When it’s Over, it’s Over . . . Sometimes: A Comparative Look at Retained Jurisdiction in Illinois Federal and State Courts

Written by: William G. Beatty, Johnson & Bell, Ltd., Chicago

Introduction

Typically, 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. A dismissal “with prejudice and without costs” signals the finality of the litigation and the fact that each party 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 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 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

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 Am., 511 U.S. 375, 377 (1994); Willy v. Coastal Corp., 503 U.S. 101, 136-37 (1992). A federal court’s jurisdiction cannot be expanded “by judicial interpretation or by prior action or consent of the parties.” Am. Fire & Cas. Co. v. Finn, 341 U.S. 6, 17-18 (1951). Proponents of a federal court’s jurisdiction carry the burden of establishing it. McNutt v. Gen. Motors Acceptance Corp., 298 U.S. 178, 182-83 (1936). “And the fair presumption is (not as with regard to a court of general jurisdiction, that a cause is within its jurisdiction unless the contrary appears, but rather) that a cause is without its jurisdiction, until the contrary appears.” Turner v. Bank of N. Am., 4 U.S. 8, 10 (1799).

The Federal Rules of Civil Procedure govern the nature and effect of dismissals of lawsuits in federal courts. Fed. R. Civ. P. 41(a) governs the dismissal of actions, and generally provides that voluntary dismissals are by their nature entered without prejudice—by the plaintiff, by means of a notice of dismissal, by stipulation, or by the court at the plaintiff’s request. See McCall-Bey v. Franzen, 777 F.2d 1178 (7th Cir. 1985). A defendant may insist, however, or the parties may agree that, because their settlement has resolved all matters in controversy, the dismissal should be entered with prejudice. The plaintiff may request, as a term of the dismissal order, that the court retain jurisdiction to enforce the terms of the settlement to ensure that the defendant complies with the terms in a proper and timely manner.

The Court of Appeals for the Seventh Circuit, however, has rejected 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) (citation omitted). For example, in Shapo v. Engle the Seventh Circuit recognized:

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.

463 F.3d 641, 643 (7th Cir. 2006) (citing Lynch v. SamataMason, Inc., 279 F.3d 487, 489 (7th Cir. 2002)). Similarly, in Dupuy v. McEwen, the Seventh Circuit found that “[w]hen 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.” 495 F.3d 807, 809 (7th Cir. 2007) (citing Blue Cross & Blue Shield Ass’n v. Am. Express Co., 467 F.3d 634, 636 (7th Cir. 2006)).

As the above decisions show, the Seventh Circuit has been clear that a district court cannot dismiss a suit with prejudice, thus terminating federal jurisdiction, and at the same time retain jurisdiction to enforce the settlement agreement that led to the dismissal with prejudice. The Seventh Circuit described the consequence of the “purported retention” as follows:

It had no significance. Having dismissed the entire litigation, the court had no jurisdiction to do anything further….A settlement agreement, unless embodied in a consent decree or some other judicial order or unless jurisdiction to enforce the agreement is retained (meaning that the suit has not been dismissed with prejudice), is enforced just like any other contract.

Lynch, 279 F.3d at 489.

Several post-Dupuy/Shapo decisions from the federal district courts in Illinois provide further analysis of the retained jurisdiction issue. Hope Sch., Inc. v. Woodside Twp., No. 05-CV-3153, 2009 WL 1707958 (C.D. Ill. June 12, 2009) involved an effort by the plaintiff to obtain declaratory and injunctive relief against the defendant for allegedly impeding traffic to the plaintiff’s campus. The dispute was removed to federal court. Prior to a trial, the parties settled their dispute at a mediation before the magistrate judge. The parties filed a stipulation to dismiss with prejudice, which included the settlement agreement as an exhibit. The parties requested that the “case be dismissed with prejudice pursuant to a settlement of all issues and disputes.” Hope Sch., 2009 WL 1707958 at *1. The stipulation further provided that “[p]ursuant to the decision in Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375 (1994), the parties incorporate the Settlement Agreement and request the Court to retain jurisdiction over this matter for the purpose of enforcing the Settlement Agreement.” Hope Sch., 2009 WL 1707958 at *1. The court entered a text order allowing the stipulation to dismiss with prejudice. Id. The order further stated that the “Court retains jurisdiction of this case to enforce compliance with the settlement contract. See Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375 (1994).” Hope Sch., 2009 WL 1707958 at *1.

Two years later, Hope School filed a complaint in the Circuit Court for Sangamon County, Illinois seeking declaratory relief under the settlement agreement and a permanent injunction prohibiting the defendants from placing any obstruction on the street for the purpose of impeding traffic to Hope’s campus absent a finding that Hope breached the settlement agreement. Id. The defendants moved to dismiss the state court action arguing that the federal district court had exclusive jurisdiction under the terms of the settlement agreement to enforce the agreement. The circuit court stayed the state court case and directed the parties to seek a decision from the district court on the issue of state versus federal court jurisdiction. Id. at *2.

The district court dismissed Hope School’s motion to enforce the settlement agreement for lack of jurisdiction. The court found that the previously entered dismissal order was insufficient under current Seventh Circuit precedent to provide a basis for continued or retained jurisdiction. Id. at *7. The court acknowledged that “[i]n recent years, the question of retained jurisdiction to enforce settlements has been a moving target in this Circuit. Seventh Circuit cases now make clear that the Seventh Circuit requires more than mere retaining jurisdiction language to allow enforcement jurisdiction.” Id. at *6 (citing Dupuy, 495 F.3d at 809). The district court concluded the following:

Pursuant to the request of the parties, the matter was dismissed with prejudice, as was common practice at the time. Although the Settlement Agreement was referenced in the dismissal order, its terms were not embodied in a consent decree tendered by the parties nor incorporated into any other judicial order. See Lynch, 279 F.3d at 489. Thus, the dismissal with prejudice terminated federal jurisdiction. See Shapo, 463 F.3d at 643. Because the record reveals no other basis for federal court jurisdiction, this Court unfortunately lacks authority to consider claims arising out of any alleged breach of the Settlement Agreement. Under the circumstances, the parties’ remedies lie in State Court, not Federal Court.

Hope Sch., 2009 WL 1707958 at *7.

Similarly, in Ill. Agric. Ass’n v. Rural Media Grp. Inc., No. 13-CV-1220, 2013 WL 12242199 (C.D. Ill. June 24, 2013), another post-Dupuy/Shapo decision, 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. The district court rejected the proposed dismissal order due to its language regarding retained jurisdiction and 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. (emphasis original) (citing Dupuy, 495 F.3d at 809). The district court reiterated that parties who wish to retain jurisdiction to enforce a settlement may ask the court to dismiss the suit without prejudice and include language indicating the court retains jurisdiction to enforce the settlement. Id.

Finally, in Natkin v. Winfrey, No. 1:99-CV-05367, 2015 WL 8484511 (N.D. Ill. Dec. 8, 2015), the plaintiff filed a motion to lift the confidentiality provisions of a settlement agreement 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.” Natkin, 2015 WL 8484511, at *1. The district court, citing Dupuy, stated that because the case had been dismissed with prejudice “‘it is gone,’ and this Court cannot ‘adjudicate disputes arising out of the settlement.’” Id. at *3. Finding no other basis for federal court jurisdiction, the court held that “plaintiff’s remedy lies in state court, not federal court.” Id. (citing Lynch, 279 F.3d at 489).

Retained Jurisdiction in Illinois State Courts

In 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 is considerably more liberal than their federal counterpart.

McGoey v. Brace, 2022 IL App (1st) 210322 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 providing that the court “shall retain jurisdiction over this matter for purposes of enforcing this Settlement Agreement.” McGoey, 2022 IL App (1st) 210322, ¶ 5. The court held that the settlement agreement was enforceable and “disposed of the case in its entirety.” Id. ¶ 6. The decision did not expressly state that the circuit court dismissed the case with prejudice.

Almost seven years after the entry of the dismissal order, one of the property owners filed a motion seeking enforcement of the settlement agreement and specific performance based on an alleged violation of the settlement agreement by one of the property owners who installed a fence that violated the easement. Id. ¶ 1. The circuit court granted the motion to enforce the settlement over the defendant’s objection that the circuit court no longer had jurisdiction over the case because the circuit court did not expressly incorporate the terms of the settlement agreement into its final judgment and did not expressly state that the court retained jurisdiction to enforce the settlement agreement. Id. ¶¶ 13, 20.

The Illinois Appellate Court First District affirmed the circuit court’s decision to enforce the settlement agreement, stating that “[t]he Court’s jurisdiction to enforce a settlement agreement does not depend on the use of ‘magic words’ to retain jurisdiction,” and citing Dir. of Ins. v. A and A Midwest Rebuilders, Inc., 383 Ill. App. 3d 721, 722-26 (2nd Dist. 1994). McGoey, 2022 IL App (1st) 210322, ¶ 21. Rather, the appellate court stated that “‘the focus of our analysis [is] the trial court’s intent.’” Id. (quoting Dir. of Ins., 383 Ill. App. 3d at 725).

The appellate court noted the circuit court’s close involvement in the settlement process and approval of the inclusion in the agreement of the clause providing that the court “shall retain jurisdiction over this matter for purposes of enforcing this settlement agreement.” McGoey, 2022 IL App (1st) 210322, ¶ 22. The appellate court concluded that the record showed the circuit court intended to retain jurisdiction to enforce the settlement agreement and, therefore, affirmed the circuit’s denial of the defendant’s motion to dismiss the motion to enforce the settlement agreement. Id. ¶ 22.

On the other hand, where a 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 1016 (1st Dist. 1989), an order was entered simply dismissing the case “with prejudice and without costs.” Brigando, 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. Id. at 1018.

The Illinois Appellate Court First District ruled that “in some limited circumstances a trial court may retain jurisdiction to enforce its own orders after the 30-day time period has lapsed,” 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.” Id. 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. Id. at 1021. Here, the appellate court found that the scope of the order was limited solely to the dismissal of the claims of the parties and did not include any terms of the alleged oral settlement agreement. Id.

Similarly, in Kempa v. Murphy, 260 Ill. App. 3d 701 (2nd Dist. 1994), involving 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. A prior order in the case also provided that the dismissal was entered without prejudice. Kempa, 260 Ill. App. 3d at 702. 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. Id. 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. Id. at 703. 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. Id. at 704-05. However, because there was no indication that the dismissal order was in any way contingent upon performance by the parties of the promises set forth in the settlement agreement (contrasting the dismissal with a consent decree), the trial court dismissed the action ruling that it did not have subject matter jurisdiction in the cause. Id. at 703. Affirming the decision of the trial court, the appellate court relied upon Brigando v. Republic Steel Corp., 180 Ill. App. 3d 1016, 1021 (1st Dist. 1989), in which nothing in the record suggested that the court intended anything other than to terminate the litigation between the parties. Kempa, 260 Ill. App. 3d at 706.

In Bd. of Tr. of the Harvey Police Pension Fund v. City of Harvey, 2017 IL App (1st) 153095, a police pension fund sued a municipality for various alleged violations of the Illinois Pension Code. The parties entered into an agreement under which the city would pay the pension fund certain monies it collected in property taxes, but failed to remit, 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. Bd. of Tr., 2017 IL App (1st) 153095, 9. ¶

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. Id. ¶ 2. Noting that the settlement agreement contemplated future performance on the part of the city, beyond the payment of the initial lump sum, the circuit court determined that it had jurisdiction to enforce the entire agreement including the provisions for periodic payments. Id.

The appellate court agreed, holding that both the settlement agreement and the dismissal order could be read in a manner that allowed the circuit court to enforce future periodic payments. Id. ¶¶ 19-21; see also Block 418, LLC v. UniTel Commc’n Grp., Inc., 398 Ill. App. 3d 586, 587-88 (2nd Dist. 2010) (court retained jurisdiction to enforce an agreed order providing the tenant would pay the landlord for past due rent and would make future rent payments in accordance with the terms of the settlement order); Sec. Pac. Fin. Serv. v. Jefferson, 259 Ill. App. 3d 914, 917-19 (1st Dist. 1994) (where agreement provided the court would retain “jurisdiction of all matters relating to the interpretation, administration, effectuation and enforcement of this Settlement Agreement,” the court relied, in part, on the strong public policy considerations favoring settlement and the avoidance of costly and time-consuming litigation).

Conclusion

While federal courts in Illinois guard their grant of limited jurisdiction, the existence of retained jurisdiction in Illinois state courts 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.

About the Author

William G. Beatty is Of Counsel to the Chicago law firm of Johnson & Bell, Ltd. where he has practiced for the past 45 years. He presently concentrates his practice in representing insurers in the defense of first-party claims. Mr. Beatty is a member of the state and federal bars of Illinois, Arizona and Colorado. He is a past member of the IDC Board of Directors and is a frequent contributor to the IDC Quarterly.