In order to foster settlements, Courts have a strong bias in favor of settlement discussions and settlement agreements. Here are two ways in which this preference is manifested:
Settlement discussions are not admissible in court proceedings.
Those not familiar with mechanisms of dispute resolution frequently conclude that because a party offers to settle a claim, he must have done something wrong — something that is the basis for legal liability. Further, knowing the dollars a Plaintiff or Defendant put on the table to resolve a claim in failed settlement discussions places before a decision-maker (Judge, Jury or Arbitrator) important information of how the parties value the claim. Therefore, it would be tremendously prejudicial before a jury — or even a judge — to allow settlement discussions to come in to evidence. As a result, there is a pretty firm rule in Court proceedings that evidence of settlement discussions — regardless of how true they are — are simply inadmissible. Otherwise, parties would be crazy to engage in such discussions for fear of prejudicing the litigation.
Courts directly enforce settlement agreements
Second, once a settlement agreement is reached — or arguably reached — Courts will use their powers to enforce that agreement, whether oral or in writing. [Read here about enforcement of oral settlement agreements.] Thus, parties should carefully consider what they are willing to agree to when it comes to a settlement agreement. Casual and not-well-thought-through agreements can bind you.
It is important that parties carefully protect themselves in situations of potential conflict, especially when undertaking settlement discussions.
