A. Principle 1: Preparation Is Essential for an Effective Settlement Agreement
Library | Crafting Effective Settlement Agreements: A Guidebook for Attorneys and Mediators (ABA) (2018 Ed.) |
A. Principle 1: Preparation Is Essential for an Effective Settlement Agreement
1. Be Prepared for the Legal Dispute to Settle
Mediator Darrell Lewis's extensive experience has led him to observe, "I can't tell you how many attorneys and clients enter the mediation with the attitude that 'this case cannot be settled.' Then, they are taken by surprise when it does settle."5 As a consequence, many attorneys and parties fail to anticipate that they will need to craft a settlement agreement at the end of the mediation. Yet, preparation is the key to an effective settlement agreement.
Too often attorneys and mediators think that being prepared for mediation means being ready to negotiate. Much like the dog that actually catches a chased car and wonders what to do with it, these attorneys and mediators find themselves at the end of a successful negotiation and at the beginning of a drafting process for which they are unprepared. Lack of preparation to draft an agreement may doom the agreement in the absence of necessary information, such as who should sign the agreement, what the jurisdiction requires for a valid agreement, and what terms are unlawful or otherwise unavailable in a case. Preparation for mediation includes a readiness not only to "talk numbers." Attorneys should also complete the necessary groundwork so that they have all the information needed to write a valid settlement agreement for the case.
Success should not be an accident. Yet, many attorneys who would not dream of showing up unprepared for trial will arrive at a mediation without having done their homework. One informal survey of experienced litigators revealed that "[a]lmost none said they spend more than an hour or two to prepare specifically for the mediation process."6 However, the informality of the mediation process should not excuse inadequate preparation for the case to settle. As a matter of odds, cases are more likely to be settled than litigated through judgment.7 Even though the parties may be ready to resolve their legal conflict, a lack of preparation precludes a settlement agreement when, for example, the amount of liens or medical expenses is unknown, the existence of insurance coverage or policy limits are uncertain, or the individuals with actual settlement authority have not been included in the process. Hasty drafting invites the forgetting of important terms or language that is statutorily required to create a legally valid agreement. And lack of preparation may lead to the unwitting inclusion of terms that invalidate the agreement on public-policy grounds. Seemingly inconsequential matters, such as a printer that was "down," can turn into fuel for further strife.8
Although mediation statements have become a standard practice, most mediation statements focus only on the strengths and weaknesses of the parties' factual and legal claims. These mediation statements generally prepare the mediation participants for negotiation, but stop short of exploring the terms necessary for a final resolution of the case. Being prepared means identifying the likely terms of a settlement agreement and researching the laws that apply to these potential settlement terms. Being fully prepared means drafting the settlement agreement before the mediation begins in order avoid subtle errors that can result in adverse consequences. Draft agreements also go a long way toward demonstrating to the opposing party an intent to negotiate in good faith, and serves as a useful checklist to ensure that none of the parties' needs is ignored in a final settlement agreement. Given that preparation is critically important to ultimate success in resolving a legal dispute, let's examine the process of preparation in more detail.
2. Research Potential Terms of an Agreement
Although drafting a settlement agreement should be standard fare for every litigator, a "checklist" of terms doesn't cut it.
—Scott M. Himes9
Understanding possible settlement options may itself facilitate agreement in fostering creativity within the limits of the law.10 These limits far exceed any relief that the judicial system can offer plaintiffs, and for defendants, the judicial system simply does not offer to make things better. The best that a defendant can hope for is a defense verdict with fee shifting, i.e., an outcome that is no worse (and certainly no better) than defendant's current situation. A good settlement agreement might offer a defendant the only chance in the litigation process to improve matters by mending a relationship, regaining a business partner, or providing a nonlitigation mechanism to deal with future disputes.
Begin preparations by identifying the terms that have the potential to help resolve the particular case to be mediated. For example, most insured claims resolved by settlement agreement will involve payment in exchange for release of legal liability. For cases such as these, a minimum of preparation requires consideration of whether payment will be made as a lump sum, in a series of payments, or via annuity. In addition, the scope of the release must be considered—whether it extends only to known claims or includes unknown claims, encompasses only claims made, or includes claims that could have been, but were not, asserted. Even the simplest settlement agreement benefits from advance research and preparation. Most complex cases and agreements require extensive preparation. A prudent approach to preparation might include the following:
Discuss possible solutions to the legal dispute with clients before the mediation. One exhaustive survey of commercial settlement agreements concludes that "there is no such thing as a "boiler plate" settlement agreement."11 In other words, there is no one-size-fits-all solution that can be used to settle cases. Thus, attorneys must engage their clients in discussions about possible solutions to their legal conflict as part of their work in preparing clients for mediation. Sophisticated business people and frequent mediation participants might have specific terms and proposals they expect to include in a final agreement. Institutional clients might provide settlement agreements they have used in the past to help with preparations.
Parties may not immediately understand the difference between a position ("I want a million dollars!") and a term of settlement (requiring payment of some amount of money). Here, attorneys and mediators can help parties identify possible settlement terms by translating a party's narrative or positional demand into practicable legal terms of an agreement. Concerns about reputation might call to mind confidentiality provisions or agreements to provide a letter of recommendation to a future employer. Demands for money can be explored to determine that the underlying interest is having sufficient resources to cover future medical experiences and costs of living that might best be satisfied with a structured settlement. Emotional turmoil over the possibility of being sued might be addressed with a covenant not to sue. Regardless of what the needs and interests of the parties might be, they are best discussed ahead of time.
The process of preparing by drafting potential settlement terms generates ideas for workable solutions as well as revealing issues that must be resolved in order to end the conflict. When attorneys share their ideas and concerns with clients ahead of a mediation, they increase the chances of a successful outcome.
Gather or prepare necessary documents. Novelist Darynda Jones has wryly noted, "Paperwork wouldn't be so bad if it weren't for all the paper. And the work."12 Even though gathering and preparing paperwork can be no fun, nothing boosts the frailty of human memory like a written document. Before the mediation session, gather all potentially applicable insurance policies, medical bills, liens, statements of fees and costs associated with the litigation, and any other document bearing on the ultimate value of a settlement agreement. For a breach of contract claim, gather not only the primary contract, but also any subcontracts and side agreements. Read these documents with an eye toward settlement by watching for fee-shifting provisions, indemnification clauses, and subrogation agreements.
Ascertain the exact legal claims and parties. In protracted litigation, it may have been a long time since anyone read the operative legal complaint or cataloged which claims actually remain pending. With surprising regularity, even the attorneys have a mistaken understanding of the exact scope of pending causes of action. Rather than guessing, attorneys should review the operative complaint to determine the existing causes of action and exact identity of the parties to the lawsuit. Attorneys should pay attention to claims that could be, but have not yet been, asserted in order to determine the appropriate scope of a release of liability in a settlement agreement.
Prepare in advance for any transfer of property. If the legal dispute involves claims over property such as a house, a business entity, or negotiable instruments, preparation often means obtaining an appraisal to determine the value of the property. Documents establishing title, possession, or a leasehold also may be necessary to write an agreement that properly refers to the property to be transferred. Some transfers of property, such as out-of-state real property, may require substantial investigation to determine condition, valuation, and requirements for transfer.
Advance preparation is the only way for attorneys to avoid legal malpractice liability for their role in advising their clients about settlement offers and drafting settlement agreements. For example, the Connecticut Supreme Court affirmed a $1.5 million malpractice award against an attorney who negligently advised his client about accepting a settlement agreement when the attorney had not adequately investigated the value of a business and assets.13
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