I’ve written before about watching out for contingent language in settlement and mediation agreements.  They can sink a settlement and invite Claimant’s to back out.  A condition written in your agreement can mean there is no agreement, unless it is binding upon both parties.

Of course, the grandaddy contingency of them all is a settlement with a Medicare Set-Aside (MSA) and the parties agree to wait for approval of the MSA from the Centers for Medicare & Medicaid Services (CMS).  I’ve always viewed settlements solely contingent upon CMS approval as settlements that are not worth the paper they are written on.   As E/C’s we are all afraid CMS could blow up a settlement and demand more money for the MSA, hence the contingency.  However, to have an enforceable settlement, we need language that bounds both parties to the CMS contingency, like giving Claimant and E/C the option to appropriate additional funds to the MSA should CMS demand more money.

Now there is a new case that puts into question whether MSA settlement contingencies are really contingencies at all.

In United Airlines v. Nemoto, the parties reached a settlement agreement in confirming correspondence.  There was no mediation agreement, this was all a “handshake deal” through letters.   While the E/C wanted an MSA, Claimant was not a Medicare recipient.  Nonetheless, the parties agreed that “settlement is not final” until the parties reviewed and approved the MSA.  Also, the parties agreed to a deadline for the parties to submit the paperwork to the Judge.  If the deadline passed without approval, the parties would proceed with trial.

All of this sounds pretty contingent to me.   If the MSA comes in to high and the Claimant is not happy with it, then what?  No settlement, then.  If the paperwork does not get to the Judge by the deadline, then what?  No settlement, then.  Pretty simple.  What binds Claimant?  To me, nothing.

Awaiting approval from CMS is the biggest contingency you can have.  If CMS wants a lot more money then the parties agreed to for an overall washout, an E/C is not going to proceed with settlement.  

Instead, though, the First DCA found there was a binding settlement between the parties based on a letter the E/C forwarded to Claimant attorney.  From the facts of the Nemoto case, it seems the Court is saying that  a settlement pending CMS approval is an enforceable settlement. 

But, what are the specific facts of this case?  What did that letter say that convinced the First DCA that the parties had a rock solid, objective, settlement?  Fortunately, Judge Wolf dissented in this decision and he published the exact letter the E/C attorney sent to Claimant attorney.  Here it is (emphasis added):

“This is to confirm today’s settlement discussions which resulted in the following agreement: $130,000 to settle with Mr. Nemoto and my firm, not to include any past due fees to Mr. Fisher. Mr. Nemoto will retire for medical reasons and will not seek re-employment with United Airlines.  No vested Employee benefits will be affected by this settlement.  Employee believes no MSA [Medicare Set-Aside] is necessary as he has no intention of becoming a Medicare recipient.  The [E/C] is already in the process of obtaining an MSA allocation.  Therefore, this settlement is not final until the parties have reviewed and approved any MSA requirement and my client and I have approved of all language in all settlement documents that United requires Mr. Nemoto to sign.  The settlement documents must be filed with the Judge by November 30, 2008.  Medical benefits remain available to Mr. Nemoto until JCC approval.

Please be advised, that should the settlement documents not be submitted to the Judge by November 30, 2008, we will proceed to the Judge for a ruling on the pending Petitions.  Mr. Nemoto wants to make it clear that if the judge has not been provided with the settlement documents for approval by November 30, 2008, THERE WILL BE NO FURTHER NEGOTIATIONS.”

I have to say, this settlement looks totally contingent.  The E/C never presented the MSA to Claimant, so per the letter there was no settlement agreement.  And, what is to bind the Claimant at all to this settlement?  He could have walked before or even after receiving the MSA from E/C.

Now, I know plenty of E/C’s will be happy this is the case, but be careful!  This case goes both ways.  E/C’s could be pinned against a huge MSA number that CMS imposes on us.  To protect yourself, be sure to include language that either party can back out up to a certain amount CMS wants above the original MSA, or that either party can choose to fund the difference.   You want strong enough language to bind the parties, but conditional language to get the E/C out should CMS “blow up” the settlement numbers.

Be careful with MSA contingent settlements.  Because, in the end, the federal government will decide what the numbers are, not the parties.