Case Name: CYGNUS TELECOMMUNICATIONS TECHNOLOGY, LLC, Plaintiff-Appellant, v. TOTALAXCESS.COM, INC., Defendant-Appellee
Court: United States Court of Appeals for the Federal Circuit
Jurisdiction: United States
Decision Date: 2003-09-30
Citations: 345 F.3d 1372
Docket Number: No. 02-1325
Parties: CYGNUS TELECOMMUNICATIONS TECHNOLOGY, LLC, Plaintiff-Appellant, v. TOTALAXCESS.COM, INC., Defendant-Appellee.
Judges: Before NEWMAN, LOURIE, and PROST, Circuit Judges.
Reporter: Federal Reporter 3d Series
Volume: 345
Pages: 1372–1379

Head Matter:
CYGNUS TELECOMMUNICATIONS TECHNOLOGY, LLC, Plaintiff-Appellant, v. TOTALAXCESS.COM, INC., Defendant-Appellee.
No. 02-1325.
United States Court of Appeals, Federal Circuit.
Sept. 30, 2003.
John P. Sutton, Attorney at Law, of San Francisco, CA, argued for plaintiff-appellant.
Paul J. Derania, Law Office of Paul J. Derania, of San Jose, CA, argued for defendant-appellee.
Before NEWMAN, LOURIE, and PROST, Circuit Judges.

Opinion:
Opinion for the court filed by Circuit Judge PAULINE NEWMAN. Dissenting opinion filed by Circuit Judge PROST.
PAULINE NEWMAN, Circuit Judge.
Cygnus Telecommunications Technology, LLC appeals the decision of the United States District Court for the Northern District of California, dismissing without prejudice Cygnus' suit against TotalAx-cess.com, Inc. for lack of subject matter jurisdiction. Cygnus had obtained a consent judgment in the amount of $50,000 in settlement of a suit for patent infringement against Justice Telecom Corporation (formerly known as Justice Technology), and in this suit seeks to enforce the judgment against Justice's acquiring company TotalAxcess. The district court held that it lacked subject matter jurisdiction, and that the action must be treated solely as a collection matter "in the appropriate court." The district court held that the original patent-based ground of federal jurisdiction was not available against Tota-lAxcess and, since there was no independent basis for federal jurisdiction, the complaint was dismissed. The court denied Cygnus' request to amend its complaint to include a patent-based count.
BACKGROUND
Cygnus in September 1999 sued Justice Telecom for infringement of United States Patent No. 5,883,964. Effective September 1, 2000, TotalAxcess purchased 100% of the stock of Justice Tele-com. In April 2001 Cygnus and Justice Telecom entered into a settlement agreement accompanied by a stipulated Consent Judgment, stating that the patent in suit was valid and enforceable and had been infringed by Justice Telecom; Jus tice agreed to pay damages of $50,000. The district court entered judgment on April 17, 2001, as follows:
The parties having amicably resolved their differences, IT IS HEREBY STIPULATED by and between plaintiff Cygnus Telecommunications Technology, LLC and defendant Justice Telecom Corporation fka Justice Technology Corporation, that JUDGMENT be entered against Justice Telecom Corporation in the amount of FIFTY THOUSAND AND 00/100 DOLLARS ($50,000.00).
IT IS FURTHER STIPULATED that Justice Telecom Corporation infringed United States Patent 5,883,964 (the "'964 Patent") and that the '964 Patent is valid and enforceable.
[Dated Signatures of Parties]
The parties having stipulated, IT IS SO ORDERED.
Justice Telecom refused to pay the judgment. TotalAxcess also refused to pay the judgment, disclaiming responsibility for Justice's liabilities. On May 22, 2001, Cygnus filed suit against TotalAxcess in the district court, describing TotalAxcess as successor to Justice and seeking payment of the judgment. On May 31, 2001, Justice Telecom filed a petition in bankruptcy.
The district court dismissed the complaint for lack of subject matter jurisdiction, holding that this was a suit for "collection of a prior judgment against a third party in a subsequent lawsuit," and that the court had no jurisdiction to entertain it. The court explained that "although the previous action against Justice arose under the patent laws, the present action does not." Cygnus' attempt to include TotalAx-cess in its patent infringement complaint and consent judgment was rejected by the district court, with the explanation:
Plaintiff sued Justice Technology and obtained a judgment. Plaintiffs patent infringement claims merged into the judgment and no longer exist as patent infringement claims to assert against TotalAxcess.com. Plaintiffs only claim, based upon TotalAxcess.com's alleged merger with Justice Technology, is a claim to enforce the judgment.
This appeal followed.
DISCUSSION
The question of federal jurisdictional authority to enforce contracts in settlement of federal litigation was discussed by the Supreme Court in Kokkonen v. Guardian Life Insurance Company of America, 511 U.S. 375, 378-81, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). The Court explained that for disputes arising out of a settlement agreement that produces a stipulation of dismissal, when the terms of settlement are not included in the judgment the federal court normally does not have power to enforce the settlement terms. The Court distinguished the situation where the settlement terms are included in the court's judgment:
The situation would be quite different if the parties' obligation to comply with the terms of the settlement agreement had been made part of the order of dismissal — either by separate provision (such as a provision "retaining jurisdiction" over the settlement agreement) or by incorporating the terms of the settlement agreement in the order. In that event, a breach of the agreement would be a violation of the order, and ancillary jurisdiction to enforce the agreement would therefore exist.
Kokkonen, 511 U.S. at 381, 114 S.Ct. 1673. The Court explained that jurisdiction to enforce a settlement agreement is present:
Even when, as occurred here, the dismissal is pursuant to Rule 41(a)(1)(h) (which does not by its terms empower a district court to attach conditions to the parties' stipulation of dismissal) we think the court is authorized to embody the settlement contract in its dismissal order (or, what has the same effect, retain jurisdiction over the settlement contract) if the parties agree. Absent such action, however, enforcement of the settlement agreement is for state courts, unless there is some independent basis for federal jurisdiction.
Id. at 381-82, 114 S.Ct. 1673.
The Ninth Circuit, in which this case arose, has elaborated on the application of Kokkonen. See, e.g., O'Connor v. Colvin, 70 F.3d 530, 532 (9th Cir.1995) ("The settlement terms must be part of the dismissal in order for violation of the settlement agreement to amount to a violation of the court's order. Without a violation of the court's order, there is no jurisdiction."); Hagestad v. Tragesser, 49 F.3d 1430, 1432-33 (9th Cir.1995) (same); Linebarger v. United States, 927 F.Supp. 1280, 1281-82 (N.D.Cal.1996) ("the order of dismissal plainly sets forth the obligations of the parties under the settlement agreement . the terms were incorporated as part of the dismissal order and this court therefore retains jurisdiction to enforce the terms of the settlement agreement").
The Court also explained the circumstances in which assertion of "ancillary jurisdiction" may be appropriate, inter alia, to "vindicate its authority, and effectuate its decrees":
Generally speaking, we have asserted ancillary jurisdiction (in the very broad sense in which that term is sometimes used) for two separate, though sometimes related, purposes: (1) to permit disposition by a single court of claims that are, in varying respects and degrees, factually interdependent, and (2) to enable a court to function successfully, that is, to manage its proceedings, vindicate its authority, and effectuate its decrees, see, e.g., Chambers v. NASCO, Inc., 501 U.S. 32, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991) (power to compel payment of opposing party's attorney's fees as sanction for misconduct); United States v. Hudson, 11 U.S. 32, 7 Cranch 32, 34, 3 L.Ed. 259 (1812) (contempt power to maintain order during proceedings).
Kokkonen, 511 U.S. at 379-80, 114 S.Ct. 1673 (citations omitted).
TotalAxcess states that such jurisdiction is precluded by Peacock v. Thomas, 516 U.S. 349, 116 S.Ct. 862, 133 L.Ed.2d 817 (1996), wherein the Court reaffirmed that due process protects those who were not parties to litigation from liability for judgments rendered against others. While the Court stated that the authority to exercise ancillary jurisdiction to enforce federal judgments is limited, id. at 357, 116 S.Ct. 862, it has recognized this exercise in "attempts to . guarantee eventual executa-bility of a federal judgment." Id. The Court in Peacock explained: "In determining the reach of the federal courts' ancillary jurisdiction, we have cautioned against the exercise of jurisdiction over proceedings that are 'entirely new and original,' or where 'the relief [sought is] of a different kind or on a different principle' than that of the prior decree." Id. at 357-58, 116 S.Ct. 862 (citations omitted, brackets in original). In Peacock the Court found that there was no jurisdiction because the second suit "alleged civil conspiracy and fraudulent transfer of Tru-Tech's assets . occurring] after the ERISA judgment was entered . all involved new theories of liability not asserted in the ERISA suit. Other than the existence of the ERISA judgment itself, this suit has little connection to the ERISA case." 516 U.S. at 358-59,116 S.Ct. 862.
In distinction, Cygnus is raising no new theories of liability, but seeking jurisdiction to enforce the stipulated judgment against the merged successor to Justice as of the time of the judgment. A federal court has inherent power to enforce its judgments, as discussed in Peacock:
We have reserved the use of ancillary jurisdiction in subsequent proceedings for the exercise of a federal court's inherent power to enforce its judgments. Without jurisdiction to enforce a judgment entered by a federal court, "the judicial power would be incomplete and entirely inadequate to the purposes for which it was conferred by the Constitution." . In defining that power, we have approved the exercise of ancillary jurisdiction over a broad range of supplementary proceedings involving third parties to assist in the protection and enforcement of federal judgments — including attachment, mandamus, garnishment, and the prejudgment avoidance of fraudulent conveyances.
516 U.S. at 356, 116 S.Ct. 862 (citations omitted). Of course, there must be an opportunity to defend against such enforcement. See Nelson v. Adams, USA, Inc., 529 U.S. 460, 462, 120 S.Ct. 1579, 146 L.Ed.2d 530 (2000) (due process requires that corporate officer and principal shareholder have opportunity to contest his personal liability for judgment previously rendered against the corporation). The issue on appeal is not of liability, but of jurisdiction.
Applying precedent, we conclude that the district court has subject matter jurisdiction of the question of whether TotalAx-cess is liable for this payment. "In the absence of controlling federal statutes, the district court has the same authority to aid judgment creditors as that provided to state courts under local law." Duchek v. Jacobi 646 F.2d 415, 417 (9th Cir.1981) (citation omitted). We do not here decide whether TotalAxcess is liable for payment of this judgment; we hold only that the district court has subject matter jurisdiction to resolve the issue of TotalAxcess' liability based on the facts of its relationship to Justice Telecom, and the applicable law. These aspects require development on remand.
Conclusion
The terms of the settlement agreement were incorporated in the district court's judgment and dismissal order, establishing the district court's subject matter jurisdiction to enforce the agreement, including jurisdiction to determine the liability of TotalAxcess. The dismissal is reversed, and the case is remanded for further proceedings.
REVERSED AND REMANDED.
. Cygnus Telecommunications Technology, LLC v. TotalAxcess.com, Inc., No. C-01-20565 RMW (MDL-1423) (N.D.Cal. January 11, 2002) (Dismissal); (N.D.Cal. March 1, 2002) (Denial of Leave to Amend).
. The TotalAxcess Quarterly Report, dated November 16, 2000, stated: "The operating results for JTC have been included in the Consolidated Condensed Statements of Operations from the date of the acquisition, which is September 1, 2000." The Report also stated that "the Company expects that the JTC acquisition will further increase revenues and cash flows by a significant amount."
. In matters of procedural law not unique to the areas of Federal Circuit exclusive jurisdiction, we follow the law of the regional circuit in which the case arose. See National Presto Industries, Inc. v. The West Bend Co., 76 F.3d 1185, 1188 n. 2, 37 USPQ2d 1685, 1686 n. 2 (Fed.Cir.1996).