Definition of Legal Settlements

A legal settlement is the act of adjusting or determining the dealings or disputes between persons without pursuing the matter through a trial.  In other words, it is a way to keep legal issues out of court.

In civil lawsuits, settlement is an alternative to pursuing litigation through trial.  Typically, it occurs when the defendant agrees to some or all of the plaintiff's claims and decides not to fight the matter in court.  Usually, a settlement requires the defendant to pay the plaintiff some monetary amount. Popularly called settling out of court, a settlement agreement ends the litigation.  Settlement is a popular option for several reasons, but a large number of cases are settled simply because defendants want to avoid the high cost of litigation.  Settlement may occur before or during the early stages of a trial.  In fact, simple settlements regularly take place before a lawsuit is even filed. In complex litigation, especially Class Action suits or cases involving multiple defendants, a settlement requires court approval.

Civil lawsuits originate when a claimant decides that another party has caused him or her injury and files suit. The plaintiff seeks to recover damages from the defendant. The defendant's attorney will evaluate the plaintiff's claim. If the plaintiff has a strong case and the attorney believes defendant is likely to lose, the attorney may recommend that the defendant settle the case. By settling, the defendant avoids the financial cost of litigating the case. Trials are often extremely expensive because of the amount of time required by attorneys, and even alternatives to trials, such as mediation and Arbitration, can be costly. In deciding whether to settle a claim, attorneys act as intermediaries. The parties to the suit must decide whether to offer, accept, or decline a settlement.

The cost of litigation is only one factor that encourages settlement. Both plaintiffs and defendants are often motivated to settle for other reasons. For one thing litigation is frequently unpleasant. The process of discovery—in which both sides solicit information from each other—can cause embarrassment because considerable personal and financial information must be released. Litigation can also have a harmful impact on the public reputation of the parties. Employers, for example, sometimes settle Sexual Harassment claims in order to avoid unwanted media exposure or damage to employee morale.

Like litigation itself, settlement is a process. Generally, the easiest time to settle a dispute is before litigation begins, but many opportunities for settlement present themselves. As litigation advances toward trial, attorneys for both sides communicate with each other and with the court and gauge the relative strength of their cases. If either of the parties believes he is unlikely to prevail, he is likely to offer a settlement to the other party.

Litigation ends when a settlement is reached. The plaintiff typically agrees to forgo any future litigation against the defendant, and the defendant agrees to pay the plaintiff some monetary amount. Additionally, settlements can require the defendant to change a policy or stop some form of behavior.

Often, the exact terms of settlements are not disclosed publicly, particularly in high-profile cases where the defendant is seeking to protect a public reputation. In high-profile cases, settlements are often followed by a public statement by the defendant. It is not unusual for a large company to settle with a plaintiff for an undisclosed amount and then to issue a statement saying that the company did nothing wrong.

In some forms of litigation, settlement is more complex. In class actions, for example, attorneys represent a large group of plaintiffs, known as the class, who typically seek damages from a company or organization. Courts review the terms of a class action settlement for fairness. Complexities also arise in cases involving multiple defendants. In particular, when only some of the defendants agree to settle, the court must determine the share of liability that accrues to those defendants who choose to pursue litigation.