Confidentiality in settlements

Confidentiality in settlements
Are they worthwhile or worthless?

Jerry Roche of Smart Business Magazine interviewed Stuart Silver

Corporations and public figures often settle lawsuits for the sake of confidentiality. In some of these instances, confidentiality provisions within the settlements are appropriate. In other cases, good business judgment should prevail.

“Typically, confidentiality is used to protect trade secrets that may be divulged in the course of litigation,” says Stuart Silver, a partner at Kluger, Peretz, Kaplan & Berlin P.L. “Confidentiality provisions are accepted and customary in those situations. Similarly, confidentiality provisions which deter frivolous lawsuits are appropriate.”

However, businesses face a real danger when they try to conceal a product’s potential harm by invoking a confidentiality provision. “Hopefully, that’s where good business judgment enters the picture,” he says.

Smart Business talked to Silver about the occasions when confidentiality provisions in settlements are not practical or legally enforceable.

With respect to confidentiality provisions, what does the law allow and what does it prohibit?

Businesses that are subject to tort claims need to be concerned about confidentiality provisions within settlement agreements, bargaining for confidentiality, and whether they’ll get the benefit of the bargain.

A settlement agreement is a contract. Parties can agree to confidentiality as a condition for payment, but there are limitations imposed by law. Reliance upon a confidentiality provision depends on what it is designed to accomplish.

Florida’s Sunshine in Litigation Act (Florida Statutes, Sec. 69.081) prohibitsconcealment of a public hazard, which is defined as a potential for personal injury. The Act specifically prohibits a court order that would sanction concealment. In order to protect the public’s right to be made aware of the hazard, Florida law also prohibits a court from sealing a file.

The Florida statute and comparable laws in other jurisdictions make certain confidentiality provisions unenforceable. You cannot contract to do something illegal — and even if it’s legal, the courts may not enforce it due to public policy.

Should a company consider a confidentiality provision when settling with a plaintiff over a hazardous product?

Confidentiality provisions have their place, but a business should not attempt to hide information about a potentially dangerous product. Instead, businesses should be careful how they produce and market products, and how they react to knowledge about potential harm from a consumer’s use of their products. The company with a policy or protocol for being proactive in this regard avoids the need to conceal public harm.

Not every claim where damage is alleged is deemed to be a public hazard. For example, economic damages resulting from allegedly wrongful conduct is not subject to the Sunshine in Litigation Act. Economic losses are not considered to be hazardous.

I think the whole issue deals with corporate wisdom rather than morality or philosophy. The wisdom lies in knowing Florida’s Sunshine in Litigation Act, and recognizing that if it’s conceivable for a product to be deemed a public hazard, the business should take steps other than concealment to mitigate the perception of danger.

In the past, many businesses have gotten a lot of credit in the ‘court of public opinion’ by revealing a potential product hazard to the public once it learned of it, and by trying to eliminate the hazard.

How does the business lawyer balance his or her duty to the client with acting in the public interest?

The Code of Professional Responsibility makes lawyers’ duty to their client primary, and the public’s interest secondary. However, lawyers are also officers of the court and, as such, should strive to serve both interests without creating a conflict. That’s a dilemma that may be resolved by counseling their client on the impact of the Sunshine Act. Advocacy for the client should lead a business lawyer to include a confidentiality provision in any settlement agreement. At the same time, a lawyer should counsel his or her client that a court will not condone concealment in the case of products that expose the public to physical harm.

What are a business lawyer’s options in cases of product liability?

Confidentiality as a concept is fine and there are reasons to invoke it. It can be used to discourage litigation in the ordinary course of a company’s business. It can be used to minimize copycat claims that have little merit.

The bottom line is that businesses must be aware that confidentiality has its limitations. It is incumbent upon us to advise them to consider potential risks of harm before marketing a product. Consumer feedback that suggests a genuine risk of harm in the use of a product should be publicly disclosed, if not also remedied. We are obliged to discourage concealment of a public hazard.

STUART SILVER is a partner practicing in the Litigation & Dispute Resolution Department at Kluger, Peretz, Kaplan & Berlin P.L. in Miami and Boca Raton, Florida. Reach him at (305) 379- 9000 or ssilver@kpkb.com. To view the article, please click here.