Whenever settlement discussions result in a final settlement, make sure that the agreement is documented or recorded with proof of consent by all parties to the agreement. Failing to do so could spur additional litigation and end up costing clients more than they bargained for. The recent case of K4 Enters. v. Grater, Inc., No. 1-07027922009 Ill. App. LEXIS 783 (1st Dist. 2009), illustrates exactly what can go wrong if a settlement is not properly documented.
In K4, Grater Inc. brought suit against K4 Enterprises and MS Produce. The case went to jury trial. However, before a verdict was reached, the presiding judge met with each side’s corporate principals in his chambers—without the presence of a court reporter or either side’s counsel—to broker a settlement agreement. Following the meeting, the judge announced that an oral settlement agreement had been reached and discharged the jury. Soon thereafter, each side’s counsel circulated draft settlement agreements that purported to memorialize the terms of the oral settlement; however, each side rejected the other’s drafts. In an effort to resolve the dispute, the judge reconvened the parties and the plaintiffs moved to enforce the oral settlement reached in the judge’s chambers. The judge found that the parties had entered into an enforceable settlement agreement in chambers and the judge’s recollection of what the settlement terms were was what was reflected in the settlement agreement – to the dismay of the defendants.
The defendants appealed and argued that that the parties did not have an enforceable settlement agreement because they did not have a meeting of the minds on all material terms. The appellate courtheld that the judge’s failure to record the parties’ agreement made in the judge’s chambers did not invalidate it. Specifically, the court reasoned that the defendants had a chance to place the settlement negotiations on the record, either by asking that a court reporter be present in chambers to record the discussions or by asking that the terms of the agreement be placed on the record.
To avoid settlement agreement disputes, the next time you or your counsel reach a settlement agreement, be sure to get its terms on the record in a timely fashion. If you do not, the agreement may not be enforceable leading to additional and costly motion practice and the inability to close the case or file.
The following are practical tips for claims managers and counsels for assuring finality when entering settlement agreements:
Perhaps the most important feature of a settlement is finality. The case is over. The file is closed. Expenses, fees and exposures are capped. Following the guidelines outlined above will assure the finality of all settlement terms and the consent/agreement of all parties to the settlement.