The Importance of a Well-Crafted Settlement Agreement

The Importance of a Well-Crafted Settlement Agreement

| Jan 11, 2021 | Blog, Litigation |

timothy-herring

by Timothy M. Herring – The vast majority of lawsuits are resolved between the parties via settlement before trial.  The settlement is memorialized in a written settlement agreement, but not all settlement agreements are created equal.  A poorly-crafted settlement agreement can result in uncertainty and future litigation, defeating one of the primary goals of settlement in the first place, which is finality so the parties can close out the litigation completely and move on.

In broad strokes, a settlement agreement should clearly and comprehensively explain the dispute that led to litigation, precisely how the litigation is being resolved, the claims that are being forever released and discharged, and what should happen in the event of any future disputes regarding the settlement.

One of the most important provisions in a settlement agreement is the release.  In many cases, all parties to a dispute will benefit from mutual general releases, so any and all disputes between the parties (not just those asserted in a lawsuit) are forever released and discharged.  Care must be taken to identify all persons and entities associated with each party that should also be covered by the release.  For example, if a lawsuit involves an LLC, the release in favor of the LLC should generally extend to the members, managers, agents, and employees of the LLC.  Such details may seem like unnecessary legalese, but there are many instances where the failure to list additional “releasees” has resulted in more litigation.

In some situations, one or more parties to a lawsuit would benefit from confidentiality and/or non-disparagement provisions.  Notably, such provisions can be an incentive for settlement because a trial will not provide any such protection.  Such provisions must be carefully drafted to specify what activities are not permitted moving forward.  Again, clear and comprehensive drafting is the key.