Settling a case may be the culmination of years of litigation or a strategic move at the outset to avoid litigation costs. Many times, settlement occurs at some point in between. Regardless of when the settlement occurs, it’s important to focus on certain considerations that should be part of any settlement process and the eventual agreement. Consideration of the points identified below will help ensure the creation of the most favorable agreement possible.
Term Sheets and Mediator’s Proposals
We’ve all been there. It’s the end of a long day at mediation and finally you reach a settlement. After having spent many hours together, everyone is eager to leave. Resist this temptation. Why? Buyer’s remorse. Don’t give the other side the opportunity to back out of the deal. First, reduce the key terms to writing in a term sheet. Second, make sure that any term sheet or mediator’s proposal includes any “magic language” necessary in your jurisdiction to make the term sheet or mediator’s proposal enforceable. For example, in California, Evidence Code section 1123 provides that a written settlement agreement prepared in the course of mediation may be considered admissible if signed by the settling parties and if the agreement provides that it is enforceable or binding or words to that effect. See Stewart v. Preston Pipeline Inc., 134 Cal. App. 4th 1565, 1578 (2005) (finding that beyond the necessary signatures, the parties stated within their confidential settlement agreement that it was a full and final settlement intended to be enforceable, thereby satisfying the requirements of § 1123).
Additionally, if you are going to be presented with a mediator’s proposal, be proactive and tell the mediator that any mediator’s proposal must contain language making it enforceable, admissible, and binding if accepted and signed by the settling parties.
The Settlement Agreement
You might think it goes without saying, but do not delay in preparing the settlement agreement. Again, any unnecessary delay gives the opposing party time to rethink their position (which will be particularly problematic absent a written term sheet). Additionally, consider taking charge of drafting the agreement and do not leave it up to the plaintiff as this gives you greater control.
In drafting the settlement agreement, there are a number of key provisions to consider including in your agreement, the relevance and importance of which are discussed below.
Releases. Give careful consideration to committing to mutual releases and ask yourself if they truly are necessary. You should also be aware of any statutes that preserve claims. For example, California Civil Code section 1542 provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
Failure to expressly waive this section in the settlement agreement presents a potential problem if there was an intention to release all claims, known and unknown. In California, Section 1542 is routinely waived, but it needs to be stated in the agreement and the party waiving its claims must understand and intend to waive to foreclose later questions about its enforceability. Leaf v. City of San Mateo, 104 Cal. App. 3d 398, 411 (1980) (In reversing a summary judgment, the court found that “mere recital, as in the release signed by plaintiffs, that the protection of Civil Code, section 1542 is waived, or that the release covers unknown claims or unknown parties is not controlling. Whether the releaser intended to discharge such claims or parties is ultimately a question of fact.”).
Caution dictates checking your jurisdiction for similar statues or case law on the topic. See Garriot v. O’Neill Condominium Ass’n, 2015 WL 5728245 (N.Y.Sup.) (The New York Supreme Court found that a release clearly and unambiguously encompassed unknown claims because “[a] release is a contract, and its construction is governed by contract law and one that is complete, clear, and unambiguous on its face must be enforced according to the plain meaning of its terms.”); see also Junge v. Smyrna Rental & Repair, Inc., No. 95C-02-018, 1998 WL 960716 (Del. Super. June 2, 1998) (denying motion for summary judgment brought to extinguish strict products liability claim, after looking solely to the language of the release to infer intent about whether plaintiff released claims against both defendants).
Confidentiality. Confidentiality is a major concern for many defendants. Confidentiality provisions should be clear and explicit, and tailored as broadly as needed to suit your goals. Additionally, you should consider seeking to bind plaintiff’s counsel as well (if they will agree). Binding counsel prevents counsel from telling others that he or she obtained a settlement against your client and from using it for marketing purposes. One might consider including a provision that states that if asked to discuss any aspect of the settlement, a plaintiff or his or her counsel will respond: “The matter has been resolved.” This makes clear exactly what can be stated. If the settlement agreement is confidential, make sure that is printed on the bottom of every page of the agreement.
You might be wondering if confidentiality provisions are ever enforced. The answer is yes. In 2014, the Florida Court of Appeals held that a plaintiff’s daughter who posted on Facebook about her father’s recent settlement against his former employer violated the settlement agreement’s confidentiality provision. As a result, the court enforced a liquidated damages provision and subtracted over half of the settlement. See Gulliver Schools, Inc. v. Patrick Snay, 2014 WL 769030 (Fla. 3d Dist. February 26, 2014). Just recently in California (in an unpublished opinion), the Second Appellate District found that actor Mel Gibson’s ex-girlfriend breached a confidential settlement agreement by insinuating during a Howard Stern radio interview that the conduct she claimed in a 2010 complaint occurred. The court found that Gibson’s ex-girlfriend piggybacked on Stern’s comments about what she had been through with Gibson, even though she did not explicitly use Gibson’s name. The Court determined this was a breach of the confidentiality agreement and discharged Gibson’s obligation to pay any further amounts under the settlement agreement and ordered sanctions against the ex-girlfriend, and awarded Gibson his costs on appeal. M.G. v. O.G. (Cal. Ct. App., Aug. 9, 2016, No. B254358) 2016 WL 4199178.
One side note on confidentiality. Consider a provision that makes it clear that nothing prevents plaintiff or defendant from disclosing the terms of the agreement as required by law. To that end, you need to know what specific disclosure or reporting requirements your client faces. Consider specifically addressing these obligations in the agreement.
Liens. When settling a personal injury claim, you may need to address issues regarding liens. Consider addressing in the agreement the status of any conditional payments made by Medicare or past liens asserted by Medicare. This can be addressed by a provision that plaintiff warrants that no conditional payments have been made by Medicare, and that Plaintiff agrees to be responsible for and pay any and all conditional payment claims/past liens that may be asserted by Medicare for any expenses paid by Medicare for plaintiff’s medical treatment.
You might also consider building in a provision that provides that plaintiff agrees to indemnify, defend and hold defendant harmless from any potential request or cause of action by Medicare seeking payment of past, current or future medical expenses for plaintiff. Consider the same type of provisions for Workers’ Compensation liens and claims, and be sure to check your jurisdiction for rules that apply to settlements while a Workers’ Compensation lien is pending.
Medicare Reporting. The Medicare, Medicaid and SCHIP Extension Act (“MMSEA”) dictates when reporting of a settlement with a Medicare eligible plaintiff is necessary. In 1980, Congress passed legislation that made Medicare the secondary payer to certain primary plans in an effort to shift costs from Medicare to the appropriate private sources of payment. Under the Medicare Secondary Payer statute, 42 U.S.C. § 1395y(b)(8), and Section 111 of MMSEA, settlements must be reported to the Center for Medicare or Medicaid Services and its Benefits Contractor unless: (1) the plaintiff is not a Medicare-enrolled beneficiary, and there is no expectation that Medicare may make a payment, or (2) there is no probability that the plaintiff will become a Medicare-enrolled beneficiary within thirty (30) months of the settlement (the outer bounds of the coordination periods). Reporting is required for all responsible reporting entities for an applicable primary plan, which includes any group health insurer, workmen’s compensation, no-fault insurer or liability insurer, and any self-insured defendant. Before paying an award or settlement, determine the claimant’s Medicare status and then make sure to follow the statute’s reporting requirements closely, as failure to do so may result in penalties, double damages, and more litigation. It is imperative that you know whether or not your client is a reporting entity.
If applicable, consider including a provision in which the plaintiff represents that he or she is not a Medicare beneficiary and warrants that he or she presently has no intention to seek Medicare benefits for any future medical care costs associated with claims related to the settlement agreement. Lastly, consider adding an indemnification provision for any actions regarding pre-settlement Medicare conditional payments, failure to hold back amounts to cover future payments, or any reimbursement required by Medicare or other government entities known, discovered, or demanded in the future.
Confession of Judgment. A confession of judgment allows a party to enter judgment against another party. In the context of a settlement, a confession of judgment clause could permit the filing of the settlement agreement with proof of non-compliance with a court judgment without first having to litigate it. Confessions of judgment are not enforceable or available in all jurisdictions; therefore, particular care must be taken.
By way of example of some different scenarios, in California, confessions of judgment are enforceable under Code of Civil Procedure sections 1132-1134, but the procedure is only used when no action has been commenced in court for a debt or obligation. Additionally, there are specific procedural requirements that must be met under the statute before a court will recognize the proposed judgment because a defendant is waiving its due process rights to be heard by a court of law. See Isbell v. County of Sonoma (1978) 21 C3d 61, 64. In New York, CPLR 3218 governs judgments by confession which can have the same effect as a judgment in an action in the Supreme Court. Id. While, other states, such as Pennsylvania, allow confessions of judgment in commercial matters, but not for certain consumer matters. Pa.R.C.P. No. 2950, et seq.
Acceleration Clauses. A settlement may be structured such that payments are made over a period of time. If favorable to you (i.e., if you are receiving the payments) consider including an acceleration clause which provides that the total settlement amount due and owing is expedited if breach occurs regarding any of the other conditions in the agreement. Remember to look to your jurisdiction for information about whether a court will enforce an acceleration clause in your settlement agreement. Riesett v. W.B. Doner & Co., 293 F.3d 164, 175 (4th Cir. 2002) (“Although acceleration clauses are valid and enforceable in Michigan, a court may decline to enforce an acceleration clause where it would be ‘inequitable’ to do so.”); Justine Realty Co. v. Am. Nat. Can Co., 976 F.2d 385, 389 (8th Cir. 1992) (acceleration clause enforceable in a settlement agreement if it does not constitute a penalty under Illinois law).
Retention of Jurisdiction and Choice of Law.
Consider including a provision that addresses how a breach of the settlement agreement will be handled. Do you want the court to retain jurisdiction or will you have an arbitrator enforce the agreement? In California, the court retains jurisdiction pursuant to California Code of Civil Procedure section 664.6 which provides that, if requested, the court may retain jurisdiction over the settlement to enforce it until it is performed in full. In terms of arbitration, be specific. State the name of the company that will administer the arbitration, and if applicable, consider enumerating what rules will apply. In New York Trans Harbor LLC v. Derektor Shipyards Conn., LLC, 19 Misc. 3d 1134(A), 862 N.Y.S.2d 809 (Sup. Ct. 2008), a court enforced a provision in a settlement agreement which provided that resolution of any dispute between the parties regarding the interpretation of the settlement be by arbitration in London.
Similarly, choice of law considerations are extremely important and you must be certain that the jurisdiction you are choosing will enforce the terms of the agreement. For example, in Mazzoni Farms, Inc. v. E.I. DuPont De Nemours & Co., 761 So. 2d 306 (Fla. 2000), commercial nurseries in Florida brought a products liability action against a manufacturer of a fungicide. After a settlement agreement was entered, the nurseries brought suit against the manufacturer in state court, alleging they had been fraudulently induced to settle claims. The Florida Supreme Court enforced a choice-of-law provision within the settlement agreement. The Court found that unless the law of the chosen forum contravenes strong public policy, a choice-of-law provision in a settlement agreement governs the dispute. For the choice-of-law provision to be found invalid on public policy grounds, the countervailing public policy must be sufficiently important that it outweighs the policy protecting freedom of contract.
Finally, consider specifying choice of law and whether your client wants a prevailing party attorneys’ fee provision.
Settling with Named Plaintiffs in Putative Class Actions
One unique situation that you might encounter involves the decision of whether to settle with a named plaintiff in putative class actions. This can be a precarious situation because while you are foreclosing this particular plaintiff’s right to sue your client again, there is nothing stopping another plaintiff from filing the same suit.
Under ABA Model Rules of Professional Conduct, Rule 5.6(b) a lawyer shall not participate in offering or making an agreement “in which a restriction on the lawyer’s right to practice is part of the settlement of a client controversy.” The ABA Comment explains that paragraph (b) “prohibits a lawyer from agreeing not to represent other persons in connection with settling a claim on behalf of a client.” States that do not follow the Model Rules may have similar provisions. For example, California’s equivalent rule is California Rule of Professional Conduct 1-500.
Clearly, it is not permissible for plaintiff’s counsel to agree as part of a settlement to refrain from taking on the same or similar case for another plaintiff against you or your client. However, that does not mean you have no options. What you can consider doing is having counsel represent and warrant that they have not at the time of the agreement been retained, hired or consulted regarding any potential claims against your client. That at least gives you some peace of mind that the same lawyer who is settling the case is not on the verge of filing an identical lawsuit once your instant case is dismissed.
As you can see from the points above, creation of an effective, enforceable, and detailed settlement agreement requires careful consideration. As in house counsel, you should make certain that you and your retained outside counsel consider these points in the negotiation of any settlement in order to effectively protect your business interests.
