Summer 2018

What You Should Know Before Settling Claims in Maryland

What is a settlement?

A settlement agreement is a contract which parties enter into for settlement of previously existing claims by substituted performance, and its interpretation is governed by ordinary principles of contract law. The agreement is typically memorialized by a Final Release and Settlement Agreement. The Agreement typically is not filed with the court unless it needs to be approved by statue (i.e. minors). A settlement “order” which becomes a part of the Court record either by stipulation, or read into the record, is presumed to be an “executory accord”, which is an agreement for the future discharge of an existing claim by a substituted performance. In Maryland, a settlement agreement is a binding contract as long as the basic elements of a contract are present. Public policy considerations strongly encourage the settlement of controversies.

How do you enforce a settlement agreement?

If the breach of the agreement goes to an essential element the party aggrieved has two options: 1) rescind the agreement and proceed with the original cause of action; or 2) sue on the agreement for breach by compelling specific performance and securing any damages caused by the delay. Maryland courts adhere to the objective theory of contract interpretation and will give effect to the clear terms of the agreement, regardless of the intent of the parties at the time of formation.

The non-breaching party may not rely on an “invalid” provision in a settlement agreement to excuse the party’s failure to perform its obligations. Generally, when parties settle a case with the assistant of their attorneys and the settlement agreement sets forth unambiguous language expressing their mutual agreement for a stipulated remedy in the event of a breach, the court must have a compelling reason to justify refusing to enforce such a stipulated remedy.

Is the settlement agreement reached enforceable and final?

Generally, a failure to agree to an essential term means that there is no contract, however, if the parties unambiguously express their intent to “settle a lawsuit” this is considered a definite expression of their intent, and assent, to achieve a state of litigation peace. What constitutes “litigation peace” is a factually specific inquiry.

Practical scenario:

Defense counsel: “I will ask my client for $7,000 if I knew it would be accepted.” Plaintiff ’s counsel: “My client will accept and not counter if $7,000 is offered.” Defense Counsel: “We are settled at $7,000, please provide documents to carry out payment.” The next day, defense counsel sent a Release agreement containing language that Plaintiff would indemnify the released parties for any future recovery sought by Medicare. Plaintiff ’s counsel sought to strike the indemnification provision as to Medicare. The case was dismissed from the Court’s docket while the parties remained at an impasse regarding the terms of the written agreement. Defense counsel ultimately filed a Motion to Enforce Settlement.

A recent unreported opinion Court of Special Appeals, Julie Ward v. Marjorie L. Lassiter, No. 1823 (January 13, 2017) addressed this precise factual scenario. The Court of Special Appeals held that by agreeing to settle a case at a certain amount, litigants entered into an enforceable agreement to execute mutual releases, including an agreement for Plaintiff to indemnify the released parties from any claims made by third parties. Even though the parties did not discuss a release or its terms, the Court of Special Appeals found that it was clear that “an agreement to settle pending litigation includes an agreement to execute mutual releases.” The Court agreed with the Defendant that to the extent that Medicare, or anyone else would have a future claim against the Defendant or its insurance company for the funds expended to the Plaintiff as a result of the accident in issue, the Plaintiff agreed to take responsibility for those claims by virtue of settling the case. Therefore, this was not, in the Court’s review, a “failure to assent to a material settlement term.” As a best practice however, the enforcement of this contract could have been avoided had the Medicare provisions been discussed and memorialized in advance of the draft Release.