5 Ways to Make Sure Your Settlement Agreements Are Not Unsettling
The whole idea of a settlement agreement is to resolve differences and end disputes.
But a poorly drafted agreement can have the opposite effect – by sparking new controversies. And it might get the attorney who drafted it sued for malpractice.
That’s the story in Sanchez v. Prudential Pizza, recently decided by the Seventh Circuit Court of Appeals. Read the decision here.
The plaintiff brought a federal court Title VII action for discrimination and harassment. The defendant made an Offer of Judgment under Federal Rule of Civil Procedure 68. The offer covered “all of Plaintiff’s claims for relief” but did not specifically address costs or attorney fees.
Under Rule 68, if an Offer of Judgment is refused and the subsequent judgment turns out to be less than the offer, the defendant can recover the fees and costs incurred after the offer was made. The case was appealed to the Seventh Circuit, which awarded the plaintiff attorney fees and costs on top of the judgment.
In so doing, the court found:
- The Rule 68 offer of $30,000 in exchange for “all of plaintiff’s claims for relief” was ambiguous with respect to whether said “claims” included attorney fees and costs.
- Since the offer of judgment was silent on the issue, a plaintiff would improperly be forced to “guess” at the meaning of the offer.
- Any ambiguities in the offer are resolved against the party making the offer.
- The fact that plaintiff listed attorney fees in the demand for relief in her complaint made no difference.
Following is from Professional Liability Matters:
The lesson is clear. An attorney must be specific and precise when drafting any type of settlement agreement. Relying upon vague and general terms in any form of a settlement communication is a recipe for malpractice. Here, the vague settlement language forced the defendant/client to pay more than it intended and has exposed the attorney to a malpractice claim.
5 Risk Management Takeaways From Sanchez
- Take your time. This is good advice when drafting any document. But settlement agreements, which are intended to permanently close the lid on litigation, demand extra care.
- Use a proofreader. A second pair of eyes will pick up mistakes you missed.
- Do your research. What exactly does “all claims for relief” mean? What is included in “fees and costs?” Is there any case law on point?
- Follow through. Settlements often happen in hallways and are sealed with handshakes. But it ain’t over until the paperwork has been done – and done correctly.
- Buy a malpractice policy. Mistakes happen, even to the best attorneys. The best protection – for you and your client – is professional liability coverage.
For more information:
- Professional Liability Matters http://professionalliabilitymatters.com/2013/03/14/vague-settlement-agreement-may-result-in-malpractice-claim/?goback=%2Egde_1780513_member_222817143
- Sanchez v. Prudential Pizza Inc., No. 12-2208 (U.S. Court of Appeals, Seventh Circuit; decided March 4, 2013)
Jay Reeves a/k/a The Risk Man is an attorney licensed in North Carolina (active) and South Carolina (inactive). Formerly he was Legal Editor at Lawyers Weekly and Risk Manager at Lawyers Mutual. He loves pizza. Contact jay.reeves@ymail.com, phone 919-619-2441.
