

BEST LINE IN THE OPINION:  "[D]efendants pick up the scent of Mathis's red herring and run off after it."  

Herman Bencke, lithographer.  Library of Congress.

Settlement: Ninth Circuit Confirms High Showing Needed To Set Aside Settlement Based On Fraud On The Court

Nor Did District Court's Purported Use Of Twitter Account To Tweet U.S. Attorney's Announcement About Case Establish Appearance Of Impropriety.

"A lone home looks stark amid the bare pine trees on a hillside above Pine Valley in Jefferson County, Colorado. The trees are lingering reminders, 14 years later (as of 2016) of the 'Hayman Fire,' a 2002 forest fire that became the largest of the Colorado wildfires in the state's recorded history. The arson fire burned 133 homes and 138,114 acres, and wasn't contained for more than a month. The fire was named after a mining ghost town in the area."  Carol M. Highsmith, photographer.  2016.  Library of Congress.

 

        It can be even harder to show fraud on the court than to show fraud on a party.  The standard required for relief based on fraud on the court is very high "in deference to the longstanding policy in favor of the repose of judgments."  United States v. Sierra Pacific Industries, Inc., et al., No. 15-15799 (9th Cir. 7/13/17) (Thomas, Murguia, McCalla).  In Sierra Pacific Industries, defendants sought to set aside a settlement arising from the "Moonlight Fire," in which 46,000 acres of national forests burned.  The government sought $800 million in damages, and the settlement required Defendants to pay $55 million and transfer 22,500 acres of land to the government. 

        The Defendants could not surmount the high burden needed to establish fraud on the court and obtain relief under Fed. R. Civ. P. 60(d)(3).  The Court of Appeals agreed with the district court that Sierra Pacific Industries failed to establish material, intentional misrepresentations that could not have been discovered before settlement, even through due diligence.  It also helped that the settlement agreement specifically provided that facts and claims might differ from facts believed to be true or claims believed to be available, and that the parties assumed the risks of such possible differences.

        Remarkably, a state case proceeding after settlement of the federal case was actually dismissed with prejudice as a result of terminating sanctions, because the California Superior Court concluded that the California Department of Forestry and Fire Protection's attorneys engaged in "pervasive misconduct" and "a systematic campaign of misdirection with the purpose of recovering money from the Defendants."

        Defendants also creatively argued that the district court's use of a twitter account to follow the U.S. Attorney's office on Twitter created an appearance of bias, and that a retweet constituted impermissible comment on the substance of a pending case, violating Canons of judicial conduct.  However, the Court of Appeals concluded that the "claim that an unknown account, not identified with a judge or the judiciary, followed a public Twitter account maintained by the U.S. Attorney does not provide a basis for recusal here."  Furthermore, merely tweeting a link to the U.S. Attorney office announcement did not constitute "public comment" sufficient to require recusal.  "[C]oncerns of improper communication arise in the context of 'the exchange of frequent messages, "wall posts," or "tweets" between a judge or judicial employee and a "friend" on a social network who is also counsel in a case pending before the court.'"

        However, the exoneration comes with an admonition about the use of social media by judges:

"Nonetheless, this case is a cautionary tale about the possible pitfalls of judges engaging in social media activity relating to pending cases, and we reiterate the importance of maintaining the appearance of propriety both on and off the bench."

Mediation/Settlement Agreement: Court Enforces "Short Form" Settlement Agreement Over Objections Of Petitioner

The Neighbor Feud Had Gone On Since 2002.

 

     Wandering Elk, Dakota Indian, smokes peacepipe. c1903. Frank Bennett Fiske, photographer.  Library of Congress.

     The Court of Appeals' reliance on the wisdom of a Croatian proverb offered a strong clue in the first sentence that the Court would enforce peace among feuding neighbors:  "Better a bad harvest than a bad neighbor." Beuchel v. Sup. Ct., B268193 (2/2  5/1/17) (Hoffstadt, Ashmann-Gerst, Goodman) (unpublished).  Another clue was the Court's eagerness to treat the matter, filed as an appeal, as a writ proceeding. In this unpleasant neighbor dispute, there were allegations of spraying plaintiff with a garden hose, trespass to install barbed wire, and installation of surveillance cameras.  The 15 year history of ill-will included a citizen's arrest of plaintiff after defendants allegedly found her in their backyard damaging their fence.

    But let's cut to the chase.  Plaintiff tried to wriggle out of a short-form settlement agreement following a mediation, chiefly on the grounds that she only understood the release of claims to apply to defendants' cross-claims, not her own, as to which the trial court had already granted summary judgment against her.  After neighbors brought a motion to enforce the settlement agreement, which the trial court granted, plaintiff appealed.

    Unsurprisingly, the Court of Appeal denied the plaintiff/petitioner's request, affirming the trial court's grant of the enforcement motion.  

    COMMENT:  Key reasons that the Court was willing to enforce the shorthand form were that it described the settlement "as full and final settlement of the claims raised" in the court case; plaintiff's promise to waive her right to appeal; and a "1542 waiver" that included each parties' waiver of all claims known and unknown.  

     The Court of Appeal added, "The trial court had ample grounds to find that plaintiff's refusal to sign the  short-form agreement was an effort to create controversy where none existed and a thinly veiled attempt to 'cause unnecessary delay' by frivolous means."  As a consequence, the Court upheld a trial court order awarding payment of attorney's fees defendants incurred in moving to enforce the short-form agreement.

      There is a strong tendency to attribute fault to someone who appears to be acting unreasonably.