Ruling: Trial Courts Retain Jurisdiction to Enforce Settlement After Dismissal

May 21, 2015 – Until recently, there was no uniform agreement among Ohio appeals courts over the procedure that trial courts must follow to retain jurisdiction to enforce a settlement after a case has been dismissed.

But that all changed with the March 26, 2015 Ohio Supreme Court decision in Infinite Security Solutions, L.L.C. v Karam Properties II, Ltd.

The ruling stems from two cases filed in the Lucas County Court of Common Pleas in 2009 as a result of a fire at the Hunter’s Ridge apartment complex in Toledo, Ohio.

Kisling, Nestico & Redick attorneys John Reagan and Rob Nestico represented Karam at the trial court level and Christopher Van Blargan argued the case before the Ohio Supreme Court.

According to Van Blargan, Infinite Security Solutions initially sued Karam Properties I and Karam Properties II to seek payment for services at the Hunter’s Ridge complex, which it was contracted to provide by Karam Managed Properties. Karam argued that Toledo Properties was the proper defendant, filing a negligence counterclaim against Infinite on behalf of Toledo Properties to recover the portion of fire damages not reimbursed under insurance. Specifically Karam alleged that Infinite permitted the use of fireworks, which caused the blaze.

Travelers Indemnity Company filed a subrogation suit against Infinite, alleging that due to the fire it paid about $8.9 million under an insurance policy with Karam Managed Properties, the manager of the Hunter’s Ridge complex, and Toledo Properties, which owned the complex.

The two cases were consolidated and on May 19, 2011 the parties entered into an oral agreement to settle. Infinite Security Solutions agreed to pay a fixed sum to resolve all the claims against it. The only remaining issue was how to split the settlement money between the parties. About a week later, the trial court dismissed
the case without prejudice.

On June 20, 2011 Travelers filed a motion to set aside the dismissal, arguing that the decision was a mistake since “the settlement had not been finalized, no monies exchanged hands, no papers were exchanged or signed and the remaining outstanding issue of the priority/apportionment of the proceeds between Travelers and Karam had not been resolved.”

Attorneys for Karam opposed the motion, arguing the trial court lacked jurisdiction to decide the priority issue because it happened after the settlement agreement and was part of a pending federal lawsuit. Infinite also filed a motion, seeking to enforce the settlement agreement and requesting an order permitting it to pay the
agreed upon amount.

In October 12, 2012, the trial court denied both Travelers’ and Infinite’s motions, stating that its dismissal was conditional and it retained jurisdiction to determine the priority issue and holding that Travelers’ claim to the settlement funds had priority. The trial court ordered Infinite to forward all but $25,000 of the settlement funds to Travelers and ordered the parties to complete and execute a settlement agreement and release within 30 days.

Kisling, Nestico & Redick filed an appeal before the 6th District Court of Appeals on behalf of Karam, arguing that the trial court “lacked subject-matter jurisdiction after dismissing the cases, lacked authority to decide the priority issue because it was not raised in either the pleadings or the settlement agreement and erred in its reading of the Travelers policy.”

The court of appeals agreed with Karam on the jurisdiction issue, determining the May 26, 2011 entry, which “unequivocally dismissed the action,” was “unconditional” because “it neither incorporated the terms of the parties’ settlement nor expressly retained jurisdiction to enforce the settlement agreement.”

Travelers filed a discretionary appeal with the Ohio Supreme Court, which agreed with the court of appeals. “The opinion issued by the Ohio Supreme Court is one that is already held by courts in other states and by federal courts,” said Van Blargan. It was also the view held by most of Ohio’s appellate districts.

“The Ohio Supreme Court ruling has resolved this longstanding conflict and serves to ensure settlement details are finalized prior to dismissal.”
Van Blargan said the Supreme Court also suggested that “courts wishing to clear their dockets after settlement should follow the example of several common pleas courts in adopting rules allowing a limited timeframe after settlement to submit a proposed dismissal entry.”

“We took the position that almost half of Ohio’s courts of appeals in the state had correctly held that if a trial court dismisses a case after being advised by the parties of a settlement, it retains jurisdiction to enforce the settlement agreement even if the dismissal entry does not specifically state that,” said former Davis & Young partner Paul Eklund, now a partner at Collins, Roche, Utley & Garner, who represented Travelers.

The Ohio Supreme Court decision means that trial courts will have to expressly state that they will enforce a settlement agreement after dismissing a case in order to be able to do so. If they do not, the parties have to file a new suit and start over if one of them breaches the settlement agreement,” said Eklund.

“I think it makes more work for the courts and the attorneys and delays resolution of the dispute if a new suit has to be filed as opposed to going back to the original court that had the case that settled.”

Van Blargan countered that the ruling merely mandates that the trial court state clearly in its dismissal entry that it “retains jurisdiction to enforce the settlement.”

“Hopefully, this simple requirement will force the parties and court to consider whether they have actually reached a settlement before dismissal as to avoid protracted, post-dismissal litigation over the settlement and its terms,” said Nestico.

With the Ohio Supreme Court decision, Eklund said the case has now been remanded back to the trial court so “the trial court judge can determine if he unintentionally erred in formulating his original dismissal entry.”

If you would like more information about this ruling or if you or someone you know is the victim of a personal injury accident, please contact Kisling, Nestico & Redick at 1-800-HURT-NOW or visit www.knrlegal.com.