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Posted: March 5, 2018

Judge Korman Grants Motion to Dismiss for Lack of Subject Matter Jurisdiction in Action to Enforce Settlement of Prior Federal ERISA Lawsuit

Posted by Solomon N. Klein, Litigation Partner

It is often advisable when a case is settled to have the same court retain jurisdiction to enforce the settlement agreement in the event of a breach. However, as illustrated in a decision last week by District Judge Edward R. Korman*, the enforcement of a settlement agreement is a new federal action that must have its own jurisdictional basis, and even a stipulation by the parties that the court will retain jurisdiction will not create jurisdiction if it was not “So-Ordered” by the court at the time of the dismissal of the original action. Masino v. Persico Contracting & Trucking, Inc., 11-CV-4596 (E.D.N.Y Feb. 28, 2018) (ERK) (ST).

The underlying dispute in this case involved a federal ERISA action to collect allegedly delinquent contributions owed under a collective bargaining agreement. In 2010, the parties entered into a written settlement agreement that required a $350,000 payment. Once the court in the original action was notified of the settlement, the court closed the action. The parties subsequently filed a stipulation of dismissal that provided that “[t]his Court retains jurisdiction to enforce the settlement agreement between the parties.” But the stipulation was neither signed nor “So Ordered” by the court.

In 2011, the plaintiffs sued for breach of the settlement agreement, for the amounts due under the settlement and previously owed as contributions. Plaintiffs also added defendants under an ERISA alter ego theory.

In 2015, after the discovery was apparently completed, defendants moved to dismiss for lack of the subject matter jurisdiction in that the action was a mere breach of contract claim by non-diverse parties, and it was no longer an ERISA action that would have provided federal question jurisdiction. The Court agreed, holding in the first instance that the alter ego claims are theories of recovery, not independent causes of action, and that the underlying action on the alter ego claim is the enforcement of the settlement agreement. Given that the enforcement of the settlement agreement was a non-diverse state law action, there was no subject matter jurisdiction despite the fact that the amount in dispute was originally based on an ERISA claim.

In Plaintiffs’ Third Claim for Relief, they allege that by failing to pay them the amount agreed to under the Settlement Agreement, “Persico Contracting is in breach of the settlement agreement and owes the Plaintiff $350,000.” (Compl. ¶ 58.) Plaintiff has alleged a simple contract claim. Contract disputes are generally determined under state law, not federal law. See Empire Healthchoice Assurance, Inc., 396 F.3d at 138–39 (state law applicable to determine “contract action” for reimbursement of insurance benefits); Becker, 454 F. Supp. at 870 (state law applicable to enforce contract to provide services to children and families eligible for Social Security benefits); Rosenberg v. Inner City Broadcasting Corp., 99 Civ. 9579, 2001 U.S. Dist. LEXIS 13192, at *7 (S.D.N.Y. Aug. 30, 2001) (applying New York law to enforce settlement agreement); Arthur v. U.S. Merchandise Inc., NO 05-CV-0958, 2007 U.S. Dist. LEXIS 63885, at *9 (E.D.N.Y. Aug. 29, 2007) (applying New York law to enforce settlement agreement). Accordingly, Plaintiff’s Third Claim for Relief does not arise under federal law. See Empire Healthchoice Assurance, Inc., 396 F.3d at 138 (affirming dismissal for lack of subject matter jurisdiction where plaintiff’s only sought reimbursement of health benefits pursuant to healthcare plan established under Federal Employees Health Benefits Act); Becker, 454 F. Supp. at 868–70 (dismissing for lack of subject matter jurisdiction a breach of contract suit to provide services under the Social Security Act).
. . .
“[A] district court [does] not have jurisdiction to enforce a settlement, after a case had been dismissed, where the court had not manifested an intent to retain jurisdiction or made the agreement part of its order of dismissal.” Scelsa v. City Univ. of New York, 76 F.3d 37, 41 (2d Cir. 1996) (affirming lower court dismissal for lack of subject matter jurisdiction where court had not expressly retained jurisdiction to enforce the settlement agreement); State Street House, Inc. v. New York State Urban Dev. Corp., 75 Fed. App’x 807, 810 (2d Cir. 2003). As the Second Circuit has explained, “the Supreme Court [has] held that enforcement of a settlement agreement is more than just a continuation or renewal of the dismissed suit, and hence requires its own basis for jurisdiction.” Scelsa, 76 F.3d at 40 (quoting Kokkonen, 511 U.S. at 378) (internal quotation marks omitted). “In the absence of such an independent basis for jurisdiction, a federal court has jurisdiction to enforce a settlement agreement only if the dismissal order specifically reserves such authority or the order incorporates the terms of the settlement.” Id. (citing Kokkonen, 511 U.S. at 381). A district court’s retention of jurisdiction must be express; “[t]he judge’s mere awareness and approval of the terms of the settlement agreement do not suffice to make them part of his order.” Kokkonen, 511 U.S. at 381. Otherwise, “enforcement of a settlement agreement is for the state courts.” Scelsa, 76 F.3d at 40 (citing Kokkonen, 511 U.S. at 381). Here, neither the dismissal order in the 2008 nor the 2010 Litigation made any mention of retaining jurisdiction for any reason; nor was there any mention of incorporating the Settlement Agreement or any term therein into the dismissal order. (08-cv-3561 (E.D.N.Y.); 10-cv-1648 (E.D.N.Y.), ECF No. 24.) The Stipulation of Dismissal in the 2008 Litigation provided for Judge Azrack to So Order it; but she did not do so. (Stip. and Order of Dismissal 2, 08-cv-3561 (E.D.N.Y.), ECF No. 45.) Accordingly, the terms of the Stipulation, including the provision that “[t]his Court retains jurisdiction to enforce the settlement agreement between the parties[,]” (Stip. and Order of Dismissal ¶ 2, 08-cv-3561 (E.D.N.Y.), ECF No. 45), were not incorporated into the dismissal order. And the presence of that provision does not create jurisdiction because subject matter jurisdiction cannot be created by agreement, consent, or any other act of a party. Ins. Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982). The Court has to expressly retain jurisdiction. The Court did not do so here.

Masino v. Persico Contracting & Trucking, Inc., 11-CV-4596 (E.D.N.Y Feb. 28, 2018) (ERK) (ST).

*Judge Korman noted that the case was reassigned to him after the recent passing of Judge Sandra L. Townes, and that he received the initial draft of the decision from Judge Towne’s Chambers.

Posted by Solomon N. Klein, Litigation Partner

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