Personal Injury Litigation Secrecy

Brien Roche

Secret settlements and secrecy in lawsuits are common. However they can be dangerous.  Remington Firearms Company knew of hundreds of documented deaths and injuries. They were caused by defects in their Model 700 trigger mechanism.  They concealed this flaw for years.  Secret settlements were the order of the day. As a result these prevented other plaintiffs from discovering the problem.

Personal Injury Litigation Secrecy-The Standards

If secrecy is sought in the course of litigation, the defendants should meet the proper test.  In other words protective orders dealing with discovery should require a showing of good cause. This is required under Federal Rule 26(c).  The good cause must be fact-based.  Convenience alone does not satisfy the standard.  The order should state who has the burden of showing the good cause.

If there is dispute over whether particular items are protected, there must be a dispute resolution mechanism. That dispute resolution mechanism should consist of the receiving party noting its challenge. The designating party then has an obligation to schedule a “meet and confer” with counsel. Both counsel are then under the obligation to negotiate in good faith to resolve the dispute. If the dispute cannot be resolved within a designated period of time, then the designating party must file a Motion for Protective Order.  If no such motion is filed within the designated time, then the designation is withdrawn.

Model Protective Order

A Model Protective Order can be found on the website for the Federal Court at the Northern District of California. It is referenced as a standard Protective Order. That Protective Order recognizes several basis principles:

• The burden of proving that something is confidential is on the party so designating.
• If the opposing party challenges the confidential designation, they need simply note their challenge and then the burden remains on the designating party to not only meet and confer to resolve the dispute but then to file the appropriate motion if necessary with the court to have the document designated as confidential.
• The mere fact that a document has been designated as confidential doesn’t mean that it needs to be sealed by court for any filing. Instead the party must establish on a document-by-document basis that it complies with the sealing standards. The sealing standards is that the document is privileged, protectable as a trade secret or otherwise entitled to protection under the law.
• The Order punishes over designation with a potential award of attorneys’ fees.

Personal Injury Litigation Secrecy-Good Cause

Protective orders may not be entered without a particularized finding of good cause.  Cipollone v. Liggit Corp., Inc., 785 F.2d 1108, 1121 (3rd. Cir. 1986)  If the protective order attempts to shift the burden, that is not allowed.  Rule 26(c) does not permit this.  In re: Alexander Grant & Co. litigation, 820 F.2d 352, 356 (11th Cir.1987)  The party seeking secrecy has the burden of demonstrating the need and in the event the parties disagree over the need, then the party seeking it must apply to the court for a ruling.  McCarthy v. Barnette Bank of Polk County, 876 F.2d 89, 90 (11th Cir. 1989).
Any dispute mechanism in a protective order should require that the party challenging the designation note its objection.  The burden then shifts to the other party to meet and confer within a defined period.  If the meet and confer does not result in a resolution, then designating party has a defined period of time to file a Motion for Protective Order. If the motion is not filed in time, then the order should state the designation is forfeited.  Confidentiality should be the exception, not the rule.  Discovery documents are presumptively public.  Jepson, Inc. v. Makita Electric Works, 30 F.3d 854, 858 (7th Cir. 1994)  There are several ways to use that presumption to your advantage:

• The definition of confidential information should be limited to business information and trade secrets that are so competitively sensitive that disclosure could result in real competitive harm if revealed
• The public interest must be considered when entering a protective order.  The First Amendment right to access the court records in civil proceedings is broadly recognized.  Lugosch v. Pyramid Co. of Onondaga, 435 F.3d 110, 124 (2nd Cir. 2006)

Tax Issues

Where a party is requesting secrecy, there may be tax issues involved.  If a sum of money is being paid to an injured party the compensation for the injury is tax free. However the compensation for the secrecy is not tax free.  Therefore in a $200,000 settlement, if there is a secrecy provision, then the document should state how much of that $200,000 is the consideration for the secrecy.  From the point of view of the plaintiff, you want that amount to be as little as possible.

Another alternative is to have a separate agreement dealing with the secrecy with separate consideration.

Binding Counsel

Where the secrecy provision binds counsel, there are other issues to be considered.  That is, if counsel is to sign the agreement agreeing to the confidentiality, there can be ethical issues.  This potentially puts the attorney at odds with the client.  That is the attorney is in a position arguably where he has to enforce the agreement against the client.

If the agreement intends to restrict the ability of counsel to represent other plaintiffs, that may be barred.  In addition there may be ethical issues associated with defense counsel even communicating these types of proposals.

Settlement agreements that require plaintiff’s counsel to indemnify the liability carrier or defendant as to lien payments may present ethical issues.  That is, conceivably this puts the attorney at odds with the client in terms of the attractiveness of the settlement.  That could affect the independent judgment of the lawyer and thereby be a violation of the rules.

If the client withholds permission from the attorney to disclose public information then the attorney is bound by that. If however the opposing party seeks to prohibit counsel from disclosing public information, then that may be an improper restriction on the lawyer’s right to practice in violation of D.C. Bar Ethics Opinion 335.

Call, or contact us for a free consult.

Personal Injury litigation Secrecy-Sealing Files

Another common defense tactic is to ask that court files be sealed.  The proponent of secrecy must show that sealing is warranted. It must meet the standards under both federal common law and the First Amendment.  Mere embarrassment to a defendant is not enough. Also concern that public access could result in more litigation is not a reason for secrecy.  In other words the reasons must be fact-based.

The law supports open court records. This is especially so in cases that involve dangerous products.  Very few defendants are able to meet the First Amendment and the Federal Common Law requirements.  Secret settlements may be worth a great deal during settlement discussions.  The defendant wants to avoid future claims. They may also want to keep a known dangerous product on the market.  However if those are the goals then the defendant should be held to the test.

For more information on tort and personal injury matters contact Brien Roche. Also for info on secret settlements see the pages on Wikipedia.