Attorneys will commonly add a Code of Civil Procedure section 664.6 provision in their settlement agreements to ensure that courts have continuing jurisdiction to enforce the terms of a settlement, as opposed to having to file a new complaint in the event of a breach of a settlement agreement.
Oral settlements before a trial court are also enforceable under Section 664.6, but as discussed in Eagle Fire and Water Restoration, Inc. v. City of Danuba, Case No. F086052 (May 30, 2024), in cases involving a complaint and multiple cross-complaints, questions can arise as to whether a trial court has in fact retained jurisdiction under Section 664.6 to enforce an oral settlement and even what the terms of the settlement were.
The Eagle Fire Case
Eagle Fire and Water Restoration, Inc. was hired by the City of Dinuba to reroof the City’s police station and courthouse building. The contract was for approximately $500,000. Before completion of the project, a rainstorm caused significant water damage to the interior of the building. The City incurred over $330,000 in clean-up and repair costs and withheld approximately $319,000 from Eagle as an offset.
In January 2021, Eagle filed a complaint against the City and its Engineer. In its third amended complaint, Eagled allege causes of action for breach of contract against the City, negligence against the City and its Engineer, and negligent misrepresentation against the Engineer. The City in turn filed a cross-complaint against Eagle alleging that Eagle did not perform its work in a workmanlike manner, failed to adequately cover the roof with protective sheeting, failed to ensure that the roof drains were not clogged, and failed to procure proper insurance coverage. The Engineer also filed a cross-complaint against Eagle alleging causes of action for breach of contract and indemnity.
Note: These are odd causes of action. Eagle’s causes of action against the City and its Engineer for negligence and its cause of action for negligent misrepresentation against the Engineer are unusual and I’m not sure on what legal basis Eagle contended it had standing to bring these claims. Similarly, the Engineer’s cross-complaint against Eagle for breach of contract and indemnity are likewise unusual since Eagle’s contract was with the City not the Engineer. But wait, the facts get even stranger.
In July 2022, the trial court granted the Engineer’s motion for summary judgment against Eagle’s causes of action against the Engineer. Eagle filed a timely appeal which was stayed pending resolution of the present case. On November 4, 2022, the Engineer voluntarily dismissed his cross-complaint against Eagle without prejudice.
On November 14, 2022, the City and Eagle appeared for trial. Prior to trial commencing, Eagle moved unsuccessfully for mistrial. On what basis Eagle moved for mistrial before the case was even tried, I do not know. Eagle’s counsel then informed the trial court that Eagle would be filing a request to dismiss its complaint without prejudice. However, the City indicated that it would continue proceeding with its cross-complaint. Again, some unusual procedural moves. The court then recessed for lunch.
During lunch, Eagle filed its dismissal without prejudice. After lunch, the City and Eagle informed the trial court that they had reached a settlement, The terms of the settlement was then placed on record. The trial court then ended the hearing by setting a case management conference for late January 2023 to give the City sufficient time approve the settlement and file a notice of settlement or dismissal.
On January 24, 2024, the City filed a notice of settlement stating that the City “has approved the case settlement which was placed on the record in court on November 14, 2022.” That same day, Eagle filed an objection and notice of non settlement asserting that the statement of the settlement agreement should be “changed to reflect only the basic enforceable concepts of mutual dismissals with prejudice.” I’m scratching my head here since the settlement was put on record and consented to by the parties.
At the January 26, 2024 case management conference, the parties discussed the disagreement over the terms of the settlement. Eagle asserted that the transcript of the November hearing did not include everything said and that, although Eagle agreed to certain things, “we thought we were agreeing to something a little bit different than as it came out in the settlement.” The trial court ended the conference, noting that a disagreement existed, and set a hearing on an order to show cause as to why the action should not be dismissed.
In February 2023, the City filed a motion to enforce settlement pursuant to Code of Civil Procedure section 664.6. Eagle opposed the motion. On March 21, 2023, the trial court hard argument on the motion and took it under submission. Later that day, the trial court issued a seven-page document entitled “Ruling on Defendant’s Motion to Enforce Settlement.” The document included the trial court’s findings of fact and legal analysis and ultimately granted the City’s motion.
Eagle appealed. In November 2023, the City filed a motion asserting that Eagle’s appeal was frivolous and requested dismissal of the appeal and monetary sanctions.
The Appeal
On appeal before the 5th District Court of Appeals noted that under Code of Civil Procedure section 664.6:
If parties to pending litigation stipulate, in a writing signed by the parties outside of the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement. If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement.
Section 664.6, explained the Court, “provides an expedited procedure for enforcing the parties’ settlement agreement and, as a result, a party need not resort to less efficient procedures, such as filing a new lawsuit for specific enforcement of the settlement contract.” “Among other things,” explained the Court further, “‘[s]ection 664.6 generally allows a court to enter judgment pursuant to a settlement agreement despite the dismissal of the complaint, which ordinarily deprives the court of continuing jurisdiction.'”
A. Eagle’s Jurisdictional Argument
On appeal, Eagle contended that Code of Civil Procedure 664.6 could not be used to enforce the settlement agreement because there had been no express retention of jurisdiction. In support of its argument, Eagle pointed to the fact that Eagle dismissed its complaint before the settlement agreement was put on record and the absence of an explicit statement by the parties or the court that the court was retaining jurisdiction under Section 664.6. The City, in contrast, argued that retention of jurisdiction was unnecessary since the City’s cross-complaint was pending.
Apparently, in its “Ruling on Defendant’s Motion to Enforce Settlement,” the trial court discussed why it believed it had jurisdiction, stating that the City and Eagle has “stipulated orally before this Court, while the litigation was pending (and appears to be still pending) for settlement of this case on terms that included mutual dismissals with prejudice and a waiver of appeal rights,” and because there was a pending cross-complaint by the City, despite Eagle’s dismissal of its complaint, the trial court did not need to expressly retain jurisdiction “as jurisdiction was never lost.”
Parsing the text of Civil Code section 664.6, the Court of Appeal noted that under the first sentence of the section – “If parties to pending litigation stipulate, in a writing signed by the parties outside of the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement – if the City’s yet-to-be dismissed cross-complaint was considered “pending litigation” then the trial court had jurisdiction to enter judgment pursuant to the on-the-record settlement.
However, noted the Court of Appeal, under the second sentence of Section 664.6 – “If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement” – an argument could also be made that the court’s retention of jurisdiction hinged on whether the parties specifically agreed to the trial court retaining jurisdiction.
Turning to the legislative intent of Civil Code section 664.6, the Court of Appeal noted that “[u]nder the earlier version of section 664.6, when the action was dismissed pursuant to a settlement, the court lost its jurisdiction and thus its ability to enforce a settlement agreement pursuant to a section 664.6 motion.” The state legislature later added the second sentence in 1993. And under the second sentence added in 1993 held the Court:
[W]e infer that the request to retain jurisdiction mentioned in the second sentence of section 664.6, subdivision (a) is necessary only when the motion to enforce the settlement is filed after the trial court has lost jurisdiction. We will not interpret the statute to require an express retention of jurisdiction in situations where the court’s jurisdiction has yet to be terminated because such a requirement would be redundant.
Moreover, explained the Court of Appeal, the City’s yet-to-be dismissed cross-complaint was considered “pending litigation” because while Eagle dismissed its complaint, the action was not dismissed in its entirety, since the City’s cross-complaint remained. Thus held the Court:
[T]he pending cross-complaint gave the court subject matter jurisdiction over the disputes arising from the roofing project and Eagle’s appearance as a cross-defendant gave the court personal jurisdiction over it. Consequently, the present circumstances are distinguishable from cases where a plaintiff’s voluntary dismissal disposed of all pending claims and thus ended the trial court’s “jurisdiction to enter further orders in the dismissed action.” As a result, Eagle’s arguments about the jurisdictional effect of its voluntary dismissal without prejudice must be rejected. That voluntary dismissal affected Eagle’s complaint only, did not resolve the City’s cross-complaint, and could not resolve the entire “action.”
On appeal, Eagle further argued that the trial court’s waiver of appeal rights should not apply to Eagle’s pending appeal of the Engineer’s summary judgment motion since the Engineer did not agree to the trial court retaining jurisdiction. First, explained the Court of Appeal, the trial court had subject matter jurisdiction over the dispute, the Engineer was involved on the project, and the claims against the Engineer arose from the project. As such, held the Court of Appeal, the trial court had subject matter jurisdiction and could enter a judgment requiring Eagle to dismiss its appeal against the Engineer.
Second, explained the Court of Appeal, to the extent Eagle contends that the trial court lacked personal jurisdiction over the Engineer, the judgment entered did not direct the Engineer to perform any act or refrain from acting and did not deprive the Engineer of any rights and, thus, personal jurisdiction over the Engineer was not necessary for the trial court to order Eagle to dismiss its appeal against the Engineer.
B. Eagle’s Enforceability Argument
On appeal, Eagle also argued that the reporter’s transcript omitted dispositive terms of the settlement. Based on these omissions, Eagle contended that the settlement was uncertain and enforceable and, further, that the trial court could have ordered a review of the reporter’s transcript against the audio transcript of the hearing, but did not. The City, in contrast, argued that Eagle was barred from challenging the accuracy of the reporter’s transcript because it did not offer a declaration of its principal, who attended the hearing, setting forth the claimed errors and omissions in the reporter’s transcript, and did not attempt to correct the record.
Initially noting that Civil Code section 664.6 does not require a reporter’s transcript for an oral settlement before a court to be enforceable, the Court of Appeal explained that when a reporter’s transcript is part of an appellate record, Rule 8.155(c) of the California Rules of Court provides a procedure for correcting errors, and that an appellate court “may order the correction or certification of any part of the record” or “may order the superior court to settle disputes about omissions or errors in the record.”
While there is no express deadline for a party to file a motion requesting correction of errors in the record, held the Court of Appeal, “[h]ere, Eagle made no attempt, by motion or otherwise, to correct the claimed omission sin the reporter’s transcript . . . [and] [u]nder these circumstances, we conclude Eagle is estopped from arguing the transcript omitted things . . .”
Further, explained the Court of Appeal:
[T]he Supreme Court addressed the trial court’s role by stating: “Past cases have established that, in ruling upon a section 664.6 motion for entry of judgment enforcing a settlement agreement, and in determining whether the parties entered into a binding settlement of all or part of a case, a trial court should consider whether (1) the material terms of the settlement were explicitly defined, (2) the supervising judicial officer questioned the parties regarding their understanding of those terms, and (3) the parties expressly acknowledged their understanding of and agreement to be bound by those terms.”
When an appellate court is tasked with determining whether an oral settlement before a trial court has occurred an appellate court reviews:
“[W]hether the court’s ruling is supported by substantial evidence.” This standard of review usually applies to a determination of whether an oral contract exists. Thus, a trial court’s factual findings concerning whether a settlement agreement explicitly defined the material terms, and whether the parties expressly acknowledged their understanding of and agreement to be bound by those material terms, are reviewed for substantial evidence. Determinations other than factual findings “are reviewed de novo for errors of law.”
Applying these principles, the Court of Appeal held that “under the deferential substantial evidence standard of review, we conclude the evidence adequately supports (1) the court’s finding that an enforceable settlement contract existed and (2) the court’s specific finding that Eagle assented to a dismissal of all claims arising out of the incident that formed the basis of its complaint.”
The Court of Appeal further held that there was nothing improper in the City’s negotiating a dismissal of Eagle’s appeal against the summary judgment motion of the Engineer.
Conclusion
A somewhat odd case with a somewhat odd set of facts. There are, however, several take-aways that can be gleaned from the Eagle case. First, unless all actions that are part of a case have been dismissed, including all complaints and cross-complaints, a trial court has jurisdiction to enforce a settlement reached orally before the court. Second, if the accuracy of a reporter’s transcript is at issue on appeal, make sure you file a motion requesting a correction under Rule 8.155(c) of the California Rules of Court. And, finally, on appeal, a trial court’s determination that an oral settlement before the court has been reached will be upheld by appellate courts if the trial court’s finding is supported by substantial evidence.
What I’m still struggling with though is why Eagle wanted to preserve its appeal of the summary judgment motion granted in favor of the Engineer. Ostensibly, the Engineer, who was not a party to the underlying contract, was not awarded any attorneys’ fees although he would have been entitled to costs. But, even if so, was it economical to file an appeal – really two appeals – simply over an award of costs?
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