Seventh Circuit Clarifies (1) the Binding Nature of Post-Settlement Fee Modifications and (2) the Distinction Between Enforcement Jurisdiction and Subject-Matter Jurisdiction After a Consent Decree Expires

Introduction

In Patrice Daniels v. Latoya Hughes, Nos. 23-3388 & 23-3110, the United States Court of Appeals for the Seventh Circuit confronted two knotty post-settlement questions arising from a long-running prison mental-health class action:

Whether class counsel had to disgorge a deferred $1.9 million fee payment after the underlying injunction that triggered the payment was later vacated on appeal; and
Whether the district court retained Article III subject-matter jurisdiction over the original federal claims once its contractual enforcement jurisdiction over the settlement (styled a “consent decree”) expired.

The Seventh Circuit’s opinion, authored by Judge St. Eve, establishes two important precedents: (i) a subsequent fee-modification agreement can supersede an earlier settlement’s fee provision, rendering later vacatur of the triggering injunction irrelevant; and (ii) a district court may not conflate its limited enforcement power over a settlement with its broader jurisdiction over underlying claims—settlement may moot those claims, but courts must perform a careful mootness analysis rather than assume jurisdiction simply disappears once the consent decree sunsets.

Summary of the Judgment

Fee Issue: Affirmed the district court’s refusal to order counsel to return $1.9 million. The Court held that a January 2020 fee agreement, executed while the earlier injunction was on appeal, modified the original 2016 settlement by adding alternate conditions that triggered payment. Those conditions were satisfied before the injunction was vacated, and the repayment clause applied only to funds still in the escrow account—not to money already disbursed to counsel.
Jurisdiction Issue: Vacated the district court’s dismissal of the underlying §1983/ADA/Rehabilitation Act claims. The district court erred by equating the expiration of enforcement jurisdiction with loss of Article III jurisdiction. On remand, the court must decide—under contract-law principles—whether the settlement moots the claims, and, if so, whether later conduct (including the parties’ mutual decision to place the case back on the “active docket”) warrants Rule 60(b)(6) relief or otherwise revives them.

Analysis

Precedents Cited

The opinion draws heavily on Supreme Court and Seventh Circuit doctrine governing settlement enforceability, ancillary jurisdiction, and contract modification:

Kokkonen v. Guardian Life Insurance, 511 U.S. 375 (1994) – distinguished between jurisdiction to enforce a settlement and jurisdiction over underlying claims.
Shapo v. Engle, 463 F.3d 641 (7th Cir. 2006) – discussed inherent power to enforce injunction-embodied settlements.
Selcke v. New England Insurance, 2 F.3d 790 (7th Cir. 1993) – settlement generally moots underlying litigation.
Campbell-Ewald Co. v. Gomez, 577 U.S. 153 (2016) – reiterated “case or controversy” must persist through all stages.
Large v. Mobile Tool International, 724 F.3d 766 (7th Cir. 2013) – contractual modifications supersede conflicting original terms.
Armour & Co., 402 U.S. 673 (1971) – consent decrees are construed as contracts; purpose gleaned from four corners.
Rufo v. Inmates of Suffolk County Jail, 502 U.S. 367 (1992) – Rule 60(b) modification of consent decrees.
Arbaugh v. Y&H, 546 U.S. 500 (2006) – definition of subject-matter jurisdiction.

Legal Reasoning

Contractual Supersession of Fee Terms
The panel treated all settlement-related documents as contracts governed by Illinois law. Applying the Large principle that “terms in a modification agreement supersede conflicting terms in the original,” the Court found a direct conflict between:
- 2016 Settlement: $1.9 M payable only if district court entered an order granting relief.
- 2020 Fee Agreement: Payment due upon either (a) mutual written resolution of the fee dispute or (b) Seventh Circuit affirmation of the injunction.
Because condition (a) occurred via a February 2020 email from IDOC’s Chief Legal Counsel, the payment became irrevocably due. The escrow-return clause referenced only funds remaining in the Dentons trust account; once disbursed, counsel’s receipt was final.
Enforcement vs. Subject-Matter Jurisdiction
The district court believed that once its authority to ensure compliance with the settlement ended in July 2022, it lacked subject-matter jurisdiction altogether. The Seventh Circuit corrected this analytical error:
- Ancillary or “enforcement” jurisdiction under Kokkonen is distinct from the Article III power to hear the underlying federal claims.
- Underlying claims are moot only if the settlement (viewed as a contract or decree) extinguished the plaintiffs’ personal stake. Because the parties later agreed to resurrect the case on the active docket—and litigated for a year—the record was insufficient to conclude that all claims were waived or moot.
- The Seventh Circuit remanded for a classic mootness inquiry, authorizing discovery and Rule 60(b)(6) exploration if the parties intended to rescind or modify the settlement.

Impact of the Decision

This ruling will reverberate across three practice areas:

Prison and Institutional Reform Litigation – Courts must treat the expiration of PLRA consent-decree enforcement jurisdiction as a contractual milestone, not an automatic terminus of Article III power. Litigants now have clearer guidance for reviving claims if the decree fails.
Fee Agreements in Class Actions – Parties frequently embed contingent fee triggers in settlements. The Seventh Circuit’s holding underscores that subsequent side-agreements are enforceable and can immunize counsel’s fees from later appellate reversals—provided the language is clear.
Post-Settlement Procedure – District courts must perform a sober mootness analysis rather than sua sponte dismiss when monitoring ends. The opinion encourages careful drafting of sunset clauses and promotes Rule 60(b)(6) as a potential vehicle to reopen decrees when parties mutually deviate from them.

Complex Concepts Simplified

Consent Decree vs. Private Settlement: A consent decree is a settlement embodied in a court order; breaching it can lead to contempt. A private settlement is merely a contract – the court enforces it only if the parties embed enforcement language or retain jurisdiction.
Condition Precedent: A contract clause stating that something must happen before a duty to perform arises (e.g., “if the court enters an injunction, then pay $1.9 M”). If the parties later adopt new conditions, the old ones yield.
Ancilary/Enforcement Jurisdiction: Even if the underlying dispute is settled, a federal court may keep the file open solely to enforce the settlement’s terms. That limited power is separate from the power to hear the original claims.
Mootness: A case becomes moot when the parties no longer have a personal stake. Settlement usually moots a case, but not if the settlement is rescinded or materially breached.
Rule 60(b)(6): A procedural rule allowing courts to grant relief from a final judgment for “extraordinary circumstances,” including (some circuits hold) major breaches of settlement embodied in a decree.

Conclusion

Daniels v. Hughes breaks new ground in two respects. First, it cements the principle that post-settlement agreements can irrevocably vest fee entitlements, insulating counsel from later changes in the litigation’s fortunes. Second, it warns district courts not to equate the sunset of enforcement jurisdiction with the vanishing of Article III jurisdiction. On remand, the Central District of Illinois must scrutinize whether the settlement truly settled everything—or whether the parties’ subsequent conduct reignited a live controversy. Future litigants and judges alike will rely on this decision when drafting, modifying, and enforcing complex consent decrees, especially in the prison-reform context where PLRA overlay complicates jurisdictional questions.