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What Is Settlement?
Settlement describes the process of resolving a legal dispute before a final judgment is issued by the court, sometimes before a complaint is even filed with the court. The actual agreement that is reached between the parties is then referred to as the settlement.
In estate planning, settlement can describe a gift or property that passes from a settlor to a beneficiary, such as in the case of a trust. When an executor finalizes the execution of an estate it is also referred to as settlement.
In business law, settlement refers to the closing of an account after all requirements (such as payment) have been satisfied.
The Settlement Process in Legal Disputes
Settlement can take place before or during litigation. Litigation is the dispute resolution process that takes place within the public court system after one party files a complaint and the other party answers the complaint.
What Are Settlement Negotiations?
Settlement can be a formal or informal process. For example, parties can reach a settlement — or an agreement — during informal negotiation, or they can use a formal process like mediation or arbitration. Most civil litigation cases never actually reach a final trial because a negotiated settlement is reached.
Settlement ultimately means the plaintiff in the case, the party that filed the complaint, gives up their right to continue pursuing the issue that was settled. Oftentimes, the terms of the settlement are kept confidential. Sometimes, parties reach a settlement on certain issues in the case while a judge or jury needs to decide other issues.
The Federal Rules of Evidence (and most state rules of evidence) provide that most settlement communications are inadmissible in court proceedings. Keeping these negotiations protected gives parties an incentive to have frank settlement discussions.
Rule 408 of the Federal Rules of Evidence, specifically, addresses the admissibility of settlement negotiations. It, rather vaguely, provides that statements made during "compromise negotiations" are inadmissible. Courts have further interpreted Rule 408 to exclude negotiations around an existing legal dispute that's being resolved, not just routine business negotiations.
In Criminal Cases
Settlement also takes place in criminal cases, though not in the same way as in civil cases.
Sometimes, negotiations between the prosecution and defense lead to criminal charges being dismissed or a plea deal being reached. In fact, most criminal cases never go to trial. However, in criminal cases, the judge retains control over any plea deal and can choose to reject it.