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September 30, 2019 Practice Points

Avoiding Unintended Contractual Obligations: Are You a Party to Your Client’s Settlement Agreement?

What happens when the attorney for one of the settling parties spills the beans?

By Michael S. LeBoff

Many settlement agreements contain confidentiality provisions. Those provisions may be enforced through venue or arbitration clauses, liquidated-damages clauses, and prevailing-party attorney-fee provisions. But, what happens when the attorney for one of the settling parties spills the beans? Is the attorney or his or her firm contractually liable to the adverse party for that breach?

In Monster Energy Co. v. Schechter 7 Cal.5th 781, (Cal. 2019) the California Supreme Court held that an attorney’s signature on a settlement agreement acknowledging that it was “approved as to form and content” may reflect the attorney’s intent to be bound by the agreement. In that case, Wendy Crossland and Monster Energy Company settled a products-liability action. The settlement agreement contained a confidentiality provision. Crossland’s attorney, Bruce Schechter, signed the settlement agreement under the notation “Approved as to Form and Content.” Shortly after signing the settlement agreement, Monster Energy sued Schechter for breach of contract, alleging that Schechter violated the confidentiality provision by providing information about the settlement to a reporter that posted an article on a website. The superior court denied Schechter’s anti-SLAPP motion to strike the complaint. Schechter appealed and the appellate court reversed, finding that Schechter was not bound by the settlement agreement.

The California Supreme Court disagreed and reversed the appellate-court opinion. Applying ordinary principles of contract interpretation, the Supreme Court held that Schechter’s signature acknowledging that the agreement was “approved to form and content” did not preclude a finding that he intended to be bound by the confidentiality provision. The intent question requires an examination of the agreement as a whole to determine whether the attorney is contractually bound.

As with many high-court opinions, this creates more questions than answers. For example, can an attorney avoid contractual liability by refusing to even sign a settlement agreement “approved as to form and content?” Under Schechter, an argument could be made that the attorney agreed to be bound by terms of the parties’ settlement agreement where the attorney participates in the drafting of an agreement that purports to bind the attorney or the parties’ agents generally. Must the settlement agreement explicitly provide that the attorneys are not bound by the terms of the agreement?

Does the attorney have an ethical obligation to agree to be bound to the terms of the settlement agreement if the defendant’s willingness to settle is contingent upon the attorney’s agreement to keep the terms of a settlement confidential? Can an attorney refuse to be contractually bound to a settlement agreement even if it costs his or her client the settlement? Would the defendants’ insistence upon the attorney being bound by the terms of a confidentiality agreement create a conflict between the plaintiff and the attorney?

The Schechter opinion raises other questions as well. What is the consideration for the attorney’s agreement to be bound? Does the attorney’s signature bind the entire firm or just the individual attorney? What if the attorney lacked authority to bind the firm? Would the contractual obligation follow the attorney if he or she left the firm? Would it apply to new attorneys and employees that were not with the firm when the settlement agreement was signed?

The takeaway from Schechter is that attorneys should not disclose confidential settlement agreements whether contractually bound or not. But, if an attorney cannot keep quiet, he or she must be cognizant of potential contractual liability for disclosing terms of settlements negotiated for clients. Firms may also consider developing internal policies and procedures controlling when attorneys can bind the firm to their clients’ settlement agreements.

Michael S. LeBoff, P.C. is a partner at Klein & Wilson in Newport Beach, California, and cochair of the Section of Litigation’s Professional Liability Litigation Committee.

Copyright © 2019, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).