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Settlements in Civil Lawsuits for Defendants

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Settlements in Civil Lawsuits in California are complex. You are better served by hiring an attorney. Any discussion herein is not legal advice and you use any information herein at your own peril and risk - the information may be outdated, incomplete or even totally incorrect. Even perfect information that is imperfectly applied can severely harm you. Ted Broomfield is not your attorney and will not provide you any legal services.

SUMMARY

Many if not most of the civil lawsuits in California end up with a combination of settlement and dismissal. Among the most critical terms that a defendant wants are terms or words to the effect of (a) the settlement is not an admission of liability; (b) each party will bear their own attorney fees and costs; (c) the defendant’s opposing parties release and waive all claims, either known or unknown, and such release includes a waiver of the rights under Civil Code section 1542, with a copy of that section; (d) the opposing parties promise to request and obtain a dismissal with prejudice, with the opposing party to provide a copy. A defendant may also want to be aware that for payments in amount in excess of $600, the defendant is likely required to issue a 1099 for the total amount paid to each plaintiff, for total amount paid to that plaintiff, including amounts paid to the plaintiff through the plaintiff’s the law firm; as well as total amounts paid to the plaintiff’s law firm. A defendant should get both a representation that no other person has any claim to the money that the defendant is paying as well as an indemnification from the plaintiff. You may want to include a phrase that the plaintiff will email you a copy of the file-stamped dismissal.

DETAILS

No Admission of Liability / Each Party to Bear Own Attorney Fees

The terms that (a) the settlement is not an admission of liability; (b) each party will bear their own attorney fees and costs go hand in hand.

Without these terms, it is possible that the settlement can be used by the plaintiff as evidence that they are the prevailing party in the case. In many types of cases, the prevailing party is entitled to not just damages, but attorney fees.

Therefore, settlements that do not have the terms (a) the settlement is not an admission of liability; (b) each party will bear their own attorney fees can result in the plaintiff motioning for more money in the form of attorney fees and / or costs after the settlement.

Waiver and or Release of Claims

It is common for Defendant’s to request a waiver or release of claims in a settlement. After all, the defendant is bargaining to end the case and does not want to face further litigation on the matter.

Therefore, it can make sense to negotiate for a complete waiver / release of all claims, known or unknown that are accrued as of a certain date.

The date when claims are released through is important, because otherwise, the defendant may not have a sufficient release or waiver of liability. The claims should be defined and defined broadly for the purposes of a defendant.

In California, people who release or waive claims, by default, meaning unless the agreement says differently do not waive or release unknown claims as of the date of waiver. Civil Code section 1542 protects parties to a settlement against waiving claims unknown at the time of the waiver. In order for Civil Code section 1542 not to apply, there must be an express waiver or Civil Code section 1542, along with a bold faced type font in at least 12 point size of the verbatim words of Civil Code section 1542.

Request Dismissal with Prejudice & Obtain a Copy

There are two types of dismissals, without prejudice and with prejudice. The term without prejudice means that the plaintiff can re-file and seek the same claims in another lawsuit.

The term with prejudice means that the plaintiff cannot re-file and seek the same claims in another lawsuit.

Obviously, a defendant wants with prejudice, and if a Defendant is paying money the defendant should negotiate and obtain a promise to dismiss with prejudice.

Furthermore, it is best practice for defendants to get the settlement agreement to specifically state that the plaintiff or plaintiffs will email or mail the plaintiff the file-stamped copy of the dismissal. The file-stamped copy of the dismissal means that the request bears the stamp of the clerk of the court indicating that the court has accepted the dismissal and the case is actually dismissed.

IRS 1099 - Get a W-9.

Tax rules are complex & Byzantine. A defendant is well advised to issue a 1099 to each plaintiff the defendant either pays directly or pays through a law firm in settlement. If the payment is one payment to multiple plaintiffs or to one law firm for multiple plaintiffs, the defendant would be wise to issue a 1099 to each plaintiff. Furthermore, if the defendant pays the law firm instead of the plaintiff[s] directly, the defendant should issue a 1099 to the law firm or law firms representing the plaintiffs.

Do not worry about “double” or “triple” counting the 1099s that you issue as a defendant, as long as the information is correct.

You are well advised to include express language in the settlement that requires the plaintiff and or law firm to give you an W-9 as a condition required before your obligation to pay arises.

Do not accept a 1099 that lacks a signature, as some people try to present.

You can issue a 1099 without a taxpayer ID or social security number, if you did not get an agreement to obtain one as a condition of payment. However, you should strongly request a social security number taxpayer ID, ITIN or the like in writing and state that you intend to issue a 1099 even if you do not get one.

Other Fancy Settlement Language

All necessary performances - a clause that states that all performances necessary for the settlement to be effected and performed on. In truth, this is implied, but can often be contentious, especially as to 1099s and tax ID numbers.

Representations - words that state the parties have the authority to bind settlement, and sometimes that the plaintiff acknowledges there are no claims against the settlement money.

Indemnification - this means that the plaintiff will promise to defend the defendant and pay any third parties money, if the third party sues the defendant alleging that the third party had a valid claim to the settlement money and should have received some or all of the settlement money before the plaintiff.

Binding on heirs, assigns, partners, joint venturers and the like - this is language that makes the settlement binding not just on the specific person, but on any person who steps into that person’s shoes.

Summary enforcement procedures under Code of Civil Procedure section 664.6 - this is language for a settlement in litigation and states that the Court will retain jurisdiction to enforce the settlement in case of a breach, generally on ex parte basis, meaning via 24 hours telephone notice. Usually it’s best to get email notification and longer notice.

Attorney fees to the prevailing party for breach of the settlement - these are words that allow the prevailing party before the Court in event of breach of the settlement to get the reasonable value of the attorney fees incurred to enforce the settlement.

Signed electronically and in parts - this is language that specifically acknowledges and allows modern signing practices of using electronic signatures and multiple different signature pages used, rather than the old school, all parties wet signed one page.

Governing law and venue - this is what law will govern the settlement and where dispute over the settlement will be heard in. If a settlement of litigation should be in the same jurisdiction and venue as the suit.

Integration - words making the written agreement complete and excluding any previous agreements or negotiations from the final complete agreement.

Note on Agreements to Agree

In California it is typical for parties to agree to agree, meaning agree, sometimes in mediation sometimes in Mandatory Settlement Conference, to the most basic terms, sometimes only money and dismissal, and leave the remaining terms open,

Defendants at this point, often attempt to obtain certain of the following terms:

Confidentiality, meaning a promise to not reveal. This can be problematic as it can trigger taxation of the settlement, even if the settlement otherwise would not be taxable.

Indemnification, as described above.

It is best practice to negotiate entire settlement agreements initially, or at least send and or present your entire version with money offers and explain that the offer is on terms substantially the same.

Best efforts to execute a substantially similar final agreement term. Because some parties will frequently insist on long, clumsy, vague and opaque settlement language after the agreement to agree on money, and then insist either no settlement was formed or breach in the settlement agreement, it is best practice to have a clause or a term that is labeled Best efforts to execute a substantially similar final agreement term.

That term basically states that the parties agree to use best efforts to execute a final settlement on the verbatim terms presented and not using substantially different words or terms.

That clause can also state that the conduct of resisting the settlement on arguments that small inconsequential edits for spelling, grammar, tense, possession, plural or singular render the proposed final materially different and no agreement formed are both per se breach and bad faith and indication of need for summary enforcement of the binding agreement to agree. If, so that clause should also state that repeatedly attempting to impose final settlement using almost completely different words and structure is also per se breach and bad faith and indication of need for summary enforcement of the binding agreement to agree.

Conclusion

As you should be able to see, forming a settlement is complex and risky.

However, these are some best practices from experience.

Remember, this is not legal advice, and Ted Broomfield and Ted Broomfield Law is not responsible for your settlement. Use this information at your own peril.

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