Thursday, May 08, 2003

Look Before You Leap

A short opinion recently handed down by Judge Nickerson of the United States District Court for the District of Maryland illustrates the potential dangers inherent in entering into a settlement agreement without complete assurance that the terms of the agreement can be fully consummated.

Under the facts of the case, Columbia Gas Transmission Corp. had brought an action in federal court based upon a federal, as opposed to state, claims. The parties had entered into a settlement agreement that called for the action to be dismissed without prejudice, subject to the right of either party to move to reopen the case within thirty days. If neither party moved to reopen within the thirty day time period, the dismissal became a dismissal with prejudice.

After the thirty day period had expired, Columbia Gas moved to enforce the settlement agreement. The Court rejected the request holding that the settlement agreement was a state law contract that replaced the original claims. Since the settlement agreement was a state law contract and there were no longer any federal claims upon which the court's jurisdiction could be invoked, Columbia Gas's motion was dismissed.

As a consequence, Columbia Gas, which has now lost its previous (presumably greater) claims, must bring a totally new action in Maryland state court to enforce or obtain damages under the settlement agreement. While the state court action will likely be limited (i.e., what were the terms of the agreement, have they been breached, and, if so, what are the damages), Columbia Gas is still exposed to greater costs and will lack the advantage of having the matter heard by the judge who was presumably familiar with the settlement agreement and the underlying dispute. As a practical matter, Columbia Gas might have to make further concessions to the defendant since its upside is likely limited. Not a happy result.

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