The Journal of The DuPage County Bar Association

Back Issues > Vol. 16 (2003-04)

Settlement Conferences: What Can Go Wrong?
By Timothy B. Newitt

I. INTRODUCTION

Litigators are proud of their trial skills. We love to tell our clients and anyone else who will listen about our courtroom prowess and great victories. The reality of litigation practice, however, is that most cases are settled, not tried and that’s as it should be. Trials are risky and expensive. They take a lot out of their participants. The case law is very clear about settlements. Settlements are encouraged and to be given full force and effect. They should not be set aside absent a showing of fraud or mistake. Adler Center v. Chicago Title and Trust Co, 1 It is therefore important not to neglect the settlement process.

How do cases get settled? The parties and their attorneys are often able to settle a case among themselves. Sometimes, a mediator can do the trick. If all else fails, the case is set for pretrial and the judge has a go at it. Before the days of Alternative Dispute Resolution, the pretrial conference was the main means of encouraging parties to settle if they could not do it themselves. Even now, it continues to play a vital role in the litigation process. In fact, short of trial or case-dispositive motions, it is probably the most important court proceeding there is.

Most settlements are negotiated, agreed upon and performed. The parties go on with their lives. Given the imperfection and downright stubbornness of human nature though, it’s an unavoidable fact that settlements sometimes are contested. This article will discuss settlement conferences gone awry. What happens when, after the conference, you think the case is settled but the other party does not? How do the courts resolve those problems? How can they be avoided? The author will try to provide some answers to these questions.

This article will consider four specific problems that have been treated in the caselaw. They are:

1. Factual disputes about the negotiations or terms of settlement.

2. Disputes about whether the terms actually agreed upon constitute an enforceable contract.

3. Disputes about the authority of the attorney to settle.

4. Problems with the Statute of Frauds.

A short discussion about the procedures usually used to attack settlement agreements will also be offered.

II. FACTUAL DISPUTES

Disputes about the terms of a settlement can crop up in any context. However, they are more likely to occur in the compressed time frame of a settlement conference with the court. Discussions are oral. Time is often short. Things can go by pretty quickly sometimes. What happens when somebody later says: "Hey. I didn’t agree to that." One consequence of such a dispute is that the judge is put on the hot seat. He or she is usually the one who decides what the settlement was and whether it was enforceable. The cases evidence a lot of confidence in the ability of the trial judge to do this.

The case of Kohn v. Jaymar-Ruby, Inc.,2 presents the issue squarely. This case holds that a Judge may specifically rely on his or her participation in the settlement negotiations to resolve factual disputes. In Szymkowski v. Szymkowski, 3 the case was transferred to a different judge for hearing on whether the settlement agreement should be enforced. In both cases the settlement agreement was enforced. In Kalman v. Bertacchi,4 the judge put the settlement agreement on the record after the conference was over and actually questioned the parties about the terms and their assent to the agreement. The agreement was enforced in Kalman.

The granddaddy of all settlement dispute cases has to be Estate of Rice.5 The cast of characters will be familiar to many West Suburban practitioners. Dan and Ada Rice were a very wealthy couple. They owned, among other things, a large farm south of Wheaton. Much of that farm today is the Danada shopping center. The Judge was the now-retired John Teschner. The list of parties and attorneys is very long. The Appellate Court’s opinion shows nine different sets of lawyers each containing several and sometimes more than several lawyers. Everyone seemed to want a piece of the estate. Litigation was scattered all over Illinois in the state and federal courts and even in Kentucky. The parties and the issues were legion. It all came to a head before Judge Teschner in January, 1982. There were two settlement conferences on different days in Judge Teschner’s chambers. It is important to note that there was no record of these proceedings. On January 25, Judge Teschner put on the record the terms of settlement. Later on, one of the parties moved to vacate the judgment entered as a result of the settlement. The Appellate Court said the following about factual disputes raised by the motion:

Affidavits of what occurred in the presence of the trial judge do not necessarily have to be accepted by the trial judge because it can be presumed that the trial judge knew the averments contained in the affidavit to be untrue or knew that their effect was obviated by other things which occurred in the presence of the trial judge.6

When factual disputes depend on what happened before the trial judge, his or her recollection wins. Judge Teschner was affirmed and the settlement was valid.

The lesson here is obvious. While it is impossible to foreclose completely any future attack on the settlement, memorialization on the record, in an order or at least in letters or memoranda drafted by the attorneys (See Szymkowski v. Szymkowski 7) helps a lot and the sooner the better. It is also very important to concentrate carefully and take good notes during the settlement conference. It is very easy when you go back in the Judge’s chambers, especially as so often happens where everyone is acquainted with each other, to fall into casual conversation and to let attention lapse when discussion turns to the issues of the case.

III. WAS THERE AN AGREEMENT?

Sometimes there is no serious disagreement about the points discussed or agreed to in the judge’s chambers. In such cases the party who gets cold feet and wants to back out has to take a different tack. In Rose v. Mavrakis8 the parties apparently agreed on what was assented to in the settlement conference. Instead the contesting party contended that the points did not add up to an enforceable agreement. The court applied an important principle: the law of contracts governs settlements. A settlement is a contract like any other contract. The contesting party contended that no time for performance or exchanges of release were agreed to nor were the consequences of breach. The court made short work of those contentions by applying standard contract law. Where there is no time limit a reasonable time will be inserted. Consequences of the breach of any contract are controlled by well-established case law and need not appear in the agreement. The practitioner should always remember that he or she must be guided by the general law of contracts.

IV. AUTHORITY TO SETTLE

An attorney representing a client in litigation has discretion to do many things without direct consultation with his client simply by virtue of the attorney-client relationship. A client is bound by many things an attorney does or does not do. These things include neglect of a pending case. See Fabian v. Norman. 9 One thing an attorney cannot do without special authority from the client is settle a case. Blutcher v. EHS Trinity Hospital.10

In that personal injury case, the Plaintiff’s attorney settled with one defendant without his client’s knowledge or assent and kept the $200,000 settlement money for himself. He apparently forged his client’s signature on a covenant not to sue and a stipulation to dismiss. He further compounded the error by dismissing the whole case even as against nonsettling defendants. He later appeared before the court and asked to correct the error. He never showed the settlement documents or the dismissal order to any of the other defendants.

When one of the other defendants found out what happened, it filed an action for contribution against the settling defendant. The settling defendant then raised the covenant not to sue as a defense. That’s when it all unraveled. Sparing the reader the procedural details, suffice it to say that the settling defendant and its insurance company were out of luck even though they were innocent of wrongdoing. The trial judge’s ruling that the settling defendant was back in the case was affirmed by the Appellate Court. The court held that specific authority to settle must be granted to the attorney and that authority was lacking. The trial judge held that if he had known that the attorney acted without authority, he would never have entered the dismissal. The Appellate Court agreed and affirmed.

The lesson here is obvious. Not only must the attorney be sure he or she has specific settlement authority from the client, everyone else should as well.

There was no serious dispute about the lack of authority in Blutcher. What happens when there is such a dispute? This is what happened in Brewer v. National Railroad Passenger Corp,11 a personal injury case. The plaintiff in Brewer was in the courtroom during the settlement conference but did not go back in chambers where the settlement conference took place. This, of course, is the usual procedure. The parties agreed on monetary amounts to settle the case. Later, however, the plaintiff balked at the stipulation that he resign his job. Nine days after the order of dismissal, the defendant moved the court to enforce the settlement agreement. The plaintiff contended that the issue had not been discussed at the pretrial. The judge disagreed, relying on his own recollection of the pretrial conference. Also, the plaintiff’s attorney, the plaintiff and plaintiff’s wife all submitted affidavits that the plaintiff never agreed to quit his job, no one ever authorized his attorney to compromise on this point and no one ever told the plaintiff that this was a settlement term. The trial judge also rejected this argument on a general presumption that the attorney wouldn’t have made the agreement if he had no authority. The Appellate Court affirmed, assuming that the attorney had conferred with his client on this point. The Supreme Court disagreed. It stated:

However, "[w]hile an attorney’s authority to settle must be expressly conferred, the existence of the attorney of record’s authority to settle in open court is presumed unless rebutted by affirmative evidence that authority is lacking." (Emphasis added.) 12

There is a presumption but in Brewer, it was rebutted by the uncontradicted affidavits. The Supreme Court reversed. Specific authority must be conferred on the attorney to settle. The practitioner should always make sure it is for all parties, not just his or her own client.

V. STATUTE OF FRAUDS

Because a settlement agreement is subject to the law of contracts, the Statute of Frauds can sometimes rear its ugly head. The most common applications of the Statute are contracts for real estate13, contracts which cannot be performed within one year 14 and contracts for sale of personal property where the relief exceeds $5000 15 or $500 for the sale of goods 16

Szymkowski v. Symkowski was a partition action. In a settlement conference with the judge, the Plaintiff agreed to accept a certain sum of money in exchange for her interest in the property. The settlement was memorialized in a court order. When the Plaintiff balked, the Defendant moved the court to enforce the agreement. He did and the Appellate Court affirmed. The plaintiff made the contention that the agreement was within the Statute of Frauds because the contract concerned an interest in real estate. She was the party to be charged and she had not signed any written memorandum of the agreement.17 The court found that the following specific exception contained in the statute itself applied.

This section shall not apply to sales for the enforcement of a judgment for the payment of money or sales by any officer or person pursuant to a judgment or order of any court in this State.18

Where the settlement concerns real estate, put it in a court order and you’re o.k. Obviously a settlement agreement signed by the parties would also be effective.

Another comment is in order here. In Szymkowski, the situation was pretty simple: get the money and convey the real estate. It’s easy to write up an order on the spot for this kind of settlement agreement. This is also true of simple personal injury cases and collection cases. However, when you get a case like the Rice estate or practically any divorce case, the situation is much more complicated. It calls for much more careful consideration and attention to detail. It is seldom possible to write up the entire order before leaving court. See Estate of Rice 19. Here again, careful attention to detail is essential.

Kalman v. Bertacchi 20 was a suit for specific performance. After the settlement conference, the agreement was dictated to the court reporter. The court specifically questioned the plaintiff on the record about whether he wanted to settle on these terms. Even so, he later decided to back out. One of his contentions was that the agreement was within the Statute of Frauds because he signed no written memorandum of the agreement. The decision was easy in Szymkowski because the court could hang its hat on a specific exception in the statute. In Kalman the statute contained no such exception. The Appellate Court nevertheless affirmed the trial court’s order to enforce the agreement. It gave the following rationale.

It is not the intention of the Statute of Frauds to affect stipulations made in a court and subject to the court’s supervision and control. The purpose of the Statute is not forsaken in view of the fact that proof of the existence of an agreement is a matter of court record and cannot be disputed.21

Again, the supervision and control of the court make the difference.

Rose v. Mavrakis 22 went one step farther. In a case of first impression, the court was faced with the issue of whether to enforce a settlement agreement which came within the statute of frauds. The case involved a "business divorce." There were claims and counterclaims by various stockholders, directors and officers of a closely-held Illinois corporation which owned and operated a casino in Greece. The settlement provided that one party would buy another’s stock in the corporation through a series of installment payments subject to approval of the sale from the Greek casino commission. The parties were to cooperate in obtaining that permission. The court held that because the installments stretched over a period of twenty months, the contract was not to be performed within a year and therefore was within the statute. No order or other written memorial of the settlement had been made and the settlement had not been put on the record. The court had to decide whether the agreement was outside of the statute where there was no written memorandum of any kind. Relying on the Kohn case cited above the Appellate Court affirmed the trial court’s order to enforce the agreement. It stated the following in support of its decision.

When parties reach a settlement agreement during a court-mandated settlement conference conducted in the judge’s chambers and state the terms of that agreement in the judge’s presence, there is no danger of enforcement of a contract which was, in fact, never made. This is so even if no transcript or written order memorializing the agreement is prepared on the date the agreement is reached. The possibility of fraud is negated in that the trial judge can, as here, resolve any disputes as to whether an agreement was in fact reached or the content of that agreement.23 (Emphasis added)

The court went on to say that it would be a really good idea to write it up anyway. The Mavrakis decision is as far as the Illinois Courts have gone in enforcing settlement agreement brokered by a court in a settlement conference and that‘s pretty far. The decision demonstrates the strength of the policy laid down by the case law that settlement agreements will be enforced if there is any way to accomplish enforcement.

VI. PROCEDURE

Before concluding, a word about procedure is appropriate. If the settlement has not been incorporated into a final order, the case is still pending and a party may attack or apply for enforcement by means of a motion. If the settlement is incorporated into a final order, a motion under 735 ILCS 5/2-1203 is appropriate if filed within the requisite 30 days. Brewer v. National Railroad Passenger Corp.24 Beyond 30 days, a petition under 735 ILCS 5/2-1401 is the appropriate procedural vehicle. Burchett v. Goncher 25

VII. CONCLUSION

As the cases analyzed in this article demonstrate, it is very hard to go back on a settlement agreement brokered by the judge at a pretrial conference. In cases where there is just not enough agreement to rise to the level of a contract, a settlement can be successfully attacked. See Matter of Dolgin-Eldert Corp.26 Otherwise, courts will go to great lengths to make sure a settlement agreement is enforced.

Nonetheless, the practitioner should always strive to avoid litigation over the agreement. Prepare carefully for the settlement conference. Know the facts and the issues in detail but be prepared to summarize them for the court as succinctly as possible. Maintain concentration during the conference and take good notes. Make sure that all parties have assented to the agreement or that all attorneys have specific settlement authority from their clients. Memorialize the agreement by means of an order or a colloquy on the record. Barring that, write up the agreement itself and get it signed as soon as possible. If the agreement will take some time to write up at least write down the main points in a letter to opposing counsel. In that way, you will be in as strong a position as possible to avoid the kind of litigation described in this article.

1 129 Ill. App. 3d 1024 (First District 1984).

2 23 Cal. App. 4th 1530 (First District 1995)

3 104 Ill.App.3d 630 (First District 1982)

4 57 Ill.App.3d 542 (First District 1978)

5 108 Ill. App.3d 751 (Second District 1982)

6 108 Ill. App at 760

7 104 Ill.App.3d 630 (First District 1982)

8 2003 WL 22240559, No. 1-03-1064 (First District 2003)

9 486 N.E.2d 335 (Second District 1985)

10 321 Ill. App.3d 131 (First District 2001)

11 165 Ill.2d 100 (1995)

12 165 Ill. at 106

13 740 ILCS 80/2

14 740 ILCS 80/1

15 810 ILCS 5/1-206

16 810 ILCS 5/2-201

17 740 ILCS 80/2

18 id.

19 108 Ill. App.3d 751 (Second District 1982)

20 57 Ill.App.3d 542 (First District 1978)

21 57 Ill App. 3d at 556

22 2003 WL 22240559, No. 1-03-1064 (First District 2003)

23 Id.. Slip Opinion at page 8

24 165 Ill.2d 100 (1995)

25 235 Ill. App.3d 1091 (First District1991)

26 31 N.Y.2d 1 (1972)

Timothy B. Newitt was one of two French majors in his entering class at Georgetown University Law Center where he received the J.D. in 1974. He studied foreign language at Wheaton College and the University of Illinois where he received the B.A. and M.A. degrees. He is a shareholder in Johnson, Westra, Broecker, Whittaker & Newitt, P.C. where he does mostly civil litigation.


 
 
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