Attorney Fees Case Analysis

Listen to this article

As the court noted, it has on several occasions in the past, criticized the practice of dismissing cases with prejudice, while reserving jurisdiction to enforce the terms of the settlement. The court has been doing so at least since Otis v. City of Chicago, 29 F.3d 1159, 1163 (7th Cir. 1994)(en banc).

In other cases where the practice is employed, however, it makes no remarks condemning the practice whatsoever. See Dal Pozzo v. Basic Machinery Co., Inc., — F.3d —, 2006WL2548250 (7th Cir., Sept. 6, 2006).

In this case, at least, the court has suggested alternatives to the practice when parties want the court to enter a final judgment that precludes further litigation under the doctrine of res judicata, while retaining jurisdiction over an incidental matter.

The court advised as follows: “either the settlement should include a release of the plaintiff’s claims, thus barring relitigation of them …, or the district court should state that judgment is being entered in order to allow the parties to enforce it and that the ‘without prejudice’ language shall not allow them to reopen issues resolved by the judgment (cites omitted).”

Either practice, the court stated, would result in a final judgment “without creating the paradox of a court’s at once relinquishing jurisdiction by dismissing a suit with prejudice and retaining jurisdiction.”

An interesting question is whether it should even be permissible for a court to retain jurisdiction to ensure payment of attorney fees as part of the settlement agreement.

The court makes several statements that suggest such provisions have no place in settlement agreements. At one point, the court wrote, “It seems anomalous to make a settlement obtained by a plaintiff depend on the resolution of a fee dispute between the defendant and his lawyer, a dispute to which he plaintiff is a stranger.”

The court also noted that, if a settlement were blocked because an attorney wanted an advantageous forum in which to collect legal fees, the attorney would breach his fiduciary duty to his client.

The court further noted that parties cannot confer federal jurisdiction by agreement, and that the purpose of ancillary jurisdiction is not to enable a federal court to encroach on jurisdiction reserved to the states.

	Related Links Seventh Circuit Court of Appeals Related Article Attorney fee order reversed

All of these statements would seem to suggest that, even if the agreement between a defendant and his attorney is a part of the settlement agreement itself, it is insufficient to allow the federal district court to resolve the dispute.

Furthermore, the case could easily be distinguished from Baer v. First Options of Chicago, Inc., 72 F.3d 1294 (7th Cir. 1995), which the court cites for authority that a federal court has ancillary jurisdiction over a fee dispute. Baer was a Title VII case, which explicitly authorizes fee-shifting to successful plaintiffs. The holding has little applicability to a dispute between a defendant and his attorney.

Thus, it would seem that the court should have reversed the lower court’s decision outright.

Nevertheless, the court remanded the case to the district court to address whether the payment agreement was part of the settlement agreement. If the court was indeed holding that such provisions are against public policy or insufficient to confer jurisdiction, further proceedings would be unnecessary.

As a result, attorneys and their clients are apparently free to make settlement agreements contingent on the payment of parties’ attorney fees. Nevertheless, the court’s statement regarding the fiduciary duties of attorneys should at least give attorneys pause before doing so.

– David Ziemer

Click here for Main S
tory.

David Ziemer can be reached by email.