What Is a Global Settlement Agreement?
A global settlement agreement is an agreement where all the disputes in a case are settled at once as opposed to waiting until a ruling is entered after a trial. A settlement is an agreement between parties that resolves a dispute by relinquishing or exchanging some rights. A global resolution is the settlement of all issues before the court. Unlike any other settlement, a global settlement resolves all claims or disputes that parties might have against one another. In order for it to be a global settlement, all matters concerning a case must be resolved . A party cannot just settle a portion of the case while leaving other portions for a later date or to be used against the opposing party. For example, if a person files for divorce and has a claim for forgery, all claims must be settled in the global settlement agreement. If everyone understands the agreement and agrees that it covers every claim arising out of the dispute, then the contract is valid and binding. This means that if someone does not disclose a claim but agrees to everything else in the contract, the lack of disclosure may not invalidate the global resolution.
Characteristics of a Global Settlement Agreement
Global settlement agreements are unique to litigation, and understanding their structure is crucial to the successful settlement of a matter. A Varady & Varady global settlement agreement generally contains multiple components that include: A global release, dividing and apportioning settlement funds, and including support doctrines for the validity of releases and covenants not to sue. Defendants often require that a global release be made in favor of not only themselves, but also any officers, directors, employees, agents, successors, assigns, and affiliates. These global releases further preclude any other claims or lawsuits against other individuals. In some jurisdictions, these global releases also provide that the release can be disseminated to certain third parties, including clients, and where certain parties have provided substantial assistance to the extent that it would be inequitable not to extend the benefit of the releases to them. The release is one of the most critical components of a global settlement agreement, as it is intended to immunize the defendants being released from any future claims based upon the controversy giving rise to the settlement. In a situation involving multiple defendants, global releases are beneficial to the extent that they permit all parties to settle the matter with a single, unified agreement. Releases granted under the authority of one of several defendants, and later joined in by others, could be challenged on grounds of coercion and misrepresentation. Global releases can be particularly valuable in the context of complex litigation, where claims may be easily apportioned between the various defendants, or where those defendants wish to avoid uncertainty as to the validity of their releases. An essential component to any global settlement agreement is the allocation of settlement funds. The settlement funds must be divided and allocated in a manner that simultaneously distributes the settlement funds between the parties while preserving a unified settlement agreement. This division of settlement funds is particularly important when the global releases provide, in exchange for such releases, that a party’s share of the settlement funds shall be considered an undisputed amount. Depending on the circumstances of the case, settlement funds may also need to be allocated or divided into categories, or stages, with reference to claims that were raised and those that may be anticipated in the future. For example, a plaintiff may wish to claim settlement funds for fees incurred in resolving the case. Depending on the jurisdiction, certain legal doctrines apply to the validity of releases and covenants not to sue. They include the doctrines of maintenance and champerty, fraud, mistake, accord and satisfaction, statute of limitations, release and waiver, and collateral estoppel. Legal doctrines can have a profound effect upon the enforceability of such global releases. These doctrines can, for example, preclude the enforcement of the release for certain claims, or deny its enforceability altogether. The efficient and effective severing of math and legal issues is another important practical consideration in the context of allocating settlement funds. For example, the settlement fees and expenses may be allocated against the gross settlement funds before calculating such amounts, or after adding the parties’ claim for attorneys’ fees. Again, provisions for global releases between the parties are a time proven method for preventing many future claims from arising. Of course, there are also potential pitfalls to the use of releases, such as inadvertent waiver of privilege, especially as to attorney-client and work product material.
How Does a Global Settlement Agreement Work?
Negotiating and executing a global settlement agreement typically follows these stages:
Step 1: Initial Request for a Global Agreement. In some cases, creditor input is not sought until the creditor has obtained policy approval for the overall settlement and has a number of cases to offer the supplier seeking return of value. In such cases, if the agreement entails both a reduction of amounts owed and a waiver of the supplier’s post-bankruptcy avoidance claims, the debtor will seek to negotiate a global settlement agreement following the successful negotiation of a resolution to the largest claim and then move to amounts remaining unpaid under the Master Supplier Agreement in exchange for a waiver of avoidance claims.
Step 2: Creditors Committee Review and Approval. In some cases, the creditors committee is offered a brief time to review the proposed global settlement agreement before it is presented to the court and entry of an order approving the agreement is sought.
In other cases, the creditors committee may be offered a more active role in the negotiations and the debtor may present its proposed settlement agreement to the creditors committee and seek feedback regarding the debtor’s recommendation that the proposed settlement agreement be approved and the case terminated pursuant to a debtor’s motion for good faith settlement. In this context, the creditor’s committee is almost always the party with the largest unsecured claim against the supplier seeking return of value.
If creditors committee approval is sought, the creditors committee will explore (1) the basis for the payment of an amount that may exceed 20% of the total claim pool, (2) whether the global settlement agreement satisfies the liquidating trust creditors, (3) the largest unsecured creditor group and balances of the future claims trust, (4) whether the creditor group that might challenge a preference claim in a liquidation scenario is also satisfied with an agreement that releases any avoidance claims, and (5) whether the global settlement, as proposed, will satisfy trusts of various creditors with liquidation rights under a Debtor’s proposed Plan of Liquidation.
Step 3: Motion Practice. If creditors committee approval is not sought, the Debtor will file a motion with the bankruptcy court setting forth the terms of the global settlement agreement along with a proposed form of order approving same.
For a Debtor seeking section 362(d)(1) relief in the bankruptcy court and sale order providing for a waiver of avoidance claims, the Debtor will often seek a hearing on shortened notice to obtain an expedited sale order. If the hearing is set on 14 days shortened notice, and the proposed DIP financing provides for disbandment of the creditors committee thereby rendering creditors committee decision making impossible, the Debtor will file a motion to avoid the requirement that the sale motion be served on the creditors committee, and this motion will be heard at the same time as the shortened notice hearing date.
The creditor’s committee is treated like all other creditors of the estate and its support or opposition to a settlement agreement can be persuasive to a bankruptcy court. Thus, to the extent a creditor’s committee signed a Stipulation and Order to Resolve Adversary Proceeding for recovery of Avoidance Claims (as explained above), then the creditors committee will already have voiced its support for the global settlement agreement in the adversary proceeding.
Legal Implications and Advantages
A legal settlement agreement on multiple disputes is exceedingly helpful both for the courts and for the litigants, but only if it is truly global. The Court of Appeal of Uganda has explained this extremely well in the case of Pearl Dairy Farms Limited Vs Uganda Revenue Authority HCT-03-CV-CS No 666 of 2013.
The court stated (in particular at paragraphs 8 and 9 of the judgment) that: "It is a well established principle of law that (a) global settlements of cases are preferred over partial settlements and that (b)strong reasons must be given why a global settlement is not possible. . . . It is also well established that failure to settle all claims between the parties renders a global settlement invalid."
It seems a pity that the court did not impose a requirement for a global settlement agreement to be signed in the High Court in the case of Pearl Dairy, because in practice URA had subsequently ignored the purported settlement (under which URA agreed to seek the remittance of some 600m UGX in litigation costs from Pearl). In fact, as stated by the court, URA deliberately sought to undermine the settlement (despite being a party to it) and instead used the settlement to buttress its position in subsequent litigation.
The commercial parties had specifically asked the court to register and enforce the settlement in cross-border proceedings in England, but the court very rightly refused to do so and stated (at paragraph 14 of the judgment) that a global settlement agreement "cannot be vetted, registered and enforced at the whim of one party only."
As the court further detailed in Pearl Dairy, global settlement agreements allow the parties to resolve all outstanding claims without incurring costs and facing the risk of additional litigation with its business impact. Because a global agreement requires the parties to put their respective positions on record, and arrive at a settlement of all claims, it allows the parties to avoid the requirement to re-litigate any claim disclosed by the other party.
For these reasons, the court held that a global compromise was clearly envisaged and required by the parties when they signed the settlement agreement in Pearl Dairy, and that the parties could not backtrack on that compromise.
In conclusion, here is a summary of the legal implications for the relevant parties to a global settlement agreement: (a) Global settlement agreements should be the preferred approach for resolution of all the disputes between the parties. (b) Strong reasons why a global settlement is not possible should be given to the court. (c) A global settlement should only be rejected by a court if it is shown that the parties deliberately thwarted the agreement. (d) The parties must be aware of the legal implications of entering into a global settlement agreement.
Challenges and Concerns
Achieving a global settlement agreement can prove elusive for many reasons. The parties may have different goals and objectives, one party may seek to extract concessions from the other, the commercial and other risks for the parties may not be clear until a settlement draft is developed, or one party may take a "heads I win, tails you lose" approach to risk allocation, where it gets a benefit regardless of who is liable for a particular breach or damage. It is also possible that one or more other stakeholders (e.g., lender parties, lessors, suppliers, etc.) have claims or competing interests. While there are no one-size-fits-all solutions, the following approaches may help tilting the playing field towards consensus.
While the amount of time and effort that will be needed to close a deal depends on the circumstances, it is typically a good idea to invest time in advance of negotiations so that the transaction team has as complete an understanding of the target as is possible.
During the term of an agreement, numerous issues may arise that will need to be resolved by the parties or which will impact the performance by one or both of the parties . However, these issues and concerns should not be resolved at this point in the negotiation, because if they are not resolved then they will need to be resolved in the future, and if they are resolved now then it may chill discussion of substantive and significant deal points. It is better to list them, and, if appropriate to display them in a spread sheet, and continue on with substantive discussions. For example:
More often than not, in order for parties to agree to continue doing business with one another after a dispute has arisen, the parties will need to finalize their negotiations, preferably in writing, before they enter into a deal. In addition, while it may be tempting (and sometimes necessary) to keep commercial terms out of your pleadings and discovery, be aware that once a settlement agreement is signed, the agreement will likely need to be disclosed, which could be embarrassing and damaging to the parties involved. Therefore, the parties should only include in and attach to their settlement agreements the types and amounts of confidentiality required by their business, legal and other reputations.
Sample Global Settlement Agreements in Action
Global settlement agreements have historically played a significant role in resolving a range of disputes across various industries, from telecommunications to pharmaceuticals. The following are notable examples of their practical application.
In 1997, two notable global settlement agreements were reached in the pharmaceutical industry. The first, known as the "Pfizer-Payless Agreement," resolved a patent infringement lawsuit between Pfizer Inc. and Payless Drug Stores, Inc. This awarded Pfizer significant damages and resulted in the cessation of a number of Payless’s generic drug products. The second agreement, referred to as the "Cortech-Cruzan Agreement," was the largest-ever global settlement of patent infringement claims. The primary competitor, Cortech, agreed to pay the bulk of the total award of $240 million, which enabled the other parties to continue operations unimpeded. However, in a twist, the third party, Bayer Corporation, subsequently acquired the company suing its competitor, Cortech, as a subsidiary and, in the process, inherited the global settlement agreement. The number three party, Hoffmann-La Roche, did not receive any compensation in this deal.
In the telecommunications industry, global settlement agreements have also been utilized to resolve patent infringement claims. For example, in 2011, two major telecommunications companies, Nokia Corp. and Apple Inc., reached a global settlement agreement covering all of their existing and future patent infringement claims. Under this agreement, Nokia terminated several lawsuits filed against Apple around the world in exchange for an undisclosed amount of compensation.
In the context of professional services firms, such as consulting firms, global settlement agreements have been employed to resolve disputes with clients. In 2009, a global settlement between the consulting firm Booz Allen Hamilton and its former client, the Metropolitan Transit Authority (MTA), was reached. Under the terms of this settlement, Booz Allen agreed to pay a substantial sum to MTA in exchange for the MTA dropping its lawsuit against the firm.
Global settlement agreements have become a common practice in various industries where disputes can be complex and costly. They serve to streamline the resolution process, reduce litigation costs, and allow companies to focus on their core business operations.
Guidance for Lawyers and Clients
When both parties’ expectations and goals are reasonably consistent with one another, the global resolution of multiple cases may be desirable. Whether such an agreement actually is desirable often depends on the relative bargaining strength of the parties. Significant leverage can be obtained from a party’s proposal to resolve multiple cases. Like any other business decision, if you are a defendant, the decision to buy out multiple cases must be carefully assessed against other options under consideration, to amount to a rational decision rather than an emotional reaction to threats. Most often, the threat will come in the form of the Client’s concern with having to incur the additional costs of a defense or in the form of the Joint Plaintiff’s concern over the sheer number of cases they face in a global situation.
A global agreement should be considered in every case that is part of, or may become part of, a broader issue by determining which benefits a global agreement may provide to the Client. For example, while a global settlement may provide certainty as to future costs for closed claims, it also allows the defendant to reserve cost containment and other defense issues under the release language. Other considerations are whether the resolution provides certainty as to the resolution of known claims and whether the resolution provides certainty as to resolution of unknown claims , such as claims that have not been asserted or are time barred. Expect the possibility that negotiation of the settlement itself may be complex due to the number of representations and agreements involved. If multiple parties or attorneys are involved, there is the potential for misunderstandings, conflict and delay, necessitating a strong need for communication.
In addition to a number of the practical advice previously discussed, some additional practical strategies may be helpful. In particular, it is prudent to draft releases that include all possible releases, limitations and representations. In addition, it is often easiest to have the plaintiff(s) execute a global release first, followed by the defendant(s). This ensures that plaintiffs are committed to the global aspect before requiring the defendant(s) to make a larger commitment that is conditioned upon completion of their negotiations. After both parties sign, they should confirm to one another that they will perform and that the matter is settled.
Although the factors noted above are clearly for use by the defense, they can also apply to the plaintiff’s attorney. The plaintiff’s attorney, however, must take care to protect the Client(s) from a strategic error in agreeing to a global settlement too quickly and without understanding the leverage which he or she may actually possess. In other words, the Client(s) must be aware that, while it may be logical to resolve multiple cases, the timing and means by which resolution is achieved is critical.