D. Terms Providing Additional Value to the Parties

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

D. Terms Providing Additional Value to the Parties

The hunt for additional value probably requires you to explore far beyond what you've already covered. Otherwise, you'd already have found it.

Once a settlement agreement clears the low hurdle of legal validity, parties and their attorneys should hunt for extra value. Although the hunt for additional value might not capture anything exotic, the effort is nonetheless worthwhile. This section examines the types of provisions most likely to yield additional value to parties in a settlement agreement.

1. Attorney's Fees and Costs

Cautionary tales rarely have happy endings. . . . This case is no exception. We present here a cautionary tale, published, like all of its ilk, in the hope of providing a warning [to any party accepting a settlement agreement silent as to attorney's fees and court costs].¹⁶³

The "American rule" for attorney fees requires parties to bear their own attorney fees regardless of who the prevailing party might turn out to be.¹⁶⁴ Although the American rule still generally applies, an increasing number of jurisdictions are statutorily chipping away at it with fee-shifting statutes.¹⁶⁵ Alaska, for example, entitles the prevailing party in a civil legal case to recover a percentage of its reasonable attorney fees from the losing party.¹⁶⁶ The impact of fee-shifting statutes varies among the states due to the different rates at which they are enacted in differing jurisdictions. Notably, "the number of fee shifting statutes per state ranges from a high of 146 statutes in California to a low of 2 in North Carolina."¹⁶⁷ This means that if a case is settled in a state, such as California, with many potentially applicable fee-shifting statutes, drafters of settlement agreements should be sure to consider expressly addressing attorney fees in the agreement.

Attorney's fees frequently cause litigation to slog on long after the merits of the underlying claims have been decided. Ironically, squabbles over attorney's fees just increase the total fees that the parties must bear. This is a real trap for parties to settlement agreements that are silent about the allocation of attorney's fees and costs. Although parties often intend that each side bear its own attorney's fees, failure to capture this understanding in the agreement allows courts to award fees and costs under any applicable fee-shifting statute or contract provision.¹⁶⁸ Even if there is fee-shifting statute or contractual agreement, there are often sums that can be awarded for court costs. Court costs often include expert witness fees. Expensive expert evidence, such as in medical malpractice actions, can easily amount to many thousands of dollars.

Drafters of settlement agreements should be sure to expressly address the allocation of attorney's fees and court costs. As the U.S. Supreme Court noted, "A request for attorney's fees should not result in a second major litigation. Ideally, of course, litigants will settle the amount of a fee."¹⁶⁹ The easiest solution is usually to provide that each party must bear its own fees and costs, as in PrizeCo v. Cathatrin:

13. Attorney's fees, court costs, mediator fees.

(a) Each party shall bear its own attorney's fees, witness fees, and court costs incurred in connection with this action and mediation.
(b) The parties shall share equally all costs of mediation.
(c) If a motion or action to enforce this agreement is filed, the prevailing party shall recover its reasonable attorney's fees and costs from the other party.

Sometimes, parties want to ensure that they do not have to pay new attorney's fees if they must resort to legal action to enforce the terms of the settlement agreement. Attorney's fees to enforce a settlement agreement are not ordinarily claimable unless the agreement expressly provides for fee-shifting in the event of an enforcement action.¹⁷⁰ For this reason, parties may want to include a provision expressly allocating attorney's fees to a prevailing party for legal fees incurred to enforce the settlement agreement, such as in the example above.

2. Confidentiality, Nondisparagement, and Agreed-Upon Statements

Reputation is the currency of a world saturated by social media, ratings websites, and the 24-hour news cycle.

Although the amount of money to be paid under a settlement agreement may consume the most time during the mediation, confidentiality and nondisparagement may actually be the most important part of an agreement to some parties. No organization is perfect, and no large organization can escape the inevitability that a few of its members or employees will engage in egregious conduct.¹⁷¹ When atypical and embarrassing conduct occurs, businesses and organizations may be most interested in quietly settling the resulting claims in a manner most likely to keep them forever private. A culture of confidentiality seems to pervade certain areas of law such as intellectual property, employment disputes, and many business agreements. Even when parties are not sensitive to the confidentiality of a settlement agreement's terms, they often have a pronounced interest in keeping the mediation private. In a world of powerful search engines, social media, and 24-hour news channels, confidentiality of trade secrets, negotiations, embarrassing events, and financial information is increasingly important.¹⁷²

Distinguish among procedural confidentiality, substantive confidentiality, and confidentiality for sensitive information. Any thought given to limitations on disclosure of information in a settlement agreement should begin by distinguishing between procedural and substantive confidentiality. The difference concerns confidentiality of the mediation process (i.e., what the parties said and documents they exchanged in an effort to resolve the dispute) and confidentiality of the substantive terms (e.g., how much a defendant is paying for release of the claims). In addition to confidentiality for the terms of the settlement agreement or the mediation, parties may need to ensure the confidentiality of other sensitive information. A settlement agreement may need to specifically safeguard trade secrets, intellectual property, medical files, Social Security numbers, and other sensitive information. Even jurisdictions that have strong statutory confidentiality provisions for mediations may not sufficiently protect sensitive information exchanged during negotiations, obtained during the litigation through discovery, or learned during the employment now addressed in the settlement agreement.

Beware of how easily and frequently confidentiality evaporates. A well-drafted confidentiality provision may lull parties into an unwarranted confidence that the settlement agreement and mediation will remain secret. As Judge Wayne Brazil has observed, however, "many courts appear to be quite comfortable permitting parties to brush past the thin veil of confidentiality that surrounds settlement negotiations."¹⁷³ Judge Brazil's observation is borne out of a survey that found courts declined to protect confidentiality in 46 percent of cases.¹⁷⁴ This means that courts allowed procedural confidentiality protections to evaporate in roughly half of cases. This result lead some scholars to conclude that "the walls of the mediation room are remarkably transparent."¹⁷⁵

Substantive confidentiality provisions are routinely ignored by administrative agencies, who claim the prerogative to review otherwise private settlement agreements between companies and individuals. Some governmental agencies will actively review agreements with a special focus on nondisclosure and confidentiality terms,¹⁷⁶ and some have based prosecutions on confidential documents received from whistleblowers.¹⁷⁷

The easy evaporation of confidentiality means that drafters of confidential settlement agreements should include terms intended for an audience that will learn of the terms only if the agreement comes to light. For example, denials of liability and wrongdoing can preserve reputation even after confidentiality is lost, and recitals can frame the dispute and resolution in a manner that is acceptable to all parties to the agreement.

a. Confidentiality for the Process of Negotiation or Mediation

For some reason, there's no federal mediation privilege. No one seems knows the reason. Apparently it's a good one because it can dissolve state statutory mediation privileges.

Some states provide such strong procedural confidentiality guarantees that there is no need to address the matter redundantly in a settlement agreement.¹⁷⁸ Federal courts do not supply a mediation privilege but do allow parties to contractually agree to confidentiality.¹⁷⁹ Parties appear to be able to agree to mediation confidentiality in every jurisdiction to safeguard the content of their negotiations and mediations. The settlement agreement in PrizeCo v. Cathatrin contains the following confidentiality provision.

14. Mediation confidentiality.

(a) All statements made in connection with the mediation of this action constitute confidential mediation discussions. Statements made in connection with the mediation are inadmissible for any purpose in any subsequent civil proceeding. This mediation confidentiality does not require the exclusion of evidence that would otherwise be discoverable or admissible in the absence of mediation in this action.

(b) Any information disclosed by or on behalf of a party to the mediator is confidential, and its disclosure to the mediator does not constitute a waiver of any right or privilege. The parties shall not subpoena the mediator to give evidence related to this action in any future proceeding except as required by law or order by a court of competent jurisdiction.

(c) This agreement is admissible in a court of competent jurisdiction to prove and enforce its terms.

b. Confidentiality About the Terms of the Settlement Agreement

Confidentiality is legalese for "I don't wanna talk about it."

When most people...