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Settlement Of Litigation From A Public Policy Perspective

August 31, 2017 David E. Sklar Litigation

settlement of litigation by judge

Including a Recent Appellate Division Case Litigated by Scura, Wigfield, Heyer, Stevens & Cammarota, LLP

The vast majority of lawsuits settle prior to trial. If every lawsuit that is filed went to trial, the court system would be hopelessly back logged. Therefore, from a public policy perspective, courts encourage settlement of litigation. Accordingly, once a settlement is entered into, the courts will strain to enforce that settlement agreement if disputes arise as to the scope and validity of the settlement.

Legal Effect of Settlement

Courts have found the following as to settlement agreements: “An agreement to settle a lawsuit is a contract, which, like all contracts, may be freely entered into and which a court, absent a demonstration of “fraud or other compelling circumstances,” should honor and enforce as it does other contracts." Indeed, a "settlement of litigation ranks high in our public policy. Moreover, courts will not ordinarily inquire into the adequacy or inadequacy of the consideration underlying a compromise settlement fairly and deliberately made…It is only where the inadequacy of consideration is grossly shocking to the conscience of the court that it will interfere.” Pascarella v. Bruck, 190 N.J.Super. 118, 124-5 (N.J. App. Div. 1983) quoting Honeywell v. Bubb, 130 N.J. Super. 130, 136 (N.J. App. Div. 1974); Jannarone v. W.T. Co., 65 N.J.Super. 472, 476 (N.J. App Div. 1961).

Further, a release is not necessary to enforce a settlement because the “execution of a release is a mere formality, not essential to formation of the contract of settlement.” Jennings v. Reed, 381 N.J.Super. 217, 229 (N.J. App. Div. 2005). If parties are able to settle cases as to all issues and claims only to later file another lawsuit seeking to collect based on the same issues and claims of the previously settled matter, then settlement would be in effect discouraged.

Consideration is the benefit that each party receives in a contract. Each party to a contract must receive a benefit in a contractual relationship or else the contract will be void. However, as described above, a court is generally not going to inquire into the adequacy of consideration received for settlement of litigation, as long as each party accepts the settlement out of their own free will.

Recent Case Where A Settlement Agreement was Enforced by the Court

A recent example of a case where the adequacy of a settlement agreement was tested in a case that I litigated is captioned Gallo v. Gallo (the “Case”); docket number L-58-16 in the Bergen County Superior Court and A-4095-15 in the New Jersey Appellate Division (the “Later Action”). The Appellate Division recently entered a decision affirming the trial court’s decision to dismiss the Plaintiff Complaint in the Later Action pursuant to New Jersey Court Rule 4:6-2(e) for failing to state a claim upon which relief can be granted.

A brief synopsis of the case facts of the case is as follows: the Plaintiff Cheryl Gallo (the “Plaintiff”) and the Defendant Robert Gallo (the “Defendant”) are in the midst of finalizing their divorce proceeding. Both parties owed money to the Plaintiff’s mother pursuant to various promissory notes. In the divorce proceeding, the Plaintiff and the Defendant agreed to sell real property that they jointly owned and repay monies due to the Plaintiff’s mother in an amount to be determined.

On May 12, 2015, the Plaintiff’s mother filed a complaint in the New Jersey Law Division seeking recovery against the Plaintiff and the Defendant for amounts owed (the “Earlier Action”). The first count of the Earlier Action sought relief pursuant to a $50,000.00 promissory note executed by the Defendant (the “Note”). Later, after negotiation by virtue of letters through counsel, the Defendant reached a settlement with the Plaintiff’s mother as to all claims in the Earlier Action. The Defendant fulfilled all of his obligations under the settlement and presumed that the matter had been concluded.

A day after the Plaintiff’s mother sent a letter through counsel to the Defendant’s counsel outlining the settlement terms, the Plaintiff’s mother assigned her interest in the Note to the Plaintiff. However, this assignment was worthless once the settlement terms were fulfilled by the Defendant. Later on December 28, 2015, the Plaintiff filed a complaint initiating the Later Action seeking a second recovery on the Note. Interestingly, the same attorney represented the Plaintiff’s mother and the Plaintiff in the Earlier Action and the Later Action. The Plaintiff, through counsel, maintained that the settlement was entered through a promise without consideration and was therefore unenforceable. The Plaintiff supported that argument by stating that the Defendant owed the Plaintiff’s mother the settlement amount of the Earlier Action in a sum certain due to the agreement in the divorce proceeding. However, that agreement stated that the money owed was in an amount to be determined. The Defendant responded by moving to dismiss the complaint in lieu of filing an answer, which was granted.

The Plaintiff appealed and the Appellate Division rendered a decision affirming the trial court’s dismissal with prejudice of the Later Action. In its decision, the Appellate Division cited to the public policy that favors settlement of disputes. The Appellate Division further found that “[i]n furtherance of the strong policy of enforcing settlements, “our courts ‘strain to give effect to the terms of a settlement wherever possible.’” Quoting Brundage v. Estate of Carambio, 195 N.J. 575, 601 (2008) (quoting Dep't of Pub. Advocate v. N.J. Bd. of Pub. Util., 206 N.J. Super. 523, 503 (App. Div. 1994)). As to the Plaintiff’s argument that the settlement was without consideration, the Appellate Division found that “[w]e cannot conclude plaintiff’s mother never received consideration without rendering all settlement agreements unenforceable as a matter of law-an absurdity clearly against public policy.”

If you are being sued, it is important to contact an experienced litigator to evaluate your options and guide you to the best possible outcome. If you are being sued or have a claim against another individual or entity, please give Scura, Wigfield, Heyer, Stevens & Cammarota, LLP a call for a free consultation. If you are interested in reviewing the Appellate Opinion from the previously referenced case, please click on this link.


David E. Sklar

Prior to joining Scura, Wigfield, Heyer, Stevens & Cammarota, LLP, David Sklar graduated from Rutgers University-Newark School of Law with a J.D., Cum Laude. Mr. Sklar was the recipient of a Pro Bono Award and was honored by the New Jersey Bar Association for his commitment to the Street Law Program by being awarded the Street Law Prize.

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