Volume 14, Number 1 · January 2004

Those "Secret Settlements"

By Susan T. Roberts

With greater numbers of civil lawsuits being resolved by settlements rather than a trial on the merits, civil litigants are routinely settling cases using "secret" or confidential settlement agreements. Such agreements, often used in high profile liability and toxic tort cases, are becoming more common in "everyday" litigation. In entering such agreements, litigants often agree not to disclose the existence of their settlement or its terms, conditions or amount and may further agree not to voluntarily disclose the facts of the case.

Parties to a lawsuit can privately contract for settlement secrecy and many confidential settlement agreements can and do occur without any involvement of the court or judicial review or approval of their terms or fairness. If breached, such agreements can be enforced in a separate suit for breach of contract. Parties can also enlist the help of the court when negotiating a confidential settlement by requesting a court order containing confidentiality provisions. In either case, secrecy usually facilitates the settlement process and in some cases, a settlement may not be reached without some assurance of its confidentiality.

Despite their increasing popularity among litigants, however, the use of secret or confidential settlements has given rise to a heated debate regarding the appropriateness of such agreements and their impact on the litigation process.

Indeed, over a dozen states have legislation pending ("sunshine statutes") that would ban confidential settlements in cases that compromise public safety. The legislative initiatives vary from state to state but the underlying principle is the same: to make it tougher for corporations to shield settlements from scrutiny.

The debate centers on the legitimate privacy interests of litigants versus the rights of the public at large. Proponents of confidentiality agreements argue that without confidentiality, litigants may be reluctant to settle cases, especially high profile ones.

The media and other opponents, on the other hand, cite the general principle of openness found in the First Amendment to the U.S. Constitution, the Pennsylvania common law, and the specific decree set forth in the Pennsylvania Constitution that "[a]ll Courts shall be open." They question whether there is an excess of secrecy in our courts that undercuts the tradition of public access to judicial proceedings. Opponents of secrecy further contend that important public health, safety and welfare information is kept from the public when cases are settled using confidential settlements. Settlements cloaked in secrecy, they argue, keep regulatory agencies as well as consumers in the dark. Thus, in an effort to increase public access to settlement data, opponents seek to restrict the discretion of trial courts to enter secrecy orders and some wish to restrict the ability of the parties themselves to privately negotiate confidentiality agreements.

Some examples will illustrate the competing positions. A plaintiff may settle a weak claim to avoid prolonged litigation and high court costs. A defendant may be willing to settle a high risk case without admitting liability, to avoid an unpredictable verdict. In such case, shielding the settlement figure from public scrutiny may be essential to achieve settlement. Conversely, in a case of product failure, shielding the settlement (and sometimes the record of evidence) deprives the public and regulatory agencies of information useful for consumer safety.

There is some common ground, however when confidential settlements are used to protect intimate personal information, trade secrets or proprietary confidential business information. In these instances, proponents and opponents usually can agree on the use of confidentiality to preserve party control in order to protect a litigant's privacy or property interests.

There is no question that settlements are a benefit not only for the litigants but for the public in general. Settlements conserve scarce judicial resources and relieve crowded court dockets. Settlements save the litigants the time, expense and the aggravation of trial. Given all of these advantages, the public policy favoring settlements will likely continue as will the use of confidential settlements. But, the weighing of the public's right to know against the parties' desire to quietly settle litigation is, no doubt, a debate that will not resolve any time soon.

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