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Settling with a Minor, It’s More than a “Minor” Compromise

Background:

A settlement is an agreement ending a dispute or lawsuit. (Black’s Law Dictionary.) In order to enforce the agreement, parties enter into a contract, usually referred to as a settlement agreement. However, Civil Code section 1549 requires that parties to a contract must be “capable” of contracting. Capable parties are defined as everyone except minors and persons of unsound mind. (Civ. Code § 1556.) California’s Family Code goes on to state that a minor may contract, but may void the contract within a reasonable time after he/she turns 18. (Fam. Code § 6710.) Herein lies the dilemma, how do we settle with a minor if the settlement agreement can be voided because a minor cannot legally enter into a contract?

Insurance carriers are faced with these issues daily. Typically, a minor claimant is injured in an auto accident and the insurance carrier does not want the claim to loom for years wondering if it will resurface.

The Family Code provides a solution. Section 6601A states a minor is legally allowed to enforce his/her rights by civil action or other legal proceeding, but the minor needs a guardian to conduct the action or proceeding. This provides the courts with a theoretical way to solidify a settlement agreement involving a minor; however, new problems present themselves. How do we determine who is the guardian? Is the settlement fair and equitable? Is the guardian looking out for the best interest of the minor? How should settlement funds be distributed? This led to the creation of a strict procedure to resolve these issues called… The Minor’s Compromise.

The Petition:

Through a combination of the Code of Civil Procedure, Probate Code, and California Rules of Court, a minor’s compromise petition was born. Code of Civil Procedure provides, “The guardian . . . shall have power, with the approval of the court . . . to compromise . . . or release or discharge any claim . . . pursuant to that compromise.” (Code Civ. Proc. § 372(a).) Probate Code governs payment and delivery of money to a minor, including payment and/or reimbursement of medical expenses, costs, and attorney fees. (Prob. Code § 3600, et seq.) And California Rules of Court requires the petition be verified by the petitioner and contain a “full disclosure of all information that has any bearing upon the reasonableness of the compromise…” (C.R.C. 7.950.)

Based on the above codes, a judicial council form was developed for minor’s compromise petitions laying out information required for approval, including the identity of guardian ad litem, settlement terms, facts of the dispute, parties involved, damages claimed, and distribution of settlement funds. (See Judicial Council Form MC-350*.) Filling out the petition can be tricky and confusing, so it is common for a court clerk to reject the initial submission for errors or lack of information. The key is to be thorough, triple check all of the information, and consult with an attorney that has experience filling out the petition.

The Hearing:

After submission of the petition, the court will set a hearing that requires attendance by the minor claimant and the petitioner (i.e., guardian). The main purpose of the hearing is for the judge to talk to the minor claimant and petitioner to ensure that the interests of the minor are properly represented. Furthermore, judges tend to question the distribution of money, especially when the settlement is in excess of $20,000. Probate Code section 3611 provides some guidance, but judges vary on how they prefer the funds to be distributed. Typically, amounts under $5,000 can be delivered to the parent of the minor, amounts between $5,000 and $20,000 can be placed in a FDIC-insured blocked account, and amounts over $20,000 should be placed in an annuity.

While attorneys are not required for approval of a minor’s compromise, most judges like to see that an attorney has advised the guardian for the minor on high value cases. This can be a difficult situation to navigate because some claimant’s attorneys have been known to disrupt up a perfectly legitimate settlement. However, written recommendation to the guardian to seek the advice of an attorney will show the judge that the guardian had the opportunity to seek legal advice.

Attorneys representing the interests of the insurance carrier can also appear as a party of interest to help explain the settlement and discuss any issues. Defense attorneys regularly assist in filling out the petition for unrepresented parties, so it makes sense to have them attend the hearing.

The $5,000 Myth:

There is a rumor circulating that minor’s compromises are not required if the settlement amount is less than $5,000. Plaintiff’s attorneys and even some defense attorneys have been known to claim the Probate Code is the authority supporting this myth; however, after much research, I have yet to come across any code that makes this assertion.

So how did this rumor start? The Probate Code has a section that is repeatedly misinterpreted.

“If the remaining balance of the money . . . to be paid or delivered does not exceed five thousand dollars ($5,000) in value and is to be paid or delivered for the benefit of a minor, that all or any part of the money and the other property be paid or delivered to a parent of the minor, without bond [. . .]” (Prob. Code § 3611(e).)

This code section only describes distribution of funds, not the requirement for a minor’s compromise petition. However, practically speaking, if a case involves minimal injuries and the settlement is less than $5,000, it is unlikely the minor will later resurface and try to nullify a settlement agreement. Therefore, this is a judgment call for the insurance carrier to make and should be evaluated on a case by case basis.

Practice Pointer to Insurance Carriers:

If you have reached settlement terms with a minor claimant, obtain a conditional settlement release that is predicated on the completion and approval of a minor’s compromise. This will confirm the settlement terms are in place and will also prevent the insurance carrier from committing to a settlement that could be rejected by the court at a later date. Remember, while a minor claimant may not be bound to the settlement agreement, the insurance carrier will be bound; thus, a conditional settlement agreement is highly advisable.

Additional Things to Consider:

Depending on the judge or jurisdiction, an expedited petition can be filed and ruled upon without a hearing. Judicial Council Form MC-350EX provides a list of requirements to be eligible to use the expedited petition.

Please keep in mind this is a brief overview of the process of obtaining an approved minor’s compromise. Every case will carry with it complexities that may require additional safeguards, so consulting an experienced attorney may be prudent and worthwhile.

ABOUT THE AUTHOR: Mr. Bauer specializes in civil litigation in the areas of personal injury, professional liability, general liability, and employment litigation. Contact Alex at 858.459.4400 or abauer@tysonmendes.com.