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A settlement is an agreement that resolves a dispute. Disputes concerning any legal subject matter may be resolved by settlement, either before or after commencement of litigation, and even after trial. Settlement agreements are highly favored by the law because they reduce the expense of litigation and produce peace. 

Court May Retain Jurisdiction to Enforce Terms of Settlement Agreement

If there is an action pending, the court may retain jurisdiction to enforce the terms of a settlement agreement. In that regard, California law provides as follows: If parties to pending litigation stipulate, in a writing signed by the parties outside the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement. If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement. (See, Code of Civil Procedure §664.6)

Important Components of Settlement Agreements

There are many important components of a comprehensive settlement agreement including, but not limited to, the following:

       Release of Claims: A release is an agreement that relinquishes a right or claim to the person against whom it could be asserted. Its effect is to extinguish the obligation or cause of action. When resolving a dispute, it is important to consider the scope of the claims being released. A specific release is one restricted by its terms to claims or actions arising from specified events, transactions, or injuries. A general release relinquishes all claims and causes of action, rather than only those arising from specified events, transactions, or injuries.

       Release of Unknown Claims: California Civil Code section 1542 provides that a general release does not extend to claims that the creditor does not know or suspect to exist at the time of executing the release, which if known must have materially affected settlement with the debtor. Accordingly, if the parties desire to release unknown claims (which is usually the case), the parties must include a waiver of Civil Code section 1542 in the settlement agreement.

       Dismissal or Judgment in Pending Action: If an action is pending, it is important to specify the conditions under which the action will be dismissed or, alternatively, judgment will be entered. For example, a settlement agreement may provide if a defendant makes a settlement payment by a certain date, the case will be dismissed. However, if the defendant does not make the payment, the court will enter a judgment against the defendant.

       Attorney’s Fees and Costs: Any settlement agreement should cover the issue of attorney’s fees and costs. In that regard, a settlement agreement may provide that each party will bear his or her own attorney fees and costs or, alternatively, that one party will pay all or a portion of the attorney’s fees and costs incurred by the other party.

       Confidentiality: In most cases, the parties desire the settlement to be confidential. In such case, the settlement agreement may contain a provision prohibiting the parties from discussing the terms and conditions of the settlement agreement or the facts leading up to the settlement agreement. When crafting a confidentiality clause, it is important to include a carve-out to allow the parties to discuss the settlement agreement with their attorneys and accountants, as may be necessary to enforce the terms of the settlement agreement, and as may otherwise be required by law. If asked about the settlement, the parties may desire to specify the response such as: “The dispute was resolved amicably to the satisfaction of each of the parties.”

       Non-Disparagement: To protect reputations, the settlement agreement may include a provision prohibiting the parties from disparaging each other. The parties may also agree that any negative comments made on social media must be immediately removed.

       Settlement Not Admission of Liability. A settlement agreement should include language stating that settlement of the claim does not constitute an admission of liability.