Should Your Business Settle a Lawsuit or Go to Trial?

How Should a Business Decide Whether to Settle or Go to Trial?

A business should compare the certain value of a settlement with the range of results a trial could produce, net of the cost, time, and business effects of getting to a verdict. The Minnesota Supreme Court has stated that “The law favors settlement of litigation” (Jallen v. Agre, 119 N.W.2d 739 (Minn. 1963)), but the decision belongs to you. A settlement fixes the result and stops the spending on the case, while a trial leaves both open until the verdict.

I suggest weighing these factors, because each one can move the number at which settling makes sense:

1. The realistic range of trial results. A trial can end anywhere from a full win to a full loss, so the settlement should be measured against that range rather than the best case.
2. The cost of reaching a verdict. Attorney time through discovery, motions, and trial is the largest expense, and each side pays its own.
3. Interest and cost shifting. Minnesota interest and Rule 68 offers can add to, or take away from, what a judgment is worth.
4. Whether a judgment can be collected. A verdict against a party with no money or insurance may be worth less than a smaller payment today.
5. Insurance. A liability insurer may be paying for the defense and may control the settlement.
6. Time and attention. Months of discovery, depositions, and trial preparation draw on the people who run the business.
7. Publicity and relationships. A trial is public, and a settlement can include terms a court cannot order, such as future business between the parties.

The options are wider than settle or try. A direct conversation between owners or CEOs costs nothing and can reach terms the lawyers have not considered, such as a credit on future orders, a payment plan, or a revised contract. Mediation puts a neutral in the room. Trial gives you a decision, at the cost of control over the outcome.

What Does Going to Trial Cost Compared With Settling?

Going to trial costs your business its own attorney fees through the verdict, whether you win or lose, unless a contract clause or a statute shifts them to the other side. The Minnesota Supreme Court has stated that “attorney fees are not recoverable in litigation unless there is a specific contract permitting or a statute authorizing such recovery” (Dunn v. National Beverage Corp., 745 N.W.2d 549 (Minn. 2008), quoting an earlier decision).

Without a fee clause or statute, winning recovers only a small part of what it costs. The prevailing side receives statutory costs, which for a defendant that wins on the merits are “$200” under Minn. Stat. § 549.02, subd. 1. It also recovers “reasonable disbursements paid or incurred,” such as service fees, under Minn. Stat. § 549.04, subd. 1. Neither statute reimburses attorney time, which is why winning may not bring your attorney fees back.

That gap can make a partial payment worth more than a full claim. In one matter, a business owner came to me after finishing work under a contract, and the other side offered to pay a little more than half of the agreed price. Suing for the rest would have cost more than the amount at stake, and the contract had no attorney-fee clause, so I advised accepting the payment. The stages that drive these costs are covered in what a business lawsuit costs in Minnesota.

How Do Settlement Offers Shift Costs and Interest in Minnesota?

A written settlement offer can change what the other side recovers or pays after trial in two ways. Under Rule 68, a plaintiff that rejected a defendant’s offer pays the defendant’s post-offer costs and disbursements and does not recover its own. A defendant that rejected a plaintiff’s offer pays an amount equal to the plaintiff’s post-offer costs and disbursements, in addition to the costs and disbursements the plaintiff is entitled to under Rule 54.04. Minnesota’s interest statute adjusts preverdict interest based on the parties’ written offers. The two tests differ. Rule 68 asks whether the relief awarded is “less favorable” to the party that rejected the offer than the offer, or, for a defendant’s offer, whether the defendant prevails. The interest statute compares the two sides’ written offers to see which is closer to the judgment or award.

Rule 68 Offers

Under Minn. R. Civ. P. 68.01(a), “At any time more than 14 days before the trial begins, any party may serve upon an adverse party a written damages-only or total-obligation offer to allow judgment to be entered to the effect specified in the offer, or to settle the case on the terms specified in the offer.” Rule 68.02(a) sets the response window: “Acceptance of the offer shall be made by service of written notice of acceptance within 14 days after service of the offer. During the 14-day period the offer is irrevocable.” Check the current text of the rule before relying on these periods.

Three details decide what an offer does:

1. It must name the rule. Under Rule 68.01(b), “An offer does not have the consequences provided in Rules 68.02 and 68.03 unless it expressly refers to Rule 68.”
2. It is damages-only by default. Under Rule 68.01(c), an offer is damages-only “unless the offer expressly states that it is a ’total-obligation’ offer.” A total-obligation offer “includes then-accrued applicable prejudgment interest, costs and disbursements, and applicable attorney fees” (Rule 68.01(d)). A damages-only offer has those items added on top.
3. Rejection affects costs, not fees. Minn. R. Civ. P. 68.03(b) imposes consequences measured by the costs and disbursements incurred after the offer on a party that rejected it. The shift applies when the relief awarded is less favorable to that party than the offer, or, for a defendant’s offer, when the defendant prevails. Under Rule 68.03(c), “a damages-only offer is compared with the amount of damages awarded to the plaintiff,” and “a total-obligation offer is compared with the amount of damages awarded to the plaintiff, plus applicable prejudgment interest, the plaintiff’s taxable costs and disbursements, and applicable attorney fees, all as accrued to the date of the offer.” For a defendant’s offer, the plaintiff “must pay the defendant-offeror’s costs and disbursements incurred in the defense of the action after service of the offer, and the plaintiff-offeree shall not recover its costs and disbursements incurred after service of the offer.” That shift is subject to a limit: “applicable attorney fees available to the plaintiff-offeree shall not be affected by this provision.” For a plaintiff’s offer, the defendant “must pay, in addition to the costs and disbursements to which the plaintiff-offeror is entitled under Rule 54.04, an amount equal to the plaintiff-offeror’s costs and disbursements incurred after service of the offer.” A court may reduce these amounts if they “would impose undue hardship or otherwise be inequitable” (Rule 68.03(b)(3)). Under Minn. R. Civ. P. 68.04(a), “Nothing in this rule shall be construed to create a right to attorney fees not provided for under the applicable substantive law.”

A case in federal court follows the federal rules of civil procedure instead, and their offer rule works differently. The Minnesota rule’s 2008 committee comment states that the federal rule “and decisions construing it may not be persuasive guidance in construing this rule.”

Written Offers and Interest

Minnesota adds interest to most money judgments from the start of the case. Under Minn. Stat. § 549.09, subd. 1(b), preverdict interest on pecuniary damages runs from the commencement of the action. It can start earlier, at a demand for arbitration or a written notice of claim, whichever occurs first. The statute adds: “The action must be commenced within two years of a written notice of claim for interest to begin to accrue from the time of the notice of claim.” The statute applies “Except as otherwise provided by contract or allowed by law,” and it bars preverdict interest on some awards, including future damages, punitive damages, and “judgments or awards not in excess of the amount specified in section 491A.01.” That section sets the conciliation court amount at “(1) $20,000; or (2) $4,000, if the claim involves a consumer credit transaction” (Minn. Stat. § 491A.01, subd. 3a(a)). For a judgment or award over $50,000, other than one for or against the state, a political subdivision, or in a family court action, “the interest rate shall be ten percent per year until paid” (§ 549.09, subd. 1(c)(2)). Written offers change that interest. The statute provides: “If either party serves a written offer of settlement, the other party may serve a written acceptance or a written counteroffer within 30 days.” Check the current text of the statute before relying on these periods. The winning party then receives full preverdict interest “only if the amount of its offer is closer to the judgment or award than the amount of the opposing party’s offer.” If the losing party’s offer was closer, the winner receives interest only on the lesser of the offer or the judgment, and only until the offer was made. “Subsequent offers and counteroffers supersede the legal effect of earlier offers and counteroffers.” The rates themselves are explained in interest on Minnesota judgments.

I suggest putting your settlement position in a written offer that expressly refers to Rule 68 once you have a realistic view of the case. Without a reference to Rule 68, the offer does not carry Rule 68’s cost consequences. A later offer replaces an earlier one: under Rule 68.02(e), “Any subsequent offer by the same party under this rule supersedes all prior offers by that party.” Under Rule 68, a rejected offer carries those cost consequences when the relief awarded is less favorable to the side that rejected it than the offer, or, for a defendant’s offer, when the defendant prevails. Under the interest statute, your offer helps when it is closer to the judgment or award than the other side’s offer, on a judgment or award that carries preverdict interest.

How Does Liability Insurance Change the Settlement Decision?

If a liability insurer is defending your business, the insurer may control the settlement, and under Minnesota case law an insurer that controls settlement must consider offers within the policy limits in good faith. In Short v. Dairyland Insurance Co., 334 N.W.2d 384 (Minn. 1983), the Minnesota Supreme Court adopted a district court opinion stating: “Usually, however, the insurer contractually acquires control of the negotiations and settlement.”

That control comes with a duty. The court stated that an insurer that has assumed control of settlement “may become liable in excess of its undertaking under the terms of the policy if it fails to exercise ‘good faith’ in considering offers to compromise the claim for an amount within the policy limits.” In Short, the insured was clearly liable, the insurer refused a demand for the policy limit, and the jury’s verdict far exceeded that limit. The court found the refusal was not made in good faith or on reasonable grounds to believe the demand was excessive.

The policy itself sets who decides. I suggest reading its defense, settlement, and limits provisions as soon as the lawsuit arrives. Those provisions determine whether you can settle without the insurer’s consent and how much of a verdict the insurer would pay. When the insurer is contesting coverage, the Minnesota Supreme Court stated in Miller v. Shugart, 316 N.W.2d 729 (Minn. 1982): “On the facts of this case we hold, therefore, that the insureds did not breach their duty to cooperate with the insurer, which was then contesting coverage, by settling directly with the plaintiff.” That settlement let the plaintiff collect only from insurance, with no personal liability to the insureds, and the resulting judgment was “not conclusive on the insurer”: the plaintiff had to show “that the settlement is reasonable and prudent.” A claim above the limits, or a claim the insurer says the policy does not cover, puts more of the decision and the risk back on your business.

What Business Factors Weigh Beyond the Money?

Publicity, confidentiality, the business relationship, and management time can outweigh the dollar comparison. A trial happens in a public courtroom, and the filings and testimony become part of the court record. A settlement agreement can include confidentiality terms, but only if the parties agree to them.

Settlement talks have their own protection in court. Minn. R. Evid. 408 makes an offer to compromise a disputed claim inadmissible “to prove liability for or invalidity of the claim or its amount,” and “Evidence of conduct or statements made in compromise negotiations is likewise not admissible.” The protection has two limits. The rule “does not require the exclusion of any evidence otherwise discoverable merely because it is presented in the course of compromise negotiations,” and it does not bar evidence offered for another purpose, such as showing a witness’s bias.

The other factors depend on your business:

1. The relationship. A settlement can preserve a customer, supplier, or co-owner relationship that a verdict would end.
2. Management time. The owners and managers who made the decisions at issue are likely witnesses, and preparing for depositions and trial takes their time from the business. The personal toll is covered in what a lawsuit takes out of an owner.
3. Precedent. Paying one claim can invite similar claims, while a public win can discourage them. A settlement can address this with confidentiality and no-admission terms.
4. Timing and cash flow. A settlement can set a payment schedule your business can meet, while a judgment is due when entered.

When Can Settlement Happen in a Minnesota Lawsuit?

Settlement can happen at any point, from before a lawsuit is filed through the trial itself, and Minnesota’s court rules build in several points where it comes up. In a case covered by Rule 114, the first comes right after the lawsuit starts. Minn. Gen. R. Prac. 114.04(b) provides: “The parties, after service of the complaint, petition, or motion, shall promptly confer regarding selection and timing of the ADR process and selection of a Neutral.” That conference belongs on the list of steps after your business is served with a lawsuit.

The later points follow the case:

1. After key evidence comes in. Discovery and depositions show each side what the other can prove, which can change both sides’ view of the case.
2. At mediation. In a case covered by Rule 114, if the parties cannot agree on a process, the court orders a non-binding one, as described under how mediation helps a business decide.
3. Before trial. A Rule 68 offer must be served “more than 14 days before the trial begins” to carry cost consequences (Rule 68.01(a)). If liability has already been decided by verdict, order, or judgment and only the amount or extent remains, Rule 68.01(e) provides that “the party adjudged liable may make an offer of judgment, which shall have the same effect as an offer made before trial if it is served within a reasonable time not less than 14 days before the commencement of a hearing or trial to determine the amount or extent of liability.” Check the current text of Rule 68 before relying on these periods.
4. On the trial date. Talks can continue at the courthouse. In Jallen, the attorneys met in the judge’s chambers on the day the case was called for trial to negotiate a settlement.

I suggest revisiting the decision at each of these points, because the evidence, the costs already spent, and the risk change as the case moves. If you revise a Rule 68 offer along the way, the new offer “supersedes all prior offers by that party” (Rule 68.02(e)).

How Does Mediation Help a Business Decide?

Mediation brings both sides and a neutral together to test whether a deal is possible, and in a civil case covered by Minn. Gen. R. Prac. 114 the court can order an ADR process such as mediation, but cannot make your business agree to a settlement. Except in family-law matters, Minn. Stat. § 484.76, subd. 1 directs that the court rules “shall require the use of nonbinding alternative dispute resolution processes in all civil cases, except for good cause shown by the presiding judge.” Under Rule 114.04(b), “If the parties cannot agree on an ADR process, the court shall order the parties to use a non-binding ADR process.” Rule 114.01(a) excepts some cases, including “Cases enumerated in Rule 111.01,” and Minn. Gen. R. Prac. 111.01 names “(d) Eviction actions,” “(n) consumer credit contract actions,” and “(o) mechanics’ lien actions.” A non-binding arbitration award can still become final. Under Rule 114.09(e)(2), “If no party has filed a request for a trial within 21 days after the award is filed, the court administrator shall enter the decision as a judgment,” and that judgment “is not subject to appeal.” Rule 114.09(f)(1) adds: “This 21-day period shall not be extended.” Check the current text of Rule 114.09 before relying on this period.

Three features of court-annexed mediation matter to a business:

1. A decision-maker attends. Under Rule 114.06(d), “Unless the court has ordered otherwise, individuals with the authority to settle the case shall attend all evaluative, facilitative, and hybrid ADR sessions.”
2. What happens there stays out of later proceedings, with limits. Rule 114.07(a) provides: “Without the consent of all parties and an order of the court, except as provided in paragraph (c), no evidence from an ADR process or any fact concerning the ADR process may be admitted in any later proceeding involving any of the issues or parties.” Rule 114.07(b), subject to Minn. Stat. § 595.02 and “except as provided in paragraphs (a) and (d),” protects statements made and documents produced in a non-binding ADR process that are not otherwise discoverable, and “Such evidence is inadmissible for any purpose at a later trial, including for impeachment.”
3. The mediator cannot testify. Under Minn. Stat. § 595.02, subd. 1a, a person presiding at a mediation established by law, a court rule, or an agreement to mediate is not competent to testify about what happened there. That bar applies in a later civil proceeding or administrative hearing. The exceptions are statements or conduct that could constitute a crime, give rise to attorney disqualification proceedings, or constitute professional misconduct.

The session itself is described in what happens during a mediation session, and the choice between a negotiated deal and a binding decision is covered in mediation and arbitration compared.

How Is a Business Settlement Documented?

A settlement is a contract, so the document should state the essential terms clearly enough that no one can dispute what was agreed. The Minnesota Supreme Court has stated that “A compromise settlement of a lawsuit is contractual in nature,” and that to be enforceable “there must be such a definite offer and acceptance that it can be said that there has been a meeting of the minds on the essential terms of the agreement” (Jallen, 119 N.W.2d 739). The court added that “the terms of the settlement should normally be stated to the court and taken down by the reporter or otherwise reduced to writing so as to prevent a dispute as to what the terms of the settlement are.” In a court-annexed facilitative or evaluative process such as mediation, Minn. Gen. R. Prac. 114.13 requires the neutral’s agreement signed at the start to include language on when a deal binds. Under that language, no agreement reached there binds unless it is put in writing, states that it is binding, and is signed by the parties and any counsel representing them. The other route is to put it on the record and have the parties acknowledge it under oath.

A settlement of a controversy identified in a written agreement to mediate has a statutory floor under the Minnesota Civil Mediation Act. That agreement to mediate is a defined writing under Minn. Stat. § 572.33, subd. 3. It is a written agreement that identifies the controversy, “states that the parties will seek to resolve the controversy through mediation,” provides for termination by written notice delivered as the statute specifies, and “is signed by the parties and mediator and is dated.” A “Mediated settlement agreement” is “a written agreement setting out the terms of a partial or complete settlement of a controversy identified in an agreement to mediate, signed by the parties, and dated” (§ 572.33, subd. 4). Under Minn. Stat. § 572.35, subd. 1, “The effect of a mediated settlement agreement shall be determined under principles of law applicable to contract.” That agreement is not binding unless it states that it is binding and that the parties were advised in writing of three points. The mediator has no duty to protect their interests, signing may adversely affect their legal rights, and they should consult an attorney if uncertain of their rights. The agreement can also bind if the parties were otherwise advised of those points.

A debtor-creditor settlement carries one more condition. Section 572.35, subd. 2 provides: “In addition to the requirements of subdivision 1, a mediated settlement agreement between a debtor and creditor is not binding until 72 hours after it is signed by the debtor and creditor, during which time either party may withdraw consent to the binding character of the agreement.” Check the current text of section 572.35 before relying on this period.

I suggest that a business settlement agreement address these terms, because a gap in any of them can restart the dispute:

1. Payment. The amount, the due date, and what happens if a payment is missed, such as a stipulated judgment.
2. The release. Which claims are released, by whom, and whether the release runs both ways. A release of employment-discrimination claims has its own requirements: see 29 U.S.C. § 626(f) and Minn. Stat. § 363A.31.
3. Dismissal. Under Minn. R. Civ. P. 41.01(a), a case can end “by filing a stipulation of dismissal signed by all parties who have appeared in the action,” and “Unless otherwise stated in the notice of dismissal or stipulation, the dismissal is without prejudice.” A stipulation that does not say “with prejudice” leaves the claims open to refiling.
4. Confidentiality and no admission. Whether the terms stay private, and that the payment is not an admission of liability.
5. Non-cash terms. Any business terms, such as future orders, credits, or changes to an ongoing contract.

When a filed case settles through mediation or another court-annexed process, Rule 114.05 provides that “the attorneys shall promptly notify the court and, whether filed or not, complete the appropriate documents to bring the case to a final disposition.” An accepted Rule 68 settlement offer leads to dismissal on a stipulation stating that its terms have been satisfied or on a court order implementing the agreement (Rule 68.02(c)).

Settling or Trying a Minnesota Business Case

The decision to settle or try a case turns on the realistic range of trial results, measured against the settlement offered. That range should be measured net of the attorney fees each side pays, interest, Rule 68 cost shifting, insurance, and the time and publicity a trial brings. I suggest putting your position in a written offer that refers to Rule 68 once the case is clear enough to value. I also suggest documenting any deal so its essential terms and a dismissal with prejudice are in writing. For the other stages of a dispute, see my business litigation attorney page.

If your business is weighing a settlement offer and wants to know how these rules apply on your facts, email [email protected] with a brief description. I can start an intake and conflict check before you send any confidential documents.