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Federal Circuit Holds Binding Settlement Agreement Moots Lower Court Action

General / Feb 17, 2020

Article by Clyde Shuman

The U.S. Court of Appeals for the Federal Circuit held that a binding settlement agreement generally moots a lower court action even where the agreement requires future performance. Further, under Federal Circuit law, a district court has jurisdiction to enforce a settlement agreement that resolves patent infringement claims if the motion to enforce is filed before the case is dismissed and the proceedings are ongoing.

In Serta Simmons Bedding, LLC, et al. v. Casper Sleep Inc., Nos. 2019-1098, 2019-1159, the Court vacated the district court’s grant of summary judgment of non-infringement, made after the parties executed a settlement agreement and advised the court of settlement, and remanded with instructions to enforce the settlement agreement.

By way if background, Serta Simmons filed a patent infringement action against Casper in September 2017, in the Southern District of New York, asserting infringement of claims of three patents covering mattresses that include a channel and methods for forming it. Casper subsequently moved for summary judgment of non-infringement on all three patents. While the summary judgment motions were pending, the parties executed a settlement agreement.

Under the terms of the settlement agreement, Casper was required to pay $300,000 to Serta Simmons within 10 days, cease manufacturing of the accused product” two weeks later, and “substantially discontinue” marketing and advertising of the accused products one month later. The settlement agreement also required that the parties, within five days of Casper’s payment, to file “appropriate papers to dismiss” all claims and counterclaims, and further provided that the parties would “file a joint motion to stay the [case] pending final settlement.” On the date of the settlement agreement, in accordance with the terms thereof, the parties filed a Joint Notice of Settlement and Motion to Stay, informing the district court that they “entered into a Settlement Agreement” and re-questing that all deadlines be stayed for just over two weeks “by which date the [p]arties anticipate[d] they will have filed appropriate dismissal papers.”

Nevertheless, without mentioning the Settlement Agreement, two days after execution, the district court granted Casper’s summary judgment motions. It further stated that the “Clerk shall terminate the [summary judgment] motions . . . and enter judgment for Defendant Casper, dismissing the Complaint, with costs to be taxed by the Clerk.” The following week, Casper informed Serta Simmons that it would not make the payment required by the Settlement Agreement because the agreement was “null and void” given the summary judgment order.

The district court denied Serta Simmons’ motions to enforce the Settlement Agreement and to vacate the summary judgment order as void because the case became moot by virtue of the Settlement Agreement. The court reasoned that the case was not moot when it issued the summary judgment order because “the parties did not intend to immediately dismiss the claims, instead keeping the action alive until the parties fulfilled their obligations under the Settlement [Agreement].” The court also held that it lacked jurisdiction to enforce the Settlement Agreement once the summary judgment order issued.

On appeal, the Federal Circuit disagreed with Casper’s argument that the parties’ Settlement Agreement did not moot the district court action because it called for future performance (i.e., Casper had ten days to pay $300,000, after which the parties would file papers to dismiss the claims and then “be obligated to ‘release[] . . . [the other party] from all liabilities.”). Citing its decision in Exigent Technology, Inc. v. Atrana Solutions, Inc., 442 F.3d 1301 (Fed. Cir. 2006), the Court noted that it had held that an enforceable settlement generally renders a case moot even though the parties have not yet performed the terms. In Exigent Solutions, the parties signed an “Agreement in Principle Term Sheet,” which included “an agreement to dismiss the . . . case under terms to be agreed to” and to execute a license agreement. The district court subsequently granted the defendant’s motion for summary judgment of non-infringement and ordered the case dismissed. The Federal Circuit held that the district court should have first determined whether the parties entered into an enforceable agreement because, if so, “it rendered moot the entry of final judgment” as “[s]ettlement moots an action.” The Court “recognized that a binding settlement generally moots an action despite the fact that the settlement agreement requires further implementing steps to be taken.”

The Court noted that other circuit courts agree that “a settlement involving all parties and all claims moots an action . . . even if they contain executory terms.”

The Court concluded, “a binding settlement agreement generally moots the action even if the agreement requires future performance.”

Although not part of the appeal, the Federal Circuit noted that circumstances exist where a district court may refuse to enforce a settlement agreement or where the district court is obligated to refuse to enforce such an agreement. “For example, district courts will not enforce settlement agreements that are contrary to law or public policy.”

However, there was no contention that the settlement agreement or the relief sought by Serta Simmons was unlawful or contrary to public policy. There also was no dispute that the parties executed the settlement agreement before the district court issued the summary judgment order, and Casper admitted that the agreement was binding. Accordingly, per the Court, “[t]he Settlement Agreement mooted the case even though it included terms that required future performance.”

The Federal Circuit also concluded that a district court has jurisdiction to enforce a settlement agreement that resolves patent infringement claims if the motion to enforce is filed before the case is dismissed and the proceedings are ongoing. The Court discussed the Supreme Court’s decision in Kokkonen v. Guardian Life Insurance Co. of America, 511 U.S. 375 (1994), cited by the district court, where the parties executed an order of dismissal that did not reserve jurisdiction to the district court to enforce a prior settlement agreement nor refer to it. When defendant moved to enforce the agreement, the district court had already dismissed it by signing the stipulation. The Supreme Court in Kokkonen held that because the motion to enforce was filed after the proceeding was concluded and the district court did not “retain jurisdiction over the settlement” through its dismissal order, the district court had lost ancillary jurisdiction over the agreement.

The Federal Circuit found, however, that Kokkonen did not hold that a federal court cannot grant a motion to enforce filed before a dismissal of the case.

The Court directed the district court to enforce the settlement agreement during the remand proceedings.

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