B. Payment and Transfer of Property

• Library: Crafting Effective Settlement Agreements: A Guidebook for Attorneys and Mediators (ABA) (2018 Ed.)

B. Payment and Transfer of Property

1. Payment of Money

When it comes to money, details matter.

Settling plaintiffs typically consider their receipt of money to be the most important part of the settlement. Payment may be the only part of the settlement agreement that plaintiffs find beneficial. If the settlement requires payment of money, the agreement must specify the exact dollar amount. With only specification of dollar amount, courts will imply additional terms such as payment to be made within a reasonable time and in U.S. currency. Although this may be enough to settle the case, the lack of detail allows for unintended consequences. Consider, for example, the instance in which a $150,000 settlement in a wrongful death case was paid entirely in quarters—all 7,500 pounds of them.⁴⁷ Although payment in quarters is unusual, it shows that payment should be described with care and in detail.

a. Lump-Sum Payment

Simple often means someone has made precision look easy.

The simplest transfer of value under a settlement agreement is the lumpsum payment of money. Even for lump-sum payments, however, precise drafting is necessary to ensure that the payment occurs as expected by the parties.

Identify the payer and the recipient. The named parties in the case are not necessarily the persons who will pay and receive money to resolve the legal claims. Although plaintiffs may be the ultimate recipients of some settlement funds, payment is often directed to an attorney trust account to allow for payment of attorney's fees, court costs, and outstanding liens. Sometimes payments are made separately to the plaintiff and plaintiff's attorney.

When a settlement agreement involves insured claims, payment is usually made by insurers rather than by the insureds themselves. For large claims, payments may be made by more than one insurer where a primary insurer's exposure is capped, and the excess is underwritten by a reinsurance company. Thus, even lump-sum payments may involve multiple payers and multiple recipients. Attorneys should sure to precisely identify the paying and receiving parties in the settlement agreement.

Amount of payment. It might seem easy to identify the amount of payment by simply writing the total settlement amount into the payment section of the agreement and be done with the matter. Accurate specification of total payment, however, requires care. Consider whether there have been any presettlement payments made, such as down payments, a few installment payments, a partial settlement, or payment made in error. Attorneys should heed the cautionary tale in which State Farm Insurance entered into a settlement agreement "to pay plaintiff $75,000.00 by 2:00 p.m. on 7/20/01." Soon thereafter State Farm sought judicial reformation on grounds that it believed "the $75,000 was to be offset by the $40,000 previously paid, requiring a payment of only $35,000 as 'new money.'" The court rejected the contention, finding the stated sum to be unambiguous, and subject to no other interpretation but that the insurer must tender the full $75,000 regardless of prior payments.⁴⁸ The need to accurately account for past payments is further illustrated by an agreement in which the State of Florida agreed to settle for amounts already collected by a certain date. Later investigation revealed that the state had not actually been able to collect any money. As a result, the state settled the case for nothing.⁴⁹

Time for Payment. Consider the difference between one-million dollars paid this afternoon and one-million dollars paid 50 years from now. As Benjamin Franklin noted, time is money. Plaintiffs regularly accept deep discounts on their demands in exchange for prompt and sure payment. Defendants and insurance representatives may be enticed by these deep discounts and promise payment on a timeline that they cannot fulfill. Payment may have many prerequisite steps: sale of securities or redemption of negotiable instruments, transfers of funds between different institutions and accounts, multiple levels of approval, and production of a check with all necessary signatures or completion of wire-transfer instructions. Experienced attorneys know to expect that these steps come with "unexpected" delay. Before promising the moon and stars, parties or their attorneys must ensure they can deliver.

When considering the time for payment, attorneys should remember to plan for what happens in the litigation between the time when the settlement agreement is signed and the time payment is actually received. Cases tend to settle when at least one party faces a looming litigation deadline with adverse consequences for missing the deadline, such as forfeiture for failure to file opposition to pleadings in the trial court, dismissal of an appeal, or arriving unprepared at trial or appellate oral argument. Settlement at late stages of an appeal carry the possibility that the appellate court might render its decision vindicating a party who has not yet paid and no longer feels an incentive to pay. Although there are options to address these circumstances—from accelerating the payment deadline, to staying the litigation, to stipulating to extensions of time to file pleadings and briefs—these options should be expressly addressed along with payment timelines.

Method of Payment.

Even though you can receive money in a million different ways, it all spends the same.

What may seem like mere details of payment can make a big difference. Celebrities Johnny Depp and Amber Heard repeatedly landed in the tabloids over their disagreement on how Depp would pay a $7 million settlement that Heard intended to donate to various charities. Depp seemed to have discovered too late that if he directly made the donations, he would get a large tax deduction. Heard, in contrast, wanted to make the donation in her own name. What should have been a simple transfer of funds turned into high-profile gossip fodder.⁵⁰ Attorneys should avoid this lack of attention to the details of transfer of money. Describe exactly how payment should be made, whether by check, wire transfer, bitcoin, or ACH transfer. Every manner of transfer of value comes with some risk. Checks can get lost, be drawn on accounts with insufficient funds, or be stolen while in transit. Wire transfers can be sent to the wrong account and therefore lost because they cannot be reversed. Exact description, such as in this example from Jeffener v. Vostferous, lessens the likelihood that the payment will be made but not arrive properly.

4. Payment. In consideration of the release of claims, Vostferous shall pay to Jeffener the sum of $800,000 no later than seven days after entry of an order by the Northern District that approves the terms of this agreement. Payment must be made by wiring payment to:

Receiving bank:	First State Bank N.A.
Bank routing/ABA number:	0189756762
Account name:	George W. Weber, Esq. Trust Account
Account number:	00034568
SWIFT CODE:	FILPUS88
Wire request telephone number:	800-779-1111 8:00 a.m. - 5:00 p.m. Central Time

What is the effect of payment? If a settlement agreement is conditioned on payment, the act of payment may make the agreement effective. Payment may also trigger reciprocal duties, such as the obligation of a plaintiff to deliver a signed release and dismiss the lawsuit. In the employment realm, payment may be intended to extinguish claims of underpayment by including language that payment under the settlement agreement includes compensation for all wages, salary bonuses, commissions, and overtime.

What is the effect of late payment or nonpayment? With some regularity, payment occurs later than called for in the settlement agreement, even if only by a few days due to the logistics of gathering, authorizing, and transferring money. Sometimes, payment does not occur at all. Despite the obvious risks of late or nonpayment, many settlement agreements make no provisions for the effects of missed payment deadlines. This gives no incentive to the paying party to comply with the terms of the settlement in a timely manner.

In planning for payment problems, it is best to distinguish between payment that is a bit late but not particularly problematic, and payment that is so late that additional action is required to get any payment at all. Sometimes the problem of tardy payment can adequately addressed with a provision imposing interest on late payment. In Daven v. Douglas, Daven has decided to accept a substantial discount on what he believes the case is worth in order to quickly receive compensation from the defendant's insurer. Because prompt payment is so important to Daven, he insists on a late-payment provision intended to discourage tardy payment by the insurer as follows:

4.(b) Interest on late payments. If MedInsCo does not make full payment within seven days after all parties have signed this agreement, MedInsCo shall pay late interest accruing at 10 percent per annum of the unpaid sum. Subsequent payments will be applied to accrued interest before unpaid principal.

Plans for payment issues may warrant their separate sections or subsections because they usually involve resort to the courts and the provisions of various statutes and rules of court.

b. Installment Payments

A creditor's memory is usually as long as a debtor's is short.

Installment payments can have advantages both to the payer and the recipient. Installment payments may allow a business or individual to satisfy the debt through ongoing cash flow. An ongoing business is usually worth substantially more than the salvage value leftover in a bankruptcy. For recipients of the payment, installments can spread gains over more than one tax year and lessen the cumulative tax burden. Installment payments can also provide financial stability over the course of the payment period. For these reasons, payment on an installment basis can be good for all parties to an agreement and...