4:20 Communications, Inc. v. Paradigm Co., 02-1692.

• Decision Date: 21 July 2003
• Docket Number: No. 02-1692.,02-1692.
• Citation: 336 F.3d 775
• Parties: 4:20 COMMUNICATIONS, INC., Plaintiff-Appellant, v. THE PARADIGM COMPANY; Literacy Unlimited, Inc.; Samuel L. Blumenfeld, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

336 F.3d 775

4:20 COMMUNICATIONS, INC., Plaintiff-Appellant, v. THE PARADIGM COMPANY; Literacy Unlimited, Inc.; Samuel L. Blumenfeld, Defendants-Appellees.

No. 02-1692.

United States Court of Appeals, Eighth Circuit.

Submitted: March 10, 2003.

Filed: July 21, 2003.

Floyd E. Siefferman, Jr., argued, Minneapolis, MN, for appellant.

Mary E. Bolkcom, argued, Minneapolis, MN, for appellee.

Before McMILLIAN, FAGG, and LOKEN,^* Circuit Judges.

LOKEN, Chief Judge.

This case arises out of a dispute between the parties to a licensing agreement for the sale of copyrighted teaching materials. On March 27, 2001, the district court dismissed the case with prejudice based upon a final settlement negotiated at a settlement conference held the prior day before a magistrate judge. Some months later, defendant The Paradigm Company moved to enforce the settlement, and Paradigm and plaintiff 4:20 Communications, Inc. submitted conflicting proposals to reduce the settlement to a written agreement. The magistrate judge entered an order essentially adopting Paradigm's proposal. The district court affirmed the magistrate's order, and 4:20 Communications appeals. We conclude the district court lacked jurisdiction to enforce the settlement under Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). As neither Paradigm nor 4:20 Communications sought relief from the final judgment of dismissal under Rule 60(b) of the Federal Rules of Civil Procedure, we direct the district court to vacate the orders being appealed and to terminate the case pursuant to the March 27, 2001 dismissal order.

In addition to Paradigm, the initial defendants were Samuel Blumenfeld, the copyright owner; Literacy Unlimited, Inc. ("LUI"), the alleged assignee of Paradigm's rights under the licensing agreement; and Guy Wickwire, the primary shareholder of LUI. In September 1999, the district court dismissed Wickwire for lack of personal jurisdiction. His attorneys then withdrew, leaving LUI and Blumenfeld unrepresented. The March 26, 2001, settlement conference was attended by 4:20 Communications and Paradigm, their respective attorneys, and Blumenfeld individually. At the end of the settlement negotiations, the magistrate judge placed the settlement on the record, explaining:

It's my understanding that after some lengthy and detailed negotiations, that this matter has been indeed settled in full.... I want to caution everyone that in the Court's view, today will be the final agreement. What we say today on the record will indeed be a binding settlement for everyone even though I'm going to direct the attorneys to make some efforts to memorialize today's final agreement in writing. In the absence of a signature [on] that writing, the agreement would still be enforceable by either side because of the record that we're making today in the courtroom.... It's my understanding that the only thing that this matter will be conditioned upon is getting [LUI's] signature on this particular matter because it's envisioned... that there will be a stipulation of dismissal with prejudice ... including [LUI's claims].... Now, it's going to be the responsibility of Paradigm Company to obtain that signature from [LUI] in the fashion I've described.

After the magistrate judge stated his understanding of the settlement terms, certain points were discussed and clarified. The settlement as described was then agreed to by 4:20 Communications, Paradigm, and Blumenfeld on the record. The following day, the district court entered the following dismissal order:

The court having been advised by counsel that the above case has been settled,

IT IS ORDERED that this action is hereby dismissed, with prejudice, the court reserving jurisdiction for ninety (90) days to permit any party to move to reopen the action, for good cause shown, or to submit and file a stipulated form of final judgment, or to seek enforcement of the settlement terms.

During that ninety-day period, counsel for 4:20 Communications and Paradigm exchanged drafts of a proposed settlement agreement but were unable to agree on the terms of a written agreement. However, no party filed a motion asking the district court to exercise its reserved jurisdiction.

Some months after the ninety-day period expired, Paradigm moved the district court to enforce the settlement, submitting the conflicting proposals the parties had exchanged and asking the court to order the parties to sign Paradigm's proposed General Release and Settlement Agreement. In response, 4:20 Communications urged the court to order the parties to sign its proposed Mutual Release and Settlement Agreement. On December 4, 2001, the magistrate judge issued an order declaring that the Mutual General Release and Settlement Agreement attached to the order "fully and accurately reflects the agreement of the parties reached in open court on [March 26]" and "shall be considered fully enforceable" upon LUI's signing. The district court affirmed the magistrate judge's order. 4:20 Communications filed a motion to reconsider, arguing for the first time that the court lacked subject matter jurisdiction to enforce the settlement. The district court denied that motion, concluding it had jurisdiction because the parties asked the magistrate judge to confirm the substance of the settlement agreement, which is different than suing for breach of the agreement, and in any event because the court had diversity jurisdiction to resolve the settlement contract dispute. This appeal followed.

1. On appeal, 4:20 Communications argues the district court lacked jurisdiction to enforce the March 26, 2001, settlement agreement. In Kokkonen, the Supreme Court held that a district court has no post-dismissal ancillary jurisdiction to enforce a settlement agreement unless

the parties' obligation to comply with the terms of the settlement agreement ha[s] been 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.... The judge's mere awareness and approval of the terms of the settlement agreement do not suffice to make them part of his order.

511 U.S. at 381, 114 S.Ct. 1673. This is an issue of subject matter jurisdiction. As parties may not expand the limited jurisdiction of the federal courts by waiver or consent, subject matter jurisdiction issues may first be raised at any time, even on appeal. See Jader v. Principal Mut. Life Ins. Co., 925 F.2d 1075, 1077 (8th Cir.1991). We review such issues de novo. See Gilbert v. Monsanto Co., 216 F.3d 695, 699 (8th Cir.2000).

The district court's dismissal order did not incorporate the terms of the settlement. The court did expressly retain jurisdiction to enforce the settlement, but only for ninety days. Thus, when no party acted within that ninety-day period, the magistrate judge and the district court lacked ancillary jurisdiction to rule upon Paradigm's motion to enforce the settlement agreement. See Miener ex rel. Miener v. Missouri Dep't of Mental Health, 62 F.3d 1126, 1127-28 (8th Cir.1995).

Paradigm...