How are Rule 11 Agreements Enforced? The Devil is in the Details

A tool often used by lawyers, and even non-lawyers on occasion, is a Rule 11 agreement, which arises out of Texas Rule of Civil Procedure 11. In short, Rule 11 sets forth certain requirements to create a binding agreement between parties to a dispute:

• The agreement must be in writing or made in open court on the record;
• The agreement must be signed by all parties involved, if made outside of court; and
• The agreement, if in writing, must be signed and filed as part of the court records.

A Rule 11 agreement can apply to many aspects of a lawsuit, from extending the deadline for objections and responses to written discovery to more complex settlement terms. Because parties can enter into a Rule 11 agreement as to virtually any aspect of the litigation process, a complete and accurate understanding of the proper steps for entering into a Rule 11 agreement—and enforcing one after a breach—is critical.

Previously, we have noted some useful tips when dealing with Rule 11 agreements, here: But here’s something we have not covered before: can a Rule 11 agreement operate as an agreed final judgment if signed by the trial court? The answer is yes and the usefulness of a Rule 11 agreement as a final judgment is important to remember. Here’s why: If a Rule 11 agreement operates as a final judgment, then a trial court retains jurisdiction to enforce the agreement well after the underlying lawsuit has been dismissed. If the Rule 11 agreement is not a final judgment, then the trial court’s plenary power (meaning the time in which the trial court still has jurisdiction to modify or vacate a final judgment) is only thirty days.

The Parties Fight, Settle, and Fight Again

This was an issue addressed by the Texas Supreme Court in In re Vaishangi, Inc., 442 S.W.3d 256 (Tex. 2014). In that case, Vaishangi, Inc., et al, entered into a commercial real estate lien note and related security instruments with Southwestern National Bank to finance a hotel. After a disagreement regarding the note, the Bank accelerated the note and began foreclosure proceedings. In response, Vaishangi filed suit for breach of contract and wrongful foreclosure.

The parties reached a settlement, memorialized in a handwritten Rule 11 agreement, which the parties and the trial court signed. Four days later, the trial court signed an agreed order dismissing all claims, but the order of dismissal did not incorporate the entire Rule 11 agreement. The parties later disagreed on the principal amount remaining on the note and the terms of the settlement, ultimately resulting in the Bank’s foreclosure of the hotel property.

Vaishangi filed suit in Bexar County for wrongful foreclosure. In response, the Bank filed a “Motion to Enforce Settlement Agreement” in the trial court of the underlying lawsuit in Harris County, which had been dismissed eleven months prior. Without hearing evidence, the Harris County trial court issued an order granting the Bank’s motion to enforce the Rule 11 agreement, awarding the Bank damages and attorney’s fees and ordering Vaishangi to execute a modification agreement.

Who Gets to Decide, When, and How

The question, then, was whether the Harris County trial court retained the power to render such a decision. If the Rule 11 agreement was a final judgment, as the Bank argued, the Harris County trial court maintained continuing jurisdiction to enforce that judgment. If, however, the agreement was simply an interlocutory order (meaning any order that is not a “final judgment.”), the trial court was without jurisdiction to enforce the Rule 11 agreement because its plenary power had expired.

As an initial matter, the Texas Supreme Court noted that although fact issues about the scope and terms of the Rule 11 agreement may remain, those issues did not prevent the Court from determining as a matter of law whether the Rule 11 agreement constituted an agreed judgment.

Turning to the merits, the issue before the Court was whether the trial court intended to dispose of all claims and all parties by signing this agreement, thereby rendering final judgment (as opposed to the parties’ agreeing to dismiss all claims, which was a different question).

Thus, and although the Rule 11 agreement provided that Vaishangi and the Bank agreed to dismiss all claims, and even though the trial court signed the agreement, nowhere did the trial court indicate the “intent to render judgment at the time the words [were] expressed.” In addition, the Rule 11 agreement did not contain any of the “decretal language” typically seen in a judgment, such as “ordered, adjudged, and decreed”, while the dismissal order did. Finally, the Court noted that if the Rule 11 agreement were a final judgment, the dismissal order – which was filed four days later – would have been useless and unnecessary because a trial court can render only one judgment in a case,

Lessons Learned

Ultimately, the Court held that when the trial court heard the motion and issued an order enforcing the settlement agreement, the trial court exceeded its jurisdictional authority. Thus, the Bank could pursue a breach of contract claim, but it could not “reinvest the trial court that dismissed the case with jurisdiction to enforce the settlement agreement” by filing a post-judgment motion to enforce the agreement.

That difference matters. A lot. Rather than disposing of the case on a motion to enforce, the parties were essentially faced with a brand-new lawsuit and all that a lawsuit entails, including pleadings, defenses, discovery, and the ultimate submission of the contested fact issues to a judge or jury. And what surely seemed like a minor oversight when the Rule 11 agreement was signed ultimately stood to result in a major difference in the time, money, and resources that would now be required to resolve the dispute.