Also known as: settlement negotiations · negotiating settlement · settlement talks
Written by attorneys — see sources below.
A process of communication between parties to a disputed claim in which they seek to reach agreement on the terms for resolving the claim without adjudication. The process occurs when the claim is already in litigation or arbitration or is likely to proceed to either if negotiations fail.
Sapphire Holdings retained a nonlawyer claims adjuster to evaluate fire damage and negotiate a payout from its insurer. The adjuster reached a contingent-fee agreement and secured a reduced settlement. When the insurer later disputed coverage, the adjuster sued to collect the fee. The court held that the adjuster's loss determination and settlement negotiation constituted the unauthorized practice of law, rendering the fee contract unenforceable.
Santiago Sanchez, lead plaintiff in a civil-rights class action against Sterling Manufacturing, received a settlement proposal that included both injunctive relief and a waiver of statutory attorney fees. Class counsel objected that the simultaneous negotiation of relief and fees was coercive. The court approved the settlement, finding that the defendants' bargaining advantage alone did not constitute coercion under the governing statute.
On August 4, 1980, respondents, a class of children suffering from emotional and mental handicaps, filed suit in the United States District Court for the District of Idaho against petitioners, the Governor and other officials of the State of Idaho responsible for their education and treatment. The complaint alleged deficiencies in both educational programs and health care services that violated the Education of the Handicapped Act, the Rehabilitation Act of 1973, 42 U.S.C. § 1983, and provisions of the Idaho Constitution and statutes. It sought injunctive relief along with costs and attorney’s fees. Charles Johnson of the Idaho Legal Aid Society served as next friend for the class. The organization made no fee agreements with class members because it was prohibited from representing clients able to pay. Shortly after petitioners filed their answer, the parties reached a partial settlement on the educational services claims in October 1981 under which each side would bear its own attorney’s fees and costs. Negotiations on the treatment claims broke down. This led to cross-motions for summary judgment, class certification, discovery, and preparation for a spring 1983 trial. In March 1983, one week before trial, petitioners presented respondents with a new settlement proposal. As respondents themselves characterize it, the proposal offered virtually all of the injunctive relief they had sought in their complaint. Petitioners' offer included a provision for a waiver by respondents of any claim to fees or costs. Respondents’ counsel had been instructed by the Idaho Legal Aid Society to reject any settlement offer conditioned upon a waiver of fees. Johnson ultimately determined that his ethical obligation to his clients mandated acceptance of the proposal. The parties conditioned the waiver on approval by the District Court. Johnson then filed a written motion requesting the District Court to approve the settlement except for the provision on costs and attorney's fees. He also asked to allow respondents to present a bill of costs and fees for consideration by the court. The District Court evaluated the waiver in the context of the entire settlement and rejected the ethical underpinnings of Johnson's argument. Accordingly, the District Court approved the settlement and denied the motion to submit a costs bill. When respondents appealed from the order denying attorney's fees and costs, petitioners filed a motion requesting the District Court to suspend or stay their obligation to comply with the substantive terms of the settlement. The Court of Appeals granted two emergency motions for stays requiring enforcement of the substantive terms of the consent decree pending the appeal. After ordering preliminary relief, it invalidated the fee waiver and left standing the remainder of the settlement. It then instructed the District Court to make its own determination of the fees that are reasonable and remanded for that limited purpose. The Supreme Court granted certiorari to resolve a conflict among the circuits.
View caseA communication qualifies when a disputed claim exists and the parties engage in compromise discussions about that claim. The rule protects both offers of valuable consideration and accompanying statements made during those discussions when offered to prove or disprove the validity or amount of the claim.
The protection applies to pre-suit mediation and other pre-filing compromise efforts. The rule bars use of offers and statements made during such negotiations to prove liability or damages, regardless of whether formal litigation has begun.
No. When an acknowledgment of fault appears in the same communication as a compromise offer and directly addresses the disputed claim, the entire communication is protected. Courts decline to dissect such statements because doing so would undermine the policy of encouraging candid settlement talks.
The rule promotes settlement of disputes by protecting parties from the risk that good-faith negotiation efforts will later be used against them at trial. Without this protection, parties would hesitate to make concessions or candid statements during compromise discussions.
…is not supported by the record. The fact that the defendants’ superior bargaining power may have given them an advantage in the settlement negotiations does not constitute “coercion” within the meaning of § 1988. Pp. 736–738. 4. The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent…