What are Four Types of Out of Court Settlements?

Out-of-court settlements are becoming a common goal in a variety of disputes.  Due to the amount of time and energy that is required to take a dispute through litigation, many businesses, and parties, in general, are turning to alternative dispute resolution to keep issues out of the courts.  But many people are unaware of the options that can resolve a dispute without litigation or are distrustful of the methods used to reach a solution. Understanding what it means when a case is settled out of court will help evaluate whether a settlement option is available for a specific dispute.  Additionally, knowing the options that are available before a dispute arises can help parties feel confident in knowing that a dispute may be settled without having to spend time and money in court.  

This article will define what it means when a dispute is settled out of court and what effect a settlement has on the dispute moving forward.  It will also look at the advantages and disadvantages that settling a case out of court may provide.  Finally, it will provide some examples of ways a case may be settled and the processes that can assist the settlement.  The goal of this article is to help parties understand what a settlement looks like and what advantages using alternative dispute resolution may bring to a specific dispute.  It seeks to help parties make informed decisions about pursuing an out-of-court settlement on a case and the best processes to use for their dispute.  

What does it mean to settle out of court? 

An out-of-court settlement is an agreement between the parties that resolves the dispute and does not include the court’s involvement, except to ratify the agreement and end the proceedings.  This agreement will stop any further litigation on the case and act as the final decision.  This agreement will usually give either or both of the parties some relief in the case, and is often more creative in execution than a traditional judgment would be.   The process allows the parties to control the outcome in the case and have a say in how justice is carried out.  In most of the alternative dispute resolution options, the agreement will only be entered if both of the parties agree to it, meaning that people cannot be forced to settle out of court.  

Is settling out of court worth it? 

While a settlement can be a great alternative to trial, some considerations will need to be made when a party is deciding if settlement is the best option.  However, because discussing the specific advantages and disadvantages, a party must be fully prepared and aware of their case to proceed.  Many of the advantages and disadvantages to settling will depend on the strength of a party’s case and the likely outcome at trial.  If a party is confident in their case, they will likely need a large offer to give up the confidence in winning a larger amount at trial.  If a party has a poor case, they will need to be ready to offer larger amounts while still trying to save on the overall amount.  Understanding how a case may play out is vital in a decision to settle or continue with the trial.  

Advantages: 

There are many advantages to settling a case before trial, and they can help encourage people to consider settling without litigation.  These advantages include: 

  • Speed: Many dispute resolution mechanisms will move faster than trial. Once a party decides to pursue a settlement, they can begin the process almost immediately, or schedule a formal process after agreeing to it.  The trial, especially on complex cases, can take months or years.  
  • Cost: Most forms of alternative dispute resolution will be cheaper than pursuing litigation, especially in complex cases with lots of money on the line.  This is particularly true when the settlement ends up saving time, as attorney’s fees will not add up during the case and trial.  
  • Control: When parties reach a settlement agreement, they can control the outcome of their case.  They get to choose what happens and how the money or other interests are divided.  In a trial, this will all be decided by a judge or jury and will not be as cooperative as a settlement would be.  
  • No-Fault: When a case goes before a jury, especially in personal injury, there is often a determination that one party is at fault for the actions and the other party should receive damages because of this.  A settlement will rarely have a determination of fault, which can be a big point when the parties do not want the record.  
  • Informal: Trial is limited in the evidence that can come in and incredibly formal in process.  The settlement allows the parties the freedom to take about evidence and issues outside of the suit and come up with a creative solution. 
  • Relationship: A trial will often ruin or strain the relationship between the parties. The settlement allows the parties the option to work together and find something that works for all parties involved.  
  • Confidentiality: Trials are public records and can be accessed by anyone who would like to view the documents.  Settlements are often confidential and are kept out of public record.  This can be beneficial when the dispute involves personal information or other sensitive issues. 

Disadvantages: 

While there are many advantages to settling a case, there are some disadvantages that should be considered when determining if settling out of court is the right option.  Some of these disadvantages include: 

  • Smaller Recovery: Often, when a party has a good chance to recover a lot of damages at trial, a settlement will often result in a smaller recovery, especially when there are claims for punitive or other damages that will not be imposed on the party in the wrong when the parties settle.  For this reason, if a party has a strong case and is seeking compensatory and punitive damages, settling the case may not be the best option.  
  • No Accountability: When a case settles, there is no determination of fault.  This means that if one of the parties was in the wrong, the court will not make that determination and hold them accountable for that.  This can be particularly difficult for parties that are involved in emotionally charged cases and would like to see what they consider justice happen.  
  • Informal: Because the rules of evidence are different when the parties are in settlement discussions, a party’s case may end up being inflated with the help of evidence that would not be admitted at trial.  This can create a situation where the other party feels the need to settle due to a weakened case, even if they actually would have had a better chance at trial. 
  • No Further Action: Typically, when a case is settled, the parties cannot pursue legal action against each other, so the settlement is the final word in the case.  This is an important consideration because it means that the parties have decided the outcome of the case.  If a party wants a court to decide the case, they will want to avoid settling the case.  
  • Enforcement: While the parties to a settlement can agree to payment, there is not typically an enforcement mechanism in the agreement.  This means that the party that will be receiving compensation will often need to have the agreement signed into an order so that the judgment will be enforced.  This can drag out the collection process. 
  • Power Dynamics: While not present in every settlement discussion, there are often power dynamics at play that can affect the way the parties can settle the case.  If one party in the dispute tends to have or control more of the power, the other party may end up feeling pressured to settle to stop the control.  

While there are advantages and disadvantages to settling a case out of court, it is an option that can work for many cases and parties.  Settlement can help the parties keep their relationship intact and have control over the outcome of the situation.  Not all disputes should be settled before court, but the parties can always evaluate if a settlement is truly the right option and should be pursued.  

How do I settle out of court? 

Once the parties understand their case and that attempting to reach an agreement may be the best option, they will need to pick the option for dispute resolution that they believe will be the best chance for a resolution.  There are several types of alternative dispute resolution processes that can be used to help the parties reach an agreement, and each process has situations that it is particularly suited for.  Finding the right kind of process will either make or break the settlement.  Understanding the different options present can help the parties make the best decision for their dispute.  

The most common types of dispute resolution that may be used to settle a case out of court are negotiation, facilitation, mediation, and conciliation.  Arbitration may also be used, but it is not used as commonly in disputes that are started in courts.  Because arbitration atypically arises from an agreement that the parties made, it is unlikely that a dispute will be transferred to arbitration from a court system unless a party was trying to avoid arbitration.  This article will focus on the types listed above, beginning with negotiation. 

Negotiation: 

Negotiation is a process of dispute resolution where the parties trade offers back and forth until an agreement is made or the parties decide to go to court.  This is the least formal of the processes, and it is often an element of other forms of dispute resolution.  Negotiation can be just between the parties or their attorneys as they have time leading up to trial, or it can be a more formal, organized time where the parties can barter for terms.  Pure negotiation is often the first step in evaluating a case and the potential for settlement, as it is often the first exposure to the full argument of the other party.  While there is no guarantee that the parties will reach an agreement through negotiation, it can play an important role as the springboard to other options for a settlement.  A negotiation will typically involve the following steps: 

  • Offers: Negotiation will begin with an offer from one of the parties to the other to settle the dispute.  This involves terms that may be beneficial for both parties and will help the parties consider resolving the dispute.  The opening offer will typically be best for the presenting party and will rarely be the last offer when the parties settle.  However, it opens the gates to the negotiation and lays the foundation for the discussion.  
  • Counteroffer: The party that receives an offer may give a counteroffer, changing some of the terms to better fit what this party needs to settle the dispute.  Counters will continue to move back and forth as the parties continue to work toward an agreement.  The first counteroffer will likely be just as good for the party that offers it as the initial offer was for the other party.  These offers establish the boundaries that the parties will use to continue negotiating.  
  • Stops and Starts: Informal negotiations may stop when the parties believe that they cannot reach an agreement and start when something pushes the parties toward a settlement agreement.  This often happens when the parties start far apart in negotiations and have an inflated sense of their position on the dispute.  Once the parties have time to evaluate their dispute, they will be able to reenter discussions with a clearer picture of the resolution. 
  • Written and Signed Agreement: If the parties reach an agreement, they will write and sign a copy of it to submit to the court. The court will enforce this with an order that will be binding on the parties.  Occasionally, agreements will have consequences built into the settlement.  However, creating an agreement will give the parties the ability to settle their dispute in a way that works for them.  

Negotiation is a particularly great option with the parties to a dispute need to gather information about the other parties, there is a time crunch, or the other party is resisting other forms of dispute resolution.  However, because it can lack structure, many parties struggle to reach an agreement and power dynamics can overwhelm the parties.  

Facilitation:

Facilitation is less of a dispute resolution process and more of a way to identify and solve issues within a group; however, it can be a helpful process to help the parties move toward settlement or even settle.  Facilitation is led by a third party who is called the facilitator.  This person will guide the conversations and help the group to identify issues and consider solutions.  While the goal of facilitation is not resolution, but to begin a fruitful conversation, parties will often find a workable solution as they discuss and find the root cause of the issues.  Facilitation will often involve the following characteristics: 

  • Identifying Problems: The facilitator will guide the parties towards the issues at the heart of the case, whether they are the issues addressed in the court case or other issues that affect the group dynamic. By identifying the root cause, the parties start to have a clearer view of the case.   
  • Negotiation: Sometimes a facilitator may help the parties move into a negotiation-type phase.  This will consist of developing options and considering the alternatives until an agreement can be reached.  
  • Free and Informed Choice: Facilitation seeks to give the parties all the information they need to make decisions about the future, so one of the pillars is the presence of choice that is informed, but not restrained.  
  • Internal Commitment to Choice: Facilitation only works if the parties are committed to their choices and their outcomes.  It does not work when people are agreeing just to move things along.  

Facilitation is a great option for complex cases, cases where there are underlying issues that need to be identified, or cases where there is a chronic conflict that has not been addressed.  It is not suited for cases that are complex because of legal issues, as the law will likely need to play a role in the settlement.  

Mediation:

Mediation is usually the most common and most familiar form of dispute resolution.  Mediation is a formal negotiation process that involves the presence of a neutral third party called a mediator to oversee the process and help the parties move toward a settlement.  Mediation gives control over the outcome to the parties while still providing the structure of a process and a designated time and place to negotiate.  Mediation also ensures that the process is neutral and fair, keeping the parties focused on how to resolve the issues at hand—an important aspect that pure negotiation lacks.  This process will usually be voluntary, meaning that the parties will need to agree to participate in mediation; however, courts may require the parties to participate in mediation if it could resolve the case.  Mediation typically involves the following characteristics: 

  • Solutions: The mediator will encourage the parties to come up with solutions to the problem.  Depending on the mediator’s style, they may suggest solutions, while other mediators will allow the parties to drive the discussions and solutions. 
  • Neutral: The mediator will be a third party who is neutral in the situation.  This is important so that all the parties feel comfortable speaking freely and sharing their ideas.  Neutrality means that they are not tied to any party in a way that may influence their thinking and that they have no stake in the problem presented or the solutions. 
  • Bargaining: The parties will eventually make their way to bargaining, either separately through the mediator or in a joint session.  This will follow most of the steps of negotiation—offer, counteroffer, and agreement.  
  • Formal: The parties will hire a mediator who will lead them through the process of coming to a solution. There will be a set of rules to be followed and an agreement between the participants regarding the process.  

Mediation is helpful for disputes where the structure is needed or where the parties are close to an agreement on their own but need guidance.  It will often not work when the parties are influenced by outside parties or when the parties are not able to fully speak for themselves.  

Conciliation: 

Conciliation is very similar to mediation; however, instead of letting the parties come up with solutions to the issues, conciliators will suggest solutions that may work for the parties.  The process seeks to encourage the parties to be conciliatory and work together to create a solution.  The goal of conciliation is to provide a space for the parties to preserve their relationship.  It allows the parties to take pressure off themselves to create a solution and to work with the conciliator instead of each other.  Conciliation often includes the following characteristics: 

  • Statement: An important part of the conciliation is the statement where the parties have the opportunity to share their view of the case and what they would like to see moving forward.  This gives everyone a full picture of what the issues in the case are. 
  • Suggestions: The conciliator will listen to the parties and offer suggestions to settle the case.  If the parties like the suggestion, they will sign an agreement and leave.  If the parties do not like the suggestion, they engage in a conversation with the conciliator until the conciliator can create another suggestion.  
  • Restorative: The goal of conciliation is to preserve the relationship between the parties, so the whole process is often very party-focused. It seeks to identify the issues that have fractured the relationship and how it may be restored.  

Conciliation is a perfect opportunity for parties who would like to keep the relationship between them intact or those that are struggling to come up with a solution or need a creative touch.  Conciliation will not be helpful when the parties are adversarial or uncooperative with the process. 

Conclusion: 

Out-of-court settlements are a great way to resolve a case and move forward.  They can save time and money and provide outcomes that would impossible through trial.  However, they are not for every dispute, and it is important to weigh the strength of a case against t the possibility for settlement.  When the parties would like to settle, there are a variety of options to choose from, each with its strengths and weaknesses.  Knowing how and why to settle a case is important and can save time and money in the long run.  

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