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Attorney fee order reversed

By: dmc-admin//September 20, 2006//

Attorney fee order reversed

By: dmc-admin//September 20, 2006//

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What the court held

Case: Shapo v. Engle, Nos. 05-4096 & 06-1255

Issue: Does a court have ancillary jurisdiction to enforce an agreement for attorney fees between the defendant and his attorney?

Holding: Where the record is unclear whether the fee agreement was part of the settlement between the plaintiff and defendant, the matter must be remanded.

A court can’t retain jurisdiction over a settled case to ensure that the defendant pays its attorney fees, the Seventh Circuit held on Sept. 11.

Nathaniel S. Shapo brought suit in Illi-nois federal court against Clyde Engle, alleging RICO violations. Engle was represented by Foley & Lardner, LLP.

Several years into the case, the parties agreed to settle it, and advised the court. In February 2004 the court ordered the suit “dismissed, without prejudice and with leave to reinstate on or before the ‘Execution Date.’”

The order provides that upon that completion date “the dismissal of the claims in this action shall be with prejudice and without leave to reinstate,” except that the court “shall retain jurisdiction to enforce the terms of the Parties’ settlement and the Parties agree to this Court’s jurisdiction.”

Six months later, Foley & Lardner moved the district court to order Engle to pay the firm money that he owed it under a “Master Payment Agreement” that they had made at the time of the settlement. The agreement required Engle to pay the firm $100,000 every three months for three years.

The court issued the order requested by Foley & Lardner, directing Engle to pay the firm $200,000 plus interest, and later issued a similar order directing him to pay a third installment of $100,000.

The judge based jurisdiction to issue the orders on her having retained jurisdiction to enforce the terms of the settlement, although the “Master Payment Agreement” was a discrete agreement.

Engle appealed, and the Seventh Cir-cuit vacated the orders in a decision by Judge Richard Posner.

The court began by criticizing the practice of “dismissing suits before they’re really over,” opining, “It is a potent source of confusion with no redeeming virtues in a case such as this in which the ripening depends on conditions.”

Related Links

Seventh Circuit Court of Appeals

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Case Analysis

The court called the case a “concrete example” of such confusion, because it is unclear when an appealable judgment was entered; if the Master Payment Agreement is part of the settlement, the court concluded, then the judgment is not final until Foley & Lardner has been paid in full.

In some cases, the court found, courts have ancillary jurisdiction over fee disputes. In Baer v. First Options of Chicago., Inc., 72 F.3d 1294 (7th Cir. 1995), for example, the settlement agreement expressly provided for attorney fees.

Even where a fee agreement is part of a settlement, however, the court found this does not automatically place disputes over fees within federal jurisdiction.

The court wrote, “The purpose of the ancillary jurisdiction of the federal courts … is to enable a federal court to render a judgment that resolves the entire case before it and to effectuate its judgment once it has been rendered. It is not to enable a fede
ral court to encroach on the jurisdiction reserved to the states merely because the parties would prefer to have a federal court resolve their future disputes (cites omitted).”

The court added that there would have to be special circumstances, such as an existing dispute between lawyer and client that, if unresolved, would preclude a settlement.

Finding no such circumstances in the record, the court vacated the orders, and remanded the case to the district court to clarify the judgment.

Click here for Case Analysis.

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