||||| From: ptsc Newsgroups: alt.religion.scientology Subject: Grady Ward victorious before the 9th Circuit [RTC v. Ward (2002 U.S. App. LEXIS 7428)] Date: Fri, 26 Apr 2002 13:02:26 -0400 Organization: ARS: Perhaps the Most Malignant Newsgroup on Usenet Message-ID: X-Newsreader: Forte Agent 1.8/32.553 MIME-Version: 1.0 Content-Type: text/plain; charset=ISO-8859-1 Content-Transfer-Encoding: 8bit X-Complaints-To: newsabuse@supernews.com Lines: 1080 Path: news2.lightlink.com!news.lightlink.com!gail.ripco.com!news.chaven.com!ord2-feed1.news.algx.net!sfo2-feed1.news.algx.net!allegiance!news-hog.berkeley.edu!ucberkeley!logbridge.uoregon.edu!tethys.csu.net!nntp!sn-xit-01!sn-post-01!supernews.com!corp.supernews.com!not-for-mail Xref: news2.lightlink.com alt.religion.scientology:1507788 I have little comment on this except that it seems to take the Sword of Damocles from over his head--or at least, makes the rope a little thicker. The most succinct explanation of this ruling is that the cult can no longer file frivolous attempts to collect on their three million dollar stipulated judgment at the drop of a hat--in fact, they need the permission of the court before they may do so. Small victories like this add up in the long run, and this opinion shows the 9th Circuit's growing disdain for Scientology's bullying legal tactics. Too bad Judge Ronald M. Whyte never seemed to understand the ramifications of such abusive litigation. --- RELIGIOUS[sic] TECHNOLOGY[sic] CENTER, a California non-profit[sic] corporation, Plaintiff-Appellant, v. GRADY WARD, an individual, Defendant- Appellee. No. 01-16110 UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT 2002 U.S. App. LEXIS 7428 April 10, 2002, Argued & Submitted, San Francisco, California April 19, 2002, Filed NOTICE: [*1] RULES OF THE NINTH CIRCUIT COURT OF APPEALS MAY LIMIT CITATION TO UNPUBLISHED OPINIONS. PLEASE REFER TO THE RULES OF THE UNITED STATES COURT OF APPEALS FOR THIS CIRCUIT. PRIOR HISTORY: Appeal from the United States District Court for the Northern District of California. D.C. No. CV-96-20207-JF. Jeremy Fogel, District Judge, Presiding. DISPOSITION: AFFIRMED. COUNSEL: For RELIGIOUS TECHNOLOGY CENTER, Plaintiff - Appellant: Helena K. Kobrin, Esq., MOXIN & KOBRIN, Los Angeles, CA. For RELIGIOUS TECHNOLOGY CENTER, Plaintiff - Appellant: Samuel D. Rosen, Esq., PAUL, HASTINGS, JANOFSKY & WALKER LLP, New York, NY. For RELIGIOUS TECHNOLOGY CENTER, Plaintiff - Appellant: Louisa G. Weix, Esq., Joshua C. Irwin, Esq., PAUL, HASTINGS, JANOFSKY & WALKER LLP, San Francisco, CA. For RELIGIOUS TECHNOLOGY CENTER, Plaintiff - Appellant: William T. Drescher, Esq., DRESCHER & DRESCHER, PC, Calabasas, CA. For GRADY WARD, Defendant - Appellee: Daniel A. Leipold, Esq., LEIPOLD DONOHUE & SHIPE, Santa Ana, CA. JUDGES: Before: O'SCANNLAIN and TALLMAN, Circuit Judges, and KING, District Judge. ** ** The Honorable Samuel P. King, Senior United States District Judge for the District of Hawaii, sitting by designation. [*2] OPINION: MEMORANDUM * [FN] * This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as may be provided by 9th Cir. R. 36-3. [EFN] Religious Technology Center ("RTC") appeals the district court's denial of its motion to execute on the judgment. The facts and prior proceedings are known to the parties; they are not recited herein, except as necessary. The district court possessed authority to determine whether Ward triggered RTC's right to execute on the judgment. The district court retained ancillary jurisdiction over issues regarding breach of the settlement agreement because the court's settlement order incorporated the terms of the agreement. See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 381, 128 L. Ed. 2d 391, 114 S. Ct. 1673 (1994). RTC had no right to execute on the judgment because Grady Ward did not materially breach the settlement agreement. See First Interstate Bank of Idaho v. Small Bus. Admin., 868 F.2d 340, 343 (9th Cir. 1989); [*3] Restatement (Second) of Contracts § 241 (1979). Ward reasonably assumed that the $ 10,000 obligation was conditioned on his receiving an advance from his book deal. Indeed, the plain language of the settlement agreement suggests that the obligation is conditional. When the district court determined that the obligation was unconditional, Ward promptly offered to pay the full amount plus interest. In these circumstances, Ward's delay in tendering the $ 10,000 is not a material breach of the agreement. See, e.g., First Interstate Bank of Idaho, 868 F.2d at 343. AFFIRMED. Cited decisions: MATT T. KOKKONEN, PETITIONER v. GUARDIAN LIFE INSURANCE COMPANY OF AMERICA No. 93-263 SUPREME COURT OF THE UNITED STATES 511 U.S. 375; 114 S. Ct. 1673; 128 L. Ed. 2d 391; 1994 U.S. LEXIS 3767; 62 U.S.L.W. 4313; 29 Fed. R. Serv. 3d (Callaghan) 1; 94 Cal. Daily Op. Service 3453; 94 Daily Journal DAR 6508; 8 Fla. L. Weekly Fed. S 93 March 1, 1994, Argued May 16, 1994, Decided PRIOR HISTORY: ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT. DISPOSITION: 993 F.2d 883, reversed and remanded. View References Turn Off Lawyers' Edition Display DECISION: Federal District Court held to lack jurisdiction over claim of breach of agreement to settle dismissed suit, where parties' obligation to comply with agreement was not part of order of dismissal. SUMMARY: A suit involving state-law claims and counterclaims was brought in a California Superior Court. After the suit was removed, on the basis of diversity-of-citizenship jurisdiction, to the United States District Court for the Eastern District of California, the parties arrived at an oral agreement settling all claims and counterclaims. The parties recited the substance of the settlement agreement, on the record, before the District Judge in chambers. Subsequently, the parties executed a stipulation and order of dismissal with prejudice pursuant to Rule 41(a)(1)(ii) of the Federal Rules of Civil Procedure. The stipulation and order, which the District Judge signed, did not refer to the settlement agreement and did not reserve jurisdiction in the District Court to enforce the agreement. After a disagreement arose as to the plaintiff's obligations under the agreement, a defendant in the diversity suit moved in the District Court to enforce the agreement. The District Court, entering an enforcement order, asserted an inherent power to do so. The United States Court of Appeals for the Ninth Circuit, affirming, reasoned that after dismissal of an action pursuant to a settlement agreement, a Federal District Court has jurisdiction under its inherent supervisory power to decide a motion to enforce the agreement (993 F2d 883). On certiorari, the United States Supreme Court reversed the Court of Appeals' judgment and remanded the case for further proceedings. In an opinion by Scalia, J., expressing the unanimous view of the court, it was held that the District Court lacked jurisdiction over the defendant's breach-of-contract claim with respect to the settlement agreement--given that the parties' obligation to comply with the terms of the contract had not been made part of the District Court's order of dismissal either by separate provision or by incorporating the terms of the settlement agreement in the order- -as (1) no federal statute provided the basis for federal court jurisdiction over such a contract dispute; and (2) the doctrine of ancillary jurisdiction did not apply. LEXIS HEADNOTES - Classified to U.S. Digest Lawyers' Edition: [***HN1] COURTS §262 contract dispute -- ancillary jurisdiction -- breach of settlement agreement -- Headnote: [1A] [1B] [1C] [1D] A Federal District Court lacks jurisdiction over a breach-of-contract claim involving an agreement to settle an earlier suit, part of the consideration for which contract was the dismissal of that suit by the District Court, where the parties' obligation to comply with the terms of the contract was not made part of the District Court's order of dismissal either by separate provision or by incorporating the terms of the settlement agreement in the order, as (1) no federal statute provides the basis for federal court jurisdiction over such a contract dispute; and (2) the doctrine of ancillary jurisdiction does not apply to such a case, since (a) the facts to be determined with regard to the alleged breach of contract are separate from the facts to be determined in the principal suit, and (b) the order of dismissal is in no way flouted or imperiled by the alleged breach of the settlement agreement, and thus automatic jurisdiction over the contract is in no way essential to the conduct of federal court business. [***HN2] COURTS §232 source of jurisdiction -- Headnote: [2] Federal courts are courts of limited jurisdiction and possess only that power authorized by the Federal Constitution and federal statute. [***HN3] COURTS §243 jurisdiction -- Headnote: [3] The jurisdiction of federal courts is not to be expanded by judicial decree. [***HN4] EVIDENCE §278(1) federal court jurisdiction -- Headnote: [4] It is to be presumed that a cause lies outside the limited jurisdiction of federal courts; the burden of establishing the contrary rests on the party asserting jurisdiction. [***HN5] COURTS §262 federal jurisdiction -- enforcement of settlement agreement -- Headnote: [5] With respect to an oral agreement settling all claims and counterclaims in a Federal District Court suit, the substance of which agreement was recited on the record before a Federal District Judge in chambers prior to the District Court's dismissal of the suit with prejudice pursuant to Rule 41(a)(1)(ii) of the Federal Rules of Civil Procedure, enforcement of the agreement--whether through award of damages or decree of specific performance--is more than just a continuation or renewal of the dismissed suit and hence requires its own basis for jurisdiction, where the District Court's order of dismissal did not reserve jurisdiction in the District Court to enforce the agreement. [***HN6] COURTS §448 ancillary jurisdiction -- enforcement of order -- Headnote: [6] A Federal District Judge's mere awareness and approval of the terms of an agreement settling all claims and counterclaims in a suit do not suffice to make such terms part of the judge's order dismissing the suit, such that (1) a breach of the agreement would be a violation of the order, and (2) ancillary jurisdiction to enforce the agreement would therefore exist. [***HN7] DISMISSAL, DISCONTINUANCE, AND NONSUIT §1 terms of orders -- compliance with settlement agreement -- Headnote: [7] In the discretion of a Federal District Court, the compliance of parties with the terms of a settlement contract--or the court's retention of jurisdiction over the contract--may be one of the terms set forth in the court's order of dismissal pursuant to Rule 41(a)(2) of the Federal Rules of Civil Procedure; even where the dismissal is pursuant to Rule 41(a)(1)(ii) of the Civil Procedure Rules--which does not by its terms empower a District Court to attach conditions to the parties' stipulation of dismissal- -the court is authorized to embody a settlement contract in the dismissal order, or to retain jurisdiction over the contract, if the parties so agree. SYLLABUS: Following respondent's termination of an agency agreement between the parties, petitioner brought a state-court suit alleging state-law claims. Respondent removed the case to the Federal District Court on diversity grounds and filed state-law counterclaims. The parties subsequently arrived at a settlement agreement and, pursuant to Federal Rule of Civil Procedure 41(a)(1)(ii), executed a Stipulation and Order of Dismissal with Prejudice, which did not refer to the settlement agreement or reserve District Court jurisdiction to enforce it. After the District Judge signed the Stipulation and Order, a dispute arose as to petitioner's obligations under the settlement agreement. Respondent filed a motion to enforce the agreement, which petitioner opposed on the ground, inter alia, that the court lacked subject- matter jurisdiction. The District Court entered an enforcement order, asserting that it had "inherent power" to do so. The Court of Appeals agreed and affirmed. Held: A federal district court, possessing only that power authorized by Constitution and statute, lacks jurisdiction over a claim for breach of a contract, part of the consideration for which was dismissal of an earlier federal suit. No federal statute makes that connection (if it constitutionally could) the basis for federal-court jurisdiction over the contract dispute. Moreover, the doctrine of ancillary jurisdiction does not apply, since the facts to be determined with regard to the alleged breach of contract are quite separate from the facts to be determined in the principal suit, and automatic jurisdiction over such contracts is in no way essential to the conduct of federal-court business. Julian v. Central Trust Co., 193 U.S. 93, 113-114, 48 L. Ed. 629, 24 S. Ct. 399, distinguished. If the parties wish to provide for the court's jurisdiction to enforce a dismissal-producing settlement agreement, they can seek to do so. In the event of dismissal pursuant to Federal Rule of Civil Procedure 41(a)(2), the court may, in its discretion, make the parties' compliance with the terms of the settlement agreement (or retention of jurisdiction over the agreement) part of its order. When dismissal occurs pursuant to Rule 41(a)(1)(ii), the district court is empowered (with the consent of the parties) to incorporate the settlement agreement in the order or retain jurisdiction over the settlement contract itself. Absent such action, however, enforcement of the settlement agreement is for state courts, unless there is some independent basis for federal jurisdiction. Pp. 377-382. COUNSEL: Michael Reynolds Jencks argued the cause and filed briefs for petitioner. Frank C. Morris, Jr., argued the cause for respondent. With him on the brief were Thomas R. Bagby and Andrea R. Calem. * * A brief of amici curiae urging reversal was filed for the State of Ohio et al. by Lee Fisher, Attorney General of Ohio, Richard A. Cordray, State Solicitor, and Simon B. Karas, Charles E. Cole, Attorney General of Alaska, John Payton, Corporation Counsel of the District of Columbia, Roland W. Burris, Attorney General of Illinois, Robert T. Stephan, Attorney General of Kansas, Scott Harshbarger, Attorney General of Massachusetts, Joe Mazurek, Attorney General of Montana, Susan B. Loving, Attorney General of Oklahoma, Ernest D. Preate, Jr., Attorney General of Pennsylvania, and Stephen Rosenthal, Attorney General of Virginia. JUDGES: SCALIA, J., delivered the opinion for a unanimous Court. OPINIONBY: SCALIA OPINION: [*376] [***394] [**1674] JUSTICE SCALIA delivered the opinion of the Court. [***HR1A] [1A] After respondent Guardian Life Insurance Company n1 terminated petitioner's general agency agreement, petitioner brought suit in California [***395] Superior Court alleging various state-law claims. Respondent removed the case to the United States District Court for the Eastern District of California on the basis of diversity jurisdiction and filed state-law counterclaims. After closing arguments but before the District Judge instructed the [**1675] jury, the parties arrived at an oral agreement settling all claims and counterclaims, the substance of which they recited, on the record, before the District Judge in chambers. In April 1992, pursuant to Federal Rule of Civil Procedure 41(a)(1)(ii), the parties executed a [*377] Stipulation and Order of Dismissal with Prejudice, dismissing the complaint and cross- complaint. On April 13, the District Judge signed the Stipulation and Order under the notation "It is so ordered." The Stipulation and Order did not reserve jurisdiction in the District Court to enforce the settlement agreement; indeed, it did not so much as refer to the settlement agreement. [FN] n1 Guardian Life is the sole respondent. The Guardian Insurance and Annuity Corporation and the Guardian Investor Services Corporation were listed as appellees below, but in fact they had been dismissed prior to trial. [EFN] Thereafter the parties disagreed on petitioner's obligation to return certain files to respondent under the settlement agreement. On May 21, respondent moved in the District Court to enforce the agreement, which petitioner opposed on the ground, inter alia, that the court lacked subject-matter jurisdiction. The District Court entered an enforcement order, asserting an "inherent power" to do so. Order Enforcing Settlement (ED Cal., Aug. 19, 1992), App. 180. Petitioner appealed, relying solely on his jurisdictional objection. The United States Court of Appeals for the Ninth Circuit affirmed, quoting its opinion in Wilkinson v. FBI, 922 F.2d 555, 557 (1991), to the effect that after dismissal of an action pursuant to a settlement agreement, a "'district court [has] jurisdiction to decide the [enforcement] motion[] under its inherent supervisory power.'" App. to Pet. for Cert. A-5 (Apr. 27, 1993) (unpublished), judgt. order reported at 993 F.2d 883 (1993) (final brackets in original). We granted certiorari, 510 U.S. 930 (1993). [***HR2] [2] [***HR3] [3] [***HR4] [4] Federal courts are courts of limited jurisdiction. They possess only that power authorized by Constitution and statute, see Willy v. Coastal Corp., 503 U.S. 131, 136-137, 117 L. Ed. 2d 280, 112 S. Ct. 1076 (1992); Bender v. Williamsport Area School Dist., 475 U.S. 534, 541, 89 L. Ed. 2d 501, 106 S. Ct. 1326 (1986), which is not to be expanded by judicial decree, American Fire & Casualty Co. v. Finn, 341 U.S. 6, 95 L. Ed. 702, 71 S. Ct. 534 (1951). It is to be presumed that a cause lies outside this limited jurisdiction, Turner v. Bank of North-America, 4 U.S. 8, 4 Dall. 8, 11, 1 L. Ed. 718 (1799), and the burden of establishing the contrary rests upon the party asserting jurisdiction, McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 182-183, 80 L. Ed. 1135, 56 S. Ct. 780 (1936). [*378] [***HR5] [5] The dismissal in this case issued pursuant to Federal Rule of Civil Procedure 41(a)(1)(ii), which provides for dismissal "by filing a stipulation of dismissal signed by all parties who have appeared in the action," and causes that dismissal to be with prejudice if (as here) the stipulation so specifies. Neither the Rule nor any provision of law provides for jurisdiction of the court over disputes arising [***396] out of an agreement that produces the stipulation. It must be emphasized that what respondent seeks in this case is enforcement of the settlement agreement, and not merely reopening of the dismissed suit by reason of breach of the agreement that was the basis for dismissal. Some Courts of Appeals have held that the latter can be obtained under Federal Rule of Civil Procedure 60(b)(6). n2 See, e. g., Keeling v. Sheet Metal Workers Int'l Assn., 937 F.2d 408, 410 (CA9 1991); Fairfax Countywide Citizens Assn. v. Fairfax County, 571 F.2d 1299, 1302-1303 (CA4 1978). But see Sawka v. Healtheast, Inc., 989 F.2d 138, 140-141 (CA3 1993) (breach of settlement agreement insufficient reason to set dismissal aside on Rule 60(b)(6) grounds); Harman v. Pauley, 678 F.2d 479, 480-481 (CA4 1982) (Rule 60(b)(6) does not require vacating dismissal order whenever a settlement agreement has been breached). Enforcement of the settlement [**1676] agreement, however, whether through award of damages or decree of specific performance, is more than just a continuation or renewal of the dismissed suit, and hence requires its own basis for jurisdiction. [FN] n2 The relevant provision of that Rule reads as follows: "On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons: . . . (6) any other reason justifying relief from the operation of the judgment." [EFN] Respondent relies upon the doctrine of ancillary jurisdiction, which recognizes federal courts' jurisdiction over some matters (otherwise beyond their competence) that are incidental to other matters properly before them. Respondent appeals to our statement (quoting a then-current treatise on [*379] equity) in Julian v. Central Trust Co., 193 U.S. 93, 48 L. Ed. 629, 24 S. Ct. 399 (1904): "A bill filed to continue a former litigation in the same court . . . to obtain and secure the fruits, benefits and advantages of the proceedings and judgment in a former suit in the same court by the same or additional parties . . . or to obtain any equitable relief in regard to, or connected with, or growing out of, any judgment or proceeding at law rendered in the same court, . . . is an ancillary suit." Id., at 113-114 (citing 1 C. Bates, Federal Equity Procedure § 97 (1901)). The doctrine of ancillary jurisdiction can hardly be criticized for being overly rigid or precise, but we think it does not stretch so far as that statement suggests. The expansive language of Julian can be countered by (equally inaccurate) dicta in later cases that provide an excessively limited description of the doctrine. See, e. g., Fulton Nat. Bank of Atlanta v. Hozier, 267 U.S. 276, 280, 69 L. Ed. 609, 45 S. Ct. 261 (1925) ("No controversy can be regarded as dependent or ancillary unless it has direct relation to property or assets actually or constructively drawn into the court's possession or control by the principal suit"). The holding of Julian was not remotely as permissive as its language: Jurisdiction was based upon the fact that the court, in a prior decree of foreclosure, had expressly reserved jurisdiction to adjudicate claims against the judicially conveyed property, and to retake and resell the property if claims it found valid were not paid. 193 U.S. at 109-112. [***HR1B] [1B] It is to the holdings of our cases, rather than their dicta, that we must attend, and we find none of them that has, for purposes of asserting [***397] otherwise nonexistent federal jurisdiction, relied upon a relationship so tenuous as the breach of an agreement that produced the dismissal of an earlier federal suit. Generally speaking, we have asserted ancillary jurisdiction (in the very broad sense in which that term is sometimes used) for two separate, though sometimes related, purposes: (1) to permit disposition by a single court of claims that are, in varying respects and degrees, factually interdependent, [*380] see, e. g., Baker v. Gold Seal Liquors, Inc., 417 U.S. 467, 469, n. 1, 41 L. Ed. 2d 243, 94 S. Ct. 2504 (1974); Moore v. New York Cotton Exchange, 270 U.S. 593, 610, 70 L. Ed. 750, 46 S. Ct. 367 (1926); and (2) to enable a court to function successfully, that is, to manage its proceedings, vindicate its authority, and effectuate its decrees, see, e. g., Chambers v. NASCO, Inc., 501 U.S. 32, 115 L. Ed. 2d 27, 111 S. Ct. 2123 (1991) (power to compel payment of opposing party's attorney's fees as sanction for misconduct); United States v. Hudson, 11 U.S. 32, 7 Cranch 32, 34, 3 L. Ed. 259 (1812) (contempt power to maintain order during proceedings). See generally 13 C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure § 3523 (1984); cf. 28 U.S.C. § 1367 (1988 ed., Supp. IV). Neither of these heads supports the present assertion of jurisdiction. As to the first, the facts underlying respondent's dismissed claim for breach of agency agreement and those underlying its claim for breach of settlement agreement have nothing to do with each other; it would neither be necessary nor even particularly efficient that they be adjudicated together. No case of ours asserts, nor do we think the concept of limited federal jurisdiction permits us to assert, ancillary jurisdiction over any agreement that has as part of its consideration the dismissal of a case before a federal court. [***HR1C] [1C] [***HR6] [6] But it is the second head of ancillary jurisdiction, relating to the court's power to protect its proceedings and vindicate its authority, [**1677] that both courts in the present case appear to have relied upon, judging from their references to "inherent power," see App. to Pet. for Cert. A- 2 and A-5; App. 180. We think, however, that the power asked for here is quite remote from what courts require in order to perform their functions. We have recognized inherent authority to appoint counsel to investigate and prosecute violation of a court's order. Young v. United States ex rel. Vuitton et Fils S. A., 481 U.S. 787, 107 S. Ct. 2124, 95 L. Ed. 2d 740 (1987). But the only order here was that the suit be dismissed, a disposition that is in no way flouted or imperiled by the alleged breach of the settlement agreement. [*381] The situation would be quite different if the parties' obligation to comply with the terms of the settlement agreement had been made part of the order of dismissal -- either by separate provision (such as a provision "retaining jurisdiction" over the settlement agreement) or by incorporating the terms of the settlement agreement in the order. In that event, a breach of the agreement would be a violation of the order, and ancillary jurisdiction to enforce the agreement would therefore exist. That, however, was not the case here. The judge's mere awareness and approval of the terms of the settlement agreement do not suffice to make them part of his order. [***HR1D] [1D] [***HR7] [7] The short of the matter is this: The suit involves a claim for breach of a contract, part of the consideration for which was dismissal of an earlier federal suit. No federal [***398] statute makes that connection (if it constitutionally could) the basis for federal-court jurisdiction over the contract dispute. The facts to be determined with regard to such alleged breaches of contract are quite separate from the facts to be determined in the principal suit, and automatic jurisdiction over such contracts is in no way essential to the conduct of federal-court business. If the parties wish to provide for the court's enforcement of a dismissal-producing settlement agreement, they can seek to do so. When the dismissal is pursuant to Federal Rule of Civil Procedure 41(a)(2), which specifies that the action "shall not be dismissed at the plaintiff's instance save upon order of the court and upon such terms and conditions as the court deems proper," the parties' compliance with the terms of the settlement contract (or the court's "retention of jurisdiction" over the settlement contract) may, in the court's discretion, be one of the terms set forth in the order. Even when, as occurred here, the dismissal is pursuant to Rule 41(a)(1)(ii) (which does not by its terms empower a district court to attach conditions to the parties' stipulation of dismissal) we think the court is authorized to embody the settlement contract in its dismissal order [*382] (or, what has the same effect, retain jurisdiction over the settlement contract) if the parties agree. Absent such action, however, enforcement of the settlement agreement is for state courts, unless there is some independent basis for federal jurisdiction. We reverse the judgment of the Court of Appeals and remand the case for further proceedings consistent with this opinion. It is so ordered. THE FIRST INTERSTATE BANK OF IDAHO, Plaintiff-Appellant, v. THE SMALL BUSINESS ADMINISTRATION and JAMES C. SANDERS, Administrator, SMALL BUSINESS ADMINISTRATION, Defendants-Appellees No. 87-4254 UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT 868 F.2d 340; 1989 U.S. App. LEXIS 1895 October 7, 1988, Argued and Submitted February 22, 1989, Filed PRIOR HISTORY: [**1] Appeal from the United States District Court for the District of Idaho, D.C. No. CV-84-1279-MJC, Marion J. Callister, Chief District Judge, Presiding. DISPOSITION: Affirmed. COUNSEL: William J. Russell and Jeffery J. Ventrella, Elam, Burke & Boyd, Boise, Idaho, for the Plaintiff-Appellant. Jeffrey G. Howe, Assistant United States Attorney, Boise, Idaho, and John L. Loesch, Small Business Administration, Seattle, Washington, for the Defendants-Appellees. JUDGES: Dorothy W. Nelson and Robert R. Beezer, Circuit Judges, and William J. Rea, * District Judge. * The Honorable William J. Rea, United States District Judge for the Central District of California, sitting by designation. OPINIONBY: BEEZER OPINION: [*342] BEEZER, Circuit Judge: This is a contract dispute between a bank and the Small Business Administration ("SBA") over the SBA's failure to honor a guarantee agreement insuring one of the bank's loans. The district court entered an order of summary judgment for the SBA, on the grounds that the bank had substantially failed to comply with the agreement and that the SBA was not required to rescind its guarantee promptly upon learning of the failure of compliance. We affirm. I On October 3, 1978, the SBA and the Bank of Idaho n1 [**2] ("the bank") entered into a Loan Guaranty Agreement establishing the conditions under which the SBA would guarantee the bank's loans to certain businesses. The agreement stated that it covered future loans "subject to SBA's Rules and Regulations." Any change in the terms and conditions of a loan following its approval required written agreement between the SBA and the bank. [FN] n1 Predecessor-in-interest to appellant First Interstate Bank of Idaho. [EFN] In October 1980, the bank applied to the Spokane District Office of the SBA for the SBA's guarantee, pursuant to the master loan agreement, of 90 percent of a $ 450,000 loan to Cedar Products, Inc. ("CPI"). The bank requested that $ 206,900 of the loan proceeds be approved for repayment of CPI's prior debts to the bank. In November 1980, the SBA approved the loan in the lesser amount of $ 320,000, and specified that only $ 39,219 could be used to repay prior debt. The bank responded by cancelling the application for the SBA guarantee, and reapplying for a guarantee of a $ 395,000 loan, of which $ 75,000 would repay CPI's prior debts to the bank. On January 6, 1981, the SBA and the bank executed an Authorization and Loan Agreement in which [**3] the SBA agreed to purchase 90 percent of the $ 395,000 loan to CPI in case of default. The loan agreement specifically listed the purposes for which the money could be used, including purchase of land, construction, working capital, inventory, and debt reduction. Only $ 39,219 was approved for repayment of CPI's debts to the bank. The bank admits that the loan funds were not disbursed as the agreement provided. Rather than $ 39,219, nearly $ 154,000 of the loan proceeds were retained by the bank to repay its prior loans to CPI. Furthermore, the bank's loan officer in charge of the CPI account, Clark Lusk, sent the SBA a settlement sheet, dated January 16, 1981, falsely indicating that money had been disbursed as per the agreement. At approximately the time Lusk filed the false settlement sheet, he asked SBA official Joe Finkel orally for approval to apply certain of the required disbursements to the bank's line of credit loan to CPI. Whether Finkel orally approved anything is disputed; however, on this de novo review of summary judgment, we take the facts as presented by the bank and assume that he did. The bank sought written approval pursuant to the loan agreement for the changes [**4] in the disbursement schedule allegedly approved by Finkel. The SBA did not respond in writing before May, 1981, at which time the bank informed the SBA of the unauthorized disbursements and the false settlement sheet. The Spokane office of the SBA referred the matter to the Inspector General of the SBA. An FBI investigation led to Lusk's 1982 conviction under 18 U.S.C. § 1001 (1982) for making false statements on the settlement sheet. Throughout the investigation, the bank continued to request that its disbursements be approved. It recognized that the SBA guarantee was in danger of denial. The SBA did not make any commitment on the matter, however. CPI defaulted on the loan in April 1982, and the bank asked the SBA to honor the guarantee. The SBA's local office notified the bank that it intended to recommend denial of the request and, in April 1983, the [*343] SBA informed the bank that the SBA Administrator had approved denial. The bank sued for damages for breach of contract and for a declaratory judgment that the guarantee remained in force. The district court granted the SBA's motion for summary judgment because of the bank's substantial failure to follow the terms of the agreement, [**5] thus permitting the SBA not to honor the guarantee under SBA regulations. The bank appeals on the grounds that its breach was not substantial, and that, even if the SBA had a right to rescind the contract, it lost that right by its failure to rescind promptly. We have jurisdiction over this timely appeal of a summary judgment. 28 U.S.C. § 1291 (1982); Fed. R. App. P. 4(a)(1). We review a grant of summary judgment de novo. Darring v. Kincheloe, 783 F.2d 874, 876 (9th Cir. 1986). II The bank does not question the applicability of SBA regulations as part of the contract. The regulations release the SBA from "any obligation to purchase its share of a guaranteed loan if the lender has not substantially complied with all of the provisions of these regulations and the guaranty agreement." 13 C.F.R. § 122.10(b)(1)(iii) (1979). n2 [FN] n2 This regulation was published on September 28, 1978, 43 Fed. Reg. 44470, 44472, and remained in force at all relevant times after October 1, 1978. It specifically refers only to the guarantee agreement; however, provisions in the guarantee agreement requiring adherence to the terms of any future loan authorization agreement brought the 1981 authorization agreement specifically under the coverage of 13 C.F.R. § 122.10(b)(1)(iii). [EFN] [**6] The bank argues, however, that its deviations from the approved disbursements were not a substantial breach justifying the SBA's refusal to honor its guarantee. We apply general federal law. n3 United States v. Kimbell Foods, Inc., 440 U.S. 715, 726, 59 L. Ed. 2d 711, 99 S. Ct. 1448 (1979); Eastern Ill. Trust & Savings Bank v. Sanders, 826 F.2d 615, 616 (7th Cir. 1987). A party may rescind a contract in case of substantial breach by the other party. See Eastern Ill. Trust, 826 F.2d at 616-17; CBS, Inc. v. Merrick, 716 F.2d 1292, 1296 (9th Cir. 1983) (applying New York law). The test of materiality for a federal contract is an all-the-circumstances test. United States v. Baus, 834 F.2d 1114, 1125 (1st Cir. 1987); Eastern Ill. Trust, 826 F.2d at 617; cf. Restatement (Second) of Contracts § 241 (1979) [hereinafter "Restatement"]. [FN] n3 We may adopt state law as the rule of decision even when the question is one of federal law, when there is no need for national uniformity and state law does not frustrate the goals of the federal program, or if a general federal rule disrupts commercial relations predicated upon state law. United States v. Kimbell Foods, 440 U.S. 715, 728-33, 59 L. Ed. 2d 711, 99 S. Ct. 1448 (1979); Great Southwest Life Ins. Co. v. Frazier, 860 F.2d 896, 899-900 (9th Cir. 1988). We have done so in cases involving directly relevant state- law defenses to enforcement of SBA contracts. E.g., Great Southwest, 860 F.2d at 900. In this case, however, the bank has relied solely upon general federal contract law. We see no reason to favor Idaho common law over the specific interpretations of SBA guarantee agreements decided by other federal courts and the general principles of contract law found in the Restatement (Second) of Contracts (1979) in formulating our rule of decision. We emphasize that our decision in no way limits the applicability of state law to federal contracts when relevant. [EFN] [**7] The facts of this case approach the level of a prima facie substantial breach of the loan agreements. We need not mince words about what happened here. The bank, specifically its officer Clark Lusk, attempted twice to persuade the SBA to guarantee a paydown of its large existing loans to CPI, replacing overdue nonguaranteed loans with SBA-guaranteed ones. Not succeeding in this effort, the bank tried to do covertly and illegally, in the amount of approximately $ 115,000, what it could not do legally; use a government loan program to insure its past bad loans. We analyze the case in terms of the tests of materiality of breach developed by the courts and commentators. In applying federal contract law, we are guided by general principles of contract law and by the Restatement. Baus, 834 F.2d at 1125 (citing, e.g., Eastern Ill. [*344] Trust, 826 F.2d at 616). Absent specific language indicating a condition precedent, see In re Bubble Up Delaware, Inc. v. United States, 684 F.2d 1259, 1264 (9th Cir. 1982), we interpret the contractual language as the mutual exchange of promises supported by consideration. Restatement, supra at § 232. The nature of this contract required that the [**8] bank perform first. See id. at § 234(2). Pursuant to Restatement § 237 and the SBA regulations, 13 C.F.R. § 122.10(b) (1)(iii), a material failure of the bank to perform its side of the bargain operated as the nonoccurrence of a condition, which excused performance by the SBA. Restatement, supra, at § 225(1). The Restatement lists five circumstances as "significant" in determining whether a breach is material. Id. at § 241. n4 We consider these factors as guides in applying the all-the- circumstances test, and hold the bank's breach to be material. The SBA was deprived of its specifically bargained-for disbursements by reason of the bank's misallocation of the funds. See id. at § 241(a). This was a loan guarantee in furtherance of a governmental policy of helping small business. See 15 U.S.C. § 636(a) (1982). The "benefit" the SBA reasonably expected was not financial profit, but assistance to CPI in acquiring specific capital improvements that the SBA felt would best help CPI survive, and thus benefit the public interest. The SBA specifically bargained for this allocation of the funds, and specifically rejected the bank's proposed use of the loan guarantee [**9] program primarily to benefit the bank. [FN] n4 § 241. Circumstances Significant in Determining Whether a Failure is Material In determining whether a failure to render or to offer performance is material, the following circumstances are significant: (a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing. Restatement, supra, at § 241. [EFN] Such nonmonetary losses are best compensated by allowing rescission under the material breach standard, rather than by holding the breach to be a nonmaterial one that might give rise to a damage claim, but not excuse the SBA's performance. See id. [**10] at § 241(b), comment c. By reason of its breach, the bank admittedly suffers forfeiture of its bargained-for interest in receiving the guarantee payment. See id. at § 241(c). Restatement § 241(d) is inapplicable, because the bank failed to cure its breach by correcting the misallocation of funds. We find Restatement § 241(e) to be most compelling. The bank's covert evasion of its bargained-for performance failed completely to comport with "standards of good faith and fair dealing" as we understand them. Id. The Seventh Circuit recently approved a district court's application of a somewhat different four-part test of materiality to determine whether the SBA was justified in refusing to honor a loan guarantee. Eastern Ill. Trust, 826 F.2d at 617. n5 The court held that the district court's judgment that a bank's unauthorized "side loans" to a guaranteed borrower did not materially breach the contract was not clear error. Id. The Seventh Circuit's [*345] analysis provides a useful alternate frame-work to determine the materiality of the bank's breach. [FN] n5 The four factors were: (1) Whether the breach operated to defeat the bargained-for objective of the parties; (2) whether the breach caused disproportionate prejudice to the non-breaching party; (3) whether custom and usage considers such a breach to be material; and (4) whether the allowance of reciprocal non-performance will result in the accrual of an unreasonable and unfair advantage. Eastern Ill. Trust, 826 F.2d at 617 (quoting Eastern Ill. Trust & Savings Bank v. Sanders, 631 F. Supp. 1393, 1396 (N.D. Ill. 1986)). The district court obtained the factors from a Seventh Circuit case applying Illinois law. See Sahadi v. Continental Ill. Nat'l Bank and Trust Co., 706 F.2d 193, 196 (7th Cir. 1983). [EFN] [**11] The bank contends that the bargained-for objective of the contract was not disturbed by its deviant disbursements, because CPI benefited by having its prior debt load reduced, and the primary objective of helping CPI thus suffered no detriment. In Eastern Ill. Trust, the court noted that the appellants' additional loans to the borrower did not prejudice the SBA financially, or harm the general program objective of assisting small business. Id. Accepting the bank's contention that neither SBA nor CPI suffered financial harm, we nevertheless conclude that the bargained-for objective was defeated. The court in Eastern Ill. Trust recognized that in assessing a government program that is not profit-oriented, the court may consider nonfinancial objectives and prejudice. Id. The SBA has established that its policy guidelines at the time of the loan required a guaranteed bank to maintain an interest in its loans at least equal to its prior exposure, to ensure that the bank followed prudent lending policy in making its guaranteed loan. n6 [FN] n6 I.e., in a $ 395,000 guaranteed loan, only $ 39,500 could go to prior loan repayment, an amount equaling the 10 percent exposure of the bank in a new loan 90 percent guaranteed by the SBA. [EFN] [**12] Furthermore, the specific amounts and purposes indicated in the loan authorization show SBA's interest in the continued growth of the borrower through capital improvements; these goals were denied through use of the funds to service CPI's debt to the bank, even if no specific financial harm accrued to CPI or the SBA. If the bank's argument is accepted, the specific authorizations in the contract were mere verbiage, subject to the bank's carte blanche to use the funds however it wished, absent specific financial harm to CPI or the SBA. The second factor is whether the breach caused disproportionate prejudice to the nonbreaching party. Id. The Seventh Circuit recognized the possible nonfinancial prejudice to the SBA's regulatory policy against side loans. Id. We recognize the prejudicial impact of the bank's actions on the SBA's policy against allowing banks to apply large percentages of guaranteed loan proceeds to repay prior loans to the borrower. In Eastern Ill. Trust, the district court found that generally the SBA did not repudiate loan guarantees not resulting in monetary loss and that this "custom and usage" was a factor in assessing materiality. See id. The course [**13] of dealing between the parties here, however, shows the SBA's repeated limitation of authorized amounts payable to the bank. We question the applicability of custom and usage in any case, because the SBA faced the unusual situation of a bank official investigated for, and ultimately convicted of the felony of lying to the SBA about the very disbursements at issue. This factor, and the large amount of deviation, show that no fact the bank conceivably could offer regarding SBA custom would be material enough to merit reversal. The district court in Eastern Ill. Trust found that unfair advantage would accrue to the SBA if it were allowed to escape a liability for which it had contracted. Id. In this case, affirmance undoubtedly releases the SBA from a contractual liability. But that advantage is not unreasonable, given the bank's clear violation of the contracted-for disbursement amounts and purposes, and the bank's fraudulent conduct in filing false statements. Also, since the bank improperly paid some $ 115,000 of the loan money to itself, enforcing the guarantee would result in a windfall to the bank as a direct result of its contractual violation, giving it the unfair advantage. [**14] The bank further relies on Eastern Ill. Trust to support its argument that since the violated third paragraph of the guarantee agreement did not explicitly contemplate denial of the guarantee, while the fourth and eighth paragraphs did, the parties did not intend denial as a remedy for a breach of the third paragraph. See id. at 618. Although there is some textual ambiguity [*346] in the contract, the Seventh Circuit's reasoning that Eastern Illinois Trust could not reasonably have expected to know that its violation would lead to repudiation of the guarantee does not apply to these facts. The record conclusively shows that the bank knew at the time of the breach that the SBA had to approve any deviations in writing, and that once the scale of misapplication of the proceeds was known (amounting to nearly one-third of the total loan amount), the bank knew very well that the guarantee was in jeopardy. Any belief to the contrary before the breach was not reasonable; nor was any expectation at the time of making the contract that a breach of this magnitude would not give rise to a right of rescission. The bank knew that it ran the risk of denial if it disbursed funds without written [**15] approval. See California Pacific Bank v. SBA, 557 F.2d 218, 224-25 (9th Cir. 1977) (where bank's conduct was of doubtful legality under guarantee agreement and applicable regulations, and SBA's response was ambivalent, bank had duty to obtain affirmative renunciation of SBA strictures before proceeding). III The bank argues that even if it substantially breached the contract, the SBA waived any right of rescission it might have had because of long delay n7 in denying the guarantee. A party rescinding a contract must do so within a reasonable time after discovery of a breach justifying rescission. n8 Baker v. Penn Mut. Life Ins. Co., 788 F.2d 650, 662 (10th Cir. 1986) (applying Kansas law) (citing 12 W. Jaeger & S. Williston, Williston on Contracts § 1460 (3d ed. 1970)). The bank relies primarily on First Nat'l Bank v. Kleppe, 409 F. Supp. 110 (E.D. Tenn. 1975), a case in which a district court found that the SBA lost its right to rescind due to its delay of some three years after learning of a bank's negligence in failing to obtain required collateral. Id. at 112. [FN] n7 The SBA first learned of the substantial breach in May 1981. It delayed action during the FBI investigation. The bank demanded performance in April 1982. The SBA notified the bank in June 1982 that the guarantee would likely be denied. Final notice of denial was issued April 14, 1983. [**16] n8 The Restatement does not appear to require notice of rescission within a reasonable time. Rather, a failure of performance suspends and eventually discharges any duty of performance. Restatement, supra, at § 242, comment a. Restatement § 381, entitled "Loss of Power of Avoidance by Delay," applies to certain types of voidable contracts, not to material failures of performance. The district court viewed the case as one of avoidance of the contract for "misrepresentation," in which case Restatement § 381(2) would apply, rather than material breach. We consider the reasonable time requirement a proper one under these facts, however; despite the Restatement's lack of specific provision for it in a case of material failure of performance, it is a common-law contract rule of sufficiently general usage that we apply it to this breach. [EFN] Kleppe is easily distinguishable, however, because the Kleppe court based its holding on the SBA's continued acceptance of payments from the bank following knowledge of the breach. Id. at 112-13; see Baker, 788 F.2d at 662 (rescinding party must cease accepting benefits under the contract (citing Williston on Contracts, [**17] supra, § 1460, at 115-19)). Here, the SBA received no financial benefit following the bank's breach. The Restatement provides the best guidance on reasonableness of delay. Restatement, supra, at § 381 (3). n9 It supplies four factors for analyzing this case: 1) the extent to which the delay enabled the SBA to speculate; 2) the extent to which the delay caused the bank justifiably to rely; 3) the extent to which the reason to rescind was the fault of either party, and 4) the extent to which the bank's conduct contributed to the delay. See id. These factors support the SBA. The delay did not benefit the SBA; as a guarantor of the loan without any corresponding future profit, the SBA would have benefited most from immediate rescission, although such a course of action [*347] would of course have compromised its policy goals. The bank was well aware that the guarantee was at risk, and under the circumstances any reliance on its continued validity was unjustified. n10 The bank's substantial breach, and the criminal malfeasance of its employee, caused the problem to arise. [FN] n9 Despite our reservations about § 381's applicability to a material failure of performance, see supra n.8, having decided to require rescission within a reasonable time we see no reason not to use the Restatement's factors on reasonableness of delay. [**18] n10 In fact, the bank might have been justified in treating the SBA's equivocation in response to the bank's demand for assurances as a repudiation of the guarantee. See Restatement, supra, at § 251(2). [EFN] The bank apparently contends that the SBA should have elected to rescind immediately upon learning about the improper disbursements, rather than wait for the FBI investigation to establish the full facts, since delay removed the right to rescind. Contrarily, the bank criticizes the SBA on the one hand for acting arbitrarily and without full knowledge, and on the other hand for not acting hastily to rescind its guarantee. The delay did not benefit the SBA or unduly harm the bank. The bank argues that the SBA's conduct in orally approving deviations from the approved disbursements led the bank to believe to its detriment that the contract would be honored. The SBA responds that its official, Joe Finkel, did not have the authority to change the terms of the loan authorization. 13 C.F.R. § 101.3-2 Part I, Section B2(b) (1982). This fact is not contested. Persons dealing with government officers assume the risk that those officers exceed their authority; if so, the government is not [**19] bound by their representations. Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384, 92 L. Ed. 10, 68 S. Ct. 1 (1947); Lavin v. Marsh, 644 F.2d 1378, 1383 (9th Cir. 1981). The bank correctly points out that Merrill's sometimes harsh mandate may be ameliorated in certain cases by estoppel against the government. See Heckler v. Community Health Services, Inc., 467 U.S. 51, 59-63, 81 L. Ed. 2d 42, 104 S. Ct. 2218 (1984); TRW, Inc. v. FTC, 647 F.2d 942, 950-51 (9th Cir. 1981). Reasonable detrimental reliance is essential to governmental estoppel, however. Heckler, 467 U.S. at 59. The record indicates a complete lack of detrimental reliance on Finkel's statements. First, the improper disbursements were made before Lusk contacted Finkel. n11 Second, the bank knew it needed written authority and that its transgressions had placed the SBA guarantee at risk. The record shows that the bank can hardly claim the SBA violated that "minimum standard of decency, honor, and reliability" justifying estoppel. Id. at 61. [FN] n11 The false settlement sheet is dated January 16, 1981. According to the bank's brief, Lusk's first call to Finkel was on January 20, 1981. [EFN] IV The bank condemns the SBA decisionmaking process as arbitrary and abusive. [**20] Specifically, it alleges that the SBA's Spokane office transmitted false information to the Washington, D.C.-based SBA Administrator authorized to deny the guarantee, that the Administrator relied on the false information, and that the investigation was one-sided. The bank alleges that the SBA violated its own investigative procedures. The bank contends that the SBA cannot raise the bank's substantial breach as a defense to the bank's breach of contract claim, because the SBA did not specifically mention substantial breach in its internal decisionmaking memorandum as a ground for denial. If we were reviewing the SBA's administrative decision under the Administrative Procedure Act, 5 U.S.C. § 706 (1982), we could consider these claims. But this is a contract action, and the process leading to the SBA's decision to deny the guarantee is not relevant to our contract-law analysis of whether the bank's substantial breach excused the SBA's performance. In any case, we see nothing in this record that would rise to the level of "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law" and thus merit reversal. 5 U.S.C. § 706(2)(A); see Friends of the Earth [**21] v. Hintz, 800 F.2d 822, 831 [*348] (9th Cir. 1986) (court may not set aside agency action as arbitrary and capricious unless there is no rational basis for the action). CONCLUSION The bank's substantial breach of its agreement with the SBA justified the SBA's refusal to honor the guarantee. The SBA did not lose its right of rescission by failing to rescind within a reasonable time. We uphold the summary judgment order. AFFIRMED.