Settlement (litigation)

Lore & Background

A settlement in litigation is a contractual resolution between disputing parties, reached before or after court proceedings begin, that avoids a trial. The agreement is founded on a bargain: one party relinquishes its right to sue or continue a claim in exchange for the certainty specified in the settlement. Courts enforce these contracts, and if a party breaches the terms, the other may sue for breach of contract; in some jurisdictions, the original lawsuit may also be reinstated. The settlement typically defines the legal obligations of the parties and is often formalized by a court order following a joint stipulation, or the parties may simply file a notice of dismissal if the claims have been satisfied. Most civil cases end in settlement, as both sides often seek to avoid the costs, time, and stress of a trial, particularly where a jury is available. Early in litigation, one party may make an offer, and courts may require a settlement conference. In controversial cases, settlements may include confidentiality clauses or disclaimers of fault. A "drop hands" settlement occurs when both parties bear their own costs and walk away. A "global settlement" addresses civil claims and criminal charges across multiple jurisdictions, exemplified by the Tobacco Master Settlement Agreement. Standard settlement elements include identifying parties, describing the dispute, defining released claims, specifying obligations, disclaiming liability, and handling pending litigation, fees, and costs. In the United States, most settlements are private contracts, not court orders, and confidentiality is common but controversial, as it can conceal public hazards. Some states, like Florida, have passed laws limiting confidentiality, though judicial interpretation has weakened such laws.

Reader's Guide

Settlements are significant because the majority of legal cases are resolved through them rather than trial. Both sides often have strong incentives to settle to avoid costs, time, and stress, especially where a jury trial is available. Settlements can be confidential, which is controversial as it may allow damaging actions to remain secret, leading some jurisdictions to pass laws limiting confidentiality. In the United States, less than 2% of cases end with a trial, with 90% of torts and about 50% of other civil cases settling. Settlement agreements are normally private contracts, not court orders, except for consent decrees. In England and Wales, a Tomlin Order allows the settlement terms to remain confidential while the court order deals with procedural matters. The European Union's Court of Justice has ruled that a settlement agreement between a public body and a contractor could amount to a material contract amendment requiring a new tender.

Did You Know?

• A 'drop hands' settlement occurs when both parties agree to bear their own costs and walk away from the dispute.
• A 'global settlement' addresses both civil claims and criminal charges against a corporation or other large entity.
• In the United States, less than 2% of cases end with a trial; 90% of torts settle.
• Confidentiality is not possible in class action cases in the United States, where all settlements are subject to court approval.