It’s human nature to engage in an emotional exhale after reaching an agreement in principle to settle a long-standing or hard-fought dispute. While doing so is all well and good, it is critical that you don’t let that deter you from exercising extreme focus on documenting that settlement in a carefully crafted agreement. Indeed, as the plaintiff in Zvi Construction v. Levy found out a few weeks ago, failing to do so can leave your client in a position where it is unable to obtain the fruits that it rightfully deserves.

In 2012, the Upper Crust Pizza company was involved in two lawsuits. In one, against Jordan Tobins, the company was the plaintiff. In the other, against Zvi Construction, Upper Crust was the defendant. Upper Crust settled the Tobins suit, and as part of that settlement, Tobins agreed to pay the company $250,000. Several months latter, the Zvi Construction suit went to mediation, and an agreement in principle was reached such that:

On or before October 3, 2012, Upper Crust LLC shall pay to [ZVI] the sum of $250,000, which funds are being paid by Jordan S. Tobins to Upper Crust LLC in satisfaction of his obligation under his separate memorandum of understanding ….

Significantly, the Zvi settlement did not call for Upper Crust’s counsel (Franklin Levy and the law firm of Lawson & Weitzen) to act as escrow agent, nor were they even asked to do so. As such, when Tobins made his settlement payment, the funds were put in Lawson & Weitzen’s IOLTA account for the benefit of Upper Crust. Thereafter, Upper Crust directed all of the $250,000 to be distributed to various attorneys (including Lawson & Weitzen) and to Upper Crust’s payroll agent. Upper Crust then filed for bankruptcy without paying Zvi anything.

Zvi then sued Levy and Lawson & Weitzen, alleging, among things, that they had converted the $250,000 paid by Tobins. In addressing this claim, the Appeals Court noted the following:

[E]ven though the $250,000 was owed to ZVI under the ZVI settlement, the money was not held by the defendants for the benefit of ZVI; nor was it placed in an escrow account. Rather, it was held as client funds in an IOLTA account, where it belonged to and was under the exclusive dominion and control of Upper Crust. … That being the case, where the funds were distributed in accordance with the client’s instructions, the defendants cannot be found to have converted the funds, even insofar as they were used by the client to pay [Lawson & Weitzen’s] invoice.

In a last ditch effort to try to salvage its claim, Zvi argued that Upper Crust’s counsel had engaged in fraud because Levy supposedly had said at mediation that he would pay Zvi the $250,000 received from Tobins after it was received. Nevertheless, the court refused even to consider this allegation because representations in mediation are confidential – even if they are fraudulent.

So the next time you enter into any kind of settlement agreement, be sure you maintain your focus in crafting a document that covers as many contingencies as you can imagine, and don’t rely on anything not included in that writing.