The Art of the Settlement

The Art of the Settlement The Settlement Conference Process and Drafting Settlement Agreements and Releases by Eric J. Sidebotham http://www.ejs-law.com The Settlement Conference Process  Differences between State and Federal Court. State is late.  State will make you do it.  State is luck of the draw (judge pro tem).  State is short(er).  State brief must be short(er).  The Settlement Conference Process  Federal Court is custom: Parties may have input on when it occurs.  Not mandatory.  Neutral is likely magistrate judge.  Duration is more flexible—and maybe longer.  Briefs can be longer—and contain confidential parts.  The Settlement Conference Process  State Court Working to Keep Up. Early MSC option—several Santa Clara County Superior Court judges are permitting or encouraging early MSC in “select” cases.  What makes a case “select?”  The Settlement Conference Process  Preparation for the Settlement Conference: The nature of the case and the court must dictate how you prepare.  The court variables:  State Court, Early MSC  State Court, Normal MSC  Federal Court  The Settlement Conference Process  Preparation for State Court Early MSC:  Very similar to normal mediation, but… Keep brief very limited and focused.  Keep presentation limited and focused.  Make sure client is primed for MSC and ready to settle (i.e., prepare the client more than normal).  Make sure work hard to develop “incentives to settle” prior to the MSC.  The Settlement Conference Process  Preparation for Normal State Court MSC:  Still similar to mediation in procedure, but some points that you will want to leverage… Nearly on the courthouse steps—this may be the last opportunity to settle the case before going to trial.  Work the judge pro tem and the court if you think you are close.  Keep presentation and brief focused and brief.  The Settlement Conference Process  Preparation for Federal Court “MSC:” The key to fully utilizing Federal Court MSC is that a federal court magistrate judge will conduct the proceedings—weaknesses will be exposed.  Query: do judges talk about cases over lunch?  Otherwise, same as mediation.  The Settlement Conference Process  Stages in the Settlement Process: Lay the foundation for settlement  Prepare for MSC  Attend the MSC  The Settlement Conference Process  Laying the foundation for settlement at MSC:    Note, this means working to improve relationship with opponent, not exacerbate adversarial conduct. On some level, a plaintiff will need a defendant to like him/her/it at settlement opportunities. Foundation includes, in my opinion, vigorous discovery, careful legal analysis, understanding goals (esp. with client approval), development and implementation of a sound strategy to achieve that goal. The Settlement Conference Process  Prepare for the MSC:  Prepare your client, and make sure expectations are reasonable. Rolling Stones: “You can’t always get what you want/But sometimes, you find/You get what you need.” Settlement is a compromise—both parties should be equally unhappy in order for case to settle.  What are risks of going through with litigation? Risks? Costs?  The Settlement Conference Process  Attending the MSC (Same as Mediation?):       Stage I: “We‟re right; you‟re wrong.” Stage II: “This is why your case stinks.” Stage III: War stories (filler time). Stage IV: “Okay, so our case might have some weakness.” Stage V: Hog trading. Stage VI: Inking the deal.  Remember time limitations, and make sure you are proceeding through the stages and will have time to complete everything. The Settlement Conference Process  More Attending the MSC: Joint Session;  Caucus;  Working together to structure/finalize deal.  The Settlement Conference Process  Techniques Used by the Neutral at MSC  Ineffective Techniques: Deciding the case (jumping to conclusions)  Being biased (pro defendant; pro plaintiff, et cetera)  Indifferent to resolution (esp. judge pro tems)  Rushing the process/too slow.  Failure to identify and respond to impediments to settlement.  The Settlement Conference Process  Techniques Used by the Neutral at MSC (con‟t)  Effective Techniques: Instruct parties of role of neutral, and then follow through with it. But…  Commit to settling case. Sometimes may have to be creative, adaptive and willingness to work hard.  Evaluate substantive and non-substantive issues in case, and understand how to address all of them.  The Settlement Conference Process  Additional Benefits of MSC… Enforceability of Settlement: Code Civ. Proc., § 664.6.  No charge to the parties…  Official looking proceedings (occurs in the court; a judge will usually participate to some extent).  ???  Drafting Settlement Agreements and Releases  Common Sense Ideas:  Don‟t be surprised if your matter settles at mediation. Be prepared for that eventuality:   Come to the event with a drafted settlement agreement with terms and conditions that you want—leave the $$$ blank. Make sure the verbal deal includes everything you want, including attorney‟s fees, confidentiality, et cetera.  Be careful of post-agreement negotiations or things thrown in by the other party that are not part of the deal. Drafting Settlement Agreements and Releases  Agreement at Mediation:    Are all parties executing agreement?  Attorneys sign as “approval as to form”    Are all substantive terms in the written settlement agreement? Do the parties anticipate a more comprehensive settlement agreement? Are there provisions in the agreement for enforcement? Code Civ. Proc., § 664.6? Is there a provision that the parties intend to waive confidentiality of Evid. Code, § 1119? Is there a term that the agreement should be “enforceable and binding on the parties”? Drafting Settlement Agreements and Releases  Are All Parties Executing the Agreement: Can a lawyer sign on behalf of his client?  Better to have the party sign the agreement via facsimile.   Make sure to put in provision in terms and conditions that provide for countersignatures and signatures via facsimile. Drafting Settlement Agreements and Releases  Are All Substantive Terms in the Written Settlement Agreement?  Make sure oral settlement discussion includes all substantive terms of the settlement:    Attorney‟s fees Confidentiality Et cetera   Make sure the oral settlement terms are incorporated into written settlement agreement, and that nothing else is added in. Discussion/comments Drafting Settlement Agreements and Releases  Do the Parties Anticipate a More Comprehensive Subsequent Written Settlement Agreement?  “Terms sheets” are often jotted down by parties on the spot, and only include basic elements of the deal.  Enforceable? What about buyers/sellers remorse? Recipe for more litigation?  What about the details and boiler plate provisions?   Why not bring completed/detailed final settlement agreement to the mediation? Drafting Settlement Agreements and Releases  Are there provisions in the agreement for enforcement? Code Civ. Proc., § 664.6?  If parties to pending litigation stipulate, in a writing signed by the parties outside the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement. If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement. Drafting Settlement Agreements and Releases  Is There a Provision that the Parties Intend to Waive Confidentiality under Evid. Code, § 1119?  Except as otherwise provided in this chapter: (a) No evidence of anything said or any admission made for the purpose of, in the course of, or pursuant to, a mediation or a mediation consultation is admissible or subject to discovery, and disclosure of the evidence shall not be compelled, in any arbitration, administrative adjudication, civil action, or other noncriminal proceeding in which, pursuant to law, testimony can be compelled to be given. (b) No writing, as defined in Section 250, that is prepared for the purpose of, in the course of, or pursuant to, a mediation or a mediation consultation, is admissible or subject to discovery, and disclosure of the writing shall not be compelled, in any arbitration, administrative adjudication, civil action, or other noncriminal proceeding in which, pursuant to law, testimony can be compelled to be given. (c) All communications, negotiations, or settlement discussions by and between participants in the course of a mediation or a mediation consultation shall remain confidential. Drafting Settlement Agreements and Releases  Is There a Term that the Agreement Should be “Enforceable and Binding on the Parties”?  Fair v. Bahtiari (2006) 40 Cal.4th 189, 199-200: to satisfy Evid. Code, § 1123(b), “a settlement agreement executed at mediation must include a statement that it is „enforceable‟ or „binding,‟ or a declaration of other terms with the same meaning.” Drafting Settlement Agreements and Releases  Drafting Settlement Agreements: General principals of contract drafting apply.  Understand the terms of the settlement.  Spell things out very clearly.  Don‟t re-invent the wheel.  Keep it simple, but make sure you cover everything.  Drafting Settlement Agreements and Releases  General Principals of Contract Drafting Apply  In California, be mindful of the Civil Code, and its application to contracts. Drafting Settlement Agreements and Releases  Understand the Terms of the Settlement  Make sure the lawyer drafting the settlement agreement is well versed in the details of the agreement, including major terms, minor terms and boiler plate. Also, make sure the agreement works mechanically, and that there are no dead ends or unclear provisions. Drafting Settlement Agreements and Releases  Spell Things Out Very Clearly  Stated another way, spell out everything clearly. Again, work through the contact mechanically, to make sure everything is covered and that those mechanical provisions are consistent with the agreement reached by and between the parties. Drafting Settlement Agreements and Releases  Don‟t Re-Invent the Wheel  Use other formatted documents from firm inventory, stock books, et cetera. You shouldn‟t wait until the last minute to get a draft settlement template put together. Think ahead! Drafting Settlement Agreements and Releases  Keep it Simple, But Make Sure You Cover Everything. Use plain language, not legalese.  Be consistent in your use of defined terms, and make sure to define them clearly.  Don‟t over-engineer the settlement agreement.  Drafting Settlement Agreements and Releases  Select “Important” Provisions of Settlement Agreements: Civil Code § 1542 Waiver.  Confidentiality.  Attorney‟s Fees Provisions.  Other important provisions may depend on nature of the case and settlement.  Drafting Settlement Agreements and Releases  Civil Code § 1542 Waiver:  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. Type of case: personal injury versus business case. Type of party: plaintiff versus defendant?  Do you want this in your settlement agreement?   Drafting Settlement Agreements and Releases  Section 1542 Waiver (con‟t)    Waiver may be limited in scope, especially where releaser is unsophisticated and unrepresented. Winete v. Price (1992) 4 Cal.App.4th 1159, 1165. Other claims may be barred, even if no 1542 Waiver, in the absence of fraud, deception, or similar abuse. Edwards v. Comstock Insurance Co. 1988) 205 Cal.App.3d 1164, 1166. 1542 Waiver not automatically apply to future claims. Butler v. Vons (2006) 140 Cal.App.4th 943. Drafting Settlement Agreements and Releases  Confidentiality. Is it important to your client? Why?  Will it be enforceable? How are you going to determine a breach?  Perhaps limit access to the settlement agreement.  Damages—how will you prove damages?   Liquidated damages provision? Enforceable? Drafting Settlement Agreements and Releases  Confidentiality (con‟t)  Is confidentiality permissible in your case?  No confidentiality in settlements subject to good faith motion?  But can move to file under seal.    No confidentiality in settlements against public entities? No confidentiality for a case seeking civil damages for an act that may be prosecuted as a felony sex case. Civil Code, § 1002(a). No confidentiality for elder abuse cases. Code Civ. Proc., § 2017.310(a). Drafting Settlement Agreements and Releases  Attorney‟s Fees Provisions  Do you want it/should you agree to it?    Can you afford it? Or does it raise the ante to litigation, effectively removing that as an option for you? Who is likely to breach? Will one party have fully performed at the signing of the settlement agreement, with the other party‟s performance to come later? It will be bi-lateral under Civil Code § 1717.  But what about limiting recovery of attorney‟s fees to something that will only benefit your side, like an action to collect payment. Drafting Settlement Agreements and Releases  Enforcing Settlement Agreements in California  Expedited enforcement under Code Civ. Proc., § 664.6, by motion seeking entry of judgment. Must be “judicially supervised” on the record, or specifically included in a written settlement agreement.  Must be signed [or stated?] by the parties themselves. Gauss v. GAF Corp. (2002) 103 Cal.App.4th 1110, 1117-19.  Drafting Settlement Agreements and Releases  Enforcing Settlement Agreements in California (con‟t)  “Normal” Enforcement:   For plaintiff, amend complaint to add new breach of contract cause of action and then bifurcate. For defendant, amend complaint to add new affirmative defense of accord and satisfaction and then bifurcate.  If settlement agreement reached at mediation, may be subject to confidentiality— must be exception to confidentiality. See Evid. Code, § 1123:  A written settlement agreement prepared in the course of, or pursuant to, a mediation, is not made inadmissible, or protected from disclosure, by provisions of this chapter if the agreement is signed by the settling parties and any of the following conditions are satisfied: (a) The agreement provides that it is admissible or subject to disclosure, or words to that effect. (b) The agreement provides that it is enforceable or binding or words to that effect. (c) All parties to the agreement expressly agree in writing, or orally in accordance with Section 1118, to its disclosure. (d) The agreement is used to show fraud, duress, or illegality that is relevant to an issue in dispute.