Confidentiality Agreements in the Settlement of a Lawyer's Professional Liability Claim—Why Do We Want Them, What Should We Ask For, and What Should We Expect to Receive?
When a professional liability lawsuit against a lawyer is resolved short of trial, a term sometimes proposed for inclusion in the settlement document is one providing that the settlement remain confidential. This article will provide an overview as to what defendant lawyers often request by way of a confidentiality provision, what type of provision will usually be found acceptable to the plaintiffs and the plaintiffs’ lawyers, and what special matters should be considered when confidentiality is being proposed.
II. Reasons to Ask for a Confidentiality Provision
In some types of litigation, a confidentiality provision in a settlement agreement is simply not important to the defense. For example, automobile insurers and their policyholders rarely have an interest in requiring confidentiality as to the amount paid to an injured plaintiff.
In other types of litigated matters, a confidentiality provision will be important, but only because the defendants do not want widespread publicity about a settlement to encourage others to make claims of a similar nature. For example, a product manufacturer may rightly believe that even relatively small payments in settlement of a product defect case will encourage copycat claims.
In lawyer professional liability cases, however, confidentiality is often sought by the defendants for a different reason. When these cases are being resolved, confidentiality provisions are sought to avoid harm to the reputation of the settling lawyer. Once news of a settlement gets out, there may be no practical way for a lawyer to “explain” to colleagues or to present or potential clients the reasons behind the settlement so as to undo any harm to a professional reputation. Therefore, unless some level of confidentiality can be assured, the reality is that lawyer defendants may conclude there is no alternative but to defend the matter to conclusion and hope for exoneration through dispositive motion or trial.
III. What Should the Defense Ask for?
Once suit has been started, the very fact of a settlement cannot really be kept confidential. The existence of and status of lawsuits are a matter of easily-accessible public record.[i] The dismissal of a lawsuit other than by an order granting a defendant’s dispositive motion or after a defense verdict will likely be taken as evidence that some payment has been made by the defendant. However, what confidentiality provisions can and typically do effectively address is the amount of any settlement.
What is most commonly requested by the defense is a provision indicating that the amount of the settlement shall be held confidential by the settling parties. Such provision will also state that the parties will not permit their lawyers, experts, consultants, or agents to make a prohibited disclosure. The provision will typically allow such disclosure as is required to effectuate the settlement and the dismissal of any litigation, and will also permit disclosure of the settlement amount to tax preparers, legal advisors, accountants, financial advisors, or others to whom a settling party genuinely needs to disclose the information.
In some cases, the defense may be tempted to suggest that a confidentiality provision include language saying that if the amount of the settlement is improperly disclosed through the actions of the plaintiff or plaintiff’s representatives or agents, all or a portion of the settlement amount will be paid back to the defendant, or saying that the defendant will have a right to seek injunctive relief or even liquidated damages if an improper disclosure is made. Experience teaches, however, that insisting on such “or else” language in confidentiality agreements will surely lessen the chances of reaching any agreement on confidentiality at all. As discussed below, the best practice is to omit such onerous language from the proposed confidentiality clause.
IV. What Can the Defense Reasonably Expect to Receive in a Confidentiality Agreement?
In most cases, plaintiffs and their lawyers will have no objection to the concept of a confidentiality provision, and the idea of keeping the amount of a settlement confidential will likely be seen as reasonable. However, in some cases plaintiffs and their lawyers will express an initial concern that inclusion of a confidentiality provision may leave the plaintiff at risk. They may fear that if the amount of the settlement does leak out—whether through honest inadvertence, through some other source outside of the control of the plaintiff, or even for unknown reasons—the settling plaintiff may find himself or herself on the wrong end of a claim by the defendant lawyer for violation of the confidentiality agreement.
This legitimate concern on the part of plaintiffs and their lawyers can be assuaged by the defense in two ways. First, in initially discussing a proposed confidentiality term, the defense must stress to the plaintiff that what will be sought is only a good faith agreement not to prolong hostilities or exact further pain by a public “victory dance.” It must be stressed that the purpose of the confidentiality agreement is to promote the legitimate desire to resolve the controversy with finality, in a manner leaving both sides with their dignity, and to move on.
Second, when the confidentiality provision is actually drafted and presented to the plaintiff and plaintiff’s counsel in the settling document, it can be pointed out that it in fact contains no onerous “or else” language leaving the plaintiff at risk. This itself is confirmation that an agreement to end the controversy on a good-faith, confidential basis is all that is being sought from the plaintiff, and that there is no desire by the defense to somehow lay a trap for the plaintiff and pounce on any perceived violation of the settlement agreement by the settling plaintiff. The absence of “or else” language confirms that finality for both sides is truly the goal.
It is true that in some cases it may be very difficult to obtain an agreement as to confidentiality even if the request for confidentiality is limited to the amount of the settlement. In some cases where the lawyer’s negligence has caused profound and lasting harm to the plaintiff, the plaintiff may never agree to give up the right to make full disclosure of the settlement terms. In other cases, the plaintiff’s lawyer may intend to use a very substantial settlement in a professional liability case as a marketing device.[ii] In still other cases, confidentiality as to the amount may be impossible to achieve even if the parties and counsel are all willing to so agree. If the amount of the settlement is going to be made known to any public body (e.g., city, town, school board, etc.), there may be no way to shield the amount of the settlement from public scrutiny. Confidentiality provisions are simply not going to stand in the face of requests that governmental bodies disclose their affairs as required by law.[iii]
However, as a general rule, we can expect that a carefully tailored provision confirming a good-faith agreement to keep the amount of a settlement between the parties, and not leaving either party unnecessarily exposed to the risk of further expense or inconvenience, will likely be found acceptable by plaintiff and plaintiff’s counsel.
V. Special Considerations—The Timing of, and the Ethical Limitations on, a Request for a Confidentiality Provision
A desire for confidentiality in a settlement may be in the mind of the defendant lawyer from the time the suit first arises. However, the plaintiffs or even plaintiffs’ counsel may be surprised if a confidentiality provision is first suggested only after the other terms of a proposed settlement are finalized. The best practice is therefore to make plaintiffs’ counsel aware at the earliest stages of any negotiations that one of the terms that is being bargained for is confidentiality. In other words, plaintiff and plaintiff’s counsel must be assured that in assessing settlement value, the defense is always factoring in the value of confidentiality, and that the final settlement number will reflect that consideration.
Further, in discussing any confidentiality paragraph, all sides must recognize that a lawyer cannot make any agreement limiting a client’s right to report the lawyer’s conduct to disciplinary authorities.[iv] To avoid any suggestion or even suspicion that an improper term is being sought, the confidentiality paragraph should include language confirming that the right to reveal facts underlying the claim to courts or state or regulatory bodies as required or permitted by law is not being curtailed.
In most lawyers' professional liability cases, confidentiality is an important and proper term in the settlement agreement. It helps assure future peace and protection of the legitimate interests of the parties. As long as the need for a confidentiality paragraph is discussed up front, and as long as its terms are reasonable and legally permissible, it will likely be found to be an acceptable provision as a part of a settlement agreement.
[i] Court record summaries provided by the Consolidated Court Automation Program (CCAP) and available at the website for Wisconsin Circuit Court Access (http://wcca.wicourts.gov) are public records under Wisconsin’s Open Record Statute. See Wis. Stat. §§ 19.31-19.39.
[ii] As a practical matter, if the plaintiff is willing to accept an agreement providing for confidentiality as to the amount of the settlement, plaintiff’s counsel must not let any personal interest stand in the way of a settlement otherwise acceptable to and favorable to the client. See SCR 20:1.7(2). See also Restatement (Third) of the Law Governing Lawyers, §§ 16 and 125.
[iii] See the definition of “authority” in Wis. Stat. § 19.32(1) for a listing of those public bodies or entities whose records are subject to inspection under Wis. Stat. § 19.35.
[iv] See SCR 20:1.8(h)(3).