BlogLine

No bright line rule for an Illinois circuit court retaining jurisdiction to enforce settlement?

2/29/24

By: Donald Patrick Eckler and Joshua W. Zhao

In Zanayed v. Mufarreh, 2024 IL App (1st) 230331-U, an Illinois appellate court held that a circuit court had jurisdiction to enforce a settlement agreement even though the dismissal order did not explicitly state that the circuit court retained jurisdiction and the settlement agreement impacted third parties. 

Akram Zanayed and Michael Mufarreh owned Protégé Investments, a corporation that managed rental properties. Zanayed filed suit against Mufarreh on September 15, 2020, alleging that Mufarreh was improperly funneling funds from Protégé Investments to BAMCO Construction by having BAMCO overcharge Protégé for repairs. BAMCO was an LLC and Mufarreh was a member of BMACO. Zanayed further alleged violations of the Illinois Business Corporation Act, conversion, breach of fiduciary duty and unjust enrichment. On June 3, 2022, the parties entered into a settlement agreement. Mufarreh and Joseph Ortinau, a non-party to the case, agreed to divest and resign from Protégé and Mufarreh was to transfer his interest in real property to Zanayed and Protégé. On June 21, 2022, the court dismissed the case without prejudice. The court told the parties to provide status updates on the performance of the settlement terms. On December 1, 2022, Zanayed filed a motion to enforce the settlement, alleging that Mufarreh and Ortinau did not comply with the settlement agreement by failing to transfer real property to Zanayed and Protégé. Zanayed contended that the transfer was needed so Protégé could pay its obligations to Mufarreh and Ortinau. Zanayed further stated that the settlement should be enforced so Mufarreh and Ortinau would be required to make payments to third parties and that Mufarreh and Ortinau should reimburse Protégé for expenses based on Mufarreh and Ortinau’s failure to comply. Zanayed stated that Zanayed and Protégé had made timely payments to date, but Zanayed requested an extension of time to make future payments. 

Mufarreh moved to dismiss the motion to enforce the settlement agreement for lack of jurisdiction, arguing that the court lacked jurisdiction over third parties, like Ortinau, who were not parties to the underlying action. Mufarreh further argued that rewriting the settlement agreement would harm the rights of third parties and the court had declined to retain jurisdiction by not explicitly stating in its dismissal order that it would retain jurisdiction. 

The circuit court held that it had jurisdiction to enforce the settlement agreement as the dismissal order contemplated future action and the court had allowed several continuances for status during settlement negotiations. The court stayed Zanayed’s payment obligations and ordered that Mufarreh transfer the real property to Zanayed and Protégé. Mufarreh filed an interlocutory appeal, arguing that the circuit court erred in finding that it had retained jurisdiction when it had dismissed the case without stating that it would retain jurisdiction. Mufarreh also argued that the settlement agreement concerns twenty-five other parties who are not subject to the court’s jurisdiction and the record did not support the circuit court having jurisdiction.  

The appellate court held that it had jurisdiction to consider the interlocutory appeal and that the circuit court had jurisdiction to enforce the settlement. The appellate court stated that the record showed that the circuit court issued continuances for status on settlement negotiations, made the dismissal contingent on settlement, and that the court contemplated “future conduct” as it directed the parties to advise the court when certain settlement terms had been met. The court further stated that Zanayed partially fulfilled obligations under the settlement, but Mufarreh did not. The appellate court held that the circuit court was empowered to enforce a settlement where one of the parties had partially complied, but the other party had not. Although the use of the term “with prejudice” does not determine finality, it can be used to ascertain the circuit court’s intent. The court further held that Mufarreh could not object to the jurisdiction over third parties as he can only object to jurisdiction over himself. Notwithstanding, the appellate court held that the circuit court did not affect the rights of third parties. 

The dissent argues that the circuit court did not have jurisdiction without an express retention of jurisdiction and that, by statute, the circuit court loses jurisdiction over the proceeding 30 days after final judgment. Moreover, by statute, the court cannot modify a final judgment more than 30 days after final judgment unless a post-judgment motion is filed. The dissent argues that Zanayed’s only remedy was to file a separate breach of contract action for breach of the settlement agreement or to file a motion to vacate the dismissal and reinstate the dismissed action. 

Following this decision, the law appears to be that there is not a bright line rule for finality in the settlement context, but careful practitioners are advised to include such language to avoid disputes of this kind. 

For more information, please contact Donald Patrick Eckler at patrick.eckler@fmglaw.com, Josh Zhao at josh.zhao@fmglaw.com, or your local FMG attorney.