Mark Roman | December 2, 2013 | Personal Injury
In general, papers filed in a lawsuit are public record. Anyone who wants to look at a court file can go to a courthouse and do so. One can read through the files and see all the motions, notices, and court rulings in a case as it winds it way through the judicial system.
Settlements are a different matter. Parties to a lawsuit can agree to settle a case on any terms which aren’t illegal. This includes settling a case confidentially. A confidential settlement basically means the settling parties can’t talk about what was paid, or often about the other terms of the settlement. Some even forbid the settling parties from discussing the entire case.
Historically, confidential settlements in personal injury cases were the exception rather than the rule. Within the last six months, however, we have an alarming number of cases in which insurance companies or corporate defendants try to “sneak” confidentiality requirements into settlement agreements. Making matters worse, the terms often forbid only the injured person from talking about the settlement. The plaintiff faces stiff penalties if they talk about their settlement, while the defendant is free to talk about the settlement at their whim.
There certainly are cases where settlement confidentiality is appropriate. We often hear, for example, about confidential settlement in cases involving celebrities who want to avoid being litigation “targets.” In some cases, both parties might want confidentiality. Someone receiving a substantial settlement might not want distant family and hangers-on showing up asking for money.
However, in most routine personal injury cases there is no legitimate need for secrecy. There are also some good reasons not to have it.
First, confidentiality provisions can have tax consequences. While personal injury settlements are generally not subject to federal income taxes, the IRS takes a different view when confidentiality is involved. The IRS assumes some portion of a settlement was not for actual physical injury, but was an additional “hush money” payment. Hush money is taxable. Thus, one can unwittingly find themselves in a thicket with the IRS about how much of a settlement should be taxed when secrecy was part of the deal.
Second, and mostly of concern to lawyers, confidentiality can prevent lawyers for injured people from sharing useful information. In the course of handling a case, lawyers may learn valuable information about defects in a product, the particulars of a corporate policy, or other things that help prove fault. It is no exaggeration to say that this type of information-sharing has changed the legal landscape in cases involving products such as tobacco or asbestos.
Unfortunately, if a case settles confidentially, lawyers may lose the ability to share what they’ve learned with others. Lawyers handling the same type of cases may have to start from scratch, fighting tooth and nail to get the same incriminating documents that have already been used in other lawsuits. A wealthy defendant with greater resources may be able to successfully thwart those efforts, even with arguments that have been previously rejected by other courts.
This is probably the single biggest reason why defendants often try to get their opposition to agree to confidentiality in the first place. It makes it much harder for their opponents to benefit from the work of others.
Unless there was a specific agreement to keep a settlement confidential, we politely reject confidentiality provisions when our opponents try to sneak them into settlements. Unless there are some good reasons not to in a particular case, other lawyers should as well.
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