June 03, 2015 Top Story

To Enforce a Settlement, Jurisdiction Must Be Expressly Retained

Court resolves conflict over trial court's authority in dismissed, settled cases

Theresa A. Vitello

The overwhelming majority of civil cases are resolved through settlement. However, the battle may not be over once the parties agree to settle their disputes. In Infinite Security Solutions, LLC v. Karam Properties II, Ltd., the Supreme Court of Ohio found that the premature dismissal of a case divested the court of jurisdiction and left the parties without the ability to seek court intervention to enforce the terms of the settlement agreement.

Background Leading to Settlement

An Ohio trial court consolidated two related cases, filed as a result of a fire at an apartment complex. In the first case, Infinite Security Solutions, LLC, which provided security services at the apartment complex, sued Karam Properties seeking to recover on its contract for services. Karam, the property owner, countersued for negligence. In the second case, Karam’s insurer, Travelers, claimed that to the extent it had paid out $8.9 million under Karam’s insurance policy, it was subrogated to any claims Karam had against Infinite.

During a pretrial settlement conference, the parties orally agreed to settle and informed the trial court that they have resolved all issues except for how to apportion the settlement funds. However, prior to the parties fully resolving their outstanding issues and despite a local civil rule allowing thirty days to file an order of dismissal, a week later, the trial court dismissed the action on its own, without prejudice.

The insurer moved the trial court to vacate the dismissal, seeking to reopen the case and have the trial court decide how the settlement proceeds should be divided between it and the property owner. The property owner argued that, having already dismissed the case, the trial court lacked jurisdiction to decide how the funds should be apportioned. The security company filed a motion seeking to enforce the settlement and requesting to pay the settlement funds into court.

The trial court maintained that its dismissal was merely a “placeholder entry” and denied both the insurer and the security company’s motions as moot. Declaring that its dismissal was conditional, the trial court believed it retained jurisdiction to determine how the settlement funds should be apportioned without the need to vacate the dismissal previously entered. Acting under the assumption that it had retained jurisdiction, the trial court entered an order directing the security company to pay all but $25,000 of the settlement funds to the insurer.

Trial Court’s Dismissal Was Unconditional

On appeal to the Sixth District Court of Appeals, the property owner argued that the trial court lacked subject matter jurisdiction after dismissing the case, and therefore lacked the authority to decide how to apportion the settlement proceeds—an issue that had not previously been raised. The appellate court agreed, finding that the trial court lacked jurisdiction to enter the final judgment because its initial dismissal of the action was “unconditional,” and did not incorporate the terms of the parties settlement or expressly retain jurisdiction to enforce the settlement. The insurer appealed to the Supreme Court of Ohio. The Ohio high court accepted the discretionary appeal to decide a conflict amongst Ohio appellate courts as to how a trial court may properly retain jurisdiction after a dismissal in order to enforce a settlement agreement.

Retaining Jurisdiction Helps to Enforce the Agreement

Rejecting the notion of a “conditional dismissal” and embracing the fact that “retaining jurisdiction provides the most efficient means of enforcing the agreement,” the Supreme Court of Ohio concluded that a trial court may expressly retain jurisdiction to enforce a settlement agreement when it dismisses a civil case. “In general, keeping a case with the court and judge that is most familiar with the claims is more efficient than filing a separate case,” agrees Sherilyn Pastor, Newark, NJ, cochair of the ABA Section of Litigation’sInsurance Coverage Litigation Committee. However, the Ohio Supreme Court made clear that short of incorporating the terms of the settlement agreement into the dismissal, there must be a “clear indication” that the trial court intends to retain jurisdiction. The court cited three very practical reasons for this requirement: The court only speaks through its journal entries; a court’s final judgment is presumed to be final; and parties are entitled to rely on the finality of the court’s action.

“The court was clear that all it would have required here was some language from the trial court evidencing its intention to retain jurisdiction,” says Sonia E. O’Donnell, Miami, FL, cochair of the Section of Litigation’s Appellate Practice Committee. The trial court did not expressly retain jurisdiction either by incorporation of the settlement agreement or by giving the parties a clear indication in its journal entry. Accordingly, the Supreme Court of Ohio concluded that the trial court did not retain jurisdiction to enforce the settlement agreement and remanded the case back to the trial court to decide the insurer’s motion to vacate the dismissal, previously denied as moot.

The Trial Court Committed Reversible Error 

In a dissenting opinion, Justice Kennedy reasoned that the majority’s analysis was flawed because it did not consider, as an initial matter, whether the trial court acted within the scope of its authority when it dismissed the case. The dissent concluded that because the trial court arbitrarily acted outside of its authority under the local rules, dismissing the case too soon, it committed reversible error.

As a potential long-term solution, the dissent proposed a revision of local rules, which would only permit a court to enter dismissal upon the motion of a party. Pastor, however, disagrees with this approach, indicating that “it places too heavy a burden on the parties. A dismissal should not require a motion. However, a minute entry about the settlement should be noted such that the parties know how to act going forward,” says Pastor.

Theresa A. Vitello is a contributing editor for Litigation News.

Keywords: settlement agreement, appeal, insurance, Supreme Court of Ohio, jurisdiction

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