Municipality of San Juan v. Rullan

United States Court of Appeals
For the First Circuit

No. 02-2071

MUNICIPALITY OF SAN JUAN,

Plaintiff, Appellant,

v.

JOHNNY RULLAN, SECRETARY OF HEALTH OF THE
COMMONWEALTH OF PUERTO RICO, ET AL.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. José Antonio Fusté, U.S. District Judge]

Before

Boudin, Chief Judge,

Selya and Lipez, Circuit Judges.

Juan B. Soto-Balbas, with whom Ana L. Velilla-Arce and Mercado
& Soto, P.S.C. were on brief, for appellant.
Camelia Fernández Romeu, Assistant Solicitor General, with
whom Roberto J. Sánchez Ramos, Solicitor General, and Vanessa Lugo
Flores, Deputy Solicitor General, were on brief, for appellees.

January 24, 2003
 SELYA, Circuit Judge. This case involves the power of a

district court, after a settled case has been voluntarily dismissed

under Fed. R. Civ. P. 41(a)(1)(ii), to police the settlement

through summary enforcement proceedings. We hold that a district

court does not retain supplemental enforcement jurisdiction over a

settlement after granting a Rule 41(a)(1)(ii) motion unless the

parties either have agreed to incorporate the terms of the

settlement into the dismissal order or have executed a stipulation

authorizing the court to retain jurisdiction over the

implementation of the settlement. Because the record reflects no

such agreement here, we affirm the order denying a writ of

execution designed to enforce summarily a settlement reached many

years ago by and between the parties.

The origins of this dispute go back more than three and

one-half decades. On August 25, 1966, the Municipality of San Juan

(the Municipality) and the Department of Health of the Commonwealth

of Puerto Rico (the Department) entered into a contract relative to

the allocation of federal Medicaid dollars.1 As Medicaid funding

increased, the parties periodically redefined the terms of their

relationship. Over time, the payments to the Municipality rose

dramatically.

1
Medicaid payments are made to the several states, and to the
Commonwealth of Puerto Rico, under Title XIX of the Social Security
Act, 42 U.S.C. §§ 1396-1396v.

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 In or around 1986, the parties reached an impasse over

how to allocate federal Medicaid funds. On May 13, 1987, the

Municipality initiated an action against the Department in the

United States District Court for the District of Puerto Rico,

claiming that the Department was in violation of the Medicaid Act

and in breach of contract. The case was assigned to Judge Fusté.

In short order, the parties reached an accord. The

settlement agreement provided the Municipality with certain

Medicaid funds for the fiscal years 1986-1987 and 1987-1988. It

also established a formula by which the parties could adjust the

1987-1988 payments if Congress increased Puerto Rico's Medicaid

allotment for that fiscal year.

On August 17, 1987, the parties informed Judge Fusté of

the settlement. At a chambers conference, the parties and the

court discussed how the pending action would be terminated. The

Municipality told Judge Fusté that it was contemplating a motion

for voluntary dismissal. The judge voiced no disapproval but

suggested that the parties proffer a copy of the settlement

agreement under seal and stipulate to the entry of judgment.

Although the Municipality embraced this suggestion, the Department

balked. At that point, Judge Fusté washed his hands of the matter;

he stated that how to terminate the case was up to the parties, and

the conference ended on that note.

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 Later that day, the parties submitted two documents to

the district court. The first — to be placed under seal — limned

the terms of the settlement. The second was a motion for voluntary

dismissal. The judge, on his own initiative, entered an order

memorializing the basis for the court's jurisdiction over the

dispute, the fact of the settlement, and the court's intention to

enter judgment in favor of the Municipality. In that order, the

court expressed its opinion that "both [parties] need the

protection of a judgment on a matter of public interest and

concern." The court then proceeded to enter a judgment for the

Municipality against the Department, incorporating in the judgment

the terms of the settlement agreement. Both the order and the

judgment were promulgated on August 17, 1987.

The Department promptly moved to vacate these filings,

arguing that it had never agreed to the entry of an adverse

judgment. On November 2, 1987, the district court vacated both the

order and the judgment, entering in lieu thereof an amended order

and judgment. The amended order recited that the case had been

settled, approved the settlement (without elaborating upon its

terms), and granted the motion for voluntary dismissal pursuant to

Rule 41(a)(1). The text went on to remind the parties that the

district court had "inherent power to enforce settlement

agreements" and expressed the view that, notwithstanding the

voluntary dismissal, the district court retained jurisdiction over

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the case.2 The amended judgment dismissed the action without

prejudice pursuant to Rule 41(a)(1). Although it incorporated by

reference the terms of the amended order, it made no direct

reference to the settlement agreement.

Despite these revisions, the Department feared that the

district court's editorial comments about the retention of

jurisdiction exposed it to summary enforcement proceedings should

the Municipality claim, in the future, that the Department had not

lived up to the terms of the settlement. To set this poltergeist

to rest, the Department appealed. We clarified, and then affirmed,

the amended order and judgment in an unpublished opinion.

Municipality of San Juan v. Izquierdo Mora, No. 88-1047, slip op.

(1st Cir. May 16, 1988) (per curiam). We characterized the amended

judgment as "a straightforward dismissal pursuant to Rule

41(a)(1)(ii)" and held that it did "not operate to incorporate by

reference the settlement agreement." Id. at 6. In the same vein,

we treated the district court's references to its inherent

enforcement powers as mere dicta and ruled that, since the action

2
The relevant language, shorn of citations, reads:

We remind both sides of this court's inherent power
to enforce settlement agreements in cases pending before
it. If asked, we shall not hesitate to take appropriate
action protecting this agreement, either summarily or, if
necessary, following an evidentiary hearing. Both
parties moved from irreconcilable positions to the point
of settlement and, therefore, the settlement agreement
must be protected as a matter of public interest and
concern against further litigation on the same subject.

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had been dismissed, "there [was] no warrant to review the dicta."3

Id. To cinch matters, we emphasized that any suggestion that the

dicta "could be enforced via the [district] court's contempt power

[was] farfetched and without basis." Id.

For nearly fourteen years, the dismissed action remained

dormant. But this proved to be the calm before the storm. On

March 26, 2002, the Municipality, alleging that the 1987 settlement

agreement had served as the foundation for the allocation of

Medicaid disbursements during the intervening years and that the

Department had unilaterally cut off the flow of funds (with the

result that the Department owed it some $40,000,000), filed a

motion asking the district court to enforce the 1987 settlement

agreement.4 The district court initially granted this motion and

issued an ex parte order of execution. The Department quickly

obtained a stay. After considerable skirmishing — the details of

which are unimportant for present purposes — Judge Fusté reversed

direction, vacated the order of execution, referred to our earlier

3
Dicta comprises observations in a judicial opinion or order
that are "not essential" to the determination of the legal
questions then before the court. Dedham Water Co. v. Cumberland
Farms Dairy, Inc., 972 F.2d 453, 459 (1st Cir. 1992). Dicta — as
opposed to a court's holdings — have no binding effect in
subsequent proceedings in the same (or any other) case.
4
This motion named, as a respondent, Johnny Rullan, in his
official capacity as Puerto Rico's Secretary of Health. The
original action named Dr. Luis A. Izquierdo Mora, who at the time
occupied that position. By operation of law, Rullan is now the
proper party. See Fed. R. Civ. P. 25(d)(1).

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unpublished opinion, and denied the Municipality's motion for

summary enforcement. He subsequently rejected the Municipality's

request for reconsideration.

Displeased by this turn of events, the Municipality

sought a writ of mandamus directing the district court to reinstate

its original ex parte order. We treated that petition as a notice

of appeal. Following full briefing, we heard oral argument on

January 6, 2003.

The Municipality's appeal rests on two pillars. First,

the Municipality contends that the 1987 settlement agreement

applies beyond the 1987-1988 fiscal year (up to the present time).

Second, it posits that the district court retained jurisdiction

over that agreement, thus making summary enforcement proceedings

appropriate. But stating the arguments in this order puts the cart

before the horse: the district court's jurisdiction to conduct a

summary enforcement proceeding must be examined before we can

undertake an inquiry into the merits of the case. See Steel Co. v.

Citizens for a Better Env't, 523 U.S. 83, 94-95 (1998) (collecting

cases); Berner v. Delahanty, 129 F.3d 20, 23 (1st Cir. 1997). We

turn, therefore, to the jurisdictional issue.

We begin our analysis by rehearsing the familiar "law of

the case" doctrine. That doctrine has two components:

One branch involves the so-called mandate rule
(which, with only a few exceptions, forbids,
among other things, a lower court from
relitigating issues that were decided by a

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 higher court, whether explicitly or by
reasonable implication, at an earlier stage of
the same case). The other branch . . .
provides that unless corrected by an appellate
tribunal, a legal decision made at one stage
of a civil or criminal case constitutes the
law of the case throughout the pendency of the
litigation.

Ellis v. United States, ___ F.3d ___, ___ (1st Cir. 2002) [No. 01-

2055, slip op. at 20] (citations and internal quotation marks

omitted). Here, the first branch — the mandate rule — obliged the

district court to follow our disposition of issues actually decided

in our earlier opinion.

In that opinion, we ruled unequivocally that the district

court's amended order and judgment constituted a straightforward

dismissal pursuant to Rule 41(a)(1)(ii).5 See Izquierdo Mora, slip

op. at 6. While there are exceptions to the mandate rule, none

applies here, and so that determination was binding on the district

court. United States v. Rivera-Martinez, 931 F.2d 148, 150 (1st

Cir. 1991). Viewed in this light, the question as to whether the

district court had jurisdiction over the Municipality's motion for

5
The rule reads in pertinent part:

[A]n action may be dismissed by the plaintiff without
order of court . . . by filing a stipulation of dismissal
signed by all parties who have appeared in the action.
Unless otherwise stated in the notice of dismissal or
stipulation, the dismissal is without prejudice . . . .

Fed. R. Civ. P. 41(a)(1)(ii).

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summary enforcement of the 1987 judgment hinges on the consequences

that attach to a Rule 41(a)(1)(ii) dismissal.

The Supreme Court spoke directly to that issue in

Kokkonen v. Guardian Life Insurance Co., 511 U.S. 375 (1994).

There, as here, the parties reached a settlement, and the district

court dismissed the case pursuant to Rule 41(a)(1)(ii). Id. at

376-77. A problem subsequently arose, and a disappointed party

moved for summary enforcement of the settlement agreement. The

district court exercised jurisdiction over the motion and granted

relief. Id. at 377. The court of appeals affirmed the exercise of

supplemental enforcement jurisdiction in an unpublished rescript,

and the Supreme Court granted certiorari to consider the

jurisdictional question. Kokkonen v. Guardian Life Ins. Co., 510

U.S. 930 (1993).

In its ensuing opinion, the Court pointed out that

enforcing a settlement agreement "requires its own basis for

jurisdiction." Kokkonen, 511 U.S. at 378. It debunked the notion

that a district court always enjoys inherent power to enforce

settlement agreements. Id. at 377-78. Moreover, it found that

"[n]either [Rule 41(a)(1)] nor any provision of law provides for

jurisdiction of the [rendering] court over disputes arising out of

an agreement that produces [a Rule 41(a)(1) dismissal]." Id. at

378. The Court went on to explain that, if a voluntary dismissal

is contemplated, the parties may arrange for the rendering court to

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retain supplemental enforcement jurisdiction over a related

settlement by having the court either (1) incorporate in the

dismissal order the terms of the settlement agreement, or (2) enter

a separate stipulation (signed by all the parties) that authorizes

the retention of jurisdiction. Id. at 381. Should neither of

these routes be traveled, a party claiming a breach of a settlement

agreement must pursue a separate action to seek enforcement of the

agreed terms. Id. at 382.

Kokkonen is controlling here. The original action ended

in what we termed a straightforward dismissal under Rule

41(a)(1)(ii). Izquierdo Mora, slip op. at 6. We ruled that the

settlement agreement was not incorporated into the dismissal order,

and we classified the district court's comments anent its inherent

power as mere dicta. Id. These are now established facts under

the mandate rule. Together with the absence of any stipulation

memorializing the parties' mutual assent to the retention of

supplemental enforcement jurisdiction, they bring this case

squarely within Kokkonen's precedential orbit.

In an effort to obscure the clarity of this reasoning,

the Municipality asseverates that the district court in fact

retained jurisdiction in a manner consistent with Kokkonen. Its

asseveration relies primarily on the district court's promise to

protect the settlement and its pledge to take whatever action might

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prove necessary to do so. See supra note 2 (quoting the district

court's language).

This is a cut-and-paste argument, which erroneously

presupposes that our earlier opinion excised only the first

sentence of the paragraph purporting to retain jurisdiction while

leaving intact the remainder of that paragraph. We reject that

attempt to balkanize our previous ruling. Our core holding in

Izquierdo Mora was stated unambiguously: the amended order and

judgment operated as a Rule 41(a)(1)(ii) dismissal — with no

strings attached. See Izquierdo Mora, slip op. at 6 (explaining

that the district court's amended order and judgment "do[] no more

than accept[] the settlement and voluntarily dismiss[] the case as

the parties had requested"). Since the course of action that the

Municipality sought to pursue below is based upon the very argument

that we previously dismissed as "farfetched and without basis,"

id., the mandate rule obliged the lower court to reject it.

This result is perfectly consistent with Kokkonen.

Although the Kokkonen Court spelled out certain ways in which a

district court could retain enforcement jurisdiction over a

settlement coincident with a Rule 41(a)(1) dismissal, it

conditioned that outcome on the mutual consent of the parties. See

Kokkonen, 511 U.S. at 381 ("If the parties wish to provide for the

court's enforcement of a dismissal-producing settlement agreement,

they can seek to do so.") (emphasis in original); id. at 381-82

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("[W]e think the court is authorized to embody the settlement

contract in its dismissal (or, what has the same effect, retain

jurisdiction over the settlement contract) if the parties agree.").

There is no such mutuality here. The record shows beyond hope of

contradiction that the Department never agreed to imbue the

district court with summary enforcement authority over the

settlement agreement (indeed, the Department's insistence that the

district court not be so endowed was the raison d'être for the

earlier appeal). See Izquierdo Mora, slip op. at 2, 5. Nor did

the Municipality, at the relevant time, "clearly dispute [the

Department's] assertion that [it] had never agreed to anything

other than a voluntary dismissal pursuant to Fed. R. Civ. P.

41(a)(1)." Id. at 4-5. Given the absence of mutual consent, the

district court did not have the authority, under Kokkonen, to

retain supplemental enforcement jurisdiction.

We need go no further. The law of the case required the

lower court to adhere to our earlier opinion interpreting the

amended order and judgment as a routine application of Rule

41(a)(1)(ii). Characterizing the order and judgment in that

fashion, the district court correctly concluded that it lacked

jurisdiction to entertain the Municipality's attempted summary

enforcement proceeding. In short, the Municipality has identified

no legally sufficient basis for the district court's retention of

jurisdiction over the 1987 settlement.

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 These determinations do not leave the Municipality

remediless. If it believes that the Department is in breach of a

preexisting contractual obligation, it may seek to vindicate its

rights in a separate action. See Kokkonen, 511 U.S. at 381-82;

Malave v. Carney Hosp., 170 F.3d 217, 220 (1st Cir. 1999). That

action may be prosecuted in any court of competent jurisdiction.

We express no opinion, however, as to whether any such action would

(or would not) fall within the jurisdiction of the federal courts.

By the same token, we do not reach (and take no view of) any

interpretive comments that the district court may have made anent

the reach of the 1987 settlement agreement.

We affirm the order of the district court denying the

plaintiff's motion for summary enforcement of the 1987 judgment.

Costs are to be taxed in favor of the defendants.

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