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Ethical Considerations and Best Practices When Navigating and Evaluating Litigation Settlements

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Ethical Considerations and Best Practices When Navigating and Evaluating Litigation Settlements

One of the biggest challenges facing clients and counsel today is navigating the settlement process during high-stakes, complex litigation and/or class actions. This course, presented by Wyatt Partners (a corporation that focuses exclusively on evaluating both legal spend and litigation settlements), addresses today’s hot topics on this timely issue – both from an in-house and outside counsel perspective. The program will provide a step-by-step journey through the entire settlement process, beginning with the evaluation of risks to be considered when settling, the drafting and negotiating of the actual settlement documents, and the corporate, insurance, and judicial impacts on getting a settlement finalized and approved. The program will also specifically focus on applicable Rules of Professional Conduct and case law as they apply to all stages of the settlement process. Both law firms and corporations will benefit greatly from such insights on a timely and evolving topic that affects everyone in today’s legal and business market.

Transcript

- [Sam] Greetings, everyone. We're thrilled to have you join us for this program on settlement agreements. We intend to cover a lot of ground today from theoretical to practical, and we hope this presentation gives you some good tips as you go about settling your cases. Let's start by introducing ourselves. My name is Sam Tasher, I'm a managing director at Wyatt Partners. And here today with me are my colleagues Lindsay and Steven Tasher. All three of us have been involved in big-time litigation and in settling, and have also served as an in-house attorney for various companies and organizations over the years. We at Wyatt Partners do three things. First, we provide expert evaluation and opinions concerning attorney's fees and settlements and litigation. Second, we advise companies on the management of their litigation spend and their transactional portfolio. And third, we teach other lawyers just like here on a variety of topics. Before we proceed, I wanna send out my tremendous thank you to Quimbee, especially Jillian, for inviting us and putting this together. And also one final note to you all, our contact information will be on the final slide. If you have questions, wanna reach out to us for any reason, we strongly encourage that you do so. Our presentation today will be divided into four parts, first talking about why settle at all. The second is the reasonableness factors considered. The third is the contents of a settlement, and the fourth is the required approval for the settlement. So let's begin, I'm gonna be doing part one and talking about why settle at all. And I wanna start out with a thank you to my old torts jurisprudence professor from law school Professor Christie whose treatise on torts gives a great explanation for this question, why settle? What Professor Christie's treatise notes is that the decision to settle is fundamentally a cost benefit analysis. What's our likely upside or downside and how much is it gonna cost to get there? This question may be simple, but it isn't always, and we're gonna begin by looking at one part of this equation. How much is the impending litigation likely gonna cost and what factors go into that evaluation? So let's talk about the reasonableness factors. They are found in the Model Rules of Professional Conduct in Rule 1.5 and are known in different names throughout the country. You'll see them called the Freeman Factors in New York, the First Factors in New Jersey, the Chawla Factors in Virginia, Wood Factors in Michigan, federal courts sometime call these the Johnson Factors or the Kerr Factors in the Ninth Circuit, and let's talk about some of them. The first important factor is the first one, the time and labor required, and this really asks two questions. One is generally, how much work goes into a case like this? The second though is, how much work will be required due to external forces? Is your opponent a scorched earth type of litigant? Is the judge known for being a rocket docket kinda judge? These will all go into how much time and labor is gonna be required towards litigating the case. The third factor, the customary fee in the locality for similar legal services. This is the hourly rate question. How much will the attorneys charge for these kinds of services? Where is the case and does this require the bandwidth and resources of a big firm to litigate the case? Let's talk about the nature of the fee arrangement, the last factor, is this gonna be hourly? Is this gonna be on a contingent fee? 'Cause that will very much affect the cost to you. The fifth factor, the time limitations imposed, and this will also tie in with a contingent or an hourly fee. If it's an hourly fee and this is a rocket docket, it's gonna cost a lot more money. And finally the fourth factor, the stakes of the litigation and the likelihood of achieving success. If this is a big-time litigation and you need a big firm, that's gonna cost you something a little different than a smaller case where you can get a smaller firm to do the work. Over the next few slides, I'd like to look at how a number of courts have looked at evaluating the reasonableness of a settlement in a variety of contexts. One context is in the situation where an insurance company has to pay for the settlement and has issue with how much they're being asked to pay. Another example is a class action and class counsel will need to do two things. First is get the court to approve the settlement and the second is figure out how much money needs to come out of the fund that's created to pay class counsel. So I wanna look at a number of circuits and how they've approached this. One circuit that does this a lot is the Fifth Circuit and there are actually two tests in the Fifth Circuit, neither of which is exclusive and sometimes both tests will be applied. One is called the Reed Test. This is the main one. And this looks at a number of factors like the complexity, expense, likely duration of the litigation, where are we and the likelihood of success. These may sound familiar as these are also those same Rule 1.5 factors that we've talked about before. The Zapata Test is the minority test, but the Zapata test adds one factor not in the Reed Test that's very important and that's the concept of res judicata. As a court and as a legal system, we prefer finality in getting cases off the docket. And so ensuring that there is a final lasting settlement is a very important factor that a lot of courts will want to consider. Let's move to the Third Circuit for now and talk about the Gunter Test. The Gunter Test is the set of factors used to evaluate how much class counsel should be paid out of the settlement. And this is important because in order to finalize the settlement, you have to pay class counsel and the reasonableness of the settlement may be a factor in determining how much class counsel should get. You can see the Third Circuit's Gunter Test here with the seven factors used to evaluate how much the attorneys should get out of the settlement. And you can see the seven factors here looks at the level of success achieved, whether there's objection by the class, complexity and duration of litigation, a lot of the Rule 1.5 factors you've also seen before, but a couple of things to note is that the evaluation of the settlement itself is a factor, looking at how other courts have looked at similar settlements, how happy the class is and the results that were obtained. We were privileged a few years ago to actually get to apply the Gunter Test in a class action called the DeMaria class action. This was a case in which a group of chiropractors who were having their services denied sued and a settlement was entered into, and we reviewed the fees that were being sought by class counsel and the settlement and opined as to their reasonableness. And you could see the decision was reached in which Judge Martini of the district of New Jersey granted the fees in full, and he focused on five very specific factors. First, the contingent nature of the representation and the risk to the class and to the lawyers who took the case that they might not get anything if they lost. The next is the benefit conferred and this looks at the reasonableness of the settlement and Judge Martini said this was a really, really great job. Third, the complexity of the case. This had a lot of medical issues involved and favored a fully compensatory settlement and also justified the value of that settlement itself. The fourth factor is the incentive for class counsel to undertake this kind of litigation. You don't wanna have somebody work for I believe it was five years on that case and then stiff them at the end. And finally, sort of two factors in one, the quality of the representation and quote extremely beneficial settlement. So you can see that the reasonableness of the settlement in a class action will determine how much the attorneys are gonna end up getting paid. If you look at the Second Circuit here, you'll also see very similar considerations in the Detroit v. Grinnell case really focusing on two issues. First is the risks to the class and class counsel and also how was the settlement in light of these things. So you see the reaction to the class, risks of liability, risks of damages, going through the trial, and so on and so forth. So we've spent a lot of time on class action settlements and evaluating how to look at those, but let's talk about another situation in which the reasonableness of a settlement may come into play and that's in an insurance dispute. So recall that I'm an insured, I tender defense to my carrier and the carrier picks up the defense. We settle the case. The carrier's involved. Everything's good 'cause the carrier will pay for some or all of this amount. But what if the carrier didn't do it and denied coverage or reserved their rights and said you defend yourself? And a lot of jurisdictions have dealt with this. There's a lot of insurance litigation in the State of Mississippi. And the Mississippi Supreme Court, among other courts, have looked at this and come up with a list of factors to be considered. And some of these will look familiar such as the risks of the litigation and the likelihood of success. But one additional factor the Mississippi Supreme Court said was very important is that the insured may not have enough money to survive without the insurance proceeds. Thus, the court can and should consider whether the settlement precluded the erosion of the entire policies, placing the insured in jeopardy to being out of pocket and exposing them to future litigation with an empty tank. And if you think about that, that makes a lot of sense. A cost benefit analysis necessarily by a client includes the evaluation of, am I gonna make it through this litigation? And the truth is you buy insurance specifically so you will make it through a potentially company-ending litigation. So that's an important factor to consider as well. And to close out part one, and I know Steven, as I turn it over to him, is gonna talk about Vice Chancellor Lamb's decision in Fox c. Paine as well, but I wanna give you this quote as to the purpose of settlement agreements because it really contextualizes not only our entire presentation, but anytime you enter into a settlement, this quote should be at the back of your mind. "The very title of the agreement, settlement agreement, suggests that the parties were attempting to put an end to their disputes and go their separate ways, not subject themselves to extended further conflict." This comes back to the Zapata Test and the factor I was talking about res judicata. You settle a case to end all disputes, go your separate ways and not subject yourself to extended further conflict. The law prefers finality to litigation, and I think this decision by Vice Chancellor Lamb really reflects that preference, and we're gonna make reference to Vice Chancellor Lamb's decision in Fox v. Paine and the general idea underlying it throughout the rest of this presentation. So with that, I will be back for part three, but I'm going to turn it over to my colleague Steven right now. Thank you very much. - [Steven] My discussion will focus on the essential elements to consider when evaluating whether and to what extent to settle a matter. And I'm gonna look at a number of reasonableness factors including certain of the Rules of Professional Conduct, which I will cite. They will certainly include Rule 1.5, Rules 1.2 and 1.4 as well, which are virtually identical in every jurisdiction in the United States. And let's first and foremost focus on the purpose of settlement agreements. I'm sure everyone listening to this has settled a matter in the past. And if you have, you will no doubt agree as Vice Chancellor Lamb indicated and so articulately pointed out in the Fox v. Paine litigation in 2009. "The very title of the agreement, settlement agreement, suggests that the parties were attempting to put an end to their disputes and go their separate ways, not subject themselves to extended further conflict." And in a few moments, I will talk about how the Fox v. Paine matter devolved into what everybody believed was a settlement into years of litigation over elements of the settlement agreement itself. There are a whole host of factors to consider when evaluating the decision to settle a case, and this centers around the complexity, the expense, and the likely duration of the litigation. And I'm gonna talk for a few moments about things that can affect the required work, the expected expense, and the time to complete the litigation. First and foremost, the extent, the scope, and the duration of discovery. For those of you who've litigated matters before, you well know that a significant driver of the cost of litigation and the time and labor that is required is discovery, whether you're talking about depositions, requests for interrogatories, requests for admissions, motions to compel, document review, all of these costs are significant and substantial drivers of litigation. Another consideration is what you're paying your lawyers. Is the fee fixed? Is it contingent? What is the quantum of fees and cost that you're going to be incurring in moving this lawsuit forward? Also, the necessity of complex testimony, whether you're talking about experts, whether you're talking about fact witnesses, experts including environmental experts, economic experts, and getting really good experts on board will have a cost associated with them and will require considerable amount of time. Also, the location of litigation. Now in this post-pandemic Zoom world, a lot of litigation costs are being avoided by Zoom trial, Zoom depositions, but many courts are returning to in-person litigation. I've just come back from a war room in a foreign jurisdiction and I will tell you that the costs of travel, the cost of hotel, the cost of meals is considerable and that's certainly something that you need to take into account. How far along in litigation timeline is the case? Is it at the very beginning? Is it toward the end? All of those are gonna be factors which are going to govern and dictate the costs. Also, who is your opposition and what are you expecting from them? What kind of conduct? This can be a very important driver of cost and effort. And if you have a premier national firm on the other side with the bandwidth, the skill sets, the resources to drive the costs up, if you know that, you're going to understand the context of the further costs. Also, it will provide you with a good analysis of the likelihood of success on the merits. If you've got very well-credentialed people arrayed against you, this becomes a very important factor in the determination of whether and to what extent to settle. Also, and I'll talk about this a little bit later, but the diversion of corporate resources. Most of you who are working in the law department or the finance department or in management of the company have a job to do and that is to run the day-to-day operations of your company. Your job, although it will subsume this, is not usually to be a resource in a major litigation and that can be an enormous diversion of corporate resources, of time, effort, psychic energy. And the last thing you wanna do is to expend all of this effort in this litigation rather than addressing and dealing with your core business. And the last item to consider is the adverse publicity from the litigation. I will talk about that within the context of non-monetary exposure, but let's talk first about potential monetary exposure because that's gonna be a very important consideration in a decision to settle. What can affect the amount involved and the results obtained? And as Sam talked about earlier when he was discussing Reed v. General Motors, the possibility of plaintiff success on the merits and the range of potential recovery. That Fifth Circuit case that Sam talked about, the Reed Factors, lay out those issues in grim detail. Also, the potential for an award of attorney's fees, either through a contract, an indemnification, statutory authority, or other kinda fee shifting manner. Again, if you are the prevailing party, perhaps you can recover your attorney's fees. If you're not, not only will you not get your attorney's fees back, but you may have to pay the attorney's fees of your opponent. And this is again a very important consideration when thinking about whether to settle a matter. Also, the potential for statutory exemplary or punitive damages. Is this a consideration that needs to be folded into the equation itself? And also whether an adverse verdict may bring forth new plaintiffs, new folks to wreak havoc on you. And the last is when you look at whether and to what extent there may be tax benefits that can be folded into the settlement such as the Blaney relief in Washington State. Again, something to consider. I talked about monetary exposure and obviously that's a very important element, but also non-monetary exposure can be just as important a factor to consider. The reputational integrity of the company. Maybe it's taking your case. And if so, your ability to do business, your ability to attract new customers, your ability to stay in business may be impaired by a continuation of the litigation rather than settlement. Adverse publicity is always a consideration such as in the Exxon Valdez case. I can recall when the Exxon oil spill took place, a number of people who were making a decision just to buy gas decided rather than get gasoline at the Exxon station, would go down the street and go to a Texaco or a Chevron or a different gasoline. Also, the negative administrative or government security and scrutiny in these kinds of cases. If the government gets wind of actions that they think might not be appropriate, they may take a look at this themselves, or generally, if they believe that you're bad actors and you come before them on other matters, may not treat you as well as you would hope. And also if any of you have run companies before, the destruction to the business or closure of facilities, if you have to, as a result of litigation, close down plant facilities, the cascading economic effect of closure of plant facilities cannot be understated. Closing a plant, the ancillary businesses that rely upon it, the employees who are no longer in business, who always relied upon the plant as a source of their income. All of these are important considerations. I talked earlier about the diversion of corporate resources. If you're putting a significant amount of psychic energy and time and effort into supervising or assisting with litigation, you're not doing what you should be doing and that is addressing your core business, running your core business. And also important to take a look at where the case is venued. Does it favor certain kinds of litigants? Very important consideration. The law prefers settlement and finality. The goal of a settlement is to ensure that the litigation is truly over. And there are a number of risks that you need to consider in order to avoid a situation where there is not finality. So for example, if there are unknown plaintiffs in a class action or in a mass tort case, it would be unwise to settle only for more cases to be filed. The purpose of settlement is to end things, not to induce other folks to get involved. Motions to enforce, I talked about the Fox v. Paine case before. The worst thing that can happen to you is to settle a case only to have endless motions to enforce the settlement, reconsideration of issues associated with the settlement, penalty fee provisions for successful enforcement and to continue to incur litigation costs on a matter that you thought was over. And also looking at post-settlement steps such as housekeeping matters, who administers the fund? Does the settlement create more work than it prevents? What is going to be the post-settlement work cost and how does that affect you? Let's talk about insurance considerations for a moment because they can be very important. If the matter is being defended by an insurance carrier, one additional consideration is the policy limit, the risk of exceeding it, and the risk of a defendant being out of pocket. A very important component of dealing with insurance companies is communication so that if there is to be a settlement, so that the insurance carrier understands this and is in their own position, if they're going to be paying for all or a portion of the settlement, them going through the same kinds of analyses that I've talked about here to make their own decision as to whether to agree to participate in the settlement. And they're gonna look at things like, what is the policy limit? What is the percentage of defense costs? What are the likely outcomes of trial? Do they exceed policy limits? Are there potentially uncovered claims, claims for which the carrier will not be making a payment either on all or aspects of litigation? They'll look at issues like risk of punitive damages and how is that covered by the insurance policy? If you're dealing with a class action case or a common fund case, court approval may be required to approve the settlement and a key factor in either instance is the overall benefit to the class or to the fund to ensure that they receive sufficient compensation compared to the attorneys handling the matter. And there are two cases that you wanna take a look at, one in the Second Circuit, the Detroit v. Grinnell case which goes through these factors in class action litigation, and the Gunter v. Ridgewood Energy case in the Third Circuit. Both of these will give you a very concise and succinct analysis of the factors to consider in class action cases. And then I talked earlier today about the Rules of Professional Conduct and rules other than Rule 1.5 which govern the reasonableness of fees and settlements, also Rules 1.2 and 1.4 which are virtually identical across every jurisdiction. And let's talk about both of those because they're very important in the settlement context. Rule 1.2 says that a lawyer shall abide by a client's decision to settle a matter. A client's decision, not the lawyer's decision. And Rule 1.4 indicates that a lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation. So a lawyer's duty is first and foremost to help educate and inform a client about the expected cost of going to trial and the potential exposure to the client, so that the client can make a meaningful and informed decision as to whether to settle a matter. And many tools are available to the lawyers and their clients in order to do so and to evaluate the factors that I talked about earlier, but they can include things like early matter assessments which are very important at the outset of litigation so that all of these factors can be baked in to the information that is provided to the client so that the client can understand what the risks are, what the costs are gonna be, evaluate what their goals are, and to make decisions with respect to the outcome. And also understanding once a matter comes in the door, what kind of proper case management, what kind of costs are going to have to be allocated in order to litigate a case vigorously and appropriately in order to achieve a successful outcome. And finally, to evaluate what the ultimate risks are, what the costs are gonna be, what the timeframe is gonna be required, and also what kind of an effort is gonna need to be expended by the members of the company in order to understand what company resources have to be allocated to this as well. And so for all of those reasons, there are a number of factors to evaluate when determining whether and to what extent to settle a matter. And so I'm now gonna turn to Lindsay who will perform an analysis of part three. Thank you very much. - [Sam] Thank you very much. Over the next few slides, what I'd like to explore is a few key provisions and give a little practical insight into some of our experiences and hopefully give you some tips of the trade in your settlement agreements. The first set of provisions I'd like to talk about is finality and governing provisions. So we recall Vice Chancellor Lamb's quote that the purpose of a settlement agreement is to end all disputes and have all the parties go their separate ways. But if that's not done right, then the parties will end up right back where they started and the settlement agreement will be worthless. So how do we ensure that doesn't happen? So the first thing, you could see a lot of the considerations here, is making sure all the relevant parties are covered. So a couple of thoughts there. I general counsel for private equity groups and we buy and sell a lot of entities and companies. There's always transactional work and so making sure as best as we can that our buyers or our sellers are covered in any settlement is often of paramount concern. You may not want them as parties. You may not want them listed directly, but making sure that they're covered is always key because you settle one case and then another hole in the boat opens up. Another issue that comes up, and this is a West Coast thing that US East coasters are often not very familiar with, is community property. So in community property states, sometimes, I've found, you need to have the whole marital community or the spouse be a party to a settlement agreement. West coasters, we love you, but it is not intuitive for us. And for those of us on the East Coast, make sure you are working with your council in those states to make sure that you get everybody covered if you need the marital community or the spouse to be included in the releases and the settlement. Ensuring that the settlement stays final when the litigation has been tremendously litigious or personal, it often just creates a lack of trust between the parties and making sure that the provisions ensure that this stays final is very important. And there are ways to reassure your client. Let's say there are a lot of documents that are out there, some sort of a double certification to make sure that all documents are returned or destroyed in indemnity, or, as we often see worthwhile, a prevailing party fee provision if somebody breaches the settlement, a liquidated damages provision. Another that I had never seen until recently is a tender back provision and what that means is let's say somebody wants to resurrect the claims that are released, they have to give back every penny in the settlement agreement. So we settled the case and we paid a client who had a contingent fee lawyer and so gave up 40% of his money to the contingent fee lawyer. And if he raised any release claims, he would have to pay back the full amount that we had paid him, including the amount he paid to his lawyer. That provides a powerful incentive not to bring up any released claims. Venue and choice of law and dispute resolution. These are more important provisions than people give them credit for because oftentimes, it's well, where was the litigation? The problem can arise in a number of instances though. So we had a dispute where there was a fight over jurisdiction. We believed and had initiated dispute in Delaware where we believed it should be. Another party had done so in the state of Michigan where they believed it should be, and another party actually thought Washington the state should have been the dispute. Well, how do you come up with a dispute resolution for that? That's a negotiation point that has to be resolved. Is there a concern about confidentiality? And we've seen this come up often and what you can do with those is two things. One is require any action to enforce the settlement to be brought under seal. Maybe an arbitration provision may also be right for you in that case because that's more confidential. If immediate injunctive relief would be contemplated, perhaps setting jurisdiction where there is still a chancery court where you can get in and get in on an expedited basis. We also had a settlement that was done in a mediation where the mediator did quite yeoman's work. He did a great job. And one of the conditions that the other side wanted was before we go gangbusters in litigating a dispute to enforce the agreement, let's sit down with this mediator first. And their belief was he'd resolve any issues without having to go to court, and we agreed to that. So perhaps if you have a trusted mediator who got this to resolution saying, before any dispute resolution arises, sit down with him or her first. Lastly, is there anything that you can't control? Like somebody paying their taxes, insurance, whether the insurance company will pay a covered claim. There may be indemnities to ensure that what you can control will be covered by the parties if the inevitable occurs. As we look at relief afforded, timing, and the method of payment, there are a whole host of issues that may come up. What's the timing of payment? You may say, well, isn't that just up to the parties? Usually, but not always. We had a situation in which we were involved in a settlement and the insurance company stepped up and agreed to pay. And they had a 30-day pay window, no problem. And the week of payment was due, the insurance company got hit with a ransomware attack. All payments were down. This led to a good deal of scrambling, a lot of consternation and negotiation to keep the defendants and plaintiffs since it was a dual party claim to keep them from going crazy. So keeping that timing in mind and making sure you leave yourself enough time to pay. How are the funds gonna be classified? Are they wages for wage and hour claims? Are they consulting 1099 fees? Deciding these so that the tax implications are known and clear to the parties will be key to making sure no claims come up about that. Let's say an insurance carrier is involved in making settlements. What's covered? So often we would be defending a lawsuit that they're covering, but we brought counterclaims, uncertain as to whether they were covered or not. But in one instance, the carrier actually wanted separate settlement agreements, one for the claims that they were gonna be paying for and another that resolved the counterclaims that we brought that they certainly disclaimed any payment for. So looping your carrier in, making sure that they're on board and have reviewed everything, and that their reasonable needs are being met will also ensure that there is a lasting settlement. Non-monetary exchange. I found this is an issue for stock. So an employee has stock in the company and there's been a dispute, or where you have two founders, both of whom have stock, and the settlement somehow requires one party to give up their stock. So what do you do with that? My concern has always been if you put the stock in the settlement itself and not have a separate addendum for the stock, I'm always concerned that the stock records have to be viewed by various employees who don't need to know about this litigation. So having some sort of addendum or an exhibit talking about what happens to the stock redemption that you can use in your files may be worthwhile. And finally, and this may come up in a class action or it may be where the funds have to be paid out over time, who is gonna be responsible for distributing them? Do you need an administrator or an escrow agent or some professional service to handle the payments? The final set of considerations we wanna talk about is confidentiality. And these are really key to ensuring that the settlement remains final, especially if there's been a lot of bad blood left from the litigation. And if our goal, as Vice Chancellor Lamb indicates, is to have everyone go their separate ways for good, the last thing you want is for somebody to be badmouthing the other side after the settlement. That's just gonna resurrect all of the bad blood and the dispute. So you can see a lot of the considerations here on this slide. And structuring something that is reasonable, yet has real teeth can often be difficult, but important work, and building trust may require certain certifications or liquidated damages to punish and deter further conduct. Really, the big issue that we've often encountered for corporations though is, how do you bind a corporation to a non-disparagement? 'Cause realistically, the corporation is made up of potentially thousands of people, some of whom have no idea about the settlement agreement. So there are a number of ways you can deal with this. One is you have the corporation instruct everybody not to say anything. Another is you pick the key people you want involved, maybe the officers and directors, and they're gonna be instructed not to or they have to be a party to this agreement for that provision, but these are very important towards ensuring a lasting settlement. So what I'd like to do now is turn this over to part four to Lindsay and she's gonna talk about getting the proper approvals for settlement. I wanna thank you all for joining us today. And on the last slide, as I mentioned, you have our contact information. If you have anything you wanna reach out to us about, we are very happy to hear from you and look forward to hearing your questions. Thank you very much. - [Lindsay] Thank you very much both Steven and Sam. So just to give a quick recap, we've talked about why settle, all the factors when evaluating risks and costs, including all the ethical rules and the case law that we need to consider. We talked about the actual settlement document itself, the specific provisions, and making sure clarity, thoroughness, and confidentiality are all covered. And for this last portion of today's presentation, we're going to focus on what happens when all of that has been taken care of and now you need to obtain the required approvals for settlement agreements, specifically three of them. Corporate. Assuming there is a company or an entity that has to understand and sign off on the finalization of the litigation, who is that and what happens? Insurance. To the extent that a carrier has been involved or participating throughout the litigation, or under certain circumstances not participating in the litigation process, how does that factor in? And judicial. To the extent that the court has to sign off, what needs to happen? In this case, I'm going to spend a little time talking about this issue in the context of class action settlements because judicial involvement under those circumstances can make settlement a little bit more interesting and a little bit more complicated. So with that, let's consider the issues regarding the required corporate and entity approval during settlement because you are going to want to know, likely very much in advance, the full set of approvals needed mainly because a lot of these approvals may need to happen quickly. The first question you're going to want to ask, who is authorized to enter into and agree to the settlement? In other words, clearly there was someone or some group that had the power to enter the war. In theory, it's going to be the same folks who have the power to end it, but not always necessarily. The second question you're going to want to ask, who is authorized to actually sign on the company's behalf to bring about the settlement? And the third big question, whose consent is also required to approve the settlement? Oftentimes you may need the board or the chief executive officer to agree to the terms, but under certain circumstances, you won't always need that. For certain pieces of litigation, like the massive bet the company cases, yes, but there will be many scenarios where cases are, for example, a little bit smaller, and the general counsel alone or someone else in the legal department will have the authority to enter into and sign off on the settlement. Other times, the board or the CEO will ultimately give the general counsel authority before the settlement process happens. This happens frequently, for example, during mediation processes. So for many pieces of litigation, before that mediation starts, the CEO will say to the general counsel, "I'm giving you the authority to go into this mediation alongside our outside counsel to handle that process, and here are the authorized amounts and/or terms for that agreement." One key factor, however, to be aware of is that oftentimes, the person or the group authorized to settle may not necessarily be the same as the person or the group who has been living and breathing the litigation the entire time. If that happens, and if that's the case, the people authorized to settle may have less familiarity with the risks. And while numbers on a page and status updates can speak for themselves based on how much it's cost so far and what the potential damages are, it is vitally important that the people who are in the trenches on this and have been living and breathing the litigation have not only first of all been keeping these deciders in the loop as to what's going on, but are also actively involved in the explanation process of these risks, et cetera, so the deciders can make the fully informed decision on that settlement. So for example, after three days of mediating, the general counsel should be in a position to say to the board or the CEO, "Look, we got stuck on this one issue. It is going to cost X to litigate. The discovery is still going to be voluminous and the law may be risky and we could end up paying a lot of money down the road." One of the other things you want to make sure of is knowing whether certain plaintiffs and/or defendants need to sign off independently on the settlement agreement. This happens occasionally when you're dealing in a litigation with parent or subsidiary companies as parties. So with that, now that we've talked about corporate approvals, let's move on to insurance-related approvals. These are circumstances that arise when a carrier has been involved in the litigation process under a duty to defend or indemnify. Oftentimes the carrier will have been an active participant in this process and will need to agree to certain aspects of the settlement. When I was in private practice, I recall a few bigger cases where a carrier, who was indemnifying our client, was a very active participant throughout the entire litigation process. They were reviewing the pleadings. They attended major motion hearings and oftentimes depositions. And most importantly, we were expected as their outside counsel to keep them in the loop on what was happening throughout the process. Some carriers wanted updates every day, some every week. It just depends, but the bottom line is they were participating and knew exactly what was going on. In one case in particular where there were a lot of plaintiffs and our client ended up in a very prolonged mediation process to settle as many of the claims as we could, it was quite beneficial that we had had such an actively involved carrier throughout the entire litigation. The reason was they knew exactly what had been going on. They knew where the parties had been financially the entire time. They knew the individual plaintiffs and the damages they were alleging. And for the most part, they were attending depositions and involved in the majority of the aspects of discovery. So during the mediation process, when it came time for those last few give and takes, we were never put in the position as outside counsel where we had to reinvent the wheel or help the carrier play catch up as to what was going on with regard to risks, et cetera, during that approval process. The key emphasis here is constant communication with your carrier that should have been happening frankly going all the way back to the tender process. You may also require getting written approval by the carrier for monetary as well as a multitude of other terms in your settlement agreement. Couple of examples. You want to be sure it's very clear which claims are covered versus not covered by the terms of your settlement, especially if you've been sued and asserted counterclaims. Depending upon what your insurance policy says, some can dictate that affirmative claims would not be covered by a settlement agreement, but defense-related claims would be covered. Sometimes separate settlement documents are required for different claims. For example, affirmative versus counterclaims, as well as certain parties. Certain policies have covered parties versus non-covered parties. And you want to make sure upfront the carrier has made this clear because this might impact how you structure your settlement document. There also may be another contributor to the settlement. This can happen, for example, if there is a subrogation provision or a contribution lawsuit going on at the same time. Here's another interesting question. What happens if your carrier has denied coverage and you have been proceeding through your litigation process on your own? You've been paying your outside counsel out of pocket and handling the litigation as you see fit and now you're going into the settlement process. The best practice is still to keep your carrier in the loop and offer them the opportunity to respond and provide feedback with regard to your settlement process and terms of the agreement. Very similar to what many clients do when coverage has been denied early in the litigation process. As fee experts, we found that when a carrier has denied the duty to defend coverage, clients and companies who still keep them in the loop on litigation status, as well as on the legal spend as the case is progressing, find themselves with a much stronger leg to stand on if there ends up being a coverage lawsuit as to the legal fees, as well as ultimate liability. Again, best practice, more communication rather than less. So now that we have spoken about corporate and insurance-related approvals, let's move on to the third category of required approvals and that is judicial. Judicial approval of settlements, notably with respect to class action settlements. And in these particular scenarios, the court not only has to approve the terms of the settlements, but it also has to evaluate the monetary settlement value to be designated as payment for class counsel's legal fees. And a judge's role can be quite critical here because the approval of class action settlements involves a whole additional layer of review and a procedural step in the process. For those of you who have ever submitted or challenged or somehow been involved in a fee application, that is exactly what ends up happening during a class action settlement process where class counsel, who have been litigating on behalf of the class members for however long the case has been going on, oftentimes it could be many, many years, and who haven't been paid yet and have been proceeding under the risk that they could walk away with very little payment or even nothing at all, this is their chance to articulate a whole host of information to the court to demonstrate monetarily what they should receive for their efforts. And this works very much like a fee application where the Rules of Professional Conduct such as 1.5 and reasonable fees and Rules 1.2 and 1.4 regarding communication get applied, along with the multitude of factors that Sam walked you through earlier depending on what jurisdiction you're in, such as Gunter, Reed, and/or the Zapata Factors. And the fee application itself will be submitted to the court along with the proposed settlement document and there will be a number of aspects to that fee application. You will have a declaration or affidavit from class counsel articulating what happened throughout the litigation process. There will be a memorandum of law. There will be class counsel's time records and expenses. Contemporaneous time records again are always the best way to provide the court with what has happened. There will also be, depending upon what the court allows, a possible expert declaration as to the reasonableness of class counsel's ask for fees. And all of these are designed to do a couple of things. Lay out the required workload. Articulate the complexity of the case where there are a number of novel issues. For example, did the case proceed in multiple jurisdictions? How long the case went on for and at what risk to the firm. Class counsel will also want to articulate the staffing and the credentials and the experience of all the individuals who participated in litigating that case, both in terms of attorneys and experts, if experts were involved. Procedurally, there will be an opposition process where class members will have a chance to respond and object to class counsel's request for fees. Sometimes the judge may want to hear from counsel, as well as potential experts, and holds an oral argument about the issue. And once that happens, the judge may issue a decision in writing or occasionally can make a decision from the bench. It ultimately comes down to a weighing of all of the factors I just described above, particularly a comparison between what the lawyers seek to obtain monetarily balanced with the ultimate benefits bestowed on the class by the terms of the settlement agreement. And a judge is going to need to weigh those factors very thoroughly. We have actually seen a judge overturned by the Ninth Circuit years ago for not going through that detailed weighing process and issuing an opinion that really fleshed out what happened under Rule 1.5 and other equivalents. It was a products case where nobody was hurt, but it was for a product that didn't work. And the proposed settlement terms gave the lawyers potentially a couple of million dollars and the class members something that in no way matched what the lawyers seemed to be asking. And interestingly, the Ninth Circuit didn't necessarily object to the outcome versus what the lawyer's getting versus what the class was getting, but the Ninth Circuit had a problem with the fact that the judge didn't go through the reasoning process to support the ultimate conclusion. So again, this judicial role in approving class actions is vitally important, and it is equally important for counsel to take advantage of that opportunity to lay out what the litigation was about and what happened. Finally, the last topic we want to cover today is the administrative aspect of judicial approval. Very specifically, the mechanisms that will have to happen for distributing the proceeds because this can get very complicated and you want to make sure all of the documents are executed, approved, and most importantly, explained properly. So for example, you are going to wanna make sure the timing for the collections is clear in the settlement agreement. By when do the benefits to the class have to be allotted? That is very, very important so that whoever is going to be taking care of this knows what has to be done and by when it has to be done. You are also going to wanna make sure it is clear who is going to be administering the benefits of the settlement to the class. And specifically, what the role of that person is going to be. Is it going to be counsel? Is it going to be an independent auditor? And what specifically is this person supposed to be doing versus not supposed to be doing? Are there aspects of handling the administration that this person should not be doing that is not part of their responsibilities? So that is gonna be very important. Making sure the timing for collections is clear, as well as who is supposed to be doing it and how. You also want to make sure that the allocation of the funds to the class and the plaintiffs is very, very clear. Most specifically, if the class members have to actually do something to get their benefits, that needs to be spelled out. Some settlements do not require class members to do anything. Simply by being in the class, they will simply receive their relief. Other times you have to fill out paperwork or take a much more active role in obtaining your settlement benefits. For example, we served as experts a few years ago in a class action in New Jersey where the class members received their settlement payment purely by being class members. They didn't have to fill anything out or do any other additional steps. They simply received their money in the mail. But you have other class action settlements where the members have to take more active steps to participate in receiving aspects of their relief. So let's say, for example, you have a class that is based on a data breach where certain private information of class members were leaked and part of the settlement terms provide them with financial monitoring for a window of time with a company that they actually will have to sign up with and communicate with and engage in, follow up with down the road for however long the monitoring continues. Or you have settlements, for example, that surround a common injury that requires ongoing medical monitoring. Again, the class members will have to sign up for that monitoring. They have to go, they will have to make the doctor visits and engage in whatever followup has to happen, all as part of these procedural and logistics requirements. Whatever those steps are, again, they need to be clearly articulated and explained to the class members so that they ultimately receive what they are entitled to. Most importantly, whatever those distribution terms are, be sure you follow them to a T so as to avoid complications or worse case scenario, motions to enforce a settlement, or even worse than that, an entirely separate litigation over it. We hope that this has been a helpful and informative presentation on settlements, starting with evaluating the risks, key factors, and rules, making sure your written document is clear and comprehensive, as is your understanding of all required approvals before entering into the final agreement. Again, we want to thank all of you for joining us today on what we hope was an informative presentation on the issue of settlements. We also want to thank our friends and colleagues at Quimbee for having us, and we wish everyone all the best. If you have any follow up questions, our contact information has been included and we will respond promptly if you reach out. Thank you.

Presenter(s)

LTJ
Lindsay Tasher, JD
Managing Director
Wyatt Partners
STL
Samuel Tasher, LLM
Managing Director
Wyatt Partners
STJ
Steven Tasher, JD
CEO
Wyatt Partners

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