Daniels v. Hughes: When Post-Settlement Fee Modifications Trump Original Consent Decrees and Enforcement Jurisdiction Diverges from Subject-Matter Jurisdiction

Introduction

For nearly two decades, Rasho, Daniels and a certified class of Illinois prisoners have litigated the adequacy of mental-health services in the Illinois Department of Corrections (“IDOC”). The litigation generated:

a 2016 Amended Settlement Agreement (“ASA”) approved by the district court and treated as a consent decree under the Prison Litigation Reform Act (PLRA);
a hotly contested $1.9 million tranche of “deferred” attorney’s fees, payable only if the court granted relief for violations of that agreement; and
a 2018 injunction later vacated by the Seventh Circuit in Rasho v. Jeffreys, 22 F.4th 703 (7th Cir. 2022).

After the injunction’s demise, IDOC insisted that plaintiffs’ counsel return the already-paid $1.9 million and the district court—sua sponte—dismissed the merits claims for lack of jurisdiction, reasoning that its power ended once enforcement of the settlement expired. Both rulings were appealed. The consolidated decision, Daniels v. Hughes, Nos. 23-3388 & 23-3110 (7th Cir. Aug. 8, 2025), clarifies two important points of federal practice:

Subsequent, stand-alone fee agreements may supersede the fee-triggering language of a consent decree, meaning counsel need not disgorge fees even after the underlying injunction is vacated; and
Jurisdiction to enforce a settlement agreement is distinct from jurisdiction over the underlying claims. A court must perform a proper Article III mootness analysis before concluding that the claims themselves are gone.

Summary of the Judgment

The Seventh Circuit:

Affirmed the district court’s refusal to compel repayment of the $1.9 million, holding that a January 2020 fee-escrow agreement—later confirmed by IDOC counsel via email—expressly triggered unconditional payment to plaintiffs’ lawyers and superseded the ASA’s original condition precedent.
Vacated the dismissal of the substantive mental-health claims. The panel held that the district court conflated the lapse of enforcement jurisdiction with loss of Article III power. On remand the court must decide, with a full record, whether the settlement actually moots the claims or whether the parties’ later conduct (return to the “active docket,” filings of Fourth and Fifth Amended Complaints, etc.) modified or rescinded the settlement so as to revive live controversy—potentially through Rule 60(b)(6).

Analysis

1. Precedents Cited and Their Influence

Selcke v. New England Ins. Co., 2 F.3d 790 (7th Cir. 1993) — Stands for the proposition that a binding settlement generally moots underlying claims. Used to frame the mootness inquiry.
Kokkonen v. Guardian Life, 511 U.S. 375 (1994) — Distinguished between ancillary enforcement jurisdiction and subject-matter jurisdiction; cited to show why dismissal of claims was premature without specific mootness findings.
Shapo v. Engle, 463 F.3d 641 (7th Cir. 2006) — Reinforced the Kokkonen split; noted inherent power to enforce decrees versus adjudicate claims.
Armour & Co., 402 U.S. 673 (1971) — Emphasized that consent decrees are contracts; invoked to reject district court’s reliance on “purpose” language rather than contract construction.
Large v. Mobile Tool, 724 F.3d 766 (7th Cir. 2013) — Articulated the “modification-trumps-original” rule of contract law that controlled the fee dispute.
Rule 60(b) doctrine (Rufo, Keeling, etc.) — Flagged as possible procedural path if parties wish to modify or vacate the consent decree in the future.

2. The Court’s Legal Reasoning

Attorney’s Fees

The ASA made payment of half the negotiated fee ($1.9 M) contingent on “an order granting relief.”
While the injunction was on appeal, the parties executed a January 2020 Escrow Agreement. It provided two new, disjunctive triggers: (a) written agreement resolving the dispute, or (b) an affirmance confirming entitlement.
In February 2020, IDOC’s Chief Legal Counsel emailed Dentons confirming that the dispute was resolved and authorizing release of funds—thereby satisfying trigger (a).
Under Illinois contract law, the later agreement superseded conflicting terms in the earlier ASA. Therefore, vacatur of the injunction under Rasho did not undo the payment.
The escrow agreement’s claw-back clause applied only if an order directed Dentons (not counsel) to return funds; no such order exists.

Subject-Matter Jurisdiction / Mootness

Article III requires a live controversy. A settlement can moot claims, but only if it actually resolves the parties’ legal dispute.
The district court mistakenly equated the expiration of its enforcement oversight (July 2022) with automatic dismissal of the claims. That elides the difference between:
- ancillary/enforcement jurisdiction over a decree, and
- the original federal question jurisdiction over §1983, ADA, and Rehabilitation Act claims.
The proper approach is to ask: did the ASA, as later modified, waive or settle all merits claims? If so, case is moot, unless settlement has been rescinded or modified under contract principles or Rule 60(b).
Because the record hints that the parties revived litigation (return to “active docket,” multiple amended complaints), a fact-intensive inquiry is required. The Seventh Circuit therefore vacated and remanded.

3. Potential Impact of the Decision

Fee Agreements After Settlement. Counsel and government entities commonly use escrow arrangements while appeals proceed. Daniels underscores that such side-agreements can irrevocably vest fees even if the merits result later changes. Parties must draft claw-back language with precision.
Clearer Demarcation of Jurisdiction. District courts can no longer assume that the sunsetting of a PLRA consent decree drains Article III power. They must conduct a fact-specific mootness analysis or entertain Rule 60(b) motions where appropriate.
Class-Action Settlement Drafting. The opinion encourages explicit language on what happens to underlying claims once governance or monitoring provisions expire, reducing later jurisdictional confusion.
Rule 60(b)(6) Pathway. The panel’s dicta signals receptivity to using Rule 60(b)(6) for post-consent decree modifications when settlement objectives fail, a potentially powerful tool in prison reform and other institutional litigation.

Complex Concepts Simplified

Consent Decree vs. Private Settlement: A consent decree is a settlement entered as a court order—violations can be enforced through contempt. A private settlement relies on contract remedies. Both are contracts, but only the former carries the court’s injunctive power.
Condition Precedent: A contractual clause that must occur before a duty arises (here, payment of fees). If parties later agree to new conditions, the new agreement controls.
Ancillary (Enforcement) Jurisdiction: The court retains authority to police its own decree even if merits jurisdiction is otherwise concluded. This is distinct from its power to adjudicate the underlying statutory claims.
Mootness: Even if a case was live at filing, later events (e.g., full settlement, legislative change) may extinguish any concrete stake, depriving courts of Article III power.
Rule 60(b)(6): A “catch-all” federal rule letting courts relieve parties from judgments for "extraordinary circumstances"—often used to modify outdated consent decrees.
Superseding Agreement: Under ordinary contract law, a later contract with contradictory terms overrides the earlier one.

Conclusion

Daniels v. Hughes contributes two notable guideposts for federal litigation:

A carefully drafted, post-settlement fee agreement can irrevocably fix counsel’s entitlement, unaffected by subsequent appellate reversals—underscoring the contractual autonomy parties possess even in PLRA consent-decree contexts.
The expiration of a court’s monitoring role over a settlement does not, by itself, divest the court of subject-matter jurisdiction over the case. Judges must rigorously analyze mootness, consider possible rescission or modification of agreements, and, where needed, employ Rule 60(b) procedures.

On remand, the district court must decide whether the settlement still extinguishes the prisoners’ constitutional and statutory claims or whether those claims survive for adjudication. Whatever the outcome, the Seventh Circuit’s opinion supplies a clearer roadmap for counsel, courts, and institutional litigants navigating the complex interplay between settlements, fee arrangements, and Article III limits.