Court: Court of Appeals for the Ninth Circuit; September 25, 1996; Federal Appellate Court
Clara McDermott appeals the district court's denial of her motion to enforce a settlement agreement involving a class action lawsuit against Nu Skin International, Inc. and several executives, including herself. McDermott argues that the district court improperly terminated its jurisdiction to enforce the settlement and that subsequent claims filed against her by Don Lasko in Texas are barred by the settlement terms. The court affirms the termination of its jurisdiction, thus not addressing McDermott's second argument.
The background involves a class action initiated by Patricia Arata in 1991, alleging Nu Skin operates as an illegal pyramid scheme, focusing on recruitment over product sales. The lawsuit claimed violations of securities laws and civil RICO, among other grievances. A settlement agreement was reached, establishing a refund program for class members as consideration for releasing claims against the defendants. The agreement defined settled claims broadly, encompassing any claims related to participation in Nu Skin’s network marketing program within the past three years. The parties agreed to release all rights related to these claims, except for reserved claims, and to be barred from future litigation regarding the settled claims.
The agreement stipulates that the district court maintains continuing and exclusive jurisdiction over the settlement's implementation, including the Refund Program, enforcement, construction, interpretation of the Settlement Agreement, and the parties for ongoing obligations. A notice regarding the class action and proposed settlement was sent to potential class members. Class member Charles Brown objected to the class definition and release language, but the district court approved the settlement on January 31, 1992. Brown's appeal was affirmed on August 23, 1993.
Subsequently, Lasko filed a complaint on March 10, 1993, against several Nu Skin distributors for claims including tortious interference and fraud, alleging that they disrupted his sales organization by inducing his distributors to switch allegiance. Shortly after, McDermott sought to enforce the Arata settlement to block Lasko's claims, but withdrew the motion shortly before the hearing. In March 1995, after prolonged litigation, McDermott renewed her motion, but the district court denied it, stating it no longer needed to retain jurisdiction over the settlement. McDermott appealed, arguing that the district court was obligated to exercise jurisdiction under the Settlement Agreement, raising legal questions about the authority to terminate jurisdiction initially retained at its discretion.
The court's action may be subject to abuse of discretion review; however, it is concluded that the court's decision stands under either standard. Recent Supreme Court rulings establish that district courts lack inherent authority to enforce settlement agreements unless they retain jurisdiction over them or incorporate the terms into their dismissal orders. In this case, the district court explicitly reserved "continuing and exclusive jurisdiction" to enforce the settlement agreement, granting it subject matter jurisdiction when McDermott filed her enforcement motion. Despite this, the court was not required to reserve such jurisdiction, and parties can request court enforcement in their settlement agreements. While federal class action rules necessitate court approval for settlements, they do not mandate the retention of continuing jurisdiction. Additionally, parties cannot unilaterally confer jurisdiction upon the court through agreement; the court may decline to exercise continuing jurisdiction even if the parties consent. The court had previously confirmed compliance with the settlement agreement on October 26, 1992, deeming it fair, adequate, and reasonable, rendering further jurisdiction over the agreement unnecessary.
The district court's continued exercise of jurisdiction over a permanent injunction against relitigation was deemed unnecessary, as the res judicata effect of a final judgment, including settlement agreements, is typically raised through appropriate motions in subsequent proceedings. The court determined that its decision to terminate jurisdiction was within its discretion and did not prejudice McDermott. The appellate court affirmed the district court's judgment based on this jurisdictional divestment and did not address McDermott's argument regarding the preclusion of Lasko’s claims by the Arata settlement agreement, leaving that matter for the court currently considering Lasko’s claims. McDermott's argument that Lasko is judicially estopped from challenging the district court's jurisdiction was rejected, as Lasko's positions in different courts were not inconsistent. McDermott further contended that only the Northern District of California could enforce the permanent injunction in question, acknowledging that enforcement through contempt proceedings is restricted to the issuing court. While recognizing that courts can ascertain the res judicata implications of other courts' orders, the court did not agree with Lasko's view that the district court's actions constituted a modification of its injunction under Federal Rule of Civil Procedure 60(b)(5). The court noted that while district courts can modify permanent injunctions, they must provide notice and a hearing to the parties, which was not evident in this case.
