Trial Magazine

As you negotiate a settlement, make sure your client understands all potential terms and their implications. Here are some ways to avoid confusion and ensure transparency.

Keep your client informed. Throughout the negotiation, talk to your client regularly, and explain the potential settlement “to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.”¹ When communicating each settlement offer, ask clients about any changes in their goals or expectations. Preemptively address issues the client may not ask about: enforcement or collection of the settlement amount, tax liabilities, attorney fees and other fees, the advantages and disadvantages of a structured settlement, any third-party claims that may reduce the amount received, and any post-settlement responsibilities the client may have.

Set proper expectations for your client. You do not want to overpromise. The client has the power to decide whether to settle, but it is your responsibility to inform the client of the implications of such a decision.

Prepare a settlement summary. Thoroughly explain the risks and implications of the settlement agreement. A settlement summary is a great tool. It should lay out the intricacies of the case; state relevant facts; describe the discovery conducted; analyze case strengths and weaknesses; include fees and costs to date and, if possible, projections of costs through trial and what those figures are based on—as well as a likely verdict if the matter should go to trial. The summary should also discuss the settlement offer amount, whether that amount is or is not within the range for similarly situated matters, and what that range is based on.

Ensure the terms are detailed. In drafting the agreement, your paramount consideration is whether the agreement accurately reflects the goals of the parties, fulfills your client’s interests, and lays out the mechanisms to implement the agreement’s terms. The agreement should be detailed: It should outline who the parties are and make clear who is meant to benefit from the agreement. It should state the amount of the payment; identify the method and timing of payment, as well as dates and amounts if multiple payments have been agreed on; and specify the interest rate if payment is late. The agreement should identify specifically what is going to happen, when performance is going to occur, and what happens in the event of nonperformance.

The carefully worded release. The use of a general release can be dangerous because it is not restricted to the claim at hand. Language that relinquishes any and all known and unknown claims, without specifics, may release claims that your clients are unaware they are releasing and do not want to release. Meticulous construction of the release terms can prevent this. State with particularity who is being released, whether the release is binding on heirs or assigns, and which claims they are and are not being released from. Even releases that identify specific proceedings should be analyzed as the scope of those proceedings could be used in subsequent actions.

Third-party considerations. Explain the implication of known liens—such as workers’ compensation and Medicare—and include the details in the settlement agreement. You must know the amount of the lien and explain how it will affect the collection of settlement proceeds. Surprises often arise after settlement when an unknown lien is discovered or a third-party claimant comes forward. To combat this, include indemnification provisions to identify who will be responsible for future claims brought by third parties.

The settlement statement. Before your client signs the settlement agreement, provide a statement that memorializes in writing discussions and explanations of the settlement that you had with the client. Include the total settlement amount, the amount the client will receive, the fee to the firm, any liens, and any other expenses. Also include a statement of the client’s rights concerning the settlement: that it is within the client’s sole discretion to settle and that the client should not sign unless they have read and understand the settlement agreement.

Taking these steps to carefully draft the terms of the settlement and thoroughly communicate with your client about their effect can help avoid misunderstandings later.

Jefferey Ogden Katz is an attorney at The Patterson Law Firm in Chicago and can be reached at jkatz@pattersonlawfirm.com.

Note

1. Model R. of Prof’l Conduct 1.4(a)(3) and (b).