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Settling Your Case Pros and Pitfalls

Settling Your Case Pros and Pitfalls. General Considerations. Most cases settle. Purpose of settlement is to arrive at an agreement that is satisfactory to your client consistent with law and relevant rules of professional responsibility.

avram-baldwin
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Settling Your Case Pros and Pitfalls

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  1. Settling Your Case Pros and Pitfalls

  2. General Considerations • Most cases settle. • Purpose of settlement is to arrive at an agreement that is satisfactory to your client consistent with law and relevant rules of professional responsibility. • Settlement allows your client to have some control over the final resolution and may provide relief not available at trial.

  3. Ethical Issues • American Bar Association Section of Litigation published Ethical Guidelines for Settlement Negotiations August 2002 • http://www.abanet.org/litigation/ethics/ settlementnegotiations.pdf • Reprinted by permission of the American Bar Association.

  4. ABA Guideline 3.1.1: The lawyer should consider and should discuss with the client, promptly after retention in a dispute, and thereafter, possible alternatives to conventional litigation, including settlement. • Early discussion beneficial: • Makes lawyer aware of what are the client’s objectives. • Makes client aware of potential alternative methods of dispute resolution. • Helps client develop reasonable expectations and make better informed decisions.

  5. APPROACHING CLIENT ABOUT SETTLEMENT • Before discussing with client, lawyer must seriously evaluate the case: • What is the law? Is client’s objective supported by law? • What is reasonably expected outcome? • What are other possible outcomes including unfavorable outcomes? • Explain concept of settlement. • Discuss with client your evaluation. • Explain pros and cons of litigation and settlement, as well as costs, both financial and personal.

  6. OBTAIN EXPLICIT AUTHORIZATION FROM CLIENT • ABA Guideline 3.1.2: The decision whether to pursue settlement discussions belongs to the client. A lawyer should not initiate settlement discussions without authorization from the client. • Advise client that authorization to settle can be revoked by client at any time prior to acceptance of the settlement. ABA Guideline 3.2.2. • ABA Committee Notes: Client should have full opportunity to decide the scope of authority and to assign priorities to various components of a possible settlement package. • After discussion and deliberation of priorities, whether to offer particular terms and timing, confirm authorization in detailed letter to client.

  7. WHEN TO MAKE OFFER OF SETTLEMENT • Settlement can be offered at any time. • More complex cases may require discovery before settlement can be considered. • Consider mediation as a route to resolution. However, different considerations in family cases than other civil cases. • Negotiating settlement – Negotiating Tactics for Legal Services, Clearinghouse Review, January-February 2006.

  8. MAKING AN OFFER OF SETTLEMENT • Unless negotiating in the courthouse, always put your offer in writing. • Begin offer with statement that “this letter is for settlement purposes only and may not be used for any other purpose.” • Always include a deadline, generally 30 days. • Include important terms of settlement. • Short argument justifying offer, if necessary. • Breakdown of settlement offer under causes of action alleged – statutory damages, actual damages. • Always send your client a copy of the offer.

  9. RECEIVING AN OFFER OF SETTLEMENT • ABA Guideline 3.1.4: A lawyer must keep the client informed about settlement discussions, and must promptly and fairly report settlement offers, except when the client has directed otherwise. • If opposing counsel first raises settlement, find out what s/he has in mind but offer no immediate response until you talk to your client. Ask for offer in writing so you know counsel has authorization from their client.

  10. SETTLEMENT AGREEMENTS • Always write the first draft of the settlement agreement. • A lawyer must not enter into a final settlement unless all terms unquestionably fall within the scope of authority or the client specifically consents to the agreement. ABA Guideline 3.2.1. • Explain all terms of proposed final agreement carefully to client and obtain client’s specific consent before agreeing on client’s behalf. • Have client sign final written agreement.

  11. GENERAL TERMS FOR SETTLEMENT AGREEMENTS • Recitation of facts that have brought parties to the point of settlement. • Mutual Releases: A broad release of all claims each party has against the other. Do not release potential claims that might arise in the future especially if parties have an ongoing relationship. • Binding on successors & assigns.

  12. GENERAL TERMS cont’d • As general rule, do not agree to a confidentiality provision. If necessary, limit confidentiality of settlement amount only and seek additional monies for “secrecy”. • IRS can assign any “just or fair amount” as the amount of consideration for a confidentiality provision which is taxable income. Agreement should specify the consideration. • Allocate settlement monies.

  13. GENERAL TERMS cont’d • Each party to bear their own costs and attorneys fees, unless change in restrictions. • The court retains jurisdiction to decide any dispute arising from the settlement agreement and Illinois law will govern the dispute. • Be aware that the settlement may result in tax consequences to you client. • Signature lines for client and counsel.

  14. SETTLEMENT & PUBLIC BENEFITS • Clients have 10 days to report receipt of a lump sum to SSA and IDHS. • SSI: General rule is that the award is considered income in the first month of receipt and an asset every month thereafter. 20 CFR §416.1201. • SSI Asset limit is $2,000 for individual and $3,000 for individual and spouse. • 20 CFR §416.1232 – Money received & used to repair or replace lost, damaged or stolen is an exempt asset and is excluded for 9 months. • Practice Tip: Try to have money disbursed at beginning of month and have client save ALL receipts.

  15. SETTLEMENT & PUBLIC BENEFITS cont’d • TANF: Lump sum is budgeted as nonexempt unearned income for the month of receipt and the remainder is an available asset for the following month(s). PM 08-01-08 & 10-05-00. • If the lump sum is greater than the payment level, the case will be SWAPPED to Medical only for the month of receipt. WAG 10-05-00. • TANF nonexempt asset limits: one person - $2000; 2 persons - $3000; and 3 or more persons - $3000 for the first 2 people, plus $50 for each additional person. • If any portion of a lump sum payment is used to pay for expenses related to receipt of the lump sum, that portion is exempt. For a personal injury settlement, the exempt portion includes “expenses to repair or replace personal property that was damaged as a result of the injury”. PM 08-01-08. • Submit to the Bureau of Policy Development for clarification.

  16. SETTLEMENT & PUBLIC BENEFITS cont’d • AABD Medical – Lump sum is considered income in the month of receipt and a nonexempt asset in every month thereafter. Clients exceeding the asset limit will be enrolled in spenddown. PM 08-02-07-c. • Any part of a lump sum payment used to pay for expenses related to receipt of the lump sum is exempt income. PM 08-02-07. Examples include repair or replacement of a home. Again, this can be submitted to the Bureau of Policy Development for clarification. • If client is receiving AABD Cash and the lump sum payment meets client’s needs prospectively for at least one month, cash benefits stop. • The asset limits for AABD Cash and Medical cases are: one person - $2,000; 2 persons - $3,000; and 3 or more persons - $3,000 for the first 2 people, plus $50 for each additional person. PM 07-02-01. • Review policy manual for exempt assets. PM 07-02-04.

  17. SETTLEMENT & PUBLIC BENEFITS cont’d • Food Stamps - A lump sum payment is exempt as income but nonexempt as an asset. PM 08-04-04-q. The lump sum is considered an asset beginning the month of receipt. WAG 07-04-09. • The Food Stamp asset limits are: $3,000 for an FS unit with at least one person who is a qualifying member (over age 60, blind or disabled); or $2,000 for all other FS units. PM 07-04-01. • Lump sum payments are nonexempt liquid assets used to determine eligibility. PM 07-04-09. • If lump sum exceeds asset limit, client will be terminated from Food Stamps until the money is spent down to below the asset limits.

  18. Settlement Considerations in Family Law Cases

  19. Special Considerations in Eviction Settlements

  20. Impact of eviction judgment on eligibility for subsidized, public housing— Client loses affordable housing which has no time limit Settlement considerations in eviction actions depend in part on type of housing involved

  21. Client may not be able to get subsidized housing in the future 24 CFR 960.204(a): PHA must exclude an applicant for three years if any household member has been evicted from federally assisted housing for drug related criminal activity –- with some exceptions 24 CFR 960.202: PHA has discretion to establish its own admission policies, to preclude applicants whose “practices may be expected to have detrimental effect on the residents or the project environment.”

  22. Special Considerations in Voucher Program 24 CFR 982.552(b): PHA must terminate voucher for a family evicted for serious violation of the lease. BUT 24 CFR 982.314(b)(1): “a family may move to a new unit if . . . [t]he lease has terminated by mutual agreement of the owner and the tenant.” AND 24 C.F.R. 982.314(a): a family may move to a new unit with continued tenant-based assistance.

  23. Bad Credit • Impact on credit – An eviction order/judgment may prevent or make it very difficult for a family to get any housing, not just public/subsidized housing.

  24. Drafting Suggestions In drafting settlement, avoid any agreed court order that will be construed as an eviction judgment

  25. Move-out agreement or rent payment agreement to be performed by a specific date – Consider a private settlement agreement setting out the terms of the agreement * Draft an agreed order setting a later status date and dismissal if the client moves-out or pays the amount agreed timely.

  26. Probationary Agreements • Consider a private settlement agreement that sets out the terms of the probation • Enter a separate order dismissing the case with leave to reinstate by a specified date (the length of the probationary period) and to dismiss with prejudice effective that date if the case is not reinstated.

  27. Neutral reference? Because of the difficulty in finding replacement housing for a defendant in an eviction case, and the benefit to the plaintiff if the defendant agrees to move quickly, we sometimes bargain for a neutral reference. What is a neutral reference? Some suggest specifying that the lessor will limit any reference to confirming the dates of tenancy and that client vacated the unit based on a mutually satisfactory agreement.

  28. TERMS OF SETTLEMENT FOR HOMEOWNERSHIP/CONSUMER • Set-off considerations if multiple defendants: Allocate monies to specific causes of action. • If multiple defendants and settlement with fewer than all, must file motion with Court requesting a good faith finding. • If multiple defendants, make clear you are not dismissing your claims against non-settling defendants. • Lenders will insist on no admission of liability. If so, include within same paragraph a provision that agreement is to compromise disputed debt.

  29. TERMS OF SETTLEMENT FOR HOMEOWNERSHIP/CONSUMER • If client is getting house, release of mortgage suitable for recording. • If loan modification, separate agreement outside of settlement agreement. • If deed in lieu of foreclosure or consent foreclosure, make sure that any personal deficiency is waived and negotiate time for client to move. • Payment of money in installment – set out payment schedule. If your client is receiving monies, provide for default procedure. • If fraud against your client is involved and defendant is paying in installments, reserve the right to seek nondischargeability if defendant files for bankruptcy and wants to discharge settlement monies owed.

  30. Tax Consequences • Client will need a competent tax counsel and should set aside some of the proceeds for this purpose. • Settlement Agreement should include provision that says: “Settlement amount paid and accompanying releases reflects settlement of disputed legal claims and does not represent a discharge of indebtedness for purposes of 26 U.S.C. §61(a)(12).” • Tax Issues: Damages, Rescission and Debt Cancellation as Client Income by Dennis Brager, The Consumer Advocate, Vol. 10, No. 2, April/May/June 2004. • Found at http://www.bragertaxlaw.com/lawyer-attorney-1187104.html. • See also NCLC Foreclosure Manual, Section 10.8 and NCLC Reports: Bankruptcy and Foreclosures Edition November/December 2007.

  31. Tax Consequences cont’d • See IRS Publication 4345 “Settlements – Taxability” (rev. 6-2006) • If client is or will be sent a 1099C for discharge of indebtedness, file IRS Form 982. • IRS Form 982 allows for two exceptions: 1) “Mortgage Foreclosure Debt Relief Act of 2007” allows clients to exclude from gross income any discharges of qualified principal residence indebtedness for discharges made after 2006 and before 2010. 2) “Insolvency” – client still owes more money than s/he has in income and assets even after discharge of indebtedness. Unless client is in bankruptcy, client must maintain records of liabilities, assets and income.

  32. CREDIT REPORTING • Make credit repair part of any initial settlement demand or response. • If ongoing relationship, remove any previously reported negative information and report client is paying as agreed. • If no ongoing relationship, lender should report debt has been satisfied in full or lender should delete the trade line. • Agreement should make clear that lender will adjust its internal records to prevent the re-reporting of adverse information.

  33. CREDIT REPORTING cont’d • Require lender to send a copy of Universal Data Form to you within 45 days of date of settlement agreement. • Always follow-up by getting client’s credit reports to make sure information reflects agreement. • If negative information reappears, provide for lender to clear. Also provide for client to file dispute with credit reporting agency requesting investigation and that lender will not verify if it receives reinvestigation report. • Read NCLC Fair Credit Reporting, Sections 12.6.4 and 6.5. Model language in appendix.

  34. When Settlement Goes Wrong

  35. Enforcing Settlements Anticipate in drafting how to enforce a settlement agreement If the agreements calls for the opponent to perform in the future—adding in a court order that the court has jurisdiction to enforce the agreement may be critical Illinois law and federal law very different

  36. Illinois Law The court retains jurisdiction to enforce a settlement agreement within 30 days after an order of dismissal. Bringando v. Republic Steel, 180 Ill.App.3d 1016 (1st Dist. 1989)

  37. Options under Illinois law to ensure that the court retains jurisdiction to enforce the agreement after 30 days: (1) State in the order of dismissal that the court retains jurisdiction to enforce the parties’ settlement agreement. Director of Insurance v. A and A Midwest Rebuilders, Inc., 383 Ill.App.3d 721(2d Dist. 2008)

  38. Incorporate terms of the settlement into the court’s order which call for future performance (an agreed order setting out the settlement terms, a consent judgment, a consent decree) But be aware that terms incorporated into a court order are enforceable like other orders—including contempt Comet Casualty Co. v. Schneider, 98 Ill.App.3d 786 (1 Dist. 1981)

  39. Key Issue Whether court’s order shows it intended to retain jurisdiction to enforce the parties’ settlement agreement

  40. Language which did not show such intention: ‘This cause coming on to be heard on this date upon the Stipulation for Dismissal with prejudice filed herein by the above plaintiff[s] and above named defendant[s], and the Court having examined said Stipulation and being fully advised in the premises, finds that this cause of action has been fully compromised and settled and the parties have stipulated and agreed to dismissal of the complaint with prejudice, and that the court further finds that all costs have been paid. IT IS THEREFORE ORDERED that the complaint of plaintiff[s] against the defendant[s] be and the same is hereby dismissed with prejudice.' ” Brigando v. Republic Steel Corp., 180 Ill.App.3d 1016 (1st Dist. 1989)

  41. Language which showed court’s intent to enforce: “Plaintiff’s motion to dismiss the Defendant is granted and Defendant is dismissed with prejudice pursuant to the terms of its settlement agreement and the Court retains jurisdiction to enforce said agreement.” Director of Insurance v. A and A Midwest Rebuilders, Inc., 383 Ill.App.3d 721(2d Dist. 2008)

  42. What if court did not retain jurisdiction? • Bring an action to enforce the settlement agreement—essentially a breach of contract action. Kempa v. Murphy, 260 Ill.App. 3d 701 (2d Dist. 1994) • To state a cause of action to enforce a settlement, allege the terms of the agreement, offer and acceptance of the agreement in settlement of the original dispute, the breach and the harm to client.

  43. Oral Settlement Agreements • Oral settlements are enforceable if there is an offer, an acceptance, and a meeting of the minds regarding the terms. Pritchett v. Asbestos Claims Management Corp. 332 Ill.App.3d 890 (5th Dist. 2002) • But if the parties all along intended that any agreement would be reduced to writing and that there would be no agreement until the formal execution of the written agreement, then oral agreement may not be enforceable.

  44. What if you want to avoid enforcement? • An agreement may be set aside for fraud, duress, coercion, unfair dealing, gross disparity in the position or capacity of the parties, mutual mistake of fact or newly discovered evidence. In re Tammy D. 339 Ill.App.3d 419 (5th Dist. 2003)

  45. Gross disparity in bargaining position? May seek to vacate, for example, where client was unrepresented when client entered into an agreement and agreement is an unreasonably favorable result for the represented party to the detriment of the client (e.g., frail, disabled unrepresented client agrees to move out in an eviction case, when she has complete defense,and plaintiff is represented).

  46. Federal Law on Enforcement • Kokkonen v Guardian Life Ins Co, 511 US 375 (1994).a federal court may retain jurisdiction to enforce a settlement agreement, even if the underlying litigation is dismissed with prejudice, as long as the order of dismissal does one of three things: • requires the parties' compliance with the terms of the settlement agreement, • incorporates the terms of the settlement agreement, or • provides that the court retains jurisdiction over the settlement agreement.

  47. Otherwise, the party seeking to enforce the agreement must file a new case alleging breach of contract, for which there is no federal jurisdiction unless there is complete diversity. (Yikes!) • And if the opponent is the State, there are complicated sovereign immunity issues • This is an area that requires extreme caution!

  48. 7th Circuit Added Limitations Lynch v. Samata Mason, Inc., 279 F. 3d 487 (7th Cir. 2002)(court cannot retain jurisdiction to enforce a private settlement agreement when the action is dismissed with prejudice—”once the court dismisses the case with prejudice it cannot do anything further.”) Shapo v. Engle, 463 F.3d 641(7th Cir. 2006), and Dupuy v. McEwen, 465 F.3d 757 (7th Cir. 2006), and Blue Cross and Blue Shield Ass’n v. American Express, 467 F.3d 634 (7th Cir. 2006) all add more complications.

  49. The clearest way to make a settlement enforceable within the 7th Circuit is to agree to a consent decree to be approved by the court • Be sure that the decree meets the requirements of FRCP 65(d) for injunctive relief—that it describes the reasons it is being issued, the specific terms of the relief (without reference to any other document), and the acts restrained or required.

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