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“Magic Words” Unnecessary in Settlement Agreement for Court to Retain Jurisdiction to Enforce Agreement

September 07, 2001

Decision icon Decision

Last Month at the Federal Circuit - October 2001

Judges: Rader (author), Schall, and Dyk (dissenting)

In Schaefer Fan Co. v. J&D Manufacturing, No. 00- 1545 (Fed. Cir. Sept. 7, 2001), the Federal Circuit determined that the district court had properly retained subject-matter jurisdiction over a settlement agreement (“the Agreement”) dispute and affirmed the district court’s finding that J&D Manufacturing and Don Redetzke (collectively “J&D”) had breached the Agreement. The Federal Circuit further held that the district court had not abused its discretion in finding J&D in contempt.

Schaefer Fan Company and Ronald Schaefer (collectively “Schaefer”) had entered into the Agreement with J&D to resolve a lawsuit brought by Schaefer alleging that J&D infringed its U.S. Patent No. 4,818,183 (“the ’183 patent”). The ’183 patent claims a safety guard for industrial-sized, air-circulating fans. The fan guard prevents human injury (by preventing fingers from reaching the blade) while minimizing the fan guard’s impedance to air flow. Shortly after entering into the Agreement, J&D manufactured a fan guard similar to the one involved in the original suit. Schaefer filed suit, alleging a breach of the Agreement, and the district court granted Schaefer’s motion to enforce the Agreement.

Subsequently, the district court found J&D in contempt for noncompliance with its Stipulation and Order of Dismissal. Specifically, the new fan manufactured by J&D had faces comprising spirals rather than concentric rings. The Court found that although the term “rings” in the Agreement included closed rings, the plain and ordinary meaning of “rings” also encompassed any “circular or spiral course.” The Court also found J&D’s conduct to be willful and a second incident of breach of the Agreement, and awarded damages and attorney fees.

On appeal, J&D argued that the district court had erred in retaining subject-matter jurisdiction over the original motion to enforce the Agreement and, therefore, had erred in retaining jurisdiction over subsequent motions for contempt. Alternatively, J&D asserted that the district court had erred in holding that J&D had breached the Agreement since the word “spirals” never appeared in either the ‘183 patent or the Agreement.

The Federal Circuit recognized that ancillary jurisdiction to enforce a settlement agreement exists only “if the parties’ obligation to comply with the terms of the settlement agreement [is] made part of the order of dismissal—either by separate provision (such as a provision ‘retaining jurisdiction’ over the settlement agreement) or by incorporating the terms of the settlement agreement in the order.” Miener v. Missouri Dep’t of Mental Health, 62 F.3d 1126, 1127 (8th Cir. 1995) (quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 381 (1994)).

In this case, the Stipulation and Order of Dismissal provided that “pursuant to a confidential settlement agreement, all claims in this action may be dismissed with prejudice and on the merits.” (Emphasis added.) Furthermore, the Agreement itself expressly stated that either party had a right to bring a motion before the district court to enforce the Agreement and seek equitable relief and damages.

Noting that a district court need not use explicit language or “any magic form of words” to effect a valid incorporation of an agreement into an order, the Federal Circuit ruled that the relevant language in the Agreement, as well as the language in the dismissal order adequately manifested the district court’s intent to retain jurisdiction to enforce the Agreement. In addition, the Federal Circuit found that the district court had properly consulted the dictionary meaning to define the commonplace term “rings,” where neither the Agreement nor the ’183 patent had expressly defined the term. Finally, the Federal Circuit held that the district court had not erred in its finding of contempt where J&D had failed to obtain any opinion of counsel as to whether manufacturing and selling the fans would violate the district court’s Orders, despite having been previously held in contempt based on the same court Order.

Judge Dyk dissented only as to subject-matter jurisdiction, concluding that neither the district court’s Order nor the Agreement was sufficient to confer continuing jurisdiction on the district court to enforce the Agreement. In his opinion, the district court’s Order only approved the stipulation and did not mention the Agreement or any of its terms. Moreover, before issuing its Order, the district court had provisionally dismissed the case, expressly reserving jurisdiction for only sixty days, which, Judge Dyk concluded, inferred that the district court had explicitly intended that its jurisdiction end on that date.