A recent New Jersey Law Journal story, “Third Circuit Defines ‘Prevailing Party’ in Settlement Fee Dispute,” reports that a federal appeals court has determined that plaintiffs counsel should have been awarded attorney fees in a case that ended in a settlement that the district court incorporated and retained jurisdiction over, but never actually reviewed.

A three-judge panel of the court issued a precedential ruling in Raab v. City of Ocean City.  The holding reversed a decision from the U.S. District Court for the District of New Jersey, which had denied the plaintiff's motion for attorney fees, and remanded the case to the lower court for a determination on the amount of fees the plaintiff's attorneys should receive.

Although the settling defendant, Jessie Ruch, an officer with the Ocean City Police Department, had contended that the district court could not have retained jurisdiction since neither party consented to the court having ancillary jurisdiction over the enforcement of the agreement, Third Circuit Judge Michael Chagares, writing for the court, said nothing in the case law indicated that a district court only retains jurisdiction if the parties include a provision in the settlement acknowledging their consent.

"We reject Ruch's argument and hold that a district court may sua sponte retain ancillary jurisdiction in the circumstances of this case," Chagares said.  The fee dispute stems from a civil rights case in which plaintiff Monica Raab lodged claims, including false arrest, excessive force and unlawful search, against Ruch and his employer, Ocean City, New Jersey.

At a settlement conference before a magistrate judge in November 2014, the parties agreed to settle the case for $150,000, Chagares said.  Attorney fees were not included in the settlement, and there was an agreement that attorney fees would be determined later by the district court.

According to Chagares, before making a determination about the attorney fees, the district court entered an order dismissing the action without costs, saying, "The terms of the settlement agreement are incorporated herein by reference and the court shall retain jurisdiction over such agreement."

Several months later, the district court denied the motion for attorney fees, saying it did not consider Raab to be a "prevailing party" as required by 42 U.S.C. §1988, because a party can only prevail by obtaining either a judgment or a court-ordered consent decree.  The district court cited the 2001 Supreme Court decision in Buckhannon Board and Care Home v. West Virginia Department of Health & Human Resources in making its ruling.

The Third Circuit, however, disagreed with the district court's reasoning.  Chagares noted that, to be considered a prevailing party, there must be a material change in the legal relationship between the parties, and there must be a "judicial imprimatur on the change."  He said this was not limited only to judgments and court-ordered consent decrees, but can include any resolution where the court incorporates or retains jurisdiction over the settlement agreement.

Chagares said the agreement in the case fit that criteria, and rejected arguments from Ruch that the district court could not have incorporated the settlement because it did not actually see the settlement agreement before issuing its dismissal order.

"Although it may be a good practice for a district court to examine a settlement agreement prior to incorporating its terms, Ruch points to no case law requiring a district court to do so in order to effectively retain jurisdiction over a settlement," Chagares said.

DiFrancesco, Bateman, Coley, Yospin, Kunzman, Davis, Lehrer & Flaum attorney Paul Rizzo, who, along with Nicholas Pompelio, handled the case for Raab, said that while the district court may not have had much involvement in the settlement, the magistrate judge was very involved with hammering out the agreement.  He added that the decision should help clear up some gray area left by the Buckhannon decision.

"The Supreme Court case talked about the types of circumstances where you would be a prevailing party, and it referenced a judgment, or a consent decree," he said.  "The district court mistakenly interpreted those as the only two types."