'In lieu of' is a term used in contracts, negotiations and legal contexts to mean 'instead of'. This is talking about a legal case. The court/arbitrator/judge ruled against the speaker, and the speaker was intending to appeal against the judgement. But the other party offered to pay the speaker a certain sum of money - called a 'settlement' - on condition that he/she dropped the case and did not proceed with the formal appeal. This is normal practice, and would save everyone a lot of time and expense.

Lieu is the French word for "place", so it means exactly the same as "in place of".