Reasoning that the enforcement of a settlement agreement is a state-court matter except in rare instances, a federal judge has ruled that the court lacks the jurisdiction to enforce the settlement agreement between Harrisburg-based firm Schutjer Bogar & Bartel, its former client and one of its former attorneys.
The parties settled last November, with no money changing hands, after nearly a year-and-a-half of litigation in which Schutjer Bogar, a firm that handles Medicaid eligibility and reimbursement claims for nursing home providers, alleged its former client, Kentucky-based long-term care center operator Kindred Nursing Centers East, had ceased paying its legal bills and ended its relationship with the firm following the departure of attorney Kelly Kjersgaard Hayes.
The firm alleged in court papers that Hayes had arranged with Kindred to terminate its relationship with the firm and to continue working with her.
The settlement agreement, which was filed in the U.S. District Court for the Middle District of Pennsylvania on Nov. 7, resolved claims in both Schutjer Bogar v. Kindred Nursing Centers East and Schutjer Bogar v. Hayes.
The following day, U.S. District Judge John E. Jones III of the Middle District of Pennsylvania issued an order dismissing the case “without prejudice to the right of either party, upon good cause shown, to reinstate the action within 60 days if the settlement is not consummated.”
But on Nov. 25, 2013, Kindred filed a motion to vacate that order and Hayes filed a motion joining in Kindred’s motion to enforce settlement, alleging Schutjer Bogar had violated the settlement agreement, Jones said in a memorandum and order issued May 16.
While those motions were filed under seal, Schutjer Bogar’s response, which was not filed under seal, indicated that the defendants have alleged firm principal Chadwick O. Bogar violated the settlement agreement by making “certain statements to the press.”
In his May 16 memorandum, Jones said the court did not retain jurisdiction over the enforcement of the settlement agreement after it dismissed the case.
“Although our order of Nov. 8, 2013, referred to counsel’s report of settlement, we did not incorporate any specific settlement terms into the order,” Jones said. “Although the order provided for the possibility of reinstatement of the action if the settlement was not consummated, we did not announce that we retained jurisdiction over the enforcement of the settlement agreement following consummation.”
Jones said that under the U.S. Supreme Court’s 1994 ruling in Kokkonen v. Guardian Life Insurance Co. of America, the enforcement of a settlement agreement is not a continuation or renewal of a dismissed suit over which a federal court has ancillary or inherent power.
Instead, according to Jones, the Kokkonen court held that the enforcement of a settlement agreement is a state-court matter unless the federal court specifically directed the parties to comply with the agreement in its order dismissing the case, either through a separate provision or by incorporating the settlement terms in the order.
If that has not occurred, the Kokkonen court held, there must be an independent basis for federal jurisdiction, Jones said.
Under Kokkonen, a federal court retains ancillary jurisdiction to enforce a settlement agreement only where the language of its dismissal order makes clear that a breach of the agreement would constitute a violation of the order, Jones said.
According to Jones, his Nov. 8 order failed to meet the Kokkonen requirements.
Jones compared his order in the Schutjer Bogar case to the district court’s nearly identical order in the 2002 case Shaffer v. GTE North, in which the U.S. Court of Appeals for the Third Circuit found that the mere reference to a settlement in a district court’s order does not incorporate the settlement agreement into the order, according to Jones.
The Third Circuit in Shaffer also found that while the order allowed the case to potentially be reinstated if good cause was shown and the agreement was not consummated within 60 days, such a reinstatement effectively sends the parties back to litigation and is, therefore, “‘totally different’” from the enforcement of a settlement agreement, Jones said.
Jones said the defendants failed to draw any meaningful distinction between his order and the order at issue in Shaffer.
“The only argument presented by the defendants to distinguish the facts of Shaffer from those of this case is that the settlement agreement there was not made a part of the record, whereas here it was filed on the docket by plaintiff prior to the court’s entry of a dismissal order,” Jones said. “While true, this is a distinction without a difference.”
Jones said the court also lacks jurisdiction to enforce the settlement agreement under Federal Rule of Civil Procedure 60(b), which lays out the narrow circumstances under which a court can relieve a party from a final judgment, order or proceeding.
According to Jones, the Third Circuit explicitly ruled in the 1993 case Sawka v. Healtheast that the enforcement of a settlement agreement does not fall under the definition of “‘any other reason that justifies relief’” under Rule 60(b)(6).
The Sawka court ruled that relief under Rule 60(b)(6) can only be granted “‘under extraordinary circumstances where, without such relief, an extreme and unexpected hardship would occur,’” according to Jones.
“As in Sawka, those extraordinary circumstances are not present here because Kindred and Hayes may file a separate action in state court on the settlement agreement itself,” Jones said. “Additionally, even if we did rescind our order of dismissal pursuant to Rule 60(b)(6), the parties have nonetheless executed an agreement to dismiss the case. Settlement has been consummated in a written contract and the court cannot make that contract disappear.”
Bogar declined to comment on Jones’ ruling.
Counsel for Hayes, David A. Fitzsimons of Martson Law Offices in Carlisle, Pa., and counsel for Kindred, Jeffrey S. Adler of Burns White in West Conshohocken, Pa., could not be reached for comment.
(Copies of the 10-page opinion in Schutjer Bogar v. Hayes, PICS No. 14-0809, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •