Attorney
fee order reversed
Court can’t
retain jurisdiction to ensure fee payment
By
David Ziemer
david.ziemer@wislawjournal.com
Sept.
20, 2006
|
What
the court held
Case:
Shapo v. Engle, Nos. 05-4096 & 06-1255
Issue:
Does a court have ancillary jurisdiction to enforce an agreement
for attorney fees between the defendant and his attorney?
Holding:
Where the record is unclear whether the fee agreement was
part of the settlement between the plaintiff and defendant,
the matter must be remanded.
|
A
court can’t retain jurisdiction over a settled case to ensure
that the defendant pays its attorney fees, the Seventh Circuit
held on Sept. 11.
Nathaniel
S. Shapo brought suit in Illi-nois federal court against Clyde
Engle, alleging RICO violations. Engle was represented by Foley
& Lardner, LLP.
Several
years into the case, the parties agreed to settle it, and advised
the court. In February 2004 the court ordered the suit “dismissed,
without prejudice and with leave to reinstate on or before the
‘Execution Date.’”
The
order provides that upon that completion date “the dismissal
of the claims in this action shall be with prejudice and without
leave to reinstate,” except that the court “shall retain
jurisdiction to enforce the terms of the Parties’ settlement
and the Parties agree to this Court’s jurisdiction.”
Six
months later, Foley & Lardner moved the district court to
order Engle to pay the firm money that he owed it under a “Master
Payment Agreement” that they had made at the time of the
settlement. The agreement required Engle to pay the firm $100,000
every three months for three years.
The
court issued the order requested by Foley & Lardner, directing
Engle to pay the firm $200,000 plus interest, and later issued
a similar order directing him to pay a third installment of $100,000.
The
judge based jurisdiction to issue the orders on her having retained
jurisdiction to enforce the terms of the settlement, although
the “Master Payment Agreement” was a discrete agreement.
Engle
appealed, and the Seventh Cir-cuit vacated the orders in a decision
by Judge Richard Posner.
The
court began by criticizing the practice of “dismissing suits
before they’re really over,” opining, “It is a
potent source of confusion with no redeeming virtues in a case
such as this in which the ripening depends on conditions.”
The
court called the case a “concrete example” of such confusion,
because it is unclear when an appealable judgment was entered;
if the Master Payment Agreement is part of the settlement, the
court concluded, then the judgment is not final until Foley &
Lardner has been paid in full.
In
some cases, the court found, courts have ancillary jurisdiction
over fee disputes. In Baer v. First Options of Chicago., Inc.,
72 F.3d 1294 (7th Cir. 1995), for example, the settlement agreement
expressly provided for attorney fees.
Even
where a fee agreement is part of a settlement, however, the court
found this does not automatically place disputes over fees within
federal jurisdiction.
The
court wrote, “The purpose of the ancillary jurisdiction of
the federal courts ... is to enable a federal court to render
a judgment that resolves the entire case before it and to effectuate
its judgment once it has been rendered. It is not to enable a
federal court to encroach on the jurisdiction reserved to the
states merely because the parties would prefer to have a federal
court resolve their future disputes (cites omitted).”
The
court added that there would have to be special circumstances,
such as an existing dispute between lawyer and client that, if
unresolved, would preclude a settlement.
Finding
no such circumstances in the record, the court vacated the orders,
and remanded the case to the district court to clarify the judgment.
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