Confidentiality important to most settlements
Question: How important is it to include a confidentiality agreement in the settlement of a malpractice lawsuit or other dispute? Is there a standard way to structure such an agreement?
Answer: A confidentiality agreement is not a routine part of any settlement but can be an important component when needed, says Don Keenan, JD, a malpractice attorney in Atlanta who usually represents plaintiffs but sometimes defends hospitals and physicians. Keenan says a confidentiality agreement is not a given because both parties must want the agreement, or one party must negotiate for it. In some cases, neither will want to keep the agreement confidential, or one party will not be willing to accept the other’s demands.
The purpose of the confidentiality agreement is to keep all the involved parties from divulging any information about the settlement. There are different motivations for including a confidentiality agreement, Keenan says. The defendant will nearly always seek a confidentiality agreement, he says, because it is rarely beneficial to let the public know how much you were willing to pay to get rid of a lawsuit.
"Large settlements tend to move up the value of other cases in the area. If the public and other lawyers know about the settlement, it tends to raise the level of the boat," Keenan says. "A confidentiality agreement is a way to hold your cards a little closer and preserve your negotiating power. If I know that you’ve paid out more than $3 million each in your last five settlements, I’m going to use that in my negotiations."
Keenan says there is no ethical problem with a defendant keeping such details secret. The public does not necessarily have a right to know how the defendant settled a case, he says.
The defendant also may seek a confidentiality agreement to keep damaging information out of the public eye, he says. For instance, a doctor may realize that a lawsuit would have included information about his alcoholism even though it had nothing to do with alleged malpractice. To keep that from being discussed after settlement, the doctor may seek a confidentiality agreement.
It is less likely that the plaintiff will seek a confidentiality agreement, though there is the possibility that the plaintiff also will wish to hide distasteful personal information. Also, Keenan often encourages a confidentiality agreement to protect plaintiffs from those who would prey on them.
"If the world knows that my normally unsophisticated clients are the recipients of a large settlement, they are immediately besieged by used car salesmen, oil and gas investors, investment brokers, and the like. I once had a sculptor approach my clients and offer to do busts of their deceased child for some outrageous sum of money," he says. "Their neighbor whose son gets arrested will come to them for bail money. That’s why I insist on confidentiality in nearly every settlement."
There may be instances in which the plaintiff actively opposes a confidentiality agreement, however.
"If this is not just an isolated incident at this one hospital and is symptomatic of a danger to patients found all over the country, the plaintiff’s lawyer may want to sound the trumpet and make the public aware of the settlement," he says. "Beyond the money involved, the plaintiff may want to use the settlement as a wake-up call to other doctors and facilities that they have to stop this conduct."
Depending on how much the other party wants or doesn’t want a confidentiality agreement, it may become a bargaining point. The more the parties disagree, the more the confidentiality agreement may cost the party that wants it. There also is no standard for how a confidentiality agreement is structured; it may state that the parties can divulge nothing at all, or it may pertain only to the dollar amount or other specific parts of the settlement.
Once the parties agree on confidentiality, Keenan says it is unlikely that the attorneys will violate the agreement. The biggest deterrent for the attorneys is that they still have to work in the community and with the same lawyers across the table. The plaintiffs’ and defendants’ silence often is ensured by clauses that exact a harsh financial penalty for talking. One tool is a liquidated damages clause, which is a preassigned amount of money that must be paid by the party violating the agreement.
"If the clients are stupid enough to violate the agreement, they are automatically liable for that payment. That’s a pretty good club hanging over them," Keenan says. "And many of the substantial injury cases are settled by annuity structured settlements. In that case, you can go back to court and have the payments stopped because the recipient violated the agreement."
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