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This checklist explains how to review a settlement agreement and covers topics such as preparatory steps, communicating with adversaries, settlement terms, ambiguity, confidentiality, relevant parties, breach provisions, releases, and final approval.
When reviewing a draft settlement, make sure the document reflects the parties’ agreements about the settlement terms and eliminates any ambiguity. The agreement should list the rights, claims, obligations, or interests that will be released in the settlement as well as any claims or obligations that are not part of the settlement. A careful examination of the agreement is imperative because settlement agreements not only resolve the current dispute, but could have business implications for years to come.
You should also examine the advice you are giving your client regarding the settlement to ensure that you have properly:
Your client may push for the settlement terms/payments to be structured in as tax efficient a manner as possible. Consider whether to consult with a tax expert on the consequences of the agreement.
Be crystal clear when communicating with other parties on the settlement, as ambiguity and silence can sometimes be viewed as acceptance of terms. For example:
Make sure the agreement covers the proper parties to the dispute and identifies all parties with specificity. Parties may include:
Standard terms should not be included in the agreement without being scrutinized. Care should be taken with terms such as:
Make sure the recitals are accurate. Recitals appear at the start of the agreement and provide background of the settlement and underlying dispute, such as:
Nearly all settlement agreements include a paragraph in which the parties represent that they agree to resolve the dispute without the defendant admitting liability in the underlying civil case. These statements generally include language stating the settlement:
Make sure the settlement:
Settlement agreements generally contain a release to at minimum avoid a future dispute over the same claims at issue in the current dispute. When reviewing the release, make sure it:
Unless the settlement agreement contains a valid choice-of-law provision, the effect of a release of state law claims is governed by the law of the forum state, while federal common law governs the effect of a release of federal claims.1
One benefit to settling out of court is that the details are not part of the public record. Many settlement agreements incorporate a confidentiality clause that strictly prohibits the parties from disclosing certain details of the case. When reviewing the agreement:
If the agreement contemplates non-monetary obligations, make sure it addresses the steps the parties must take in the event of a breach:
Before giving final acceptance to the agreement, you will generally need sign-off from your client. If your client is a company, this may entail approval from some or all of the following:
If your client is hands-on, it will typically want to review the proposed agreement and offer feedback and edits.
In addition to your client, you generally will need sign-off from:
Checklist provided by James M. Wagstaffe, a renowned author, litigator, educator, and lecturer, and the premier industry authority on pretrial federal civil procedure. He is a partner and co-founder of Kerr & Wagstaffe LLP, where he heads the firm’s Federal Practice Group. See his full bio here: https://www.lexisnexis.com/en-us/practice-advisor-authors/profiles/james-wagstaffe.page.
To find this article in Lexis Practice Advisor, follow this research path:
RESEARCH PATH: Civil Litigation > Settlement > Checklists
For sample settlement agreements in employment actions, see
> SETTLEMENT AGREEMENT (EMPLOYMENT DISCRIMINATION CLASS ACTION) AND SETTLEMENT AGREEMENT (FRCP RULE 23 WAGE AND HOUR CLASS ACTION)
RESEARCH PATH: Labor & Employment > Employment Litigation > Class and Collective Actions > Forms
For assistance in drafting a settlement agreement in patent litigation, see
> PATENT SETTLEMENT AGREEMENT AND RELEASE (PRO-PATENT OWNER)
RESEARCH PATH: Intellectual Property & Technology > Patents > Patent Litigation > Forms
For general settlement forms, see
> SETTLEMENT AGREEMENT AND RELEASE (FEDERAL) AND STIPULATION OF DISMISSAL AND PROPOSED ORDER (FEDERAL)
RESEARCH PATH: Civil Litigation > Settlement > Forms
For a discussion of settlement enforcement in federal court, see
> SETTLEMENT: ENFORCING SETTLEMENTS AND CONSENT DECREES (FEDERAL)
RESEARCH PATH: Civil Litigation > Settlement > Practice Notes
For a list of steps to take when establishing a document retention policy, see
> DOCUMENT RETENTION POLICY CHECKLIST (FEDERAL)
RESEARCH PATH: Civil Litigation > Pre-litigation > Checklists
1. See Renwick v. Bennett (In re Bennett), 298 F.3 1059 (9th Cir. 2002).