As always, before reading this post, please review my disclaimer by clicking on the link above or by clicking on this link. As always, any legal principles discussed apply only to the Commonwealth of Virginia.
Introduction
As you probably know, most legal disputes end in settlement. Sure, plenty go to trial, but in most cases the parties reach some kind of agreement that everyone is unhappy with, but figure is better than taking the gamble of actually going to court. There are many reasons to accept or not accept a settlement, and I may go into those in another post, but today I plan to tackle another subject. Once you've settled, how do you actually implement that settlement?
The reality is, there are numerous ways to implement a settlement, but there are three I want to cover today because, in my experience, the vast majority of settlements I am involved in take one of these three approaches. They are, specifically, a signed settlement agreement, a settlement by action, and a confession of judgment note.
Signed Settlement Agreements
A signed settlement agreement is exactly what it sounds like - a written agreement signed by all parties (or, in some cases, their attorneys). The agreement will usually include a waiver of the right to bring a suit (or dismissal of a currently active suit), and terms. It will usually supersede any agreement that was the basis of the original dispute, and will usually prevent the original dispute from ever being disputed in court.
So, as you can imagine, the idea behind a settlement agreement is that it is an enforceable contract between the parties. A breach of the agreement, then, becomes its own basis for a lawsuit - and frequently these agreements will include attorneys' fee provisions to discourage breaches. An even stronger advantage is that in some cases (particularly divorces), the agreement can be incorporated into a court order, so you can use the court's contempt power to enforce it.
The vast majority of settlement agreements I see are implemented this way. The agreements are usually fairly clear and easy to follow, and rarely breached. The biggest disadvantage, however, is that typically a breach will leave you somewhere near square one - you still have to file a lawsuit (usually) to deal with the breach.
Settlement by Action
A settlement by action is a name I have completely made up for a fairly common occurrence. Basically, what happens is that when a lawsuit is pending, a settlement is reached where, instead of having a signed agreement, the party filing the suit simply dismisses the case with prejudice (meaning it can never be re-raised). The two circumstances where I typically see this are where the other party has paid some amount such that the amount in dispute remaining isn't worth pursuing, or where there is a counter-claim, and both parties agree to just dismiss their claims with prejudice.
This is a very informal approach to settlement so it might surprise you to know that I actually see it a lot. It tends to save many people time, and with it legal fees, which is its appeal. The down side, of course, is that there is almost no way to enforce such an agreement if someone backs out before the suit is dismissed.
Confession of Judgment Note
A confession of judgment note has, in all honesty, become my favorite means of settling a case, although it is really only good for lawsuits that are just plain lawsuits for money. A confession of judgment note is a promissory note, signed by only one party, agreeing to pay a certain amount on a certain schedule. If the payor defaults on the note, the payee can take the note to the courthouse and get a judgment automatically entered against the payor - no need for a lawsuit, trial, etc. Obviously the payor has ways to challenge the note, but as long as the underlying fact (that the payor missed a payment) is true, those challenges usually fail.
This may sound very one-sided - how does the payor enforce the note against the payees, for example - but the beauty of a note is that as long as you have the provisions required by law in there, you can add pretty much anything. When I draft a confession of judgment note settling a case I include all the payer's obligations, yes, but I also include what I call a "consideration" section. This section outlines what all the payees have to do in order for the note to be enforceable. If the payees do not do something they are supposed to, the note itself becomes invalid, and the payor no longer needs to make payments.
I have found that confession of judgment notes are usually very good at making both parties compliant. If the payees fail to comply, they lose a source of guaranteed payment, and usually have no way to re-raise their initial lawsuit (usually the consideration section requires them to have dismissed their ongoing lawsuit with prejudice, or signed a waiver of their right to bring a suit, and that provision is almost never violated, since it would mean they had negotiated in bad faith, so the other provisions of the consideration section likely won't apply until the payees have already lost their right to bring a new claim). This means the payees will end up getting far less than if they had followed their obligations since the payor can stop paying and they would have nothing they could do about it.
If the payor fails to comply, on the other hand, a judgment is automatically entered without a trial, and garnishment can begin after 21 days. Further, usually a confession of judgment note settlement will actually have the payor owe the payee the full amount the payee was seeking, but then have the remaining amount waived once the payor has paid a certain amount without a default. As a result, the payor will end up owing far more in case of a breach than the payor would have paid if the payor had not breached.
Conclusion
If you are in a dispute that you want to settle, it is often hard to tell what the best settlement method may be. An attorney can help you figure that out, and help you make sure that all documents are crafted properly under the law (especially confessions of judgment, which have many legal traps). If you would like to discuss your options, please feel free to call (703)281-0134 or e-mail me at sleven@thebaldwinlawfirm.com to set up a consultation. Our initial consultations are free for up to half an hour!
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