Lynch, Incorporated v. Samatamason, Inc ( 2002 )

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 00-1491, 00-1915
Lynch, Inc.,
Plaintiff-Appellant,
v.
SamataMason Inc., et al.,
Defendants-Appellees.
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 99 C 4357--Morton Denlow, Magistrate Judge.
Argued December 4, 2001--Decided January 29, 2002
Before Bauer, Posner, and Easterbrook,
Circuit Judges.
Posner, Circuit Judge. We are asked to
decide a judge’s authority to rule that a
case has been settled on the basis of
settlement discussions that were
conducted before him but not recorded or
transcribed. The case, filed by Lynch in
1999, involved claims and counterclaims
for copyright infringement and other
wrongdoing. On September 21 the parties
and their lawyers appeared before
Magistrate Judge Denlow, whom the parties
had consented to have preside over the
case, to discuss settlement. No court
reporter was present and no transcript
was made. But according to the magistrate
judge’s recollection, which the parties
do not question, at that conference the
parties "reached an agreement in
principle to resolve the litigation" by a
written settlement agreement. After the
conference they exchanged a number of
drafts of the agreement. On November 23
they again appeared before the magistrate
judge. Again no court reporter was
present and no record of the conference
was made. According to Judge Denlow’s
recollection of this conference, as
described in an order that he issued two
weeks later, the parties "advise[d] the
Court that one issue regarding Section 5
of the settlement agreement remained
unresolved. It was agreed that in the
event the parties could not resolve their
differences, the parties would submit
their competing versions of paragraph 5
to the Court and the Court would
determine whether this issue had been
settled and if so, which version
accurately reflects the agreement
reached. At no time did the parties indi
cate any dispute regarding paragraph 2
and therefore the Court does not address
paragraph 2." Judge Denlow compared the
versions submitted by the parties and
approved SamataMason’s as the one that
accurately reflected the agreement that
the parties had told him at the November
23 conference they had reached. He
directed them to execute that version.
Lynch refused, whereupon the judge
ordered the litigation dismissed with
prejudice but stated in the order that he
was retaining jurisdiction to enforce the
settlement agreement.
An initial question is the significance
of that purported retention. It had no
significance. Having dismissed the entire
litigation, the court had no jurisdiction
to do anything further, and so if
SamataMason wanted to enforce the
settlement agreement and Lynch balked,
SamataMason would have to sue Lynch under
the law of contracts. A settlement
agreement, unless it is embodied in a
consent decree or some other judicial
order or unless jurisdiction to enforce
the agreement is retained (meaning that
the suit has not been dismissed with
prejudice), is enforced just like any
other contract. Kokkonen v. Guardian Life
Ins. Co., 511 U.S. 375, 380-81 (1994);
Jessup v. Luther, No. 01-1523, 2002 WL
73721, at *2 (7th Cir. Jan. 17, 2002),
and cases cited there. Because the
parties are not diverse, any suit to
enforce the settlement agreement in this
case would have to be brought in state
court even though the settlement was of
federal as well as state claims. Kokkonen
v. Guardian Life Ins. Co., supra, 511
U.S. at 381-82; McCall-Bey v. Franzen,
777 F.2d 1178, 1185, 1186-87 (7th Cir.
1985); Morris v. City of Hobart, 39 F.3d
1105, 1112 (10th Cir. 1994); Langley v.
Jackson State University, 14 F.3d 1070,
1074 (5th Cir. 1994). Lynch would defend
against such a suit by arguing that no
contract had actually been made; for
Lynch denies the accuracy of the
magistrate judge’s statement in his order
of December 6 that the parties had
reached an agreement. Suppose it won that
suit, knocking out the settlement of its
original suit, the suit charging
copyright infringement and other torts.
Its victory would be Pyrrhic. The only
purpose of knocking out the settlement
would be to enable Lynch to proceed with
the original suit, but Lynch would not be
able to do so because that suit had been
dismissed with prejudice. So the
dismissal did harm it and so it has
standing to challenge the order, which
was a final order and hence appealable
now because it wound up the proceedings
in the district court even though Lynch
may face further litigation with
SamataMason in another forum over the
settlement agreement. University Life
Ins. Co. v. Unimarc Ltd., 699 F.2d 846,
848 (7th Cir. 1983).
If the magistrate judge’s recollection
of the November 23 settlement conference
is correct, the case has indeed been
settled and was properly dismissed. The
fact that the settlement was oral would
not make it unenforceable under Illinois
law, Kim v. Alvey, Inc., 749 N.E.2d 368,
378 (Ill. App. 2001); Lampe v. O’Toole,
685 N.E.2d 423, 424 (Ill. App. 1997);
Wilson v. Wilson, 46 F.3d 660, 667 (7th
Cir. 1995) (Illinois law), unless it
would violate the statute of frauds
(which is not contended), Knoll v.
Swanson, 234 N.E.2d 543, 546 (Ill. App.
1968); Sheffield Poly-Glaz, Inc. v.
Humboldt Glass Co., 356 N.E.2d 837, 842
(Ill. App. 1976). And it is indeed
Illinois law that would govern such a
suit. The uncertainty we expressed in
Fleming v. U.S. Postal Service AMF
O’Hare, 27 F.3d 259, 260 (7th Cir. 1994),
over whether state or federal law would
govern a suit to enforce a settlement of
a federal suit, has been dispelled; it is
state law. Pohl v. United Airlines, Inc.,
213 F.3d 336, 338 (7th Cir. 2000); Carr
v. Runyan, 89 F.3d 327, 331 (7th Cir.
1996); Burke v. Smith, 252 F.3d 1260,
1266 (11th Cir. 2001); United States v.
McCall, 235 F.3d 1211, 1215 (10th Cir.
2000); Wilcher v. City of Wilmington, 139
F.3d 366, 372 (3d Cir. 1998); In re Omni
Video, Inc., 60 F.3d 230, 232 (5th Cir.
1995). If it were federal law, the suit
would arise under federal law and thus be
within the jurisdiction of the federal
court (even if diversity were absent),
contrary to Kokkonen.
The enforceability of oral settlements
is, by the way, the general rule, not
something peculiar to Illinois, see,
e.g., Morgan v. South Bend Community
School Corp., 797 F.2d 471, 474 (7th Cir.
1986); Tiburzi v. Department of Justice,
269 F.3d 1346, 1354-55 (Fed. Cir. 2001);
Quint v. A.E. Staley Mfg. Co., 246 F.3d
11, 15 (1st Cir. 2001), though it has
been changed by statute or court rule in
some states. See, e.g., Monaghan v. SZS
33 Associates, L.P., 73 F.3d 1276, 1283
(2d Cir. 1996); Alcantar v. Oklahoma
National Bank, 47 S.W.3d 815, 818-19, 820
(Tex. Civ. App. 2001). It is likewise the
general rule that such settlements, like
other contracts, are subject to the
statute of frauds. See, e.g., Sherman v.
Haines, 652 N.E.2d 698, 701 (Ohio 1995);
Omaha National Bank v. Mullenax, 320
N.W.2d 755, 758 (Neb. 1982); Wallem v.
CLS Industries, Inc., 725 N.E.2d 880, 887
(Ind. App. 2000); but cf. Byblos Corp. v.
Salem Farm Realty Trust, 692 A.2d 514,
517 (N.H. 1997).
In short, the parties may well have
reached a valid, enforceable settlement,
a proper predicate for the dismissal of
the suit with prejudice. But memory is
fallible, even of events only two weeks
in the past, and trial judges have a
natural desire to see cases settled and
off their docket, which may shape their
recollection of settlement conferences.
See Higbee v. Sentry Ins. Co., 253 F.3d
994, 995 (7th Cir. 2001). At the end of
the November 23 conference, the
magistrate judge should have called in a
court reporter, dictated the terms of
settlement as he understood them, and
made sure that the parties agreed. Then
there would have been a solid, indeed an
unimpeachable, basis for his finding on
December 6 that the case had indeed been
settled and on terms accurately reflected
in the draft submitted by SamataMason.
This is the standard practice. See, e.g.,
Kapco Mfg. Co. v. C & O Enterprises,
Inc., 886 F.2d 1485, 1489 (7th Cir. 1989)
(per curiam); Red Ball Interior
Demolition Corp. v. Palmadessa, 173 F.3d
481, 482 (2d Cir. 1999); Futernick v.
Sumpter Township, 78 F.3d 1051, 1054 n. 3
(6th Cir. 1996); Murchison v. Grand
Cypress Hotel Corp., 13 F.3d 1483, 1485
(11th Cir. 1994); Kelly v. Greer, 334
F.2d 434, 436 (3d Cir. 1964); Xorbox v.
Naturita Supply Co., 681 P.2d 1114, 1115
(N.M. 1984); Hyde Park Union Church v.
Curry, 942 F. Supp. 360, 361 (N.D. Ill.
1996). It should be followed in all
cases.
But there is no use crying over spilled
milk. No point would be served by
remanding the case for an evidentiary
hearing at which the district judge would
testify to his recollection of the
November 23 conference and the other
participants would testify to their
recollections. The conference was two
years ago and the terms of the settlement
are complex. The result of such a hearing
would not be reliable.
Nor are we minded to lay down a flat
rule that if a dispute over whether a
case was settled cannot be resolved on
the basis of a written record, the
settlement is void. Such a rule would be
inconsistent with the premises of an
adversarial system of justice. No one
supposes that there is any impropriety in
a judge’s conducting settlement
discussions off the record. See, e.g.,
Higbee v. Sentry Ins. Co., supra, 253
F.3d at 996 and n. 1; City of Pittsburgh
v. Simmons, 729 F.2d 953, 955 (3d Cir.
1984); Pettway v. American Cast Iron Pipe
Co., 576 F.2d 1157, 1183 (5th Cir. 1978).
(The Court Reporter’s Act, 28 U.S.C. sec.
753(b), which specifies what proceedings
must be on the record, does not require
that settlement conferences conducted in
the judge’s chambers be on the record if
the parties don’t want them to be. United
States v. Murphy, 768 F.2d 1518, 1535
(7th Cir. 1985); In re Beard, 811 F.2d
818, 833-34 (4th Cir. 1987); United
States v. Hein, 769 F.2d 609, 611 (9th
Cir. 1985) (per curiam).) It is done all
the time, see, e.g., Monaghan v. SZS 33
Associates, L.P., supra, 73 F.3d at 1280;
Woodson v. Surgitek, Inc., 57 F.3d 1406,
1411 and n. 6 (5th Cir. 1995), to
encourage candid exchanges of offers and
arguments. We agree with the Second
Circuit that if neither party asks that
any part of the discussion be recorded,
the judge’s failure to insist that a set
tlement reached in such a discussion be
recorded does not invalidate the
settlement. Monaghan v. SZS 33
Associates, L.P., supra, at 1282-83; see
also Wilson v. Wilson, supra, 46 F.3d at
664-65. Both parties, Lynch and
SamataMason, assumed the risk on November
23, when neither requested that the
culminating part of the discussion be
placed on the record, that the judge
would recollect the discussion
differently from how they did. Lynch must
live with the consequences.
Lynch would have a much stronger case if
at the outset the judge had said, "This
is an off-the-record settlement
conference and no settlement arrived in
it will be deemed final and enforceable."
If the judge later "recollected" that a
final and enforceable settlement had been
reached, a party promptly objecting to
the terms of that so-called settlement
would be entitled to an immediate
evidentiary hearing to explore the
accuracy of the judge’s recollection. And
likewise if the judge had refused to
permit the settlement agreement to be
read into the record. Although "disputes
over judicial recollection are not
customarily resolved by placing the judge
on the witness stand," United States v.
Daniels, 902 F.2d 1238, 1242 (7th Cir.
1990), if that is the only means of
resolving such a dispute satisfactorily,
then so be it; there is no rule against
proceeding thus. In United States v.
Newman, 982 F.2d 665, 670 n. 6 (1st Cir.
1992), a similar case, the district judge
offered the parties an opportunity to
question him on the record concerning his
recollection. (Not, so far as appears, to
question him under oath; but that is a
detail.) See also Higbee v. Sentry Ins.
Co., supra, 253 F.3d at 997. But a party
that had a chance to get the settlement
read into the record will not be heard to
complain that the judge’s recollection is
inaccurate, least of all in a case in
which the party has nothing more than its
own say-so to cast doubt on the accuracy
of that recollection. Lynch thinks that
no agreement was reached on paragraph 2
as well as on paragraph 5, but it did not
think to have its understanding recorded
during the November 23 conference, though
it must have realized that SamataMason
and the judge might have a different
impression. In these circumstances, there
is no basis for reinstating Lynch’s suit.
Affirmed.