The Limits of “Settlement” Disclaimers

Lawyers love slapping the expression “For Settlement Purposes Only” (and/or “Confidential”) on correspondence with other attorneys, especially if a demand letter has been sent. A demand letter, also sometimes referred to as a nasty-gram, is a request from one party to another to cease doing something, pay something, acknowledge something, etc. Parties without counsel will typically do one of two things in response to such letters: (A) Panic or (B) Throw them in the garbage. Should they have representation, however, it is not uncommon for their counsel to send back a reply telling the other party’s lawyer to either buzz off or, absent that, propose some sort of settlement—and that is where the magic language comes in.

“For Settlement Purposes Only” is intended to shield responses to demand letters and related negotiations from being introduced as evidence at trial. It is good public policy, so the argument goes, for parties to potential litigation to work out their grievances before relying on the court. Keeping the content of such negotiations out of court advances this policy. Maybe. Setting aside the fact that federal and state courts have found several exceptions to this rule, some (too many?) attorneys over-rely on the “Settlement” disclaimer. They believe, wrongly, that everything disclosed under the disclaimer will be kept out of court and that the other party will make no use of it. Wrong.

Careless counsel who over-share leave themselves vulnerable to having the opposing party bring that information in through discovery. Moreover, not every topic under the sun is protected by the “Settlement” disclaimer. For instance, discussions of potential settlement amounts will generally be protected by the disclaimer, but not discussions of the potential merits of a given case. Courts have, from time to time, allowed portions of settlement letters to get entered into evidence based on their relevance to the case.

What does this all mean? Be quiet. Lawyers love verbosity, but when it comes to replying to demand letters, less is more. Responses to demand letters should be short and to the point without a lot of flare or bravado. There’s no sense in delving into complex legal arguments or presenting your case to the other side before litigation has commenced. Perhaps another way to think about it is to imagine a potential judge and/or jury will see the full contents of your letter and proceed accordingly. Also, keep in mind that there is no requirement that you reply to a demand letter with a letter; a simple phone call to the opposing party’s counsel may suffice.

This all should be common sense, though the perennial problem with common sense is that it’s not that common. Attorneys are apt to confuse zealous representation with content production. A simple letter telling another attorney “Pass” on an offer or rejecting a claim is “lazy”; three pages of legalese and factual details appears “productive.” Zealotry can also easily degenerate into buffoonery, especially when lawyers make their representation personal. Again, it’s worth keeping in mind that any and all correspondence may wind up in court for all to see.