Concluding a Successful Settlement Conference - Arbitration

1 Concluding aSuccessfulSettlementConference: It Ain t Over Till It s Overby Morton DenlowHave you ever attended a Settlement conferenceand come away thinking the case was settled,only to later find out that your adversary has adifferent understanding of the Settlement termsthan you and your client? This is a frustratingexperience, but is completely unnecessary. Careful lawyers and judges prevent suchconfusion by ironing out the details of asettlement at the time an agreement is reached . Leaving specific Settlement terms unresolved toa later date may result in an unenforceablesettlement or possible litigation to enforce Settlement conferences play an important rolein the resolution of litigated disputes. Judgesand mediators spend numerous hours and evendays working with parties to bring about asettlement. With only percent of all federalcivil cases going to trial, Settlement is thepredominate means by which cases most cases are settled by2 the parties without direct involvement by thecourt, numerous cases are settled with theassistance of the court or mediators at asettlement Conference or court-sponsoredmediation.

2 This article explains the steps parties and thecourt should take to insure an enforceablesettlement. By paying careful attention to allnecessary issues for resolution at the time asettlement is reached , parties can prevent futuremisunderstanding and conflict over thesettlement terms. The principal issues partiesface at the time a Settlement is reached include1) monetary terms; 2) scope of releases; 3)confidentiality of the Settlement terms; 4)*This article appeared in the Fall 2002 issue of Court Review, the Journal of the American JudgesAssociation, Volume 39. Reprinted with permission. disposition of the litigation; 5) enforcement ofthe Settlement ; and 6) documenting of thesettlement. This article explores these issuesand strongly suggests that parties discuss,resolve, and memorialize the understandingsreached at the Settlement Conference or as soonthereafter as is practicable in order to minimizelater problems.

3 A Settlement checklist isprovided for parties to use at the conclusion ofthe Settlement Conference . The use of asettlement checklist can assist parties and thecourt in accomplishing this TERMS Most settlements involve payment of money bythe defendant to the plaintiff. At the time asettlement is reached , the parties agree on howmuch is to be paid. This is generally astraightforward pronouncement such as,defendant agrees to pay plaintiff $100,000. However, there are a number of additionalmonetary issues, which should also bediscussed and resolved. First, parties shouldagree to the timing of the payment and whetherpayment will be made at the time of theexchange of the executed Settlement documentsor some other date. Second, parties shouldagree as to whether payment will be made in alump sum or installments. Third, if thesettlement contemplates installment payments,the parties should discuss how the agreementwill be enforced in the event of default.

4 Willthe court retain jurisdiction to enforce thesettlement or will a separate action benecessary?3 Fourth, the parties should also agree whetherthe Settlement amount includes plaintiff sattorneys fees and in whose name to issue thecheck. Alternatives include payment to theattorney s client trust account, to the attorneyand client jointly, or directly to the client. Fifth, the parties should discuss how they intendto treat the payments for tax purposes. Does aportion of the Settlement proceeds constitutewages for which withholding taxes will betaken? Will the defendant be issuing an IRS1099 form and if so, in whose name and tax IDnumber? The characterization of the paymentsin the Settlement agreement can have significanttax implications. For example, the circuits aresplit on the issue of whether a contingent fee ispart of the client s taxable success4 of a Settlement agreement may depend on athorough discussion and consensus as topayments in light of their inherent Sixth, parties should verify whether there areany lien claims to the Settlement proceeds and ifso, whether and how they will be and their insurance carriers may notmake payments if there is an unresolved issueconcerning attorney Finally, in personal injury cases, parties mayconsider structured settlements, which providefor payments over a specified period of question of who and how the structuredsettlement will be funded should be THE FORM AND SCOPE OF RELEASESR eleases are an important topic to be discussedand resolved at the Settlement table.

5 In apersonal injury case or where there is noongoing relationship between the parties, ageneral release of all claims, whether or notraised in the litigation, is usually requested. Ageneral release of claims covers all claims ofwhich a signing party has actual knowledge orthat he could have discovered upon reasonableinquiry. Where the parties have an ongoing8 relationship, they may seek to limit the scope ofthe release to the claims raised in the the breadth of the release can beinstrumental in both the prevention of andprevailing in future addition, the9 question of whether the release will be a one-way or mutual release can also arise. Forexample, in an employment discriminationcase, a terminated former employee mayrequest his ex-employer to provide a mutualrelease to prevent future claims arising out ofhis past employment conduct.

6 Many defendantscontemplate receiving a release but not givingone. In certain circumstances, parties prefer acovenant not to sue rather than a release. Where the litigation is resolved as to one party,but is continuing as to other parties, a covenantnot to sue may avoid the problem ofinadvertently releasing a remaining CONFIDENTIALITY Confidentiality is a frequent issue insettlements. Oftentimes, defendants insist uponconfidentiality of the Settlement terms becausethey are fearful of encouraging others to bringsimilar actions against them. Frequently,confidentiality is not discussed, but appears inthe draft of the Settlement agreement fromdefendant on the assumption plaintiff will , if a term appears in the11 written agreement that was not previouslyorally agreed upon, it is it is crucial that all terms bethoroughly discussed and defined.

7 A confidentiality provision raises a number ofissues. First, is the provision mutual? Second,what can the parties say? Are they permitted todisclose the fact of Settlement withoutdisclosing the terms? Can they say the disputehas been resolved, nothing, or refer all inquiriesto defendant? What exceptions toconfidentiality will be permitted? Generally,exceptions are made for disclosures toattorneys, accountants, and close familymembers and by order of court. A confidentialsettlement agreement may be disclosed if it isfiled in court and ordered Another frequent issue is the question ofdamages in the event of a breach. Defendantsfrequently seek liquidated damages as a methodof insuring compliance with the confidentialityprovision. The question of the enforceability ofsuch a provision arises when it becomes ENFORCEMENT OF THE SETTLEMENTAND DISPOSITION OF LITIGATIONA Settlement agreement is a contract.

8 If asettlement agreement is breached the aggrievedparty does not want to file a new lawsuit toenforce the agreement. Therefore, parties shoulddiscuss the proposed enforcement the methods used are an order allowingthe court to retain jurisdiction, a dismissal of theunderlying litigation without prejudice until thesettlement is completed, or a consent decree. Afederal court loses jurisdiction over the caseunless the dismissal order includes a provisionspecifically retaining jurisdiction, requiringcompliance, or incorporating the Settlement intothe dismissal The issue of the disposition of the litigation istied into the issue of Settlement enforcement. Most defendants require a dismissal of thelitigation with prejudice to protect against arefiling of the same claims. However, if thelitigation is dismissed with prejudice, a newaction may be necessary to enforce thesettlement.

9 This can be a problem where16installment payments over a period of time arecalled for under the Settlement . The court3retains jurisdiction to enforce a settlementwhere the parties obligation to comply with theterms of the Settlement agreement are made partof the dismissal order either by 1) a provisionretaining jurisdiction over the settlementagreement, 2) a provision requiring compliancewith the Settlement agreement, or 3)incorporation of the terms of the agreement intothe CONFIRMING AND DOCUMENTINGSETTLEMENT Once a Settlement is reached during aconference, the court should bring the partiestogether to confirm all terms. An importantissue concerns how the Settlement terms will bememorialized. One option is to place all of thesettlement terms on the record in open approach is problematic where a partyseeks to keep the Settlement terms the agreement is placed on the record, itbecomes quite difficult to prevent a third partyfrom obtaining A second option is to attempt to memorializethe Settlement terms in writing.

10 A SettlementChecklist/Term Sheet can be found inAppendix C, which can be completed andsigned at the Settlement Conference . While thereis no guarantee the Settlement will not later fallapart, the more comprehensive the termsreached at the Settlement Conference , the lesslikely future problems will arise. The checklistcan also be used by the court to make sure allimportant issues are discussed during thesettlement Conference . A third option is tospecify a date by which a written confirmationof the Settlement terms and Settlement draft willbe prepared and a time by which other partiesmay raise objections. Courtesy copies should besent to the court and firm dates should be setfor completion of the Settlement shorter the time frame the better. The party representative s authority to enter intothe Settlement should be confirmed at thesettlement Conference .