Thomas E.L. Dewey (NYLJ/Rick Kopstein)
After the parties to a federal court action enter into a settlement agreement resolving their dispute, the next step is typically to file a stipulation of dismissal with the court. Ordinarily, that marks the end of the court’s involvement with the action, but occasionally the parties will include a “retention of jurisdiction” term in their stipulation of dismissal stating that the court shall retain jurisdiction for purposes of enforcing the settlement agreement. Unlike the typical stipulation of dismissal, which does not require court approval, a stipulation containing this type of provision must be “so ordered.” While such provisions can be advantageous, they can also give rise to further litigation, including with non-parties seeking to challenge the underlying settlement agreements.
In Patton Boggs v. Chevron, 12-cv-9176 (LAK), 2016 WL 7156593, at *4 (S.D.N.Y. Dec. 7, 2016) (Patton Boggs), a case arising from the decades-long litigation between residents of Ecuador’s Amazon rain forest (plaintiffs or the Lago Agrio plaintiffs) and Chevron, Steven Donziger and two other representatives of the plaintiffs filed a motion to intervene in the Southern District of New York, requesting reconsideration of the court’s “so ordering” of a stipulation of dismissal providing the court with residual jurisdiction to enforce the parties’ settlement agreement. The movants argued that they were entitled to intervention, though they were neither named parties to the action nor parties to the settlement agreement, because the court’s “so ordering” of the stipulation tacitly endorsed “flagrantly unethical” terms in the settlement agreement that required Patton Boggs to express regret for its representation of the Lago Agrio plaintiffs and to cooperate with Chevron.
In its decision authored by U.S. District Judge Lewis A. Kaplan, the court denied the motion to intervene on multiple grounds. Among others, the court held that Donziger had no legally protected interest in the action, because he was never Patton’s client; the other two representatives’ concerns with Patton’s actions were too remote to justify intervention; and the relief sought would not protect their alleged interests in any event. Additionally, the court held that the proposed intervention was not permissible because there was no ongoing litigation between the parties to the settled and dismissed action, so there was nothing in which to intervene.
This decision is significant because it demonstrates that “retention of jurisdiction” provisions in stipulations of dismissal can lead to litigation with non-parties over underlying settlement agreements. At the same time, it signals to would-be intervenors in such cases that they must show not only that they have legally protected interests in the settlement agreements, but also that there are proceedings in the dismissed actions in which they seek to intervene.
As of 2010, Patton’s role in the litigation between the Lago Agrio plaintiffs and Chevron was to provide the plaintiffs with strategic advice on the enforcement of an anticipated judgment in Ecuador against Chevron (a judgment later found to have been procured by fraud). At least initially, Patton merely served as counsel for plaintiffs and was not itself a litigant.
Subsequently, Patton filed three lawsuits against Chevron. First, in 2010, it filed claims against Chevron in the District of Columbia, seeking a declaration that its conduct did not violate professional standards. These claims were dismissed. Second, it filed identical claims against Chevron in the same court, which were also dismissed. Third, it filed claims against Chevron in the District of New Jersey, which sought recovery on a preliminary injunction bond, attorney fees, and damages for alleged malicious prosecution. That action was transferred to the Southern District of New York.
Shortly after being transferred to the Southern District of New York, Patton’s claims were again dismissed, but counterclaims against it, alleging participation in the fraudulent procurement of the Ecuadorian judgment, were not. It is those claims that Patton and Chevron settled.
The settlement agreement, executed on May 7, 2014, required Patton to make a $15 million payment to Chevron and to cooperate with it in several ways. Among other things, Patton was required to issue a statement of regret concerning its representation of the Lago Agrio plaintiffs, to provide discovery to Chevron, and to execute a stipulation pursuant to Federal Rule of Civil Procedure 41 providing that the court would retain jurisdiction “for purposes of enforcing the [s]ettlement [a]greement and … deciding any claim of breach of the [s]ettlement [a]greement.” Id. at *4.
On the same date, Patton and Chevron entered into and filed a stipulation of dismissal (the Rule 41 stipulation) that dismissed the action. This stipulation provided that the court “shall retain jurisdiction over the parties to this stipulation for purposes of enforcing the [s]ettlement [a]greement and for purposes of deciding any claim of breach of the [s]ettlement [a]greement.” Id. at *5. This stipulation was signed by counsel for both parties and “so ordered” by the court (Preska, C.J.), which also closed the case.
Thereafter, Donziger and two Lago Agrio plaintiffs who defended the New York fraud case (the representatives) moved to intervene as of right and requested reconsideration of the Rule 41 stipulation. Neither Donziger nor the Lago Agrio plaintiffs were parties to the settled action or the settlement agreement between Patton and Chevron, but they argued that by “so ordering” the Rule 41 stipulation, the court effectively endorsed certain terms in the settlement agreement that were “flagrantly unethical,” including the provisions requiring Patton to issue a statement of regret and to provide discovery to Chevron.
The District Court’s Decision
The district court denied the motion to intervene. It began its analysis by articulating the issues as it saw them under Federal Rule of Civil Procedure 24(a), which authorizes intervention only when “the applicant asserts an interest relating to the property or transaction that is the subject of the action” and where “the applicant is so situated that without intervention, disposition of the action may, as a practical matter, impair or impede the applicant’s ability to protect its interest.” In particular, the court identified the issues as: (1) whether any of the movants claimed an interest in the transaction that was the subject of the action; (2) if any did, whether disposition of the action, as a practical matter, would impair his or her ability to protect his or her interest; (3) whether any possible impairment was too remote or contingent to warrant intervention; and (4) in view of the prior dismissal of this action, whether there was anything in which to intervene. The court ruled against Donziger and the representatives on all of these questions.
First, the court held that while Donziger and the representatives may have an interest, “in the sense of caring about, the transactions that were the subject or subjects of the action between Patton and Chevron,” their concern was really with the terms of the settlement agreement, not the subject of the settled action.
The court addressed the second and third questions—whether disposition of the action would impair movants’ ability to protect their interests, and whether any impairment was too remote or contingent to warrant intervention—together. As to Donziger, the court held that he had no legally protected interest at all, because there was no suggestion that he was ever one of Patton’s clients. While the representatives were clients of Patton, the court nevertheless held that their interests were not “significantly protectable and direct,” because Patton’s statement of regret was made well before the motion to intervene was filed, thus making it a bell that cannot be “unrung.” In addition, the court held that while Patton’s discovery obligation was prospective, the settlement agreement obliged Patton to cooperate in discovery subject to “all applicable Rules of Professional Conduct” and required it to give the representatives notice and an opportunity to assert privilege objections before providing discovery to Chevron. Thus, any impairment would be “remote or contingent,” such that intervention would be unwarranted.
In addition, the court held that intervention would be inappropriate because the relief sought—reconsideration of the Rule 41 stipulation—would “accomplish nothing of any practical significance.” As a practical matter, even if the court withheld approval of the stipulation upon reconsideration, Patton and Chevron could simply file a stipulation dismissing the action without a “retention of jurisdiction” provision, which “would leave movants in exactly the same position of which they here complain.”
As to the fourth question—whether there was anything in which to intervene—the court held that there was not. After observing that the Second Circuit has stated that “[i]ntervention is a procedural means for entering an existing federal action,” the court held that because “[n]o request to enforce or to decide any claim of breach of the [s]ettlement [a]greement ever has been made,” “[n]othing is pending before this [c]ourt into which movants may intervene.” Id. at *10 (citing Disability Advocates v. N.Y. Coal for Quality Assisted Living, 675 F.3d 149, 160-61 (2d Cir. 2012)) (emphasis added).
Additionally, the court addressed the merits of Donziger and the representatives’ motion and noted that their position on this motion involved nearly a “180 degree change of position” from an earlier position taken in the fraud case. In particular, they had previously asserted that the court lacked authority to “approve, disapprove or otherwise pass on the substantive terms of a private settlement” between Chevron and a party accused of participating in the fraud, a position at odds with their request here for reconsideration of the “so ordering” of the Rule 41 stipulation.
Despite denying this motion to intervene, the court left the door slightly ajar for subsequent motions to intervene in this case. In particular, the court noted that “if the future brings any proceeding to this Court under its retained jurisdiction in which the representatives claim a legally protectable interest, they will be free to seek to intervene in that procedure for the purpose of asserting their position.” Patton Boggs, 2016 WL 7156593, at *13.
The court’s decision in Patton Boggs illustrates the risks that settling parties in federal actions face when they choose to file stipulations of dismissal that include “retention of jurisdiction” provisions. As this decision demonstrates, these provisions not only leave room for further litigation between settling parties, they may also give rise to motions to intervene by non-parties seeking to challenge the underlying settlement agreements.
Nevertheless, this decision suggests that federal courts will look askance at motions to intervene in closed cases that have settled and been dismissed pursuant to stipulations of dismissal. As the court explained, in order to prevail on such motions, would-be intervenors must show not only that they have legally protected interests in the transactions at issue in the settled actions, and that their interests are not too remote or contingent to warrant intervention, but also that there are some extant proceedings in which to intervene.