Tricky Settlement Agreements in Seventh Circuit…

If you are a litigator in Illinois, the Seventh Circuit decisions in Lynch, Shapo, and Blue Cross have just made your job a lot more difficult.  Especially, if your practice involves business, employment or intellectual property matters, where settlement agreements often contain a payment plan for royalties, profits, backpay or future earnings. 

It used to be that based on Kokkonen you could simply enter a dismissal order with prejudice that allowed the court to retain jurisdiction to enforce the settlement agreement.  However, based on the 7th Circuit’s recent rulings in Lynch, Shapo, and Blue Cross entering such an order will deprive the court of jurisdiction to enforce the settlement agreement. 

In which case, your client may be standing outside the courtroom trying to find a way back in by filing a new lawsuit for a breach of contract.  The other common alternative is to enter a dismissal order without prejudice to allow the court to retain jurisdiction to enforce the settlement agreement. 

Unfortunately, entering such an order may deprive your client of the res judicata effect of a dismissal order that is with prejudice.  In this scenario, your client will be back in the courtroom defending against claims that it believed were resolved, and may have helped fund its opponent’s lawsuit. 

Understanding how the drafting of settlement agreements has changed in light of the US Supreme Court’s decision in Kokkonen and the Seventh Circuit’s decisions in Lynch, Shapo, and Blue Cross is crucial to properly representing your client’s interests. 

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