Navigating Code of Civil Procedure Section 664.6
You settled a case and agreed to continuing jurisdiction of the court pursuant to Code of Civil Procedure section 664.6. You’re thinking you’re all set. If one of the parties fails to abide by the settlement agreement, you can file a motion to enforce and get a judgment entered. However, instead of enforcing the settlement agreement, the judge has found your settlement agreement unenforceable and ordered the parties back to square one in the case. How did you get here? How can you avoid this scenario?
Code of Civil Procedure Section 664.6
Code of Civil Procedure section 664.6 states: If parties to pending litigation stipulate, in a writing signed by the parties outside the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement. If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement. (Code Civ. Proc., § 664.6 (“Section 664.6”).)
The purpose of Section 664.6 is to provide an expedited procedure that allows a party to enforce a settlement agreement by entering a judgment upon the terms of the parties’ settlement agreement. The enforcing party can then avail itself of the benefits provided by the judicial system to enforce a judgment without initiating a separate action. However, the trial court’s authority under Section 664.6 is limited. (Leeman v. Adams Extract & Spice, LLC (2015) 236 Cal. App.4th 1367, 1374.)
When Enforcing a Settlement Agreement Pursuant to Section 664.6 the Trial Court May Not Add to or Modify the Terms of the Parties’ Settlement Agreement.
The trial court may interpret the terms of the parties’ settlement agreement to “give effect to the mutual intent of the parties . . .” but “‘nothing in section 664.6 authorizes a judge to create the material terms of a settlement. . . .’” (Leeman, supra, 236 Cal.App.4th at p. 1374, quoting Weddington Prod., Inc. v. Flick (1998) 60 Cal. App.4th 793, 810.) “While the court has the authority to refuse to issue the requested consent judgment, what the court could not do in considering approval of a settlement under Code of Civil Procedure section 664.6 was to add to or modify an express term of the settlement.” (Id. at p. 1375.) The court is not permitted to modify an existing settlement agreement without the mutual consent of the parties. (Ibid.)
In Leeman, the First District Court In Leeman, the First District Court of Appeal reversed the trial court’s decision to modify an existing settlement by reducing the award of attorney fees and costs without the parties’ mutual consent. (Leeman, supra, 236 Cal.App.4th at p. 1369.) The parties reached a settlement agreement after Leeman filed a complaint seeking civil penalties and injunctive relief against the other party for using a carcinogenic chemical in its food extracts without proper warning as required by Proposition 65. (Id. at p. 1369.) The parties also agreed to a stipulated amount of attorney fees and costs that was substantially less than the actual fees Leeman incurred. (Id. at p. 1371.) The court approved the settlement agreement, but unilaterally reduced the amount of fees and costs without explanation. (Id. at p. 1373.) The appellate court found the trial court exceeded its authority under Code of Civil Procedure 664.6 to approve or disapprove a settlement agreement but not modify its terms. (Id. at p. 1375.) The appellate court remanded the decision for the court to either approve or reject the settlement agreement and encouraged the trial court to state reasons if it chooses to reject the agreement. (Id. at p. 1377, fn. 3.)
In the event you believe the trial court has exceeded its authority under Section 664.6 by entering a judgment that adds to or modifies the parties’ settlement agreement, counsel could move to set aside the judgment as void. (Jones v. World Life Research Institute (1976) 60 Cal. App.3d 836; Code Civ. Proc., § 473, subd. (d).)
In Order to Satisfy the Requirements of Section 664.6 the Parties Must Agree to the Settlement Agreement.
In order for the court to retain jurisdiction under Section 664.6, the parties themselves must agree rather than the parties’ attorneys. The Supreme Court in Levy v. Superior Court (1995) 10 Cal.4th 578, 586, found the parties’ settlement agreement unenforceable because the parties’ attorneys of record approved the settlement rather than the parties as required by Section 664.6. The court interpreted the phrase “If parties to pending litigation stipulate” under Section 664.6 to refer to the parties themselves, not the parties’ attorneys of record. (Ibid.)
The Parties Must Agree to All Material Terms of the Settlement Agreement.
The parties’ settlement agreement must contain the material terms of the parties’ agreement and the parties must agree to all material terms of the settlement agreement in order to have a meeting of the minds necessary for contract formation. In Weddington, supra, 60 Cal.App.4th 793, the parties agreed to a written “Deal Point Memorandum” summarizing the “deal points” of the parties’ settlement reached at mediation. The memorandum stated that the parties “will formalize a Licensing Agreement,” however the Deal Point Memorandum failed to further define the material terms of the licensing agreement. (Weddington, supra, 60 Cal.App.4th at p. 799.) Subsequently in an ADR proceeding, a private judge drafted what he purported to be the material terms of the license agreement pursuant to the Deal Point Memorandum. (Id. at pp. 806-807.) The court then entered a judgment upon the plaintiff’s motion to enforce pursuant to Section 664.6, which included the private judge’s license agreement. (Id. at p. 809.)
The Court of Appeal reversed the judgment, finding that there was no substantial evidence that the parties reached an agreement as to the material terms of the license agreement. (Id. at p. 818.) The court opined that, “[a] settlement agreement which incorporates other documents can be enforced pursuant to section 664.6, but only if there was a meeting of the minds regarding the terms of the incorporated documents.” (Id. at p. 814.)
As such, if you are going to incorporate additional documents into your settlement agreement, be sure to negotiate and memorialize all of the material terms of the additional documents into your settlement agreement. Otherwise, you run the risk of the court finding your settlement agreement unenforceable.
In summary, when drafting a settlement agreement and agreeing to continuing jurisdiction of the court pursuant to Section 664.6, keep the following in mind to increase your likelihood of successful enforcement of the judgment pursuant to Section 664.6: (1) the settlement agreement must be approved by the parties of record, not just their attorneys; (2) the settlement agreement should incorporate all material terms of the parties’ settlement agreement; and (3) the court does not have the authority under Section 664.6 to enter a judgment that adds to, or modifies, the terms of the parties’ settlement agreement without the parties’ approval.
Reprinted with permission from ABTL San Diego.