News

January 09, 2009

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:

• Once a settlement agreement is reached, RECORD or WRITE down all of the settlement terms, including the amount of the settlement and if there are multiple parties, each parties’ settlement amount.

• Make sure the written agreement refers to the claim or claims that are being released and the parties that are giving the release.  This should be spelled out with specificity, e.g. husband and wife, parent and child, parent corporation and subsidiary, etc.

• Before the settlement conference or mediation is concluded, make sure all parties either sign off on the settlement agreement or consent on the record.

• When a settlement agreement is reached during trial or other reported proceedings before a judge or magistrate, make sure the court reporter records the final terms of the settlement as well as the consent of all parties to the settlement.

• If a court reporter is not present during mediation before a judge or magistrate, make sure the settlement terms are recited as part of the dismissal order.  In addition, make sure the parties or their counsel, either sign or initial the settlement and dismissal order.

• In large damage or catastrophic injury cases, have a judge or neutral third-party (mediator) present during settlement negotiations to serve as a witness to the final agreement.  Even without a transcript or written order memorializing the agreement, the possibility of fraud or disagreement about settlement terms is negated if a judge or neutral third-party is present to resolve any disputes as to the terms of the agreement or whether an agreement was in fact reached. Rose v. Mavrakis, 343 Ill. App. 3d 1086 (1st Dist. 2003).

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.