Young Lawyers: Drafting a Mediation Settlement that Avoids Future Litigation

By P. Jean Baker, Esq.

One of the primary reasons clients agree to mediate a dispute is to avoid litigation. If a poorly drafted settlement leads to litigation in the future, the mediation did not produce the results desired by an attorney’s client. So how do you, the budding young litigator, protect yourself and your client?

Settlement is a Distinct Area of Specialization

As noted by Charles Craver in the seminal text on legal negotiation, attorneys must first recognize that effective settlement is an art that must be learned. [Charles B. Craver, Effective Legal Negotiation and Settlement, LexisNexis Fifth Ed., p. 368-370 (2005).] How do young litigators fine tune their settlement skills? By joining the ADR Committee of the ABA Section of Litigation you will gain access to articles such as this one. Look for ABA courses that focus on imparting negotiation skills to attorneys practicing in difference specialty areas, such as employment, intellectual property, insurance, etc. Read books published by the Section of Litigation.

Ethical Guidelines

In addition to understanding the process of legal negotiation you must also familiarize yourself with the ethical limitations imposed upon lawyers. In August 2002 the ABA Section of Litigation issued “Ethical Guidelines for Settlement Negotiations.” Although not formally approved by the House of Delegates or the Board of Governors, the ABA does recommend the Guidelines as a resource designed to “facilitate and promote ethical conduct in settlement negotiations” in civil cases. Section 2.2 (Duty of Competence) advises a lawyer to pay attention to the “validity and enforceability of the end result of the settlement process” and to “make sure the client’s interests are best served, for example, by considering tax implications of the settlement.”

Discuss Settlement Terms with the Client

To draft a truly effective settlement agreement you must fully understand your client’s interests and needs regarding all of the potential issues, legal or other. You shouldn’t wait until the day of the mediation to have this discussion - it should commence the moment the client walks into your office. Since the client can’t be expected to be aware of all the potential legal issues, you must be in a position to raise them for discussion. To do this effectively you must be knowledgeable concerning all the foreseeable contingencies that can arise and the provisions that are routinely included in specific types of settlement agreements to address those contingencies. For example, employment settlements typically cover topics such as letter of recommendation or terms of reference information and continuation or termination of benefits. Intellectual property settlements typically include confidentiality provisions. One way to obtain this knowledge is to speak with members of the firm who have experience settling cases similar to yours. Ask them for copies of checklists, templates or redacted settlement agreements.

Carefully Draft a Settlement Proposal

Do not wait until the day of the mediation expecting the mediator to be in a position to recommend all the magic language that needs to be incorporated to effectuate an enforceable settlement agreement. Even if a mediator was hired because of their legal expertise in a specific area, counsel is still in the best position to know whether there are unique terms and conditions that need to be considered. In addition haste in drafting the agreement leads to ambiguity and future disagreement as to interpretation and meaning. The better practice is to devote sufficient time following numerous in depth discussions with your client towards the drafting of a carefully crafted settlement proposal.

Give the Mediator a Copy of Your Proposal

The worst thing that you can do is hold your proposal and then spring it on the mediator and opposing counsel just as everyone is preparing to walk away from the table. Remember, effective negotiation involves reaching some degree of agreement on all the points that are essential to your client. A better approach is to provide the mediator a copy of your settlement proposal either before the process begins or during the first private caucus. This will familiarize the mediator with all the issues that must be addressed during the session, thus allowing the mediator to apportion time accordingly.

Sharing the Proposal with Opposing Counsel?

This is a strategy decision that you will need to carefully evaluate. Your options are to share some or all of the details contained within the proposal at some point during the mediation. If you are dealing with experienced opposing counsel who has mediated a number of similar cases and, thus, is familiar with the standard terms and conditions, you might start by seeking agreement to inclusion of those in the final settlement. Counsel’s response to your request for inclusion of standard terms will be a good indicator of how contentious the bargaining might be. If opposing counsel agrees, be prepared to distribute copies of the standard terms and conditions to the mediator and opposing counsel. If changes in language are required both attorneys should initial the changes on the mediator’s master copy.

If unique or controversial terms and conditions need to be considered for inclusion, it is essential that these issues be raised earlier rather than later in the mediation. The worst approach is to reach “an agreement” that totally ignores or promises to negotiate key terms and conditions at a later date. As more experienced litigators understand that later date may involve some unwanted form of court action.

Settlement Template

Although there is no substitute for tailoring a settlement agreement to the particular facts and circumstances of the parties and the case, a template of frequently occurring terms and conditions is useful. The template will vary depending upon the nature of the dispute and specific requirements of the jurisdiction in which enforcement of the mediation settlement would be sought. For example, some states require that the settlement document specifically waive confidentiality for purposes of enforcement.

The following are some basic terms and conditions that you should consider including:

1. Preamble language designating all who are bound by the agreement, both signatories and non-signatories – important when a corporate party is involved.
2. Recitals that include a brief history of the parties’ relationship; a brief description of the dispute; a statement that the parties are satisfied with the terms and conditions; a statement as to the impact of the settlement – for example, “settlement is in lieu of all civil claims, known or unknown, from the beginning of time to the date of the Agreement, except to the extent any continuing rights, claims or obligations are expressly reserved or acknowledged herein.” If the client is electing to enter into a settlement against the advice of counsel it should be so noted here.
3. Include a statement concerning “no admission of liability or wrongdoing” – important if subsequent similar litigation is anticipated.
4. Representation of “no pending complaints, charges or claims in any court or administrative forum” – important when a party is a licensed professional.
5. Include specifics concerning any promises to transfer funds – how, when, who, where.
6. Allocation of damages for tax purposes – tort recoveries and punitive damages receive different tax treatment so proper characterization is a critical issue.
7. An indemnification and hold harmless provision for tax purposes – just in case the IRS or another taxing authority disagrees with the characterization of the damages allocation in item 6 above.
8. Specifics concerning the dismissal of all pending claims.
9. Specifics concerning the mutual release of all other types of potential claims, such as FDA, Fed-OSHA, EEOC, etc.
10. Jurisdiction specific waiver of claims language or enforcement language.
11. Power of revocation clause - mandatory if the claim involves age discrimination.
12. Factual differences clause - important if material, but unsubstantiated, representations formed the basis of the decision by the client and their attorney to accept specific settlement terms and conditions. The clause can either provide that should material facts later be found to be untrue the settlement is still enforceable accept as provided in item 11 above; or the settlement shall be subject to termination, revocation or rescission by virtue of any difference in material fact discovered within a specified period of time.
13. Acknowledgement of representation of counsel or knowing waiver of representation by a party.
14. A “Successors and Assigns” clause to bind heirs, successors, assigns and personal representatives of the parties.
15. A “Warranty of Non-Assignment” clause that indemnifies and holds harmless against any unspecified claim, action, damage or liability arising from any such actual or purported transfer, including the payment of attorneys’ fees and costs.
16. Agreement by the parties to execute any and all additional documents reasonably necessary to carry out the terms, conditions and obligations of the Agreement.
17. Integration and/or severability clauses.
18. Specifics concerning the limits of confidentiality. For example, the document can be disclosed to legal and financial advisors, member’s of a said party’s family, said party’s officers, directors, and managing agents, etc.
19. No publicity clause.
20. Enforceable arbitration clause – important if the parties want to ensure that any future disagreements concerning interpretation or enforcement will be resolved in a private forum.
21. Allocation of costs and fees associated with the mediation.
22. Representation of authority to settle – mandatory if a corporate party or public entity is involved.
23. Signature introduction and signature lines.

P. Jean Baker, Esq., is vice president with the American Arbitration Association. The article expresses her personal views and is not intended to reflect in any manner the views of the Association.