Transcript ABA Ethical Guidelines for Settlement Negotiations

Settling Your Case
Pros and Pitfalls
1
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.
2
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.
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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.
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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.
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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. 6
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.
7
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.
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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.
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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.
10
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.
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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.
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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.
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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.
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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 & 1005-00.
• 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.
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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 0802-07-c.
• Any part of a lump sum payment used to pay for expenses
related to receipt of the lump sum is exempt income. PM 08-0207. 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.
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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.
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Settlement Considerations
in Family Law Cases
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Special Considerations in
Eviction Settlements
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Settlement considerations in
eviction actions depend in part on
type of housing involved
• Impact of eviction judgment on eligibility
for subsidized, public housing—
• Client loses affordable housing which has
no time limit
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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.”
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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.
22
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.
23
Drafting Suggestions
In drafting settlement, avoid any agreed
court order that will be construed as an
eviction judgment
24
• 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.
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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.
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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.
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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.
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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.
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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-attorney1187104.html.
• See also NCLC Foreclosure Manual, Section 10.8 and NCLC
Reports: Bankruptcy and Foreclosures Edition
November/December 2007.
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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.
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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 rereporting of adverse information.
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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.
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When Settlement Goes
Wrong
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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
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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)
36
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)
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• 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)
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Key Issue
Whether court’s order shows it intended to
retain jurisdiction to enforce the parties’
settlement agreement
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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)
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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)
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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.
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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.
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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)
44
• 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).
45
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.
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• 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!
47
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.
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• 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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