The Future of Confidential Settlements
January 10, 2003
The future of confidential settlements in the wake of
increased passage of sunshine laws has taken a new twist. Sunshine laws
generally require full public disclosure of settlement terms that affect public
safety. The Federal District Court in South Carolina recently passed the most
far- reaching of all sunshine provisions.
United States District Court, District of South Carolina,
Local Rule 5.03 took effect November 1, 2002. Local Rule 5.03 provides that
“[n]o settlement agreement filed with the court shall be sealed pursuant to the
terms of this rule.” This blanket prohibition on sealing court-filed settlement
agreements with no exception is the broadest sunshine provision adopted to this
point. It is likely that the state courts in South Carolina may follow suit.
Florida federal courts soon may move in the same
direction.1 At a recent quarterly judges’ meeting, the judges agreed to refer
the question of the secrecy of confidential settlements to one of its committees
for evaluation and recommendation.
Those practicing in Florida’s state courts are already
familiar with this type of provision. Fla. Ann. Stat. § 69.081(3) provides
that:
Except pursuant to this section, no court shall enter an
order or judgment which has the purpose or effect of concealing a public hazard
or any information concerning a public hazard, nor shall the court enter an
order or judgment which has the purpose or effect of concealing any information
which may be useful to members of the public in protecting themselves from
injury which may result from the public hazard.
The whole point of this statute, and others like it, is to
prevent making the courts a party to withholding public health and safety
information. Still, unlike Local Rule 5.03, Florida’s sunshine statute is not
so far reaching and does not prohibit confidential settlements in cases that do
not implicate public health and safety interests.
Texas has the most sweeping state court sunshine provision
with regard to confidential settlement agreements. Under Tex. R. Civ. P. 76a,
court records may be permanently sealed from public disclosure only by following
stringent public notice and hearing requirements. In Texas, non-party
intervenors may attend the public hearing and be heard as to why they believe
the documents should remain available to the public. Rule 76a(2)(b) includes in
its definition of “court records,” settlement agreements not filed of record,
excluding all references to any monetary consideration, that seek to restrict
disclosure of information concerning matters that have a probable adverse effect
upon the general public health or safety, or the administration of public
office, or the operation of government.
The practical implication of these statutes may not be so
sweeping. With the exception of Texas Rule 76a, these provisions do not apply
to unfiled settlement agreements or settlement agreements negotiated and
conducted without court intervention. For parties with a strong interest in
keeping their settlement agreements confidential, the answer may simply be to
keep negotiations completely private and treat the matter as a contract between
the two parties.
However, this might not always be effective and a party
interested in confidentiality must be cautious. If the parties do not abide by
the terms of the settlement agreement and court intervention becomes necessary,
any bets may be off regarding the initial confidentiality of that settlement
agreement. For example, the United States Court of Appeals for the Seventh
Circuit recently held that where the parties “ask a court to interpret and
enforce their agreement, the contract enters the record of the case and thus
becomes available to the public.” Herrnreiter v. Chicago Housing Authority, 281
F.3d 634, 636-637 (7th Cir. 2002).
For more information, contact Cheryl Barnes, toll free, at
1-888-688-8500, or via e-mail at cheryl.barnes@hklaw.com
[1] See Dan Christensen, “Federal Judges Ponder Future of
Secret Settlements,” Broward Daily Business Review, Vol. 43, No. 192, A1
(September 11, 2002).