In the midst of litigation, the lender and the borrower often reach a settlement and execute a settlement agreement. Sometimes, the settlement agreement calls for the immediate resolution of the lawsuit, so the lender complies by dismissing the lawsuit. But what happens if the borrower later breaches the settlement agreement? The lawsuit was dismissed, so technically, the court has lost jurisdiction over the case. The lender may be forced to file an entirely new action for breach of the settlement agreement, incurring all the costs and delays associated with filing a lawsuit.
There are ways of avoiding this problem, however. After execution of the settlement agreement, the parties can ask that the court either to incorporate the terms of the settlement into a final judgment or to enter an order approving the settlement, specifically reserving jurisdiction to enforce the terms of the agreement, and dismissing the case. Under either scenario, courts generally find that they retain jurisdiction to enforce the settlement agreement.
Courts also may be willing, upon motion by the parties, to approve the settlement agreement and “administratively close” (rather than dismiss) the case, so that, in the event of a breach, a party only has to move to re-open the case to enforce the terms of the agreement, with no new lawsuit required.