Banegas v. The Mirador Corp.

Background

Lesby Banegas filed claims under the Fair Labor Standards Act, the New York Labor Law, and state and local antidiscrimination laws. The parties reported reaching a settlement, and after initially declining to approve it, the court approved a revised settlement on May 17, 2017, finding it fair and reasonable.

Banegas later moved to enforce the settlement, asserting through a sworn attorney declaration that the defendants had not paid the agreed funds. The defendants’ former lawyer stated that his representation ended when the court approved the settlement and that the owner of the defendant business had died and the business had closed. After the court ordered service and gave the remaining defendants a deadline to respond, no defendant responded.

Jurisdictional issue

The court explained that enforcing a settlement is generally a contract matter governed by state law and does not itself present a federal question. A federal court may enforce a settlement through ancillary jurisdiction—authority over matters connected to a case or necessary to carry out the court’s orders—only if the court’s dismissal order expressly retained jurisdiction over the settlement or incorporated the settlement’s terms into the order.

The court’s May 17, 2017 order approving the settlement did neither. It did not address retention of jurisdiction, and merely reviewing and approving the settlement was not enough. The settlement’s provision consenting to the Southern District of New York’s personal jurisdiction in a later enforcement proceeding also did not create subject-matter jurisdiction, which parties cannot establish by agreement.

Ruling

Before deciding whether the settlement should be enforced, the court had to determine whether it had subject-matter jurisdiction. The court was skeptical that jurisdiction existed because the approval order contained neither the required retention language nor incorporated settlement terms. Because Banegas had not had an opportunity to address that issue, the court allowed her to show cause in writing within two weeks why the court retained jurisdiction.

The court denied Banegas’s motion without prejudice to renewal and directed the Clerk of Court to terminate docket entry 36. The opinion did not decide whether the defendants breached the settlement or whether Banegas was entitled to payment.