Court Opinion

ID: 3031932
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:46:52.203627+00
Date Added: 2024-06-11T11:48:14.384044
License: Public Domain

United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                   ___________

                                   No. 02-1692
                                   ___________

4:20 Communications, Inc.,             *
                                       *
     Plaintiff - Appellant,            *
                                       * Appeal from the United States
     v.                                * District Court for the
                                       * District of Minnesota.
The Paradigm Company; Literacy         *
Unlimited, Inc.; Samuel L. Blumenfeld, *
                                       *
     Defendants - Appellees.           *
                                 ___________

                             Submitted: March 10, 2003

                                  Filed: July 21, 2003
                                   ___________

Before McMILLIAN, FAGG, and LOKEN,* Circuit Judges.
                           ___________

LOKEN, Chief Judge.

       This case arises out of a dispute between the parties to a licensing agreement
for the sale of copyrighted teaching materials. On March 27, 2001, the district court
dismissed the case with prejudice based upon a final settlement negotiated at a
settlement conference held the prior day before a magistrate judge. Some months
later, defendant The Paradigm Company moved to enforce the settlement, and

      *
       The Honorable James B. Loken became Chief Judge of the United States
Court of Appeals for the Eighth Circuit on April 1, 2003.
Paradigm and plaintiff 4:20 Communications, Inc. submitted conflicting proposals
to reduce the settlement to a written agreement. The magistrate judge entered an
order essentially adopting Paradigm’s proposal. The district court affirmed the
magistrate’s order, and 4:20 Communications appeals. We conclude the district court
lacked jurisdiction to enforce the settlement under Kokkonen v. Guardian Life Ins.
Co. of Am., 511 U.S. 375 (1994). As neither Paradigm nor 4:20 Communications
sought relief from the final judgment of dismissal under Rule 60(b) of the Federal
Rules of Civil Procedure, we direct the district court to vacate the orders being
appealed and to terminate the case pursuant to the March 27, 2001 dismissal order.

       In addition to Paradigm, the initial defendants were Samuel Blumenfeld, the
copyright owner; Literacy Unlimited, Inc. (“LUI”), the alleged assignee of
Paradigm’s rights under the licensing agreement; and Guy Wickwire, the primary
shareholder of LUI. In September 1999, the district court dismissed Wickwire for
lack of personal jurisdiction. His attorneys then withdrew, leaving LUI and
Blumenfeld unrepresented. The March 26, 2001, settlement conference was attended
by 4:20 Communications and Paradigm, their respective attorneys, and Blumenfeld
individually. At the end of the settlement negotiations, the magistrate judge placed
the settlement on the record, explaining:

      It’s my understanding that after some lengthy and detailed negotiations,
      that this matter has been indeed settled in full. . . . I want to caution
      everyone that in the Court’s view, today will be the final agreement.
      What we say today on the record will indeed be a binding settlement for
      everyone even though I’m going to direct the attorneys to make some
      efforts to memorialize today’s final agreement in writing. In the absence
      of a signature [on] that writing, the agreement would still be enforceable
      by either side because of the record that we’re making today in the
      courtroom. . . . It’s my understanding that the only thing that this matter
      will be conditioned upon is getting [LUI’s] signature on this particular
      matter because it’s envisioned . . . that there will be a stipulation of
      dismissal with prejudice . . . including [LUI’s claims]. . . . Now, it’s

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      going to be the responsibility of Paradigm Company to obtain that
      signature from [LUI] in the fashion I’ve described.

After the magistrate judge stated his understanding of the settlement terms, certain
points were discussed and clarified. The settlement as described was then agreed to
by 4:20 Communications, Paradigm, and Blumenfeld on the record. The following
day, the district court entered the following dismissal order:

            The court having been advised by counsel that the above case has
      been settled,

            IT IS ORDERED that this action is hereby dismissed, with
      prejudice, the court reserving jurisdiction for ninety (90) days to permit
      any party to move to reopen the action, for good cause shown, or to
      submit and file a stipulated form of final judgment, or to seek
      enforcement of the settlement terms.

During that ninety-day period, counsel for 4:20 Communications and Paradigm
exchanged drafts of a proposed settlement agreement but were unable to agree on the
terms of a written agreement. However, no party filed a motion asking the district
court to exercise its reserved jurisdiction.

       Some months after the ninety-day period expired, Paradigm moved the district
court to enforce the settlement, submitting the conflicting proposals the parties had
exchanged and asking the court to order the parties to sign Paradigm’s proposed
General Release and Settlement Agreement. In response, 4:20 Communications
urged the court to order the parties to sign its proposed Mutual Release and
Settlement Agreement. On December 4, 2001, the magistrate judge issued an order
declaring that the Mutual General Release and Settlement Agreement attached to the
order “fully and accurately reflects the agreement of the parties reached in open court
on [March 26]” and “shall be considered fully enforceable” upon LUI’s signing. The

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district court affirmed the magistrate judge’s order. 4:20 Communications filed a
motion to reconsider, arguing for the first time that the court lacked subject matter
jurisdiction to enforce the settlement. The district court denied that motion,
concluding it had jurisdiction because the parties asked the magistrate judge to
confirm the substance of the settlement agreement, which is different than suing for
breach of the agreement, and in any event because the court had diversity jurisdiction
to resolve the settlement contract dispute. This appeal followed.

       1. On appeal, 4:20 Communications argues the district court lacked
jurisdiction to enforce the March 26, 2001, settlement agreement. In Kokkonen, the
Supreme Court held that a district court has no post-dismissal ancillary jurisdiction
to enforce a settlement agreement unless

      the parties’ obligation to comply with the terms of the settlement
      agreement ha[s] 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. . . . The judge’s mere awareness and approval
      of the terms of the settlement agreement do not suffice to make them
      part of his order.

511 U.S. at 381. This is an issue of subject matter jurisdiction. As parties may not
expand the limited jurisdiction of the federal courts by waiver or consent, subject
matter jurisdiction issues may first be raised at any time, even on appeal. See Jader
v. Principal Mut. Life Ins. Co., 925 F.2d 1075, 1077 (8th Cir. 1991). We review such
issues de novo. See Gilbert v. Monsanto Co., 216 F.3d 695, 699 (8th Cir. 2000).

       The district court’s dismissal order did not incorporate the terms of the
settlement. The court did expressly retain jurisdiction to enforce the settlement, but
only for ninety days. Thus, when no party acted within that ninety-day period, the
magistrate judge and the district court lacked ancillary jurisdiction to rule upon

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Paradigm’s motion to enforce the settlement agreement. See Miener ex rel. Miener
v. Missouri Dep’t of Mental Health, 62 F.3d 1126, 1127-28 (8th Cir. 1995).

       Paradigm argues the March 27 dismissal order did not terminate the action
because everyone at the March 26 settlement conference understood the settlement
was conditioned upon LUI signing a settlement agreement. But that contention is
contrary to the plain language of the dismissal order, which declared the case
terminated and gave the parties ninety days to move to reopen or to enforce the
settlement. The issue of subject matter jurisdiction under Kokkonen turns on the
language of the dismissal order, not on events prior to the dismissal. Paradigm also
argues the court had ancillary jurisdiction to vindicate its authority and protect its
proceedings because the magistrate judge stated the terms of the settlement on the
record at the March 26 conference. We disagree. In reciting the agreement
negotiated by the parties, the magistrate judge performed the function of a mediator,
not a judicial officer. Any court with jurisdiction over the present dispute is fully
competent to interpret the settlement from the transcript of the March 26 conference.

       The district court reasoned that it had ancillary jurisdiction because the parties
asked the court to define the terms of the settlement rather than suing for breach of
contract. For jurisdiction purposes, we conclude this is a distinction without a
difference. Paradigm and 4:20 Communications now have a dispute over the terms
of their settlement agreement. Whether they asked the district court to clarify the
terms of the agreement or to award damages for its breach, they sought judicial
resolution of a dispute over a contract that was not made part of the court’s prior
dismissal order. Absent a basis for original federal court jurisdiction, that dispute
must be resolved in an appropriate state court.

       2. Though it lacked ancillary jurisdiction, the district court had jurisdiction to
grant any party relief from its final judgment of dismissal under Rule 60(b). Such
relief may be appropriate, for example, when a case has been dismissed based upon

                                          -5-
the parties’ mistaken belief they have agreed to a settlement. See MIF Realty L.P. v.
Rochester Assocs., 92 F.3d 752, 755-57 (8th Cir. 1996). In this case, unlike MIF
Realty, neither party moved the district court for Rule 60(b) relief. It is an open
question in this circuit whether the district court would have had authority to grant
such relief sua sponte. See United States v. Pauley, 321 F.3d 578, 580-81 & n.1 (6th
Cir. 2003) (discussing the circuit split on this issue and concluding that district courts
may not grant Rule 60(b) relief sua sponte); 12 JAMES MOORE ET AL., MOORE’S
FEDERAL PRACTICE § 60.62 (3d ed. 2003).

        Assuming the district court could take up the Rule 60(b) issue sua sponte, we
nonetheless conclude that a remand for this purpose would be inappropriate and
futile. Here, again unlike MIF Realty, neither 4:20 Communications nor Paradigm
denies the case was settled. Rather, each urged the district court to interpret the pre-
dismissal settlement in its favor. That dispute does not warrant Rule 60(b) relief from
a final judgment that did not incorporate the terms of the settlement. See Cashner v.
Freedom Stores, Inc., 98 F.3d 572, 576-79 (10th Cir. 1996). By contrast, LUI might
have sought Rule 60(b) relief from the judgment which dismissed its claims based
upon a settlement to which it was not a party (assuming LUI had no notice of the
settlement conference, did not consent to the settlement, and moved quickly to protect
its rights). But the unusual posture of LUI does not provide a basis for Rule 60(b)
relief to either 4:20 Communications or Paradigm, who failed to obtain LUI’s consent
to the settlement during the ninety days in which the district court reserved post-
dismissal jurisdiction. Even if LUI’s consent is a condition precedent to enforcing
the settlement agreement, 4:20 Communications and Paradigm knowingly took the
risk LUI would later refuse to consent when they dismissed their claims with
prejudice and allowed the ninety-day period to expire. See McCormick v. City of
Chicago, 230 F.3d 319, 327-28 (7th Cir. 2000).

       3. Finally, we reject Paradigm’s contention that, on this record, the district
court had diversity jurisdiction to construe and enforce the settlement agreement. The

                                           -6-
burden of establishing federal court jurisdiction “rests upon the party asserting
jurisdiction.” Kokkonen, 511 U.S. at 377. To establish diversity jurisdiction,
Paradigm must demonstrate that the amount in controversy exceeds $75,000. See 28
U.S.C. § 1332. It has not even attempted to do so. The issue now is the amount in
controversy by reason of the parties’ dispute over the terms of their settlement
agreement. Thus, whether or not their initial dispute satisfied the $75,000
requirement is irrelevant.

       For the foregoing reasons, the case is remanded with instructions that the
district court vacate the orders being appealed and reinstate its March 27, 2001
dismissal order. Paradigm’s motion for sanctions is denied.

      A true copy.

            Attest:

               CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.

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