What You Don’t Say Can And Will Be Used Against You Or: How NOT To Settle Your Clients’ Cases

Court statistics show that more than 95% of all civil cases are settled by the parties before trial. While many of those settlements occur at private mediation, or simply as a result of the agreement of the parties, court-ordered Mandatory Settlement Conferences ("MSCs") play an important role in the resolution of disputes. When cases settle at MSCs, the general practice is for the parties to place the settlement on the record before the Court, so that the terms of the settlement can be confirmed and, perhaps more importantly, the settlement can be enforced by the Court pursuant to Code of Civil Procedure § 664.6 if one side backs out. The terms of the settlement, as recited on the record, typically define the scope of the parties' settlement agreement. However, in certain circumstances, the failure to properly and fully document the settlement on the record can have devastating consequences to the client.

I was recently consulted by a couple who had been sued for breach of contract. They were represented in that case by another attorney. He had been in practice for many years and was well-respected. After several years of often-acrimonious litigation, the parties to that case attended their MSC. The settlement conference judge helped both sides, and their counsel, reach an agreement which was then put on the record in open court. The underlying contract contained an attorney's fees clause and the Plaintiff's attorney had not only included a prayer for attorney's fees in his client's Complaint, he had also demanded payment of attorney's fees in various items of pre-MSC correspondence. At the MSC, when the Plaintiff's counsel recited the terms of the settlement, no mention was made by him of attorney's fees. My clients' former attorney did not address the issue in his remarks to the Court and the settlement conference judge accepted the parties' settlement with no comment on the subject. The parties' agreement provided that my clients would pay a sum certain to the Plaintiff within 60 days and that the Court would enter a Judgment to that effect. Judgment was entered and was silent as to the issue of fees and costs. My clients believed that once they paid the sum certain, the case would be resolved and they could close this chapter of their lives. Sadly, they were mistaken.

Shortly after making payment of the sum certain, in a timely manner, my clients received a copy of a Motion for Attorney's Fees from the Plaintiff, by which the Plaintiff's counsel sought his fees and costs in an amount which totaled twice the amount of the final settlement. My clients' efforts to oppose the Motion for Attorney's Fees were unsuccessful and they were ordered to pay the Plaintiff's attorney's fees. My clients believed that since the settlement agreement was silent on the issue of fees, and since the Plaintiff had previously demanded fees, the failure of the agreement to address the issue of fees meant that the agreement impliedly excluded the fees. The Court disagreed.

The California Supreme Court addressed a similar case in the early 1980s in a decision entitled Folsom v. Butte County Assn. of Governments (1982) 32 Cal.3d 668. In that case, a coalition of elderly and disabled citizens had filed suit against their local government, claiming that the local government had failed to properly provide transit services. Ultimately, the local government agreed to make changes to its transit policy and the case was settled using a consent decree, a type of judgment, which was silent on the issue of attorney's fees and costs. The attorneys for the elderly and disabled claimants then sought attorney's fees and costs from the local government. The Supreme Court ultimately decided the case and ruled that where a settlement agreement is silent as to the issue of fees and costs, the prevailing party is nonetheless entitled to seek fees and costs as an incident to the judgment which is entered as part of the settlement of the case. (Id. at 676.) Although one could argue that the court was motivated more by the identity of the particular claimants than other considerations, the justices relied on the argument that fees and costs are "an incident" of the judgment, rather than an integral part of any of the causes of action underlying the judgment itself. (Id. at 677.) Later appellate court decisions expanded this principle in holding that where a plaintiff settles a case by accepting a Code of Civil Procedure § 998 offer to compromise, where that offer was silent as to the issue of fees and costs, the plaintiff is entitled to recover attorney's fees and costs. (See, e.g., Engle v. Copenbarger & Copenbarger LLP (2007) 157 Cal.App.4th 165, 168.) In these cases, the courts have been consistent in their distinction between settling a case via a payment and dismissal versus settling a case either by entry of a Judgment or by acceptance of a Code of Civil Procedure § 998 offer to compromise. In the former case, a voluntary dismissal precludes either side from seeking fees and costs. (Civil Code § 1717(b)(2).) In the latter cases, however, the entry of a Judgment allows a claim for fees and costs, which is "an incident" of the Judgment and not foreclosed by the parties' silence on the issue.

The lessons to take from my clients' unfortunate experience with their former attorney is that the recitation of the settlement on the record at an MSC is at least as important as the substantive terms of the settlement negotiated by the parties. Often, attorneys are hesitant to "speak up" and add additional settlement terms at the time of recitation for fear that the delicate balance between the parties which was achieved only by protracted negotiations will be upset. However, as set forth above, silence on critical issues can (in and of itself) be critical. Had my clients' former counsel either expressly stated on the record that the settlement included all parties bearing their own fees and costs, or structured the settlement such that it involved a dismissal of the Complaint (rather than entry of Judgment), my clients would have been protected from the belated claim for attorney's fees.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.