So You Want an Enforceable Settlement Agreement; Avoiding Pitfalls

By Dennis D. Law

The most common means of enforcing a settlement agreement is to make a motion to enforce in the pending action under Code of Civil Procedure Section 664.6. A real life example of this is found in the litigation surrounding the storied wealth of the Hearst family.

Boilerplate language in most settlement agreements assumes that a means of enforcement is available, but one should not assume that Section 664.6 will apply.

First, Section 664.6 only applies if there is a pending action.  Although this may seem like an obvious point, standard Section 664.6 clauses sometimes appear in pre-litigation agreements.  In a pre-litigation settlement, the only means of enforcement is to file a lawsuit, usually a breach of contract claim.

Second, Section 664.6 only applies to two forms of agreements:  (a) oral agreements recited in open court, in front of a suitable judicial officer, on the record, and agreed to by the parties themselves, not the attorneys (Levy v. Superior Court (1995) 10 C4th 578, 586), or (b) written agreements signed by the parties themselves, with limited exceptions such as in certain construction defect cases ( Code of Civil Procedure Section 664.7).

One important consideration that can easily be overlooked is the impact dismissal may have on enforcement using Section 664.6.  Many settlement agreements result in complete dismissal of the pending lawsuit with prejudice.  In fact, Rule of Court 3.1385(a) requires plaintiffs to immediately notify the court of a settlement, and Rule of Court 3.1385(b) requires a dismissal within forty-five days thereafter. See Judicial Counsel Form CM-200.

But there is a potential problem — the court will lose jurisdiction to enforce the settlement once the case is dismissed (Wackeen v. Malis (2002) 97 CA4th 429, 440). Frequently, settlement agreements require one or more of the parties to do something beyond the forty-five day limit.  For example, monetary settlements often call for payments over months, even years.  If the entire case is dismissed, the court will lose jurisdiction to enforce the settlement under Section 664.6.

There are two ways to address this circumstance. The first way is to apply to the court before the case is dismissed for an order reserving jurisdiction to enforce the settlement after the case is dismissed. (Wackeen, supra). It is important that the court reserve jurisdiction before the case is dismissed or it will lack the power to reserve jurisdiction thereafter (Wackeen at 440). The request to the court to reserve jurisdiction must be made in a writing signed by the parties themselves, or stated orally before the court by the parties themselves (Wackeen at 440). Most settlement agreements state that they are enforceable under Section 664.6 and that the court reserves jurisdiction to enforce the settlement, but that language is insufficient unless the court actually enters an order reserving jurisdiction prior to dismissal (Wackeen, supra). One point of caution – oftentimes, a request to reserve jurisdiction is signed by the attorneys, but Wackeen states that it must be signed by the parties themselves (Wackeen at 440).  Once the order reserving jurisdiction is entered, the entire case can safely be dismissed, even if it is dismissed with prejudice.

The second way to address this circumstance is to condition dismissal on completion of certain terms.  If this approach is followed, Judicial Counsel Form CM-200 (Notice of Settlement of Entire Case) should state that it is conditional and must state when the case will be dismissed. Judicial Counsel Form CM-200 is designed for either a conditional or an unconditional dismissal.  But keep in mind that a dismissal should not be filed until after all conditions have been satisfied.

An agreement to conditionally dismiss can sometimes be a problem if the parties need to dismiss the case immediately and/or if the time for performance will be lengthy and the court is not willing to leave the case on file for its duration.  If that is the situation, then the best option is to have the court reserve jurisdiction and then dismiss the case.

The lesson to be learned is that if you have a case in which the time for performance of settlement terms will be lengthy, then be certain to obtain an order reserving jurisdiction prior to dismissing the case.