Patricia Arata, on Behalf of Herself and All Others Similarly Situated, and Don Lasko v. Nu Skin International, Inc., a Utah Corporation Blake M. Roney Keith Halls and Steven J. Lund, and Clara McDermott
Docket: 95-15870
Court: Court of Appeals for the Ninth Circuit; September 25, 1996; Federal Appellate Court
Clara McDermott appeals the denial of her motion to enforce a settlement agreement from a class action lawsuit filed by Patricia Arata against Nu Skin International, Inc. and several executives, including McDermott. The district court had terminated its jurisdiction to enforce the settlement, which McDermott argues was an error. She also claims that subsequent claims filed against her by Don Lasko in Texas are barred by the settlement terms. The Ninth Circuit upheld the district court’s decision to terminate jurisdiction, thus not addressing McDermott’s second argument.
The underlying class action, initiated by Arata in 1991, alleged that Nu Skin operated as an illegal pyramid scheme, focusing on recruiting new distributors rather than product sales. The lawsuit included claims for securities law violations, civil RICO, fraud, and unfair business practices. The settlement established a refund program for class members for returned products or documented losses, releasing any claims against Nu Skin and its distributors related to their participation in the network marketing program over the past three years.
Parties agreed to release any rights, claims, or causes of action related to the Settled Claims, except for Reserved Claims, and to be permanently barred from pursuing individual or class claims connected to those Settled Claims. The district court retained exclusive jurisdiction over the settlement's implementation, enforcement, and interpretation. A notice of the class action and proposed settlement was sent to potential class members, despite objections from class member Charles Brown regarding the class definition and release language. The district court approved the settlement on January 31, 1992, and this approval was affirmed on appeal on August 23, 1993.
Meanwhile, Lasko, a distributor, filed a complaint on March 10, 1993, alleging tortious interference, conspiracy, fraud, and libel against several competing distributors, claiming they disrupted his sales organization by inducing his distributors to leave. McDermott, a defendant, initially sought to enforce the Arata settlement to bar Lasko's claims but withdrew her motion before a scheduled hearing. Two months later, after the appellate court's decision, McDermott renewed her motion, but the district court denied it in April 1995, stating it no longer had a purpose to retain jurisdiction over the settlement agreement. McDermott appealed the denial, arguing that the district court was obligated to exercise jurisdiction under the Settlement Agreement. The case raises the legal question of the district court's authority to terminate its continuing jurisdiction, which is subject to de novo review.
The court's action is subject to abuse of discretion review, but the outcome remains valid under either standard. Per Supreme Court precedent, district courts lack inherent authority to enforce settlement agreements unless they explicitly retain jurisdiction or include the settlement terms in the dismissal order. In this case, the district court reserved "continuing and exclusive jurisdiction" over the settlement agreement, thus establishing subject matter jurisdiction when McDermott filed her motion to enforce it. However, the court is not required to retain such jurisdiction, and parties can seek this provision. Under Federal Rule of Civil Procedure 41(a)(2), compliance with the settlement terms can be included at the court's discretion. Although federal class action rules necessitate court approval for settlements, they do not mandate the retention of continuing jurisdiction. Furthermore, a party's agreement for the court to maintain jurisdiction is not binding; a court can decline to exercise jurisdiction despite such an agreement. Previous cases illustrate that parties cannot confer jurisdiction through stipulation, and courts may dissolve retained jurisdiction when obligations are satisfied. Here, the court confirmed the parties' compliance with the settlement agreement but did not dissolve it, affirming the agreement's compliance as fair, adequate, and reasonable.
The district court's termination of its jurisdiction over the refund program and the permanent injunction against relitigation was deemed appropriate and within its discretion, with no prejudice to McDermott. The court affirmed its decision based on a lack of necessity for continued jurisdiction, as res judicata can be raised in future proceedings through appropriate motions. The panel chose not to address McDermott's argument regarding the preclusion of Lasko's claims by the Arata settlement agreement, stating that this issue is for the court handling Lasko's claims. McDermott's assertion that Lasko is judicially estopped from claiming a lack of jurisdiction was rejected; Lasko's positions in opposing jurisdiction in both the Southern District of Texas and the Northern District of California were not inconsistent. The court acknowledged that only the issuing court can enforce its injunction but noted that it can assess the res judicata implications of orders from other courts. The characterization of the district court's order as a modification of the injunction was also dismissed, as proper notice and hearing procedures were not followed.
