E. Judicial Approval, Enforcement, and Dismissal

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

E. Judicial Approval, Enforcement, and Dismissal

"I'll see you in court" can be a reassurance or a threat depending on whether you are going with a settlement agreement or complaint.

The fundamental difference between an ordinary contract and a settlement agreement is that a settlement agreement resolves litigation. Thus you might think of a settlement agreement as an ordinary contract with an extra element. This section addresses that extra element by considering instances when court approval is necessary or wise, an actively pending case must be dismissed, or judicial oversight and power to enforce the agreement must be retained.

As experienced litigators know, judges tend to have a mind of their own. For this reason, securing court approval requires a deft touch to anticipate and allay concerns by the trial judge. Therefore, when drafting enforceability provisions it is important to consider whether a judge will determine liquidated damages amounts to be unduly punitive, or find the terms insufficiently fair. Attorneys should be prepared to assuage a judge's reluctance to retain jurisdiction of a "settled matter" on their crowded dockets. Crafting an agreement that passes judicial scrutiny can require considerable savvy.

1. Securing Court Approval for Terms of the Settlement Agreement

You can get into trouble anywhere. Sometimes you can get out of it only in court.

Judicial approval may be necessary, a good idea due to the nature of the agreement, or completely unnecessary. Court approval is necessary in cases involving minors, persons incompetent to enter a contract, many types of wrongful death claims, and some statutory causes of action. For these cases, attorneys should structure the agreement with an eye toward securing judicial approval of the settlement. Judicial review and approval can be substantially more complex than many parties anticipate.

Even in cases that do not involve persons or claims requiring court consent to a proposed settlement, the benefits of having a judge approve the deal can be compelling. A court-approved settlement agreement is often deemed to be the equivalent of a judgment, with attending benefits such as res judicata and collateral estoppel that prevent relitigation of the same issues.243 A court-approved settlement carries assurance against many types of challenges to settlement agreements generally, such as duress, procedural defects, and against public policy. Complex litigation requiring continuing court oversight is likely to benefit from an initial determination that the terms are acceptable to the judge who will be called upon to enforce the agreement.

Court approval of a settlement agreement might be helpful in dealing with government agencies. Sometimes court approval can help parties in resolving some of the same issues that might be relevant before a government agency. For example, some courts have been willing to help litigants by ordering the Centers for Medicare and Medicaid Services to calculate the amount of any lien owed to the government or by determining that a Medicare set-aside properly takes the government's interest into account.244 In addition, if a court confirms that a settlement agreement fairly allocates the percentages of the funds between physical and nonphysical injuries, the court's approval reduce the chances that the IRS will claim that parties have colluded to impermissibly reduce the taxability of a settlement.245

Court approval is not without its disadvantages, however. The primary disadvantage is that disclosure of a settlement almost certainly forfeits confidentiality for the agreement. Open court proceedings lie at odds with secret agreements. There is also the matter of delay between the time the parties reach agreement and when a court order can be secured. In the purgatory between agreement and approval, confusion may attach to questions of whether and to what extent parties must abide by terms of the agreement.

In most cases, court approval of a settlement agreement is unnecessary. There is nothing to be gained from having a court give its assent to a deal that all parties recognize as better than continued expensive and risky litigation. Especially when confidentiality is a valuable part of the agreement, court approval loses its luster.

a. Court Review and Approval Based on the Capacity of the Parties

Going to court is one thing. Getting what you want out of it is another.

The law deems certain persons incapable of giving their own consent—children, persons lacking legal mental capacity, and decedents in wrongful-death actions. The general rule for settlements involving persons unable to give their own consent is that such agreements are voidable unless they receive court approval. Being merely voidable (as opposed to void from the start), these agreements can be enforced on behalf of the persons unable to give consent whenever the terms are in their favor, and refuted when disadvantageous. This asymmetry means that any party or insurer entering into an agreement with a person lacking capacity to consent should plan for court review, and make any obligations under the agreement take effect only after judicial approval.

Minors. Because a minor lacks capacity to enter into a legally binding settlement, an adult must act on behalf of the child. The adult who can enter a settlement agreement on behalf of a minor is not necessarily the minor's parent or legal guardian. Some jurisdictions prevent parents from serving as a guardian ad litem when the parent and child have conflicting interests in achieving a settlement.246 This can occur when parents, who are responsible for their children's medical bills, have their own claims to recover their expenses. In such circumstances, the injured minor has his or her separate claim to damages and the right to hold any damages in a segregated account until he or she becomes an adult. In some jurisdictions, a guardian ad litem must be appointed by the court before negotiations begin.247

The procedure for court approval of a settlement involving a minor varies among jurisdictions—and sometimes from one judge to another within the same court. Advance planning for court approval should be contemporaneous with the research necessary to draft the settlement agreement. During the mediation, the parties should identify who will have primary responsibility for bringing a motion for court approval of the agreement.

Adults lacking mental capacity to enter into a contract. Court approval of a settlement involving an adult without legal, mental capacity to enter into a contract proceeds similar to an agreement involving a minor. A guardian ad litem or conservator must act on behalf of the person without legal capacity to enter the agreement him or herself. For adults, the question of capacity may be a delicate matter that touches on emotionally laden issues of autonomy and dignity. Prior to appointment of a guardian ad litem, most jurisdictions require an adjudication of incompetency. This raises the difficult question of who should raise the issue of incompetency, and poses the issue of who should initiate the filing of the petition for a declaration of incompetency. Parties in such cases face challenges that can be quite thorny.

Decedents. Every state provides a statutory remedy for a wrongful death.248 Unsurprisingly, this means that various states have taken different approaches to providing for tort damages arising out of a wrongful death. Some states enlarge survival statutes to include wrongful death claims among those that outlive the decedent. Other states provide statutes creating wrongful death claims.249 Sometimes claims belong to the decedent's estate and sometimes claims belong to the decedents.250

When legal rights of action outlive their claimholders, the litigation can only proceed by a legal representative. Settlements reached by legal representatives generally require court approval. As is the case with minors, family members might have conflicts of interest when their personal goals do not align with each other or those of the decedent's estate. For example, a wrongful-death claim belongs to the decedent's beneficiaries, not to the decedent's estate.251 For any settlement involving a decedent's claims or a wrongful-death action, there are usually notice requirements calculated to reach all potential beneficiaries of the decedent that may take weeks or months to fulfill.

Approach. The following factors must be considered in every case involving a party's lack of legal capacity to enter a contract:

Is a guardian ad litem necessary? For minors and persons who have already been judicially declared incompetent to enter into contracts, a guardian ad litem is clearly required for purposes of settling litigation. However, if the minor is almost an adult, the parties may elect to wait until the age of majority is reached and the need for a guardian ad litem eliminated, but it sometimes makes sense to settle a claim with a structured settlement that pays out over time so that an almost-18-year-old does not begin shopping for a Lamborghini. If a senior adult resists a declaration of incompetency or appointment of a guardian ad litem, elder mediation may the best way forward to ensure that family members, partners, and the adult under some disability can communicate constructively and reach consensus on the way forward.
Who can and will serve the guardian ad litem or decedent's legal representative? The person who most wants to serve as guardian ad litem may not be able to serve due to a conflict of interest. The selection of a legal representative among heirs can be a difficult matter when there is tension among heirs, family members, and friends. However, the guardian or representative should be clearly identified and empowered to settle before any mediation begins.
Is the guardian ad litem or legal representative ready to settle? The guardian or representative owes a fiduciary duty to the
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