Attorney
Fees Case Analysis
Sept.
20, 2006
As
the court noted, it has on several occasions in the past, criticized
the practice of dismissing cases with prejudice, while reserving
jurisdiction to enforce the terms of the settlement. The court
has been doing so at least since Otis v. City of Chicago, 29 F.3d
1159, 1163 (7th Cir. 1994)(en banc).
In
other cases where the practice is employed, however, it makes
no remarks condemning the practice whatsoever. See Dal Pozzo v.
Basic Machinery Co., Inc., — F.3d —, 2006WL2548250 (7th
Cir., Sept. 6, 2006).
In
this case, at least, the court has suggested alternatives to the
practice when parties want the court to enter a final judgment
that precludes further litigation under the doctrine of res judicata,
while retaining jurisdiction over an incidental matter.
The
court advised as follows: “either the settlement should include
a release of the plaintiff’s claims, thus barring relitigation
of them …, or the district court should state that judgment
is being entered in order to allow the parties to enforce it and
that the ‘without prejudice’ language shall not allow
them to reopen issues resolved by the judgment (cites omitted).”
Either
practice, the court stated, would result in a final judgment “without
creating the paradox of a court’s at once relinquishing jurisdiction
by dismissing a suit with prejudice and retaining jurisdiction.”
An
interesting question is whether it should even be permissible
for a court to retain jurisdiction to ensure payment of attorney
fees as part of the settlement agreement.
The
court makes several statements that suggest such provisions have
no place in settlement agreements. At one point, the court wrote,
“It seems anomalous to make a settlement obtained by a plaintiff
depend on the resolution of a fee dispute between the defendant
and his lawyer, a dispute to which he plaintiff is a stranger.”
The
court also noted that, if a settlement were blocked because an
attorney wanted an advantageous forum in which to collect legal
fees, the attorney would breach his fiduciary duty to his client.
The
court further noted that parties cannot confer federal jurisdiction
by agreement, and that the purpose of ancillary jurisdiction is
not to enable a federal court to encroach on jurisdiction reserved
to the states.
All
of these statements would seem to suggest that, even if the agreement
between a defendant and his attorney is a part of the settlement
agreement itself, it is insufficient to allow the federal district
court to resolve the dispute.
Furthermore,
the case could easily be distinguished from Baer v. First Options
of Chicago, Inc., 72 F.3d 1294 (7th Cir. 1995), which the court
cites for authority that a federal court has ancillary jurisdiction
over a fee dispute. Baer was a Title VII case, which explicitly
authorizes fee-shifting to successful plaintiffs. The holding
has little applicability to a dispute between a defendant and
his attorney.
Thus,
it would seem that the court should have reversed the lower court’s
decision outright.
Nevertheless,
the court remanded the case to the district court to address whether
the payment agreement was part of the settlement agreement. If
the court was indeed holding that such provisions are against
public policy or insufficient to confer jurisdiction, further
proceedings would be unnecessary.
As
a result, attorneys and their clients are apparently free to make
settlement agreements contingent on the payment of parties’
attorney fees. Nevertheless, the court’s statement regarding
the fiduciary duties of attorneys should at least give attorneys
pause before doing so.
-
David Ziemer
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David
Ziemer can be reached by email.
