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IMPORTANT SETTLEMENT AGREEMENT TERMS THAT ARE OFTEN OVERLOOKED

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When parties decide to settle their lawsuit and enter into a settlement agreement, the intent is almost always to bring the dispute to a full resolution so that the parties can preserve their time and financial resources.  When payments are to be made beyond the date of dismissal of the lawsuit, or commitments are to be adhered to after the date of dismissal, it is essential for the parties to request the Court to retain jurisdiction over them pursuant to California Code of Civil Procedure Section 664.6 (hereinafter referred to as “CCP 664.6”).

CCP 664.6 states, “If parties to pending litigation stipulate, in a writing signed by the parties outside the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement.  If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement.”

The purpose of CCP 664.6 is to make it very easy for a party to enforce the settlement agreement in the event of a breach, by simply filing a motion and requesting the Court to order compliance therewith.  The alternative to this process would be to file a separate lawsuit for breach of contract, which neither party would desire due to the associated expense and time commitment.  Thus, the inclusion of a CCP 664.6 clause within the settlement agreement is essential when commitments exist beyond the date of dismissal of the lawsuit.

Frequently, parties will include a clause within their settlement agreement wherein they agree that the Court will retain jurisdiction over them to enforce the settlement agreement as per CCP 664.6.  But, a stipulation between the parties to have the Court retain jurisdiction over them to enforce the settlement agreement is inadequate.

The parties failure to obtain a Court order to retain jurisdiction over them to enforce the settlement agreement means that the Court cannot simply enter an order to cure the breach of the settlement agreement.  Instead, the parties will be forced to engage in a separate lawsuit.  This was made clear by the Court of Appeal in two separate decisions.  See Wackeen v. Malis, 97 Cal. App. 4th 429 (2002) and Hagen Engineering, Inc. v. Mills, 115 Cal App 4th 1004 (2003).

Another mistake made by parties in their settlement agreement is that they fail to clarify what orders the Court can make in the event of a breach of the settlement agreement.  This is critical because neither a trial court nor an appellate court “can rewrite the oral settlement agreement or add what was omitted.”  Conan Taiwanese Christian Church v. All World Mission Ministries, 211 Cal App. 4th 1115, 1126 (2012).

For example, if the settlement calls for the payment of $10,000 per month for 10 years after the dismissal of the lawsuit, the parties must clarify what happens in the event a payment is missed.  Can the Court enter an order for $1,200,000 if the first payment is missed, or is the Court limited to an order in the amount of $10,000 (and the aggrieved party will need to file consecutive motions as the monthly payments are missed)?  These are real problems if not spelled out within the settlement agreement.

As you can see, careful attention must be paid to the structuring and implementation of the CCP 664.6 clause within the settlement agreement.  If you have any questions concerning your settlement agreement, please do not hesitate to contact the Law Office of Michael A. Hearn at (949) 341-0030 or mike@mhearn.com.