Enforcement or Cancellation of a Corporate Settlement Agreement

While most court cases are indeed settled out of court, the devil is truly in the details. Both parties can end up back in court if the proper legal controls aren’t in place. This underscores the importance of having a proper corporate settlement agreement that adequately covers the necessary terms and understandings of both parties.

Notwithstanding, the best of agreements are often still subject to future debate or party misalignment. In these cases, the court will intervene in the enforcement of one of the parties that may move to cancel the agreement.

What Is a Corporate Settlement Agreement?

Strictly speaking, a corporate settlement agreement enables two or more corporate parties to resolve their civil dispute via a legal contract. In this agreement, all involved parties are in alignment and agree to accept the outcome of any judgment made by the court. Of course, the challenge then becomes defining agreeable terms for bilateral acceptance. This is usually accomplished through mediation, with a judge making the final approval of the finalized settlement agreement.

The intent of reaching a corporate settlement agreement is to avoid expensive and time-consuming litigation activity on behalf of all parties involved. In general, no definitive judgment regarding winners or losers must be defined, but one side must nonetheless agree to carry out a restitutive action or compensate the other financially. 

In some corporate scenarios, the defending party will agree to settle only if no wrongdoing or fault is admitted. Conditions like deadlines for restitutive actions and timeframes may also be incorporated into the agreement. In exchange, the plaintiff party agrees to halt legal proceedings for the out-of-court settlement.

How Are Corporate Settlement Agreements Enforced?

In a perfect world, out-of-court settlements would remain there and contracts would enforce themselves. The reality is that courts often must intervene as the enforcement authority to compel a non-compliant or breaching party to comply, as the signed settlement agreement is itself a legally binding contract. 

However, it’s important to make the distinction between enforcing the agreement terms and actually having a hand in creating them—the courts will have no part in the latter. That is to say, the court’s main focus is to interpret, clarify (if necessary), and enforce the contractual obligations, not actually create them. The court may not add new terms to the corporate settlement agreement, nor can it enforce the contract terms after a case has been dismissed.

If all parties accept the terms of the settlement, the court must defer to the collective wishes of the firms involved. For example, in the 2015 Fortinet settlement with Sophos, neither company admitted any liability, while in the recent Google settlement of an antitrust case filed by French regulators, Google did not dispute the charges but proposed interoperability commitments that France’s competition watchdog accepted.

The court may consider enforcement activities such as an evidentiary hearing if a party disputes the terms due to an issue with previously stated facts (e.g., one party was found to be coercive or dishonest) or if new facts are brought to light. 

When Might the Court Refuse to Enforce a Corporate Settlement Agreement?

Courts typically do their best to uphold corporate settlement agreements. That said, at the end of the day, the legal process defers to their discretion. Certainly, in cases of injustice, they can and will refuse to enforce an agreement. Examples include cases that involve one party’s lack of understanding or knowledge during term negotiations, an extreme imbalance of power, grossly imbalanced or unfair transactions, and the like. 

The case must be made that the suspect party exploited the unfair arrangement to its advantage during the creation and signing of the agreement.  

Can a Corporate Settlement Agreement Be Cancelled?

The courts may decide to void the contract in certain cases—for example, when fraud is involved during the creation and signing of the settlement agreement. Additionally, if both parties are in agreement to void the contract and it hasn’t been made part of a court order, the court may allow the agreement to be nullified. 

Generally speaking, canceling a settlement agreement is a complicated affair, with courts hesitant to take action unless there are extenuating circumstances.

Can a Corporate Settlement Agreement Be Modified?

Similarly, if one party can demonstrate that the circumstances surrounding the initial settlement agreement have changed substantially, the court may be moved to allow it to be modified. For example, if activity outlined in the agreement has become illegal or if one party entered the contract incorrectly believing certain actions were authorized constitutionally. 

Since the modification requestor must file a motion for modification with the court, the onus is on them to provide proper justification for the modification request.

Breach of Corporate Settlement Agreement

If one party determines that the other has breached the settlement agreement, a mediation or arbitration clause may be triggered, if it exists. Typically created as part of the corporate settlement agreement, a mediation or arbitration clause helps to resolve the dispute by prescribing a dispute resolution process to follow. A consent to judgment outlining the financial penalty for breach of the contract follows. This helps streamline enforcement by laying out the terms of enforcement and any related penalties before bringing a motion to enforce the consent to judgment.

Regardless of the nature of the case, all parties are—to a greater or lesser degree—averse to lengthy court proceedings and drawn-out legal battles. Corporate settlement agreements enable corporates to find a resolution to their disputes out of court, away from the scrutiny of the public eye. And under certain circumstances, enforcement or cancellation is certainly possible, albeit at the discretion of the court.