A Comparative Look at Retained Jurisdiction in Illinois Federal and State Courts
Oftentimes, when the parties to a lawsuit agree on a settlement, a release will be prepared and following the execution of the release by the plaintiff an order of dismissal will be entered, usually a dismissal “with prejudice and without costs”, signaling the finality of the litigation and that fact that both sides (or each side, if multiple parties) will bear its own costs of the suit. Frequently, in order to ensure that the terms of the release and settlement agreement are properly carried out, and in a timely manner, the plaintiff will insist on the inclusion in the dismissal order of a provision to the effect that, despite the dismissal with prejudice, “the Court shall retain jurisdiction to enforce the terms of the settlement,” or words to that effect.
This concept of “retained jurisdiction” can have greatly differing effect, however, depending upon whether the case is pending in an Illinois state court or in a federal court sitting in Illinois. This paper will take a comparative look at the concept of retained jurisdiction, concentrating on how attempts are made to preserve a trial court’s authority to enforce the terms of a settlement, and how such attempts are treated differently in federal versus state courts following the entry of an order dismissing a case “with prejudice”.
Retained Jurisdiction in Federal Courts:
It is axiomatic that federal courts are tribunals of limited jurisdiction, possessing only such powers as are conferred by the Constitution and by federal statutes. Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 377 (1994); Willy v. Costal Corp., 503 U.S. 101, 136-37 (1992).
A federal court’s jurisdiction cannot be expanded by judicial decree (American Fire & Cas. Co. v. Finn, 341 U.S. 6 (1951)), and it has long been held that there is a presumption that a case lies outside the jurisdictional boundaries of a federal court (Turner v. Bank of North America, 4 U.S. 8, 11 (1799)). Proponents of a federal court’s jurisdiction carry the burden of establishing it. McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 182-83 (1936).
Against this restrictive background are the Federal Rules of Civil Procedure governing the nature and effect of dismissals of lawsuits in federal courts. Rule 41 of the Federal Rules of Civil Procedure governs the dismissal of actions, and generally provides that voluntary dismissals, either by the plaintiff or by means of a notice of dismissal or by stipulation, or by the court at plaintiff’s request, are by their nature entered without prejudice. See McCall v. Franzen, 777 F.2d 1178 (7th Cir. 1985).
A defendant may insist, however, or the parties may agree, that since their settlement has resolved all matters in controversy, the dismissal should be entered with prejudice. The plaintiff, wanting to insure that that terms of the settlement are complied with by the defendant in a proper manner and on a timely basis may request, as a term of the dismissal order, that the court retains jurisdiction to enforce the terms of the settlement.
The Seventh Circuit has rejected, however, many attempts at retained jurisdiction when the dismissal order is entered with prejudice. “Once a suit is dismissed with prejudice the judge loses all power to enforce the terms of the settlement that may be behind that dismissal.” Jessup v. Luther, 277 F.3d 926, 929 (7th Cir. 2002), citing Neuberg v. Michael Reese Hospital Foundation, 123 F.3d 951, 955-56 (7th Cir. 1997).
As Circuit Judge Posner put it, “When a suit is dismissed with prejudice, it is gone, and the district court cannot adjudicate disputes arising out of the settlement that led to the dismissal merely by stating that it is retaining jurisdiction.” Dupuy v. McEwen, 495 F.3d 807, 809 (7th Cir. 2007), citing Blue Cross & Blue Shield Ass’n v. American Express Co., 467 F.3d 634, 636 (7th Cir. 2006).
Circuit Judge Posner had similarly ruled in a previous case that “[a] district court does not have jurisdiction to enforce a settlement agreement [following a dismissal with prejudice] merely because the agreement was the premise of the court’s dismissal of the suit that the agreement settled. And therefore . . . a district judge cannot dismiss a suit with prejudice, thus terminating federal jurisdiction, yet at the same time retain jurisdiction to enforce the parties’ settlement that led to the dismissal with prejudice.” Shapo v. Engle, 463 F.3d 641, 643 (7th Cir. 2006), citing Lynch v. Samata Mason, Inc., 279 F.3d 487, 489 (7th Cir. 2002).
In both the Shapo and Dupuy cases, cited above, the Seventh Circuit outlines the procedure by which the parties, who choose to dismiss a case without prejudice may provide in the dismissal order that the court is retaining jurisdiction, i.e. where the court dismisses the case without prejudice and expressly states that it is retaining jurisdiction to enforce the terms of the settlement, or where the court issues a consent decree or injunction based upon the terms of the settlement, in which case the matter is dismissed without prejudice. See Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 380-81 (1994).
Several post-Dupuy/Shapo decisions from the federal district courts in Illinois provide further analysis of the retained jurisdiction issue. Among the most instructive is the opinion of United States Magistrate Judge Cudmore in the case of Hope School, Inc. v. Woodside Township, 2009 WL 1707958 (C.D. Ill. 2009), involving an effort by the plaintiff to obtain declaratory and injunctive relief against the defendant for allegedly impeding traffic to the plaintiff’s campus. A dismissal order entered in 2006 dismissed the underlying complaint with prejudice, and requested the district court “to retain jurisdiction over this matter for the purpose of enforcing the Settlement Agreement.” Id. at ¶ 2.
Two years later, the plaintiff filed a motion to enforce the settlement agreement. While acknowledging that “[i]n recent years, the question of retained jurisdiction to enforce settlement agreements has been a moving target in this Circuit,” the magistrate judge, citing the Dupuy and Blue Cross cases, stated that “Seventh Circuit cases now make it clear that the Seventh Circuit requires more than mere retaining jurisdiction language to allow enforcement jurisdiction.” Id. at ¶ 5.
Since the original dismissal order did not recite the terms of the settlement agreement, and therefore could not be construed as an ongoing injunction under FRCP 65(d), and since mere “incorporation by reference” of the settlement agreement failed to satisfy the requirements of Lynch, Inc. v. SamataMason, Inc., 279 F.3d 487 (7th Cir. 2002), i.e. that the settlement agreement be embodied in a consent decree or the dismissal is entered without prejudice, a purported retention of jurisdiction by the district court “had no significance,” and the settlement agreement would have to be enforced “just like any other contract,” and absent diversity of citizenship of the parties would have to be resolved in state court. See Hope School at ¶ 6, citing Lynch, 279 F.3d at 489.
Another instructive post-Dupuy/Shapo opinion from the Central District of Illinois is that of Judge McDade in Illinois Agricultural Ass’n v. Rural Media Group, Inc., 213 WL 12242199 (C.D. Ill. 2013), in which a proposed order was tendered to the court dismissing the underlying case with prejudice, while providing that: “[t]he Court shall have jurisdiction to enforce the terms of the Confidential Settlement Agreement between [the parties]. .” Id. at ¶ 1.
In rejecting the proposed dismissal order, due to its language regarding retained jurisdiction, Judge McDade cited the history of Seventh Circuit precedent concerning the limited nature of the federal courts’ jurisdiction, as well as specific precedent holding that “the Seventh Circuit requires more than mere retaining jurisdiction language to allow enforcement jurisdiction.” Id. at ¶ 1, citing Dupuy, 495 F.3d at 809.
The Illinois Agricultural decision is also instructive because it cites to the protection available to the parties who wish to retain enforcement jurisdiction by dismissing a case without prejudice. Dupuy, 495 F.3d at 809-10 and Shapo, 463 F.3d at 646.
Finally, from the Northern District of Illinois, there is the opinion of Judge Castillo in Natkin v. Winfrey, 215 WL 8484511 (N.D. 2015), in which, nearly 15 years after the entry of an order providing that “[t]his court will retain jurisdiction of the case to enforce the terms of the settlement agreement,” plaintiff filed a motion to lift the confidentiality provisions of the agreement. Rejecting the requested relief on subject matter jurisdiction grounds, Judge Castillo, citing Dupuy, stated that since the case had been dismissed with prejudice “‘it is gone,’ [and that the] “court cannot ‘adjudicate disputes arising out of the settlement’ . . . . Under the circumstances, plaintiff’s remedy lies in state court, not federal court.” Id. at ¶ 3, citing Lynch, 279 F.3d at 489.
Illinois State Court Decisions:
In stark contrast to the federal cases discussed above, Illinois courts have taken a very different stance on the issue of retained jurisdiction. The approach of the Illinois courts to the subject can be described as considerably more liberal than their federal counterpart.
Perhaps the most recent example of the more liberal view of retained jurisdiction by the Illinois courts can be seen in the case of McGoey v. Brace, 2022 IL App (1st) 210322, decided on June 27, 2022. The McGoey case involved a dispute between neighboring landowners over the location of an easement for a driveway and a parking pad. Following a lawsuit filed by one of the property owners, seeking a relocation of the easement, the parties entered into a settlement agreement citing the terms of their agreement and providing that the trial judge, or his successor, “shall retain jurisdiction over this matter for purposes of enforcing this Settlement Agreement.” 2022 IL App (1st) 210322 at ¶ 5.
Based upon the terms of the settlement agreement the trial court “disposed of the case in its entirety.” Id. at ¶ 6.
Due to a subsequent alleged violation of the settlement agreement, one of the property owners filed a motion almost seven years after the entry of the dismissal order, seeking enforcement of the settlement agreement as well as an order specific performance against the defendant-landowner. Id. at ¶ 11.
Following a hearing and submission of supplemental documents the court granted the motion to enforce the settlement over the objection of the defendant that the trial court no longer possessed subject matter jurisdiction over the case. The defendant further argued that the dismissal order, entered almost seven years earlier, “did not expressly incorporate the terms of the settlement order into its final judgment . . . .” Id. at ¶ 20.
The Appellate Court, in upholding the trial court’s decision to enforce the settlements, stated that “[t]he Court’s jurisdiction to enforce a settlement agreement does not depend on the use of ‘magic words’ to retain jurisdiction [and that] [t]o determine whether the trial court has retained jurisdiction to enforce a settlement agreement the focus of our analysis [is] the trial court's intent,” citing Director of Ins. v. A and A Midwest Rebuilders, Inc., 383 Ill.App.3d 721 at 722-26 (2nd Dist. 1994). Id. at ¶ 21.
Noting the trial court’s close involvement in the settlement process, as well as the express language of the dismissal order that provided that the court, or its successor, “shall retain jurisdiction over this matter for purposes of enforcing the Settlement Agreement,” the Appellate Court affirmed the trial court's decision that it had retained jurisdiction over the case. Id. at ¶ 22.
Earlier, in Board of Trustees of the Harvey Police Pension Fund v. City of Harvey, 2017 IL App (1st) 153095 (1st Dist. 2017), a police pension fund sued a municipality for various alleged violations of the Illinois Pension Code. The parties entered into an agreement in February of 2008 whereby the city would pay the pension fund certain monies it has collected in property taxes both as a present lump sum and annually thereafter. In dismissing the case pursuant to the settlement, “the parties agreed that the circuit court would retain jurisdiction over the action for purpose of enforcing the agreement,” but only until the city had repaid their pension fund for the lump sum which it owed. 2017 IL App (1st) 153095 at ¶ 1.
When the city subsequently defaulted on its annual payments to the pension fund, the fund filed a motion to compel enforcement of the periodic payment provisions of the settlement agreement. The city objected to the court’s jurisdiction, contending that the dismissal order specifically provided that the court was retaining jurisdiction only until the initial lump sum was paid and that the court thereafter lacked authority to enforce the periodic payment provisions of the settlement agreement. Noting that the settlement agreement contemplated future performance on the part of the city, beyond the payment of the initial lump sum, the trial court determined that it had jurisdiction to enforce the entire agreement including the provisions for periodic payments.
The Appellate Court agreed, noting that the dismissal order specifically incorporated the settlement agreement which contemplated future performance on the part of the city beyond the payment of the initial lump sum. The Appellate Court rejected the city’s argument that the parties had agreed to retain jurisdiction only with regard to the enforcement of the lump sum payment, holding that both the settlement agreement and the dismissal order could be read in a manner that allowed the trial court to enforce future periodic payments. Id. at ¶s 19-21.
Likewise in Block 418, LLC v. Uni-Tel Communications Group, Inc., 398 Ill.App.3d 586 (2nd Dist. 2010), a forceable entry and detainer action filed by a landowner against its tenant, an agreed order was entered providing that the defendant would pay the plaintiff for past due rent and would make future rent payments in accordance with the terms of the agreement. The dismissal order further provided that “the trial court [would] ‘retain jurisdiction to enforce the terms of [the] Agreed Order.’” 398 Ill.App.3d at 587-88. When subsequent monthly rents were not timely paid, the plaintiff filed a motion to enforce the settlement order which had been entered a year earlier. The defendant objected to the retained jurisdiction of the trial court, which ruled in plaintiff’s favor, with the Appellate Court affirming, holding that “[r]eviewing courts have held that a trial court retains authority to enforce its own orders (citing cases), and where an order contemplates future conduct, it may be inferred that the Court retained jurisdiction to enforce it (citing cases).” 398 Ill.App.3d at 589.
In Security Pacific Financial Services v. Jefferson, 259 Ill.App.3d 914 (1st Dist. 1994), on the issue of retained jurisdiction, the court found the following provision of the settlement agreement to be controlling on the question of the court’s continuing authority to determine issues arising between the parties post-judgment, where the agreement provided that the trial court would retain “jurisdiction of all matters relating to the interpretation, administration, effectuation and enforcement of this settlement agreement.” 259 Ill.App.3d at 917.
The court relied, in part, on the strong public policy considerations favoring settlement and the avoidance of costly and time-consuming litigation, stating the often-quoted maxim that “courts retain inherent power to enforce settlement agreements reached in litigation pending before them.” Id. at 919.
On the other hand, where the dismissal order is entered with prejudice, and there is no indication in the order that the court is doing anything other than terminating the case with no express contemplation of future performance by the parties, the court will lose jurisdiction over the case 30 days after the dismissal.
For example, in Brigando v. Republic Steel Corp., 180 Ill.App.3d 1020 (1st Dist. 1989), an order was entered simply dismissing the case “with prejudice and without costs.” 180 Ill.App.3d at 1017-18. Nine months later the plaintiff filed a motion requesting the court to enforce the terms of an oral settlement agreement which was later incorporated into a written release that served as the basis for the dismissal.
The Appellate Court ruled that “in some limited circumstances a trial court may retain jurisdiction to enforce its own orders after the 30-day time period has elapsed,” for example where the dismissal “contemplates or orders future performance by the parties,” adding that “[t]his is not, however, the usual case if a money judgment is entered by the court.” 180 Ill.App.3d at 1020.
Where the scope of the court’s order is “limited solely to the dismissal of the claims of the parties, and did not include any terms of the . . . settlement agreement,” the 30-day period is jurisdictional and “the Court has no authority to enforce the settlement in the dismissed case.” 180 Ill.App.3d at 1021.
Likewise, in Kempa v. Murphy, 260 Ill.App.3d 701 (2nd Dist. 1994), a dispute between landowner and a contractor, an order was entered dismissing the case with prejudice, despite the fact that the underlying stipulation provided that the dismissal would be without prejudice, and a prior order in the case provided that the dismissal was entered without prejudice. The order dismissing the case with prejudice did not incorporate the terms of the settlement between the parties and did not provide that the court was retaining jurisdiction to enforce the terms of the settlement. Eighteen months after the entry of the dismissal order the landowner filed a petition for a rule to show cause, alleging that the contractor failed to abide by the terms of the settlement agreement. 260 Ill.App.3d at 702.
The contractor filed a motion to strike the landowner’s petition for a rule to show cause, arguing that the court lacked subject matter jurisdiction to enforce the terms of the settlement, stating that the settlement agreement was a new contract between the parties that had to be resolved by means of a separate lawsuit. The landowner claimed that the rule to show cause revested the trial court with jurisdiction, and that the court had inherent power to enforce the settlement agreement. However, since there was no indication that the dismissal order was in any way contingent upon performance by the parties of the promises set forth in in the settlement agreement (contrasting the dismissal with a consent decree), the trial court relied upon the Brigando case, supra, in which nothing in the record suggested that the court intended anything other than to terminate the litigation between the parties. Brigando, 180 Ill.App.3d at 1021.
While federal courts in Illinois appear to jealously guard their concept of limited jurisdiction, in state court actions the existence of retained jurisdiction is considerably broader. The exercise of retained jurisdiction in Illinois state courts is largely a product of the intention of the trial court, manifested primarily in the language of the dismissal order, i.e. whether it contemplates future performance by the parties that may be properly enforced by the court, even beyond the 30-day period for modification of the judgment. The key is not a modification of the final judgment, but instead its enforcement.
As the Second District Appellate Court of Illinois explained in Director of Ins. for the State of Illinois v. A and A Midwest Rebuilders, Inc., 383 Ill.App.3d 721 at 725 (2nd Dist. 2008):
“We see no particular reason why the term ‘with prejudice’ should trump an explicit statement by a trial court that it is retaining jurisdiction for the purpose of enforcing a settlement. Under some circumstances, the fact that a complaint is dismissed with prejudice may provide evidence as to the trial court's intent. However, where other indicators of the trial court’s intent exist, they must also be considered [and where] it is quite clear that the trial court intended to retain jurisdiction to enforce the settlement agreement between the parties [t]hat is the dispositive issue under the law of this state.”