January 01, 2016

Making Certain the Settlement You Intend Is the Settlement You Get

Litigators should resist the pressure to close a matter and instead focus on settlement details.

Robert Hugh Ellis

A written settlement is arguably the most important document in modern litigation. As fewer and fewer cases go the distance to trial, quite often the execution of a written settlement agreement, rather than a jury verdict, is the event that signals the end of the dispute. After devoting months—perhaps years—toward a resolution of a case, it is vital that litigators approach the negotiation and finalization of settlements with the same caution and prudence they gave to the underlying dispute. Although the prospect of finally closing out the matter, client expectations, and sometimes pressure from neutral mediators or the court can encourage haste, litigators should resist the temptation and take the extra time to ensure that the settlement they and their clients want is the one they actually get. What follows are a few practical pointers and observations to keep in mind as you prepare your next settlement.

First, make it clear from the beginning that a formal written agreement is required. If you and, more importantly, your client expect that any settlement of your case will require a formal, lengthy settlement agreement, good practice dictates making this fact known early and often. While it is difficult, if not impossible, to identify the contents of a “typical” settlement agreement, it is safe to assume most are intended to be a little more involved than “Defendant will pay $X.XX, and Plaintiff will dismiss the complaint with prejudice.”

While, in some circumstances, that sentence might very well get the job done, often there are plenty of legitimate reasons that additional terms are necessary or desirable. Perhaps you intend the agreement to be enforceable under the law of a specific jurisdiction. Perhaps your client is a sophisticated entity that, over time, has developed a series of settlement requirements and terms that it wants in every case. Perhaps certain obligations in the settlement are contingent on specific triggering events, such as securing financing. Perhaps your client works in a regulated industry and certain terms and specific language must be included in any settlement. Perhaps confidentiality is important. Or, conversely, perhaps disclosure is required by law. Whatever the reason, more often than not, one sentence jotted on the back of a napkin likely is not what your client has in mind when it decides to settle a case.

An attorney should be careful, then, not to inadvertently agree to such a bare-bones settlement arrangement without intending to. How often do parties list two or three key provisions on a term sheet at a mediation, sign it, and indicate that they’ll work out the rest of the terms later on? How often do parties send proposals back and forth via email, reach an understanding of certain terms, and then plan to circulate draft written agreements later? For example, the following is not an uncommon exchange:

Plaintiffs’ Counsel: Will dismiss for $800K, payable to plaintiff and firm.

Defendants’ Counsel: Can’t do $800K. Can do $600K. Dismiss with prejudice.

Plaintiffs’ Counsel: OK. Sounds good.

Defendants’ Counsel: OK. Will draft something.

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