Keeping Quiet About Settlement Agreements

September 23, 2024

Very few cases initiated in courts end up going all the way through trial. As a result, settlements of disputes are common. Parties negotiating a settlement may have particular interests to address in an agreement-but a common issue (either as a requirement or a sticking point) is whether to require confidentiality regarding the settlement.

Incorporating a confidentiality clause in a settlement agreement can pose unique considerations for parties and their lawyers. Here are some tips for determining whether a confidentiality obligation is appropriate and how to comply with the same.

Why Might a Client Want Confidentiality?

There can be a host of reasons why confidentiality may be a desirable requirement for clients. For some matters, the requirement for confidentiality can be a bargaining chip: something to offer in order to sweeten the deal for a party who may otherwise be reluctant to pay a certain amount or abandon a specific claim.

At the end of a hard-fought litigation, for example, a settlement may reflect several concessions by the parties. The parties may want the terms kept from the public because they are true compromises, in which, to use a common saying, both parties are walking away slightly dissatisfied.

For corporate clients, confidentiality may be important given the likelihood that they will be involved in litigation with other parties, who could attempt to use the public terms of a settlement to compel similar results in separate matters. Confidentiality may be important, then, for corporate clients or defendants to avoid providing a roadmap to other litigants for how to achieve a settlement.

What Should An Attorney Know About Confidentiality?

There can be a lot of room for negotiation regarding the scope of a confidentiality clause in a settlement agreement. Some parties may just want to stipulate to the confidentiality of the amount of a settlement, while others will want the fact of settlement itself to be confidential. The takeaway is that the parties can take steps to shape the terms of confidentiality to their own expectations.

Some settlement agreements, for example, may even provide a script detailing how the parties must respond publicly to questions about the resolution of the case, if contacted by the media or others.

In negotiating a confidentiality provision within a settlement agreement, a lawyer should be aware that they themselves may also have obligations to maintain confidentiality. The terms of the agreement might require the attorney to protect confidentiality, whether because a party is defined to include their agents and representatives (which can include the lawyer) or because the confidentiality requirement specifically calls on legal counsel to uphold confidentiality.

Even for parts of the settlement agreement that are not specifically governed by the confidentiality requirement, lawyers may still have duties to keep that information private under ABA Model Rule of Professional Conduct 1.6, under which "[a] lawyer shall maintain in confidence all information gained in the professional relationship with a client." Thus, absent informed consent from the client (or other exceptions to Rule 1.6), a lawyer likely is obligated to keep confidential the terms of a settlement, even if the lawyer is not otherwise bound by a specific contractual confidentiality requirement.

A lawyer advising on a settlement agreement can also confirm that the document does not otherwise conflict with the Rules of Professional Conduct by, for example, creating obligations on the part of the lawyer that are not sustainable. Indeed, Rule 5.6(b) of the Model Rules of Professional Conduct prohibits lawyers from entering into an agreement "in which a restriction on the lawyer's right to practice is part of the settlement of a client controversy" between private parties.

The comments to the Rule shed some light on this restriction, noting that it specifically "prohibits a lawyer from agreeing not to represent other persons in connection with settling a claim on behalf of a client." Thus, lawyers reviewing and negotiating a settlement agreement should confirm that it does not otherwise run afoul of Rule of Professional Conduct 5.6.

How Strictly Will Confidentiality Be Enforced?

An inadvertent breach of a confidentiality provision can lead to a claim for damages, whether the breach is a result of the conduct of the client or the attorney. It may be prudent to discuss the risks with the client and the importance of maintaining confidentiality (particularly in the age of social media). Because proving damages for a breach of a confidentiality requirement can be speculative, settlement agreements may specify remedies including monetary liquidated damages, injunctive relief, costs and/or attorneys' fees.

There is generally an exception to confidentiality where disclosure is required by law or demanded by subpoena. Many settlement agreements will specifically address what should happen if confidential settlement information is sought in this way, including by offering the non-subpoenaed party an opportunity to object to the disclosure of information. Even where settlements are confidential, parties will often agree that the terms of settlement can be disclosed to party's attorneys, accountants, insurance companies and other professional advisors, as necessary for business purposes.

Are There Public Policy Concerns?

Although requiring confidentiality in settlement agreements is common, there are emerging public policy concerns that may impact whether a confidentiality clause is enforceable. A number of states in recent years have enacted legislation limiting (or outright precluding) confidentiality clauses in certain types of settlements, such as those that resolve allegations of harassment, assault, or discrimination.

Legislators have noted that, in several high-profile examples of serial predatory behavior by high-status celebrities or politicians that only came to light after many years, there was a history of confidential settlements. Some legislators opined that bad actors were permitted to continue their conduct unchecked because it remained secret, resulting in legislation that prioritizes public awareness over individual secrecy.

Critics of this legislation have suggested that it will actually deter bad actors from reaching settlements (to the disadvantage of those who allege they were harmed), if the terms of settlement become known. However, lawyers who are negotiating confidential settlements would be well-served to check the laws of their local jurisdiction to see if there are any limits on what can be kept confidential.