Opinion
No. 1:03-cv-207.
March 8, 2005
MEMORANDUM AND ORDER
I. Facts
In or about February or March 2004, the parties reached an oral settlement agreement prior to trial which was supposed to be reduced to writing. To take the case off of the Court's docket, plaintiff Eagle Capital Funding, LLC drafted a document captioned "CONSENT ORDER AND FINAL JUDGMENT" that was entered by this Court on March 19, 2004. [Court File No. 22].
The consent order and judgment provides:
Eagle Capital Funding, LLC ("Eagle") filed a Complaint in the above-styled action on or about June 17, 2003, against Lowman Finishing, Inc. ("LFI") and Bobby Dean Lowman ("Mr. Lowman"; Mr. Lowmans [sic] and LFI are collectively, the "Defendants"). The Tennessee Secretary of State perfected Service of Process upon the Defendants on July 3, 2003. LFI filed a Chapter 11 proceeding in the United States Bankruptcy Court of the Northern District of Alabama, but an order dismissing the LFI case was entered on February 2, 2004. Defendants have agreed that their indebtedness to Eagle is $529,000 and hereby waive any and all defense to their obligations for that amount. In accordance with the certain terms of a forbearance reached between Eagle and the Defendants on or about March 10, 2004 (the "Forbearance Agreement"), Defendants hereby consent to entry of judgment against them, jointly and severally, in the amount of $529,000.00.
This judgment may only be recorded and enforced against Mr. Lowman in accordance with the default provisions set forth in the Forbearance Agreement. Upon seeking to record or enforce this judgment against Mr. Lowman, counsel for Eagle shall certify to the Clerk of this Court that Eagle has satisfied the terms and conditions of the Forbearance Agreement governing recording and enforcement, whereupon the Clerk shall forthwith record this judgment as provided by law. Eagle is hereby authorized to record and enforce this judgment against Lowman Finishing, Inc. upon the entry of this order.
When the consent order and judgment was entered by the Court on March 19, 2004, the operative settlement documents (mutual release, forbearance agreement, and mortgage and security agreement) had not been executed by the parties. The operative settlement documents were prepared by the plaintiff but have never been executed by the defendants.
On December 15, 2004, plaintiff filed a motion captioned "MOTION FOR ORDER TO SHOW CAUSE, OR IN THE ALTERNATIVE, FOR ENFORCEMENT OF SETTLEMENT AGREEMENT, FOR FINDING ALLOWING RECORDATION OF, EXECUTION ON, CONSENT ORDER AND FINAL JUDGMENT, AND FOR SANCTIONS." [Court File No. 23].
In this motion, the plaintiff demands the following relief: (1) the defendants be ordered to appear and show good cause why they should not be held in contempt of Court; (2) the defendants be ordered to immediately execute the forbearance agreement, the mutual release, and the mortgage and security agreement together with the defendants supplying the plaintiff with the real property description required by the forbearance agreement; (3) the defendants be ordered to cooperate with the plaintiff in the liquidation of any and all remaining assets of defendant Lowman Finishing, Inc., and the defendants be further ordered to pay to the plaintiff all proceeds derived from such liquidation during the period of time beginning March 19, 2004, and ending as of the date the plaintiff's claim for payment from the defendants is fully and finally satisfied, and the defendants be required to provide testimony or sworn statements related to other ongoing litigation; (4) the Court hold a hearing to determine the amount of compensatory damages and sanctions to be paid by the defendants to the plaintiff; (5) the judgment against the defendants be increased to include the attorney's fees, costs, and expenses that the plaintiff has incurred in pursuit of the instant motion; and (6) the Court make a finding that the forbearance agreement has been breached, and that the plaintiff may immediately record and execute on the consent order and final judgment.
In the final paragraph of its motion, the plaintiff requests that the Court appoint attorney John F. Porter, III, as the defendants' attorney-in-fact for the purpose of executing the operative documents of the settlement agreement. Plaintiff wants the Court to order attorney Porter to immediately execute, on behalf of the defendants, the operative documents of the settlement agreement. In the event that defendant Bobby Dean Lowman should fail to comply with this Court's orders, the plaintiff requests that the Court order Mr. Lowman be incarcerated.
II. Analysis
A question arises whether the Court has subject matter jurisdiction to enforce the settlement agreement and to grant the relief sought by the plaintiff. The Court afforded the parties an opportunity to submit briefs on the jurisdiction question. [Court File No. 27].
After reviewing the record and the parties' briefs [Court File Nos. 28, 30, 33], the Court concludes that it does have subject matter jurisdiction over the plaintiff's motion to enforce the settlement agreement. [Court File No. 23]. The Court will REFER this matter to United States Magistrate Judge William B. Mitchell Carter for an evidentiary hearing and for his report and recommendation pursuant to 28 U.S.C. § 636(b)(1)(B) and FED. R. CIV. P. 72(b).
The Court has an obligation to sua sponte investigate and police the boundaries of its subject matter jurisdiction. Douglas v. E.G. Baldwin Associates, 150 F.3d 604, 607 (6th Cir. 1998); FED. R. CIV. P. 12(h)(3). The first and most fundamental question presented in every civil action brought in the federal courts is whether there is subject matter jurisdiction. Caudill v. North American Media Corp., 200 F.3d 914, 916 (6th Cir. 2000); Douglas, 150 F.3d at 606-07.
The Supreme Court in Kokkonen v. Guardian Life Insurance Co. of America, 511 U.S. 375, 377 (1994), explains that federal courts are courts of limited jurisdiction. Federal courts possess only that power authorized by the United States Constitution and federal statutes. It is presumed that a cause lies outside this limited jurisdiction, and the burden of establishing subject matter jurisdiction rests upon the party seeking to invoke jurisdiction. See also Re/Max International, Inc. v. Realty One, Inc., 271 F.3d 633, 641 (6th Cir. 2001); Fisher v. Peters, 249 F.3d 433, 444 (6th Cir. 2001); Douglas, 150 F.3d at 606. Plaintiff Eagle Capital Funding bears the burden of establishing that this Court has subject matter jurisdiction over its motion to enforce the settlement agreement.
In reviewing the motion to enforce the settlement agreement, this Court is guided by and considers Kokkonen, 511 U.S. 375. The parties in Kokkonen reached an oral agreement settling all claims and counterclaims during trial, and the substance of the settlement agreement was orally recited on the record. The parties subsequently executed a written stipulation and agreed order dismissing the entire case with prejudice pursuant to Fed.R.Civ.P. 41(a)(1)(ii). The district judge entered the stipulation and agreed order of dismissal. The stipulation and order of dismissal did not refer to or incorporate the terms of the settlement agreement, and the district court did not state that it was retaining jurisdiction to enforce the settlement agreement in the future. Kokkonen, 511 U.S. at 376-77.
After the case had been dismissed, the district court in Kokkonen issued an order granting a motion by one party to enforce the settlement agreement. The other party opposed this on the ground that the district court lacked subject matter jurisdiction. The district court asserted that it had the inherent power to enforce the settlement agreement. The Ninth Circuit affirmed. Kokkonen v. Guardian Life Ins. Co. of America, 993 F.2d 883 (9th Cir. 1993) (Table).
The Supreme Court in Kokkonen reversed and remanded. It reasoned that neither Rule 41(a)(1)(ii) nor any other provision of law authorized the district court to retain jurisdiction over disputes arising out of the settlement agreement that produced the stipulation of dismissal. Kokkonen, 511 U.S. at 378. The Supreme Court emphasized that what the respondent sought was enforcement of the settlement agreement, and not merely reopening of the dismissed suit by reason of a breach of the settlement agreement that was the basis for dismissal. Id. Kokkonen goes on to state: "Enforcement of the settlement agreement, however, whether through award of damages or decree of specific performance, is more than just a continuation or renewal of the dismissed suit, and hence requires its own basis for jurisdiction." Id.; see also Downey v. Clauder, 30 F.3d 681, 687 (6th Cir. 1994).
The Supreme Court in Kokkonen, 511 U.S. at 378-81, rejected the argument that the doctrine of ancillary jurisdiction could be applied to authorize the district court to take ancillary jurisdiction over the motion to enforce the settlement agreement. Kokkonen also recognized that the situation would be different if the parties' obligation to comply with the settlement agreement had been made part of the order of dismissal either by: (1) a separate provision retaining jurisdiction in the district court over the settlement agreement; or (2) incorporating the terms of the settlement agreement into the order of dismissal. In that event, a breach of the settlement agreement would constitute a violation of the district court's order, and ancillary jurisdiction to enforce the settlement agreement would exist. Id. at 381.
Absent the settlement agreement being made a part of the district court's dismissal order in at least one of these two ways, Kokkonen held that enforcement of the settlement agreement was a matter for state courts, unless there was some independent basis for the exercise of federal subject matter jurisdiction. Id. at 382. The motion to enforce the settlement agreement was essentially a claim for breach of contract, part of the consideration for which was dismissal of the earlier suit in federal court. Id. at 381.
Consistent with Kokkonen, the Sixth Circuit holds that settlement agreements are a type of contract subject to principles of state contract law. MLW Associates, Inc. v. Certified Tool Manufacturing Corp., 2004 WL 1543172, *5 (6th Cir. July 6, 2004); In re Southern Ohio Correctional Facility, 191 F.3d 453 (Table, text at 1999 WL 775830, *5 (6th Cir. Sept. 24, 1999)); Bamerilease Capital Corp. v. Nearburg, 958 F.2d 150, 152 (6th Cir. 1992).
The Sixth Circuit has discussed and applied Kokkonen in several cases. Michigan Regional Council of Carpenters v. New Century Bancorp., Inc., 2004 WL 771255 (6th Cir. April 8, 2004); Hehl v. City of Avon Lake, 2004 WL 133875 (6th Cir. Jan. 20, 2004); Re/Max Intern., 271 F.3d 633; McAlpin v. Lexington 76 Auto Truck Stop, Inc., 229 F.3d 491 (2000); Caudill, 200 F.3d 914. After reviewing Kokkonen and these Sixth Circuit decisions, this Court concludes that the instant case is distinguishable from Kokkonen and this Court has subject matter jurisdiction over the plaintiff's motion to enforce the settlement agreement.
This Court retains jurisdiction because the consent order and judgment entered in this case on March 19, 2004, lacks the degree of finality necessary to apply Kokkonen. Although the caption of the consent order indicates that it is a "final judgment," the text and plain language in the consent order demonstrates that it is not a completely final judgment. There remains more to be done and accomplished in the future after entry of the consent order before plaintiff Eagle Capital Funding can proceed to "record" and enforce the judgment against defendant Bobby Dean Lowman pursuant to the terms of the forbearance agreement.
The consent order provides that in accordance with the terms of the forbearance agreement, the defendants consent to entry of judgment against them, jointly and severally, in the amount of $529,000.00. However, the judgment may only be recorded (entered) and enforced in the future by the plaintiff against defendant Bobby Dean Lowman in accordance with the default provisions set forth in the forbearance agreement. The consent order further states: "Upon seeking to record or enforce this judgment against Mr. Lowman, counsel for Eagle shall certify to the Clerk of this Court that Eagle has satisfied the terms and conditions of the Forbearance Agreement governing recording and enforcement, whereupon the Clerk shall forthwith record this judgment as provided by law."
Although the language in the consent order is cumbersome and a little unorthodox, the Court has no difficulty construing it. The Court bears in mind that the consent order was drafted in the context of a forbearance agreement. In the consent order, the parties intended that the plaintiff would forbear from recording and enforcing the final judgment against defendant Bobby Dean Lowman contingent upon his compliance with the terms of the forbearance agreement. In the event that defendant Bobby Dean Lowman breached or failed to comply with the forbearance agreement, then the plaintiff could proceed to have the Clerk of Court record (enter) the final judgment against Bobby Dean Lowman and the plaintiff could proceed to enforce the judgment. The parties essentially agreed in the consent order that the plaintiff would withhold obtaining and enforcing a final judgment against defendant Bobby Dean Lowman until the plaintiff could determine whether he would comply with his obligations under the forbearance agreement.
The plaintiff's satisfaction of the terms and conditions in the forbearance agreement governing recording and enforcement is a condition precedent to the entry of a final judgment by the Clerk of Court against defendant Bobby Dean Lowman. The condition precedent has not yet occurred and been fulfilled in accordance with the second paragraph of the consent order and judgment. In sum, the Court construes the language in the consent order to mean that a final judgment has not yet been entered against defendant Bobby Dean Lowman.
Consequently, this Court retains jurisdiction over this civil action suit and the enforcement of the settlement agreement. Kokkonen is not applicable. It is unnecessary for the Court to reach the other arguments presented by the plaintiff in an effort to distinguish the instant case from Kokkonen. III. Conclusion
This Court has subject matter jurisdiction over the plaintiff's motion. [Court File No. 23]. The Court hereby REFERS the motion to United States Magistrate Judge William B. Mitchell Carter for an evidentiary hearing, and for his report and recommendation pursuant to 28 U.S.C. § 636(b)(1)(B) and FED. R. CIV. P. 72(b).
As part of his hearing and consideration of the plaintiff's motion, Magistrate Judge Carter shall also make a specific finding and recommendation on the issue whether the parties have entered into an enforceable settlement agreement. It appears from the record and the defendants' response [Court File No. 30] that the existence of a settlement agreement is not in dispute. The Court has the authority to enforce settlement agreements in pending civil cases even though the agreement has not been reduced to writing or signed by the parties. Re/Max Intern., 271 F.3d at 646; Therma-Scan, Inc. v. Thermascan, Inc., 217 F.3d 414, 419 (6th Cir. 2000); Brock v. Scheuner Corp., 841 F.2d 151, 154 (6th Cir. 1988); Bostick Foundry Co. v. Lindberg, 797 F.2d 280, 282-83 (6th Cir. 1986); Bowater N. Am. Corp. v. Murray Mach., Inc., 773 F.2d 71, 77 (6th Cir. 1985). The Court must ascertain whether an agreement was reached on all material terms. Edwards v. Hocking Valley Community Hospital, 2004 WL 237609, *4 (6th Cir. Feb. 6, 2004); Re/Max Intern., 271 F.3d at 645-46; Therma-Scan, 217 F.3d at 419; Brock, 841 F.2d at 154.
It appears likely that attorney John F. Porter, III will be called to testify as a witness at the evidentiary hearing before Magistrate Judge Carter. If attorney John F. Porter, III is going testify as a witness, he may wish to retain counsel to represent him. To avoid any potential conflicts of interest, Magistrate Judge Carter, in his discretion, may require that the defendants be represented by a new and different independent counsel who is not associated with John F. Porter, III in the practice of law.
SO ORDERED.