Can I Settle Without Admitting Guilt??

An ordinary civil settlement, including one with the U.S. Department of Justice (DOJ), the Securities and Exchange Commission (SEC), or another federal agency, does not constitute an admission of guilt. While a settlement will resolve civil allegations, the claims themselves generally remain unproven. Of course, a settlement agreement may contain express admissions of civil liability, and some types of settlements, such as “no admission, no denial” settlements, can have additional issues. But, in most cases, civil liability and criminal guilt are distinct concepts, with “guilt” only arising from criminal proceedings and “liability” arising from civil claims.

While this is true in most cases, it is important to be sure that you have the terms of your settlement right. Additionally, in some cases, it will not be necessary to seek settlement with the agency in question. For example, if the agency is pursuing the case under a statute that imposes criminal liability, you may be able to persuade them to file civil charges (or settle by agreeing to civil liability) instead. At Spodek Law Group, we have experience handling all types of federal civil and criminal cases, and we have helped our clients avoid serious liability and criminal consequences in the past.

If you are facing any form of federal investigation, we urge you to contact our team at Spodek Law Group today to discuss your options. Many cases are resolvable without imposing liability or criminal guilt, and our lawyers are available to handle all aspects of your case for you, so you can move on with your life.

Can a Settlement Bind Me Without Valid Consent?

As a general matter, settling your case is a decision that must be made by you. With that being said, there are circumstances in which a civil settlement, with the DOJ, the SEC, or another federal agency, can create binding obligations without your consent, including:

• Your Lawyer Accepted the Settlement Offer on Your Behalf

As a general rule, a lawyer must obtain client authorization before accepting a settlement offer. However, there are a number of exceptions to this rule, and in many cases, a lawyer can bind his or her client to a settlement offer without expressly consenting to the specific terms of the settlement. However, while a settlement agreement may be void if your lawyer accepted it without authorization, this must still be demonstrated in court.

• You Were Fraudulently Induced to Settle

While a court will generally enforce a settlement agreement if it was made voluntarily, a settlement agreement can also be voidable where you were fraudulently induced to settle. With that being said, this is only true if you were fraudulently induced into the settlement and the resulting settlement has subsequent consequences that you did not anticipate. With this said, if a settlement’s provisions are clearly defined and the consequences are known, fraudulent inducement may not justify invalidating a settlement.

• You Were Under Duress at the Time of Your Settlement

As discussed above, a civil settlement will generally be binding unless it was made under duress or coercion. With that being said, if you were not able to adequately weigh the consequences of settling at the time, you will have the potential to overturn the agreement.

• The Settlement Agreement Contains a Mutual Mistake

If you and the U.S. government both entered into a settlement agreement based on a mutual mistake, you may be able to justify rescission of the agreement. With that being said, mistakes of fact are generally what lead to rescission. Mistakes of law are far less likely to justify rescission of a settlement agreement.

• You Lacked Contractual Incapacity

Under contractual law, minors, incapacitated adults, and adults under the influence of drugs or alcohol may lack the capacity to enter into a contract. With that being said, there are few scenarios in which the lack of contractual capacity would excuse you from a civil settlement agreement.

• The Settlement Agreement Violates Public Policy

Under the principle of “void public policy,” courts generally refuse to enforce settlement terms that violate public policy. While this does not exempt most civil settlements from enforcement, the DOJ and the SEC are also bound by this principle. So, if the terms of your settlement agreement are deemed contrary to public policy or against the public interest, you will have a strong argument for attempting to overturn the agreement.

When Should You Reject a Settlement Offer?

Settlement offers are not always the right path toward resolving your case. As a result, when you are evaluating a settlement offer, you need to consider a number of factors that go beyond the obvious. At Spodek Law Group, we help our clients assess whether to accept settlement offers that include:

The Release Language

The release language determines which types of claims and defenses you will waive by settling. This is essential to understand when thinking about whether to accept or reject an offer. While most release language is broad, you need to make sure that the types of claims and defenses you want to preserve remain available to you in the event of litigation.

Indemnity Provisions

If your settlement agreement includes indemnity provisions, then it could shift the responsibility for resolving specified claims (and defending against those claims) between settling parties. This is extremely important to determine when considering whether to settle, as you need to be aware of how it can trigger indemnity obligations.

Settlement Tax Treatment

Depending on the amount involved and the other terms at play, the tax treatment of your settlement can be important. Settlement tax treatment is determined by the origin of the settlement payment and the stated allocation, and, while the payment is generally tax-deductible in most cases, this is not always the case.

A Stipulated Judgment

In many cases, the party who makes the settlement offer asks that the settling party sign a stipulated judgment. If the terms of the settlement agreement provide that the stipulated judgment only becomes enforceable in the event of a default, you must ensure that the terms of your settlement clearly define the consequences of a default.

Attorney Fees and Liens

If you are the claimant in your settlement, you must also consider the cost of your attorney’s representation, as well as any liens on your settlement payment. This is critical, as both attorney fees and liens can significantly reduce your net settlement recovery.

Collectibility

In many cases, a defendant may be able to promise to pay, but be unwilling to actually pay. While the risk of an uncollectible judgment may justify settling your claim for less than it is worth, you should never assume the collecting party will be able to make a judgment enforceable.

Federal Rule 68

Under Federal Rule 68, a defendant may be able to avoid paying a plaintiff’s post-offer costs by offering a settlement that the plaintiff rejects, only to later receive a judgment against them that is less favorable than the settlement offer. While this is rare, it is essential to consider whenever relevant.

Corporate Indemnification

If the target of the federal investigation is a company, then corporate indemnification can play a significant role in determining the company’s liability. Corporate indemnification depends on both the language of the company’s corporate governance documents and the language of the company’s relevant insurance policy.

Spodek Law Group, led by managing partner Todd Spodek, defends clients in federal criminal and white collar matters.

Can Settlement Talks or Agreements Be Used Against Me?

Federal Rule of Evidence 408 generally prohibits evidence of settlement offers, admissions, and related conduct from being used to prove liability for the claim at issue. The rule reads, in pertinent part, “Evidence of the following is not admissible, on behalf of any party, either to prove or disprove the validity or amount of a disputed claim or to impeach by a prior inconsistent statement or a contradiction: (1) furnishing, promising, or offering, or accepting, promising to accept, or offering to accept, a valuable consideration in compromising or attempting to compromise the claim; and (2) conduct or a statement made during compromise negotiations about the claim.” However, Rule 408 is not an absolute bar to admissibility, and there are two key exceptions:

• Use for Other Purposes

While you generally cannot use the opposing party’s settlement offer to prove liability, you may be able to use this evidence for an “independently relevant purpose.” For example, if you are able to convince the court that settlement evidence is admissible to prove a witness’s bias or prejudice, then it could be admissible for this purpose.

• Enforcement of Settlements

Rule 408 also allows settlement discussions to be used in cases of breach, and settlement evidence may be used to prove or rebut claims relating to the breach, formation, or interpretation of a settlement agreement.

Is a Settlement Protected by a Confidentiality Privilege?

It is also important to recognize that Rule 408 is an evidentiary restriction, not a general confidentiality privilege. This means that while evidence may be inadmissible in court, this does not prevent the agency or other investigative body from continuing its investigation or pursuing any other means of gathering the evidence that is required to sustain its claims.

Does a Settlement Agreement Become a Judicial Order?

As a general rule, a private settlement agreement does not become a judicial order unless filed with the court. In many cases, this allows the agreement to function as a contract that is binding upon the parties and is enforceable under contractual law, but the agreement will not necessarily have the full power of a judicial order behind it.

Finally, if your settlement agreement is not an “admission” settlement, then you will be in a better position to contest parallel civil claims and avoid collateral liability. As long as you are able to fully dispute the agency’s claims, you can resist the imposition of collateral liability in your other civil matters.

How Is a Private Settlement Different from a Consent Judgment?

While the two are similar in many respects, the biggest difference between a private settlement and a consent judgment is whether the latter involves a judicial order. While a private settlement functions as a contractual obligation, a consent judgment is an agreement filed with the court and entered as a judgment, and it is enforceable as a judicial order. A private settlement agreement may involve parties who have not yet filed a lawsuit, whereas a consent judgment will, by definition, involve at least one plaintiff and one defendant.

With that being said, there are several other notable differences between private settlements and consent judgments:

• Certification of Class Action Settlements

Under Federal Rule 23(e), judges must approve settlements that bind members of a certified class. However, not all class actions can lead to settlements that bind the entire class, and so the decision to settle may rest with individual class members.

• Enforcement of Private Settlements After Dismissal

A case involving Guardian Life Insurance Company of America clarified that private settlements are generally not enforceable in federal court after a federal case is dismissed unless the court has independent or retained jurisdiction over the enforcement or the parties incorporate the settlement terms into the order.

• Factual Basis of Consent Judgments

The federal court in SEC v. Citigroup Global Markets, Inc., 752 F.3d 285 (2d Cir. 2014) rejected the argument that the District Judge should have required a factual basis before approving the SEC’s consent judgment. That decision has not been overturned and remains binding in the Second Circuit. It holds that a district court reviewing a proposed consent judgment must determine only whether the decree is fair and reasonable and, where injunctive relief is included, whether the public interest would not be disserved, rather than demand an admission or an independent factual finding.

• Tax Treatment of Settlements

In most cases, settlement payments are taxable. While IRC §104(a)(2) excludes from gross income “the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness,” punitive damages remain taxable.

• Applicability of the SEC’s Settlement Policies

If the SEC is involved in your case, the agency’s own enforcement settlement policies and practices will apply. However, the policies within this Corporate Settlement Policy are only applicable to SEC enforcement matters, not ordinary private civil litigation.

If you have a question or a concern about settling your federal civil case, we strongly encourage you to reach out to our firm today. Many types of civil settlements involve additional complexities, and our team of experienced litigators can help you navigate these complexities so you can make an informed decision about which path you want to take toward resolving your case.

Can I Settle an SEC Case Without Admitting Wrongdoing?

While most SEC civil enforcement actions are resolved in settlements that do not require admission or denial of wrongdoing, in many cases, defendants may need to consider these implications when making the decision to settle. If you have questions or concerns about the possibility of settling your SEC civil enforcement action without admitting wrongdoing, our experienced attorneys can help you find an answer tailored to your specific case.

Is an Admission of Liability an Admission of Guilt?

Another important question when considering settling an SEC civil case is whether an admission of liability constitutes an admission of guilt. Generally, settling an SEC civil case will not constitute a criminal guilty plea, as civil liability and criminal guilt are two different legal concepts. However, an admission of liability can have other implications, particularly for private shareholder claims. Private plaintiffs may use admissions made in an SEC civil case to bolster their claims or prove liability against defendants in order to avoid going through a costly discovery process. While admission of liability does not automatically prove liability, defendants must think about this potential consequence before deciding whether to accept a settlement with an admission of liability.

If you are unsure whether you have a good chance of avoiding an admission of guilt or liability, we strongly encourage you to contact our firm to discuss your case. We can help you make a strategic decision about how to proceed while protecting your interests to the greatest extent possible.

Does an Admission of Liability for Fraud have Additional Consequences?

As a final point, admissions of liability for fraud can have additional consequences beyond the negotiated sanctions themselves. Here are three of the most-significant consequences that are pertinent to individuals and corporations that settlement with the SEC:

• SEC “Bad-Actor” Consequences

For broker-dealers and other firms that have a requirement to self-certify they have not committed the type of “bad actor” offenses that may lead to the imposition of SEC sanctions, an admission of liability can carry consequences far beyond the negotiated sanctions themselves. Again, this is something to think about when considering if you want to accept a settlement that involves an admission of liability.

• Loss of D&O Insurance Coverage

For corporate officials, an admission of liability in an SEC civil case can jeopardize their eligibility for coverage under director-and-officer insurance policies. Because companies pay these premiums out of pocket, this is another important factor that directors, officers, and other corporate officials must carefully evaluate before accepting a settlement offer that involves an admission of guilt or liability.

• Consequences for Companies

What Are the Consequences of “Non-Denial” Provisions?

Finally, if you settle with the SEC by agreeing not to dispute any of the allegations in the proceeding’s complaint or order, how could this affect you in the future? This question needs to be evaluated on a case-by-case basis. As a general rule, “non-denial” provisions in SEC settlements typically go so far as to prevent respondents from admitting liability on the one hand, and from publicly disputing allegations in the future. This means, however, that an admission remains an option, as a respondent will only need to convince the SEC that he or she did not commit the fraud at issue. In many cases, a respondent will be able to affirmatively defend against future allegations and resist a finding of liability or guilt.

In litigation in which the SEC is not a party, SEC respondents generally can still assert their defenses. This is acknowledged in 17 C.F.R. §202.5(e). This section is titled “The SEC’s Position,” and it reads: “The SEC’s position does not bind the respondent in litigation in which the SEC is not a party.” This means that if you are not denying the fraud allegations, you still will be able to assert all available affirmative defenses and arguments in future litigation, subject to the risk of being called as a witness by the SEC.

Contact a Federal Criminal Defense Attorney

Nothing here is legal advice, and the details of your case matter. Todd Spodek and Spodek Law Group take federal criminal and white collar cases nationwide, from offices in New York, Brooklyn, Queens and Los Angeles. You can reach the firm at 212-300-5196.