Update (March 23, 2018): The original post, below, is nearly 10 years old. We still stand by it. These remain valuable practice pointers.
The lawsuit between Blu Dot Manufacturing against Stitch Industries d/b/a Joybird in U.S. District Court (D. Minn.) seems to be an illustration of Mistake #6, “buyer’s remorse.”
At least according to Blu Dot, the adversaries hammered out a deal and, after they reached a deal, Joybird backtracked.
Blu Dot accused Joybird of making knock-off furniture (copyright infringement is the legal term). The case against Joybird looked pretty strong (check out the linked document at pages 4-6). This bears a strong resemblance to what we have previously dubbed a “zombie case.” Will the U.S. District Court (D. Minn.) allow Joybird to escape the deal it appears to have entered into, prolonging a case where there appears to be no genuine dispute but the case nevertheless lumbers on?
(Incidentally, what experienced civil litigator has NOT had a client (or many clients) suggest material changes to settlement agreements after the settlement agreement has been reached? If advocates think their clients might be fickle, indecisive, or ambivalent in settlement negotiations, the risk is easily mitigated with a clause to this effect: “This Agreement is valid and binding only when it has been signed by all the parties.” (But then be very sure to have everyone sign the agreement, of course.))
Original post (September 29, 2008): Approximately 95% of civil litigation ends in settlement. From the outset, litigators need to have as complete a valuation of their cases as possible, need to assess the best opportunities in the litigation for settlement, and throughout the litigation keep the dual tracks of trial and settlement in mind. Here are the top six mistakes made in settlement agreements:
1. Failure to address so-called minor issues (confidentiality, mutuality of release, non-assignment, forum selection clause) early on that can blow up and scuttle a near-final settlement.
2. Failure to establish clear time-lines or details for future performance (such as timing of payments and form of payments).
3. Inclusion of vague or ambiguous terms that later become disputed issues.
4. Accidental release of claims; accidental failure to extinguish claims (for example, accidentally releasing a related third party such as a parent company or failure to obtain release for a third party, again, such as a parent company).
5. Failure to insure against a paying party’s future bankruptcy or insolvency.
6. “Buyer’s Remorse” — clients need to be fully on board with a settlement and need to recognize that the settlement can be reached before the settlement agreement is actually signed. Courts generally “like” settlements, they are likely to enforce them when one or the other side tries to back out. If a client has regrets soon after an agreement is reached, very soon, rescission is sometimes available.
[Editor’s note: “Fenrick v. Olson, 269 Minn. 412, 131 N.W.2d 235, 240 (Minn.1964) (“[E]ven in the absence of fraud[,] the unilateral mistake of a party to a contract may justify its rescission or cancellation where no prejudice other than the loss of the bargain will result to the other party thereto.”); A.A. Metcalf Moving & Storage Co. v. N. St. Paul-Maplewood-Oakdale Sch., 587 N.W.2d 311, 318 (Minn.Ct.App.1998) (“[A] unilateral mistake in entering a contract is not a basis for rescission unless there is ambiguity, fraud, misrepresentation, or where the contract may be rescinded without prejudice to the other party.”) (emphasis added) (citation omitted)].