Civil Litigation Legal Topics Litigation Strategy Settlement Negotiation

Don’t Forget Any Settlement Terms

Congratulations, you’ve reached a settlement! Now you need to set it out in the final settlement documents. You need to include all the terms on which the parties have agreed, as well as terms to make it enforceable. To help make sure you don’t miss anything, here’s a checklist of 14 common settlement terms.

The following terms are commonly found in settlement agreements. Because a settlement agreement is a contract, with terms that are fully negotiable and carry significance for the parties, you should use this checklist as a guide and tailor it to your case.

___ 1. Parties. Clearly identify the names of the parties in the agreement. The agreement must make it very clear who is releasing whom.

___ 2. Claims Being Settled. Specifically identify the claims that are being resolved and released by the agreement.

___ 3. Consideration. Identify the parties’ respective rights and obligations.

___ 4. When Performance Will Occur. If there is no escrow account established and the parties have decided to rely on each other’s good faith for performance, plaintiff’s counsel should ensure that the period for payment is clearly specified.

___ 5. Release. A release is a contract whereby one or more parties agree to abandon, relinquish, or give up rights or claims that otherwise could be pursued or enforced. Releases are commonly incorporated into settlement agreements, or can be prepared as stand-alone documents. They’re governed by the same principles of contract formation, interpretation, and enforceability that apply to all contractual agreements.

___ 6. Covenant Not to Execute. Parties may want to include a covenant not to execute on any judgment obtained by the plaintiff in the lawsuit against the defendant.

___ 7. Dismissal of Pending Claims or Actions. If the parties intend the settlement agreement to effect complete closure, it should specify which lawsuits or arbitrated matters are to be dismissed with prejudice. Although the Request for Dismissal is a separate document filed with the court, it’s often made an exhibit to the settlement agreement, to ensure that the parties are in agreement on the form of the document to be filed.

___ 8. Choice of Law. It’s customary to include a statement identifying which state’s laws will apply.

___ 9. Restricted Disclosure. If the settlement agreement is to be kept confidential by the parties, include a restricted-disclosure provision.

___ 10. Nonassignment of Claims. Usually, the closing document will specify that any party releasing or giving up a right or claim still possesses it and has not assigned it away.

___ 11. No Admission of Fault. Include a statement that neither its terms nor the negotiations that led to the agreement constitute an admission for any claim of liability or damages by any party.

___ 12. No Interpretation Against Drafting Party. Generally, because the settlement agreement represents a negotiated resolution with the parties’ participation, it should state that there is no presumption or adverse interpretation against the drafting party.

___ 13. Remedies for Breach. Address the possibility of breach in the settlement agreement and provide for specific remedies if one party fails to timely fulfill its obligations under the agreement. Remedies for breach may include security and/or interest for late payments, dispute resolution procedures, and attorney fees.

___ 14. Indemnification. Settlement agreements often contain special provisions that allow for indemnification of a party who pays for the release of a claim if that claim is reasserted against it in the future.

Each of these terms is explained in detail, along with useful sample provisions, in CEB’s California Civil Procedure Before Trial, chap 46.

© The Regents of the University of California, 2012. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

5 replies on “Don’t Forget Any Settlement Terms”

Attorney Julie Brook’s recommendations are good ones.

A provision stating that the settlement is made pursuant to CCP § 664.6 should be considered for all settlements. CCP § 664.6 reads:

“If parties to pending litigation stipulate, in a writing
signed by the parties outside the presence of the court or orally
before the court, for settlement of the case, or part thereof, the
court, upon motion, may enter judgment pursuant to the terms of the
settlement. If requested by the parties, the court may retain
jurisdiction over the parties to enforce the settlement until
performance in full of the terms of the settlement.”

This is an important code section which should not be overlooked in settlement.

Litigators may consider preparing a template settlement agreement incorporating the elements described by Ms. Brooks.

John Mounier
San Francisco Bay Area

Excellent point, John. The same book chapter referenced in the blog post (CEB’s California Civil Procedure Before Trial, chap 46) also covers this enforcement statute. Stayed tuned to the CEB blog next week for a post focusing on executing your settlement agreement.

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