Mediation Resolution: Settlement Agreement Challenges and Opportunities
These were the best of times. These were the worst of times. Ten hours of mediation slogging through issues, concerns and positions. Multiple threats to walk out on all sides. Intense hallway conversations. “Arm twisting” by the mediator and even your own lawyer. Gut wrenching calls to others to secure different settlement authority. Yet, somehow, some way, resolution has been achieved in this “unsettleable” case.
You just need to write up the settlement terms when the adversary includes a confidentiality clause in the settlement. The last 5 hours of your negotiation have been premised on use of the settlement in press releases and by your sales force. The adversary responds to your objections with a claim that it always includes confidentiality and such was assumed in all proposals. The entire settlement blows up.
We have all been there. Instead of a confidentiality provision, insert scope of indemnity or release, dates of payments, non-competes, or any other type of provision one party assumed was integral to settlement which the other party may never have considered. Not only has the settlement fallen apart, accusations of bad faith negotiating tactics enter the equation while relationships become further strained. Any trust developed in the process is lost. Resolution now appears a distant objective.
While seasoned mediators and skilled attorney-practitioners may work diligently to save settlement (and have their clients avoid significant future costs and risks), this scenario should arise sparingly as long as the mediator and lawyers consider potential settlement terms and structure well in advance of the actual mediation. This article addresses both the mechanics and structure of settlements achieved through mediation as well as challenges arising in that process. This article culminates a series of “nuts and bolts” mediation process writings which have covered many topics including pre-mediation considerations, negotiating methods, and now settlement structures.
Foremost, all practitioners must not merely recognize, but embrace the dynamic that the entire mediation process remains privileged as a settlement effort. This confidentiality protection extends to discussions and exchanges of information prior to the actual mediation sessions. This reminder is raised as so many of the practice tips detailed below necessitate raising issues and concerns in advance of the mediation session to allow parties the ability to consider, value and properly address proposed settlement terms. If settlement structure issues are more timely raised, parties may understand and appreciate that different decision makers may need to be involved or different approvals secured which would otherwise not be available during mediation itself.
Think Through Potential Settlement Structures
Typically, attorneys at mediation are well prepared to address amounts of settlements. This basic economic term has been fairly vetted between attorney and client. Authority and approval levels have been established premised on the proposed amount of settlement. With this process to establish potential worth of claims, the attorney better sets client expectations.
Yet, this same pre-mediation analysis is not always applied by practitioners to issues beyond monetary worth. As an initial step, discuss with your client that which is necessary and that which is desired in any settlement. Determine whether the settlement structure will address issues and concerns beyond the four corners of asserted legal claims. Determine whether the interests of third parties may be impacted. For corporate and insurer clients, have them detail essential agreement conditions which they desire to include in all settlements.
My experience is that attorneys, in general, are problem solvers. Once concerns are identified beyond the pure economic issues, attorneys can work to develop a settlement structure to achieve most goals. If the issue cannot be addressed due to legal or ethical hurdles, the attorney can counsel the client early in the process in order to reset expectations and redirect efforts. Once identified, the parties can begin to place value on the issue. The key remains to understand such essential settlement terms in advance to avoid surprises for all.
Further, careful consideration of settlement terms and structure in advance of mediation should provide new and different tools in negotiating. In a number of instances, parties at mediation recognized that they could mutually benefit from a new or different business arrangement with this new relationship serving as part of the resolution of the pending dispute. However, such consideration proves short-lived as the necessary business personnel are not present at the mediation. If such matters had been explored in advance, a potential path to settlement may have developed.
Think Through the Economic Settlement Terms
Economic settlement terms and structure issues include, but are not limited to:
Timing of Payment
Goods/Services in Lieu of Payment
Classification of Payments
While the amount of settlement is obvious, the parties need to evaluate and be prepared to address additional economic terms in any settlement structure. The timing of payment may be critical for one or all parties. One party may require prompt payment terms. That party may not always be the party receiving the funds. There may be financial accounting reasons for quick payment. There may be undisclosed potential transactions in play which require a clean balance sheet. Alternatively, for similar reasons, payment may need to be delayed or spread over time. Each of these valid concerns needs to be considered and then valued economically by the parties.
A more complex economic term for settlement presents itself where goods or services are exchanged in lieu of direct payments. For the parties, detail and clarify control over that arrangement. If dispute arises in the on-going transactions, will the parties be guided by the settlement agreement, new contractual arrangements, or other agreements? Clarity is essential in creating alternate compensation processes.
Classification of payments may provide flexibility to the parties. Employment cases routinely involve claims where a portion of settlement proceeds is deemed wages. Use that concept in other circumstances where it may benefit the parties. There may be financial benefits in dedicating a portion of settlement proceeds to an adversary’s legal fees. One party may cover expert or other costs. One party may contribute more toward the ever reasonable mediation costs. Each of these examples illustrates a method to increase the absolute value of settlement for one party even if not deemed a settlement payment.
If the parties seriously consider annuity payments, that issue should be raised in advance. The annuity brokers should provide alternative structures, or better, be in attendance to participate in the mediation. There always exist tension between use of an annuity and a contingent fee arrangement. Nonetheless, as a settlement tool, annuities can demonstrate the reach of a modest amount of money over time. Annuities may serve as a convincing tool to address unreasonable expectations by some parties.
In sum, the economic settlement terms broadly include many topics well beyond the simple issue of “How much?”.
Think Through the Non-Economic Settlement Terms
Non-economic settlement terms include, but are not limited to:
Modified or New Business Relationships
Certain non-economic terms remain case-specific such as forms of injunctive relief or new/modified business relationships. In terms of addressing such matters in the settlement, the key point remains to provide clarity and certainty to guide future conduct or relationships. Any settlement should be designed to eliminate and prevent disputes, not further entangle the parties.
Other terms such as confidentiality or non-disparagement clauses might be viewed as a ”given” settlement term. Do not assume that points have been accepted even if it is your typical practice. Raise the issues early in the process to avoid later dispute.
Non-compete clauses may carry significant value for parties, but must be carefully approached. One party, with no current plans to remain in a particular business, may be entirely willing to sign off on a broad and far reaching non-compete proposed by an adversary. Business plans change in the future. New business owners may seek to enter new business areas. The non-compete may be challenged. More so than the litigants, the audience to think about on non-competes should be a court sitting in critical review of the scope of the non-compete in some future action.
Releases and indemnities oft-times present challenges for parties. Typically, parties are prepared to release all claims and all issues related to claims “from the beginning of time until the end of time”. A corresponding limited indemnity usually presents little difficulty. However, once a release or indemnity seeks to include other potential claims and even other parties, the parties need to carefully review the scope and determine the worth of settlement with this transfer of risk. When parties remain entrenched in demanding a broad form release and indemnity for any and all claims, related or unrelated to the underlying facts, they should carefully consider the alternative of proceeding to finality in the courts. At the conclusion of a case, claims asserted in the litigation, and nothing more, will be dismissed. No other claims will be released. There will be no indemnity of any nature available.
Use of non-economic terms and structure in settlements remains limited only by the parties’ and mediator’s creativity. The structure of any settlement is not constrained by the underlying pleadings, claims asserted, or defenses presented. In evaluating different or less than traditional approaches, the parties may discover alternative and beneficial paths toward settlement.
Proper consideration of settlement agreement terms and structure in advance of mediation proves beneficial on many fronts. The attorney can better ensure that all issues the client needs to get addressed are included in the agreement. Expectations can be better managed and reset as required. Proper approvals can be secured from the appropriate personnel. Advance notice of select issues to an adversary will not be “tipping your hand”, but rather a privileged communication to make certain that your issues are fully and properly addressed in a settlement agreement. The adversary may require different approvals, especially where non-economic relief is in play. The advance notice allows such authority to be secured, if appropriate.
If followed, this process focuses the parties on concerns meaningfully in dispute or those considered vital in resolution. The process establishes defined goals and may present new paths toward agreements. The process should illustrate the points where the parties actually agree or on which there is no dispute. Indeed, quite often, the parties recognize that they are actually close to settlement.