Protecting Confidential Settlement Agreements from Attorney Disclosure
August 21, 2018
Formal written settlement agreements have long contained provisions for the attorneys representing the settling parties to approve the agreement “as to form and content.” Many of these settlement agreements also contain confidentiality provisions that forbid a settling party or their attorney from disclosing the terms of the settlement including, at times, whether a settlement was even reached or money was paid out. However, California’s Fourth Appellate District recently held that attorneys representing settling parties in civil litigation are not civilly liable for disclosing the underlying facts of a case where the attorney approves a settlement agreement “as to form and content,” even an agreement containing a confidentiality provision.
In Monster Energy Co. v. Schechter (2018) 2018 Cal. App. LEXIS 711; 2018 WL 3829255, the parties entered into a written settlement agreement that provided: (1) “[p]laintiffs and their counsel agree that they will keep completely confidential all of the terms and contents of this Settlement Agreement;” (2) “Plaintiffs and their counsel of record…agree and covenant, absolutely and without limitation, to not publicly disclose” the provisions of the settlement agreement; and (3) “the Parties and their attorneys…hereby agree that neither shall make any statement about the Action…in the media. In fact, Plaintiffs’ counsel later admitted he knew the opposing party would not settle if plaintiffs did not agree to confidentiality. However, plaintiffs’ counsel only signed the agreement under a short paragraph that stated: “[a]pproved as to form and content.”
Plaintiff’s counsel in the underlying action later disclosed facts of the case and the terms of the settlement to a third-party who published his statements in an online article. Counsel was subsequently sued for breach of contract, among other causes of action, and in response filed an anti-SLAPP special motion to strike. The trial court denied the motion, in part, stating that counsel’s “suggestion that he is not a party to the contract merely because he approved it as to form and content only is beyond reason.” On appeal, the Fourth District appellate court held that the attorney did not consent to be bound by the settlement agreement and thus directed the trial court to grant the anti-SLAPP motion in its entirety. In doing so, the appellate court noted that public policy in favor of settling where confidentiality is a material term may be achieved by explicitly making attorneys parties (even if only to the confidentiality provision) and explicitly requiring them to sign as such.
When drafting settlement agreements where confidentiality is a material term of the settlement, an attorney for a settling party may want – or require opposing or other counsel representing another party – to sign the agreement at least as a party to the confidentiality provision. The attorneys may want to consider crafting a separate document specifically agreeing to confidentiality to be attached as an exhibit to the underlying settlement agreement. Consideration for an attorney’s signature and agreement could include either a mutual release of claims and/or mutual agreement to confidentiality to provide the requisite contractual consideration.
As an aside, the Monster Energy Court also acknowledged that the aggrieved party may have causes of action against the underlying plaintiffs or as a third-party beneficiary to the settlement agreement, but failed to plead them, and that an attorney who discloses confidential settlement provisions faces practical and ethical risks, including violations of the attorney’s duty not to cause or create any potential litigation for clients.
Andrew Chan is an Associate in Ericksen Arbuthnot’s Oakland/East Bay office. He can be reached at 510.832.7770 or firstname.lastname@example.org.